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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
Date of Report (Date of earliest event reported): October 4, 1999
WAVO Corporation
(Exact name of registrant as specified in its charter)
Indiana 0-24858 86-0491428
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification
incorporation) Number)
3131 East Camelback Road, Suite 320, Phoenix, AZ 85016
(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)
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Item 5. Other Events.
On October 4, 1999, the Company issued 1,500 shares of its Series D
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 $13,925,000. The Series D 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 D 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
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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.
WAVO CORPORATION
Dated: October 5, 1999
Kenneth D. Swenson
Executive Vice President, Chief Financial Officer
and Treasurer
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EXHIBIT 3.1
ARTICLES OF AMENDMENT
OF THE
ARTICLES OF INCORPORATION
OF
WAVO CORPORATION
The undersigned officer of WAVO Corporation (the "COMPANY"), a
corporation existing pursuant to the provisions of the Indiana Business
Corporation Law, as amended (the "Indiana 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 Company was incorporated on November 13, 1990.
Section 2. The name of the Company following this Amendment to the
Articles of Incorporation is WAVO Corporation.
Section 3. The exact text of new subsection (3) of Article III,
Section C of the Articles of Incorporation is:
(3) Designation of Rights of Series D Convertible Preferred Shares.
The Corporation is authorized to issue a Series of its Preferred Shares
consisting of 2,000 Preferred Shares having a stated value of Ten Thousand
Dollars ($10,000) per share, to be designated as the Series D Convertible
Preferred Stock (the "PREFERRED SHARES"). The rights, privileges and preferences
of the Series D Preferred Stock, and the limitations and restrictions thereon,
are as follows:
(1) Dividends. The holders of the Preferred Shares shall be entitled to
receive dividends ("DIVIDENDS"), to the extent funds are legally available
therefor, at a rate of 10.0% per annum, which shall be cumulative, accrue daily
from the Issuance Date (as defined below) and be payable (a) with respect to
Preferred Shares issued on the Initial Issuance Date (as defined below) on the
first day of each Calendar Quarter (as defined below) beginning on the earlier
of (i) the first day of the Calendar Quarter immediately following the date on
which the Registration Statement (as defined below) is declared effective by the
SEC (as defined below) and (ii) January 1, 2000, and (b) with respect to any
Preferred Shares issued after the Initial Issuance Date, the first day of the
second Calender Quarter immediately following the applicable Issuance Date (each
a "DIVIDEND
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DATE"). If a Dividend Date is not a Business Day (as defined below) then the
Dividend shall be due and payable on the Business Day immediately following the
Dividend Date. Dividends shall be payable in shares of Common Stock (as defined
below) ("DIVIDEND SHARES") or, at the option of the Company, in cash, provided
that the Dividends which accrued during any period shall be payable in cash only
if the Company provides written notice ("DIVIDEND ELECTION NOTICE") to each
holder of Preferred Shares at least 10 Business Days prior to the Dividend Date.
Dividends to be paid in shares of Common Stock shall be paid in a number of
fully paid and nonassessable shares (rounded to the nearest whole share in
accordance with Section 2(b)) of Common Stock equal to the quotient of (a) the
Additional Amount (as defined below) and (b) the Applicable Daily Price (as
defined below) on the date which is two (2) trading days immediately prior to
the applicable Dividend Date. Notwithstanding the foregoing, the Company shall
not be entitled to pay Dividends in shares of Common Stock and shall be required
to pay such Dividends in cash if (a) any event constituting a Triggering Event
(as defined in Section 3(b)), or an event that with the passage of time would
constitute a Triggering Event if not cured, has occurred and is continuing on
the date of the Company's Dividend Election Notice or on the Dividend Date,
unless otherwise consented to in writing by the holder of Preferred Shares
entitled to receive such Dividend or (b) the Registration Statement (as defined
below) is not effective and available for the resale of all of the Registrable
Securities (as defined in the Registration Rights Agreement), including, without
limitation, the Dividend Shares, on the date of the Company's Dividend Election
Notice or on the Dividend Date. Any accrued and unpaid Dividends which are not
paid within five (5) Business Days of such accrued and unpaid dividends'
Dividend Date shall bear interest at the rate of 18.0% per annum from such
Dividend Date until the same is paid in full (the "DEFAULT INTEREST").
(2) Conversion of Preferred Shares. Preferred Shares shall be
convertible into shares of the Company's common stock, no par value per share
(the "COMMON STOCK"), on the terms and conditions set forth in this Section 2.
(a) Certain Defined Terms. For purposes of these Articles of
Amendment, the following terms shall have the following meanings:
(i) "ADDITIONAL AMOUNT" means, on a per share basis,
the sum of (A) unpaid Default Interest through the date of determination plus
(B) the result of the following formula: (.10)(N/365)($10,000).
(ii) "APPROVED STOCK PLAN" shall mean any employee
benefit plan which has been approved by the Board of Directors of the Company,
pursuant to which the Company's securities may be issued to any employee,
officer, director or consultant for services provided to the Company.
(iii) "BUSINESS DAY" means any day other than
Saturday, Sunday or other day on which commercial banks in the city of New York
are authorized or required by law to remain closed.
(iv) "CALENDAR QUARTER" means each of the period
beginning on and including January 1 and ending on and including March 31, the
period beginning on and
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including April 1 and ending on and including June 30, the period beginning on
and including July 1 and ending on and including September 30, and the period
beginning on and including October 1 and ending on and including December 31.
(v) "CLOSING BID PRICE" means, for any security as of
any date, the last closing bid price for such security on the Principal Market
(as defined below) as reported by Bloomberg Financial Markets ("BLOOMBERG"), or,
if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price of such security on the
principal securities exchange or trading market where such security is listed or
traded as reported by Bloomberg, or if the foregoing do not apply, the last
closing bid 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
closing bid price is reported for such security by Bloomberg, the last closing
trade price of such security as reported by Bloomberg, or, if no last closing
trade price is reported for such security by Bloomberg, the average of the bid
prices of any market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be
calculated for such security on such date on any of the foregoing bases, the
Closing Bid Price of such security on such date shall be the fair market value
as mutually determined by the Company and the holders of Preferred Shares. If
the Company and the holders of Preferred Shares are unable to agree upon the
fair market value of the Common Stock, then such dispute shall be resolved
pursuant to Section 2(d)(iii) below with the term "Closing Bid Price" being
substituted for the term "Weighted Average Price." All such determinations shall
be appropriately adjusted for any stock dividend, stock split or other similar
transaction during such period.
(vi) "CONVERSION AMOUNT" means the sum of (1) the
Additional Amount (as defined above), and (2) $10,000.
(vii) "CONVERSION PRICE" means, as of any Conversion
Date (as defined below) or other date of determination, the lowest Weighted
Average Price (as defined below) of the Common Stock during the six (6)
consecutive trading days ending on and including such date of determination (the
"APPLICABLE DAILY PRICE"); provided that in no event shall the Conversion Price
exceed the Fixed Conversion Price, each in effect as of such date and subject to
adjustment as provided herein.
(viii) "CONVERTIBLE SECURITIES" means any stock or
securities (other than Options) directly or indirectly convertible into or
exchangeable for Common Stock.
(ix) "FIXED CONVERSION PRICE" means, with respect to
any Preferred Share, as of any Conversion Date or other date of determination,
$10.00, subject to adjustment as provided herein.
(x) "INITIAL ISSUANCE DATE" means the first date on
which the Company issues Preferred Shares pursuant to the Securities Purchase
Agreement.
(xi) "ISSUANCE DATE" means, with respect to each
Preferred Share, the date of issuance of the applicable Preferred Share.
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(xii) "MATURITY DATE" means the date which is 549
days after the Initial Issuance Date, unless extended pursuant to Section
2(d)(vii).
(xiii) "N" means the number of days from, but
excluding, the last Dividend Date with respect to which dividends, along with
any Default Interest, has been paid by the Company on the applicable Preferred
Share, or the Issuance Date if no Dividend Date has occurred, through and
including the Conversion Date, the Maturity Date or other date of determination
for such Preferred Share, as the case may be, for which such determination is
being made.
(xiv) "OPTIONS" means any rights, warrants or options
to subscribe for or purchase Common Stock or Convertible Securities.
(xv) "PERSON" means an individual, a limited
liability company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
(xvi) "PRINCIPAL MARKET" means the Nasdaq National
Market, or if the Common Stock is not traded on the Nasdaq National Market, then
the principal securities exchange or trading market for the Common Stock.
(xvii) "REGISTRATION RIGHTS AGREEMENT" means that
certain registration rights agreement between the Company and the initial
holders of the Preferred Shares relating to the filing of a registration
statement covering the resale of the shares of Common Stock issuable upon
conversion of the Preferred Shares and exercise of the Warrants.
(xviii) "SECURITIES PURCHASE AGREEMENT" means that
certain securities purchase agreement between the Company and the initial
holders of the Preferred Shares.
(xix) "STATED VALUE" means $10,000.
(xx) "WARRANTS" means the warrants to purchase shares
of Common Stock issued by the Company pursuant to the Securities Purchase
Agreement.
(xxi) "WEIGHTED AVERAGE PRICE" means, for any
security as of any date, the dollar volume-weighted average price for such
security on the Principal Market (as reported by Bloomberg through its "Volume
at Price" function) or, if the Principal Market is not the principal securities
exchange or trading market for such security, the dollar volume-weighted average
price of such security on the principal securities exchange or trading market
where such security is listed or traded (as reported by Bloomberg through its
"Volume at Price" function), or if the foregoing do not apply, the dollar
volume-weighted average 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 dollar volume-weighted average price is reported for such security by
Bloomberg, the average of the bid prices of each of the market makers for such
security as reported in the "pink sheets" by the National Quotation Bureau, Inc.
If the Weighted Average Price cannot
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be calculated for such security on such date on any of the foregoing bases, the
Weighted Average Price of such security on such date shall be the fair market
value as mutually determined by the Company and the holders of the Preferred
Shares. If the Company and the holders of the Preferred Shares are unable to
agree upon the fair market value of the Common Stock, then such dispute shall be
resolved pursuant to Section 2(d)(iii) below. All such determinations shall be
appropriately adjusted for any stock dividend, stock split or other similar
transaction during such period.
(b) Holder's Conversion Right; Mandatory Conversion. Subject
to the provisions of Sections 5 and 8, at any time or times on or after
the Issuance Date (as defined below), any holder of Preferred Shares
shall be entitled to convert any whole number of Preferred Shares into
fully paid and nonassessable shares of Common Stock in accordance with
Section 2(d) at the Conversion Rate (as defined below). If any
Preferred Shares remain outstanding on the Maturity Date, then,
pursuant to Section 2(d)(vii), all such Preferred Shares shall be
converted at the Conversion Rate as of such date in accordance with
Section 2(d) or redeemed by the Company. The Company shall not issue
any fraction of a share of Common Stock upon any conversion. All shares
of Common Stock (including fractions thereof) issuable upon conversion
of more than one Preferred Share by a holder thereof shall be
aggregated for purposes of determining whether the conversion would
result in the issuance of a fraction of a share of Common Stock. If,
after the aforementioned aggregation, the issuance would result in the
issuance of a fraction of a share of Common Stock, the Company shall
round such fraction of a share of Common Stock up or down to the
nearest whole share.
(c) Conversion. The number of shares of Common Stock issuable
upon conversion of each Preferred Share pursuant to Section 2(b) shall
be determined according to the following formula (the "CONVERSION
RATE"):
Conversion Amount
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Conversion Price
(d) Mechanics of Conversion. The conversion of Preferred
Shares shall be conducted in the following manner:
(i) Holder's Delivery Requirements. To convert
Preferred Shares into shares of Common Stock on any date (the "CONVERSION
DATE"), the holder thereof shall (A) transmit by facsimile (or otherwise
deliver), for receipt on or prior to 11:59 p.m., Eastern Time on such date, a
copy of a fully executed notice of conversion in the form attached hereto as
Exhibit I (the "CONVERSION NOTICE") to the Company with a copy thereof to the
Company's designated transfer agent (the "TRANSFER AGENT") and (B) if required
by Section 2(d)(viii), surrender to a common carrier for delivery to the
Transfer Agent as soon as practicable following such date the original
certificates representing the Preferred Shares being converted (or an
indemnification undertaking with respect to such shares in the case of their
loss, theft or destruction) (the "PREFERRED STOCK CERTIFICATES").
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(ii) Company's Response. Upon receipt by the Company
of a copy of a Conversion Notice, the Company (1) shall immediately send, via
facsimile, a confirmation of receipt of such Conversion Notice to such holder
and the Transfer Agent, which confirmation shall constitute an instruction to
the Transfer Agent to process such Conversion Notice in accordance with the
terms herein and (2) on or before the third (3rd) Business Day following the
date of receipt by the Company of such Conversion Notice (the "SHARE DELIVERY
DATE"), (A) issue and deliver to the address as specified in the Conversion
Notice, a certificate, registered in the name of the holder or its designee, for
the number of shares of Common Stock to which the holder shall be entitled, or
(B) provided the Transfer Agent is participating in The Depository Trust Company
("DTC") Fast Automated Securities Transfer Program, upon the request of the
holder, credit such aggregate number of shares of Common Stock to which the
holder shall be entitled to the holder's or its designee's balance account with
DTC through its Deposit Withdrawal Agent Commission system. If the number of
Preferred Shares represented by the Preferred Stock Certificate(s) submitted for
conversion, as may be required pursuant to Section 2(d)(viii), is greater than
the number of Preferred Shares being converted, then the Company shall, as soon
as practicable and in no event later than three Business Days after receipt of
the Preferred Stock Certificate(s) (the "PREFERRED STOCK DELIVERY DATE") and at
its own expense, issue and deliver to the holder a new Preferred Stock
Certificate representing the number of Preferred Shares not converted.
(iii) Dispute Resolution. In the case of a dispute as
to the determination of the Weighted Average Price or the arithmetic calculation
of the Conversion Rate, the Company shall instruct the Transfer Agent to issue
to the holder the number of shares of Common Stock that is not disputed and
shall submit the disputed determinations or arithmetic calculations to the
holder via facsimile within one (1) Business Day of receipt of such holder's
Conversion Notice. If such holder and the Company are unable to agree upon the
determination of the Weighted Average Price or arithmetic calculation of the
Conversion Rate within two (2) Business Days of such disputed determination or
arithmetic calculation being submitted to the holder, then the Company shall
within one (1) Business Day submit via facsimile (A) the disputed determination
of the Weighted Average Price to an independent, reputable investment bank
selected by the Company and approved by the holders of a majority of the
Preferred Shares then outstanding or (B) the disputed arithmetic calculation of
the Conversion Rate to the Company's independent, outside accountant. The
Company shall cause the investment bank or the accountant, as the case may be,
to perform the determinations or calculations and notify the Company and the
holder of the results no later than forty-eight (48) hours from the time it
receives the disputed determinations or calculations. Such investment bank's or
accountant's determination or calculation, as the case may be, shall be binding
upon all parties absent error.
(iv) Record Holder. The person or persons entitled to
receive the shares of Common Stock issuable upon a conversion of Preferred
Shares shall be treated for all purposes as the record holder or holders of such
shares of Common Stock on the Conversion Date.
(v) Company's Failure to Timely Convert.
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(A) Cash Damages. If (I) within five (5)
Business Days after the Company's receipt of the facsimile copy of a Conversion
Notice the Company shall fail to issue a certificate to a holder or credit such
holder's balance account with DTC for the number of shares of Common Stock to
which such holder is entitled upon such holder's conversion of Preferred Shares
or (II) within five (5) Business Days of the Company's receipt of a Preferred
Stock Certificate the Company shall fail to issue a new Preferred Stock
Certificate representing the number of Preferred Shares to which such holder is
entitled pursuant to Section 2(d)(ii), then in addition to all other available
remedies which such holder may pursue hereunder and under the Securities
Purchase Agreement (including indemnification pursuant to Section 8 thereof),
the Company shall pay additional damages to such holder for each date after the
Share Delivery Date such conversion is not timely effected and/or each date
after the Preferred Stock Delivery Date such Preferred Stock Certificate is not
delivered in an amount equal to 0.5% of the product of (I) the sum of the number
of shares of Common Stock not issued to the holder on or prior to the Share
Delivery Date and to which such holder is entitled and, in the event the Company
has failed to deliver a Preferred Stock Certificate to the holder on or prior to
the Preferred Stock Delivery Date, the number of shares of Common Stock issuable
upon conversion of the Preferred Shares represented by such Preferred Stock
Certificate, as of the Preferred Stock Delivery Date and (II) the Weighted
Average Price of the Common Stock on the Share Delivery Date, in the case of the
failure to deliver Common Stock, or the Preferred Stock Delivery Date, in the
case of failure to deliver a Preferred Stock Certificate. If the Company fails
to pay the additional damages set forth in this Section 2(d)(v) within five
Business Days of the date incurred, then the holder entitled to such payments
shall have the right at any time, so long as the Company continues to fail to
make such payments, to require the Company, upon written notice, to immediately
issue, in lieu of such cash damages, the number of shares of Common Stock equal
to the quotient of (X) the aggregate amount of the damages payments described
herein divided by (Y) the Conversion Price in effect on such Conversion Date as
specified by the holder in the Conversion Notice. The foregoing notwithstanding,
the damages set forth in this Section 2(d)(v)(A) shall be stayed with respect to
the number of shares of Common Stock and, if applicable, the Preferred Stock
Certificate for which there is a good faith dispute being resolved pursuant to,
and within the time periods provided for in Section 2(d)(iii), pending the
resolution of such dispute.
(B) Void Conversion Notice; Adjustment of
Conversion Price. If for any reason a holder has not received all of the shares
of Common Stock prior to the tenth (10th) Business Day after the Share Delivery
Date with respect to a conversion of Preferred Shares, then the holder, upon
written notice to the Company, with a copy to the Transfer Agent, may void its
Conversion Notice with respect to, and retain or have returned, as the case may
be, any Preferred Shares that have not been converted pursuant to such holder's
Conversion Notice; provided that the voiding of a holder's Conversion Notice
shall not effect the Company's obligations to make any payments which have
accrued prior to the date of such notice pursuant to Section 2(d)(v)(A) or
otherwise. Thereafter, the Conversion Price of any Preferred Shares returned or
retained by the holder for failure to timely convert shall be adjusted to the
lesser of (I) the Conversion Price as in effect on the date on which the holder
voided the Conversion Notice and (II) the lowest Closing Bid Price during the
period beginning on the Conversion Date and ending on the date such holder
voided the Conversion Notice.
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(C) Redemption. If for any reason a holder
has not received all of the shares of Common Stock prior to the tenth (10th)
Business Day after the Share Delivery Date with respect to a conversion of
Preferred Shares (a "CONVERSION FAILURE"), then the holder, upon written notice
to the Company, may require that the Company redeem, to the extent funds are
legally available therefor, all Preferred Shares held by such holder, including
the Preferred Shares previously submitted for conversion and with respect to
which the Company has not delivered shares of Common Stock, in accordance with
Section 3.
(vi) Pro Rata Conversion and Redemption. In the event
the Company receives a Conversion Notice from more than one holder of Preferred
Shares for the same Conversion Date and the Company can convert some, but not
all, of such Preferred Shares, the Company shall convert from each holder of
Preferred Shares electing to have Preferred Shares converted at such time a pro
rata amount of such holder's Preferred Shares submitted for conversion based on
the number of Preferred Shares submitted for conversion on such date by such
holder relative to the number of Preferred Shares submitted for conversion on
such date.
(vii) Mandatory Conversion or Redemption at Maturity.
If any Preferred Shares remain outstanding on the Maturity Date, then all such
Preferred Shares, at the Company's option, either (i) shall be converted at the
Conversion Price for such Preferred Shares as of such date as if the holders of
such Preferred Shares had given the Conversion Notice on the Maturity Date (a
"MATURITY DATE MANDATORY CONVERSION"), or (ii) shall be redeemed, to the extent
funds are legally available therefor, as of such date for an amount in cash per
Preferred Share (the "MATURITY DATE REDEMPTION PRICE") equal to the Liquidation
Preference (as defined in Section 11) (a "MATURITY DATE MANDATORY REDEMPTION").
The Company shall be deemed to have elected a Maturity Date Mandatory Redemption
unless it delivers written notice to each holder of Preferred Shares at least 10
Business Days prior to the Maturity Date of its election to effect a Maturity
Date Mandatory Conversion. If the Company elects a Maturity Date Mandatory
Redemption, then on the Maturity Date the Company shall pay to each holder of
Preferred Shares outstanding on the Maturity Date, by wire transfer of
immediately available funds, an amount per Preferred Share equal to the Maturity
Date Redemption Price. If the Company elects a Maturity Date Mandatory
Redemption and fails to redeem all of the Preferred Shares outstanding on the
Maturity Date by payment of the Maturity Date Redemption Price, then in addition
to any remedy such holder of Preferred Shares may have under these Articles of
Amendment, the Securities Purchase Agreement and the Registration Rights
Agreement, (X) the applicable Maturity Date Redemption Price payable in respect
of such unredeemed Preferred Shares shall bear interest at the rate of 1.5% per
month, prorated for partial months, until paid in full, and (Y) any holder of
Preferred Shares shall have the option to require the Company to convert any or
all of such holder's Preferred Shares that the Company elected to redeem under
this Section 2(d)(vii) and for which the Maturity Date Redemption Price
(together with any interest thereon) has not been paid into the number of shares
of Common Stock such holder would have received if such holder had given a
Conversion Notice for such Preferred Shares on the Maturity Date. On the
Maturity Date, all holders of Preferred Shares shall surrender all Preferred
Stock Certificates, duly endorsed for cancellation, to the Company or the
Transfer Agent. If the Company has elected a Maturity Date Mandatory Conversion
or has failed to pay the Maturity Date Redemption Price in a timely manner as
described above, then the Maturity Date shall be extended for any Preferred
Shares for as long
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as (A) the conversion of such Preferred Shares would violate the provisions of
Section 5, (B) a Triggering Event shall have occurred and be continuing, or (C)
an event shall have occurred and be continuing which with the passage of time
and the failure to cure would result in a Triggering Event.
(viii) Book-Entry. Notwithstanding anything to the
contrary set forth herein, upon conversion of Preferred Shares in accordance
with the terms hereof, the holder thereof shall not be required to physically
surrender the certificate representing the Preferred Shares to the Company
unless the full number of Preferred Shares represented by the certificate are
being converted. The holder and the Company shall maintain records showing the
number of Preferred Shares so converted and the dates of such conversions or
shall use such other method, reasonably satisfactory to the holder and the
Company, so as not to require physical surrender of the certificate representing
the Preferred Shares upon each such conversion. In the event of any dispute or
discrepancy, such records of the Company shall be controlling and determinative
in the absence of manifest error. Notwithstanding the foregoing, if Preferred
Shares represented by a certificate are converted as aforesaid, the holder may
not transfer the certificate representing the Preferred Shares unless the holder
first physically surrenders the certificate representing the Preferred Shares to
the Company, whereupon the Company will forthwith issue and deliver upon the
order of the holder a new certificate of like tenor, registered as the holder
may request, representing in the aggregate the remaining number of Preferred
Shares represented by such certificate. The holder and any assignee, by
acceptance of a certificate, acknowledge and agree that, by reason of the
provisions of this paragraph, following conversion of any Preferred Shares, the
number of Preferred Shares represented by such certificate may be less than the
number of Preferred Shares stated of the face thereof. Each certificate for
Preferred Shares shall bear the following legend:
ANY TRANSFEREE OF THIS CERTIFICATE SHOULD CAREFULLY REVIEW THE
TERMS OF THE COMPANY'S ARTICLES OF AMENDMENT RELATING TO THE
PREFERRED SHARES REPRESENTED BY THIS CERTIFICATE, INCLUDING
SECTION 2(d)(viii) THEREOF. THE NUMBER OF PREFERRED SHARES
REPRESENTED BY THIS CERTIFICATE MAY BE LESS THAN THE NUMBER OF
PREFERRED SHARES STATED ON THE FACE HEREOF PURSUANT TO SECTION
2(d)(viii) OF THE ARTICLES OF AMENDMENT RELATING TO THE
PREFERRED SHARES REPRESENTED BY THIS CERTIFICATE.
A COPY OF THE ARTICLES OF AMENDMENT WILL BE PROVIDED TO A
HOLDER OF PREFERRED SHARES UPON REQUEST IN WRITING AND FREE OF
CHARGE.
(e) Taxes. The Company shall pay any and all taxes
that may be payable with respect to the issuance and delivery of Common Stock
upon the conversion of Preferred Shares.
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(f) Adjustments to Conversion Price. The Conversion Price will
be subject to adjustment from time to time as provided in this Section 2(f).
(i) Adjustment of Fixed Conversion Price upon
Subdivision or Combination of Common Stock. If the Company at any time
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, the Fixed Conversion Price in effect immediately prior to such
subdivision will be proportionately reduced. If the Company at any time combines
(by combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the Fixed
Conversion Price in effect immediately prior to such combination will be
proportionately increased.
(ii) Holder's Right of Alternative Conversion Price
Following Issuance of Convertible Securities. If the Company in any manner
issues or sells Convertible Securities or Options that are convertible into or
exchangeable for Common Stock at a price which varies or may vary with the
market price of the Common Stock, including by way of periodic reset(s) to a
fixed price (the formulation for such variable price being herein referred to as
the "VARIABLE PRICE"), and such Variable Price is not calculated using the same
formula used to calculate the Applicable Daily Price in effect immediately prior
to such issue or sale, the Company shall provide written notice thereof via
facsimile and overnight courier to each holder of the Preferred Shares
("VARIABLE NOTICE") on the date of issuance of such Convertible Securities or
Options. From and after the date the Company issues any such Convertible
Securities or Options with a Variable Price, a holder of Preferred Shares shall
have the right, but not the obligation, in its sole discretion to substitute the
Variable Price for the Applicable Daily Price upon conversion of any Preferred
Shares by designating in the Conversion Notice delivered upon conversion of such
Preferred Shares that solely for purposes of such conversion the holder is
relying on the Variable Price rather than the Applicable Daily Price then in
effect. A holder's election to rely on a Variable Price for a particular
conversion of Preferred Shares shall not obligate the holder to rely on a
Variable Price for any future conversions of Preferred Shares.
(iii) Other Events. If any event occurs of the type
contemplated by the provisions of this Section 2(f) but not expressly provided
for by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
then the Company's Board of Directors will make an appropriate adjustment in the
Conversion Price so as to protect the rights of the holders of the Preferred
Shares; provided that no such adjustment will increase the Conversion Price as
otherwise determined pursuant to this Section 2(f).
(vi) Notices.
(A) Immediately upon any adjustment of the
Conversion Price pursuant to this Section 2(f), the Company will give written
notice thereof to each holder of Preferred Shares, setting forth in reasonable
detail, and certifying, the calculation of such adjustment.
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(B) The Company will give written notice to
each holder of Preferred Shares at least ten (10) Business Days prior to the
date on which the Company closes its books or takes a record (I) with respect to
any dividend or distribution upon the Common Stock, (II) with respect to any pro
rata subscription offer to holders of Common Stock or (III) for determining
rights to vote with respect to any Organic Change, dissolution or liquidation,
provided that such information shall be made known to the public prior to or in
conjunction with such notice being provided to such holder.
(C) The Company will also give written
notice to each holder of Preferred Shares at least ten (10) Business Days prior
to the date on which any Organic Change, dissolution or liquidation will take
place, provided that such information shall be made known to the public prior to
or in conjunction with such notice being provided to such holder.
(3) Redemption at Option of Holders.
(a) Redemption Option Upon Triggering Event. In
addition to all other rights of the holders of Preferred
Shares contained herein, after a Triggering Event (as defined
below), each holder of Preferred Shares shall have the right,
at such holder's option, to require the Company, to the extent
funds are legally available therefor, to redeem all or a
portion of such holder's Preferred Shares at a price per
Preferred Share equal to 120% of the Liquidation Preference
(the "REDEMPTION PRICE").
(b) "Triggering Event". A "TRIGGERING EVENT" shall be
deemed to have occurred at such time as any of the following
events:
(i) the failure of the applicable
Registration Statement to be declared effective by the Securities and Exchange
Commission (the "SEC") on or prior to the date that is 30 days after the
applicable Effectiveness Deadline (as defined in the Registration Rights
Agreement);
(ii) while the Registration Statement is
required to be maintained effective 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 of the Preferred Shares for sale of all of the
Registrable Securities (as defined in the Registration Rights Agreement) in
accordance with the terms of the Registration Rights Agreement, and such lapse
or unavailability continues for a period of five consecutive trading days
(excluding days during an Allowable Grace Period (as defined in the Registration
Rights Agreement));
(iii) the suspension from trading or failure
of the Common Stock to be listed on the Nasdaq National Market, The New York
Stock Exchange, Inc. or The American Stock Exchange, Inc. for a period of five
consecutive trading days or for more than an aggregate of 10 trading days in any
365-day period;
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<PAGE> 12
(iv) the Company's notice or the Transfer
Agent's notice, at the Company's direction, to any holder of Preferred Shares,
including by way of public announcement, at any time, of its intention not to
comply with a request for conversion of any Preferred Shares into shares of
Common Stock that is tendered in accordance with the provisions of these
Articles of Amendment, excluding, however, notices that relate solely to a
dispute under resolution in accordance with Section 2(d)(iii) provided that such
dispute has not been publicly disclosed;
(v) a Conversion Failure (as defined in
Section 2(d)(v)(C));
(vi) upon the Company's receipt of a
Conversion Notice, the Company shall not be obligated to issue shares of Common
Stock upon such Conversion due to the provisions of Section 15; or
(vii) the Company breaches any
representation, warranty, covenant or other term or condition of the Securities
Purchase Agreement, the Registration Rights Agreement, the Warrants, these
Articles of Amendment or any other agreement, document, certificate or other
instrument delivered in connection with the transactions contemplated thereby
and hereby, except to the extent that such breach would not have a Material
Adverse Effect (as defined in Section 3(a) of the Securities Purchase Agreement)
and except, in the case of a breach of a covenant which is curable, only if such
breach continues for a period of at least 20 days.
(c) Mechanics of Redemption at Option of Buyer. Within one (1)
day after the occurrence of a Triggering Event, the Company shall
deliver written notice thereof via facsimile and overnight courier
("NOTICE OF TRIGGERING EVENT") to each holder of Preferred Shares. At
any time after the earlier of a holder's receipt of a Notice of
Triggering Event and such holder becoming aware of a Triggering Event,
any holder of Preferred Shares then outstanding may require the Company
to redeem all of the Preferred Shares by delivering written notice
thereof via facsimile and overnight courier ("NOTICE OF REDEMPTION AT
OPTION OF BUYER") to the Company, which Notice of Redemption at Option
of Buyer shall indicate the number of Preferred Shares that such holder
is electing to redeem.
(d) Payment of Redemption Price. Upon the Company's receipt of
a Notice(s) of Redemption at Option of Buyer from any holder of
Preferred Shares, the Company shall immediately notify each holder of
Preferred Shares by facsimile of the Company's receipt of such notices
and each holder which has sent such a notice shall promptly submit to
the Transfer Agent such holder's Preferred Stock Certificates which
such holder has elected to have redeemed. The Company shall deliver the
applicable Redemption Price to such holder within five Business Days
after the Company's receipt of a Notice of Redemption at Option of
Buyer; provided that, if required by Section 2(d)(viii), a holder's
Preferred Stock Certificates shall have been so delivered to the
Transfer Agent. If the Company is unable to redeem all of the Preferred
Shares submitted for redemption, the Company shall (i) redeem a pro
rata amount from each holder of Preferred Shares based on the number of
Preferred Shares submitted for redemption by such holder relative to
the
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<PAGE> 13
total number of Preferred Shares submitted for redemption by all
holders of Preferred Shares and (ii) in addition to any remedy such
holder of Preferred Shares may have under these Articles of Amendment
and the Securities Purchase Agreement, pay to each holder interest at
the rate of 1.5% per month (prorated for partial months) in respect of
each unredeemed Preferred Share until paid in full.
(e) Void Redemption. In the event that the Company does not
pay the Redemption Price within the time period set forth in Section
3(d), at any time thereafter and until the Company pays such unpaid
applicable Redemption Price in full, a holder of Preferred Shares shall
have the option (the "VOID OPTIONAL REDEMPTION OPTION") to, in lieu of
redemption, require the Company to promptly return to such holder any
or all of the Preferred Shares that were submitted for redemption by
such holder under this Section 3 and for which the applicable
Redemption Price (together with any interest thereon) has not been
paid, by sending written notice thereof to the Company via facsimile
(the "VOID OPTIONAL REDEMPTION NOTICE"). Upon the Company's receipt of
such Void Optional Redemption Notice, (i) the Notice of Redemption at
Option of Buyer shall be null and void with respect to those Preferred
Shares subject to the Void Optional Redemption Notice, (ii) the Company
shall immediately return any Preferred Shares subject to the Void
Optional Redemption Notice, and (iii) the Conversion Price of such
returned Preferred Shares shall be adjusted to the lesser of (A) the
Conversion Price as in effect on the date on which the Void Optional
Redemption Notice is delivered to the Company and (B) the lowest
Weighted Average Price during the period beginning on the date on which
the Notice of Redemption at Option of Buyer is delivered to the Company
and ending on the date on which the Void Optional Redemption Notice is
delivered to the Company.
(f) Disputes; Miscellaneous. In the event of a dispute as to
the determination of the arithmetic calculation of the Redemption
Price, such dispute shall be resolved pursuant to Section 2(d)(iii)
above with the term "Redemption Price" being substituted for the term
"Conversion Rate". A holder's delivery of a Void Optional Redemption
Notice and exercise of its rights following such notice shall not
effect the Company's obligations to make any payments which have
accrued prior to the date of such notice. In the event of a redemption
pursuant to this Section 3 of less than all of the Preferred Shares
represented by a particular Preferred Stock Certificate, the Company
shall promptly cause to be issued and delivered to the holder of such
Preferred Shares a preferred stock certificate representing the
remaining Preferred Shares which have not been redeemed.
(4) Other Rights of Holders.
(a) Reorganization, Reclassification, Consolidation,
Merger or Sale. Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's assets
to another Person or other transaction which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as "ORGANIC CHANGE." Prior to
the consummation of any (i) sale of all or substantially
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<PAGE> 14
all of the Company's assets to an acquiring Person or (ii) other Organic Change
following which the Company is not a surviving entity, the Company will secure
from the Person purchasing such assets or the successor resulting from such
Organic Change (in each case, the "ACQUIRING ENTITY") a written agreement (in
form and substance reasonably satisfactory to the holders of a majority of the
Preferred Shares then outstanding) to deliver to each holder of Preferred Shares
in exchange for such shares, a security of the Acquiring Entity evidenced by a
written instrument substantially similar in form and substance to the Preferred
Shares, including, without limitation, having a stated value and liquidation
preference equal to the Stated Value and the Liquidation Preference of the
Preferred Shares held by such holder, and satisfactory to the holders of a
majority of the Preferred Shares then outstanding. Prior to the consummation of
any other Organic Change, the Company shall make appropriate provision (in form
and substance reasonably satisfactory to the holders of a majority of the
Preferred Shares then outstanding) to insure that each of the holders of the
Preferred Shares will thereafter have the right to acquire and receive in lieu
of or in addition to (as the case may be) the shares of Common Stock immediately
theretofore acquirable and receivable upon the conversion of such holder's
Preferred Shares such shares of stock, securities or assets that would have been
issued or payable in such Organic Change with respect to or in exchange for the
number of shares of Common Stock which would have been acquirable and receivable
upon the conversion of such holder's Preferred Shares as of the date of such
Organic Change (without taking into account any limitations or restrictions on
the convertibility of the Preferred Shares).
(b) Optional Redemption Upon Change of Control. In
addition to the rights of the holders of Preferred Shares under Section 4(a),
upon a Change of Control (as defined below) of the Company each holder of
Preferred Shares shall have the right, at such holder's option, to require the
Company to redeem, to the extent funds are legally available therefor, all or a
portion of such holder's Preferred Shares at a price per Preferred Share equal
to the Liquidation Preference ("CHANGE OF CONTROL REDEMPTION PRICE"). No sooner
than 15 days nor later than 10 days prior to the consummation of a Change of
Control, but not prior to the public announcement of such Change of Control, the
Company shall deliver written notice thereof via facsimile and overnight courier
(a "NOTICE OF CHANGE OF CONTROL") to each holder of Preferred Shares. At any
time during the period beginning after receipt of a Notice of Change of Control
(or, in the event a Notice of Change of Control is not delivered at least 10
days prior to a Change of Control, at any time on or after the date which is 10
days prior to a Change of Control) and ending on the date of such Change of
Control, any holder of the Preferred Shares then outstanding may require the
Company to redeem all or a portion of the holder's Preferred Shares then
outstanding by delivering written notice thereof via facsimile and overnight
courier (a "NOTICE OF REDEMPTION UPON CHANGE OF CONTROL") to the Company, which
Notice of Redemption Upon Change of Control shall indicate (i) the number of
Preferred Shares that such holder is submitting for redemption, and (ii) the
applicable Change of Control Redemption Price, as calculated pursuant to this
Section 4(b). Upon the Company's receipt of a Notice(s) of Redemption Upon
Change of Control from any holder of Preferred Shares, the Company shall
promptly, but in no event later than one (1) Business Day following such
receipt, notify each holder of Preferred Shares by facsimile of the Company's
receipt of such Notice(s) of Redemption Upon Change of Control. The Company
shall deliver the applicable Change of Control Redemption Price simultaneous
with the consummation of the Change of Control; provided that, if required by
Section 2(d)(viii), a holder's Preferred Stock Certificates shall have been so
delivered to the Company. Payments provided for in this Section 4(b) shall have
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<PAGE> 15
priority to payments to other stockholders in connection with a Change of
Control. For purposes of this Section 4(b), "CHANGE OF CONTROL" means (i) the
consolidation, merger or other business combination of the Company with or into
another Person (other than (A) a consolidation, merger or other business
combination in which holders of the Company's voting power immediately prior to
the transaction continue after the transaction to hold, directly or indirectly,
the voting power of the surviving entity or entities necessary to elect a
majority of the members of the board of directors (or their equivalent if other
than a corporation) of such entity or entities, or (B) pursuant to a migratory
merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Company), (ii) the sale or transfer of all or substantially
all of the Company's assets, or (iii) a purchase, tender or exchange offer made
to and accepted by the holders of more than the 50% of the outstanding shares of
Common Stock.
(c) Forced Delisting. If a redemption voided pursuant
to Section 3(e) was caused by a Triggering Event involving the Company's
inability to issue Conversion Shares because of the Exchange Cap (as defined in
Section 15), and if so directed by the holders of at least two-thirds (2/3) of
the Preferred Shares then outstanding, including shares of Preferred Shares
submitted for redemption pursuant to Section 3 with respect to which the
applicable Redemption Price has not been paid, in a Void Mandatory Redemption
Notice, the Company shall promptly as practicable delist the Common Stock from
the exchange or automated quotation system on which the Common Stock is traded
and have the Common Stock, at such holders' option, traded on the electronic
bulletin board or the "pink sheets".
(d) Purchase Rights. If at any time the Company
grants, issues or sells any Options, Convertible Securities or rights to
purchase stock, warrants, securities or other property pro rata to the record
holders of any class of Common Stock (the "PURCHASE RIGHTS"), then the holders
of Preferred Shares will be entitled to acquire, upon the terms applicable to
such Purchase Rights, the aggregate Purchase Rights which such holder could have
acquired if such holder had held the number of shares of Common Stock acquirable
upon complete conversion of the Preferred Shares (without taking into account
any limitations or restrictions on the convertibility of the Preferred Shares)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.
(5) Limitation on Beneficial Ownership. The Company shall not effect
any conversion of Preferred Shares and no holder of Preferred Shares shall have
the right to convert Preferred Shares in excess of that number of Preferred
Shares which, upon giving effect to such conversion, would cause the aggregate
number of shares of Common Stock beneficially owned by the holder and its
affiliates to exceed 4.99% of the total outstanding shares of Common Stock
following such conversion. For purposes of the foregoing proviso, the aggregate
number of shares of Common Stock beneficially owned by the holder and its
affiliates shall include the number of shares of Common Stock issuable upon
conversion of the Preferred Shares with respect to which the determination of
such proviso is being made, but shall exclude the number of shares of Common
Stock which would be issuable upon (i) conversion of the remaining, nonconverted
Preferred Shares beneficially owned by the holder and its affiliates and (ii)
exercise or conversion
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<PAGE> 16
of the unexercised or unconverted portion of any other securities of the Company
(including, without limitation, any warrants or convertible preferred stock)
subject to a limitation on conversion or exercise analogous to the limitation
contained herein beneficially owned by the holder and its affiliates. Except as
set forth in the preceding sentence, for purposes of this Section 5, beneficial
ownership shall be calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended. For purposes of this Section 5, in determining
the number of outstanding shares of Common Stock a holder may rely on the number
of outstanding shares of Common Stock as reflected in (1) the Company's most
recent Form 10-Q or Form 10-K, as the case may be, (2) a more recent public
announcement by the Company, or (3) any other notice by the Company or its
transfer agent setting forth the number of shares of Common Stock outstanding.
Upon the written request of any holder, the Company shall promptly, but in no
event later than one (1) Business Day following the receipt of such notice,
confirm in writing to any such holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common Stock shall
be determined after giving effect to conversions of Preferred Shares and
exercise of Warrants (as defined below) by such holder and its affiliates since
the date as of which such number of outstanding shares of Common Stock was
reported. Notwithstanding the foregoing, each holder of Preferred Shares shall
have the sole obligation to determine whether the restrictions contained in this
Section 5 apply to such holder.
(6) Redemption at the Company's Election. At any time or times during
the period beginning on the date that the applicable Registration Statement is
declared effective by the SEC and ending on and including the date which is one
(1) year after the Initial Issuance Date, the Company shall have the right, in
its sole discretion, to require that some or all of the outstanding Preferred
Shares be redeemed, to the extent funds are legally available therefor
("REDEMPTION AT COMPANY'S ELECTION"), for consideration per Preferred Share
equal to 110% of the Conversion Amount for such Preferred Share (the "COMPANY'S
ELECTION REDEMPTION PRICE"); provided that the Conditions to Redemption at the
Company's Election (as set forth below) are satisfied. The Company may exercise
its right to Redemption at Company's Election only by providing each holder of
Preferred Shares issued on such Issuance Date written notice ("NOTICE OF
REDEMPTION AT COMPANY'S ELECTION") at least 10 Business Days but not more than
20 Business Days prior to the date of consummation of such redemption
("COMPANY'S ELECTION REDEMPTION DATE"). If the Company elects to require
redemption of some, but not all, of the Preferred Shares issued on such Issuance
Date then outstanding, the Company shall require redemption of the pro rata
amount from each holder of such Preferred Shares based on the number of
Preferred Shares purchased by such holder on the Issuance Date relative to the
total number of Preferred Shares purchased on such Issuance Date (such amount
with respect to each holder being referred to herein as its "PRO RATA REDEMPTION
AMOUNT"). The Company's Notice of Redemption at Company's Election shall
indicate (x) the aggregate number of Preferred Shares the Company has elected to
redeem from all holders of Preferred Shares issued on such Issuance Date, (y)
the date selected by the Company for the Company's Election Redemption Date, and
(z) each holder's Pro Rata Redemption Amount of the Preferred Shares selected
for redemption. If the Company has exercised its right of Redemption at
Company's Election and the conditions of this Section 6, including the
Conditions to Redemption at Company's Election, have been satisfied, then each
holder's Pro Rata Redemption Amount of the Preferred Shares selected for
redemption which remain outstanding on the Company's Election Redemption Date
shall be redeemed as of the Company's Election Redemption Date by payment
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<PAGE> 17
by the Company to each such holder of Preferred Shares of the Company's Election
Redemption Price. If required by Section 2(d)(viii), all such holders of the
Preferred Shares being redeemed shall thereupon and within two Business Days
after the Company's Election Redemption Date or such earlier date as the Company
and each such holder of Preferred Shares mutually agree, surrender all Preferred
Shares being redeemed on such date to the Company. If the Company fails to pay
the full Company's Election Redemption Price on the Company's Election
Redemption Date with respect to a Preferred Share selected for redemption, then
the Redemption at Company's Election shall be null and void with respect to such
Preferred Share and the Holder shall be entitled to all the rights of a holder
of outstanding Preferred Shares. "CONDITIONS TO REDEMPTION AT THE COMPANY'S
ELECTION" means the following conditions: (i) during the period beginning on the
applicable Issuance Date and ending on and including the Company's Election
Redemption Date, the Company shall have delivered Conversion Shares upon
conversion of the Preferred Shares to the holders of the Preferred Shares on a
timely basis as set forth in Section 2(d)(ii); (ii) on each day during the
period beginning 30 days prior to the date of Notice of Redemption at Company's
Election and ending on and including the Company's Election Redemption Date the
Registration Statement shall be effective and available for the sale of at least
all of the Registrable Securities; (iii) on each day during the period beginning
30 days prior to the date of Notice of Redemption at Company's Election and
ending on and including the Company's Election Redemption Date, the Common Stock
is designated for quotation on the Nasdaq National Market or listed on The New
York Stock Exchange, Inc. or The American Stock Exchange, Inc. and is not
suspended from trading (excluding suspensions of not more than one day resulting
from business announcements by the Company); (iv) during the period beginning on
and including the date which is 30 days prior to the date of Notice of
Redemption at Company's Election and ending on and including the Company's
Election Redemption Date, there shall not have occurred a Triggering Event or an
event that with the passage of time would constitute a Triggering Event,
assuming it were not cured; (v) during the period beginning on the applicable
Issuance Date and ending on and including the date which is 31 days prior to the
date of Notice of Redemption at Company's Election there shall not have occurred
a Triggering Event, unless such Triggering Event was cured and the Company
delivered a Notice of Triggering Event in a timely manner to each holder with
respect to such Triggering Event; (vi) during the period beginning on the
applicable Issuance Date and ending on and including the Company's Election
Redemption Date, there shall not have occurred the consummation of a Change of
Control; (vii) the Company otherwise shall have been in compliance in all
material respects with these Articles of Amendment, the Securities Purchase
Agreement, the Warrants and the Registration Rights Agreement and shall not have
breached in any material respect any provision of these Articles of Amendment,
the Securities Purchase Agreement, the Warrants or the Registration Rights
Agreement; (viii) the Company shall not be entitled to deliver a Notice of
Redemption at Company's Election and no Company's Election Redemption Date may
occur during a Company's Mandatory Conversion Period (as defined in Section 7);
and (ix) no Company's Election Redemption Date may occur after the date which is
one (1) year after the Initial Issuance Date. Notwithstanding the above, but
subject to Section 5 and Section 8, any holder of Preferred Shares may convert
any Preferred Shares (including Preferred Shares selected for redemption) into
Common Stock pursuant to Section 2 on or prior to the date immediately preceding
the Company's Election Redemption Date. If the Company fails to timely pay any
Company's Election Redemption Price in accordance with this Section 6, then the
Company shall
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not be permitted to submit another Notice of Redemption at Company's Election
without the prior written consent of the holders of at least two-thirds (2/3) of
the Preferred Shares then outstanding.
(7) Conversion at the Company's Election. On any date during the period
beginning on the date which is 10 Business Days after the applicable
Registration Statement has been declared effective by the SEC and ending on and
including the date which is one (1) year after the Initial Issuance Date, the
Company shall have the right, in its sole discretion, to require that some or
all of the outstanding Preferred Shares issued on the applicable Issuance Date
be converted ("COMPANY'S CONVERSION ELECTION") at the applicable Conversion
Rate; provided that the Conditions to Conversion at the Company's Election (as
set forth below) are satisfied. The Company shall exercise its right to
Company's Conversion Election by providing each holder of Preferred Shares
issued on such Issuance Date written notice ("COMPANY'S CONVERSION ELECTION
NOTICE") on such date by facsimile and overnight courier. The date on which each
of such holders of the Preferred Shares receives the Company's Conversion
Election Notice is referred to herein as the "COMPANY'S CONVERSION ELECTION
NOTICE DATE". If the Company elects to require conversion of some, but not all,
of such Preferred Shares issued on such Issuance Date then outstanding, the
Company shall require conversion of the pro rata amount from each holder of such
Preferred Shares based on the number of Preferred Shares purchased by such
holder on such Issuance Date relative to the total number of Preferred Shares
purchased on such Issuance Date (such amount with respect to each holder of such
Preferred Shares being referred to herein as its "PRO RATA CONVERSION AMOUNT").
The Company's Conversion Election Notice shall indicate (x) the aggregate number
of such Preferred Shares the Company has selected for conversion, (y) the date
selected by the Company for conversion ("COMPANY'S ELECTION CONVERSION DATE"),
which date shall be not less than 10 Business Days or more than 60 Business Days
after the Company's Conversion Election Notice Date, and (z) each holder's Pro
Rata Conversion Amount. Subject to the satisfaction of all the conditions of
this Section 7 and provided that the Company has not delivered a Company's
Mandatory Conversion Period Termination Notice (in the manner described below)
with an effective date prior to the applicable Company's Election Conversion
Date, on the Company's Election Conversion Date each holder of Preferred Shares
selected for conversion will be deemed to have submitted a Conversion Notice in
accordance with Section 2(d)(i) for a number of Preferred Shares equal to the
result of (a) such holder's Pro Rata Conversion Amount, minus (b) the number of
such Preferred Shares converted by such holder during the Company's Mandatory
Conversion Period (as defined below); provided, however, in no event shall any
holder of Preferred Shares be required to convert a number of Preferred Shares
during any Company's Mandatory Conversion Period into a number of shares of
Common Stock in excess of such holder's pro rata portion (determined in the same
manner as the Pro Rata Conversion Amount above) of 15% of the trading volume of
the Common Stock on the Principal Market (as reported by Bloomberg) during the
Company's Mandatory Conversion Period. The Company may terminate a Conversion at
Company's Election prior to the Company's Election Conversion Date with respect
to any Preferred Shares not submitted for conversion prior to the effective date
of such termination by delivering written notice ("COMPANY'S MANDATORY
CONVERSION PERIOD TERMINATION NOTICE") to each holder of Preferred Shares not
later than 8:00 a.m., Eastern Time, on the Business Day prior to the effective
date of such termination, provided that the Company has not previously delivered
15 Company's Mandatory Conversion Period Termination Notices. "CONDITIONS TO
CONVERSION AT THE COMPANY'S ELECTION" means the following conditions: (i) on
each day during
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the period beginning on and including the date which is the later of (A) the
date the applicable Registration Statement has been declared effective by the
SEC and (B) 30 days prior to the Company's Conversion Election Notice Date, and
ending on and including the Company's Election Conversion Date, the Registration
Statement which includes the Registrable Securities relating to the Preferred
Shares selected for conversion shall be effective and available for the sale of
no less than all the Registrable Securities required to be included in such
Registration Statement; (ii) on each day during the period beginning on the
applicable Issuance Date and ending on and including the Company's Election
Conversion Date, the Common Stock is designated for quotation on the Nasdaq
National Market or listed on The New York Stock Exchange, Inc. or The American
Stock Exchange, Inc. and shall not have been suspended from trading on such
exchanges (unless the Common Stock is listed on one of the other such exchanges
and trading in the Common Stock is not suspended on such other exchange) nor
shall delisting or suspension by such exchanges have been threatened either (A)
in writing by such exchanges or (B) by falling below the minimum listing
maintenance requirements of such exchanges; (iii) during the period beginning on
the applicable Issuance Date and ending on and including the Company's Election
Conversion Date, there shall not have occurred (A) an event constituting a
Change of Control or a Triggering Event, (B) an event that with the passage of
time and without being cured would constitute a Triggering Event, or (C) the
public announcement of a pending Change of Control which has not be abandoned or
terminated; (iv) the aggregate number of Preferred Shares selected for
conversion by the Company as reflected in the Company's Conversion Election
Notice is at least 50; (v) during the period beginning on the applicable
Issuance Date and ending on and including the Company's Election Conversion
Date, the Company shall have delivered shares of Common Stock upon conversion of
the Preferred Shares and upon exercise of the Warrants to the holders on a
timely basis as set forth in Section 2(d)(ii) hereof and Sections 2(a) and 2(b)
of the Warrants, respectively; (vi) the Company otherwise shall have been in
compliance in all material respects with these Articles of Amendment, the
Securities Purchase Agreement, the Warrants and the Registration Rights
Agreement and shall not have breached in any material respect any provision of
these Articles of Amendment, the Securities Purchase Agreement, the Warrants or
the Registration Rights Agreement; (vii) the Company shall not be entitled to
deliver a Company's Conversion Election Notice during any Company's Mandatory
Conversion Period; and (viii) no Company's Election Conversion Date may occur
after the date which is one (1) year after the Initial Issuance Date. "COMPANY'S
MANDATORY CONVERSION PERIOD" means, with respect to any Company's Conversion
Election, the period beginning on and including the Company's Conversion
Election Notice Date and ending on and including the earlier of (i) the
Company's Election Conversion Date and (ii) 6:00 p.m., Eastern Time, on the
effective date of a Company's Mandatory Conversion Period Termination Notice.
(8) Restrictions on Conversions. The right of a holder of Preferred
Shares to convert Preferred Shares pursuant to Section 2(b) shall be limited as
set forth below. Subject to the exceptions described below, without the prior
consent of the Company, no holder of Preferred Shares shall be entitled to
convert any Preferred Shares during the period beginning on the Issuance Date of
such Preferred Shares and ending on and including the date which is one (1) year
after the Initial Issuance Date. Notwithstanding the foregoing, the conversion
restrictions set forth in this Section 8 shall not apply: (a) during a Company's
Mandatory Conversion Period, but only with respect to the number of Preferred
Shares set forth in a Company's Election Conversion Notice for such holder with
respect to such Company Mandatory Conversion Period; (b) on and after any date
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<PAGE> 20
on which the Common Stock is not listed or quoted on the Nasdaq National Market
or The New York Stock Exchange, Inc. or The American Stock Exchange, Inc. or has
been suspended from trading on any such exchange (excluding suspensions of not
more than one day resulting from business announcements by the Company or unless
the Common Stock is listed on one of the other such exchanges and trading in the
Common Stock is not suspended on such other exchange), or any such delisting or
suspension is threatened or pending either (I) in writing by such exchanges or
(II) by falling below the minimum listing maintenance requirements of such
exchanges; (c) on or after any date on which there shall have occurred an event
constituting a Change of Control or a Triggering Event or an event that with the
passage of time and without being cured would constitute a Triggering Event; (d)
on or after any date on which there shall have been an announcement of a pending
Change of Control; (e) on or after any date on which the Company issues or sells
or is deemed to have issued or sold any Convertible Securities or Options that
are convertible into or exercisable or exchangeable for shares of Common Stock
at a conversion or exercise price which varies or may vary with the market price
of the Common Stock, including by way of periodic resets to a fixed price; (f)
on or after any date on which the Company fails to pay the Company's Election
Redemption Price for any Preferred Shares in a timely manner in accordance with
a Redemption at Company's Election pursuant to Section 6; (g) on or after the
date the Company issues or sells any shares of Common Stock or any Convertible
Securities or Options (other than upon conversion of the Preferred Shares or the
1994 Preferred Shares (as defined in Section 11) or exercise of the Warrants or
in connection with any Approved Plan or shares of Common Stock issuable pursuant
to warrants or options outstanding prior to the Issuance Date, provided such
warrants or options are not amended after the Issuance Date), with respect to a
number of Preferred Shares representing an aggregate Conversion Amount equal to
the lesser of (I) such holder's pro rata portion (determined in the same manner
as Pro Rata Conversion Amount in Section 6) of the consideration received by the
Company in connection with such issuance or sale and (II) the aggregate
Conversion Amount represented by such holder's Preferred Shares; (h) at any time
during the period beginning on and including the date after the Issuance Date on
which the Closing Bid Price of the Common Stock is less than $3.00 (equitably
adjusted for stock splits, stock dividends, stock combinations and other similar
transactions) for 30 consecutive trading days immediately preceding such date (a
"MINIMUM PRICE DATE") and ending on the first date after the previous Minimum
Price Date on which the Closing Bid Price of the Common Stock is greater than or
equal to $3.00 (equitably adjusted for stock splits, stock dividends, stock
combinations and other similar transactions) for 30 consecutive trading days
immediately preceding such date; (i) on any date on which the Company is not a
party to the Loan and Security Agreement between Silicon Valley Bank and the
Company, dated October 14, 1997, as modified by that certain Loan Modification
Agreement entered into as of February 25, 1999 and effective as of January 13,
1999 and as further modified by that certain Loan Modification Agreement, dated
as of September 24, 1999, each by and between the Company and Silicon Valley
Bank (collectively referred to herein as the "SILICON VALLEY BANK LOAN") or a
credit facility with a bank which has terms which are no less favorable to the
Company than, and for an amount not less than, the Silicon Valley Bank Loan (in
either case, the "CREDIT FACILITY"), and the Company publicly discloses on or
before February 1, 2000 such renewal or new facility, or on any date after
January 31, 2000 on which the Company does not have access to the maximum amount
of the credit provided for under the Credit Facility; (j) on February 1, 2000,
if the Credit Facility does not have a term of at least one (1) year from such
date; (k) at any time during the period beginning on and including the date
after June 30, 2000 on
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<PAGE> 21
which the Closing Bid Price of the Common Stock is less than 125% of the average
of the Closing Bid Price of the Common Stock on the 10 consecutive trading days
immediately preceding the Initial Issuance Date (equitably adjusted for stock
splits, stock dividends, stock combinations and other similar transactions) for
15 consecutive trading days immediately preceding such date (a "125% PRICE
DATE") and ending on the first date after the previous 125% Price Date on which
the Closing Bid Price of the Common Stock is greater than or equal to 125% of
the average of the Closing Bid Price of the Common Stock on the 10 consecutive
trading days immediately preceding the Initial Issuance Date (equitably adjusted
for stock splits, stock dividends, stock combinations and other similar
transactions) for 15 consecutive trading days immediately preceding such date;
(k) on or after June 30, 2000, unless on June 30, 2000 each of the following
conditions is satisfied: (I) the Company's cash and short term, readily
marketable securities is not less than $5,000,000, (II) the Company's current
assets divided by current liabilities (each as determined in accordance with
U.S. Generally Accepted Accounting Principles) is not less than 1.25, (III) the
Closing Bid Price of the Common Stock on each of the five (5) consecutive
trading days immediately preceding June 30, 2000 is not less than 125% of the
arithmetic average of the Closing Bid Prices of the Common Stock on the 10
consecutive trading days immediately preceding the Initial Issuance Date
(subject to equitable adjustment for stock splits, stock dividends, stock
combinations and other similar transactions), (IV) at least 33% of the number of
Preferred Shares issued on the applicable Issuance Date have been converted into
shares of Common Stock pursuant to Section 2 on or prior to June 30, 2000, (V)
the Company has immediately available at least $2,000,000 under the Credit
Facility and (VI) on or before July 7, 2000 the Company publicly discloses
confirmation of the satisfaction of the conditions set forth in the immediately
preceding clauses (I) through (V), provided, however, that if the Company
publicly discloses confirmation of such conditions after July 7, 2000 but on or
prior to August 5, 2000, then the exclusion from the conversion restrictions of
this Section 8 shall no longer apply beginning on the first Business Day
following such public disclosure made after July 7, 2000 but on or prior to
August 5, 2000; or (m) with respect to any conversion of Preferred Shares at a
price equal to the Fixed Conversion Price then in effect.
(9) Reservation of Shares. The Company shall, so long as any of the
Preferred Shares are outstanding, take all action necessary to reserve and keep
available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Preferred Shares, such number of
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all of the Preferred Shares then outstanding; provided that the
number of shares of Common Stock so reserved shall at no time be less than 200%
of the number of shares of Common Stock for which the Preferred Shares are at
any time convertible (without regard to any limitations on conversions). The
initial number of shares of Common Stock reserved for conversions of the
Preferred Shares and each increase in the number of shares so reserved shall be
allocated pro rata among the holders of the Preferred Shares based on the number
of Preferred Shares held by each holder at the time of issuance of the Preferred
Shares or increase in the number of reserved shares, as the case may be. In the
event a holder shall sell or otherwise transfer any of such holder's Preferred
Shares, each transferee shall be allocated a pro rata portion of the number of
reserved shares of Common Stock reserved for such transferor. Any shares of
Common Stock reserved and allocated to any Person which ceases to hold any
Preferred Shares shall be allocated to the remaining holders of Preferred
Shares, pro rata based on the number of Preferred Shares then held by such
holders.
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<PAGE> 22
(10) Voting Rights. Holders of Preferred Shares shall have no voting
rights, except as required by law, including but not limited to the Indiana
Business Corporation Law, and as expressly provided in these Articles of
Amendment.
(11) Liquidation, Dissolution, Winding-Up. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company,
the holders of the Preferred Shares shall be entitled to receive in cash out of
the assets of the Company, whether from capital or from earnings available for
distribution to its stockholders (the "LIQUIDATION FUNDS"), before any amount
shall be paid to the holders of any of the capital stock of the Company of any
class junior in rank to the Preferred Shares in respect of the preferences as to
the distributions and payments on the liquidation, dissolution and winding up of
the Company, an amount per Preferred Share equal to the sum of (i) the Stated
Value and (ii) the Additional Amount for such Preferred Share (such sum being
referred to as the "LIQUIDATION PREFERENCE"); provided that, if the Liquidation
Funds are insufficient to pay the full amount due to the holders of Preferred
Shares and holders of shares of other classes or series of preferred stock of
the Company (including the Company's Series 1994 Cumulative Convertible
Preferred Stock outstanding on the Initial Issuance Date (the "1994 PREFERRED
SHARES"), that are of equal rank with the Preferred Shares as to payments of
Liquidation Funds (the "PARI PASSU SHARES"), then each holder of Preferred
Shares and Pari Passu Shares shall receive a percentage of the Liquidation Funds
equal to the full amount of Liquidation Funds payable to such holder as a
liquidation preference, in accordance with their respective Articles of
Amendment, as a percentage of the full amount of Liquidation Funds payable to
all holders of Preferred Shares and Pari Passu Shares. The purchase or
redemption by the Company of stock of any class, in any manner permitted by law,
shall not, for the purposes hereof, be regarded as a liquidation, dissolution or
winding up of the Company. Neither the consolidation or merger of the Company
with or into any other Person, nor the sale or transfer by the Company of less
than substantially all of its assets, shall, for the purposes hereof, be deemed
to be a liquidation, dissolution or winding up of the Company. No holder of
Preferred Shares shall be entitled to receive any amounts with respect thereto
upon any liquidation, dissolution or winding up of the Company other than the
amounts provided for herein; provided that a holder of Preferred Shares shall be
entitled to all amounts previously accrued with respect to amounts owed
hereunder.
(12) Preferred Rank. All shares of Common Stock shall be of junior rank
to all Preferred Shares in respect to the preferences as to distributions and
payments upon the liquidation, dissolution and winding up of the Company. The
rights of the shares of Common Stock shall be subject to the preferences and
relative rights of the Preferred Shares. The Preferred Shares shall be of equal
rank to all the 1994 Preferred Shares in respect to the preferences as to
distributions and payments upon liquidation, dissolution and winding up of the
Company. Without the prior express written consent of the holders of not less
than two-thirds (2/3) of the then outstanding Preferred Shares, the Company
shall not hereafter authorize or issue additional or other capital stock that is
of senior or equal rank to the Preferred Shares in respect of the preferences as
to distributions and payments upon the liquidation, dissolution and winding up
of the Company. Without the prior express written consent of the holders of not
less than two-thirds (2/3) of the then outstanding Preferred Shares, the Company
shall not hereafter authorize or make any amendment to the Company's Articles of
Incorporation or bylaws, or file any resolution of the board of directors of the
Company with the Secretary of State of the State of Indiana or enter into any
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<PAGE> 23
agreement containing any provisions, which would adversely affect or otherwise
impair the rights or relative priority of the holders of the Preferred Shares
relative to the holders of the Common Stock or the holders of any other class of
capital stock (other than an amendment, resolution or agreement solely for the
purpose of increasing the authorized shares of any class of the Company's
capital stock other than the Preferred Shares and the 1994 Preferred Shares). In
the event of the merger or consolidation of the Company with or into another
corporation, the Preferred Shares shall maintain their relative powers,
designations and preferences provided for herein and no merger shall result
inconsistent therewith.
(13) Participation. Subject to the rights of the holders, if any, of
the Pari Passu Shares, the holders of the Preferred Shares shall, as holders of
Preferred Stock, be entitled to such dividends paid and distributions made to
the holders of Common Stock to the same extent as if such holders of Preferred
Shares had converted the Preferred Shares into Common Stock (without regard to
any limitations on conversion herein or elsewhere) and had held such shares of
Common Stock on the record date for such dividends and distributions. Payments
under the preceding sentence shall be made concurrently with the dividend or
distribution to the holders of Common Stock.
(14) Restriction on Redemption and Cash Dividends. Until all of the
Preferred Shares have been converted or redeemed as provided herein, the Company
shall not, directly or indirectly, redeem, or declare or pay any cash dividend
or distribution on, its Common Stock without the prior express written consent
of the holders of not less than two-thirds (2/3) of the then outstanding
Preferred Shares.
(15) Limitation on Number of Conversion Shares. The Company shall not
be obligated to issue any shares of Common Stock upon conversion of the
Preferred Shares if the issuance of such shares of Common Stock would exceed
that number of shares of Common Stock which the Company may issue upon
Conversion of the Preferred Shares (the "EXCHANGE CAP") without breaching the
Company's obligations under the rules or regulations of the Principal Market, or
the market or exchange where the Common Stock is then traded, except that such
limitation shall not apply in the event that the Company (a) obtains the
approval of its stockholders as required by the applicable rules of the
Principal Market, or the market or exchange where the Common Stock is then
traded, (or any successor rule or regulation) for issuances of Common Stock in
excess of such amount or (b) obtains a written opinion from outside counsel to
the Company that such approval is not required, which opinion shall be
reasonably satisfactory to the holders of a majority of the Preferred Shares
then outstanding. Until such approval or written opinion is obtained, no
purchaser of Preferred Shares pursuant to the Securities Purchase Agreement (the
"PURCHASERS") shall be issued, upon conversion of Preferred Shares, shares of
Common Stock in an amount greater than the product of (i) the Exchange Cap
amount multiplied by (ii) a fraction, the numerator of which is the number of
Preferred Shares issued to such Purchaser pursuant to the Securities Purchase
Agreement and the denominator of which is the aggregate amount of all the
Preferred Shares issued to the Purchasers pursuant to the Securities Purchase
Agreement (the "CAP ALLOCATION AMOUNT"). In the event that any Purchaser shall
sell or otherwise transfer any of such Purchaser's Preferred Shares, the
transferee shall be allocated a pro rata portion of such Purchaser's Cap
Allocation Amount. In the event that any holder of Preferred Shares shall
convert all of such holder's Preferred Shares into a number of shares of Common
Stock which, in the
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<PAGE> 24
aggregate, is less than such holder's Cap Allocation Amount, then the difference
between such holder's Cap Allocation Amount and the number of shares of Common
Stock actually issued to such holder shall be allocated to the respective Cap
Allocation Amounts of the remaining holders of Preferred Shares on a pro rata
basis in proportion to the number of Preferred Shares then held by each such
holder.
(16) Vote to Change the Terms of or Issue Additional Preferred Shares.
The affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting, of the holders of not less than two-thirds (2/3) of
the then outstanding Preferred Shares, shall be required for (a) any change to
these Articles of Amendment or the Company's Articles of Incorporation which
would amend, alter, change or repeal any of the powers, designations,
preferences and rights of the Preferred Shares and (b) the issuance of Preferred
Shares other than pursuant to the Securities Purchase Agreement.
(17) Lost or Stolen Certificates. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of any Preferred Stock Certificates representing the Preferred
Shares, and, in the case of loss, theft or destruction, of any indemnification
undertaking by the holder to the Company in customary form and, in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Company shall execute and deliver new preferred stock
certificate(s) of like tenor and date; provided, however, the Company shall not
be obligated to re-issue preferred stock certificates if the holder
contemporaneously requests the Company to convert such Preferred Shares into
Common Stock.
(18) Remedies, Characterizations, Other Obligations, Breaches and
Injunctive Relief. The remedies provided in these Articles of Amendment shall be
cumulative and in addition to all other remedies available under these Articles
of Amendment, at law or in equity (including a decree of specific performance
and/or other injunctive relief). No remedy contained herein shall be deemed a
waiver of compliance with the provisions giving rise to such remedy and nothing
herein shall limit a holder's right to pursue actual damages for any failure by
the Company to comply with the terms of these Articles of Amendment . The
Company covenants to each holder of Preferred Shares that there shall be no
characterization concerning this instrument other than as expressly provided
herein. Amounts set forth or provided for herein with respect to payments,
conversion and the like (and the computation thereof) shall be the amounts to be
received by the holder thereof and shall not, except as expressly provided
herein, be subject to any other obligation of the Company (or the performance
thereof). The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the holders of the Preferred Shares and
that the remedy at law for any such breach may be inadequate. The Company
therefore agrees that, in the event of any such breach or threatened breach, the
holders of the Preferred Shares shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.
(19) Specific Shall Not Limit General; Construction. No specific
provision contained in these Articles of Amendment shall limit or modify any
more general provision
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<PAGE> 25
contained herein. These Articles of Amendment shall be deemed to be jointly
drafted by the Company and all Buyers and shall not be construed against any
person as the drafter hereof.
(20) Failure or Indulgence Not Waiver. No failure or delay on the part
of a holder of Preferred Shares in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.
(21) Notice. Whenever notice is required to be given under these
Articles of Amendment, unless otherwise provided herein, such notice shall be
given in accordance with Section 9(f) of the Securities Purchase Agreement.
(22) Transfer of Preferred Shares. A holder of Preferred Shares and any
Permitted Assignees (as defined below) may assign some or all of its rights
hereunder or the Preferred Shares held by such holder to (a) without the consent
of the Company, any person or entity who, immediately prior to such assignment,
is (i) an affiliate of such holder or Permitted Assignee, (ii) a holder of
Preferred Shares or (iii) an entity or fund which has the same principal
investment adviser or manager as such holder of Preferred Shares or any
Permitted Assignee or any other holder of Preferred Shares, provided such
adviser or manager has the sole power to make decisions regarding any actions to
be taken by such entity or fund in connection with these Articles of Amendment
(each such person or entity described in the immediately preceding clauses (i),
(ii) or (iii) is referred to as "Permitted Assignee") and (b) with the prior
written consent of the Company, which consent shall not be unreasonably
withheld, to any person or entity. Notwithstanding the foregoing, each holder of
Preferred Shares shall be entitled to pledge such Preferred Shares in connection
with a bona fide margin account.
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<PAGE> 26
ARTICLE II
MANNER OF ADOPTION AND VOTE
Section 1. Action by Directors. The Board of Directors of the
Corporation, as of September 24, 1999, 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 Indiana Act, 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:
<PAGE> 27
EXHIBIT I
WAVO CORPORATION
CONVERSION NOTICE
Reference is made to the Articles of Amendment to the Articles of Incorporation
of WAVO Corporation for its Series D Convertible Preferred Stock (the "ARTICLES
OF AMENDMENT"). In accordance with and pursuant to the Articles of Amendment,
the undersigned hereby elects to convert the number of shares of Series D
Convertible Preferred Stock, no par value per share (the "PREFERRED SHARES"), of
WAVO Corporation, an Indiana corporation (the "COMPANY"), indicated below into
shares of Common Stock, no par value per share (the "COMMON STOCK"), of the
Company, as of the date specified below.
Date of Conversion:____________________________________________________
Number of Preferred Shares to be converted:____________________________
Stock certificate no(s). of Preferred Shares to be converted:__________
Please confirm the following information:
Conversion Price:____________________________
Number of shares of Common Stock to be issued:_________________________
Is the alternative Applicable Daily Price being relied on pursuant to
Section 2(f)(ii) of the Articles of Amendment? (check one) YES ____ No
____
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to:___________________________________________________________
___________________________________________________________
___________________________________________________________
Facsimile Number:_______________________________
Authorization:___________________________________
By:
Title:
Dated:__________________________________________
Account Number (if electronic book entry transfer):___________________
Transaction Code Number (if electronic book entry transfer):___________
[NOTE TO HOLDER -- THIS FORM MUST BE SENT CONCURRENTLY TO TRANSFER AGENT]
<PAGE> 28
ACKNOWLEDGMENT
The Company hereby acknowledges this Conversion Notice and hereby
directs [TRANSFER AGENT] to issue the above indicated number of shares of Common
Stock in accordance with the Transfer Agent Instructions dated ___________ ___,
1999 from the Company and acknowledged and agreed to by [TRANSFER AGENT].
WAVO CORPORATION
By:_______________________________________
Name:_____________________________________
Title:____________________________________
<PAGE> 1
Exhibit 4.1
FORM OF WARRANT
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN A FORM REASONABLY
SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THIS WARRANT MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT.
WAVO CORPORATION
WARRANT TO PURCHASE COMMON STOCK
Warrant No.:_________________________ Number of Shares:___________________
Date of Issuance: _____________ __, _____
WAVO Corporation, an Indiana corporation (the "COMPANY"), hereby certifies that,
for Ten United States Dollars ($10.00) and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
____________________, the registered holder hereof or its permitted assigns, is
entitled, subject to the terms set forth below, to purchase from the Company
upon surrender of this Warrant, at any time or times on or after the date
hereof, but not after 11:59 P.M. Eastern Time on the Expiration Date (as defined
herein) ___________________ (________) [INSERT (A) 600 SHARES OF COMMON STOCK
FOR EACH INITIAL PREFERRED SHARE AND (B) 500 SHARES OF COMMON STOCK FOR EACH
ADDITIONAL PREFERRED SHARE AND] fully paid nonassessable shares of Common Stock
(as defined herein) of the Company (the "WARRANT SHARES") at the purchase price
per share provided in Section 1(b) below; provided, however, that in no event
shall the holder be entitled to exercise this Warrant for a number of Warrant
Shares in excess of that number of Warrant Shares which, upon giving effect to
such exercise, would cause the aggregate number of shares of Common Stock
beneficially owned by the holder and its affiliates to exceed 4.99% of the
outstanding shares of the Common Stock following such exercise. For purposes of
the foregoing proviso, the aggregate number of shares of Common Stock
beneficially owned by the holder and its affiliates shall include the number of
shares of Common Stock issuable upon exercise of this Warrant with respect to
which the
<PAGE> 2
determination of such proviso is being made, but shall exclude shares of Common
Stock which would be issuable upon (i) exercise of the remaining, unexercised
Warrants beneficially owned by the holder and its affiliates and (ii) exercise
or conversion of the unexercised or unconverted portion of any other securities
of the Company beneficially owned by the holder and its affiliates (including,
without limitation, any convertible notes or preferred stock) subject to a
limitation on conversion or exercise analogous to the limitation contained
herein. Except as set forth in the preceding sentence, for purposes of this
paragraph, beneficial ownership shall be calculated in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended. For purposes of this
Warrant, in determining the number of outstanding shares of Common Stock a
holder may rely on the number of outstanding shares of Common Stock as reflected
in (1) the Company's most recent Form 10-Q or Form 10-K, as the case may be, (2)
a more recent public announcement by the Company or (3) any other notice by the
Company or its transfer agent setting forth the number of shares of Common Stock
outstanding. Upon the written request of any holder, the Company shall promptly,
but in no event later than one (1) Business Day following the receipt of such
notice, confirm in writing to any such holder the number of shares of Common
Stock then outstanding. In any case, the number of outstanding shares of Common
Stock shall be determined after giving effect to conversions of Preferred Shares
and exercise of Warrants (as defined below) by such holder and its affiliates
since the date as of which such number of outstanding shares of Common Stock was
reported.
Section 1.
(a) Securities Purchase Agreement. This Warrant is one of the
Warrants (the "PREFERRED SHARE WARRANTS") issued pursuant to Section 1 of that
certain Securities Purchase Agreement dated as of September 30, 1999, among the
Company and the Buyers referred to therein (the "SECURITIES PURCHASE
AGREEMENT").
(b) Definitions. The following words and terms as used in this
Warrant shall have the following meanings:
(i) "APPROVED STOCK PLAN" shall mean any employee
benefit plan which has been approved by the Board of Directors of the Company,
pursuant to which the Company's securities may be issued to any employee,
officer, director, or consultant for services provided to the Company.
(ii) "ARTICLES OF AMENDMENT" means the Company's
Articles of Amendment to its Articles of Incorporation for the Company's Series
D Convertible Preferred Stock.
(iii) "BUSINESS DAY" means any day other than
Saturday, Sunday or other day on which commercial banks in the City of New York
are authorized or required by law to remain closed.
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<PAGE> 3
(iv) "CLOSING BID PRICE" means, for any security as
of any date, the last closing bid price for such security on the Principal
Market (as defined below) as reported by Bloomberg Financial Markets
("BLOOMBERG"), or, if the Principal Market is not the principal trading market
for such security, the last closing bid price of such security on the principal
securities exchange or trading market where such security is listed or traded as
reported by Bloomberg, or if the foregoing do not apply, the last closing bid
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 closing bid price is
reported for such security by Bloomberg, the last closing trade price for such
security as reported by Bloomberg, or, if no last closing trade price is
reported for such security by Bloomberg, the average of the bid prices of any
market makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such
security on such date on any of the foregoing bases, the Closing Bid Price of
such security on such date shall be the fair market value as mutually determined
by the Company and the holders of the Preferred Shares. If the Company and the
holders of the Preferred Shares are unable to agree upon the fair market value
of the Common Stock, then such dispute shall be resolved pursuant to Section
2(a) of this Warrant. All such determinations to be appropriately adjusted for
any stock dividend, stock split or other similar transaction during such period.
(v) "CLOSING SALE PRICE" means, for any security as
of any date, the last closing trade price for such security on the Principal
Market (as defined below) as reported by Bloomberg, or, if the Principal Market
is not the principal securities exchange or trading market for such security,
the last closing trade price of such security on the principal securities
exchange or trading market where such security is listed or traded as reported
by Bloomberg, or if the foregoing do not apply, the last closing trade 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 last closing trade price
is reported for such security by Bloomberg, the last closing ask price of such
security as reported by Bloomberg, or, if no last closing ask price is reported
for such security by Bloomberg, the average of the lowest ask price and lowest
bid price of any 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 mutually determined by the Company and the holder of this Warrant. If the
Company and the holder of this Warrant are unable to agree upon the fair market
value of the Common Stock, then such dispute shall be resolved pursuant to
Section 2(a) below with the term "Closing Sale Price" being substituted for the
term "Closing Bid Price." All such determinations to be appropriately adjusted
for any stock dividend, stock split or other similar transaction during such
period.
(vi) "COMMON STOCK" means (i) the Company's common
stock, no par value per share, and (ii) any capital stock into which such Common
Stock shall have been changed or any capital stock resulting from a
reclassification of such Common Stock.
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(vii) "CONVERTIBLE SECURITIES" means any stock or
securities (other than Options) directly or indirectly convertible into or
exchangeable for Common Stock.
(viii) "EXPIRATION DATE" means the date five (5)
years from the Issuance Date of this Warrant or, if such date falls on a
Saturday, Sunday or other day on which banks are required or authorized to be
closed in the City of New York or the State of New York or on which trading does
not take place on the principal exchange or automated quotation system on which
the Common Stock is traded (a "HOLIDAY"), the next date that is not a Holiday.
(ix) "ISSUANCE DATE" means, with respect to each
Warrant, the date of issuance of the applicable Warrant.
(x) "OPTIONS" means any rights, warrants or options
to subscribe for or purchase Common Stock or Convertible Securities.
(xi) "OTHER SECURITIES" means (a) those options and
warrants of the Company issued prior to, and outstanding on, the date of
issuance of this Warrant and shares of Common Stock issued upon exercise of such
options and warrants, provided such options and warrants are not amended after
the issuance date of this Warrant, (b) the Preferred Shares, (c) the shares of
Common Stock issued upon conversion of the Series 1994 Cumulative Convertible
Preferred Shares, (d) the issuance of Common Stock or warrants to purchase
Common Stock as consideration for an acquisition and (e) the shares of Common
Stock issued upon conversion of the Preferred Shares or exercise of the
Preferred Share Warrants.
(xii) "PERSON" means an individual, a limited
liability company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
(xiii) "PREFERRED SHARES" means the shares of the
Company's Series D Convertible Preferred Shares issued pursuant to the
Securities Purchase Agreement.
(xiv) "PRINCIPAL MARKET" means the Nasdaq National
Market.
(xv) "REGISTRATION RIGHTS AGREEMENT" means that
Agreement dated September 30, 1999 by and among the Company and the Buyers
referred to therein.
(xvi) "SECURITIES ACT" means the Securities Act of
1933, as amended.
(xvii) "WARRANT" means this Warrant and all Warrants
issued in exchange, transfer or replacement thereof.
(xviii) "WARRANT EXERCISE PRICE" shall be equal to,
with respect to any Warrant Share, the arithmetic average of the Closing Bid
Prices of the Common Stock on each of
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the 10 consecutive trading days immediately preceding the applicable Issuance
Date of this Warrant, subject to adjustment as hereinafter provided.
(c) Other Definitional Provisions.
(i) Except as otherwise specified herein, all
references herein (A) to the Company shall be deemed to include the Company's
successors and (B) to any applicable law defined or referred to herein, shall be
deemed references to such applicable law as the same may have been or may be
amended or supplemented from time to time.
(ii) When used in this Warrant, the words "HEREIN,"
"HEREOF," and "HEREUNDER," and words of similar import, shall refer to this
Warrant as a whole and not to any provision of this Warrant, and the words
"SECTION," "SCHEDULE," and "EXHIBIT" shall refer to Sections of, and Schedules
and Exhibits to, this Warrant unless otherwise specified.
(iii) Whenever the context so requires, the neuter
gender includes the masculine or feminine, and the singular number includes the
plural, and vice versa.
Section 2. Exercise of Warrant.
(a) Subject to the terms and conditions hereof, this Warrant
may be exercised by the holder hereof then registered on the books of the
Company, in whole or in part, at any time on any Business Day on or after the
opening of business on the date hereof and prior to 11:59 P.M. Eastern Time on
the Expiration Date by (i) delivery of a written notice, in the form of the
subscription notice attached as Exhibit A hereto (the "EXERCISE NOTICE"), of
such holder's election to exercise this Warrant, which notice shall specify the
number of Warrant Shares to be purchased, (ii) (A) payment to the Company of an
amount equal to the applicable Warrant Exercise Price multiplied by the number
of Warrant Shares as to which this Warrant is being exercised (plus any
applicable issue or transfer taxes) (the "AGGREGATE EXERCISE PRICE") in cash or
wire transfer of immediately available funds or (B) by notifying the Company
that this Warrant is being exercised pursuant to a Cashless Exercise (as defined
in Section 2(e)) and (iii) the surrender to a common carrier for overnight
delivery to the Company as soon as practicable following such date, this Warrant
(or an indemnification undertaking with respect to this Warrant in the case of
its loss, theft or destruction); provided, that if such Warrant Shares are to be
issued in any name other than that of the registered holder of this Warrant,
such issuance shall be deemed a transfer and the provisions of Section 7 shall
be applicable. In the event of any exercise of the rights represented by this
Warrant in compliance with this Section 2(a), the Company shall on the second
Business Day following the date of receipt of the Exercise Notice, the Aggregate
Exercise Price (or notice of a Cashless Exercise) and this Warrant (or an
indemnification undertaking with respect to this Warrant in the case of its
loss, theft or destruction) (the "EXERCISE DELIVERY DOCUMENTS"), credit such
aggregate number of shares of Common Stock to which the holder shall be entitled
to the holder's or its designee's balance account with The Depository Trust
Company; provided, however, if the holder who submitted the Exercise Notice
requested physical delivery of any or
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all of the Warrant Shares, then the Company shall, on or before the second
Business Day following receipt of the Exercise Delivery Documents issue and
surrender to a common carrier for overnight delivery to the address specified in
the Exercise Notice, a certificate, registered in the name of the holder, for
the number of shares of Common Stock to which the holder shall be entitled
pursuant to such request. Upon delivery of the Exercise Notice and Aggregate
Exercise Price referred to in clause (ii)(A) above or notification to the
Company of a Cashless Exercise referred to in Section 2(e), the holder of this
Warrant shall be deemed for all corporate purposes to have become the holder of
record of the Warrant Shares with respect to which this Warrant has been
exercised, irrespective of the date of delivery of this Warrant as required by
clause (iii) above or the certificates evidencing such Warrant Shares. In the
case of a dispute as to the determination of the Warrant Exercise Price or the
Closing Bid Price of a security or the arithmetic calculation of the Warrant
Shares, the Company shall promptly issue to the holder the number of shares of
Common Stock that is not disputed and shall submit the disputed determinations
or arithmetic calculations to the holder via facsimile within one Business Day
of receipt of the holder's subscription notice. If the holder and the Company
are unable to agree upon the determination of the Warrant Exercise Price or the
Closing Bid Price or arithmetic calculation of the Warrant Shares within one day
of such disputed determination or arithmetic calculation being submitted to the
holder, then the Company shall immediately submit via facsimile (i) the disputed
determination of the Warrant Exercise Price or the Closing Bid Price to an
independent, reputable investment banking firm or (ii) the disputed arithmetic
calculation of the Warrant Shares to its independent, outside accountant. The
Company shall cause the investment banking firm or the accountant, as the case
may be, to perform the determinations or calculations and notify the Company and
the holder of the results no later than forty-eight (48) hours from the time it
receives the disputed determinations or calculations. Such investment banking
firm's or accountant's determination or calculation, as the case may be, shall
be deemed conclusive absent manifest error.
(b) Unless the rights represented by this Warrant shall have
expired or shall have been fully exercised, the Company shall, as soon as
practicable and in no event later than five (5) Business Days after any exercise
and at its own expense, issue a new Warrant identical in all respects to this
Warrant exercised except it shall represent rights to purchase the number of
Warrant Shares purchasable immediately prior to such exercise under this
Warrant, less the number of Warrant Shares with respect to which such Warrant is
exercised.
(c) No fractional shares of Common Stock are to be issued upon
the exercise of this Warrant, but rather the number of shares of Common Stock
issued upon exercise of this Warrant shall be rounded up or down to the nearest
whole number.
(d) If the Company shall fail for any reason or for no reason
to issue to the holder within five (5) Business Days of receipt of the Exercise
Delivery Documents, a certificate for the number of shares of Common Stock to
which the holder is entitled or to credit the holder's balance account with The
Depository Trust Company for such number of shares of Common Stock to which the
holder is entitled upon the holder's exercise of this Warrant, the Company
shall, in addition to any other remedies under this Warrant or the Securities
Purchase Agreement or
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<PAGE> 7
otherwise available to such holder, including any indemnification under Section
8 of the Securities Purchase Agreement, pay as additional damages in cash to
such holder on each day the issuance of such Common Stock certificate, is not
timely effected an amount equal to 0.5%of the product of (A) the sum of the
number of shares of Common Stock not issued to the holder on a timely basis and
to which the holder is entitled, and (B) the average of the Closing Bid Price of
the Common Stock for the three consecutive trading days immediately preceding
the last possible date which the Company could have issued such Common Stock, to
the holder without violating this Section 2.
(e) If within ten (10) Business Days after the Company's
receipt of the Exercise Delivery Documents, the Company fails to deliver a new
Warrant to the holder for the number of shares of Common Stock to which such
holder is entitled pursuant to Section 2(b) hereof, then, in addition to any
other available remedies under this Warrant or the Securities Purchase Agreement
including indemnification pursuant to Section 8 thereof or otherwise available
to such holder, the Company shall pay as additional damages in cash to such
holder on each day after such tenth (10th) Business Day that such delivery of
such new Warrant is not timely effected in an amount equal to 0.5% of the
product of (A) the number of shares of Common Stock represented by the portion
of this Warrant which is not being exercised and (B) the average of the Closing
Bid Prices of the Common Stock for the three consecutive trading days
immediately preceding the last possible date which the Company could have issued
such Warrant to the holder without violating this Section 2.
(f) If, despite the Company's obligations under the Securities
Purchase Agreement and the Registration Rights Agreement, the Warrant Shares to
be issued are not registered and available for resale pursuant to a registration
statement in accordance with the Registration Rights Agreement, except during an
Allowable Grace Period (as defined in the Registration Rights Agreement), then
notwithstanding anything contained herein to the contrary, the holder of this
Warrant may, at its election exercised in its sole discretion, exercise this
Warrant in whole or in part and, in lieu of making the cash payment otherwise
contemplated to be made to the Company upon such exercise in payment of the
Aggregate Exercise Price, elect instead to receive upon such exercise the "Net
Number" of shares of Common Stock determined according to the following formula
(a "CASHLESS EXERCISE"):
Net Number = (A x B) - (A x C)
-----------------
B
For purposes of the foregoing formula:
A= the total number shares with respect to which this
Warrant is then being exercised.
B= the Closing Sale Price of the Common Stock on the
date immediately preceding the date of the
subscription notice.
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<PAGE> 8
C= the Warrant Exercise Price then in effect for the
applicable Warrant Shares at the time of such
exercise.
(g) Exercise Restrictions. The holder of this Warrant shall
not be entitled to exercise this Warrant for more than [INSERT (A) 550 SHARES OF
COMMON STOCK FOR EACH INITIAL PREFERRED SHARE AND (B) 450 SHARES OF COMMON STOCK
FOR EACH ADDITIONAL PREFERRED SHARE]; provided, however, that such number shall
be increased by 50 shares of Common Stock for each share of Preferred Stock
issued on the date of this Warrant which is either redeemed or converted at a
Conversion Price (as defined in the Articles of Amendment) which is less than
the Fixed Conversion Price (as defined in the Articles of Amendment).
Notwithstanding the foregoing, the exercise restrictions set forth in this
Section 2(g) shall not apply: (a) on and after any date on which the Common
stock is not listed or quoted on the Nasdaq National Market or The New York
Stock Exchange, Inc. or The American Stock Exchange, Inc. or has been suspended
from trading on any such exchange (excluding suspensions of not more than one
day resulting from business announcements by the Company or unless the Common
Stock is listed on one of the other such exchanges and trading in the Common
Stock is not suspended on such other exchange), or any such delisting or
suspension is threatened or pending either (I) in writing by such exchanges or
(II) by falling below the minimum listing maintenance requirements on such
exchanges; (b) on or after any date on which there shall have occurred an event
constituting a Change of Control (as defined in the Articles of Amendment) or a
Triggering Event (as defined in the Articles of Amendment) or an event that with
the passage of time and without being cured would constitute a Triggering Event;
(c) on or after any date on which there shall have been an announcement of a
pending Change of Control (as defined in the Articles of Amendment); (d) on or
after any date on which the Company issues or sells or is deemed to have issued
or sold any Convertible Securities or Options that are convertible into or
exercisable or exchangeable for shares of Common Stock at a conversion or
exercise price which varies or may vary with the market price of the Common
Stock, including by way of periodic resets to a fixed price; (e) on or after any
date on which the Company fails to pay the Company's Election Redemption Price
(as defined in the Articles of Amendment) for any Preferred Shares in a timely
manner in accordance with a Redemption at Company's Election (as defined in the
Articles of Amendment) pursuant to the Articles of Amendment; or (f) on any date
on which the Company is not a party to the Credit Facility (as defined in the
Articles of Amendment).
Section 3. Covenants as to Common Stock. The Company hereby covenants
and agrees as follows:
(a) This Warrant is, and any Warrants issued in substitution
for or replacement of this Warrant will upon issuance be, duly authorized and
validly issued.
(b) All Warrant Shares which may be issued upon the exercise
of the rights represented by this Warrant will, upon issuance, be validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issue thereof.
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(c) During the period within which the rights represented by
this Warrant may be exercised, the Company will at all times have authorized and
reserved at least 100% of the number of shares of Common Stock needed to provide
for the exercise of the rights then represented by this Warrant and the par
value of said shares will at all times be less than or equal to the applicable
Warrant Exercise Price.
(d) The Company shall promptly secure the listing of the
shares of Common Stock issuable upon exercise of this Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance upon
exercise of this Warrant) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all shares of Common Stock from
time to time issuable upon the exercise of this Warrant; and the Company shall
so list on each national securities exchange or automated quotation system, as
the case may be, and shall maintain such listing of, any other shares of capital
stock of the Company issuable upon the exercise of this Warrant if and so long
as any shares of the same class shall be listed on such national securities
exchange or automated quotation system.
(e) The Company will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. No impairment of the designations, preferences and rights of the
Preferred Shares contained in the Company's Articles of Amendment or any waiver
thereof which has an adverse effect on the rights granted hereunder shall be
given effect until the Company has taken appropriate action (satisfactory to the
holders of Preferred Share Warrants representing a majority of the shares of
Common Stock issuable upon the exercise of such Preferred Share Warrants then
outstanding) to avoid such adverse effect with respect to this Warrant. Without
limiting the generality of the foregoing, the Company (i) will not increase the
par value of any shares of Common Stock receivable upon the exercise of this
Warrant above the Warrant Exercise Price then in effect, and (ii) will take all
such actions as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock
upon the exercise of this Warrant.
(f) This Warrant will be binding upon any entity succeeding to
the Company by merger, consolidation or acquisition of all or substantially all
of the Company's assets.
Section 4. Taxes. The Company shall pay any and all taxes which may be
payable with respect to the issuance and delivery of Warrant Shares upon
exercise of this Warrant; provided, however, that the Company shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issue or delivery of Common Stock or other securities or property in
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<PAGE> 10
a name other than that of the registered holders of this Warrant to be converted
and such holder shall pay such amount, if any, to cover any applicable transfer
or similar tax.
Section 5. Warrant Holder Not Deemed a Stockholder. Except as otherwise
specifically provided herein, no holder, as such, of this Warrant shall be
entitled to vote or receive dividends or be deemed the holder of shares of the
Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings, receive dividends or subscription rights, or otherwise, prior to the
issuance to the holder of this Warrant of the Warrant Shares which he or she is
then entitled to receive upon the due exercise of this Warrant. In addition,
nothing contained in this Warrant shall be construed as imposing any liabilities
on such holder to purchase any securities (upon exercise of this Warrant or
otherwise) or as a stockholder of the Company, whether such liabilities are
asserted by the Company or by creditors of the Company. Notwithstanding this
Section 5, the Company will provide the holder of this Warrant with copies of
the same notices and other information given to the stockholders of the Company
generally, contemporaneously with the giving thereof to the stockholders.
Section 6. Representations of Holder. The holder of this Warrant, by
the acceptance hereof, represents that it is acquiring this Warrant and the
Warrant Shares for its own account for investment only and not with a view
towards, or for resale in connection with, the public sale or distribution of
this Warrant or the Warrant Shares, except pursuant to sales registered or
exempted under the Securities Act; provided, however, that by making the
representations herein, the holder does not agree to hold this Warrant or any of
the Warrant Shares for any minimum or other specific term and reserves the right
to dispose of this Warrant and the Warrant Shares at any time in accordance with
or pursuant to a registration statement or an exemption under the Securities
Act. The holder of this Warrant further represents, by acceptance hereof, that,
as of this date, such holder is an "accredited investor" as such term is defined
in Rule 501(a)(1) of Regulation D promulgated by the Securities and Exchange
Commission under the Securities Act (an "ACCREDITED INVESTOR"). Upon exercise of
this Warrant, other than pursuant to a Cashless Exercise the holder shall, if
requested by the Company, confirm in writing, in a form satisfactory to the
Company, that the Warrant Shares so purchased are being acquired solely for the
holder's own account and not as a nominee for any other party, for investment,
and not with a view toward distribution or resale and that such holder is an
Accredited Investor. If such holder cannot make such representations because
they would be factually incorrect, it shall be a condition to such holder's
exercise of this Warrant that the Company receive such other representations as
the Company considers reasonably necessary to assure the Company that the
issuance of its securities upon exercise of this Warrant shall not violate any
United States or state securities laws.
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<PAGE> 11
Section 7. Ownership and Transfer.
(a) The Company shall maintain at its principal executive
offices (or such other office or agency of the Company as it may designate by
notice to the holder hereof), a register for this Warrant, in which the Company
shall record the name and address of the person in whose name this Warrant has
been issued, as well as the name and address of each transferee. The Company may
treat the person in whose name any Warrant is registered on the register as the
owner and holder thereof for all purposes, notwithstanding any notice to the
contrary, but in all events recognizing any transfers made in accordance with
the terms of this Warrant.
(b) This Warrant and the rights granted hereunder shall be
assignable by the holder hereof and Permitted Assignees (as defined below) to
(i) without the consent of the Company, any person or entity who, immediately
prior to such assignment, is (A) an affiliate of the holder hereof, (B) a holder
of Preferred Shares or Preferred Share Warrants or (C) an entity or fund which
has the same principal investment adviser or manager as the holder hereof or any
other holder of Preferred Shares, provided such adviser or manager has the sole
power to make decisions regarding any actions taken by such entity or fund in
connection with the Transaction Documents (as defined in the Securities Purchase
Agreement) (each such person or entity described in the immediately preceding
clause (A), (B) and (C) is referred to as "PERMITTED ASSIGNEE") and (ii) with
the prior written consent of the Company, which consent shall not be
unreasonably withheld, to any person or entity; provided, however, that any such
assignment shall not release the holder hereof from its obligations hereunder
unless such obligations are assumed by such assignee and the Company has
consented to such assignment and assumption, which consent shall not be
unreasonably withheld.
(c) The Company is obligated to register the Warrant Shares
for resale under the Securities Act pursuant to the Registration Rights
Agreement and the initial holder of this Warrant (and certain assignees thereof)
is entitled to the registration rights in respect of the Warrant Shares as set
forth in the Registration Rights Agreement.
Section 8. Adjustment of Warrant Exercise Price and Number of Shares.
The Warrant Exercise Price and the number of shares of Common Stock issuable
upon exercise of this Warrant shall be adjusted from time to time as follows:
(a) Adjustment of Warrant Exercise Price and Number of Shares
upon Issuance of Common Stock. If and whenever on or after the date of issuance
of this Warrant, the Company issues or sells, or is deemed to have issued or
sold, any shares of Common Stock (other than the Other Securities or shares of
Common Stock deemed to have been issued by the Company in connection with an
Approved Stock Plan) for a consideration per share less than a price (the
"APPLICABLE PRICE") equal to the Warrant Exercise Price then in effect
immediately prior to such issuance or sale, then immediately after such issue or
sale, the Warrant Exercise Price then in effect shall be reduced to an amount
(A) in the event such issue or sale occurs on or prior to the first date (the
"RATCHET DATE") after the issuance on which no Preferred Shares remain
outstanding
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<PAGE> 12
(provided that if an Additional Closing Date occurs, then the Ratchet Date shall
be the first date after the last Additional Closing Date (as defined in the
Securities Purchase Agreement) on which no Preferred Shares remain outstanding,
then equal to the consideration per share at which the Company issued or sold,
or was deemed to have issued or sold, one share of Common Stock pursuant to such
issuance or sale or (B) in the event such issue or sale occurs after the Ratchet
Date, then equal to the product of (x) the Warrant Exercise Price in effect
immediately prior to such issue or sale and (y) the quotient determined by
dividing (1) the sum of (I) the product of the Applicable Price and the number
of shares of Common Stock Deemed Outstanding (as defined below) immediately
prior to such issue or sale, plus (II) the consideration, if any, received by
the Company upon such issue or sale, by (2) the product of (I) the Applicable
Price and (II) the number of shares of Common Stock Deemed Outstanding
immediately after such issue or sale. For purposes of determining the adjusted
Warrant Exercise Price, "COMMON STOCK DEEMED OUTSTANDING" means, at any given
time, the number of shares of Common Stock actually outstanding at such time,
plus the number of shares of Common Stock deemed to be outstanding pursuant to
Sections 8(a) and 8(b) hereof regardless of whether the Options or Convertible
Securities are actually exercisable at such time, but excluding any shares of
Common Stock owned or held by or for the account of the Company.
(b) Effect on Warrant Exercise Price of Certain Events. For
purposes of determining the adjusted Warrant Exercise Price under Section 8(a)
above, the following shall be applicable:
(i) Issuance of Options. If the Company in any manner
grants any Options and the lowest price per share for which one share of Common
Stock is issuable upon the exercise of any such Option or upon conversion or
exchange of any Convertible Securities issuable upon exercise of any such Option
is less than the Applicable Price, then such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the Company at the
time of the granting or sale of such Option for such price per share. For
purposes of this Section 8(b)(i), the "lowest price per share for which one
share of Common Stock is issuable upon exercise of such Options or upon
conversion or exchange of such Convertible Securities" shall be equal to the sum
of the lowest amounts of consideration (if any) received or receivable by the
Company with respect to any one share of Common Stock upon the granting or sale
of the Option, upon exercise of the Option and upon conversion or exchange of
any Convertible Security issuable upon exercise of such Option. No further
adjustment of the Warrant Exercise Price shall be made upon the actual issuance
of such Common Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such Common Stock upon conversion or
exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the
Company in any manner issues or sells any Convertible Securities and the lowest
price per share for which one share of Common Stock is issuable upon such
conversion or exchange thereof is less than the Applicable Price, then such
share of Common Stock shall be deemed to be outstanding and to have been issued
and sold by the Company at the time of the issuance or sale of such Convertible
Securities
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for such price per share. For the purposes of this Section 8(b)(ii), the "lowest
price per share for which one share of Common Stock is issuable upon such
conversion or exchange" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to one
share of Common Stock upon the issuance or sale of the Convertible Security and
upon conversion or exchange of such Convertible Security. No further adjustment
of the Warrant Exercise Price shall be made upon the actual issuance of such
Common Stock upon conversion or exchange of such Convertible Securities, and if
any such issue or sale of such Convertible Securities is made upon exercise of
any Options for which adjustment of the Warrant Exercise Price had been or are
to be made pursuant to other provisions of this Section 8(b), no further
adjustment of the Warrant Exercise Price shall be made by reason of such issue
or sale.
(iii) Change in Option Price or Rate of Conversion.
If the purchase price provided for in any Options, the additional consideration,
if any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable for Common Stock changes at any time, the Warrant Exercise Price
in effect at the time of such change shall be adjusted to the Warrant Exercise
Price which would have been in effect at such time had such Options or
Convertible Securities provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold and the number of shares of Common Stock
acquirable hereunder shall be correspondingly readjusted. For purposes of this
Section 8(b)(iii), if the terms of any Option or Convertible Security that was
outstanding as of the date of issuance of this Warrant are changed in the manner
described in the immediately preceding sentence, then such Option or Convertible
Security and the Common Stock deemed issuable upon exercise, conversion or
exchange thereof shall be deemed to have been issued as of the date of such
change. No adjustment pursuant to this Section 8(b) shall be made if such
adjustment would result in an increase of the Warrant Exercise Price then in
effect.
(c) Effect on Warrant Exercise Price of Certain Events. For
purposes of determining the adjusted Warrant Exercise Price under Sections 8(a)
and 8(b), the following shall be applicable:
(i) Calculation of Consideration Received. In case
any Option is issued in connection with the issue or sale of other securities of
the Company, together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $.01. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the net amount received by the Company therefor. If any Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of such consideration received by the Company will be the
fair value of such consideration, except where such consideration consists of
securities, in which case the amount of consideration received by the Company
will be the arithmetic average of the Closing Bid Prices of such securities on
the 10 consecutive trading days immediately preceding the date of receipt of
such securities. If any Common Stock, Options or
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<PAGE> 14
Convertible Securities are issued to the owners of the non-surviving entity in
connection with any merger in which the Company is the surviving entity, the
amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair value of any consideration other than cash or securities
will be determined jointly by the Company and the holders of Preferred Share
Warrants representing a majority of the shares of Common Stock obtainable upon
exercise of the Preferred Share Warrants then outstanding. If such parties are
unable to reach agreement within ten (10) days after the occurrence of an event
requiring valuation (the "VALUATION EVENT"), the fair value of such
consideration will be determined within five Business Days after the tenth
(10th) day following the Valuation Event by an independent, reputable appraiser
jointly selected by the Company and the holders of Preferred Share Warrants
representing a majority of the shares of Common Stock obtainable upon exercise
of the Preferred Share Warrants then outstanding. The determination of such
appraiser shall be final and binding upon all parties and the fees and expenses
of such appraiser shall be borne jointly by the Company and the holders of
Preferred Shares.
(ii) Integrated Transactions. In case any Option is
issued in connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $.01.
(iii) Treasury Shares. The number of shares of Common
Stock outstanding at any given time does not include shares owned or held by or
for the account of the Company, and the disposition of any shares so owned or
held will be considered an issue or sale of Common Stock.
(iv) Record Date. If the Company takes a record of
the holders of Common Stock for the purpose of entitling them (1) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (2) to subscribe for or purchase Common Stock, Options
or Convertible Securities, then such record date will be deemed to be the date
of the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(d) Adjustment of Warrant Exercise Price upon Subdivision or
Combination of Common Stock. If the Company at any time after the date of
issuance of this Warrant subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, any Warrant Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced and
the number of shares of Common Stock obtainable upon exercise of this Warrant
will be proportionately increased. If the Company at any time after the date of
issuance of this Warrant combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, any Warrant Exercise Price in effect immediately
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<PAGE> 15
prior to such combination will be proportionately increased and the number of
shares of Common Stock obtainable upon exercise of this Warrant will be
proportionately decreased. Any adjustment under this Section 8(d) shall become
effective at the close of business on the date the subdivision or combination
becomes effective.
(e) Distribution of Assets. If the Company shall declare or
make any dividend or other distribution of its assets (or rights to acquire its
assets) to holders of Common Stock, by way of return of capital or otherwise
(including, without limitation, any distribution of cash, stock or other
securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement or other similar transaction) (a
"DISTRIBUTION"), at any time after the issuance of this Warrant, then, in each
such case:
(i) any Warrant Exercise Price in effect immediately
prior to the close of business on the record date fixed for the determination of
holders of Common Stock entitled to receive the Distribution shall be reduced,
effective as of the close of business on such record date, to a price determined
by multiplying such Warrant Exercise Price by a fraction of which (A) the
numerator shall be the Closing Bid Price of the Common Stock on the trading day
immediately preceding such record date minus the value of the Distribution (as
determined in good faith by the Company's Board of Directors) applicable to one
share of Common Stock, and (B) the denominator shall be the Closing Bid Price of
the Common Stock on the trading day immediately preceding such record date; and
(ii) either (A) the number of Warrant Shares
obtainable upon exercise of this Warrant shall be increased to a number of
shares equal to the number of shares of Common Stock obtainable immediately
prior to the close of business on the record date fixed for the determination of
holders of Common Stock entitled to receive the Distribution multiplied by the
reciprocal of the fraction set forth in the immediately preceding clause (i), or
(B) in the event that the Distribution is of common stock of a company whose
common stock is traded on a national securities exchange or a national automated
quotation system, then the holder of this Warrant shall receive an additional
warrant to purchase Common Stock, the terms of which shall be identical to those
of this Warrant, except that such warrant shall be exercisable into the amount
of the assets that would have been payable to the holder of this Warrant
pursuant to the Distribution had the holder exercised this Warrant immediately
prior to such record date and with an exercise price equal to the amount by
which the exercise price of this Warrant was decreased with respect to the
Distribution pursuant to the terms of the immediately preceding clause (i).
(f) Certain Events. If any event occurs of the type
contemplated by the provisions of this Section 8 but not expressly provided for
by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
then the Company's Board of Directors will make an appropriate adjustment in the
Warrant Exercise Price and the number of shares of Common Stock obtainable upon
exercise of this Warrant so as to protect the rights of the holders of the
Preferred Share Warrants; provided that no such adjustment pursuant to this
Section 8(f) will increase the Warrant Exercise Price or
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<PAGE> 16
decrease the number of shares of Common Stock obtainable as otherwise determined
pursuant to this Section 8.
(g) Notices.
(i) Immediately upon any adjustment of a Warrant
Exercise Price, the Company will give written notice thereof to the holder of
this Warrant, setting forth in reasonable detail, and certifying, the
calculation of such adjustment.
(ii) The Company will give written notice to the
holder of this Warrant at least ten (10) days prior to the date on which the
Company closes its books or takes a record (A) with respect to any dividend or
distribution upon the Common Stock, (B) with respect to any pro rata
subscription offer to holders of Common Stock or (C) for determining rights to
vote with respect to any Organic Change (as defined below), dissolution or
liquidation, provided that such information shall be made known to the public
prior to or in conjunction with such notice being provided to such holder.
(iii) The Company will also give written notice to
the holder of this Warrant at least ten (10) days prior to the date on which any
Organic Change, dissolution or liquidation will take place, provided that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to such holder.
Section 9. Purchase Rights; Reorganization, Reclassification,
Consolidation, Merger or Sale.
(a) In addition to any adjustments pursuant to Section 8
above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of Common Stock (the
"PURCHASE RIGHTS"), then the holder of this Warrant will be entitled to acquire,
upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights
which such holder could have acquired if such holder had held the number of
shares of Common Stock acquirable upon complete exercise of this Warrant
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.
(b) Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's assets
to another Person or other transaction in each case which is effected in such a
way that holders of Common Stock are entitled to receive (either directly or
upon subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as "ORGANIC CHANGE." Prior to
the consummation of any (i) sale of all or substantially all of the Company's
assets to an acquiring Person or (ii) other Organic Change following which the
Company is not a surviving entity, the
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<PAGE> 17
Company will secure from the Person purchasing such assets or the successor
resulting from such Organic Change (in each case, the "ACQUIRING ENTITY")
written agreement (in form and substance satisfactory to the holders of
Preferred Share Warrants representing a majority of the shares of Common Stock
obtainable upon exercise of the Preferred Share Warrants then outstanding) to
deliver to each holder of Preferred Share Warrants in exchange for such
Warrants, a security of the Acquiring Entity evidenced by a written instrument
substantially similar in form and substance to this Warrant and satisfactory to
the holders of the Preferred Share Warrants (including, an adjusted warrant
exercise price equal to the value for the Common Stock reflected by the terms of
such consolidation, merger or sale, and exercisable for a corresponding number
of shares of Common Stock acquirable and receivable upon exercise of the
Preferred Share Warrants (without regard to any limitations or exercise), if the
value so reflected is less than any Warrant Exercise Price in effect immediately
prior to such consolidation, merger or sale). Prior to the consummation of any
other Organic Change, the Company shall make appropriate provision (in form and
substance satisfactory to the holders of Preferred Share Warrants representing a
majority of the shares of Common Stock obtainable upon exercise of the Preferred
Share Warrants then outstanding) to insure that each of the holders of the
Preferred Share Warrants will thereafter have the right to acquire and receive
in lieu of or in addition to (as the case may be) the shares of Common Stock
immediately theretofore acquirable and receivable upon the exercise of such
holder's Preferred Share Warrants (without regard to any limitations or
exercise), such shares of stock, securities or assets that would have been
issued or payable in such Organic Change with respect to or in exchange for the
number of shares of Common Stock which would have been acquirable and receivable
upon the exercise of such holder's Warrant as of the date of such Organic Change
(without taking into account any limitations or restrictions on the
exerciseability of this Warrant).
Section 10. Lost, Stolen, Mutilated or Destroyed Warrant. If this
Warrant is lost, stolen, mutilated or destroyed, the Company shall, on receipt
of an indemnification undertaking (or, in the case of a mutilated Warrant, the
Warrant), issue a new Warrant of like denomination and tenor as this Warrant so
lost, stolen, mutilated or destroyed.
Section 11. Notice. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this Warrant
must be in writing and will be deemed to have been delivered: (i) upon receipt,
when delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one Business Day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
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<PAGE> 18
If to the Company:
WAVO Corporation
3131 E. Camelback Road, Suite 320
Phoenix, Arizona 85016
Telephone: 602-952-5500
Facsimile: 602-952-5517
Attention: Chief Executive Officer and General Counsel
With copy to:
Snell & Wilmer LLP
One Arizona Center
Phoenix, Arizona
Telephone: 602-382-6000
Facsimile: 602-382-6070
Attention: Steven D. Pidgeon, Esq.
If to a holder of this Warrant, to it at the address and facsimile number set
forth on the Schedule of Buyers to the Securities Purchase Agreement, with
copies to such holder's representatives as set forth on such Schedule of Buyers,
or at such other address and facsimile as shall be delivered to the Company upon
the issuance or transfer of this Warrant. Each party shall provide five days'
prior written notice to the other party of any change in address or facsimile
number. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
Section 12. Date. The date of this Warrant is _________, ____. This
Warrant, in all events, shall be wholly void and of no effect after the close of
business on the Expiration Date, except that notwithstanding any other
provisions hereof, the provisions of Section 7 shall continue in full force and
effect after such date as to any Warrant Shares or other securities issued upon
the exercise of this Warrant.
Section 13. Amendment and Waiver. Except as otherwise provided herein,
the provisions of the Preferred Share Warrants may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company has obtained the written
consent of the holders of Preferred Share Warrants representing a majority of
the shares of Common Stock obtainable upon exercise of the Preferred Share
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<PAGE> 19
Warrants then outstanding; provided that no such action may increase the Warrant
Exercise Price of the Preferred Share Warrants or decrease the number of shares
or class of stock obtainable upon exercise of any Preferred Share Warrants
without the written consent of the holder of such Preferred Share Warrant.
Section 14. Descriptive Headings; Governing Law. The descriptive
headings of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The corporate
laws of the State of Indiana shall govern all issues concerning the relative
rights of the Company and its stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be
governed by the internal laws of the State of New York, without giving effect to
any choice of law or conflict of law provision or rule (whether of the State of
New York, or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York.
[signature page follows]
<PAGE> 20
WAVO CORPORATION
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE> 21
EXHIBIT A TO WARRANT
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT
WAVO CORPORATION
The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("WARRANT SHARES") of Wavo
Corporation, 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 Warrant Exercise Price. The Holder intends that payment of
the Warrant 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 Warrant 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:____________________
<PAGE> 22
EXHIBIT B TO WARRANT
FORM OF WARRANT POWER
FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
________________, Federal Identification No. __________, a warrant to purchase
____________ shares of the capital stock of WAVO Corporation, an Indiana
corporation, represented by warrant certificate no. _____, standing in the name
of the undersigned on the books of said corporation. The undersigned does hereby
irrevocably constitute and appoint ______________, attorney to transfer the
warrants of said corporation, with full power of substitution in the premises.
Dated: _________, ____
___________________________________
By:________________________________
Its:_______________________________
<PAGE> 1
Exhibit 4.2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of September
30, 1999, by and among WAVO Corporation, an Indiana corporation, with
headquarters located at 3131 E. Camelback Road, Suite 320, Phoenix, Arizona
85016 (the "COMPANY"), and the undersigned Buyers (individually a "BUYER" and
collectively the "BUYERS").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among
the parties hereto of even date herewith (the "SECURITIES PURCHASE AGREEMENT"),
the Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, to issue and sell to the Buyers (i) 1,500 shares
of the Company's Series D Convertible Preferred Stock, no par value per share
(the "INITIAL PREFERRED SHARES"), which will be convertible into shares (as
converted, the "INITIAL CONVERSION SHARES") of the Company's common stock, no
par value per share (the "COMMON STOCK"), in accordance with the terms of the
Company's Articles of Amendment of its Articles of Incorporation for the Series
D Convertible Preferred Stock (the "ARTICLES OF AMENDMENT"), and (ii) warrants
to purchase shares of Common Stock (the "INITIAL WARRANTS" and, as exercised,
the "INITIAL WARRANT SHARES").
B. In connection with the Securities Purchase Agreement, the Company
may have the right, upon the terms and subject to the conditions of the
Securities Purchase Agreement, to require the Buyers to purchase (i) an
aggregate of up to 500 shares of Preferred Stock (the "ADDITIONAL PREFERRED
SHARES" and, collectively with the Initial Preferred Shares, the "PREFERRED
SHARES"), which will be convertible into Common Stock (as converted, the
"ADDITIONAL CONVERSION SHARES" and, collectively with the Initial Conversion
Shares, the "CONVERSION SHARES") in accordance with the Articles of Amendment,
and (ii) warrants to purchase shares of Common Stock (the "ADDITIONAL WARRANTS"
and collectively, with the Initial Warrant, the "Warrants"; and as exercised the
"ADDITIONAL WARRANT SHARES" and collectively with the Initial Warrant Shares,
the "Warrant Shares").
C. To induce the Buyers to execute and deliver the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "1933 ACT"), and
applicable state securities laws.
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and each
of the Buyers hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
a. "INVESTOR" means a Buyer and any transferee or assignee
thereof to whom a Buyer assigns its rights under this Agreement and who agrees
to become bound by the provisions of this Agreement in accordance with Section
9.
b. "PERSON" means a corporation, a limited liability company,
an association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
c. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant to
Rule 415 under the 1933 Act or any successor rule providing for offering for
resale of securities on a continuous or delayed basis ("RULE 415"), and the
declaration or ordering of effectiveness of such Registration Statement(s) by
the United States Securities and Exchange Commission (the "SEC").
d. "INITIAL REGISTRABLE SECURITIES" means (i) the Initial
Conversion Shares issued or issuable upon conversion of the Initial Preferred
Shares, (ii) the Dividend Shares (as defined in the Articles of Amendment)
relating to the Initial Preferred Shares, (iii) the Initial Warrant Shares
issued or issuable upon exercise of the Initial Warrants and (iv) any shares of
capital stock issued or issuable with respect to the Initial Conversion Shares,
the Initial Preferred Shares, the Dividend Shares relating to the Initial
Preferred Shares, the Initial Warrant Shares or the Initial Warrants as a result
of any stock split, stock dividend, recapitalization, exchange or similar event
or otherwise, without regard to any limitations on conversions of the Initial
Preferred Shares or exercises of Initial Warrants.
e. "ADDITIONAL REGISTRABLE SECURITIES" means (i) the
Additional Conversion Shares issued or issuable upon conversion of the
Additional Preferred Shares, (ii) the Dividend Shares relating to the Additional
Preferred Shares, (iii) the Additional Warrant Shares issued or issuable upon
exercise of the Additional Warrants and (iv) any shares of capital stock issued
or issuable with respect to the Additional Conversion Shares, the Additional
Preferred Shares, the Dividend Shares relating to the Additional Preferred
Shares, the Additional Warrant Shares or the Additional Warrants as a result of
any stock split, stock dividend, recapitalization, exchange or similar event or
otherwise, without regard to any limitations on conversions of Additional
Preferred Shares or exercises of Additional Warrants.
2
<PAGE> 3
f. "REGISTRABLE SECURITIES" means the Initial Registrable
Securities and the Additional Registrable Securities.
g. "INITIAL REGISTRATION STATEMENT" means a registration
statement or registration statements of the Company filed under the 1933 Act
covering the Initial Registrable Securities.
h. "ADDITIONAL REGISTRATION STATEMENT" means a registration
statement or registration statements of the Company filed under the 1933 Act
covering the Additional Registrable Securities.
i. "REGISTRATION STATEMENT" means the Initial Registration
Statement and the Additional Registration Statement.
j. "EFFECTIVENESS DEADLINE" means the Initial Effectiveness
Deadline or the Additional Effectiveness Deadline, as applicable.
k. "FILING DEADLINE" means the Initial Filing Deadline or the
Additional Filing Deadline, as applicable.
2. REGISTRATION.
a. Mandatory Registration.
(i) Initial Mandatory Registration. The Company shall prepare,
and, as soon as practicable, but in no event later than 30 days after the
Initial Closing Date (as defined in the Securities Purchase Agreement) (the
"INITIAL FILING DEADLINE"), file with the SEC an Initial Registration Statement
or Initial Registration Statements (as necessary) on Form S-3 covering the
resale of all of the Initial Registrable Securities. In the event that Form S-3
is unavailable for such a registration, the Company shall use such other form as
is available for such a registration, subject to the provisions of Section 2(d).
Any first Registration Statement prepared pursuant hereto shall register for
resale at least that number of shares of Common Stock equal to the sum of (y)
the product of (i) 1.5 and (ii) the number of Initial Conversion Shares issuable
upon conversion of the Initial Preferred Shares (without regard to any
limitations on conversions) as of the date immediately preceding the date the
Initial Registration Statement is initially filed with the SEC, subject to
adjustment as provided in Section 3(b), plus (z) the number of Initial Warrant
Shares issuable upon exercise of the Initial Warrants (without regard to any
limitations on exercise) as of the date immediately preceding the date the
Initial Registration Statement is initially filed with the SEC, subject to
adjustment as provided in Section 3(b). The Company shall use its best efforts
to cause such Registration Statement to be declared effective by the SEC as soon
as possible, but in no event later than 120 days after the Initial Closing Date
(the "INITIAL EFFECTIVENESS DEADLINE").
(ii) Additional Mandatory Registration. The Company shall
prepare, and, as soon as practicable, but in no event later than 15 days after
the Additional Share Notice Date
3
<PAGE> 4
(as defined in the Securities Purchase Agreement) (the "ADDITIONAL FILING
DEADLINE"), file with the SEC an Additional Registration Statement or Additional
Registration Statements (as necessary) on Form S-3 covering the resale of all of
the Additional Registrable Securities. In the event that Form S-3 is unavailable
for such a registration, the Company shall use such other form as is available
for such a registration, subject to the provisions of Section 2(d). Any first
Registration Statement prepared pursuant hereto shall register for resale at
least that number of shares of Common Stock equal to the sum of (y) the product
of (i) 1.5 and (ii) the number of Additional Conversion Shares issuable upon
conversion of the Additional Preferred Shares (without regard to any limitations
on conversions) as of the date immediately preceding the date the Additional
Registration Statement is initially filed with the SEC, subject to adjustment as
provided in Section 3(b), plus (z) the number of Additional Warrant Shares
issuable upon exercise of the Additional Warrants (without regard to any
limitations on exercise) as of the date immediately preceding the date the
Additional Registration Statement is initially filed with the SEC, subject to
adjustment as provided in Section 3(b). The Company shall use its best efforts
to cause such Registration Statement to be declared effective by the SEC as soon
as possible, but in no event later than 80 days after the Additional Share
Notice Date (the "INITIAL EFFECTIVENESS DEADLINE").
b. Allocation of Registrable Securities. The initial number of
Registrable Securities included in any Registration Statement and each increase
in the number of Registrable Securities included therein shall be allocated pro
rata among the Investors based on the number of Registrable Securities held by
each Investor at the time the Registration Statement covering such initial
number of Registrable Securities or increase thereof is declared effective by
the SEC. In the event that an Investor sells or otherwise transfers any of such
Person's Registrable Securities, each transferee shall be allocated a pro rata
portion of the then remaining number of Registrable Securities included in such
Registration Statement for such transferor. Any shares of Common Stock included
in a Registration Statement and which remain allocated to any Person which
ceases to hold any Registrable Securities covered by such Registration Statement
shall be allocated to the remaining Investors, pro rata based on the number of
Registrable Securities then held by such Investors which are covered by such
Registration Statement.
c. Legal Counsel. Subject to Section 5 hereof, the Buyers
holding a majority of the Registrable Securities shall have the right to select
one legal counsel to review and oversee any offering pursuant to this Section 2
("LEGAL COUNSEL"), which shall be Katten Muchin & Zavis or such other counsel as
thereafter designated by the holders of a majority of Registrable Securities.
The Company shall reasonably cooperate with Legal Counsel in performing the
Company's obligations under this Agreement.
d. Ineligibility for Form S-3. In the event that Form S-3 is
not available for any registration of the resale of Registrable Securities
hereunder, the Company shall (i) register the resale of the Registrable
Securities on another appropriate form reasonably acceptable to the holders of a
majority of the Registrable Securities and (ii) undertake to register the resale
of the Registrable Securities on Form S-3 as soon as such form is available,
provided that the Company shall maintain the effectiveness of the Registration
Statement then in effect until such time as a Registration Statement on Form S-3
covering the Registrable Securities has been declared effective by the SEC.
4
<PAGE> 5
e. Effect of Failure to File and Obtain and Maintain
Effectiveness of Registration Statement. If (i) a Registration Statement
covering all the Registrable Securities and required to be filed by the Company
pursuant to this Agreement is not (A) filed with the SEC on or before the
applicable Filing Deadline or (B) declared effective by the SEC on or before the
applicable Effectiveness Deadline or (ii) on any day after the Registration
Statement has been declared effective by the SEC (other than days during an
Allowable Grace Period (as defined in Section 3(t)), sales of all the
Registrable Securities required to be included on such Registration Statement
cannot be made pursuant to the Registration Statement (including, without
limitation, because of a failure to keep the Registration Statement effective,
to disclose such information as is necessary for sales to be made pursuant to
the Registration Statement, or to register sufficient shares of Common Stock),
then, as partial relief for the damages to any holder by reason of any such
delay in or reduction of its ability to sell the underlying shares of Common
Stock (which remedy shall not be exclusive of any other remedies available at
law or in equity), the Company shall pay to each holder of Preferred Shares an
amount in cash per Preferred Share held equal to the product of (i) $10,000
multiplied by (ii) the sum of (A) .02, if the Registration Statement is not
filed by the Filing Deadline, plus (B) .02, if the Registration Statement is not
declared effective by the Effectiveness Deadline, plus, (C) the product of (I)
.0005 multiplied by (II) the sum of (x) the number of days after the Filing
Deadline that such Registration Statement is not filed with the SEC, plus (y)
the number of days after the Effectiveness Deadline that the Registration
Statement is not declared effective by the SEC, plus (z) the number of days
after the Registration Statement has been declared effective by the SEC that
such Registration Statement is not available (other than during an Allowable
Grace Period) for the sale of at least all the Registrable Securities required
to be included on such Registration Statement. The payments to which a holder
shall be entitled pursuant to this Section 2(e) are referred to herein as
"REGISTRATION DELAY PAYMENTS." Registration Delay Payments shall be paid on the
earlier of (I) the last day of the calendar month during which such Registration
Delay Payments are incurred and (II) the third business day after the event or
failure giving rise to the Registration Delay Payments is cured. In the event
the Company fails to make Registration Delay Payments in a timely manner, such
Registration Delay Payments shall bear interest at the rate of 1.5% per month
(prorated for partial months) until paid in full.
f. Sufficient Number of Shares Registered. In the event the
number of shares available under a Registration Statement filed pursuant to
Section 2(a) is insufficient to cover all of the Registrable Securities which
such Registration Statement is required to cover or an Investor's allocated
portion of the Registrable Securities pursuant to Section 2(b), the Company
shall amend the Registration Statement, or file a new Registration Statement (on
the short form available therefor, if applicable), or both, so as to cover at
least 150% of the Registrable Securities (based on the market price of the
Common Stock on the trading day immediately preceding the date of filing of such
amendment or new Registration Statement), in each case, as soon as practicable,
but in any event not later than fifteen (15) days after the necessity therefor
arises. The Company shall use its best efforts to cause such amendment and/or
new Registration Statement to become effective as soon as practicable following
the filing thereof. For purposes of the foregoing provision, the number of
shares available under a Registration Statement shall be deemed "insufficient to
cover all of the Registrable Securities" if the number of Registrable Securities
issued or issuable upon conversion of the Preferred Shares and exercise of the
Warrants covered by such Registration Statement is greater than the quotient
determined by dividing (i) the number of shares of Common
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<PAGE> 6
Stock available for resale under such Registration Statement by (ii) 1.35. For
purposes of the calculation set forth in the foregoing sentence, any
restrictions on the convertibility of the Preferred Shares or exercise of the
Warrants shall be disregarded and such calculation shall assume that the
Preferred Shares are then convertible into, and the Warrants are then
exercisable for, shares of Common Stock at the then prevailing Conversion Rate
(as defined in the Articles of Amendment) or Exercise Price (as defined in the
Warrants), respectively.
3. RELATED OBLIGATIONS.
At such time as the Company is obligated to file a Registration
Statement with the SEC pursuant to Section 2(a) or 2(f), the Company will use
its best efforts to effect the registration of the Registrable Securities in
accordance with the intended method of disposition thereof and, pursuant
thereto, the Company shall have the following obligations:
a. The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the applicable Registrable Securities
(but in no event later than the Filing Deadline) and use its best efforts to
cause such Registration Statement relating to the Registrable Securities to
become effective as soon as practicable after such filing (but in no event later
than the applicable Effectiveness Deadline). The Company shall keep each
Registration Statement effective pursuant to Rule 415 at all times until the
earlier of (i) the date as of which the Investors may sell all of the
Registrable Securities covered by such Registration Statement without
restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or successor
thereto) or (ii) the date on which the Investors shall have sold all the
Registrable Securities covered by such Registration Statement (the "REGISTRATION
PERIOD"), which Registration Statement (including any amendments or supplements
thereto and prospectuses contained therein) shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein, or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading. The term "best efforts"
as used in the first sentence of this Section 3(a) shall mean, among other
things, that the Company shall submit to the SEC, within two business days after
the Company learns that no review of a particular Registration Statement will be
made by the staff of the SEC or that the staff has no further comments on the
Registration Statement, as the case may be, a request for acceleration of
effectiveness of such Registration Statement to a time and date not later than
48 hours after the submission of such request.
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to a
Registration Statement and the prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the 1933 Act, as may be necessary to keep such Registration
Statement effective at all times during the Registration Period, and, during
such period, comply with the provisions of the 1933 Act with respect to the
disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such Registration
Statement. In the case of amendments and supplements to a Registration Statement
which are required to be filed pursuant to this Agreement (including pursuant to
this Section 3(b)) by reason of the Company filing a report on Form 10-K, Form
10-Q or Form
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<PAGE> 7
8-K or any analogous report under the Securities Exchange Act of 1934, as
amended (the "1934 ACT"), the Company shall have incorporated such report by
reference into the Registration Statement, if applicable, or shall file such
amendments or supplements with the SEC on the same day on which the 1934 Act
report is filed which created the requirement for the Company to amend or
supplement the Registration Statement.
c. The Company shall (a) permit Legal Counsel to review and
comment upon those sections of (i) the Initial Registration Statement at least
five (5) business days prior to its filing with the SEC, (ii) the Additional
Registration Statement at least three (3) Business Days prior to its filing with
the SEC and (iii) all other Registration Statements and all amendments and
supplements to all Registration Statements which are applicable to the Buyers
(except for Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K and any similar or successor reports) within a
reasonable number of days prior to the their filing with the SEC and (b) not
file any document in a form to which Legal Counsel reasonably objects. The
Company shall not submit a request for acceleration of the effectiveness of a
Registration Statement or any amendment or supplement thereto without the prior
approval of Legal Counsel, which consent shall not be unreasonably withheld. The
Company shall furnish to Legal Counsel, without charge, (i) any correspondence
from the SEC or the staff of the SEC to the Company or its representatives
relating to any Registration Statement, (ii) promptly after the same is prepared
and filed with the SEC, one copy of any Registration Statement and any
amendment(s) thereto, including financial statements and schedules and all
exhibits and (iii) upon the effectiveness of any Registration Statement, one
copy of the prospectus included in such Registration Statement and all
amendments and supplements thereto. The Company shall reasonably cooperate with
Legal Counsel in performing the Company's obligations pursuant to this Section
3.
d. The Company shall furnish to each Investor whose
Registrable Securities are included in any Registration Statement, without
charge, (i) promptly after the same is prepared and filed with the SEC, at least
one copy of such Registration Statement and any amendment(s) thereto, including
financial statements and schedules, and all exhibits and each preliminary
prospectus, (ii) upon the effectiveness of any Registration Statement, ten (10)
copies of the prospectus included in such Registration Statement and all
amendments and supplements thereto (or such other number of copies as such
Investor may reasonably request) and (iii) such other documents, including
copies of any preliminary or final prospectus, as such Investor may reasonably
request from time to time in order to facilitate the disposition of the
Registrable Securities owned by such Investor.
e. The Company shall use its best efforts to (i) register and
qualify, unless an exemption from registration and qualification applies, the
Registrable Securities covered by a Registration Statement under all other
securities or "blue sky" laws of such jurisdictions in the United States, (ii)
prepare and file in those jurisdictions, such amendments (including
post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof during
the Registration Period, (iii) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (w) make any change in the
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<PAGE> 8
Company's Certificate of Incorporation or by-laws that the Company's board of
directors determines in good faith to be contrary to the best interests of the
Company and its shareholders, (x) qualify to do business in any jurisdiction
where it would not otherwise be required to qualify but for this Section 3(e),
(y) subject itself to general taxation in any such jurisdiction, or (z) file a
general consent to service of process in any such jurisdiction. The Company
shall promptly notify Legal Counsel and each Investor who holds Registrable
Securities of the receipt by the Company of any notification with respect to the
suspension of the registration or qualification of any of the Registrable
Securities for sale under the securities or "blue sky" laws of any jurisdiction
in the United States or its receipt of actual notice of the initiation or threat
of any proceeding for such purpose.
f. As promptly as practicable after becoming aware of such
event or development, the Company shall notify Legal Counsel and each Investor
in writing of the happening of any event as a result of which the prospectus
included in a Registration Statement, as then in effect, includes an untrue
statement of a material fact or omission to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and promptly prepare a
supplement or amendment to such Registration Statement to correct such untrue
statement or omission, and deliver ten (10) copies of such supplement or
amendment to Legal Counsel and each Investor (or such other number of copies as
Legal Counsel or such Investor may reasonably request). The Company shall also
promptly notify Legal Counsel and each Investor in writing (i) when a prospectus
or any prospectus supplement or post-effective amendment has been filed, and
when a Registration Statement or any post-effective amendment has become
effective (notification of such effectiveness shall be delivered to Legal
Counsel and each Investor by facsimile on the same day of such effectiveness),
(ii) of any request by the SEC for amendments or supplements to a Registration
Statement or related prospectus or related information, and (iii) of the
Company's reasonable determination that a post-effective amendment to a
Registration Statement would be appropriate.
g. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction and, if such an order or
suspension is issued, to obtain the withdrawal of such order or suspension at
the earliest possible moment and to notify Legal Counsel and each Investor who
holds Registrable Securities being sold of the issuance of such order and the
resolution thereof or its receipt of actual notice of the initiation or threat
of any proceeding for such purpose.
h. At the reasonable request of any Investor and at such
Investor's expense, the Company shall furnish to such Investor, on the date of
the effectiveness of the Registration Statement and thereafter from time to time
on such dates as an Investor may reasonably request (i) 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, and (ii) an opinion, dated as
of such date, of counsel representing the Company for purposes of such
Registration Statement, in form, scope and substance as is customarily given in
an underwritten public offering, addressed to the Investors.
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<PAGE> 9
i. The Company shall make available for inspection by (i) any
Investor, (ii) Legal Counsel and (iii) one firm of accountants or other agents
retained by the Investors (collectively, the "INSPECTORS") all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "RECORDS"), as shall be reasonably deemed
necessary by each Inspector, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request;
provided, however, that each Inspector shall agree, and each Investor hereby
agrees, to hold in strict confidence and shall not make any disclosure (except
to an Investor) or use of any Record or other information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (a) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement or is otherwise required under the 1933 Act, (b) the release of such
Records is ordered pursuant to a final, non-appealable subpoena or order from a
court or government body of competent jurisdiction, or (c) the information in
such Records has been made generally available to the public other than by
disclosure in violation of this or any other agreement of which the Inspector
has knowledge, provided further, however, that each Investor agrees to comply
with applicable Federal securities laws with respect to trading in securities of
the Company while in possession of material nonpublic information concerning the
Company as a result of the inspections provided for in this Section 3(i). The
Company shall not be required to disclose any confidential information in such
Records to any Inspector until and unless such Inspector shall have entered into
confidentiality agreements with the Company with respect thereto, substantially
in the form of this Section 3(i). Each Investor agrees that it shall, upon
learning that disclosure of such Records is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
notice to the Company and allow the Company, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, the Records deemed confidential.
j. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement, or (v) such Investor consents to the form and content of any such
disclosure. The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor and allow such Investor, at the Investor's
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.
k. The Company shall use its best efforts either to (i) cause
all the Registrable Securities covered by a Registration Statement to be listed
on each securities exchange on which securities of the same class or series
issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange, or
(ii) secure designation and quotation of all the Registrable Securities covered
by the Registration Statement on
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<PAGE> 10
the Nasdaq National Market or The New York Stock Exchange, Inc., or, if, despite
the Company's best efforts to satisfy the preceding clause (i) or (ii), the
Company is unsuccessful in satisfying the preceding clause (i) or (ii), to
secure the inclusion for quotation on The American Stock Exchange, Inc. or The
Nasdaq SmallCap Market for such Registrable Securities and, without limiting the
generality of the foregoing, to arrange for at least two market makers to
register with the National Association of Securities Dealers, Inc. ("NASD") as
such with respect to such Registrable Securities. The Company shall pay all fees
and expenses in connection with satisfying its obligation under this Section
3(k).
l. The Company shall cooperate with the Investors who hold
Registrable Securities being offered, and to the extent applicable, to
facilitate the timely preparation and delivery of certificates (not bearing any
restrictive legend) representing the Registrable Securities to be offered
pursuant to a Registration Statement and enable such certificates to be in such
denominations or amounts, as the case may be, as the Investors may reasonably
request and registered in such names as the Investors may request.
m. The Company shall provide a transfer agent and registrar of
all such Registrable Securities not later than the effective date of such
Registration Statement.
n. If requested by an Investor, the Company shall (i) as soon
as practicable incorporate in a prospectus supplement or post-effective
amendment such information as an Investor requests to be included therein
relating to the sale and distribution of Registrable Securities, including,
without limitation, information with respect to the number of Registrable
Securities being offered or sold, the purchase price being paid therefor and any
other terms of the offering of the Registrable Securities to be sold in such
offering; (ii) as soon as practicable make all required filings of such
prospectus supplement or post-effective amendment after being notified of the
matters to be incorporated in such prospectus supplement or post-effective
amendment; and (iii) supplement or make amendments to any Registration Statement
if reasonably requested by an Investor of such Registrable Securities.
o. The Company shall use its best efforts to cause the
Registrable Securities covered by the applicable Registration Statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary to consummate the disposition of such Registrable
Securities.
p. The Company shall make generally available to its security
holders as soon as practical, but not later than 90 days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the 1933 Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal quarter next
following the effective date of the Registration Statement.
q. The Company shall otherwise use its best efforts to comply
with all applicable rules and regulations of the SEC in connection with any
registration hereunder.
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r. Within two (2) business days after a Registration Statement
which covers applicable Registrable Securities is ordered effective by the SEC,
the Company shall deliver, and shall cause legal counsel for the Company to
deliver, to the transfer agent for such Registrable Securities (with copies to
the Investors whose Registrable Securities are included in such Registration
Statement) confirmation that such Registration Statement has been declared
effective by the SEC in the form attached hereto as Exhibit A.
s. The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to a Registration Statement.
t. Notwithstanding anything to the contrary in Section 3(f),
at any time after the applicable Registration Statement has been declared
effective by the SEC, the Company may delay the disclosure of material
non-public information concerning the Company the disclosure of which at the
time is not, in the good faith opinion of the Board of Directors of the Company
after consultation with its counsel, in the best interest of the Company and, is
not otherwise required to be disclosed (a "GRACE PERIOD"); provided, that the
Company shall promptly (i) notify the Investors in writing of the existence of
material non-public information giving rise to a Grace Period (provided that in
each notice the Company will not disclose the content of such material
non-public information to the Investors) and the date on which the Grace Period
will begin, and (ii) notify the Investors in writing of the date on which the
Grace Period ends; and, provided further, that no Grace Periods shall exceed 15
consecutive days and during any consecutive 365 day period, such Grace Periods
shall not exceed an aggregate of 30 days (an "ALLOWABLE GRACE PERIOD"). For
purposes of determining the length of a Grace Period above, the Grace Period
shall begin on and include the date the holders receive the notice referred to
in clause (i) and shall end on and include the later of the date the holders
receive the notice referred to in clause (ii) and the date referred to in such
notice. The provisions of Section 2(e) and the first sentence of Section 3(f)
hereof shall not be applicable during the period of any Allowable Grace Period.
Upon expiration of the Grace Period, the Company shall again be bound by the
first sentence of Section 3(f) with respect to the information giving rise
thereto unless such material non-public information is no longer applicable.
4. OBLIGATIONS OF THE INVESTORS.
a. At least seven (7) days prior to the first anticipated
filing date of a Registration Statement, the Company shall notify each Investor
in writing of the information the Company requires from each such Investor if
such Investor elects to have any of such Investor's Registrable Securities
included in such Registration Statement. It shall be a condition precedent to
the obligations of the Company to complete the registration pursuant to this
Agreement with respect to the Registrable Securities of a particular Investor
that such Investor shall furnish to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it as shall be reasonably
required to effect the registration of such Registrable Securities and shall
execute such documents in connection with such registration as the Company may
reasonably request.
b. Each Investor by such Investor's acceptance of the
Registrable Securities agrees to cooperate with the Company as reasonably
requested by the Company in connection with
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<PAGE> 12
the preparation and filing of any Registration Statement hereunder, unless such
Investor has notified the Company in writing of such Investor's election to
exclude all of such Investor's Registrable Securities from such Registration
Statement.
c. Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(g)
or the first sentence of 3(f), such Investor will immediately discontinue
disposition of Registrable Securities pursuant to any Registration Statement(s)
covering such Registrable Securities until such Investor's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 3(g) or the
first sentence of 3(f) or receipt of notice that no supplement or amendment is
required. Notwithstanding anything to the contrary, the Company shall cause its
transfer agent to deliver unlegended shares of Common Stock to a transferee of
an Investor in accordance with the terms of the Securities Purchase Agreement in
connection with any sale of Registrable Securities with respect to which an
Investor has entered into a contract for sale prior to the Investor's receipt of
a notice from the Company of the happening of any event of the kind described in
Section 3(g) or the first sentence of 3(h) and for which the Investor has not
yet settled.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees
shall be paid by the Company.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will,
and hereby does, indemnify, hold harmless and defend each Investor, the
directors, officers, partners, employees, agents, representatives of, and each
Person, if any, who controls any Investor within the meaning of the 1933 Act or
the Securities Exchange Act of 1934, as amended (the "1934 ACT") (each, an
"INDEMNIFIED PERSON"), against any losses, claims, damages, liabilities,
judgments, fines, penalties, charges, costs, reasonable attorneys' fees, amounts
paid in settlement or expenses, joint or several, (collectively, "CLAIMS")
incurred in investigating, preparing or defending any action, claim, suit,
inquiry, proceeding, investigation or appeal taken from the foregoing by or
before any court or governmental, administrative or other regulatory agency,
body or the SEC, whether pending or threatened, whether or not an indemnified
party is or may be a party thereto ("INDEMNIFIED DAMAGES"), to which any of them
may become subject insofar as such Claims (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon: (i)
any untrue statement or alleged untrue statement of a material fact in a
Registration Statement or any post-effective amendment thereto or in any filing
made in connection with the qualification of the offering under the securities
or other "blue sky" laws of any jurisdiction in which Registrable Securities are
offered ("BLUE SKY FILING"), or the omission or alleged omission to state a
material
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<PAGE> 13
fact required to be stated therein or necessary to make the statements therein
not misleading, (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus if used prior to the
effective date of such Registration Statement, or contained in the final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading or (iii) any violation or alleged violation by the Company
of the 1933 Act, the 1934 Act, any other law, including, without limitation, any
state securities law, or any rule or regulation thereunder relating to the offer
or sale of the Registrable Securities pursuant to a Registration Statement (the
matters in the foregoing clauses (i) through (iii) being, collectively,
"VIOLATIONS"). Subject to Section 6(c), the Company shall reimburse the
Investors and each such controlling person, promptly as such expenses are
incurred and are due and payable, for any legal fees or disbursements or other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (i) shall
not apply to a Claim by an Indemnified Person arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by such Indemnified Person expressly for use
in connection with the preparation of the Registration Statement or any such
amendment thereof or supplement thereto, if such prospectus was timely made
available by the Company pursuant to Section 3(d); (ii) shall not be available
to the extent such Claim is based on a failure of the Investor to deliver or to
cause to be delivered the prospectus made available by the Company, if such
prospectus was timely made available by the Company pursuant to Section 3(d);
and (iii) shall not apply to amounts paid in settlement of any Claim, if such
settlement is effected without the prior written consent of the Company, which
consent shall not be unreasonably withheld. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of the
Indemnified Person and shall survive the transfer of the Registrable Securities
by the Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees severally and not jointly
to indemnify, hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, each of its directors, each
of its officers who signs the Registration Statement and each Person, if any,
who controls the Company within the meaning of the 1933 Act or the 1934 Act
(each an "INDEMNIFIED PARTY"), against any Claim or Indemnified Damages to which
any of them may become subject, under the 1933 Act, the 1934 Act or otherwise,
insofar as such Claim or Indemnified Damages arise out of or are based upon any
Violation, in each case to the extent, and only to the extent, that such
Violation occurs in reliance upon and in conformity with written information
furnished to the Company by such Investor expressly for use in connection with
such Registration Statement; and, subject to Section 6(d), such Investor will
reimburse any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such Claim; provided, however, that the
indemnity agreement contained in this Section 6(b) and the agreement with
respect to contribution contained in Section 7 shall not apply to amounts paid
in settlement of any Claim if such settlement is effected without the prior
written consent of such Investor, which consent shall not be unreasonably
withheld; provided, further, however, that the Investor shall be liable under
this Section 6(b) for only that amount of a Claim or Indemnified Damages as does
not
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exceed the net proceeds to such Investor as a result of the sale of Registrable
Securities pursuant to such Registration Statement. Such indemnity shall remain
in full force and effect regardless of any investigation made by or on behalf of
such Indemnified Party and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9. Notwithstanding anything to
the contrary contained herein, the indemnification agreement contained in this
Section 6(b) with respect to any prospectus shall not inure to the benefit of
any Indemnified Party if the untrue statement or omission of material fact
contained in the prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented.
c. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action or proceeding (including any governmental action or proceeding) involving
a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in
respect thereof is to be made against any indemnifying party under this Section
6, deliver to the indemnifying party a written notice of the commencement
thereof, and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the defense thereof
with counsel mutually satisfactory to the indemnifying party and the Indemnified
Person or the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses of not more than one counsel for such
Indemnified Person or Indemnified Party to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. In the case of an
Indemnified Person, legal counsel referred to in the immediately preceding
sentence shall be selected by the Investors holding a majority in interest of
the Registrable Securities included in the Registration Statement to which the
Claim relates. The Indemnified Party or Indemnified Person shall cooperate fully
with the indemnifying party in connection with any negotiation or defense of any
such action or claim by the indemnifying party and shall furnish to the
indemnifying party all information reasonably available to the Indemnified Party
or Indemnified Person which relates to such action or claim. The indemnifying
party shall keep the Indemnified Party or Indemnified Person fully apprised at
all times as to the status of the defense or any settlement negotiations with
respect thereto. No indemnifying party shall be liable for any settlement of any
action, claim or proceeding effected without its prior written consent,
provided, however, that the indemnifying party shall not unreasonably withhold,
delay or condition its consent. No indemnifying party shall, without the prior
written consent of the Indemnified Party or Indemnified Person, consent to entry
of any judgment or enter into any settlement or other compromise which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party or Indemnified Person of a release from all liability
in respect to such claim or litigation. Following indemnification as provided
for hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the
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<PAGE> 15
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is prejudiced in its ability to defend such
action.
d. The indemnification required by this Section 6 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or Indemnified Damages
are incurred.
e. The indemnity agreements contained herein shall be in
addition to (i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no seller of Registrable Securities guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
fraudulent misrepresentation; and (ii) contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds received by
such seller from the sale of such Registrable Securities pursuant to such
Registration Statement.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits
of Rule 144 promulgated under the 1933 Act or any other similar rule or
regulation of the SEC that may at any time permit the Investors to sell
securities of the Company to the public without registration ("RULE 144"), the
Company agrees to:
a. make and keep public information available, as those terms
are understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
15
<PAGE> 16
Company, and (iii) such other information as may be reasonably requested to
permit the investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically
assignable by the Buyers and Permitted Assignees (as defined below) to (i)
without the consent of the Company, any person or entity who, immediately prior
to such assignment, is (A) an affiliate of such Buyer or Permitted Assignee, (B)
a holder of Preferred Shares or Warrants or (C) an entity or fund which has the
same principal investment adviser or manager as such Buyer or Permitted Assignee
or any other holder of Preferred Shares, provided such adviser or manager has
the sole power to make decisions regarding any actions taken by such entity or
fund in connection with the Transaction Documents (as defined in the Securities
Purchase Agreement) (each such person or entity described in the immediately
preceding clause (A), (B) and (C) is referred to as "PERMITTED ASSIGNEE") and
(ii) with the prior written consent of the Company, which consent shall not be
unreasonably withheld, to any person or entity; provided, however, that any such
assignment shall not release such Buyer or Permitted Assignee from its
obligations hereunder unless such obligations are assumed by such assignee and
the Company has consented to such assignment and assumption, which consent shall
not be unreasonably withheld.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Investors who then hold at least two-thirds (2/3) of the Registrable
Securities. Any amendment or waiver effected in accordance with this Section 10
shall be binding upon each Investor and the Company. No such amendment shall be
effective to the extent that it applies to less than all of the holders of the
Registrable Securities. No consideration shall be offered or paid to any Person
to amend or consent to a waiver or modification of any provision of any of this
Agreement unless the same consideration also is offered to all of the parties to
this Agreement.
11. MISCELLANEOUS.
a. A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more Persons with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice or
election received from the registered owner of such Registrable Securities.
16
<PAGE> 17
b. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one business day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
WAVO Corporation
3131 E. Camelback Road, Suite 320
Phoenix, Arizona 85016
Telephone: 602-952-5500
Facsimile: 602-952-5517
Attention: Chief Executive Officer and General Counsel
With a copy to:
Snell & Wilmer LLP
One Arizona Center
Phoenix, Arizona
Telephone: 602-382-6000
Facsimile: 602-382-6070
Attention: Steven D. Pidgeon, Esq.
If to Legal Counsel:
Katten Muchin & Zavis
525 West Monroe Street, Suite 1600
Chicago, Illinois 60661-3693
Telephone: 312-902-5200
Facsimile: 312-902-1061
Attention: Robert J. Brantman, Esq.
If to a Buyer, to its address and facsimile number on the Schedule of Buyers
attached hereto, with copies to such Buyer's representatives as set forth on the
Schedule of Buyers or to such other address and/or facsimile number and/or to
the attention of such other person as the recipient party has specified by
written notice given to each other party five days prior to the effectiveness of
such change. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a courier or overnight courier service shall be
rebuttable evidence of personal service, receipt by facsimile or receipt from a
nationally recognized overnight delivery service in accordance with clause (i),
(ii) or (iii) above, respectively.
17
<PAGE> 18
c. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
d. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by the
internal laws of the State of New York, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York. Each party hereby irrevocably
submits to the non-exclusive jurisdiction of the state and federal courts
sitting 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 for such
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. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION
OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS
AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
e. This Agreement, the Securities Purchase Agreement, the
Warrants and the Articles of Amendment constitute the entire agreement among the
parties hereto with respect to the subject matter hereof and thereof. There are
no restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein and therein. This Agreement, the Securities Purchase
Agreement, the Warrants and the Articles of Amendment supersede all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof and thereof.
f. Subject to the requirements of Section 9, this Agreement
shall inure to the benefit of and be binding upon the permitted successors and
assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in identical counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile
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<PAGE> 19
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. All consents and other determinations to be made by the
Investors pursuant to this Agreement shall be made, unless otherwise specified
in this Agreement, by Investors holding a majority of the Registrable
Securities, determined as if all of the Preferred Shares and the Warrants then
outstanding have been converted into or exercised for Registrable Securities
without regard to any limitation on conversions of the Preferred Shares or
exercises of the Warrants.
k. The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent and no rules
of strict construction will be applied against any party.
l. This Agreement is intended for the benefit of the parties
hereto and their respective permitted successors and assigns, and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person.
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<PAGE> 20
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY: BUYER:
WAVO CORPORATION HFTP INVESTMENT L.L.C.
By: Promethean Asset Management, L.L.C.
Its: Investment Manager
By: _______________________ By:__________________________
Name:_______________________ Name:________________________
Its:________________________ Its:_________________________
LEONARDO, L.P.
By: Angelo, Gordon & Co., L.P.
By:__________________________
Michael L. Gordon
Chief Operating Officer
<PAGE> 21
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
INVESTOR ADDRESS INVESTOR'S REPRESENTATIVES' ADDRESS
INVESTOR NAME AND FACSIMILE NUMBER AND FACSIMILE NUMBER
------------- -------------------- --------------------
<S> <C> <C>
HFTP Investment L.L.C. c/o Promethean Asset Management, L.L.C. Promethean Asset Management, L.L.C.
750 Lexington Avenue 750 Lexington Avenue
22nd Floor 22nd Floor
New York, New York 10022 New York, New York 10022
Attn: James F. O'Brien, Jr. Attn: James F. O'Brien, Jr.
Telephone: 212-702-5200 Telephone: 212-702-5200
Facsimile: 212-758-9334 Facsimile: 212-758-9334
Katten Muchin & Zavis
525 West Monroe
Suite 1600
Chicago, Illinois 60661-3693
Attn: Robert J. Brantman, Esq.
Telephone: 312-902-5200
Facsimile: 312-902-1061
Leonardo, L.P. c/o Angelo, Gordon & Co., L.P. c/o Angelo, Gordon & Co., L.P.
245 Park Avenue - 26th Floor 245 Park Avenue - 26th Floor
New York, New York 10167 New York, New York 10167
Attention: Gary Wolf or Ari Storch Attention: Gary Wolf or Ari Storch
Telephone: 212-692-2035 Telephone: 212-692-2035
Facsimile: 212-867-6449 Facsimile: 212-867-6449
</TABLE>
<PAGE> 22
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
[TRANSFER AGENT]
ATTN:____________
Re: WAVO CORPORATION
Ladies and Gentlemen:
We are counsel to WAVO Corporation, an Indiana corporation (the
"COMPANY"), and have represented the Company in connection with that certain
Securities Purchase Agreement (the "PURCHASE AGREEMENT") entered into by and
among the Company and the Buyer named therein (collectively, the "HOLDERS")
pursuant to which the Company issued to the Holders shares of its Preferred
Stock, no par value per share (the "PREFERRED SHARES") convertible into shares
of the Company's common stock, no par value per share (the "COMMON STOCK"), and
the related Warrants (the "THE WARRANTS") to acquire shares of Common Stock.
Pursuant to the Purchase Agreement, the Company also has entered into a
Registration Rights Agreement with the Holders (the "REGISTRATION RIGHTS
AGREEMENT") pursuant to which the Company agreed, among other things, to
register the Registrable Securities (as defined in the Registration Rights
Agreement), including the shares of Common Stock issuable upon conversion of the
Preferred Shares and exercise of the Warrants, under the Securities Act of 1933,
as amended (the "1933 ACT"). In connection with the Company's obligations under
the Registration Rights Agreement, on ____________ ____, the Company filed a
Registration Statement on Form S-3 (File No. 333- _____________) (the
"REGISTRATION STATEMENT") with the Securities and Exchange Commission (the
"SEC") relating to the Registrable Securities which names each of the Holders as
a selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge,
after telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the 1933 Act pursuant to the
Registration Statement.
Very truly yours,
[ISSUER'S COUNSEL]
By:________________________
cc: [LIST NAMES OF HOLDERS]
A-1
<PAGE> 1
Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of September 30,
1999, by and among WAVO Corporation, an Indiana corporation, with headquarters
located at 3131 E. Camelback Road, Suite 320, Phoenix, Arizona 85016 (the
"COMPANY"), and the investors listed on the Schedule of Buyers attached hereto
(individually, a "BUYER" and collectively, the "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Rule 506
of Regulation D ("REGULATION D") as promulgated by the United States Securities
and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "1933 ACT");
B. The Company has authorized the following new series of its Preferred
Stock, no par value per share, which shall be called the Company's Series D
Convertible Preferred Stock (the "PREFERRED STOCK"), which shall be convertible
into shares of the Company's common stock, no par value per share (the "COMMON
STOCK") (as converted, the "CONVERSION SHARES"), in accordance with the terms of
the Company's Articles of Amendment to the Company's Articles of Incorporation
in the form attached hereto as Exhibit A (the "ARTICLES OF AMENDMENT");
C. The Buyers wish to purchase, upon the terms and conditions stated in
this Agreement, initially (i) an aggregate of 1,500 shares of the Preferred
Stock (the "INITIAL PREFERRED SHARES") in the respective amounts set forth
opposite each Buyer's name on the Schedule of Buyers, and (ii) warrants (the
"INITIAL WARRANTS") to purchase up to 600 shares of Common Stock (as exercised
collectively, the "INITIAL WARRANT SHARES") for each Initial Preferred Share
purchased by such Buyer on the Initial Closing Date (as defined below), such
Initial Warrants to be substantially in the form attached hereto as Exhibit B;
D. Subject to the terms and conditions set forth in this Agreement, the
Company may have the right to cause the Buyers to purchase (i) up to an
aggregate of 500 shares of Preferred Stock (pro rata based on the number of
Initial Preferred Shares each Buyer purchased in relation to the total number of
Initial Preferred Shares) (the "ADDITIONAL PREFERRED SHARES" and, collectively
with the Initial Preferred Shares, the "PREFERRED SHARES") and (ii) warrants
(the "ADDITIONAL WARRANTS" to purchase up to 500 shares of Common Stock (as
exercised, collectively, the "ADDITIONAL WARRANT SHARES" for each Additional
Preferred Share purchased by such Buyer on the Additional Closing Date (as
defined below), such Additional Warrants to be substantially in the form
attached hereto as Exhibit B;
E. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto as Exhibit C (the "REGISTRATION RIGHTS
AGREEMENT") pursuant to which the
<PAGE> 2
Company has agreed to provide certain registration rights under the 1933 Act and
the rules and regulations promulgated thereunder, and applicable state
securities laws.
NOW THEREFORE, the Company and the Buyer hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS.
a. Purchase of Preferred Shares. Subject to satisfaction (or waiver)
of the conditions set forth in Sections 6(a) and 7(a), the Company shall issue
and sell to the Buyers and the Buyers severally agree to purchase from the
Company 1,500 Initial Preferred Shares, along with the related Initial Warrants
(the "INITIAL CLOSING"). Subject to the satisfaction (or waiver) of the
conditions set forth in Sections 1(c), 1(d), 6(b) and 7(b), the Company may
require that the Buyers purchase up to an aggregate of 500 Additional Preferred
Shares along with the related Additional Warrants (the "ADDITIONAL CLOSINGS"
and, together with the Initial Closing, the "CLOSINGS"). The purchase price (the
"PURCHASE PRICE") of each Preferred Share and the related Warrants at each of
the Closings shall be an aggregate of $10,000 plus $10.00 from each Buyer for
the related Warrants. "BUSINESS DAY" means any day other than Saturday, Sunday
or other day on which commercial banks in the city of New York are authorized or
required by law to remain closed.
b. The Initial Closing Date. The date and time of the Initial
Closing (the "INITIAL CLOSING DATE") shall be 10:00 a.m., Eastern Time, within
three (3) Business Days following the date hereof, subject to satisfaction (or
waiver) of the conditions to the Initial Closing set forth in Sections 6(a) and
7(a) (or such later date as is mutually agreed to by the Company and the Buyer).
The Initial Closing shall occur on the Initial Closing Date by facsimile. In the
event either party sends the other party written notice that a physical closing
is desired, at least two (2) Business Days prior to the Initial Closing Date,
then the Initial Closing shall occur on the Initial Closing Date at the offices
of Katten Muchin & Zavis, 525 West Monroe Street, Suite 1600, Chicago, Illinois
60661-3693.
c. The Additional Closing Date. The date and time of the Additional
Closings (the "ADDITIONAL CLOSING DATES") shall be 10:00 a.m., Eastern Time, on
the third Business Day following the date of receipt by each Buyer of an
Additional Effectiveness Notice (as defined below) which Additional Closing
Dates shall be no more than 85 days following the applicable Additional Share
Notice Date (as defined below), subject to satisfaction (or waiver) of the
conditions to the Additional Closings set forth in Sections 6(b) and 7(b) and
the conditions set forth in this Section 1(c) and Section 1(d), (or such later
date as is mutually agreed to by the Company and the Buyer). During the period
beginning on and including the date which is 90 days after the Initial Closing
Date and ending on and including the date which is 180 days after the Initial
Closing Date (the "ADDITIONAL NOTICE PERIOD"), but subject to the requirements
of Sections 6(b) and 7(b) and satisfaction of the Additional Notice Conditions
and the Effectiveness Conditions (both as defined in Section 1(d) below), the
Company on not more than two (2) occasions may require the Buyers to purchase
Additional Preferred Shares and the related Additional Warrants by delivering
written notice to each Buyer (an "ADDITIONAL SHARE NOTICE") on any date during
the Additional Notice Period (the "ADDITIONAL SHARE NOTICE DATE"). Any
Additional Share Notice
2
<PAGE> 3
shall set forth (i) the aggregate number of Additional Preferred Shares and
related Additional Warrants the Company is requiring the Buyers to purchase at
the Additional Closing, which number shall not exceed, in the aggregate, 500
shares of Preferred Stock and which number shall be, in the aggregate, at least
200 shares of Preferred Stock, and (ii) the pro rata number of Additional
Preferred Shares which the Company is requiring each Buyer to purchase at the
Additional Closing (based on the number of Initial Preferred Shares each Buyer
purchased in relation to the total number of Initial Preferred Shares). The
Company shall deliver written notice to each Buyer (the "ADDITIONAL
EFFECTIVENESS NOTICE") by facsimile and overnight delivery within two (2)
Business Days of the satisfaction of the Effectiveness Conditions. The
Additional Closings shall occur on each Additional Closing Date by facsimile. In
the event either Party sends the other Party written notice that a physical
closing is desired, at least two (2) Business Days prior to an Additional
Closing Date, then such Additional Closing shall occur on the Additional Closing
Date at the offices of Katten Muchin & Zavis, 525 West Monroe Street, Suite
1600, Chicago, Illinois 60661-3693. The Initial Closing Date and the Additional
Closing Dates collectively are referred to in this Agreement as the "CLOSING
DATES."
d. The Additional Notice Conditions and the Effectiveness
Conditions. Notwithstanding anything in this Agreement to the contrary, the
Company shall not be entitled to deliver an Additional Share Notice unless all
of the following conditions (the "ADDITIONAL NOTICE CONDITIONS") are satisfied:
(i) at all times during the period beginning on the date the Initial
Registration Statement registering the Initial Registrable Securities is
declared effective by the SEC (which date shall not be later than 10 Business
Days prior to the Additional Share Notice Date) and ending on and including the
Additional Share Notice Date, the Initial Registration Statement shall have been
effective and available for sale of all of the Registrable Securities (as
defined in the Registration Rights Agreement) to be included in such
Registration Statement; (ii) at all times during the period beginning on the
Initial Closing Date and ending on and including the Additional Share Notice
Date, the Common Stock shall have been designated for quotation on The New York
Stock Exchange, Inc. (the "NYSE"), the Nasdaq National Market or the American
Stock Exchange, Inc. ("AMEX") and shall not have been suspended from trading
(other than suspensions of not more than one (1) day due to business
announcements by the Company) on such exchanges nor shall delisting or
suspension by such exchanges have been threatened either (A) in writing by such
exchanges or (B) by falling below the minimum listing maintenance requirements
of such exchanges; (iii) during the period beginning on the Initial Closing Date
and ending on and including the Additional Share Notice Date, there shall not
have occurred either (A) the consummation of a Change of Control (as defined in
the Articles of Amendment) or a public announcement of a pending Change of
Control which has not been abandoned or terminated or (B) a Triggering Event (as
defined in the Articles of Amendment) or an event which, with the passage of
time, would constitute a Triggering Event assuming it were not cured; (iv)
during the period beginning on the Initial Closing Date and ending on and
including the Additional Share Notice Date, the Company shall have delivered
Conversion Shares upon conversion of the Preferred Shares on a timely basis as
set forth in Section 2(d)(ii) of the Articles of Amendment and the Company
otherwise shall have been in compliance in all material respects with the
Transaction Documents (as defined below) and the Articles of Amendment and shall
not have breached in any material respect any provision of the Transaction
Documents and the Articles of Amendment; (v) on each trading day during the 10
consecutive trading days ending on and including the
3
<PAGE> 4
Additional Share Notice Date, the Weighted Average Price (as defined in the
Articles of Amendment) of the Common Stock is not less than the arithmetic
average of the Weighted Average Prices of the Common Stock on each of the 10
consecutive trading days immediately preceding the Initial Closing Date (subject
to equitable adjustment for stock splits, stock dividends, stock combinations
and other similar transactions); (vi) the Company previously has not delivered
more than one Additional Share Notice; and (vii) in the event the sum of (A) the
number of shares of Common Stock previously issued upon conversion of any of the
Preferred Shares, (B) the number of shares of Common Stock issuable upon
conversion of all Additional Preferred Shares set forth in the Additional Share
Notice based on the Conversion Price (as defined in the Articles of Amendment)
in effect on such date of determination (as if all such Additional Preferred
Shares were outstanding and without regard to any limitation on conversions) and
(C) the number of shares of Common Stock issuable upon conversion of all of the
outstanding Preferred Shares based on the Conversion Price in effect on such
date of determination (without regard to any limitations on conversions), is
equal to or exceeds 12% of the number of shares of Common Stock issued and
outstanding immediately prior to the Initial Closing Date, the Company shall
have received shareholder approval for the issuance of the Conversion Shares and
the Warrant Shares. Notwithstanding anything in this Agreement to the contrary,
the Company shall not be entitled to require the Buyer to purchase the
Additional Preferred Shares unless, in addition to the satisfaction of the
Additional Notice Conditions and the requirements of Sections 6(b) and 7(b), all
of the following conditions (the "EFFECTIVENESS CONDITIONS") are satisfied: (i)
at all times during the period beginning on the Additional Share Notice Date and
ending on and including the Additional Closing Date, the Initial Registration
Statement shall have been effective and available for sale of all of the
Registrable Securities required to be included on such Registration Statement
(other than days during allowable Grace Periods (as defined in the Registration
Rights Agreement); (ii) at all times during the period beginning on the
Additional Share Notice Date and ending on and including the Additional Closing
Date, the Common Stock shall have been designated for quotation on the NYSE, the
Nasdaq National Market or AMEX and shall not have been suspended from trading on
such exchanges nor shall delisting or suspension by such exchanges have been
threatened either (A) in writing by such exchanges or (B) by falling below the
minimum listing maintenance requirements of such exchanges; (iii) during the
period beginning on the Additional Share Notice Date and ending on and including
the Additional Closing Date, there shall not have occurred either (A) the
consummation of a Change of Control or a public announcement of a pending Change
of Control which has not been abandoned or terminated or (B) a Triggering Event
or an event which, with the passage of time, would constitute a Triggering Event
assuming it were not cured; (iv) the Weighted Average Price of the Common Stock
on the date immediately preceding the date the Company files the Additional
Registration Statement (as defined in the Registration Rights Agreement) with
the SEC is not less than the arithmetic average of the Weighted Average Prices
of the Common Stock on each of the 10 consecutive trading days immediately
preceding the Initial Closing Date (subject to equitable adjustment for stock
splits, stock dividends, stock combinations and other similar transactions); (v)
during the period beginning on the Additional Share Notice Date and ending on
and including the Additional Closing Date, the Company shall have delivered
Conversion Shares upon conversion of the Preferred Shares on a timely basis as
set forth in Section 2(d)(ii) of the Articles of Amendment and otherwise shall
have been in compliance in all material respects with the Transaction Documents
and the Articles of Amendment and shall not have breached in any material
respect any provision of the
4
<PAGE> 5
Transaction Documents or the Articles of Amendment; and (vi) at all times during
the period beginning on the date the Additional Registration Statement is
declared effective by the SEC (which date shall not be later than 10 Business
Days prior to the Additional Share Closing Date) and ending on and including the
Additional Share Closing Date, the Additional Registration Statement shall have
been effective and available for sale of at least 150% of the number of shares
issuable upon conversion of the Additional Preferred Shares and exercise of the
Additional Warrants on each such date (without regard to any limitations on
conversions or exercises and assuming the Additional Preferred Shares and the
Additional Warrants had been issued and outstanding on each such date).
e. Form of Payment. On each of the Closing Dates (i) each Buyer
shall pay the Purchase Price to the Company for the Preferred Shares and the
related Warrants to be issued and sold to such Buyer by wire transfer of
immediately available funds in accordance with the Company's written wire
instructions, and (ii) the Company shall deliver to each Buyer stock
certificates (in the denominations as such Buyer shall request) (the "STOCK
CERTIFICATES") representing such number of the Preferred Shares which such Buyer
is then purchasing along with the related Warrants, duly executed on behalf of
the Company and registered in the name of such Buyer.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself that:
a. Investment Purpose. Such Buyer (i) is acquiring the Preferred
Shares and the Warrants, (ii) upon conversion of the Preferred Shares, will
acquire the Conversion Shares then issuable and (iii) upon exercise of the
Warrants, will acquire the Warrant Shares issuable upon exercise thereof (the
Preferred Shares, the Warrants, the Conversion Shares and the Warrant Shares,
collectively are referred to herein as the "SECURITIES"), for its own account
for investment only and not with a view towards, or for resale in connection
with, the public sale or distribution thereof, except pursuant to sales
registered or exempted under the 1933 Act; provided, however, that by making the
representations herein, such Buyer does not agree to hold any of the Securities
for any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act.
b. Accredited Investor Status. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D.
c. Reliance on Exemptions. Such Buyer understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire such Securities.
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d. Information. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
in Sections 3 and 9(m) below. Such Buyer understands that its investment in the
Securities involves a high degree of risk. Such Buyer has sought such
accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the Securities.
e. No Governmental Review. Such Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
f. Transfer or Resale. Such Buyer understands that except as
provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in a form reasonably satisfactory to the Company,
to the effect that such Securities to be sold, assigned or transferred may be
sold, assigned or transferred pursuant to an exemption from such registration,
or (C) such Buyer provides the Company with reasonable assurance that such
Securities can be sold, assigned or transferred pursuant to Rule 144 promulgated
under the 1933 Act (or a successor rule thereto)("RULE 144"); (ii) any sale of
the Securities made in reliance on Rule 144 may be made only in accordance with
the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of
the Securities under circumstances in which the seller (or the person through
whom the sale is made) may be deemed to be an underwriter (as that term is
defined in the 1933 Act) may require compliance with some other exemption under
the 1933 Act or the rules and regulations of the SEC thereunder; and (iii)
neither the Company nor any other person is under any obligation to register
such Securities under the 1933 Act or any state securities laws or to comply
with the terms and conditions of any exemption thereunder.
g. Legends. Such Buyer understands that the certificates or other
instruments representing the Preferred Shares and the Warrants and, until such
time as the sale of the Conversion Shares and the Warrant Shares have been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement, the stock certificates representing the Conversion Shares and the
Warrant Shares, except as set forth below, shall bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
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AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A FORM REASONABLY
SATISFACTORY TO THE ISSUER, THAT REGISTRATION IS NOT REQUIRED UNDER SAID
ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE
144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if (i) such Securities are registered for sale under the 1933 Act, (ii)
in connection with a sale transaction, such holder provides the Company with an
opinion of counsel, in a form reasonably satisfactory to the Company, to the
effect that a public sale, assignment or transfer of such Securities may be made
without registration under the 1933 Act, or (iii) such holder provides the
Company with reasonable assurances that such Securities can be sold pursuant to
Rule 144 without any restriction as to the number of securities acquired as of a
particular date that can then be immediately sold. Such Buyer acknowledges,
covenants and agrees to sell the Securities represented by a certificate(s) from
which the legend has been removed, only pursuant to (i) a registration statement
effective under the 1933 Act, or (ii) advice of counsel to such holder that such
sale is exempt from registration required by Section 5 of the 1933 Act.
h. Authorization; Enforcement. This Agreement and the Registration
Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of such Buyer and are valid and binding agreements of such Buyer
enforceable against such Buyer in accordance with their terms, subject as to
enforceability to general principles of equity and to applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation and other similar laws
relating to, or affecting generally, the enforcement of applicable creditors'
rights and remedies.
i. Residency. Such Buyer is a resident of that jurisdiction
specified on the Schedule of Buyers.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that:
a. Organization and Qualification. The Company and its
"Subsidiaries" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns capital stock or holds an equity or
similar interest) (a complete list of which is set forth in Schedule 3(a)) are
corporations duly organized and validly existing in good standing under the laws
of the jurisdiction in which they are incorporated, and have the requisite
corporate power and
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<PAGE> 8
authorization to own properties and to carry on their business as now being
conducted. Each of the Company and its Subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which its ownership of property or the nature of the business conducted by it
makes such qualification necessary, except to the extent that the failure to be
so qualified or be in good standing would not have a Material Adverse Effect. As
used in this Agreement, "MATERIAL ADVERSE EFFECT" means any material adverse
effect on the business, properties, assets, operations, results of operations,
financial condition or prospects of the Company and its Subsidiaries taken as a
whole, or on the transactions contemplated hereby or by the agreements and
instruments to be entered into in connection herewith, or on the authority or
ability of the Company to perform its obligations under the Transaction
Documents (as defined below) or the Articles of Amendment.
b. Authorization; Enforcement; Compliance with Other Instruments.
(i) The Company has the requisite corporate power and authority to enter into
and perform its obligations under this Agreement, the Registration Rights
Agreement, the Irrevocable Transfer Agent Instructions (as defined in Section
5), the Warrants and each of the other agreements entered into by the parties
hereto in connection with the transactions contemplated by this Agreement
(collectively, the "TRANSACTION DOCUMENTS"), and to issue the Securities in
accordance with the terms hereof and thereof, (ii) the execution and delivery of
the Transaction Documents by the Company and the execution and filing of the
Articles of Amendment by the Company and the consummation by it of the
transactions contemplated hereby and thereby, including without limitation the
issuance of the Preferred Shares and the Warrants and the reservation for
issuance and the issuance of the Conversion Shares and the Warrant Shares
issuable upon conversion or exercise thereof, have been duly authorized by the
Company's Board of Directors and no further consent or authorization is required
by the Company, its Board of Directors or its stockholders (except such
stockholder approval as may be required by the Nasdaq National Market for the
issuance of a number of shares of Common Stock which is greater than 19.99% of
the number of shares of Common Stock outstanding on the Initial Closing Date),
(iii) the Transaction Documents have been duly executed and delivered by the
Company, (iv) this Agreement and the Registration Rights Agreement and, when
executed and delivered, the other Transaction Documents, constitute the valid
and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies, and (v)
prior to each of the Closing Dates, the Articles of Amendment will have been
filed with the Secretary of State of the State of Indiana and will be in full
force and effect, enforceable against the Company in accordance with its terms.
c. Capitalization. The authorized capital stock of the Company
consists of (i) 100,000,000 shares of Common Stock, of which as of the date
hereof 28,924,230 shares were issued and outstanding, 15,491,089 shares were
issuable and reserved for issuance pursuant to the Company's stock option and
purchase plans and 1,967,954 shares are issuable and reserved for issuance
pursuant to securities (other than the Preferred Shares and the Warrants)
exercisable or exchangeable for, or convertible into, shares of Common Stock and
(ii) 25,000,000 shares of preferred stock, of which as of the date hereof,
501,963 shares have been designated as Series
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<PAGE> 9
1994 Cumulative Convertible Preferred Stock and of which 501,963 are
outstanding. All of such outstanding shares have been, or upon issuance will be,
validly issued and are fully paid and nonassessable. Except as disclosed in
Schedule 3(c), (i) no shares of the Company's capital stock are subject to
preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company; (ii) there are no outstanding debt
securities issued by the Company; (iii) 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, any shares of
capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings 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 or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries; (iv) there are no agreements or arrangements
under which the Company or any of its Subsidiaries is obligated to register the
sale of any of their securities under the 1933 Act (except the Registration
Rights Agreement); (v) there are no outstanding securities of the Company or any
of its Subsidiaries which contain any redemption or similar provisions, and
there are no contracts, commitments, understandings or arrangements by which the
Company or any of its Subsidiaries is or may become bound to redeem a security
of the Company or any of its Subsidiaries; (vi) there are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Securities as described in this Agreement; and
(vii) the Company does not have any stock appreciation rights or "phantom stock"
plans or agreements or any similar plan or agreement. The Company has furnished
to the Buyer true and correct copies of the Company's Articles of Incorporation,
as amended and as in effect on the date hereof (the "ARTICLES OF
INCORPORATION"), and the Company's By-laws, as in effect on the date hereof (the
"BY-LAWS"), and the terms of all securities convertible into or exercisable for
Common Stock and the material rights of the holders thereof in respect thereto.
d. Issuance of Securities. The Preferred Shares are duly authorized
and, upon issuance in accordance with the terms hereof, shall be (i) validly
issued, fully paid and non-assessable, (ii) free from all taxes, liens and
charges with respect to the issue thereof and (iii) entitled to the rights and
preferences set forth in the Articles of Amendment. At least 9,700,000 shares of
Common Stock (subject to adjustment pursuant to the Company's covenant set forth
in Section 4(f) below) have been duly authorized and reserved for issuance upon
conversion of the Preferred Shares and exercise of the Warrants. Upon conversion
or exercise in accordance with the Articles of Amendment or the Warrants, as the
case may be, the Conversion Shares and the Warrant Shares will be validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issue thereof, with the holders being entitled to all rights
accorded to a holder of Common Stock. The issuance by the Company of the
Securities is exempt from registration under the 1933 Act.
e. No Conflicts. Except as disclosed in Schedule 3(e), the
execution, delivery and performance of the Transaction Documents by the Company,
the performance by the Company of its obligations under the Articles of
Amendment and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the reservation for issuance
and issuance of the Conversion Shares and the Warrant Shares) will not
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(i) result in a violation of the Articles of Incorporation, any articles of
amendment of any outstanding series of preferred stock of the Company or the
By-laws; (ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party; or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and the rules and regulations of the principal market or
exchange on which the Common Stock is traded or listed) applicable to the
Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected. Except as disclosed in
Schedule 3(e), neither the Company nor its Subsidiaries is in violation of any
term of (i) its Articles of Incorporation, any articles of amendment of any
outstanding series of preferred stock or By-laws or their organizational charter
or by-laws, respectively, or (ii) any statute, rule or regulation applicable to
the Company or its Subsidiaries and neither the Company nor its Subsidiaries is
in default under any contract, agreement, mortgage, indebtedness, indenture,
instrument, judgment, decree or order, except for defaults as would not,
individually or in the aggregate, have a Material Adverse Effect. The business
of the Company and its Subsidiaries is not being conducted, and shall not be
conducted, in violation of any law, ordinance or regulation of any governmental
entity except for possible violations the sanctions for which either
individually or in the aggregate would not have a Material Adverse Affect.
Except as specifically contemplated by this Agreement and except such as have
been obtained as of the date hereof, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency or any regulatory or self-regulatory agency in
order for it to execute, deliver or perform any of its obligations under or
contemplated by the Transaction Documents or the Articles of Amendment in
accordance with the terms hereof or thereof. Except as disclosed in Schedule
3(e), all consents, authorizations, orders, filings and registrations which the
Company is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof and such consents shall have
been obtained prior to the applicable Closing. The Company and its Subsidiaries
are unaware of any facts or circumstances which might reasonably be expected to
give rise to any of the foregoing. The Company is not in violation of the
listing requirements of the Nasdaq National Market as in effect on the date
hereof and on each of the Closing Dates and has no actual knowledge of any facts
which would reasonably lead to delisting or suspension of the Common Stock by
the Nasdaq National Market in the foreseeable future.
f. SEC Documents; Financial Statements. Since December 31, 1997, the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the 1934 Act, (all of the foregoing filed prior to the date hereof and all
exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as the
"SEC DOCUMENTS"). All of the Company's SEC Documents are available to the public
through EDGAR. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
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therein, in light of the circumstances under which they were made, not
misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements of the SEC with respect
thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may 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 audit adjustments). Neither the Company
nor any of its Subsidiaries or any of their officers, directors, employees or
agents have provided the Buyers with any material, nonpublic information. The
Company meets the requirements for the use of Form S-3 for registration of the
resale of the Registrable Securities (as defined in the Registration Rights
Agreement by each Buyer).
g. Absence of Certain Changes. Except as disclosed in Schedule 3(g),
since December 31, 1998 there has been no material adverse change and no
material adverse development in the business, properties, operations, financial
condition, liabilities, results of operations or prospects of the Company or its
Subsidiaries, taken as a whole. The Company has not taken any steps, and does
not currently expect to take any steps, to seek protection pursuant to any
bankruptcy law nor does the Company or any of its Subsidiaries have any
knowledge that its creditors intend to initiate involuntary bankruptcy
proceedings or any knowledge of any fact which would reasonably lead a creditor
to do so.
h. Absence of Litigation. Except as disclosed in Schedule 3(h),
there is no action, suit, proceeding, inquiry or investigation before or by any
court, public board, government agency, self-regulatory organization or body
pending or, to the knowledge of the Company or any of its Subsidiaries,
threatened against or affecting the Company, the Common Stock or any of the
Company's Subsidiaries or any of the Company's or the Company's Subsidiaries'
officers or directors in their capacities as such, except as expressly set forth
in Schedule 3(h). Except as set forth in Schedule 3(h), to the knowledge of the
Company none of the directors or officers of the Company have been involved in
securities related litigation during the past five years.
i. Acknowledgment Regarding the Buyer's Purchase of Preferred
Shares. The Company acknowledges and agrees that each of the Buyers is acting
solely in the capacity of arm's length purchaser with respect to the Transaction
Documents and the Articles of Amendment and the transactions contemplated
thereby. The Company further acknowledges that Buyer is not acting as a
financial advisor or fiduciary of the Company (or in any similar capacity) with
respect to the Transaction Documents and the Articles of Amendment and the
transactions contemplated thereby and any advice given by any of the Buyers or
any of their respective representatives or agents in connection with the
Transaction Documents and the Articles of Amendment and the transactions
contemplated thereby is merely incidental to such Buyer's purchase of the
Securities. The Company further represents to each Buyer that the Company's
decision to enter into the Transaction Documents has been based solely on the
independent evaluation by the Company and its representatives.
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j. No Undisclosed Events, Liabilities, Developments or
Circumstances. Except for the issuance of the Preferred Shares and Warrants
contemplated by this Agreement, no event, liability, development or circumstance
has occurred or exists with respect to the Company or its Subsidiaries or their
respective business, properties, operations or financial condition, that would
be required to be disclosed by the Company under applicable securities laws on a
registration statement (including by way of incorporation by reference) filed
with the SEC relating to an issuance and sale by the Company of its Common Stock
and which has not been publicly disclosed.
k. No General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Securities.
l. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering of Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of the Nasdaq National Market, nor will the
Company or any of its Subsidiaries take any action or steps that would require
registration of the Securities under the 1933 Act or cause the offering of the
Securities to be integrated with other offerings.
m. Employee Relations. Neither the Company nor any of its
Subsidiaries is involved in any union labor dispute nor, to the knowledge of the
Company or any of its Subsidiaries, is any such dispute threatened. None of the
Company's or its Subsidiaries' employees is a member of a union, neither the
Company nor any of its Subsidiaries is a party to a collective bargaining
agreement, and the Company and its Subsidiaries believe that their relations
with their employees are good. No executive officer (as defined in Rule 501(f)
of the 1933 Act) has notified the Company's Board of Directors that such officer
intends to leave the Company or otherwise terminate such officer's employment
with the Company.
n. Intellectual Property Rights. The Company and its Subsidiaries
own or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. Except as set forth on Schedule 3(n), none of the
Company's trademarks, trade names, service marks, service mark registrations,
service names, patents, patent rights, copyrights, inventions, licenses,
approvals, government authorizations, trade secrets or other intellectual
property rights have expired or terminated, or are expected to expire or
terminate within two years from the date of this Agreement. The Company and its
Subsidiaries do not have any knowledge of any infringement by the Company or its
Subsidiaries of trademarks, trade name rights, patents, patent rights,
copyrights, inventions, licenses, service names, service marks, service mark
registrations, trade secrets or other similar rights of others, or of any such
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development of similar or identical trade secrets or technical information by
others and, except as set forth on Schedule 3(n), no claim, action or proceeding
has been made or brought against, or to the Company's knowledge, has been
threatened against, the Company or its Subsidiaries regarding trademarks, trade
name rights, patents, patent rights, inventions, copyrights, licenses, service
names, service marks, service mark registrations, trade secrets or other
infringement; and the Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing. The Company and its
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties.
o. Regulatory Permits. Except the absence of which would not have a
Material Adverse Effect, 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.
p. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
q. Tax Status. The Company and each of its Subsidiaries has made or
filed all federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and for which the Company has set aside on its books provision reasonably
adequate for the payment of all taxes for periods subsequent to the periods to
which such returns, reports or declarations apply. There are no unpaid taxes in
any material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any such
claim.
r. Transactions With Affiliates. Except as set forth on Schedule
3(r) and in the SEC Documents filed at least ten days prior to the date hereof
and other than the grant of stock options disclosed on Schedule 3(c), none of
the officers, directors, or employees of the Company is presently a party to any
transaction with the Company or any of its Subsidiaries (other than for services
as employees, officers and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the knowledge
of the Company, any corporation, partnership, trust or other
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entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner.
s. Dilutive Effect. The Company understands and acknowledges that
the number of Conversion Shares issuable upon conversion of the Preferred Shares
will increase in certain circumstances. The Company further acknowledges that
its obligation to issue Conversion Shares upon conversion of the Preferred
Shares in accordance with this Agreement and the Articles of Amendment and its
obligation to issue the Warrant Shares in accordance with this Agreement and the
Warrants is, in each case, absolute and unconditional regardless of the dilutive
effect that such issuance may have on the ownership interests of other
stockholders of the Company.
t. Application of Takeover Protections. The Company and its board of
directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Articles of Incorporation or the laws of the
state of its incorporation which is or could become applicable to the Buyers as
a result of the Buyers and the Company fulfilling their obligations under the
Transaction Documents and the Articles of Amendment, including, without
limitation, the Company's issuance of the Securities and the Buyers' ownership
of the Securities.
u. Rights Agreement. As of the date hereof, the Company has not
adopted a shareholder rights plan or similar arrangement relating to
accumulation of beneficial ownership of Common Stock or a change in control of
the Company.
v. Year 2000 Compliance. The Company has initiated a review and
assessment of all areas within its and each Subsidiary's business and operations
that could be materially adversely affected by the "YEAR 2000 PROBLEM" (that is,
the risk that computer applications used by the Company or any of the
Subsidiaries may be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and any date after December 31,
1999). Based on the foregoing, the Company believes that the computer
applications that are currently material to its or any Subsidiary's business and
operations are reasonably expected to be able to perform properly data-sensitive
functions for all dates before and after January 1, 2000, except to the extent
that the failure to do so would not reasonably be expected to have a Material
Adverse Effect.
w. Title. The Company and its Subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its Subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as are described in Schedule 3(w) or such 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 any of its
Subsidiaries. Any real property and facilities held under lease by the Company
and any of 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.
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x. Insurance. The Company and each of its Subsidiaries are insured
by insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged.
y. No Other Agreements. The Company has not, directly or indirectly,
made any agreements with any Buyer relating to the terms or conditions of the
transactions contemplated by the Transaction Documents except as set forth in
the Transaction Documents.
z. No Materially Adverse Contracts. Except as specifically disclosed
in the SEC Documents, or as set forth in Schedule 3(z), neither the Company nor
any of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect. Except as specifically disclosed in the SEC Documents,
or as set forth in Schedule 3(z), neither the Company nor any of its
Subsidiaries is a party to any contract or agreement which in the judgment of
the Company's officers has or is expected to have a Material Adverse Effect.
4. COVENANTS.
a. Best Efforts. Each party shall use its best efforts to satisfy
timely each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.
b. Form D and Blue Sky. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
before each of the Closing Dates, take such action as the Company shall
reasonably determine is necessary to qualify the Securities for, or obtain
exemption for the Securities for, sale to the Buyers at each of the Closings
pursuant to this Agreement under applicable securities or "Blue Sky" laws of the
states of the United States, and shall provide evidence of any such action so
taken to the Buyers on or prior to the Closing Date. The Company shall make all
filings and reports relating to the offer and sale of the Securities required
under applicable securities or "Blue Sky" laws of the states of the United
States following each of the Closing Dates.
c. Reporting Status. Until the earlier of (i) the date which is one
year after the date on which the Investors (as that term is defined in the
Registration Rights Agreement) may sell all of the Conversion Shares and the
Warrant Shares without restriction pursuant to Rule 144(k) promulgated under the
1933 Act (or successor thereto) and (ii) the date on which (A) the Investors
shall have sold all the Conversion Shares and the Warrant Shares and (B) none of
the Preferred Shares or Warrants is outstanding (the "REPORTING PERIOD"), the
Company shall file all reports required to be filed with the SEC pursuant to the
1934 Act, and the Company shall not terminate its status as an issuer required
to file reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would otherwise permit such termination.
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d. Use of Proceeds. The Company will use the proceeds from the sale
of the Preferred Shares for substantially the same purposes and in substantially
the same amounts as indicated in Schedule 4(d).
e. Financial Information. The Company agrees to send the following
to each Investor (as defined in the Registration Rights Agreement) during the
Reporting Period: (i) unless the following are filed with the SEC through EDGAR
and are available to the public through EDGAR, within two (2) Business Days
after the filing thereof with the SEC, a copy of its Annual Reports on Form
10-K, its Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and
any registration statements (other than on Form S-8) or amendments filed
pursuant to the 1933 Act; (ii) on the same day as the release thereof, facsimile
copies of all press releases issued by the Company or any of its Subsidiaries
and (iii) copies of any notices and other information made available or given to
the stockholders of the Company generally, contemporaneously with the making
available or giving thereof to the stockholders.
f. Reservation of Shares. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than the sum of (A) 200% of the number of shares of Common
Stock needed to provide for the issuance of the Conversion Shares and (B) 100%
of the number of shares of Common Stock needed to provide for the issuance of
the Warrant Shares (without regard to any limitations on conversions or exercise
thereof).
g. Proxy Statement. The Company shall provide each stockholder
entitled to vote at the next meeting of stockholders of the Company, which
meeting shall occur on or before the earlier of (A) the date which is 60 days
after the Proxy Statement Triggering Date (as defined below) and (B) the date of
the Company's next annual meeting of stockholders (the "STOCKHOLDER MEETING
DEADLINE"), a proxy statement, which has been previously reviewed by the Buyers
and a counsel of their choice, soliciting each such stockholder's affirmative
vote at such stockholder meeting for approval of the Company's issuance of all
of the Securities as described in this Agreement, and the Company shall use its
best efforts to (i) solicit its stockholders' approval of such issuance of the
Securities and (ii) cause the Board of Directors of the Company to recommend to
the stockholders that they approve such proposal. If the Company fails to hold a
meeting of its stockholders by the Stockholder Meeting Deadline, then, as
partial relief (which remedy shall not be exclusive of any other remedies
available at law or in equity), the Company shall pay to each holder of
Preferred Shares an amount in cash per Preferred Share equal to the product of
(i) $10,000; multiplied by (ii) .02; multiplied by (iii) the quotient of (x) the
number of days after the Stockholder Meeting Deadline that a meeting of the
Company's stockholders is not held, divided by (y) 30. The Company shall make
the payments referred to in the immediately preceding sentence within five days
of the earlier of (I) the holding of the meeting of the Company's stockholders,
the failure of which resulted in the requirement to make such payments, and (II)
the last day of each 30-day period beginning on the Stockholder Meeting
Deadline. In the event the Company fails to make such payments in a timely
manner, such payments shall bear interest at the rate of 1.5% per month (pro
rated for partial months) until paid in full. "PROXY STATEMENT TRIGGERING DATE"
shall mean the first date after the date of this Agreement on which the sum of
(A) the number of shares of Common Stock previously issued upon conversion of
any Preferred
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<PAGE> 17
Shares and (B) the number of shares of Common Stock issuable upon conversion of
all the outstanding Preferred Shares based on the Conversion Price in effect on
the date of such determination (without regard to any limitation upon the
conversion of any Preferred Shares), equals or exceeds 15% of the number of
shares of Common Stock issued and outstanding immediately prior to the Initial
Closing Date.
h. Listing. The Company shall promptly secure the listing of all of
the Registrable Securities (as defined in the Registration Rights Agreement)
upon each national securities exchange and automated quotation system (including
the Nasdaq National Market), if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and shall maintain, so long as
any other shares of Common Stock shall be so listed, such listing of all
Registrable Securities from time to time issuable under the terms of the
Transaction Documents and the Articles of Amendment. The Company shall maintain
the Common Stock's authorization for listing on the Nasdaq National Market, the
NYSE or AMEX. Neither the Company nor any of its Subsidiaries shall take any
action which may result in the delisting or suspension of the Common Stock on
the Nasdaq National Market, the NYSE or AMEX (other than to switch listings from
the Nasdaq National Market to the NYSE or AMEX). The Company shall promptly, and
in no event later than the following Business Day, provide to such Buyer copies
of any notices it receives from the Nasdaq National Market or NYSE regarding the
continued eligibility of the Common Stock for listing on such automated
quotation system or securities exchange, provided that such notices shall not
contain any material nonpublic information. The Company shall pay all fees and
expenses in connection with satisfying its obligations under this Section 4(h).
i. Expenses. Subject to Section 9(l) below, at the Closing, the
Company shall pay a non-accountable expense allowance of $50,000 to the Buyers.
j. Transactions With Affiliates. So long as (i) any Preferred Shares
or Warrants are outstanding or (ii) any Buyer owns Conversion Shares or Warrant
Shares with a market value of $500,000 the Company shall not, and shall cause
each of its Subsidiaries not to, enter into, amend, modify or supplement, or
permit any Subsidiary to enter into, amend, modify or supplement, any agreement,
transaction, commitment or arrangement with any of its or any Subsidiary's
officers, directors, person who were officers or directors at any time during
the previous two years, stockholders who beneficially own 5% or more of the
Common Stock, or affiliates or with any individual related by blood, marriage or
adoption to any such individual or with any entity in which any such entity or
individual owns a 5% or more beneficial interest (each a "RELATED PARTY"),
except for (a) customary employment arrangements and benefit programs on
reasonable terms, (b) any agreement, transaction, commitment or arrangement
which is approved by a majority of the disinterested directors of the Company or
(c) any agreement, transaction, commitment or arrangement on an arms-length
basis on terms no less favorable than terms which would have been obtainable
from a person other than such Related Party. For purposes hereof, any director
who is also an officer of the Company or any Subsidiary of the Company shall not
be a disinterested director with respect to any such agreement, transaction,
commitment or arrangement. "AFFILIATE" for purposes hereof means, with respect
to any person or entity, another person or entity that, directly or indirectly,
(i) has a 5% or more equity interest in that person or
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<PAGE> 18
entity, (ii) has 5% or more common ownership with that person or entity, (iii)
controls that person or entity, or (iv) shares common control with that person
or entity. "CONTROL" or "CONTROLS" for purposes hereof means that a person or
entity has the power, direct or indirect, to conduct or govern the policies of
another person or entity.
k. Filing of Form 8-K. On or before the first Business Day following
each of the Closing Dates and each of the Additional Share Notice Dates, the
Company shall file a Form 8-K with the SEC describing the terms of the
transaction contemplated by the Transaction Documents and consummated at such
Closing, in each case in the form required by the 1934 Act.
l. Corporate Existence. So long as any Buyer beneficially owns any
Preferred Shares or Warrants, the Company shall maintain its corporate existence
and shall not sell all or substantially all of the Company's assets, except in
the event of a merger or consolidation or sale of all or substantially all of
the Company's assets, where the surviving or successor entity in such
transaction (i) assumes the Company's obligations hereunder and under the
agreements and instruments entered into in connection herewith and (ii) is a
publicly traded corporation whose common stock is listed for trading on the
Nasdaq National Market or the NYSE.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its transfer
agent, and any subsequent transfer agent, to issue certificates, registered in
the name of each Buyer or its respective nominee(s), for the Conversion Shares
and the Warrant Shares in such amounts as specified from time to time by each
Buyer to the Company upon conversion of the Preferred Shares or exercise of the
Warrants (in the form attached hereto as Exhibit E, the "IRREVOCABLE TRANSFER
AGENT INSTRUCTIONS"). Prior to registration of the Conversion Shares and the
Warrant Shares under the 1933 Act, all such certificates shall bear the
restrictive legend specified in Section 2(g) of this Agreement. The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(f) hereof (in the case of the Conversion Shares and the
Warrant Shares, prior to registration of the Conversion Shares and the Warrant
Shares under the 1933 Act) will be given by the Company to its transfer agent
and that the Securities shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section 5 shall affect in any way
each Buyer's obligations and agreements set forth in Section 2(g) to comply with
all applicable prospectus delivery requirements, if any, upon resale of the
Securities. If a Buyer provides the Company with an opinion of counsel, in a
form reasonable satisfactory to the Company, that registration of a resale by
such Buyer of any of such Securities is not required under the 1933 Act or such
Buyer provides the Company with reasonable assurances that the Securities can be
sold pursuant to Rule 144, the Company shall permit the transfer, and, in the
case of the Conversion Shares and the Warrant Shares, promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by such Buyer and without any restrictive legends.
The Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Buyers by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations
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<PAGE> 19
under this Section 5 will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section 5, that the
Buyers shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or other
security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
a. Initial Closing Date. The obligation of the Company hereunder to
issue and sell the Initial Preferred Shares and the Initial Warrants to each
Buyer at the Initial Closing is subject to the satisfaction, at or before the
Initial Closing Date, of each of the following conditions, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion by providing each Buyer with prior written
notice thereof:
(i) Such Buyer shall have executed each of this Agreement and the
Registration Rights Agreement and delivered the same to the Company.
(ii) Articles of Amendment shall have been filed with the Secretary
of State of the State of Indiana.
(iii) Such Buyer shall have delivered to the Company the Purchase
Price for the Initial Preferred Shares and the related Warrants being
purchased by such Buyer at the Initial Closing by wire transfer of
immediately available funds pursuant to the wire instructions provided by
the Company.
(iv) The representations and warranties of such Buyer contained
herein shall be true and correct as of the date when made and as of the
Initial Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date), and such
Buyer shall have performed, satisfied and complied with the covenants,
agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by such Buyer at or prior to the
Initial Closing Date.
b. Additional Closing Date. The obligation of the Company hereunder
to issue and sell the Additional Preferred Shares and the Additional Warrants to
each Buyer at the Additional Closing is subject to the satisfaction, at or
before the Additional Closing Date, of each of the following conditions,
provided that these conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion by providing each Buyer
with prior written notice thereof:
(i) Such Buyer shall have delivered to the Company the Purchase
Price for the Additional Preferred Shares and the related Warrants being
purchased by such Buyer at the Additional Closing by wire transfer of
immediately available funds pursuant to the wire instructions provided by
the Company.
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(ii) The representations and warranties of such Buyer contained
herein shall be true and correct as of the date when made and as of the
applicable Additional Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date), and such
Buyer shall have performed, satisfied and complied with the covenants,
agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by such Buyer at or prior to the
applicable Additional Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
a. Initial Closing Date. The obligation of each Buyer hereunder to
purchase the Initial Preferred Shares and the Additional Warrants at the Initial
Closing is subject to the satisfaction, at or before the Initial Closing Date,
of each of the following conditions, provided that these conditions are for such
Buyer's sole benefit and may be waived by such Buyer at any time in its sole
discretion by providing the Company and each Buyer with prior written notice
thereof:
(i) The Company shall have executed each of the Transaction
Documents, and delivered the same to such Buyer.
(ii) The Articles of Amendment shall have been filed with the
Secretary of State of the State of Indiana, and a copy thereof certified
by the Secretary of State of the State of Indiana shall have been
delivered to such Buyer.
(iii) The Common Stock shall be designated for quotation on the
Nasdaq National Market, or listed on the NYSE or AMEX, and shall not have
been suspended from trading on or delisted from such exchanges nor shall
delisting or suspension by such exchanges have been threatened either (A)
in writing by such exchanges or (B) by falling below the minimum listing
maintenance requirements of such exchanges and the Company has complied
with the listing requirements of the Nasdaq National Market for the
Conversion Shares and the Warrant Shares issuable upon conversion or
exercise of the Initial Preferred Shares and the related Warrants, as the
case may be.
(iv) The representations and warranties of the Company contained
herein shall be true and correct as of the date when made and as of the
Initial Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date) and the
Company shall have performed, satisfied and complied with the covenants,
agreements and conditions required by the Transaction Documents or
Articles of Amendment to be performed, satisfied or complied with by the
Company at or prior to the Initial Closing Date. Such Buyer shall have
received a certificate, executed by the Chief Executive Officer of the
Company, dated as of the Initial Closing Date, to the foregoing effect and
as to such other matters as such Buyer may reasonably request, including,
without limitation, an update as of the Initial Closing Date regarding the
representation contained in Section 3(c) above.
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(v) Such Buyer shall have received the opinions of Barnes &
Thornburg and Snell & Wilmer LLP dated as of the Initial Closing Date, in
substantially the forms of Exhibit D, attached hereto.
(vi) The Company shall have executed and delivered to such Buyer the
Stock Certificates for the Initial Preferred Shares and the Initial
Warrants being purchased by the Buyer at the Initial Closing.
(vii) The Board of Directors of the Company shall have adopted
resolutions consistent with Section 3(b)(ii) above and in a form
reasonably acceptable to such Buyer (the "RESOLUTIONS").
(viii) As of the Initial Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Preferred Shares and exercise
of the Warrants, at least 9,700,000 shares of Common Stock.
(ix) The Irrevocable Transfer Agent Instructions, in the form of
Exhibit E attached hereto, shall have been delivered to and acknowledged
in writing by the Company's transfer agent.
(x) The Company shall have delivered to such Buyer a certificate
evidencing the incorporation and good standing of the Company and each
Subsidiary in such corporation's state of incorporation issued by the
Secretary of State of such state of incorporation as of a date within ten
days of the Initial Closing Date.
(xi) The Company shall have delivered to such Buyer a secretary's
certificate certifying as to (A) the Resolutions, (B) the Articles of
Incorporation and (C) the By-laws, each as in effect at the Initial
Closing Date.
(xii) The Company shall have delivered to such Buyer a certified
copy of its Articles of Incorporation as certified by the Secretary of
State of the State of Indiana within ten days of the Initial Closing Date.
(xiii) The Company shall have delivered to such Buyer a letter from
the Company's transfer agent certifying the number of shares of Common
Stock outstanding as of a date within five days of the Initial Closing
Date.
(xiv) The Company shall have delivered to the Buyers such other
documents relating to the transactions contemplated by the Transaction
Documents as the Buyers or their counsel may reasonably request.
b. Additional Closing Date. The obligation of each Buyer hereunder
to purchase the Additional Preferred Shares and the Additional Warrants at the
Additional Closing is subject to the satisfaction, at or before each Additional
Closing Date, of each of the following
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conditions, provided that these conditions are for such Buyer's sole benefit and
may be waived by the Buyer at any time in its sole discretion by providing the
Company and each Buyer with prior written notice thereof:
(i) The Company shall have complied with the requirements of Section
1(c) and all of the Additional Notice Conditions and Effectiveness
Conditions set forth in Section 1(d) shall have been satisfied as of the
Additional Closing Date.
(ii) The Articles of Amendment shall be in full force and effect and
shall not have been amended since the Initial Closing Date, and a copy
thereof certified by the Secretary of State of the State of Indiana shall
have been delivered to such Buyer.
(iii) The Common Stock shall be authorized for quotation on the
Nasdaq National Market, or listed on the NYSE or AMEX, and shall not have
been suspended from trading on or delisted from such exchanges nor shall
delisting or suspension by such exchanges have been threatened either (A)
in writing by such exchanges or (B) by falling below the minimum listing
maintenance requirements of such exchanges and the Company has complied
with the listing requirements of the Nasdaq National Market or the NYSE,
as applicable, for the Conversion Shares and the Warrant Shares issuable
upon conversion or exercise of the Additional Preferred Shares and the
related Warrants as the case may be.
(iv) The representations and warranties of the Company shall be true
and correct as of the date when made and as of the Additional Closing Date
as though made at that time (except for representations and warranties
that speak as of a specific date) and the Company shall have performed,
satisfied and complied with the covenants, agreements and conditions
required by the Transaction Documents or the Articles of Amendment to be
performed, satisfied or complied with by the Company at or prior to the
Additional Closing Date. Such Buyer shall have received a certificate,
executed by the Chief Executive Officer of the Company, dated as of the
Additional Closing Date, to the foregoing effect and as to such other
matters as such Buyer may reasonably request, including, without
limitation, an update as of the Additional Closing Date regarding the
representation contained in Section 3(c) above.
(v) Such Buyer shall have received the opinions of Barnes &
Thornburg and Snell & Wilmer LLP dated as of the Additional Closing Date
in substantially the forms of Exhibit D, attached hereto.
(vi) The Company shall have executed and delivered to such Buyer the
Stock Certificates for the Additional Preferred Shares and the Additional
Warrants being purchased by the Buyer at the Additional Closing.
(vii) The Board of Directors of the Company shall have adopted, and
shall not have amended, the Resolutions.
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(viii) As of the Additional Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Preferred Shares, a number of
shares of Common Stock equal to at least 100% of the sum of (A) the number
of shares of Common Stock which would be issuable upon conversion in full
of the then outstanding Preferred Shares and (B) the number of shares of
Common Stock which would be issuable upon conversion in full of the then
outstanding Warrants (without regard to any limitations on conversion),
including for such purposes the Additional Preferred Shares and related
Additional Warrants to be issued at such Additional Closing.
(ix) The Irrevocable Transfer Agent Instructions, in the form of
Exhibit E attached hereto, shall have been delivered to and acknowledged
in writing by the Company's transfer agent and shall be in effect as of
the Additional Closing.
(x) The Company shall have delivered to such Buyer a certificate
evidencing the incorporation and good standing of the Company and each
Subsidiary in the state of such corporation's state of incorporation
issued by the Secretary of State of such state of incorporation as of a
date within ten days of the Additional Closing Date.
(xi) The Company shall have delivered to such Buyer a certified copy
of its Articles of Incorporation as certified by the Secretary of State of
the State of Indiana within ten days of the Additional Closing Date.
(xii) The Company shall have delivered to such Buyer a secretary's
certificate certifying as to (A) the Resolutions, (B) the Articles of
Incorporation and (C) By-laws, each as in effect at the Additional
Closing.
(xiii)The Company shall have delivered to such Buyer a letter from
the Company's transfer agent certifying the number of shares of Common
Stock outstanding as of a date within five days of the Additional Closing
Date.
(xiv) The Additional Registration Statement (as defined in the
Registration Rights Agreement) shall have been declared effective by the
SEC on or before the date which is 80 days after the Additional Share
Notice Date.
(xv) The Company shall have delivered to the Buyers such other
documents relating to the transactions contemplated by this Agreement as
the Buyers or their counsel may reasonably request.
8. INDEMNIFICATION. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents and the Articles of Amendment, the Company shall defend, protect,
indemnify and hold harmless each Buyer and each other holder of the Securities
and all of their stockholders, officers, directors, employees and direct or
indirect investors and any of the foregoing persons' agents or other
representatives (including, without
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limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the "INDEMNITEES") from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys' fees and disbursements
(the "INDEMNIFIED LIABILITIES"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
Articles of Amendment or any other certificate, instrument or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in the Transaction Documents or the Articles
of Amendment or any other certificate, instrument or document contemplated
hereby or thereby or (c) any cause of action, suit or claim brought or made
against such Indemnitee (other than a cause of action, suit or claim which is
(x) brought or made by the Company and is not a shareholder derivative suit or
(y) to the extent that such Buyer receives material nonpublic information
concerning the Company or any of its Subsidiaries as a result of the carrying
out of any obligations imposed by the Transaction Documents or the Articles of
Amendment and such cause of action, suit or claim is based on Buyer's failure to
comply with all applicable provisions of Federal Securities Laws with respect to
trading securities of the Company based on such material nonpublic information)
and arising out of or resulting from (i) the execution, delivery, performance or
enforcement of the Transaction Documents or the Articles of Amendment, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities or (iii) solely
the status of such Buyer or holder of the Securities as an investor in the
Company. To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law.
9. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction; Jury Trial. The corporate laws of
the State of Indiana shall govern all issues concerning the relative rights of
the Company and its stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York. Each party hereby
irrevocably submits to the non-exclusive jurisdiction of the state and federal
courts sitting 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 for such 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
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right to serve process in any manner permitted by law. EACH PARTY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY
TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR
ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
b. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
c. Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement in
that jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement supersedes all other
prior oral or written agreements between the Buyers, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the Buyers which purchased at least two-thirds (2/3) of the Initial
Preferred Shares on the Initial Closing Date or, if prior to the Initial Closing
Date, the Buyers listed on the Schedule of Buyers as being obligated to purchase
at least two-thirds (2/3) of the Initial Preferred Shares, then outstanding, and
no provision hereof may be waived other than by an instrument in writing signed
by the party against whom enforcement is sought. No such amendment shall be
effective to the extent that it applies to less than all of the holders of the
Preferred Shares or Warrants then outstanding. No consideration shall be offered
or paid to any person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents or the Articles of Amendment
unless the same consideration also is offered to all of the parties to the
Transaction Documents or holders of the Preferred Shares, as the case may be.
f. Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) Business Day after deposit
with a nationally
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<PAGE> 26
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:
If to the Company:
WAVO Corporation
3131 E. Camelback Road, Suite 320
Phoenix, Arizona 85016
Telephone: 602-952-5500
Facsimile: 602-952-5517
Attention: Chief Executive Officer and General Counsel
With a copy to:
Snell & Wilmer LLP
One Arizona Center
Phoenix, Arizona
Telephone: 602-382-6000
Facsimile: 602-382-6070
Attention: Steven D. Pidgeon, Esq.
If to the Transfer Agent:
American Securities Transfer & Trust, Inc.
12039 W. Alameda Parkway, Suite 22
Lakewood, Colorado 80228
Telephone: 303-986-5400
Facsimile: 303-986-2444
Attention: John Harmon
If to a Buyer, to it at the address and facsimile number set forth on the
Schedule of Buyers, with copies to such Buyer's representatives as set forth on
the Schedule of Buyers, or at such other address and/or facsimile number and/or
to the attention of such other person as the recipient party has specified by
written notice given to each other party five days prior to the effectiveness of
such change. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communications, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Preferred Shares. The Company shall not assign
this Agreement or any rights or obligations
26
<PAGE> 27
hereunder without the prior written consent of the Buyers which purchased at
least two-thirds (2/3) of the Initial Preferred Shares on the Initial Closing
Date, including by merger or consolidation. A Buyer and any Permitted Assignees
(as defined below) may assign some or all of its rights hereunder to (i) without
the consent of the Company, any person or entity who, immediately prior to such
assignment, is (A) an affiliate of such Buyer or Permitted Assignee, (B) a
holder of Preferred Shares or (C) an entity or fund which has the same principal
investment adviser or manager as the Buyer or Permitted Assignee or any other
holder of Preferred Shares or Warrants, provided such adviser or manager has the
sole power to make decisions regarding any actions taken by such entity or fund
in connection with the Transaction Documents (each such person or entity
described in the immediately preceding clause (A), (B) and (C) is referred to as
"PERMITTED ASSIGNEE") and (ii) with the prior written consent of the Company,
which consent shall not be unreasonably withheld, to any person or entity;
provided, however, that any such assignment shall not release such Buyer or
Permitted Assignee from its obligations hereunder unless such obligations are
assumed by such assignee and the Company has consented to such assignment and
assumption, which consent shall not be unreasonably withheld. Notwithstanding
anything to the contrary contained in the Transaction Documents or the Articles
of Amendment, Buyers shall be entitled to pledge the Securities in connection
with a bona fide margin account.
h. No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. Survival. Unless this Agreement is terminated under Section 9(l),
the representations and warranties of the Company and the Buyers contained in
Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and 9,
and the indemnification provisions set forth in Section 8, shall survive each of
the Closings. Each Buyer shall be responsible only for its own representations,
warranties, agreements and covenants hereunder.
j. Publicity. The Company and each Buyer shall have the right to
approve before issuance any press releases or any other public statements with
respect to the transactions contemplated hereby; provided, however, that the
Company shall be entitled, without the prior approval of the Buyer, to make any
press release or other public disclosure with respect to such transactions as is
required by applicable law and regulations (although each Buyer shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release and shall be provided with a copy
thereof).
k. Further Assurances. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
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<PAGE> 28
l. Termination. In the event that the Initial Closing shall not have
occurred with respect to a Buyer on or before three (3) Business Days from the
date hereof due to the Company's or the Buyer's failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the non-breaching party's
failure to waive such unsatisfied condition(s)), the non-breaching party shall
have the option to terminate this Agreement with respect to such breaching party
at the close of business on such date without liability of any party to any
other party; provided, however, that if this Agreement is terminated pursuant to
this Section 9(l), the Company shall remain obligated to reimburse a
non-breaching Buyer for expenses up to the amount described in Section 4(i)
above.
m. Placement Agent. The Company acknowledges that it has engaged
Donaldson Lufkin & Jenrette ("DLJ") as an investment banking consultant in
connection with the sale of the Preferred Shares and the related Warrants. The
Company shall be responsible for the payment of any fee to DLJ and any placement
agent's fees or brokers' commissions relating to or arising out of the
transactions contemplated hereby. The Company shall pay, and hold each Buyer
harmless against, any liability, loss or expense (including, without limitation,
attorneys' fees and out of pocket expenses) arising in connection with any such
claim.
n. No Strict Construction. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
o. Remedies. Each Buyer and each holder of the Securities shall have
all rights and remedies set forth in the Transaction Documents and the Articles
of Amendment and all rights and remedies which such holders have been granted at
any time under any other agreement or contract and all of the rights which such
holders have under any law. Any person having any rights under any provision of
this Agreement shall be entitled to enforce such rights specifically (without
posting a bond or other security), to recover damages by reason of any breach of
any provision of this Agreement and to exercise all other rights granted by law.
p. Payment Set Aside. To the extent that the Company makes a payment
or payments to any Buyer hereunder or pursuant to the Registration Rights
Agreement, the Articles of Amendment or the Warrants or such Buyer enforces or
exercises its rights hereunder or thereunder, and such payment or payments or
the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
28
<PAGE> 29
IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.
COMPANY: BUYER:
WAVO CORPORATION HFTP INVESTMENT L.L.C.
By: Promethean Asset Management, L.L.C.
Its: Investment Manager
By:_________________________________
Name:_______________________________
Title:______________________________ By:_________________________________
James F. O'Brien, Jr.
Managing Member
LEONARDO, L.P.
By: Angelo, Gordon & Co., L.P.
By:_________________________________
Michael L. Gordon
Chief Operating Officer
<PAGE> 30
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
NUMBER OF
INITIAL
INVESTOR ADDRESS PREFERRED INVESTOR'S REPRESENTATIVES' ADDRESS
INVESTOR NAME AND FACSIMILE NUMBER SHARES AND FACSIMILE NUMBER
------------- -------------------- ------ --------------------
<S> <C> <C> <C>
HFTP Investment L.L.C. c/o Promethean Asset Management, 750 Promethean Investment Group, L.L.C.
L.L.C. 750 Lexington Avenue
750 Lexington Avenue 22nd Floor
22nd Floor New York, New York 10022
New York, New York 10022 Attn: James F. O'Brien, Jr.
Attn: James F. O'Brien, Jr. John Floegel
John Floegel Telephone: 212-702-5200
Telephone: 212-702-5200 Facsimile: 212-758-9334
Facsimile: 212-758-9334
Residence: New York Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661-3693
Attn: Robert J. Brantman, Esq.
Telephone: 312-902-5200
Facsimile: 312-902-1061
Leonardo, L.P. c/o Angelo, Gordon & Co., L.P. 750 c/o Angelo, Gordon & Co., L.P.
245 Park Avenue - 26th
Floor 245 Park Avenue - 26th Floor
New York, New York 10167 New York, New York 10167
Attention: Gary Wolf or Ari Storch Attention: Gary Wolf or Ari Storch
Telephone: 212-692-2035 Telephone: 212-692-2035
Facsimile: 212-867-6449 Facsimile: 212-867-6449
Residence: Cayman Islands Residence: Cayman Islands
</TABLE>
<PAGE> 31
SCHEDULES
Schedule of Buyers
Schedule 3(a) - Subsidiaries
Schedule 3(c) - Capitalization
Schedule 3(e) - Conflicts
Schedule 3(g) - Material Changes
Schedule 3(h) - Litigation
Schedule 3(n) - Intellectual Property
Schedule 3(r) - Transactions with Affiliates
Schedule 3(w) - Liens
Schedule 3(z) - Certain Agreements
Schedule 4(d) - Use of Proceeds
EXHIBITS
Exhibit A - Form of Articles of Amendment
Exhibit B - Form of Warrant
Exhibit C - Form of Registration Rights Agreement
Exhibit D - Form of Company Counsel Opinions
Exhibit E - Form of Irrevocable Transfer Agent Instructions
