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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(X) Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1997 or
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________ to ________
Commission File Number 1-11624
HYPERMEDIA COMMUNICATIONS, INC.
(Exact name of Registrant as specified in its charter)
California 94-3104247
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
901 Mariner's Island Boulevard, Suite 365
San Mateo, California 94404
(Address of principal executive offices)
Registrant's telephone number, including area code: (650) 573-5170
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes (X) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of
the registrant, based upon the closing sale price of the Common Stock on March
6, 1998, in the Nasdaq SmallCap Market, was approximately $1,900,000. For
purposes of this disclosure, shares of Common Stock, Series E Preferred Stock,
Series F Preferred Stock, Series G Preferred Stock, Series H Preferred Stock,
Series I Preferred Stock and Series J Preferred Stock held by each officer and
director of the registrant and by each person who owns 5% or more of the
outstanding voting stock have been excluded in that such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
As of March 6, 1998, the registrant had 3,200,137 shares of Common Stock,
8,064,516 shares of Series E Preferred Stock, 82,250 shares of Series F
Preferred Stock, 50,344 shares of Series G Preferred Stock, 117,000 shares of
Series H Preferred Stock, 28,800 shares of Series I Preferred Stock and 105,000
shares of Series J Preferred Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's Proxy Statement for the Annual Meeting of Shareholders to
be held on May 21, 1998, is incorporated by reference into Part III of this Form
10-K to the extent stated herein.
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TABLE OF CONTENTS
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Page
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PART I ............................................................................................... 2
ITEM 1. BUSINESS.............................................................................. 2
ITEM 2. PROPERTIES........................................................................... 10
ITEM 3. LEGAL PROCEEDINGS.................................................................... 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................................. 10
PART II .............................................................................................. 11
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS.......................................................... 11
ITEM 6. SELECTED FINANCIAL DATA.............................................................. 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................................................. 13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................................... 22
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.................................................. 22
PART III .............................................................................................. 23
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................................... 23
ITEM 11. EXECUTIVE COMPENSATION............................................................... 24
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT........................................................................... 24
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................................... 24
PART IV .............................................................................................. 25
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K ......................................................................... 25
REPORT OF INDEPENDENT ACCOUNTANTS............................................................................... 29
BALANCE SHEET................................................................................................... 30
STATEMENT OF OPERATIONS......................................................................................... 31
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)..................................................................... 32
STATEMENT OF CASH FLOWS......................................................................................... 33
NOTES TO FINANCIAL STATEMENTS................................................................................... 34
SIGNATURES...................................................................................................... 42
INDEX TO EXHIBITS............................................................................................... 43
</TABLE>
1
<PAGE>
PART I
ITEM 1. BUSINESS
This Business section and other parts of this Annual Report on Form
10-K contain forward-looking statements that involve risks and uncertainties.
Actual results may differ significantly from those anticipated in these
forward-looking statements as a result of the factors set forth below and in
"Factors Affecting Operating Results and Market Price of Stock" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Forward-looking statements are indicated with an asterisk.
The Company
HyperMedia Communications, Inc. (the "Company" or "HyperMedia"),
incorporated in California in August 1989, publishes NewMedia Magazine
("NewMedia"), the largest publication serving the corporate digital content
market. "Digital content" is information created using computer-based video,
audio, graphics, animation and Internet technologies. Companies use digital
content in building brand awareness through marketing, advertising, promotions,
corporate presentations and sales and technical training. Corporate digital
content creators utilize a wide array of digital communications technologies,
including Internet development tools and services, desktop and portable personal
computers, workstations, servers, audio/video compression and editing equipment,
graphics hardware and software, high-density storage devices and video
conferencing systems. Digital professionals will spend more than $88 billion on
computers, software, peripherals, learning and support for digital content
production from 1996 to 1999, according to a report prepared by GISTICS
Incorporated.* The highest paid digital professionals will have the greatest
influence over how the $88 billion is spent. Digital media output is actively
employed in a broad range of businesses and disciplines, such as brand identity
(including presentations, training and collateral), advertising, publishing,
brand merchandising, film, music, radio, television, cable television, video
production, theme parks and computer media. More than 86% of all digital media
output is connected to branding identity and advertising.
Starting in the second quarter of 1998, NewMedia will be published
monthly to more than 215,000 digital content creators.* According to a recent
analysis conducted for the Company by BPA International ("BPA") of NewMedia
subscriber demographic data, the average subscriber to the publication has
represented that they are personally involved in the purchase of approximately
$1,100,000 worth of digital content-related hardware, software and services in a
twelve-month period.* NewMedia's mission is to give its readers the tools to be
successful digital content creators by identifying the newest products,
technologies and strategies that will keep their businesses competitive. Revenue
from NewMedia is derived primarily through the sale of advertisements in the
magazine.
HyperMedia also produces the NewMedia INVISION Awards Festival, the
largest juried digital media competition in the world. The program seeks out the
highest achievements in digital content creation for business, entertainment,
marketing, government and education. The 1998 NewMedia INVISION Festival will
include a 6,000 square foot PLAYLAND Gallery, Evening New Media Showcases and a
two day Digital Creativity conference.*
HyperMedia also publishes newmedia.com, an award-winning World Wide Web
site of news, information, products and services for the digital content
creation market. The Company recently introduced "i.Serv," an innovative
electronic reader service capability that uses the immediacy and interactivity
of the Web to respond to readers' product information requests in minutes
instead of months.
HyperMedia is also exploring opportunities to expand its business by
developing new magazines, both print and electronic, events and other related
products aimed at the corporate digital content creator marketplace.*
- ------------------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
2
<PAGE>
Market Background
The Digital Content Market
In 1996, U.S. companies spent $157 billion producing digital content to
promote their products and services, according to the Annual Interactive
Telemedia and Multimedia Industry Assessment by GISTICS Incorporated
("GISTICS"). The $157 billion figure is an 18% increase over 1995 spending on
digital content for brand promotion. Research results estimate that spending on
digital content production will grow from 15 to 18 percent annually for the rest
of the decade, reaching approximately $275 billion by 1999.*
The GISTICS report indicates that more than 86 percent of all digital
content production is connected to corporate branding activities, such as
marketing, advertising, promotions, corporate presentations, sales and technical
training. Branding offers the greatest employment opportunities for digital
content professionals. Jobs related to digital content production for corporate
branding increased by 24 percent in 1996.
Digital content creators will account for $88 billion in expenditures
from 1996 to 1999 in areas such a computers, software, peripherals,
infrastructure, support and learning, according to the GISTICS study. These
digital professionals are investing heavily in work stations, web tools,
networks and information. Digital spending is the greatest per person and
growing the fastest in larger organizations and companies.
In absolute dollars, digital spending is the largest on computers and
software. The areas showing the fastest growth rates are in software,
peripherals, learning and infrastructure. In the software market, digital
content creators' spending is highest in authoring tools, especially in the
areas of Internet web tools and asset management. In the infrastructure market,
investments in networks and servers are the strongest.
Many large multinational technology corporations, including Adobe,
Apple, Autodesk, Compaq, Dell, Digital, Epson, Fujitsu, Hewlett Packard, IBM,
Intel, Iomega, Macromedia, Microsoft, Mitsubishi, Philips, Sharp, Silicon
Graphics, Sun Microsystems, Texas Instruments, and 3M are developing and
marketing products specifically targeted to this market.*
The Digital Elite
The top-paid digital content creators are called the Digital Elite
because they disproportionately influence how companies spend money on
technology. According to the GISTICS study, in 1996 3,468,000 digital content
creators spent $18.5 billion. In the same period, the 309,858 top-paid Digital
Elite directly influenced $10.1 billion in digital media purchases, representing
54.5 percent of the total. Therefore, the GISTICS study concludes, the top 10
percent best paid, most highly motivated and technically advanced of digital
content creators control more than 50 percent of all spending on digital
technology.
Over 60 percent of the Digital Elite, according to the GISTICS
research, are advanced users of digital technology who create core applications
that drive business growth. The Digital Elite are also senior managers who lead
their organizations in purchasing digital technology. The Digital Elite are
primarily found in in-house branding organizations and large companies.
- ----------------------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
3
<PAGE>
NewMedia magazine reaches more members of the Digital Elite than any
other technology magazine, according to the GISTICS research study.
Approximately 45% of the Digital Elite read NewMedia magazine. No other
cross-platform technology publication measured in the study had more than 15%
coverage of the Digital Elite. Publications aimed at the information systems
marketplace, such as InfoWorld, PC Week and PC Magazine, had 8 percent or under
penetration into this market.
Research conducted by the Company shows that NewMedia subscribers read
NewMedia more avidly than any other technology publication. Approximately 75
percent of subscribers are reading four out of every four issues of NewMedia,
according to a 1997 Readership Profile Survey conducted by the Company. By
comparison, less than 21 percent of subscribers read four out of every four of
other surveyed publications, including InfoWorld, PC Week, Wired and others.
Computer-Related Periodicals
HyperMedia's primary product, NewMedia, is a controlled-circulation
periodical publication serving corporate digital content creators.
Computer-related periodicals typically adopt a strategy designed either to serve
subscribers in the broad consumer market or to reach subscribers in the more
targeted professional market. Whereas the consumer segment accounts for a high
volume of potential buyers of computer-related products and services, the
Company believes that the value of this segment is limited by the relatively low
volume of purchases made by each individual consumer, by the intense price- and
profit-margin pressures that characterize the segment, and by competition from
broad-based media, such as television, radio, general consumer magazines and
newspapers. By contrast, the Company believes the professional segment is
characterized by higher volume purchases per individual versus the consumer
segment, with potentially higher profit margins for computer-related product
vendors, due to the professional nature of the products.
Periodicals are generally marketed as either paid-circulation
periodicals or controlled-circulation periodicals, such as NewMedia. A
paid-circulation periodical is purchased by the reader, either through
subscription or by paying the newsstand price, and the publisher establishes no
other criteria for receipt of the publication. Paid-circulation publications
frequently compete on the basis of total audience size and on lowest cost, or
efficiency, of reaching the publication's readership.
A controlled-circulation periodical, by contrast, is generally provided
without charge to respondents who meet certain demographic criteria established
by the publisher. Publishers typically solicit subscriptions to
controlled-circulation periodicals through direct-mail campaigns targeted to
lists of subscribers of similar publications or customer lists of buyers of
related products. To qualify to obtain a controlled-circulation periodical, the
respondent must complete a questionnaire and meet certain criteria. Upon return
of the questionnaire, the publisher analyzes the responses and determines
whether the respondent has the desired characteristics to become a qualified
subscriber.
Since qualified subscribers exhibit a set of demographic
characteristics selected by the publisher for appropriateness to the advertising
client base of the publication, controlled-circulation magazines generally
command higher advertising rates than paid-circulation magazines and compete on
the basis of offering their advertisers the most effective means to reach their
target customers.
According to an analysis of NewMedia subscriber demographic information
conducted for the Company by BPA, the average subscriber to NewMedia during 1997
has represented that they will be personally involved in the purchase of
approximately $1,100,000 worth of digital media hardware, software, and services
during a twelve-month period. The Company believes that this is the highest
purchase power established among digital content creator-related publications in
the U.S. market. In the 1997 IntelliQuest Computer Industry Media Study (CIMS
tm), NewMedia beats InfoWorld, PC Week, Interactive Week, and Web Week in the
median total expenditures of their respective readers.
- ----------------------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
4
<PAGE>
Business Strategy
NewMedia Magazine
The Company launched NewMedia in January 1991. A controlled-circulation
periodical, NewMedia targets professionals who are in the corporate digital
content creator marketplace. A significant portion of those readers are the
Digital Elite, who are the top 10 percent of digital professionals. They account
for more than 50 percent of digital technology purchases in their marketplace.
"Digital content" is information created using computer-based video, audio,
graphics, animation and Internet technologies. Companies use digital content in
building brand awareness through marketing, advertising, promotions, corporate
presentations and sales and technical training. Corporate digital content
creators utilize a wide array of digital communications technologies, including
Internet development tools and services, desktop and portable personal
computers, workstations, servers, audio/video compression and editing equipment,
graphics hardware and software, high-density storage devices and video
conferencing systems. The Company's business strategy is to position NewMedia as
the leading periodical publication serving the corporate digital content creator
marketplace and to leverage this leadership position by developing and launching
related products for the professional new media market.* The Company's strategy
for NewMedia includes an emphasis on editorial position, circulation size and
demographic characteristics, and branding programs.
Editorial Position
The primary mission of NewMedia is to give readers the tools to be
successful digital content creators by identifying the newest products,
technologies and strategies that will keep their business competitive.
NewMedia's editorial package focuses extensively on the products, technologies,
and business strategies that the subscribers need to know in order to help their
companies achieve success in creating dynamic Internet web sites and other
cutting-edge digital applications that drive corporate revenues.
The editorial content includes case studies and analyses of the
cutting-edge of digital content creation in order to help readers better sell
and market goods and services, and communicate more effectively with customers,
suppliers and employees. NewMedia magazine features opinions from leading
commentators on the digital economy. Product comparisons include extensive
return on investment (ROI) information useful to managers. Articles in the
magazine include extensive links to the Internet and to newmedia.com, NewMedia
magazine's companion web site.
The magazine specializes in comprehensive comparative product reviews
supported by the NewMedia Lab, a state-of-the art digital content testing
studio. In 1994, the Company established the NewMedia Lab with the express
purpose of developing test suites and conducting comparative analyses of
professional new products that will help readers create successful digital
content.
Circulation
In 1996, as part of its publishing strategy to emphasize the
professional market for corporate digital content creation, the Company
established a guaranteed circulation base for NewMedia of 215,000 qualified
subscribers and simultaneously increased the demographic criteria that potential
subscribers are required to meet in order to qualify to receive a subscription
to the periodical. When NewMedia was launched in 1991, its circulation base was
17,000 qualified subscribers.
As a result of this strategy, the Company believes that NewMedia
remains the highest circulation periodical serving the professional market for
corporate digital content creation and also that its subscriber base has been
qualified according to the highest purchase criteria established among
professional digital content creation-related publications in the U.S. market.
- ----------------------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
5
<PAGE>
According to a recent analysis of NewMedia subscriber demographic
information conducted for the Company by BPA, the average subscriber to NewMedia
during 1997 has represented that they will be personally involved in the
purchase of approximately $1,100,000 worth of hardware, software, and services
during a twelve-month period.* This represents a more than 100 percent increase
from the approximate $500,000 average purchasing power for NewMedia subscribers
in 1996.
To the Company's knowledge, no similar purchase criteria have been
verified by BPA for competing publications serving the new media market, such as
AV Video/Multimedia Producer, DV Magazine, Interactivity, or PC Graphics &
Video. In the field of publications for the information systems marketplace,
periodicals exhibiting similar BPA-audited purchase criteria include Infoworld
and PC Week, which are generally considered the leading periodical publications
serving the office computing market.
The Company intends to pursue this strategy by making a substantial
investment in solicitations to its target audience.* In 1997, the Company
expanded the methods to target potential subscribers (or to renew existing
customers), from primarily direct mail, to include the Internet, email,
telemarketing and faxing. To qualify to subscribe to NewMedia, the respondent
must complete a questionnaire and meet certain criteria. Upon return of the
questionnaire, the publisher analyzes the responses and determines whether the
respondent has the desired characteristics to become a qualified subscriber. The
Company is a member of BPA International, an independent auditing organization
that verifies the Company's guaranteed average circulation base and demographic
data. While the Company believes that this strategy will improve the Company's
sales in the future, the Company has experienced decreased sales levels in
recent periods, and no assurance can be given that the Company's circulation
strategy will result in such improved sales levels in the future.
Publishing Frequency
In order to better serve the professional market for corporate digital
content creation, starting in the second quarter of 1998, NewMedia is adopting a
monthly publishing schedule.* The Company had increased the publishing frequency
of NewMedia to 16 times per year from a monthly schedule (plus a tool guide) at
the beginning of 1996. The change back to a monthly publishing schedule reflects
the strong preference of NewMedia advertising clients for a standard monthly
publishing frequency. Many advertising clients indicated a preference to appear
in every issue of NewMedia, and a monthly publishing schedule is expected to
make this opportunity available to a larger number of them.* Although the
Company believes that its change back to a monthly publishing schedule responds
to client preferences, there can be no assurance that existing clients will
continue to advertise in NewMedia at current rates or that the Company's
publishing strategy will be preferred by new advertising customers and
therefore, that the publishing strategy will result in improved sales levels.
Branding Programs
The Company has developed a number of branding programs that have the
effect of supporting its leadership position in the corporate digital content
creation marketplace.
First, companies whose products achieve certain performance goals in
product ratings published in NewMedia magazine are permitted to use the
magazine's rating symbols within their advertisements and collateral marketing
materials. The Company believes that the magazine's "Awesome" rating symbol,
which signifies the highest rating a product can achieve in a NewMedia product
review, is widely accepted among professionals who purchase new media products
as a symbol of product quality and value.
Second, on an annual basis the magazine confers its "Hyper" awards for
technical excellence to companies whose products achieve certain technical
criteria as established by the magazine's editorial staff. A branding program
similar to the "Awesome" award program exists for "Hyper" award winners.
- ----------------------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
6
<PAGE>
Finally, the Company also produces the NewMedia INVISION Awards
Festival, the largest juried digital media competition in the world. From 1994
through 1996, the NewMedia Invision Awards have been presented at the computer
industry trade event Comdex/Spring. In 1997, the program was transformed into a
stand alone three day festival held in November 1997 at the Yerba Buena Gardens
in San Francisco. Sponsors for the 1997 festival included Microsoft, Silicon
Graphics, Apple, Ziff-Davis, NeTpower, Tri-Star, Macromedia and others. The
company intends to continue to expand the breadth of the festival to include a
three day conference for digital media professionals in 1998. * The NewMedia
INVISION Awards Festival could also be used as a model for future new HyperMedia
events. *
Advertising Sales
Revenue from NewMedia is derived principally from advertisers. As part
of the increase in the quality of NewMedia's subscriber base and of the
increased paper and postage costs, the Company increased the price for a
one-time, full-page, four-color advertisement from $17,845 to $19,995. According
to a recent analysis of NewMedia subscriber demographic information conducted by
the Company, the average subscriber to NewMedia during 1997 has represented that
they will be personally involved in the purchase of approximately $1,100,000
worth of hardware, software and services during a twelve-month period as
compared to approximately $500,000 measured in a similar study in 1996.*
The Company currently sells advertising in NewMedia through a sales
force of six senior outside sales representatives, three inside sales
representatives, a sales assistant, an associate publisher and a publisher. As
compared to January 1997, the size of the sales force has almost doubled due to
a combination of increased outside sales people and internal sales support and
infrastructure. The sales staff is organized primarily on a geographical basis,
although some key accounts are handled by management. In addition, a
team-selling approach has been adopted pairing outside sales people with inside
sales representatives for support and telemarketing. Formatted fractional
advertising space is sold through a nationwide telemarketing effort. Sales
presentations are made both to marketing staffs within client organizations and
to the advertising agency staffs that advise these clients, develop their
advertising programs and often decide which publications to include in their
advertising schedules. Direct sales are supplemented by direct-mail marketing
campaigns, trade show promotions, special events and the publication of the
Company's results of research regarding the demographic profile and purchase
intentions of NewMedia's subscribers.
Companies that have regularly advertised in NewMedia include: 3M,
Adaptec, Adobe, Apple, Asymetrix, Compaq, Corel, Data Translation, Dell, Digital
Equipment Corporation, Elo Touch, Epson, Fujitsu, Hewlett-Packard, In Focus,
IBM, Intel, Intergraph, Iomega, Kingston, LaCie, Lockheed Martin, Macromedia,
Microsoft, Mitsubishi, NetPower, Panasonic, Philips, Play, Sharp, Silicon
Graphics, Sony, Tri-Star and Truevision. The advertising agreements entered into
by these companies generally commit the advertiser to place from four to sixteen
(or more) pages of advertisements in NewMedia within a 12-month period.
- ----------------------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
7
<PAGE>
Production
NewMedia is produced in-house on a desktop publishing system, which
creates page layouts of editorial material electronically. Desktop publishing
allows for high quality publishing at minimal cost. This editorial material is
then shipped on disks to outside service bureaus for production and assembly
with advertising material. The output from the service bureaus is then checked
for quality and accuracy by the Company's editorial and production department.
Once all corrections have been made, the output from the service bureaus is sent
to outside printers for printing, assembly and processing for distribution. The
printer labels and mails the magazine to NewMedia's subscriber list. The
subscriber list is provided by a specialized data processing house. A small
percentage of copies of the issue are forwarded to a newsstand distribution
center for direct sales at newsstands. The balance of the issues ordered, plus
any overruns, are shipped to the Company for use in-house.
Competition
The computer-related periodical publishing field is highly competitive.
Many of the Company's competitors have substantially greater financial, sales
and marketing resources than the Company.
A number of periodical publications serve the professional market for
digital content creation. These publications include AV Video/Multimedia
Producer, Computer Graphics World, DV Magazine, Interactivity, Internet World
and 3D Design. In addition, a number of magazines serve the consumer market for
digital and Internet technology. These publications include Computer Life,
HomePC, Family PC, Yahoo! Internet Life and Wired.
Computer-related periodicals that serve the office computing market
also report upon digital content creation topics and therefore compete with
NewMedia. These publications include paid-circulation magazines such as PC
Magazine, MacUser, Macworld, Byte, PC World and Windows, and
controlled-circulation magazines such as Infoworld, PC Week, MacWeek,
Interactive Week and Internet World (previously titled Web Week).
In an independent study conducted in 1997 by the market research firm
IntelliQuest, the average NewMedia subscriber reported greater spending per
person on technology products (in terms of median total expenditures) than
Interactive Week, Internet World, InfoWorld, PC Week and MacWeek. In this same
study, the spending per person on technology products by the average NewMedia
subscriber was greater than the average readers of PC Week and InfoWorld
combined. In addition, the percentage of top decision makers (in terms of
management readership) of NewMedia subscribers was higher than Interactive Week,
Web Week, InfoWorld, PC Week and MacWeek.
The Company expects that its greatest long-term competition for
advertising market share will come from computer-related periodicals, as they
attempt to address the growing digital content creation market.* Moreover,
because digital content creation technology is comprised of such a broad array
of related technologies and because digital media has been found useful to
address a wide variety of organizational problems, the Company believes that
advertising clients will prefer to advertise in publications that have a broad
circulation base.* In order to compete effectively, the Company adopted a
strategy to position NewMedia as the highest circulation periodical serving the
professional market for digital content creation.* Although the Company believes
that it would take significant resources and/or time for its competitors to
obtain a qualified subscriber base comparable to that of NewMedia, there can be
no assurance that computer-related publications serving the office computing
market will not successfully compete for advertising revenues in the corporate
digital content creation market.
- ----------------------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
8
<PAGE>
New Product Development
In September 1995, HyperMedia launched newmedia.com, NewMedia
magazine's companion web site. Newmedia.com is an award-winning World Wide Web
site of news, information, products and services for the digital content
creation market. The Company recently introduced i.Serv, an innovative
electronic reader service capability that uses the immediacy and interactivity
of the Web to respond to readers' product information requests in minutes
instead of months. The Company believes that the market for Internet services
such as newmedia.com and i.Serv, although still nascent, will expand rapidly in
the coming years.* The Company expects to devote resources in 1998 to develop
the potential of newmedia.com and i.Serv as an advertising-supported electronic
publishing medium for the corporate digital content creation market.* If the
expenses incurred to develop newmedia.com and i.Serv as an advertising supported
electronic publishing medium do not result in corresponding sales for the
Company, the Company's business, operating results and financial condition will
be adversely affected.
In addition to publishing NewMedia and newmedia.com, HyperMedia is
exploring opportunities to expand its business by developing new magazines and
other print and electronic media targeted to the professional digital content
creation market, professional new media-related events, and other related
products.* The company intends to continue to expand the breadth of the NewMedia
INVISION Awards Festival to include a three day conference for digital media
professionals in 1998.* The NewMedia INVISION Awards Festival could also be used
as a model for future new HyperMedia events.* There can be no assurance that
such ancillary products will be developed, or if developed, that they will be
profitable.
The Company may also acquire complementary products or businesses as
opportunities arise, although there are no current agreements or negotiations to
do so.*
- ----------------------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
9
<PAGE>
Employees
As of December 31, 1997, the Company employed approximately 36 people
on a full-time basis. The Company believes that its relations with its employees
are good. None of the employees is represented by a labor union or covered by a
collective bargaining agreement.
ITEM 2. PROPERTIES
The Company's executive office is located in approximately 7,526 square
feet of space at 901 Mariner's Island Boulevard, Suite 365, San Mateo,
California 94404. The Company leases the facility pursuant to a lease that was
renewed in March 1997 and expires in April 2000. Under the terms of the renewed
lease, the Company will pay monthly rent of approximately $23,200 starting in
January 1998.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
10
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The Company's Common Stock is traded on the Nasdaq SmallCap Market
under the symbol "HYPR." The Company's Common Stock was first listed for trading
in March 1993. The high and low sales prices are as reported by the Nasdaq
SmallCap Market.
Fiscal Quarter High ($) Low ($)
-------------- -------- -------
First quarter ended March 31, 1996 4 3/16 2 1/2
Second quarter ended June 30, 1996 3 5/8 2 7/8
Third quarter ended September 30, 1996 3 3/8 2 1/4
Fourth quarter ended December 31, 1996 2 9/16 1 3/8
First quarter ended March 31, 1997 3 1/2 1 9/16
Second quarter ended June 30, 1997 3 1/2 1 7/8
Third quarter ended September 30, 1997 3 2
Fourth quarter ended December 31, 1997 3.1406 1
As of March 6, 1998, there were approximately 600 holders of the
Company's Common Stock.
The Company has never paid cash dividends on any shares of its capital
stock and the Company's Board of Directors intends to continue this policy for
the foreseeable future. In addition, pursuant to the terms of the Company's
$1,000,000 line of credit, the Company may not declare or pay any dividends
without the bank's prior approval. The Company's ability to pay dividends on its
Common Stock will also be limited by the preferences of the Series E Preferred
Stock, Series F Preferred Stock, Series G Preferred Stock, Series H Preferred
Stock, Series I Preferred Stock and Series J Preferred Stock, and may be limited
by the terms of future Preferred Stock issuances or indebtedness. Earnings, if
any, will be used to finance the development and expansion of the Company's
business. Future dividend policy will depend upon the Company's earnings,
capital requirements, financial condition and other factors considered relevant
by the Company's Board of Directors.
In June 1997, the Company raised $100,287 (before issuance costs)
through the sales of 50,344 shares of Series G Preferred stock. In September
1997, the Company raised $249,912 (before issuance costs) through the sales of
117,000 shares of Series H Preferred stock. In December 1997, the Company raised
$449,856 (before issuance costs) through the sales of 28,800 shares of Series I
Preferred stock. In February 1998, the Company raised $1,299,900 (before
issuance costs) through the sales of 105,000 shares of Series J Preferred stock.
These securities were sold to its largest shareholder, MK Global Ventures, in
association with its MK GVD Fund.
Each of the foregoing issuances of securities were deemed to be exempt
from registration under the Securities Act in reliance on Section 4 (2) of the
Securities Act as transaction by an issuer not involving any public offering. In
addition, the recipients of securities in each such transaction represented
their intention to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof, and appropriate
legends were affixed to the share certificates issued in such transactions. All
recipients had adequate access, through their relationships with the Company, to
information about the Company.
11
<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------
1993 1994 1995 1996 1997
----------- ----------- ----------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues ................................. $ 6,245 $ 9,284 $ 9,754 $ 8,618 $ 7,637
----------- ----------- ----------- ----------- -----------
Expenses:
Editorial ............................. 904 1,386 1,309 1,228 1,151
Production ............................ 1,803 2,377 2,745 2,373 1,922
Circulation ........................... 1,291 2,414 2,275 2,072 2,088
Sales and marketing ................... 2,118 2,922 2,522 2,269 2,318
Product development ................... 246 103 36 29 40
General and administrative ............ 1,433 1,692 1,318 914 972
----------- ----------- ----------- ----------- -----------
Total expenses ...................... 7,795 10,894 10,205 8,885 8,491
----------- ----------- ----------- ----------- -----------
Loss from operations ..................... (1,550) (1,610) (451) (267) (854)
Interest and other expense, net .......... (241) (6) (11) (24) (32)
----------- ----------- ----------- ----------- -----------
Net loss ................................. $ (1,791) $ (1,616) $ (462) $ (291) $ (886)
=========== =========== =========== =========== ===========
Basic and diluted net loss per
share(1) .............................. $ (0.65) $ (0.54) $ (0.15) $ (0.10) $ (0.28)
=========== =========== =========== =========== ===========
Weighted average common shares
outstanding (1) ....................... 2,758,407 3,010,730 3,011,433 3,019,004 3,185,043
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficit) ............................... $2,543 $ 750 $ 396 $ 442 $ 575
Total assets ............................................ 4,344 3,285 2,247 2,584 2,452
Long-term obligations, excluding
current portion ...................................... -- -- -- -- --
Mandatorily Redeemable
Convertible Preferred Stock (2) ...................... 1,049 -- -- -- --
Shareholders' equity (deficit) .......................... $2,106 $1,547 $1,085 $1,068 $1,026
<FN>
(1) See Note 2 of Notes to Financial Statements for an explanation of the
method used to determine the number of shares used to compute per share
amounts.
(2) See Note 7 of Notes to Financial Statements.
</FN>
</TABLE>
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations section and other parts of this Annual Report on Form 10-K
contain forward-looking statements that involve risks and uncertainties. Actual
results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed below and in "Factors Affecting
Operating Results and Market Price of Stock" and "Business." Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. Forward looking statements are indicated with
an asterisk.
Results of Operations
The Company is engaged primarily in the development, production,
marketing and sales of its magazine, NewMedia, and its Internet World Wide Web
site, newmediaocom, and in the development of new publications serving the
professional market for digital content creation. The Company also produces an
annual awards competition, the NewMedia INVISION Awards Festival, which is a
juried digital media competition seeking out the highest achievements in digital
content creation.
The 1997 publishing plan focused NewMedia on serving the professional
market for corporate digital content creation, including Internet products and
services. The guaranteed average circulation base remained unchanged in 1997 and
1996 at 215,000, down slightly from 250,000 in 1995. Advertising rates per page
were increased. The publishing plan started in 1996 required the magazine's
subscribers to meet significantly more stringent qualification criteria was
continued. As a result of these criteria, the purchasing power of digital media
products and services of the average subscriber increased to approximately
$1,100,000 at the end of 1997, which was more than a 100 percent increase from
approximately $500,000 at the end of 1996 and a step up from less than $200,000
for 1995. NewMedia continued its 16 times publishing frequency in 1997 that
began in 1996 as part of the 1996 publishing strategy. This was an increase from
the 1995 monthly publishing rate plus a tool guide for a total of 13 times. The
1998 publishing strategy, which will be implemented in the second quarter, will
return NewMedia to a monthly publishing frequency. * This publishing schedule is
the result of NewMedia's advertising clients expressing a strong preference for
a standard monthly publishing frequency as opposed to the previous 16 times
schedule. The Company intends to continue the guaranteed average circulation
base of 215,000 in 1998. *
<TABLE>
The following table sets forth for the periods indicated the percentage
of revenues represented by certain items reflected in the Company's statement of
operations.
<CAPTION>
Year Ended December 31,
------------------------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Revenues ......................................................... 100% 100% 100%
Expenses:
Editorial ..................................................... 14 14 15
Production .................................................... 28 28 25
Circulation ................................................... 23 24 27
Sales and marketing ........................................... 26 26 30
Product development ........................................... -- -- 1
General and administrative .................................... 14 11 13
---- ---- ----
Total expenses .............................................. 105 103 111
---- ---- ----
Loss from operations ............................................. (5) (3) (11)
Interest and other expense, net .................................. -- -- --
---- ---- ----
Net loss ......................................................... (5)% (3)% (11)%
==== ==== ====
</TABLE>
- -----------------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
13
<PAGE>
Revenues
Revenues decreased to $7,637,000 in 1997 from $8,618,000 in 1996 and
$9,754,000 in 1995, primarily as a result of decreases in advertising sales in
NewMedia. The Company believes that the decrease in net advertising revenue is
related to a number of market factors, including the migration of digital
content development from CD-ROM based media to the Internet and shifts in the
Macintosh hardware and software market, as digital content creators make a
transition toward increased use of Windows based workstations.
The Company also announced key personnel changes during the fourth
quarter of fiscal 1997 in NewMedia's two largest advertising sales territories.
As part of these changes, a new East Coast Advertising Director and Silicon
Valley Senior Advertising Manager joined the company. The Company intends to
increase advertising sales personnel starting in the fourth quarter of 1997 and
extending into 1998, in an effort to take advantage of anticipated growth in
digital content creation advertising in 1998. *
In the fourth quarter of 1997, Windows and Unix based systems
advertising in NewMedia magazine grew by 100%, versus the prior-year period, led
by advertising from Compaq, Dell, Digital, IBM, NeTpower and Tri-Star. In the
1997 IntelliQuest Computer Industry Media Study (CIMS(TM)), NewMedia magazine
beat Infoworld, PC Week, Interactive Week and Wired in the percentage of readers
who are personally involved in purchasing desktop PC's and workstations for
their organization.
Editorial Expenses
Editorial expenses, comprised principally of salaries and fees paid to
the writers for the Company's publications, were $1,151,000 in 1997, compared to
$1,228,000 in 1996 and $1,309,000 in 1995. Editorial expenses decreased slightly
in 1997 due to lower headcount, cost control programs, and the sale of the
Macromedia User Journal ("MUJ") in the third quarter of 1996, partially offset
by the increased expenses associated with newmediaocom. The lower level of
expenses in 1996 were a result of general cost controls. The Company expects
that editorial expenses will decrease during 1998 as a result of the lower
number of issues associated with the 1998 publishing strategy. *
Production Expenses
Production expenses, consisting primarily of the costs for design,
materials and printing of NewMedia, were $1,922,000 in 1997, compared to
$2,373,000 in 1996 and $2,745,000 in 1995. The decrease in production expenses
in 1997, as compared to 1996, is primarily attributable to the absence in 1997
of the one-time advertiser promotion costs associated with polybagging issues of
NewMedia for various online services in 1996. The lower number of advertising
pages printed, partially offset by higher paper prices, also impacted the
decreased production costs in 1997. Production expenditures were lower in 1996
in comparison to 1995, primarily as a result of a decrease in guaranteed average
circulation from 250,000 to 215,000 and declining paper costs, which were
partially offset by the increased publishing schedule of NewMedia. Production
expenses are expected to remain relatively flat in 1998, as the result of a
projected increase in advertising pages, if any, and higher paper costs, which
will be offset by the lower number of issues to be published in 1998.*
- ----------------------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
14
<PAGE>
Circulation Expenses
Circulation expenses, consisting primarily of costs associated with
subscription fulfillment, mailing and the direct mail promotions of the
Company's publications, were $2,088,000 in 1997, compared to $2,072,000 in 1996
and $2,275,000 in 1995. The slight increase in 1997 is primarily the result of
the larger circulation development expenditure amortization, partially offset by
the mailing costs and the sale of the MUJ in the third quarter of 1996. The
Company capitalizes its circulation development expenditures and amortizes them
over a 12 month period. As of December 31, 1997 and December 31, 1996, the
unamortized portion of these expenditures was $465,000 and $471,000,
respectively, which is included in prepaid expenses on the balance sheet. As
part of the Company's publishing strategy in 1996 and 1997, the minimum
readership qualifications to receive the magazine were significantly more
stringent. As a result of these new criteria, the purchasing power of new media
products and services of the average subscriber increased to approximately
$1,100,000 at the end of 1997, from approximately $500,000 at the end of 1996
and less than $200,000 in 1995. The Company intends to maintain the higher
minimum readership qualifications to receive the magazine in 1998. * The
reduction in 1996 is primarily attributable to cost controls, partially offset
by increased fulfillment and mailing costs associated with the increased
publishing schedule of NewMedia. Circulation expenses are expected to decrease
in 1998 as the result of the impact of the frequency based on the 1998
publishing strategy.*
Sales and Marketing
Sales and marketing expenses were $2,318,000 in 1997, compared to
$2,269,000 in 1996 and $2,522,000 in 1995. The increased expenditures in 1997
were primarily attributable to the expansion of the NewMedia INVISION Awards
Festival, higher expenditures on sales and marketing programs, and increased
sales compensation expenses, including those related to the hiring of new sales
personnel in the fourth quarter of 1997. In 1996, the NewMedia INVISION Awards
program was part of Spring Comdex held during the second quarter of 1996. In
1997, the NewMedia INVISION Awards program was expanded to be a three-day
festival presented November 10 to 12, 1997, at the Center for the Arts in Yerba
Buena Gardens in San Francisco. Sponsors for the event included Microsoft,
Silicon Graphics, Apple, Ziff-Davis TV, Macromedia and others. The reduced
expenses in 1996, as compared to 1995, were primarily attributable to cost
control measures and lower trade show expenditures. These reductions in 1996
were partially offset in the second half of 1996 by expenditures on marketing
programs for the 1996 IntelliQuest Computer Industry Media Study (CIMS(TM)), a
newly revised media kit, branding programs and other tools. Sales and marketing
expenses are expected to increase in 1998 because of larger commission costs
associated with increased advertising pages, if any, higher sales compensation
expenses due to increased headcount, and higher expenditures associated with the
expansion of the NewMedia INVISION Awards Festival which will include a
conference program. These expenses are expected to be partially offset by
decreases in various costs associated with the lower number of issues, which is
part of the 1998 publishing strategy. *
Product Development
Product development costs totaled $40,000 in 1997, as compared to
$29,000 in 1996 and $36,000 in 1995, and consist of costs incurred in the
development of new products, including the Internet World Wide Web site,
newmedia.com. The Company plans to continue its product development efforts
during 1998. *
- ----------------------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
15
<PAGE>
General and Administrative
General and administrative expenses were $972,000 in 1997, as compared
to $914,000 in 1996 and $1,318,000 in 1995. The increased expenses in 1997, as
compared to 1996, primarily reflect increased bad debt expense offset by lower
consulting costs. The lower expenses in 1996, as compared to 1995, were
primarily generated by the Company's cost control measures. General and
administrative costs are expected to grow slightly in 1998, with expected
increases in bad debt expenses that accompany anticipated revenue growth.*
Interest and Other Income and Expenses
Interest and other expenses were $32,000 in 1997, compared to $24,000
in 1996 and $11,000 in 1995. Interest expenditures rose in 1997 due to working
capital requirements.
Net Loss
The Company incurred net losses of $886,000, $291,000 and $462,000, in
1997, 1996 and 1995, respectively. The decrease in NewMedia net revenue in 1997,
partially offset by continued strong costs controls, was the primary contributor
to the increased loss, as compared to 1996. Net expenses decreased by 1.4% for
the Company in 1997, as compared to 1996. In addition, the Company increased
sales and marketing costs and headcount in the second half of 1997 to position
itself for the corporate digital content creator market place.
Income Taxes
At December 31, 1997, the Company had net operating loss carry forwards
for federal income tax purposes of approximately $11,400,000, which may be
utilized to reduce future taxable income through 2003, subject to certain
limitations. Under the Tax Reform Act of 1986, the amounts of and the benefit
from net operating losses that can be carried forward may be impaired or limited
in certain circumstances. Events which may cause changes in the amount of net
operating losses that the Company may utilize in any one year include, but are
not limited to, a cumulative stock ownership change of more than 50% over a
three-year period. As a result of prior financings, which resulted in such an
ownership change in April 1990, approximately $500,000 of the Company's net
operating loss carryforwards are limited to usage of approximately $50,000 per
year. Further, the initial public offering in March 1993 triggered another
ownership change of greater than 50% and the potential benefits from utilization
of tax carryforwards generated from April 1990 through the date of the offering,
totaling approximately $5,600,000 will be limited. The approximate annual
limitation on the utilization of those carryforwards is $700,000 provided that
this amount is reduced to the extent that the net operating carryforwards
generated through April 1990 are utilized. The exact limitation may change.
Other conditions may also occur in the future which would cause the Company to
lose, or further limit the use by the Company of some or all of these net
operating loss carry forwards.
- ----------------------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
16
<PAGE>
Liquidity and Capital Resources
The Company financed its operations and capital requirements through
the date of its initial public offering in March 1993, principally through
private sales of debt and equity securities and cash generated from operations.
Since inception through December 1997, the Company has raised approximately
$2,003,000 through the issuance of Preferred Stock, including $98,000 Series G
Preferred Stock (net of issuance costs) sold in June 1997, $246,000 Series H
Preferred Stock (net of issuance costs) sold in September 1997, and $450,000
Series I Preferred Stock (before issuance costs) sold in December 1997 to its
largest shareholder, MK Global Ventures in association with its MK GVD Fund. In
addition, in February 1998 the Company raised approximately $1,300,000 through
the sale of Series J Preferred Stock (before issuance costs) to its largest
shareholder, MK Global Ventures in association with its MK GVD Fund. In its
initial public offering in March 1993 (including the subsequent exercise in
April 1993 of the underwriter's option to purchase an additional 210,000 shares
of Common Stock), the Company received proceeds of approximately $6,350,000, net
of underwriting discounts, commissions and issuance costs. Proceeds from the
offering were used to repay bridge loans totaling $1,500,000, plus interest and
loans from a shareholder totaling approximately $562,000. The remaining net
proceeds from the Company's initial public offering were added to working
capital to be used for financing operations.
At December 31, 1997, the Company had approximately $575,000 in net
working capital, and its principal source of liquidity consisted of
approximately $269,000 in cash and a $1,000,000 line of credit limited to 70
percent of qualified accounts receivable. At December 31, 1997, there was zero
outstanding under the line of credit. As a result of the conditions of the line
of credit and the financial results of the 1997 fourth fiscal quarter, the
Company had unused borrowing capacity of $681,000. Partial usage of unused
borrowing capacity could be restricted by financial operating covenants. In
March 1998, the $1,000,000 line of credit secured by 70 percent of qualified
accounts receivable was renewed with similar terms, conditions and covenants for
a period through March 1999.
The Company signed an agreement in February 1998 with its largest
shareholder, MK Global Ventures in association with its MK GVD Fund, to invest
in additional capital of the Company to finance operations. Under the Series J
Preferred Stock Purchase Agreement, MK GVD Fund agreed to invest, subject to MK
Global's acceptance, up to $2,000,000 on or before August 21, 1998. The price
per share of this Series J Preferred Stock, which the Company has not registered
under the Securities Act of 1933, as amended, was 85% of the fair market value
of the Company's common stock, based on the average of the closing bid price per
share for the ten trading days ending five business days before the closing of
the investment. As mentioned above, the Company drew approximately $1,300,000 of
this capital commitment in February 1998.
- ----------------------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
17
<PAGE>
The Company expects that it will continue to require significant
amounts of cash to finance future operations.* The Company has not made or
committed to make significant capital expenditures but may make such
expenditures in the future.* The Company believes that the existing cash
balances, together with cash generated from operations and borrowings available
under its line of credit, will be sufficient to meet its cash requirements for
at least 12 months.* There can be no assurance that the Company's anticipation
of its cash requirements for the next 12 months will be correct. Thereafter, the
Company anticipates that it may need to raise additional working capital,
primarily through sales of debt or equity securities.* In addition, the Company
may seek to raise additional working capital prior to the end of 1998 if it can
raise such capital on acceptable terms.* The terms of the Series E Preferred
Stock, Series F Preferred Stock, Series G Preferred Stock, Series H Preferred
Stock, Series I Preferred Stock, Series J Preferred Stock and outstanding
warrants grant the holders thereof certain preferential rights including
conversion and/or registration rights, which may have a dilutive effect on
existing shareholders and may therefore limit the availability of financing,
particularly equity financing. The Company has no commitments for any such
financing, and there can be no assurance that any such debt or equity financing
will be available on terms acceptable to the Company, or at all. The Company's
ability to borrow under the line of credit is subject to compliance with certain
financial covenants, including, but not limited to, quarterly profitability
beginning with the fourth fiscal quarter of 1998 and maintaining a minimum
$1,500,000 tangible net worth. There can be no assurance that the Company will
be successful in complying with these financial covenants. The Company's failure
to comply with the financial covenants could preclude it from utilizing the line
of credit, which would have a material adverse effect on the Company's liquidity
and financial condition. In addition, the Company's inability to raise capital,
if required, could have a material adverse effect on the Company's business and
results of operations.
- ----------------------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
18
<PAGE>
Factors Affecting Operating Results and Market Price of Stock
This section and other parts of this Annual Report on Form 10-K contain
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ significantly from those anticipated in these
forward-looking statements as a result of the factors set forth below and in
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date hereof.
History of Losses and Accumulated Deficits
The Company incurred total net losses of $11,404,000 from inception to
December 31, 1997, including net losses of $886,000 for the year ended December
31, 1997. The Company expects to incur losses for at least the first two
quarters of 1998, as it continues to promote and expand its current publications
and develop and launch new products.* There can be no assurance that during 1998
or thereafter the Company will be able to increase its revenues or become
profitable. The Company's potential future growth depends on many factors,
including the ability of the Company to attract sufficient advertising customers
for NewMedia, maintain the circulation base of NewMedia, have a productive
advertising sales force that includes recently-hired sales people, control its
costs, and successfully implement its marketing and product strategy in relation
to the corporate digital content creation marketplace.* There can be no
assurance that the Company will be successful in any of these efforts.
1998 Publishing Strategy; Sales and Marketing Strategy
The key elements of the Company's 1998 publishing strategy are to focus
on the professional market for digital content creation, to return to publishing
at a monthly frequency of 12 times per year starting in the second quarter of
1998, to maintain the stringent minimum qualification criteria that potential
subscribers were required to meet in order to qualify for a subscription, and to
maintain the guaranteed circulation base of 215,000 qualified NewMedia readers.*
In addition, the Company increased the price it charges for a one-time,
full-page, four-color advertisement in NewMedia from $17,845 to $19,995. There
can be no assurance that the Company's publishing strategy will result in
increased revenues or in profitability. Certain components of production,
circulation and editorial expenses associated with this publishing strategy will
increase.* When NewMedia's publishing frequency changes in the second quarter of
1998 from 16 times per year to monthly, there can be no assurance that
advertising revenues, minus variable production and postage charges from the new
publishing frequency of three issues per quarter ,will be greater than the
previous rate of four issues per quarter. The Company has been undergoing an
advertising category transition since the second half of 1995, away from the
consumer market toward the above mentioned professional market for digital
content creation. To replace these consumer market advertisers and to grow
advertising revenues, the Company needs to sell advertisements oriented to the
professional market for digital content creation. There can be no assurance that
the Company will be able to sell a sufficient number of advertisements to the
professional market to make its strategy successful. Until the circulation
direct mail (and associated) campaigns for qualified readers using the
qualification criteria is completed, there can be no assurance that the
estimated purchasing power of new media products and services will be maintained
with a reasonable level of circulation expenditures. As a result, the Company
does not expect growth in advertising revenues until at least the second or
third quarter of 1998, if at all.*
- ----------------------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
19
<PAGE>
Possible Delisting of Securities From Nasdaq SmallCap Market; Need to
Raise Additional Capital
The Nasdaq SmallCap Market ("Nasdaq") has recently adopted more
stringent financial requirements for listing on Nasdaq, which became effective
on February 23, 1998. With respect to continued listing, such new requirements
are (i) either at least $2,000,000 in tangible assets, a $35,000,000 market
capitalization or net income of at least $500,000 in two of the three prior
years, (ii) at least 500,000 shares in the public float valued at $1,000,000 or
more, (iii) a minimum Common bid price of $1.00, (iv) at least two active market
makers, and (v) at least 300 holders of the Common Stock. The $1,300,000 that
the Company raised through the issuance of Series J Convertible Preferred Stock
in February 1998 enabled the Company to meet the new requirement of at least
$2,000,000 in tangible net assets on a proforma basis based on the Company's
December 31, 1997 and January 31, 1998 balance sheets. The Company will have to
meet and maintain such new requirements. Based on current financial projections
for the first and second quarters of 1998, the Company will need to sell
additional shares of Series J Convertible Preferred Stock, or other equity
securities, to continue to meet the new financial requirements for continued
listing on Nasdaq. In the event of delisting by Nasdaq, trading, if any, in the
Common Stock would thereafter be conducted in the over-the-counter market in the
so-called "pink sheets" or the NASD's "Electronic Bulletin Board." Consequently,
the liquidity of the Company's securities could be impaired, not only in the
number of securities which could be bought and sold, but also through delays in
the timing of transactions and lower prices for the Company's securities than
might otherwise be attained.
In order to continue to meet the new financial requirements for
continued listing on Nasdaq, the Company will need to sell additional shares of
Series J Convertible Preferred Stock or other equity securities of the Company.
The Series J Convertible Preferred Stock, if sold, would be issued at 85% of the
fair market value of the Company's Common Stock, based on the average of the
closing bid price per share for the ten trading days ending five business days
before the closing of the investment, and its issuance would therefore be
dilutive to existing holders of the Company's Common Stock. In addition, the
Company is likely to require additional equity capital to maintain its Nasdaq
listing in the future, and no assurance can be given that any such equity
capital will be available on terms acceptable to the Company, or at all, and any
such equity capital is likely to be dilutive to existing holders of the
Company's Common Stock. Further, issuances of equity securities at purchase
prices below that of the outstanding Preferred Stock will increase the number of
shares of Common Stock issuable upon conversion of the Preferred Stock as a
result of the anti-dilution provisions thereof, resulting in further dilution to
the holders of the Common Stock.
Control By Principal Stockholders
The Company's principal stockholders, MK Global Ventures II and its
affiliate MK GVD Fund (together, the "MK Entities"), together beneficially own
over 50% of the outstanding Common Stock (assuming conversion of all outstanding
Preferred Stock in Common Stock). In addition, the MK Entities have two
representatives on the five-person Board of Directors of the Company.
Accordingly, the MK Entities will be able to determine the composition of the
Company's Board of Directors, will retain voting power to approve all matters
requiring stockholder approval and will continue to have significant influence
over the affairs of the Company. This concentration of ownership could have the
effect of delaying or preventing a change in control of the Company.
- ----------------------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
20
<PAGE>
Highly Competitive Market
Revenues from NewMedia are derived primarily from the sale of
advertising in the magazine and will continue to be derived primarily from such
sales in the foreseeable future.* The technology publishing industry is highly
competitive. Many of the Company's competitors have substantially greater
financial, sales and marketing resources than the Company. Although the market
for digital content creation and Internet products is an evolving market, the
Company competes for advertising revenue with numerous magazines and newspapers,
including personal computer magazines. There can be no assurance that the
Company will not experience increased competition from new or existing
technology periodicals or other media, such as the Internet. Such increased
competition, if experienced, would have a material adverse impact on the
Company's ability to increase its advertising revenues.
Risks Associated With Sales and Marketing Strategy
The Company's ability to achieve future profitability depends upon the
success of the Company's strategy to add and retain sales personnel in key
markets and to increase the productivity of existing sales personnel. In the
fourth quarter of 1997, the Company appointed a new East Coast Advertising
Director and a Silicon Valley Senior Advertising Manager, and the Company has
hired additional advertising sales personnel in the first quarter of 1998. New
sales personnel typically take from six to nine months to become fully
productive, and therefore the Company's operating results during such time may
be adversely affected by the hiring of such personnel. In addition, there can be
no assurance that such new sales personnel will achieve sufficient advertising
revenue to become profitable for the Company after the first six to nine months
or at all. Any failure of one or more of the new personnel to become productive
will have a material adverse effect on the Company's operating results.
Furthermore, the Company's revenues from advertising sales depends upon a small
number of key sales personnel. Any inability of such personnel to maintain or
increase existing sales levels, or any turnover in such personnel, would have a
material adverse effect on the Company's operating results.
Growth of the Professional Market for Digital Content Creation
NewMedia is targeted toward professional users of digital content
creation products and services in connection with computers. The computer
industry has historically been characterized by business cycles. To the extent
that the computer industry or professional digital content creation market
experiences a significant downturn, the Company would expect a similar downturn
in its business. The professional market for digital content creation products
and services is in the early stages of development, and predictions as to its
size and the factors which will affect it are inconclusive. To the extent that
the professional digital content creation market does not develop as quickly as
the Company anticipates or that it experiences a significant downturn following
growth, the Company's ability to generate revenue or profits may be adversely
affected. Furthermore, even if the professional digital content creation market
does develop as anticipated, there can be no assurance that the demand for
NewMedia will also increase.
- ----------------------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
21
<PAGE>
Year 2000 Compliance
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. These date code
fields will need to accept four digit entries to distinguish 21st century dates
from 20th century dates. As a result, in less than three years, computer systems
and software used by many companies may need to be upgraded to comply with such
"Year 2000" requirements. The Company believes that its internal systems are
Year 2000 compliant and does not expect that costs associated with Year 2000
compliance will be material. In addition, the Company believes that the
purchasing patterns of companies that subscribe to NewMedia as well as the
Company's advertising clients may be affected by Year 2000 issues, as companies
expend significant resources to correct or patch their current software systems
for Year 2000 compliance. These expenditures may result in reduced funds
available to purchase advertising in publications like NewMedia, which could
result in a material adverse effect on the Company's business, operating results
and financial condition.
Dependence on Key Personnel and Sales Personnel
The Company's success depends to a large extent upon the efforts and
abilities of key managerial employees, including without limitation, Richard
Landry and Todd Hagen, the Chief Executive Officer and Chief Financial Officer,
respectively, of the Company. The Company's success also depends on the
performance of key sales personnel. The loss of certain of these key managers or
sales personnel could have a material adverse effect on the Company. The Company
has not entered into employment agreements with its executive officers and
carries no key man insurance on their lives. The success of the Company's
business will also depend upon its ability to continue to attract and retain
qualified employees. Competition for such employees is intense, and there can be
no assurance that the Company will be successful in attracting or retaining such
personnel.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14(a) for an index to the financial statements and
supplementary financial information attached hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
- ----------------------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
22
<PAGE>
PART III
Certain information required by Part III is omitted from this Form 10-K
in that the Company will file a definitive proxy statement within 120 days after
the end of its fiscal year pursuant to Regulation 14A of the Securities Exchange
Act of 1934 (the "Proxy Statement") for its Annual Meeting of Shareholders to be
held May 21, 1998.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are as follows:
Name Age Position with the Company
- --------------------- -------- -----------------------------------------------
Richard Landry 41 Chairman of the Board of Directors, President,
Chief Executive Officer, Publisher and Director
Todd Hagen 38 Vice President, Finance and Administration,
Chief Financial Officer and Secretary
Patrick Ferrell (1) 41 Director
John Griffin (1)(2) 49 Director
Michael Kaufman (2) 56 Director
Greg Lahann(1) 39 Director
- -------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
All directors hold office until the next annual meeting of shareholders
of the Company or until their successors have been elected. There is no family
relationship between any director or executive officer of the Company.
Richard Landry joined the Company in January 1992 as its President and
Publisher; he also became a director of the Company at that time. In July 1992,
Mr. Landry became Chief Executive Officer of the Company. In February 1997, Mr.
Landry also became Chairman of the Board of Directors. From 1988 to 1991, Mr.
Landry was Editor-in-Chief and Associate Publisher of PC World, a publication of
PCW Communications, Inc. From 1986 to 1988, Mr. Landry was Managing Editor and
Editor of PC World.
Todd Hagen joined the Company in July 1995 as its Vice President,
Finance and Administration, and Chief Financial Officer. In February 1997, Mr.
Hagen also became Secretary. Previous to this position, Mr. Hagen was Vice
President of Finance and Chief Financial Officer at Coactive Computing
Corporation, a computer networking company, and Resumix, Inc., a human resources
software company.
John Griffin became a director of the Company in April 1994. Since
September 1990, he has been the President of the Magazine Division of Rodale
Press, Inc., Emmaus, Pennsylvania, a publisher of consumer magazines in the
areas of health, fitness, gardening and crafts, including Prevention, Runner's
World and American Woodworker. Mr. Griffin has also been a director of Rodale
Press since October 1990. From January 1988 until April 1990, Mr. Griffin was
Chairman of the Board of Directors, President and Publisher of PC World.
23
<PAGE>
Michael Kaufman became a director of the Company in July 1991. Since
October 1987, he has been the General Partner of MK Global Ventures, Palo Alto,
California, a venture capital firm specializing in early-stage and start-up
financing of high technology companies. From August 1981 until October 1987, Mr.
Kaufman was a general partner of Oak Investment Partners, a venture capital
firm. Prior to August 1981, Mr. Kaufman was President and Chief Operating
Officer of Centronics Data Corporation, a manufacturer of computer peripherals.
Mr. Kaufman serves on the board of directors of Davox Corp., a
telecommunications company, Document Technologies, Inc., a computer software and
systems company, Document Imaging Systems Corporation, a manufacturer of
computer mass storage systems, Asante Technologies, Inc., a networking products
company, and Proxim, Inc., a wireless communications company.
Greg Lahann became a director of the Company in August 1990. From
October 1987 through December 1993, he was the Chief Financial Officer of MK
Global Ventures, and since January 1990, he has been a General Partner of MK
Global Ventures II. From 1981 to 1987, Mr. Lahann was employed by Price
Waterhouse LLP, in various positions, the last of which was as manager in the
Audit Department. Mr. Lahann is a Certified Public Accountant.
Patrick Ferrell became a director of the Company in February 1997. Mr.
Ferrell is currently CEO and President of relationships.com. Mr. Ferrell was
also the founder of GamePro magazine, the leading consumer publication serving
the interactive entertainment market.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to
the Proxy Statement under the heading "Executive Compensation and Other
Matters."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to
the Proxy Statement under the heading "Record Date and Principal Share
Ownership."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to
the Proxy Statement under the heading "Executive Compensation and Other
Matters."
24
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following financial statements of HyperMedia Communications,
Inc. are filed as part of this report on Form 10-K:
Page Number
-----------
Report of Independent Accountants................. 29
Balance Sheet--December 31, 1996 and 1997......... 30
Statement of Operations--Years ended
December 31, 1995, 1996 and 1997.................. 31
Statement of Shareholders' Equity (Deficit)--
Years ended December 31, 1995, 1996 and 1997...... 32
Statement of Cash Flows--Years ended
December 31, 1995, 1996 and 1997.................. 33
Notes to Financial Statements..................... 34
2. Financial Statement Schedules
The Company is not filing any Financial Statement Schedules
because the information required to be set forth therein is not
applicable or is included in the Financial Statements or notes
thereto.
25
<PAGE>
3. Exhibits
Exhibit
Number Description
------ -----------
3.1a Articles of Incorporation of the Registrant, as
amended and filed June 1997.
3.1b(4) Certificate of Determination of Preferences of
Series F Preferred Stock of the Registrant.
3.1c Certificate of Determination of Preferences of
Series H Preferred Stock of the Registrant.
3.1d Certificate of Determination of Preferences of
Series I Preferred Stock of the Registrant.
3.1e Certificate of Determination of Preferences of
Series J Preferred Stock of the Registrant.
3.2(1) Bylaws of the Registrant.
4.1(1) Specimen Common Stock Certificate.
4.2(1) Common Stock Warrant, dated December 18, 1989,
issued by the Registrant to MK Global Ventures.
4.5(1) Common Stock Warrant, dated March 16, 1993,
issued by the Registrant to David Bunnell.
4.6(1) Common Stock Warrant, dated March 16, 1993,
issued by the Registrant to Dr. Eugene Duh.
4.7(1) Form of Subscription Agreement entered into in
connection with the Bridge Financing.
4.8(1) Form of Common Stock Warrant issued to
investors pursuant to the Bridge Financing.
4.9(2) Representative's Warrant, dated March 9, 1993,
issued by the Registrant to Barington Capital
Group, L.P.
4.10(1) Modification Agreement, dated October 30, 1990,
between the Registrant, MK Global Ventures, MK
Global Ventures II and Edward Alpern, as
amended by First Amendment to Modification
Agreement and Written Consent, dated September
15, 1992, Second Amendment to Modification
Agreement, dated October 15, 1992 and Third
Amendment to Modification Agreement and Written
Consent, dated December 1, 1992.
4.11(1) Co-Sale Agreement, dated April 18, 1990,
between the Company, MK Global Ventures, MK
Global Ventures II, Davison Associates, Edward
Alpern, Louis Casabianca and Harry Miller.
4.12(3) 1991 Stock Plan and forms of agreements
thereunder, as amended.
26
<PAGE>
4.13(3) 1993 Director Option Plan and form of agreement
thereunder, as amended.
4.14(4) Common Stock Warrant, dated February 9, 1994
and as amended March 19, 1997, issued by the
Registrant to Imperial Bank.
4.15(3) Common Stock Warrant, dated September 14, 1994,
issued by the Registrant to MK Global Ventures
II.
4.16(4) Series F Preferred Stock Purchase Agreement,
dated March 12, 1996, between the Registrant
and MK GVD Fund.
4.17(4) Common Stock Warrant, dated November 26, 1996,
issued by the Registrant to MK GVD Fund.
4.18 Series G Preferred Stock Purchase Agreement,
dated July 3, 1996, between the Registrant and
MK GVD Fund.
4.19 Series H Preferred Stock Purchase Agreement,
dated September 18, 1997, between the
Registrant and MK GVD Fund.
4.20 Series I Preferred Stock Purchase Agreement,
dated December 23, 1997, between the Registrant
and MK GVD Fund.
4.21 Series J Preferred Stock Purchase Agreement,
dated February 19, 1998, between the Registrant
and MK GVD Fund.
10.1(1) Form of Indemnification Agreement for directors
and officers.
10.2(1) $5,000.07 Subordinated Promissory Note, dated
April 18, 1990, issued by the Registrant to
Edward Alpern.
10.3(1) $5,000.07 Subordinated Promissory Note, dated
October 22, 1991, issued by the Registrant to
Amerinda Alpern.
10.4(1) Lease Agreement, dated February 21, 1991,
between the Registrant and Spieker Partners.
10.5(2) Amendment #1 to Lease Agreement, dated June 11,
1993, between the Registrant and Spieker -
Singleton #68 Limited.
10.6(2) Consulting Agreement with Barington Capital
Group, L.P.
10.7(1) Shareholder's Voting Agreement.
10.8 Security and Loan Agreement, dated March 19,
1998, between the Registrant and Imperial Bank.
11.1 Computation of net loss per share.
23.1 Consent of Independent Accountants.
24.1 Power of Attorney (see page 42).
27.1 Financial Data Schedule
27
<PAGE>
- ---------------------
(1) Incorporated by reference to the exhibit filed with the Registrant's
Registration Statement on Form S-1, as amended (No. 33-60548), declared
effective on March 9, 1993.
(2) Incorporated by reference to the exhibit filed with the Registrant's
Annual Report on Form 10-K filed March 25, 1994.
(3) Incorporated by reference to the exhibit filed with the Registrant's
Annual Report on Form 10-K filed March 29, 1995.
(4) Incorporated by reference to the exhibit filed with the Registrant's
Annual Report on Form 10-K filed March 28, 1997.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
December 31, 1997.
(c) Exhibits -- See Item 14(a)3 above.
(d) Financial Statement Schedules -- See Item 14(a)2 above.
28
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
HyperMedia Communications, Inc.
In our opinion, the accompanying balance sheet and the related statements
of operations, shareholders' equity and cash flows present fairly, in all
material respects, the financial position of HyperMedia Communications, Inc. at
December 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Jose, California
February 5, 1998, except for Notes 5 and 11
which are as of March 19, 1998
29
<PAGE>
<TABLE>
HYPERMEDIA COMMUNICATIONS, INC.
BALANCE SHEET
<CAPTION>
December 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 269,000 $ 107,000
Accounts receivable, net of allowance for doubtful
accounts of $110,000 and $180,000 1,165,000 1,294,000
Prepaid expenses and other current assets 567,000 561,000
------------ ------------
Total current assets 2,001,000 1,962,000
Property and equipment, net 451,000 622,000
------------ ------------
$ 2,452,000 $ 2,584,000
------------ ------------
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 956,000 $ 822,000
Accrued liabilities 439,000 326,000
Deferred revenue 31,000 33,000
Note payable -- 335,000
Total current liabilities 1,426,000 1,516,000
------------ ------------
Commitments (Note 10)
Shareholders' Equity:
Convertible Preferred Stock, $.001 par value; 10,064,516 shares
authorized; $2,050,000 and $1,250,000 aggregate liquidation amount;
8,342,910 and 8,146,766 shares outstanding 2,003,000 1,209,000
Common Stock, $0.001 par value; 50,000,000 shares authorized;
3,200,137 and 3,019,004 shares outstanding 10,427,000 10,377,000
Accumulated deficit (11,404,000) (10,518,000)
------------ ------------
Total shareholders' equity 1,026,000 1,068,000
------------ ------------
$ 2,452,000 $ 2,584,000
------------ ------------
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
30
<PAGE>
<TABLE>
HYPERMEDIA COMMUNICATIONS, INC.
STATEMENT OF OPERATIONS
<CAPTION>
Year ended December 31,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenues: $ 7,637,000 $ 8,618,000 $ 9,754,000
------------ ------------ ------------
Expenses:
Editorial 1,151,000 1,228,000 1,309,000
Production 1,922,000 2,373,000 2,745,000
Circulation 2,088,000 2,072,000 2,275,000
Sales and marketing 2,318,000 2,269,000 2,522,000
Product development 40,000 29,000 36,000
General and administrative 972,000 914,000 1,318,000
------------ ------------ ------------
Total expenses 8,491,000 8,885,000 10,205,000
------------ ------------ ------------
Loss from operations (854,000) (267,000) (451,000)
Interest and other expense, net (32,000) (24,000) (11,000)
------------ ------------ ------------
Net loss $ (886,000) $ (291,000) $ (462,000)
------------ ------------ ------------
Basic and diluted net loss per share $ (0.28) $ (0.10) $ (0.15)
============ ============ ============
Weighted average common shares outstanding 3,185,043 3,019,004 3,011,433
------------ ------------ ------------
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
31
<PAGE>
<TABLE>
HYPERMEDIA COMMUNICATIONS, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
<CAPTION>
Convertible
Preferred Stock Common Stock
------------------------------------------------------ Shareholder
Shares Amount Shares Amount Note Receivable
--------- ------------ --------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 8,064,516 $ 1,000,000 3,011,433 $ 10,375,000 $ (63,000)
Net loss -- -- -- -- --
--------- ------------ --------- ------------ ----------
Balance at December 31, 1995 8,064,516 1,000,000 3,011,433 10,375,000 (63,000)
Repayment of shareholder note receivable -- -- -- -- 63,000
Issuance of Common Stock for cash -- -- 7,571 2,000 --
Issuance of Series F Convertible Preferred
Stock for cash, net of issuance costs 82,250 209,000 -- -- --
Net loss -- -- -- -- --
--------- ------------ --------- ------------ ----------
Balance at December 31, 1996 8,146,766 1,209,000 3,019,004 10,377,000 --
Issuance of Common Stock for cash -- -- 181,133 50,000 --
Issuance of Series G Convertible Preferred
Stock for cash, net of issuance costs 50,344 98,000 -- -- --
Issuance of Series H Convertible Preferred
Stock for cash, net of issuance costs 117,000 246,000 -- -- --
Issuance of Series I Convertible Preferred --
Stock for cash, net of issuance costs 28,800 450,000 -- -- --
Net loss -- -- -- -- --
--------- ------------ --------- ------------ ----------
Balance at December 31, 1997 8,342,910 $ 2,003,000 3,200,137 $ 10,427,000 $ --
--------- ------------ --------- ------------ ----------
</TABLE>
<TABLE>
<CAPTION>
Accumulated Total Shareholders'
Deficit Equity
------------ ------------
<S> <C> <C>
Balance at December 31, 1994 $ (9,765,000) $ 1,547,000
Net loss (462,000) (462,000)
------------ ------------
Balance at December 31, 1995 (10,227,000) 1,085,000
Repayment of shareholder note receivable -- 63,000
Issuance of Common Stock for cash -- 2,000
Issuance of Series F Convertible Preferred
Stock for cash, net of issuance costs -- 209,000
Net loss (291,000) (291,000)
------------ ------------
Balance at December 31, 1996 (10,518,000) 1,068,000
Issuance of Common Stock for cash -- 50,000
Issuance of Series G Convertible Preferred
Stock for cash, net of issuance costs -- 98,000
Issuance of Series H Convertible Preferred
Stock for cash, net of issuance costs -- 246,000
Issuance of Series I Convertible Preferred
Stock for cash, net of issuance costs -- 450,000
Net loss (886,000) (886,000)
------------ ------------
Balance at December 31, 1997 $(11,404,000) $ 1,026,000
------------ ------------
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
32
<PAGE>
<TABLE>
HYPERMEDIA COMMUNICATIONS, INC.
STATEMENT OF CASH FLOWS
<CAPTION>
Year ended December 31,
-----------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(886,000) $(291,000) $(462,000)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 227,000 240,000 342,000
Provision for doubtful accounts 57,000 (90,000) 201,000
Change in assets and liabilities:
Accounts receivable 72,000 (280,000) 540,000
Prepaid expenses and other current assets (6,000) (199,000) 192,000
Accounts payable 134,000 131,000 (268,000)
Accrued liabilities 113,000 42,000 79,000
Deferred revenue (2,000) (154,000) (289,000)
--------- --------- ---------
Net cash provided by (used in) operating activities (291,000) (601,000) 335,000
--------- --------- ---------
Net cash used in investing activities to purchase
property and equipment (56,000) (176,000) (162,000)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from line of credit -- 335,000 --
Repayment of line of credit (335,000) -- (100,000)
Proceeds from issuance of Common Stock 50,000 2,000 --
Repayment of shareholder note receivable -- 63,000 --
Proceeds from issuance of Preferred Stock, net 794,000 209,000 --
--------- --------- ---------
Net cash provided by (used in) financing activities 509,000 609,000 (100,000)
--------- --------- ---------
Net increase (decrease) in cash 162,000 (168,000) 73,000
Cash and cash equivalents at beginning of year 107,000 275,000 202,000
--------- --------- ---------
Cash and cash equivalents at end of year $ 269,000 $ 107,000 $ 275,000
--------- --------- ---------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 28,000 $ 23,000 $ 12,000
--------- --------- ---------
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
33
<PAGE>
HYPERMEDIA COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY AND ITS BUSINESS:
HyperMedia Communications, Inc. (the "Company"), incorporated in
California in August 1989, publishes periodicals, including NewMedia
("NewMedia"), a magazine serving the corporate digital content creation market
and the Internet. The Company also publishes newmedia.com, a World Wide Web
network of news, information, products and services for the digital content
creation market. The Company also produces the NewMedia INVISION Awards
Festival, a juried digital media competition seeking out the highest
achievements in digital content creation. Substantially, all of the Company's
revenue to date has resulted from the sale of advertising in NewMedia.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates
The preparation of these financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition and Deferred Revenue
Deferred revenue represents cash received in advance for subscriptions
and advertising. Deferred revenue is recognized as revenue upon the release of
the related magazine.
Cash and Cash Equivalents
All highly liquid investments purchased with an original maturity of
three months or less are considered to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets which
range from two to seven years.
Promotional Expenses
Certain promotional expenses, consisting primarily of direct response
advertising campaigns to obtain subscribers to the Company's publications, are
capitalized and amortized over the estimated useful life, generally one year.
Income Taxes
Income taxes are accounted for using an asset and liability approach
which requires the recognition of taxes payable or refundable for the current
year and deferred tax liabilities and assets for the future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. The measurement of current and deferred tax liabilities and assets are
based on provisions of the enacted tax law; the effects of future changes in tax
laws or rates are not anticipated. The measurement of deferred tax assets is
reduced, if necessary, by the amount of any tax benefits that, based on
available evidence, are not expected to be realized.
34
<PAGE>
HYPERMEDIA COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
Basic and Diluted Net Loss Per Share
Basic earnings per share is computed using the weighted average number of
common shares outstanding during the period. Diluted earnings per share is
computed using the weighted average number of common and common equivalents
shares outstanding during the period. Common equivalent shares consist of the
incremental common shares issuable upon conversion of the convertible preferred
stock (using the if-converted method) and shares issuable upon the exercise of
stock option and warrants (using the treasury stock method). Common equivalent
shares are excluded from the computation if their effect is antidilutive.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of accounts receivable. The
Company performs ongoing credit evaluations of its customers' financial
condition and maintains an allowance for uncollectible accounts receivable based
upon expected collectibility of accounts receivable. During the years ended
December 31, 1997, 1996, and 1995, the Company wrote-off approximately $162,000,
$72,000, and $205,000, respectively, of accounts receivable balances. The
Company's magazine, "New Media," is only distributed in the United States. At
December 31, 1997, no individual customers accounted for 10% or more of accounts
receivable. At December 31, 1996, one customer accounted for 14% of accounts
receivable.
Stock Based Compensation
The Company applies Accounting Principles Board Opinion 25 "Accounting
for Stock Issued to Employees" ("APB 25") and related interpretations in
accounting for its stock-based compensation plans, as permitted by the Financial
Accounting Standards Board's No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation." SFAS 123 defines a "fair value" based method of accounting for an
employee stock option or similar equity instrument and encourages, but does not
require, entities to adopt that method of accounting for their employee stock
compensation plans. The pro forma disclosures of the difference between
compensation cost included in net loss and the related cost measured by the fair
value method are presented in Note 8.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The adoption of both
statements is required for fiscal years beginning after December 15, 1997. Under
SFAS No. 130, companies are required to report in their financial statements, in
addition to net income, comprehensive income including, as applicable, foreign
currency items, minimum pension liability adjustments, and unrealized gains and
losses on certain investments in debt and equity securities. SFAS No. 131
requires that companies report separately, in the financial statements, certain
financial and descriptive information about operating segments, if applicable.
The Company does not expect the adoption of SFAS No. 130 or SFAS No. 131 to have
a material impact on the its financial statements.
NOTE 3 - CAPITALIZED PROMOTIONAL EXPENSES:
Capitalized promotional expenses consist of direct response advertising
campaigns to obtain subscribers to the Company's publications. The capitalized
costs of the campaigns are amortized over a twelve-month period which represents
the period for which a recipient is entitled to receive the Company's
publications.
At December 31, 1997 and 1996, $465,000 and $471,000 of such promotional
expenses are included in prepaid expenses and other assets. Related amortization
for the years ended December 31, 1997 and 1996, totaled $614,000 and $409,000,
respectively.
35
<PAGE>
HYPERMEDIA COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 4 - PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
December 31,
--------------------------
1997 1996
----------- -----------
Equipment $ 1,148,000 $ 1,092,000
Furniture and fixtures 270,000 270,000
----------- -----------
1,418,000 1,362,000
Less: accumulated depreciation and amortization (967,000) (740,000)
----------- -----------
$ 451,000 $ 622,000
----------- -----------
NOTE 5 - BANK CREDIT FACILITY:
In March 1998, the Company renewed its credit agreement with a commercial
bank. The agreement provides for borrowings of up to 70% of eligible accounts
receivable not to exceed $1,000,000. The revolving credit facility is secured by
the assets of the Company and requires the Company to maintain certain quarterly
financial ratios and be subject to certain covenants and other usual and
customary provisions. Partial usage of unused borrowing capacity could be
restricted by financial operating covenants. Borrowings accrue interest at the
lender's reference rate of prime plus 2.0%, which at December 31, 1997 was
10.5%. The credit facility expires in March 1999. At December 31, 1997, no
borrowings were outstanding under this agreement.
NOTE 6 - CONVERTIBLE PREFERRED STOCK:
Proceeds
Aggregate Net of
Shares Shares Liquidation Issuance
Series Authorized Outstanding Amount Costs
- ------------ ---------- --------- ---------- ----------
Series E 8,064,516 8,064,516 $1,000,000 $1,000,000
Series F 175,000 82,250 250,000 209,000
Series G 175,000 50,344 100,000 98,000
Series H 400,000 117,000 250,000 246,000
Series I 200,000 28,800 450,000 450,000
Undesignated 1,050,000 -- -- --
---------- --------- ---------- ----------
10,064,516 8,342,910 $2,050,000 $2,003,000
---------- --------- ---------- ----------
The shares of Convertible Preferred Stock have various rights and
preferences as follows:
Voting
Each share of Series E, Series F, Series G, Series H and Series I
Convertible Preferred Stock is entitled to the same number of votes as the
number of shares of Common Stock into which the Convertible Preferred Stock is
convertible.
36
<PAGE>
HYPERMEDIA COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
Dividends
Holders of Series E, Series F, Series G, Series H and Series I
Convertible Preferred Stock are entitled to receive dividends at the rate of
$0.01, $0.15, $0.10, $0.11 and $0.08, respectively, per annum for each
outstanding share then held by shareholders, payable in preference and priority
to any payment of any dividend on Common Stock, when and if such dividends are
declared by the Board of Directors. The Company shall make no distribution to
holders of Common Stock until Convertible Preferred Stock dividends have been
paid. Dividends are not cumulative and no dividend rights accrue.
Liquidation
In the event of any liquidation or winding up of the Company, the holders
of Series E, Series F, Series G, Series H and Series I Convertible Preferred
Stock shall be entitled to receive, prior and in preference to any distribution
to holders of Common Stock, the amounts summarized in the table above, plus an
amount equal to all declared but unpaid dividends on such shares. After paying
the amounts due the holders of shares of Convertible Preferred Stock, the
remaining assets available for distribution shall be distributed ratably to the
holders of Common Stock and holders of Convertible Preferred Stock as if fully
converted to Common Stock. If assets are insufficient to permit payment in full
to the holders of Convertible Preferred Stock, then distribution would be made
to the Series I shareholders then to all other Convertible Preferred Stock
holders on a pro-rata basis.
Conversion
Each share of Convertible Preferred Stock shall be convertible into
Common Stock at the option of the holder. The number of shares of fully paid and
nonassessable Common Stock into which each share of Convertible Preferred Stock
may be converted shall be determined at the initial purchase price of $0.124 for
Series E, $3.04 for Series F, $1.99 for Series G, and $2.14 for Series H. Each
share of Series I converts to 10 shares of Common Stock with an initial
conversion price of $15.62 per share. The conversion price is subject to certain
adjustments, as defined, which essentially provide dilution protection for the
holders of Convertible Preferred Stock.
NOTE 7 - WARRANTS:
The following warrants were outstanding at December 31, 1997:
In March 1993, the Company issued a warrant to purchase 140,000 shares of
Common Stock at an exercise price of $7.75 per share. The warrants were issued
as consideration for services rendered by the underwriter of the Company's
initial public offering. The warrant expires in March 1998, and had a nominal
fair value on the date of grant.
In September 1994, the Company issued a warrant to purchase 15,985 shares
of Common Stock at $6.75 per share. The warrants were issued as consideration to
the sole shareholder of the Company's outstanding shares of Series E Convertible
Preferred Stock for the waiving redemption rights of such shares. The warrant
expires in September 1999, and had a nominal fair value on the date of grant.
In March 1997, the Company amended a prior warrant agreement to entitle
the holder to purchase 6,897 shares of Common Stock at $2.69 per share. The
amendment was made in connection with the renewal of the Company's credit
facility. The warrant expires in February 1999, and had a nominal fair value on
the date the warrant agreement was amended.
In June 1997, the Company issued a warrant to purchase 1,724 shares of
Common Stock at $2.25 per share in conjunction with the Series G Convertible
Preferred Stock financing. The warrant expires in June 2002, and had a nominal
value on the date of grant.
37
<PAGE>
HYPERMEDIA COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 8 - STOCK COMPENSATION PLANS:
Stock Option Plan
In December 1991, the Company adopted the 1991 Stock Option Plan (the
"Option Plan"). The Option Plan, which expires in 2001, provides for incentive
as well as nonstatutory stock options and stock purchase rights. The Board of
Directors may terminate the Option Plan at any time at its discretion.
Options and stock purchase rights under the Option Plan are granted at
market value and are subject to certain conditions more fully described in the
Option Plan. Generally, these conditions require that the exercise price of
options granted may not be below 85% to 110% of the fair value of the stock at
the date of the grant, depending upon the type of the award and the number of
shares of Common Stock held by the employee or consultant at the date of the
award. Options and stock purchase rights to be issued under the Option Plan will
expire over varying terms from five to ten years.
Options generally vest over a 48-month period. Options are adjusted pro
rata for any changes in the capitalization of the Company, such as stock splits
and stock dividends. In addition, the outstanding options issued under the
Option Plan will terminate within a period set by the Board of Directors after
termination of employment.
During 1995, the Company increased the number of shares of Common Stock
reserved for issuance under this plan from 500,000 to 700,000 shares.
In April 1994, the Company adopted the 1993 Director Stock Option Plan.
The option plan provides for the automatic, nondiscretionary grant of
nonstatutory stock options to the Company's nonemployee directors. The terms of
the plan are substantially similar to those for nonstatutory options granted
under the Company's employee stock option plan. The automatic grant applies to
each nonemployee director upon the initial appointment to the board, and
annually upon re-election of each nonemployee director by the shareholders.
Initial grants were for 25,000 shares and annual grants shall be for 5,000
shares. The shares will vest over four years. During 1995, the Company increased
the number of shares of Common Stock reserved for issuance under this plan from
100,000 to 150,000 shares. At December 31, 1997, 155,000 shares were issued, of
which 75,000 were exercisable.
For the purposes of complying with the disclosure provisions of SFAS 123,
the fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997, 1996 and 1995, respectively: dividend yield
of 0.0%, expected volatility of 70.0% and expected lives of five years for all
years and risk free rates of 6.4%, 6.4% and 6.3%.
38
<PAGE>
HYPERMEDIA COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
<TABLE>
Activity under both the 1991 Stock Option Plan and the 1993 Director Stock
Option Plan is as follows:
<CAPTION>
1997 1996 1995
------------------------ ---------------------- -------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- --------- -------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 554,544 $ 3.83 442,565 $ 4.43 393,565 $ 4.01
Granted 198,500 2.77 165,000 2.60 99,000 4.46
Exercised -- -- (7,571) 0.28 -- --
Canceled (115,500) 4.64 (45,450) 5.74 (50,000) 5.51
--------- -------- -------
Outstanding at end of year 637,544 3.35 554,544 3.83 442,565 4.43
========= ======== =======
Options exercisable at year end 328,828 306,911 278,434
========= ======== =======
Weighted-average fair value of
options granted during the year $ 1.75 $ 1.66 $ 2.86
======== ======== =======
</TABLE>
<TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1997:
<CAPTION>
Options Outstanding Options Exerciseable
----------------------------------------------- ----------------------------
Weighted- Weighted- Weighted-
Number Average Average Number Average
Range of Outstanding Remaining Exercise Exercisable Exercise
Exercise Prices at 12/31/97 Contractual Life Price at 12/31/97 Price
- --------------- ------------ ---------------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$0.28 64,089 4.0 years $0.28 64,089 $0.28
$2.12-2.50 165,099 7.2 88,134 $2.48
$2.63-3.00 211,500 9.0 $2.90 19,375 $2.89
$4.00-6.00 99,856 6.5 $4.66 81,522 $4.75
$7.25-8.50 97,000 6.2 $6.79 75,708 $6.82
------------ ---------
637,544 328,828
============ =========
</TABLE>
Had compensation cost for the Company's option plans been determined
based on the fair value at the grant dates, as prescribed in SFAS 123, the
Company's net loss would have been as follows:
Year Ended December 31,
---------------------------------------
1997 1996 1995
----------- --------- -----------
Net loss:
As reported $ (886,000) $(291,000) $(462,000)
Pro forma $(1,040,000) $(368,000) $(489,000)
Basic and diluted net loss per share:
As reported $ (0.28) $ (0.10) $ (0.15)
Pro forma $ (0.33) $ (0.12) $ (0.16)
39
<PAGE>
HYPERMEDIA COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
Because additional option grants are expected to be made each year, the
above pro forma disclosures are not representative of pro forma effects of
reported net income for future years.
1996 Employee Stock Purchase Plan
During 1996, the Company adopted an Employee Stock Purchase Plan (the
"Purchase Plan"). The Purchase Plan allows eligible employees to contribute up
to 15% of their base compensation to purchase Common Stock of the Company at 85%
of fair market value and are subject to approval by the Board of Directors. The
maximum number of shares of the Company's Common Stock which shall be made
available for sale under the Purchase Plan shall be 150,000 shares, subject to
changes in the Company's capitalization. As of December 31, 1997, no shares were
issued under the Purchase Plan.
NOTE 9 - INCOME TAXES:
No provision for federal and state income taxes has been recorded as the
Company incurred net operating losses through December 31, 1997. At December 31,
1997, the Company had net operating loss carryforwards of approximately
$11,400,000 for federal income tax purposes which may be utilized to reduce
future taxable income through 2003, subject to certain limitations. Under the
Tax Reform Act of 1986, the amounts of and the benefit from net operating losses
that can be carried forward may be impaired or limited in certain circumstances.
Events which may cause changes in the amount of net operating losses that the
Company may utilize in any one year include, but are not limited to, a
cumulative stock ownership change of more than 50% over a three-year period. As
a result of prior financings which resulted in such an ownership change in April
1990, approximately $500,000 of the Company's net operating loss carryforwards
are limited to usage of approximately $50,000 per year.
Further, the initial public offering in March 1993 triggered another
ownership change of greater than 50% and the potential benefits from utilization
of tax carryforwards generated from April 1990 through the date of the offering,
totaling approximately $5,600,000 will be limited. The approximate annual
limitation on the utilization of those carryforwards is $700,000 provided that
this amount is reduced to the extent that the net operating carryforwards
generated through April 1990 are utilized.
Deferred tax assets (liabilities) are comprised of the following:
December 31,
-----------------------------
1997 1996
----------- -----------
Net operating loss carryforwards $ 4,300,000 $ 4,000,000
Allowance for doubtful accounts 40,000 70,000
Other 60,000 40,000
----------- -----------
Gross deferred tax assets 4,400,000 4,110,000
Gross deferred tax liabilities (200,000) (190,000)
Deferred tax asset valuation allowance (4,200,000) (3,920,000)
----------- -----------
Net deferred tax asset $ - $ -
=========== ===========
The deferred tax asset valuation allowance is required because of the
uncertainty regarding the realization of the deferred tax assets.
40
<PAGE>
HYPERMEDIA COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 10 - COMMITMENTS:
The Company leases office space under a noncancelable operating lease
which expires in April 2000. Future minimum lease payments under noncancelable
operating leases are as follows:
Year ended
December 31,
1998 $281,000
1999 286,000
2000 96,000
--------
$663,000
========
Total rental expense under operating leases was $254,000, $174,000 and
$173,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
NOTE 11 - SUBSEQUENT EVENTS:
In February 1998, the Company sold 105,000 shares of Series J Convertible
Preferred Stock for $1,300,000 cash. Liquidation and voting preferences are
consistent with Series I Convertible Preferred Stock. Series J Convertible
Preferred Stock converts to Common Stock at 20 shares of Common Stock per one
share of Series J Convertible Preferred Stock. Holders of the Series J
Convertible Preferred Stock are entitled to receive dividends at the rate of
$0.62, per annum for each outstanding share then held by shareholders, payable
in preference and priority to any payment of any dividend on Common Stock, when
and if such dividends are declared by the Board of Directors.
41
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HYPERMEDIA COMMUNICATIONS, INC.
Dated: March 27, 1998 By: \s\ Todd Hagen
---------------------------------
Todd Hagen, Vice President of
Finance and Administration,
Chief Financial Officer and Secretary
(Principal Financial and Accounting.
Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Richard Landry and Todd Hagen, or either
of them, his attorneys-in-fact, each with the power of substitution, for him in
any and all capacities, to sign any amendments to this Annual Report on Form
10-K, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
<CAPTION>
Signature Title Date
----------------------------------- ---------------------------------------------------- ---------------------
<S> <C> <C>
\s\ Richard Landry Chairman of the Board of Directors, President, March 24, 1998
----------------------------------- Chief Executive Officer, Publisher and
Richard Landry Director (Principal Executive Officer)
\s\ Todd Hagen Vice President of Finance and Administration and March 24, 1998
----------------------------------- Chief Financial Officer (Principal Financial and
Todd Hagen Accounting Officer)
\s\ John Griffin Director March 26, 1998
-----------------------------------
John Griffin
\s\ Patrick Ferrell Director March 24, 1998
-----------------------------------
Patrick Ferrell
Director March __, 1998
-----------------------------------
Michael Kaufman
\s\ Greg Lahann Director March 26, 1998
-----------------------------------
Greg Lahann
</TABLE>
42
<PAGE>
INDEX TO EXHIBITS
Exhibit Description Sequentially
Number Numbered Page
3.1a Articles of Incorporation of the Registrant, as
amended and filed June 1997.
3.1b(4) Certificate of Determination of Preferences of
Series of F Preferred Stock of the Registrant.
3.1c Certificate of Determination of Preferences of
Series of H Preferred Stock of the Registrant.
3.1d Certificate of Determination of Preferences of
Series of I Preferred Stock of the Registrant.
3.1e Certificate of Determination of Preferences of
Series of J Preferred Stock of the Registrant.
3.2(1) Bylaws of the Registrant.
4.1(1) Specimen Common Stock Certificate.
4.2(1) Common Stock Warrant, dated December 18, 1989,
issued by the Registrant to MK Global Ventures.
4.5(1) Common Stock Warrant, dated March 16, 1993,
issued by the Registrant to David Bunnell.
4.6(1) Common Stock Warrant, da ted March 16, 1993,
issued by the Registrant to Dr. Eugene Duh.
4.7(1) Form of Subscription Agreement entered into in
connection with the Bridge Financing.
4.8(1) Form of Common Stock Warrant issued to
investors pursuant to the Bridge Financing.
4.9(2) Representative's Warrant, dated March 9, 1993,
issued by the Registrant to Barington Capital
Group, L.P.
4.10(1) Modification Agreement, dated October 30, 1990,
between the Registrant, MK Global Ventures, MK
Global Ventures II and Edward Alpern, as
amended by First Amendment to Modification
Agreement and Written Consent, dated September
15, 1992, Second Amendment to Modification
Agreement, dated October 15, 1992 and Third
Amendment to Modification Agreement and Written
Consent, dated December 1, 1992.
4.11(1) Co-Sale Agreement, dated April 18, 1990,
between the Registrant, MK Global Ventures, MK
Global Ventures II, Davison Associates, Edward
Alpern, Louis Casabianca and Harry Miller.
4.12(3) 1991 Stock Plan and forms of agreements
thereunder, as amended.
4.13(3) 1993 Director Option Plan and form of agreement
thereunder, as amended.
4.14(4) Common Stock Warrant, dated February 9, 1994
and as amended March 19, 1997, issued by the
Registrant to Imperial Bank.
4.15(3) Common Stock Warrant, dated September 14, 1994,
issued by the Company to MK Global Ventures II.
4.16(4) Series F Preferred Stock Purchase Agreement,
dated March 12, 1996, between the Registrant
and MK GVD Fund.
4.17(4) Common Stock Warrant, dated November 26, 1996
issued by the Reigistrant to MK GVD Fund.
4.18 Series G Preferred Stock Purchase Agreement,
dated July 3, 1996, between the Registrant and
MK GVD Fund.
4.19 Series H Preferred Stock Purchase Agreement,
dated September 18, 1997, between the
Registrant and MK GVD Fund.
4.20 Series I Preferred Stock Purchase Agreement,
dated December 23, 1997, between the Registrant
and MK GVD Fund.
43
<PAGE>
4.21 Series J Preferred Stock Purchase Agreement,
dated February 19, 1998, between the Registrant
and MK GVD Fund.
10.1(1) Form of Indemnification Agreement for directors
and officers.
10.2(1) $5,000.07 Subordinated Promissory Note, dated
April 18, 1990, issued by the Registrant to
Edward Alpern.
10.3(1) $5,000.07 Subordinated Promissory Note, dated
October 22, 1991, issued by the Registrant to
Amerinda Alpern.
10.4(1) Lease Agreement, dated February 21, 1991,
between the Registrant and Spieker Partners.
10.5(2) Amendment #1 to Lease Agreement, dated June 11,
1993, between the Registrant and Spieker -
Singleton #68 Limited.
10.6(2) Consulting Agreement with Barington Capital
Group, L.P.
10.7(1) Shareholder's Voting Agreement.
10.8 Security and Loan Agreement, dated March 19,
1998, between the Registrant and Imperial Bank.
11.1 Computation of net loss per share.
23.1 Consent of Independent Accountants
24.1 Power of Attorney (see page 42).
- ---------------------
(1) Incorporated by reference to the exhibit filed with the Registrant's
Registration Statement on Form S-1, as amended (No. 33-60548), declared
effective on March 9, 1993.
(2) Incorporated by reference to the exhibits filed with the Registrant's
Annual Report on Form 10-K filed March 25, 1994.
(3) Incorporated by reference to the exhibits filed with the Registrant's
Annual Report on Form 10-K filed March 29, 1995.
(4) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-K filed March 28, 1997.
44
HyperMedia Communications, Inc.
SEC Form 10-K FY97
Exhibit 3.1a
<PAGE>
AMENDED AND RESTATED ARTICLES OF INCORPORATION OF
HYPERMEDIA COMMUNICATIONS, INC.
The undersigned, Todd Hagen and Dan Ruby, hereby certify that:
1. They are the Vice President, Finance and Vice President, Editorial,
respectively, of HyperMedia Communications, Inc., a California corporation (the
"Company").
2. The Articles of Incorporation of the Company are amended and
restated in full to read as set forth in Exhibit A attached hereto.
3. The Amended and Restated Articles of Incorporation of the Company
attached hereto have been duly approved by the Board of Directors of the
Company.
4. The Amended and Restated Articles of Incorporation of the Company
attached hereto have been duly approved by the shareholders of the Company in
accordance with Sections 902 and 903 of the California Corporations Code. The
total number of outstanding shares of Common Stock is 3,019,004. The total
number of outstanding shares of Preferred Stock is 8,146,766, of which 8,064,516
shares have been designated as Series E Preferred Stock, all of which are issued
and outstanding, 175,000 shares have been designated Series F Preferred Stock,
82,250 shares of which are issued and outstanding, and 175,000 shares have been
designated Series G Preferred Stock, none of which are issued and outstanding.
The total number of shares voting in favor of the Amended and Restated Articles
of Incorporation equaled or exceeded the vote required. The percentage vote
required was a simple majority of the outstanding shares of Series E Preferred
Stock voting separately as a single class, a simple majority of the outstanding
shares of Series F Preferred Stock voting separately as a single class, a simple
majority of the outstanding shares of Preferred Stock voting separately as a
single class, a simple majority of the outstanding shares of Common Stock voting
separately as a single class and a simple majority of the outstanding shares of
Preferred Stock and Common Stock voting together as a single class.
The undersigned further declare under penalty of perjury under the laws
of the State of California that the matters set forth in this certificate are
true and correct to their own knowledge.
Date: June 26, 1997 /s/ TODD HAGEN
---------------------------------------
Todd Hagen, Vice President, Finance and
Chief Financial Officer
/s/ DAN RUBY
---------------------------------------
Dan Ruby, Vice President, Editorial
<PAGE>
EXHIBIT A
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
HYPERMEDIA COMMUNICATIONS, INC.
ARTICLE I
The name of this Corporation is HyperMedia Communications, Inc.
ARTICLE II
The purpose of this Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
This Corporation is authorized to issue two classes of shares to be
designated respectively Common Stock and Preferred Stock. The total number of
shares of Common Stock this Corporation shall have authority to issue is
50,000,000, with a par value of $0.001 per share. The total number of shares of
Preferred Stock this Corporation shall have authority to issue is 10,064,516,
with a par value of $0.001 per share.
The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is authorized to fix the number of shares of any
series of Preferred Stock and to determine or alter the rights, preferences,
privileges, and restrictions granted to or imposed upon any wholly unissued
series of Preferred Stock and, within the limits and restrictions stated in any
resolution or resolutions of the Board of Directors originally fixing the number
of shares constituting any series of Preferred Stock, to decrease (but not below
the number of shares of any such series then outstanding) the number of shares
of any such series subsequent to the issue of shares of that series.
Of the Preferred Stock, 8,064,516 shares shall be designated Series E
Preferred Stock ("Series E Preferred"), 175,000 shares shall be designated
Series F Preferred Stock ("Series F Preferred"), and 175,000 shares shall be
designated Series G Preferred Stock ("Series G Preferred").
The Corporation shall from time to time in accordance with the laws of
the State of California increase the authorized amount of its Common Stock if at
any time the number of shares
-2-
<PAGE>
of Common Stock remaining unissued and available for issuance shall not be
sufficient to permit conversion of the Preferred Stock.
The relative rights, preferences, privileges and restrictions granted
to or imposed on the respective classes of the shares of capital stock or the
holders thereof are as follows:
A. Series E Preferred.
1. Dividend Rights of Series E Preferred.
(a) The holders of the Series E Preferred shall be entitled to
receive, when and as declared by the Board of Directors, out of funds legally
available therefor, dividends at the rate of $0.0074 per share per annum, on
each outstanding share of Series E Preferred, payable in preference and priority
to any payment of any dividend on Common Stock of the Corporation for such year.
The dividends on the Series E Preferred shall be cumulative so that if all
dividends accumulated at the annual rate specified above, shall not have been
paid or declared and a sum sufficient for the payment thereof set apart, the
deficiency shall first be fully paid before any dividend or other distribution,
other than dividends payable solely in Common Stock, shall be paid or declared
and set apart for the Common Stock. If less than full dividends are paid on or
declared and set apart for payment on the Series E Preferred, then such
dividends shall be subtracted from any accumulated dividends. Any accumulation
of dividends on the Series E Preferred shall not bear interest. The Corporation
shall not be obligated to pay any accumulated but unpaid dividends on the Series
E Preferred before January 1, 2000 except for the conversion of such dividends
into shares of Common Stock pursuant to subsection (b) of this Section A.1
below.
(b) In the event that the Corporation shall have any
accumulated but unpaid dividends outstanding immediately prior to, and in the
event of, a conversion of the Series E Preferred (as provided in Section A.4
hereof), such dividends shall be converted into Common Stock at the then
effective Series E Conversion Price, as may be applicable, determined in
accordance with and pursuant to the terms specified in Section A.4 hereof.
(c) As authorized by Section 402.5(c) of the California
Corporations Code, the provisions of Sections 502 and 503 of the California
Corporations Code shall not apply with respect to repurchases by the Corporation
of shares of Common Stock issued to or held by employees, officers, directors or
consultants of the Corporation or its subsidiaries upon termination of their
employment or services pursuant to agreements providing for the right of said
repurchase.
2. Liquidation Preference. In the event of any liquidation,
dissolution, or winding up of the Corporation, either voluntary or involuntary,
distributions to the shareholders of the Corporation shall be made in the
following manner:
(a) The holders of the Series E Preferred shall be entitled to
receive, prior and in preference to any distribution of any of the assets or
surplus funds of the Corporation to the holders
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of the Common Stock by reason of their ownership of such stock, the amount of
$0.124 per share for each share of Series E Preferred then held by them, and in
addition, an amount equal to all accumulated but unpaid dividends (whether or
not such dividends were declared) on the Series E Preferred held by them. If the
assets and funds thus distributed among the holders of the Series E Preferred
shall be insufficient to permit the payment to such holders of the full
aforesaid preferential amounts, then the entire assets and funds of the
Corporation legally available for distribution shall be distributed such that
each holder of Series E Preferred shall be entitled to receive a portion of the
assets and funds so distributed equal to the ratio that the aggregate
liquidation preference of the shares of Series E Preferred held by such holder,
exclusive of cumulative dividends, bears to the aggregate preferential amount of
all shares of Series E Preferred outstanding as of the date of the distribution.
After payments have been made to the holders of the Series E Preferred
of the full amounts to which they shall be entitled as aforesaid and to the
holders of Series F Preferred of the full amounts to which they shall be
entitled as described in Section B below, the holders of the Common Stock,
Series E Preferred and Series F Preferred shall be entitled to share ratably in
the remaining assets, based on the number of shares of Common Stock held,
assuming conversion of the Series E Preferred pursuant to Section A.4 below and
conversion of the Series F Preferred pursuant to Section B.4 below,
respectively.
(b) For purposes of this Section A.2, a merger or
consolidation of the Corporation with or into any other Corporation or
Corporations, or the merger of any other Corporation or Corporations into the
Corporation, or the sale of all or substantially all of the assets of the
Corporation, or any other corporate reorganization, in which consolidation,
merger, sale of assets or reorganization the shareholders of the Corporation
receive distributions in cash or securities of another Corporation or
Corporations as a result of such consolidation, merger, sale of assets or
reorganization, shall be treated as a liquidation, dissolution or winding up of
the Corporation.
3. Voting Rights of Series E Preferred.
(a) Number of Votes. Except as otherwise required by law and
as provided in subsection (b) below, each share of Common Stock issued and
outstanding shall have one vote and each share of Series E Preferred issued and
outstanding shall have the number of votes equal to the number of shares of
Common Stock into which the Series E Preferred is convertible as adjusted from
time to time pursuant to Section A.4 hereof.
(b) Voting by Series E Preferred. The holder of each share of
Series E Preferred shall be entitled to notice of any shareholders' meeting in
accordance with the bylaws of the Corporation and shall vote with holders of the
Common Stock upon any matter submitted to a vote of shareholders, except those
matters required by law to be submitted to a class vote, and except as set forth
in Section 5.
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(c) Cumulative Voting. The holders of Common Stock and Series
E Preferred shall be entitled to cumulative voting rights as to the directors to
be elected in accordance with the provisions of Section 708 of the California
Corporations Code.
4. Conversion. The holders of the Series E Preferred have conversion
rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series E Preferred shall
be convertible, at the option of the holder thereof, at any time after the date
of issuance of such share at the principal office of the Corporation or any
transfer agent for the Corporation's Preferred Stock, into such number of fully
paid and nonassessable shares of Common Stock as is determined by dividing
$0.124 by the Series E Conversion Price, determined as hereinafter provided, in
effect at the time of the conversion. The price at which shares of Common Stock
shall be deliverable upon conversion shall be, with respect to each share of
Series E Preferred, the price at which one share of Common Stock is initially
sold to the public pursuant to an effective registration statement under the
Securities Act of 1933, as amended, (the "Series E Conversion Price").
(b) Automatic Conversion.
(i) Each share of Series E Preferred then
outstanding shall automatically convert into shares of Common Stock, at the then
effective Series E Conversion Price at any time upon the vote of at least 75% of
the authorized, issued and outstanding shares of Series E Preferred to convert
shares of Series E Preferred into Common Stock.
Notwithstanding any provision contained herein to
the contrary, each of the shares of Series E Preferred Stock may not, under any
circumstances, be converted into Common Stock before April 15, 1993. Between
April 15, 1993 and December 31, 1999, such shares of Series E Preferred Stock
may be converted into Common Stock at the option of the holder thereof, if,
prior to December 31, 1996, the Company's aggregate net income for any four
consecutive quarters exceeds $2,500,000. In any event, after December 31, 1999,
each of the shares of Series E Preferred Stock may be converted into Common
Stock at the option of the holder thereof.
(c) Mechanics of Conversion. No fractional shares of Common
Stock shall be issued upon conversion of Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall round up to the nearest integer.
Before any holder of Series E Preferred shall be
entitled to convert the same into full shares of Common Stock and to receive
certificates therefor, the holder shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Corporation or of any
transfer agent for the Preferred Stock, as applicable, and shall give written
notice to the Corporation at such office that the holder elects to convert the
same; provided, however, that in the event of an automatic conversion pursuant
to Section A.4(b), the outstanding shares of Series E Preferred shall be
converted automatically without any further action by the holders of such shares
and whether or not
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the certificates representing such shares are surrendered to the Corporation or
its transfer agent; provided further, however, that the Corporation shall not be
obligated to issue certificates evidencing the shares of Common Stock issuable
upon such automatic conversion unless the certificates evidencing such shares of
Series E Preferred are either delivered to the Corporation or its transfer agent
as provided above, or the holder notifies the Corporation or its transfer agent
that such certificates have been lost, stolen or destroyed and executes an
agreement satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection with such certificates. The Corporation shall,
as soon as practicable after such delivery, or such agreement and
indemnification in the case of a lost certificate, issue and deliver at such
office to such holder of Preferred Stock, as applicable, a certificate or
certificates for the number of whole shares of Common Stock to which such holder
shall be entitled. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares of
Preferred Stock to be converted, or in the case of automatic conversion on the
date of such affirmative vote, and the persons or entities entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock on
such date.
(d) Adjustments of Conversion Prices For Diluting Issues.
(i) Special Definitions. For purposes of this
Section A.4(d), the following definitions shall apply:
(1) "Options" shall mean rights,
options or warrants to subscribe for, purchase or otherwise acquire either
Common Stock or Convertible Securities.
(2) "Original Issue Date" shall mean
the date on which the first share of Series E Preferred was first issued.
(3) "Convertible Securities" shall
mean any evidences of indebtedness, shares (other than the shares of Series E
Preferred authorized herein) or other securities convertible into or
exchangeable for Common Stock.
(4) "Additional Shares of Common
Stock" shall mean all shares of equity securities issued (or, pursuant to
Section A.4(d)(iii), deemed to be issued) by the Corporation, other than shares
of equity securities issued or issuable at any time:
(A) upon the exercise of
certain warrants to purchase up to 229,472 shares of Common Stock;
(B) upon conversion of the
shares of Preferred Stock authorized herein into shares of Common Stock;
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(C) to officers, directors
and employees of, and consultants to, the Corporation pursuant to employee
benefit plans unanimously approved by the Board of Directors; and
(D) as a dividend or
distribution on the Series E Preferred or pursuant to any event for which
adjustment is made pursuant to subparagraph (d)(vi) hereof.
(5) "Issue Price" with respect to
any issuance of Additional Shares of Common shall mean the price per share
obtained by dividing the total consideration received by the Corporation in
respect of such Additional Shares of Common, computed in accordance with Section
A.4(d)(v) hereof, by the aggregate number of shares of such Additional Shares of
Common issued, computed in accordance with Section A.4(d)(iii) hereof.
(ii) No Adjustment of Conversion Price. No
adjustment in the Series E Conversion Price shall be made hereunder in respect
of the issuance of Additional Shares of Common Stock unless the consideration
per share for an Additional Share of Common Stock issued or deemed to be issued
by the Corporation is less than the Series E Conversion Price, in effect on the
date of, and immediately prior to such issue.
(iii) Deemed Issue of Additional Shares of Common
Stock.
(1) Options and Convertible
Securities. In the event the Corporation at any time or from time to time after
the Original Issue Date shall issue any Options or Convertible Securities or
shall fix a record date for the determination of holders of any class of
securities entitled to receive any such Options or Convertible Securities, then
the maximum number of shares (as set forth in the instrument relating thereto
without regard to any provisions contained therein for a subsequent adjustment
of such number) of Common Stock issuable upon the exercise of such Options or,
in the case of Convertible Securities and Options therefor, the conversion or
exchange of such Convertible Securities, shall be deemed to be Additional Shares
of Common Stock issued as of the time of such issue or, in case such a record
date shall have been fixed, as of the close of business on such record date,
provided that Additional Shares of Common Stock shall not be deemed to have been
issued unless the consideration per share (determined pursuant to Section
A.4(d)(v) hereof) of such Additional Shares of Common Stock would be less than
the Series E Conversion Price in effect on the date of and immediately prior to
such issue, or such record date, as the case may be, and provided further that
in any such case in which Additional Shares of Common Stock are deemed to be
issued:
(A) no further adjustment
in the Series E Conversion Price shall be made upon the subsequent issue of
Convertible Securities or shares of Common Stock upon the exercise of such
Options or conversion or exchange of such Convertible Securities;
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(B) if such Options or
Convertible Securities by their terms provide, with the passage of time or
otherwise, for any increase in the consideration payable to the Corporation, or
decrease in the number of shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof, the Series E Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities;
(C) no readjustment
pursuant to clause (B) above shall have the effect of increasing the applicable
Series E Conversion Price to an amount which exceeds the lower of (i) the Series
E Conversion Price computed on the original adjustment date, or (ii) the Series
E Conversion Price that would have resulted from any issuance of Additional
Shares of Common Stock between the original adjustment date and such
readjustment date; and
(D) in the case of any
Options which expire by their terms not more than 30 days after the date of
issue thereof, no adjustment of the Series E Conversion Price shall be made
until the expiration or exercise of all such Options.
(iv) Adjustment of Conversion Price Upon Issuance
of Additional Shares of Common Stock. In the event that after the Original Issue
Date, the Corporation shall issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Section
A.4(d)(iii)) for a consideration per share less than the Series E Conversion
Price in effect on the date of and immediately prior to such issue, then and in
such event, the Series E Conversion Price, as the case may be, shall be reduced,
concurrently with such issue, to a price equal to such consideration per share
of the Additional Shares of Common Stock.
(v) Determination of Consideration. For purposes of
this Section A.4(d), the consideration received by the Corporation for the issue
of any Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property: Such
consideration shall:
(A) insofar as it consists
of cash, be computed at the aggregate amount of cash received by the Corporation
excluding amounts paid or payable for accrued interest or accrued dividends;
(B) insofar as it consists
of property other than cash, be computed at the fair value thereof at the time
of such issue, as determined in good faith by the Board; and
(C) in the event Additional
Shares of Common Stock are issued together with other shares or securities or
other assets of the Corporation for
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consideration which covers both, be the proportion of such consideration so
received, computed as provided in clauses (A) and (B) above, as determined in
good faith by the Board.
(2) Options and Convertible
Securities. The consideration per share received by the Corporation for
Additional Shares of Common Stock deemed to have been issued pursuant to Section
A.4(d)(iii), relating to Options and Convertible Securities, shall be determined
by dividing
(A) the total amount, if
any, received or receivable by the Corporation as consideration for the issue of
such Options or Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment of
such consideration) payable to the Corporation upon the exercise of such Options
or the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities, by
(B) the maximum number of
shares of Common Stock (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment of
such number) issuable upon the exercise of such Options or the conversion or
exchange of such Convertible Securities.
(vi) Adjustments for Subdivisions, Dividends,
Combinations or Consolidation of Common Stock. In the event the outstanding
shares of Common Stock shall be subdivided (by stock split, stock dividend or
otherwise), into a greater number of shares of Common Stock, the Series E
Conversion Price then in effect shall concurrently with the effectiveness of
such subdivision, be proportionately decreased. In the event the outstanding
shares of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Series E
Conversion Price then in effect shall, concurrently with the effectiveness of
such combination or consolidation, be proportionately increased.
(vii) Adjustments for Other Distributions. In the
event the Corporation at any time or from time to time makes, or fixes a record
date for the determination of holders of Common Stock entitled to receive, any
distribution payable in securities of the Corporation other than shares of
Common Stock and other than as otherwise adjusted in Section A.1 or this Section
A.4, then and in each such event provision shall be made so that the holders of
the Series E Preferred shall receive upon conversion thereof, in addition to the
respective number of shares of Common Stock receivable thereupon, the respective
amount of securities of the Corporation which they would have received had their
shares of Series E Preferred, as the case may be, been converted into Common
Stock on the date of such event and had they thereafter, during the period from
the date of such event to and including the date of conversion, retained such
securities receivable by them as aforesaid during such period, subject to all
other adjustments called for during such period under this Section A.4 with
respect to the rights of the holders of the Series E Preferred.
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(viii) Adjustments for Reclassification, Exchange
and Substitution. If the Common Stock issuable upon conversion of Series E
Preferred shall be changed into the same or a different number of shares of any
other class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision, combination or
consolidation of shares provided for above), the Series E Conversion Price then
in effect shall, concurrently with the effectiveness of such reorganization or
reclassification, be proportionately adjusted such that the Series E Preferred
shall be convertible into, in lieu of the respective number of shares of Common
Stock which the holders would otherwise have been entitled to receive, a number
of shares of such other class or classes of stock equivalent to the respective
number of shares of Common Stock that would have been subject to receipt by the
holders upon conversion of the immediately before that change.
(e) No Impairment. The Corporation 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 hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section A.4 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Series E Preferred set forth in this Section A.4 against impairment.
(f) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Series E Conversion Price pursuant to this
Section A.4, the Corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and furnish to
each holder of Series E Preferred a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series E Preferred furnish or cause to be furnished to
such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Series E Conversion Price at the time in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of Series E
Preferred.
(g) Notices of Record Date. In the event that this Corporation
shall propose at any time:
(i) to declare any dividend or distribution upon
its Common Stock, whether in cash, property, stock or other securities, whether
or not a regular cash dividend and whether or not out of earnings or earned
surplus;
(ii) to offer for subscription pro rata to the
holders of any class or series of its stock any additional shares of stock of
any class or series or other rights;
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(iii) to effect any reclassification or
recapitalization of its Common Stock outstanding involving a change in the
Common Stock; or
(iv) to merge or consolidate with or into any other
Corporation, or sell, lease or convey all or substantially all its property or
business, or to liquidate, dissolve or wind up; then, in connection with each
such event, this Corporation shall send to the holders of the Series E
Preferred:
(1) at least 20 days" prior written
notice of the date on which a record shall be taken for such dividend,
distribution or subscription rights (and specifying the date on which the
holders of Common Stock shall be entitled thereto) or for determining rights to
vote in respect of the matters referred to in (i) and (ii) above; and
(2) in the case of the matters
referred to in (iii) and (iv) above, at least 20 days" prior written notice of
the date when the same shall take place (and specifying the date on which the
holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon the occurrence of such event).
Each such written notice shall be delivered personally or given by
first class mail, postage prepaid, addressed to the holders of the Series E
Preferred at the address for each such holder as shown on the books of this
Corporation.
5. Covenants. In addition to any other rights provided by law, this
Corporation shall not, without first obtaining the affirmative vote or written
consent of the holders of not less than a majority of such outstanding shares of
Series E Preferred:
(a) authorize or issue any class or series of shares having
rights, preferences or privileges senior to or on a parity with the Series E
Preferred as to dividends, liquidation or redemption rights;
(b) amend the rights, preferences, privileges or restrictions
of the Series E Preferred;
(c) amend the Corporation's Articles of Corporation or Bylaws
to change the number of directors from five (5);
(d) effect (i) any sale of all or substantially all the assets
of the Corporation, or (ii) any merger or other reorganization of the
Corporation with or into another Corporation;
(e) repurchase or redeem any outstanding securities (except
for repurchases of unvested employee stock upon the termination of employees);
or
(f) declare any dividend on the Corporation's outstanding
Common Stock;
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6. Status of Converted Stock. In case any shares of Series E Preferred
shall be converted pursuant to Section A.4 hereof, the shares so converted shall
no longer be outstanding on the books of the Corporation, nor authorized or
available for further issuance.
B. Series F Preferred and Series G Preferred.
1. Designation. The number of shares constituting the Series F
Preferred and Series G Preferred shall be 175,000 each. For purposes of this
Section B, the "Series F Initial Sales Price" shall mean the price per share at
which shares of Series F Preferred are first sold to investors, and the "Series
F Original Issue Date" shall mean the date of such sale. In addition, the
"Series G Initial Sales Price" shall mean the price per share at which shares of
Series G Preferred are first sold to investors, and the "Series G Original Issue
Date" shall mean the date of such sale. The Series F Preferred and Series G
Preferred shall have the rights, preferences, privileges and restrictions
granted to or imposed upon them as specified below.
2. Dividend Rights of Series F Preferred and Series G Preferred.
(a) No dividend (payable other than in Common Stock of the
Corporation) may be paid on or declared or set apart for the Common Stock in any
one fiscal year unless a dividend at the rate of five percent (5%) of the
Initial Sales Price is paid on, or declared and set apart for, each share of
Series F Preferred. The amount of dividend shall be prorated for a share of both
Series F Preferred and Series G Preferred which is not issued and outstanding
for an entire fiscal year. The dividends on the Series F Preferred and Series G
Preferred shall be paid out of any assets legally available therefor, when, as
and if declared by the Board of Directors. Dividends on both the Series F
Preferred and Series G Preferred shall not be cumulative and no rights shall
accrue to the holders of the Series F Preferred nor the holders of the Series G
Preferred in the event the Corporation shall fail to declare or pay dividends on
the Series F Preferred or Series G Preferred in the amount of five percent (5%)
of the Initial Sales Price per share per fiscal year or in any amount in any
prior year of the Corporation, whether or not the earnings of the Corporation in
that previous fiscal year were sufficient to pay such dividends in whole or in
part. In the event the Board of Directors of the Corporation declares dividends
in a fiscal year in an amount less than the aggregate of all the dividend
preferences of the Series E Preferred and the Series F Preferred, then the
entire amount of dividends declared by the Board of Directors shall be
distributed ratably among the holders of the Series E Preferred Stock, the
Series F Preferred Stock, and the Series G Preferred Stock such that the same
percentage of the annual dividend to which each series of Preferred Stock is
entitled is paid on each share of Series E Preferred Stock, Series F Preferred
Stock, and Series G Preferred Stock.
(b) As authorized by Section 402.5(c) of the California
Corporations Code, the provisions of Sections 502 and 503 of the California
Corporations Code shall not apply with respect to repurchases by the Corporation
of shares of Common Stock issued to or held by employees, officers, directors or
consultants of the Corporation or its subsidiaries upon termination of their
employment or services pursuant to agreements providing for the right of said
repurchase.
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3. Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution, or winding up of the Corporation, after the payment to
the holders of the Series E Preferred are entitled as set forth in the Articles
(the "Series E Distribution") has been made, no distribution shall be made on
the shares of Common Stock without first making a distribution on the shares of
Series F Preferred and Series G Preferred equal to the amount of the Initial
Sales Price per share for each share of Preferred Stock, plus all declared but
unpaid dividends thereon. If upon occurrence of such event, and after the Series
E Distribution, the assets and property thus distributed among the holders of
the Series F Preferred and Series G Preferred shall be insufficient to permit
the payment to such holders of their full respective preferential amounts, then
the entire assets and property of the Corporation legally available for
distribution shall be distributed ratably among the holders of the Series F
Preferred and Series G Preferred such that the same percentage of the
preferential amount to which each series of Series F Preferred and Series G
Preferred is entitled is paid on each share of Series F Preferred and Series G
Preferred. A consolidation or merger of the Corporation with or into any other
corporation or corporations, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least fifty percent
(50%) of the total voting power represented by the voting securities of the
Corporation or such surviving entity outstanding immediately after such merger
or consolidation, or a sale of all or substantially all of the assets of the
Corporation, shall be deemed to be a liquidation, dissolution, or winding up of
the Corporation.
4. Conversion of Series F and Series G Preferred Stock.
(a) Right to Convert. Each share of Series F Preferred shall
be convertible, at the option of the holder thereof, at any time after the date
of issuance of such share at the office of the Corporation or any transfer agent
for the Series F Preferred into that number of fully-paid and nonassessable
shares of Common Stock that is equal to the Series F Initial Sales Price divided
by the Series F Conversion Price determined as hereinafter provided in effect at
the time of conversion. Each share of Series G Preferred shall be convertible,
at the option of the holder thereof, at any time after the date of issuance of
such share at the office of the Corporation or any transfer agent for the Series
G Preferred into that number of fully-paid and nonassessable shares of Common
Stock that is equal to the Series G Initial Sales Price divided by the Series G
Conversion Price determined as hereinafter provided in effect at the time of
conversion.
(1) The Conversion Price per share
for the Series F Preferred shall initially be the Series F Initial Sales Price
and shall be subject to adjustment as provided herein. (The number of shares of
Common Stock into which each share of Series F Preferred may be converted is
hereinafter referred to as the "Series F Conversion Rate".) Upon any decrease or
increase in the Series F Conversion Price or the Series F Conversion Rate as
described in this Section B.4, the Series F Conversion Rate or Series F
Conversion Price, as the case may be, shall be appropriately increased or
decreased.
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(2) The Conversion Price per share
for the Series G Preferred shall initially be the Series G Initial Sales Price
and shall be subject to adjustment as provided herein. (The number of shares of
Common Stock into which each share of Series G Preferred may be converted is
hereinafter referred to as the "Series G Conversion Rate".) Upon any decrease or
increase in the Series G Conversion Price or the Series G Conversion Rate as
described in this Section B.4, the Series G Conversion Rate or Series G
Conversion Price, as the case may be, shall be appropriately increased or
decreased.
(b) Automatic Conversion of Series F and Series G Preferred
Stock.
(1) All shares of Series F Preferred
then outstanding shall automatically convert into shares of Common Stock upon
the election of at least 67% of the authorized, issued and outstanding shares of
Series F Preferred to convert shares of Series F Preferred into Common Stock.
(2) All shares of Series G Preferred
then outstanding shall automatically convert into shares of Common Stock upon
the election of at least 67% of the authorized, issued and outstanding shares of
Series G Preferred to convert shares of Series G Preferred into Common Stock.
(c) Mechanics of Conversion. No fractional shares of Common
Stock shall be issued upon conversion of either Series F Preferred or Series G
Preferred. In lieu of any fractional shares to which the holder would otherwise
be entitled, the Corporation shall pay cash equal to such fraction multiplied by
the then fair market value of such fractional shares as determined by the Board
of Directors of the Corporation. Before any holder of Series F Preferred or
Series G Preferred shall be entitled to convert the same into full shares of
Common Stock, and to receive certificates therefor, he shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for the Series F Preferred and/or Series G
Preferred, and shall give written notice to the Corporation at such office that
he elects to convert the same; provided, however, that in the event of an
automatic conversion pursuant to paragraph B.4(b) above, the outstanding shares
of Series F Preferred and Series G Preferred shall be converted automatically
without any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Corporation or its
transfer agent; provided further, however, that the Corporation shall not be
obligated to issue certificates evidencing the shares of Common Stock issuable
upon such automatic conversion unless either the certificates evidencing such
shares of Series F Preferred and/or Series G Preferred are delivered to the
Corporation or its transfer agent as provided above, or the holder notifies the
Corporation or its transfer agent that such certificates have been lost, stolen
or destroyed and executes an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection with such
certificates.
The Corporation shall, as soon as practicable after such
delivery, or after such agreement and indemnification, issue and deliver at such
office to such holder of Series F Preferred and Series G Preferred, a
certificate or certificates for the number of shares of Common Stock to which he
shall be entitled as aforesaid and a check payable to the holder in the amount
of any cash amounts payable as the result of a conversion into fractional shares
of Common Stock, plus any
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<PAGE>
declared and unpaid dividends on the converted Series F Preferred and Series G
Preferred. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the shares of Series F
Preferred and/or Series G Preferred to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock on such date.
(d) Adjustments to Series F and Series G Conversion Price for
Diluting Issues.
(i) Special Definition. For purposes of this
paragraph B.4(d), "Additional Shares of Common" shall mean all shares of Common
Stock issued (or, pursuant to paragraph B.4(d)(iii), deemed to be issued) by the
Corporation after the Original Issue Date, other than shares of Common Stock
issued or issuable:
(1) upon conversion of shares of
Preferred Stock;
(2) to the Corporation's employees,
officers, directors and consultants as may be determined by the Corporation's
Board of Directors from time to time;
(3) as a dividend or distribution on
Preferred Stock or pursuant to any event for which adjustment is made pursuant
to paragraph B.4(e)(i) or (ii) hereof;
(4) pursuant to commercial
borrowing, secured lending or lease financing transactions approved by the Board
of Directors;
(5) in any transaction, other than
issuance by the Company of Series F Preferred on or before June 30, 1996, or any
transaction, other than the issuance by the Company of Series G Preferred on or
before December 31, 1996, in which the issuance (or, pursuant to paragraph
B.4(d)(iii), deemed issuance) by the Corporation of such shares of Common Stock
results in net proceeds to the Corporation of less than $500,000;
(6) upon exercise of any options or
warrants outstanding as of the Original Issue Date to purchase the Company's
Common Stock or Preferred Stock.
(ii) No Adjustment of Conversion Price. No
adjustment in the Conversion Price of a particular share of Series F Preferred
or Series G Preferred shall be made in respect of the issuance of Additional
Shares of Common unless the consideration per share for an Additional Share of
Common issued or deemed to be issued by the Corporation is less than the
Conversion Price in effect on the date of, and immediately prior to such issue,
for such share of Series F Preferred or Series G Preferred respectively.
(iii) Deemed Issue of Additional Shares of Common.
In the event the Corporation at any time or from time to time after the Original
Issue Date shall issue any options,
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<PAGE>
warrants or convertible securities or shall fix a record date for the
determination of holders of any class of securities entitled to receive any such
options, warrants or convertible securities, then the maximum number of shares
(as set forth in the instrument relating thereto without regard to any
provisions contained therein for a subsequent adjustment of such number) of
Common Stock issuable upon the exercise of such options or warrants or, in the
case of convertible securities and options or warrants therefor, the conversion
or exchange of such convertible securities or exercise of such options or
warrants, shall be deemed to be Additional Shares of Common issued as of the
time of such issue or, in case such a record date shall have been fixed, as of
the close of business on such record date, provided that Additional Shares of
Common shall not be deemed to have been issued unless the consideration per
share (determined pursuant to paragraph B.4(d)(v) hereof) of such Additional
Shares of Common would be less than the Conversion Price in effect on the date
of and immediately prior to such issue, or such record date, as the case may be,
and provided further that in any such case in which Additional Shares of Common
are deemed to be issued:
(1) no further adjustment in the
Conversion Price shall be made upon the subsequent issue of convertible
securities or shares of Common Stock upon the exercise of such options or
warrants or conversion or exchange of such convertible securities;
(2) if such options, warrants or
convertible securities by their terms provide, with the passage of time or
otherwise, for any increase or decrease in the consideration payable to the
Corporation, or increase or decrease in the number of shares of Common Stock
issuable, upon the exercise, conversion or exchange thereof, the Conversion
Price computed upon the original issue thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent adjustments based thereon,
shall, upon any such increase or decrease becoming effective, be recomputed to
reflect such increase or decrease insofar as it affects such options or warrants
or the rights of conversion or exchange under such convertible securities;
(3) no readjustment pursuant to
clause (2) above shall have the effect of increasing the Conversion Price to an
amount which exceeds the lower of (i) the Conversion Price on the original
adjustment date, or (ii) the Conversion Price that would have resulted from any
issuance of Additional Shares of Common between the original adjustment date and
such readjustment date;
(4) upon the expiration of any such
options or warrants or any rights of conversion or exchange under such
convertible securities which shall not have been exercised, the Conversion Price
computed upon the original issue thereof (or upon the occurrence of a record
date with respect thereto) and any subsequent adjustments based thereon shall,
upon such expiration, be recomputed as if:
(A) in the case of
convertible securities or options or warrants for Common Stock, the only
Additional Shares of Common issued were the shares of Common Stock, if any,
actually issued upon the exercise of such options or warrants or the conversion
or exchange of such convertible securities and the consideration received
therefor was the
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<PAGE>
consideration actually received by the Corporation for the issue of such
exercised options or warrants plus the consideration actually received by the
Corporation upon such exercise or for the issue of all such convertible
securities which were actually converted or exchanged, plus the additional
consideration, if any, actually received by the Corporation upon such conversion
or exchange, and
(B) in the case of options
or warrants for convertible securities, only the convertible securities, if any,
actually issued upon the exercise thereof were issued at the time of issue of
such options or warrants, and the consideration received by the Corporation for
the Additional Shares of Common deemed to have been then issued was the
consideration actually received by the Corporation for the issue of such
exercised options or warrants, plus the consideration deemed to have been
received by the Corporation (determined pursuant to paragraph B.4(d)(v)) upon
the issue of the convertible securities with respect to which such options or
warrants were actually exercised; and
(5) if such record date shall have
been fixed and such options, warrants or convertible securities are not issued
on the date fixed therefor, the adjustment previously made in the Conversion
Price which became effective on such record date shall be canceled as of the
close of business on such record date, and thereafter the Conversion Price shall
be adjusted pursuant to this paragraph 4(d)(iii) as of the actual date of their
issuance.
(iv) Adjustment of Conversion Price Upon Issuance
of Additional Shares of Common. In the event the Corporation, on or before the
earlier of (i) the first anniversary of the final sale by the Company of Series
F Preferred prior to June 30, 1996 or the first anniversary of the final sale by
the Company of Series G Preferred prior to December 31, 1996 respectively and
(ii) June 30, 1997 or December 31, 1997 respectively (the earlier of which dates
is referred to as the "Determination Date"), issues Additional Shares of Common
(including Additional Shares of Common deemed to be issued pursuant to paragraph
B.4(d)(iii)) without consideration or for a consideration per share less than
the Conversion Price for the Series F Preferred or Series G Preferred
respectively in effect on the date of and immediately prior to such issue (a
"Dilutive Issuance"), then and in such event such Conversion Price shall be
reduced, concurrently with such issue, to a price equal to such consideration
per share of the Additional Shares of Common. The Conversion Price shall not be
reduced as a result of any Dilutive Issuance that occurs after the Determination
Date.
(v) Determination of Consideration. For purposes of
this subsection B.4(d), the consideration received by the Corporation for the
issue of any Additional Shares of Common shall be computed as follows:
(1) Cash and Property. Such
consideration shall:
(A) insofar as it consists
of cash, be computed at the aggregate amount of cash received by the Corporation
excluding amounts paid or payable for accrued interest or accrued dividends;
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<PAGE>
(B) insofar as it consists
of property other than cash, be computed at the fair value thereof at the time
of such issue, as determined in good faith by the Board of Directors; and
(C) in the event Additional
Shares of Common are issued together with other shares or securities or other
assets of the Corporation for consideration which covers both, be the proportion
of such consideration so received, computed as provided in clauses (A) and (B)
above, as determined in good faith by the Board of Directors.
(2) Options and Convertible
Securities. The consideration per share received by the Corporation for
Additional Shares of Common deemed to have been issued pursuant to paragraph
B.4(d)(iii), relating to options, warrants and convertible securities, shall be
determined by dividing
(A) the total amount, if
any, received or receivable by the Corporation as consideration for the issue of
such options, warrants or convertible securities, plus the minimum aggregate
amount of additional consideration (as set forth in the instruments relating
thereto, without regard to any provision contained therein for a subsequent
adjustment of such consideration) payable to the Corporation upon the exercise
of such options or warrants or the conversion or exchange of such convertible
securities, or in the case of options or warrants for convertible securities,
the exercise of such options for convertible securities and the conversion or
exchange of such convertible securities by
(B) the maximum number of
shares of Common Stock (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment of
such number) issuable upon the exercise of such options or warrants or the
conversion or exchange of such convertible securities.
(e) Adjustments to Conversion Rate.
(i) Adjustments for Subdivisions, Splits,
Combinations, Consolidations, Reorganizations or Reclassifications of Common
Stock. In the event that after the date of the first issuance of the Series F
Preferred or Series G Preferred the outstanding shares of Common Stock shall be
(a) subdivided or split into a greater number of shares of Common Stock; (b)
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares of Common Stock or (c) changed into a different number of shares of
any other class or classes of stock, whether by capital reorganization,
reclassification or otherwise, the holders of the shares of Series F Preferred
and Series G Preferred shall receive upon conversion, the stock and/or
securities to which the holder would have been entitled had the holder held, at
the time of said split, subdivision, combination, consolidation, reorganization
or reclassification, the same number of shares of Common Stock as the number of
Series F Preferred and Series G Preferred converted.
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<PAGE>
(ii) Adjustments for Other Dividends and
Distributions. In the event the Corporation at any time after the date of the
first issuance of the Series F Preferred or Series G Preferred makes, or fixes a
record date for, the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in the securities of the
Corporation, then the holders of the shares of Series F Preferred and Series G
Preferred shall receive upon conversion, in addition to the number of shares of
Common Stock receivable thereupon, the stock or securities to which the holder
would have been entitled had the holder held, at the time of said dividend or
other distribution, the same number of shares of Common Stock as the number of
Series F Preferred and Series G Preferred converted, and had they thereafter
during the period from the date of such event to and including the date of
conversion, retained such stock or securities receivable by them as aforesaid
during such period, subject to all other adjustments called for during such
period under this Section B.4 with respect to the respective rights of the
holders of the Series F Preferred and Series G Preferred.
5 Voting Rights. Except as otherwise required by law, the holders of
both Series F Preferred and Series G Preferred shall be entitled to notice of
any shareholders' meeting in accordance with the Bylaws of the Corporation and
to vote together as a single class with the holders of the Common Stock (except
with respect to those matters required by law to be submitted to a separate
class or series vote) upon the election of directors and upon any other matter
submitted to shareholders for a vote, on the following basis:
(a) Series F Preferred and Series G Preferred Vote. Each share
of Series F Preferred and Series G Preferred issued and outstanding shall have
the number of votes equal to the number of shares of Common Stock into which it
is convertible, as adjusted from time to time under Section B.4 hereof.
Fractional votes shall not, however, be permitted and any fractional voting
rights resulting from the above formula (after aggregating all shares into which
shares of Series F Preferred and Series G Preferred respectively held by each
holder could be converted) shall be rounded to the nearest whole number (with
one-half being rounded upward).
(b) Cumulative Voting. Notwithstanding the above, for the
election of directors each holder of Series F Preferred and Series G Preferred
shall after giving the notice required by Section 708 of the California
Corporations Code, as amended from time to time, be entitled to the number of
votes as determined pursuant to paragraph (a) above multiplied by the number of
directors to be elected, with each shareholder being entitled to cumulate such
votes for one candidate or to distribute such votes among the candidates as the
shareholder sees fit.
6 Covenants. In addition to any other rights provided by law, so long
as 33% of the total issued Series F Preferred and Series G Preferred shall be
outstanding respectively, this Corporation shall not, without first obtaining
the affirmative vote or written consent of the holders of not less than a
majority of the outstanding shares of the Series F Preferred and Series G
Preferred:
(a) amend or repeal any provision of, or add any provision to,
this Corporation's Articles of Incorporation if such action would materially and
adversely alter or change the preferences, rights,
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<PAGE>
privileges or powers of, or the restrictions provided for the benefit of, the
Series F Preferred or Series G Preferred authorized hereby;
(b) authorize or issue shares of any class of stock having any
preference or priority as to dividends or assets superior to any such preference
or priority of either the Series F Preferred or Series G Preferred; or
(c) reclassify any shares of Common Stock into shares having
any preference or priority as to dividends or assets superior to any such
preference or priority of either the Series F Preferred or Series G Preferred.
ARTICLE IV
Section 1. Limitation of Directors' Liability. The liability of the
directors of this Corporation for monetary damages shall be eliminated to the
fullest extent permissible under California law.
Section 2. Indemnification of Corporate Agents. This Corporation is
authorized to provide through bylaw provisions, agreements with its agents, vote
of shareholders or disinterested directors or otherwise, indemnification of its
agents (as defined in Section 317 of the California General Corporation Law) in
excess of the indemnification otherwise permitted by such Section 317, subject
to the limits set forth in Section 204 of the California General Corporation Law
for breach of duty to this Corporation or its shareholders.
Section 3. Repeal or Modification. Any repeal or modification of the
foregoing provisions of this Article IV by the shareholders of the Corporation
shall not adversely affect any right of indemnification or limitation of
liability of an agent of the Corporation relating to acts or omissions occurring
prior to such repeal or modification.
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HyperMedia Communications, Inc.
SEC Form 10-K FY97
Exhibit 3.1c
<PAGE>
CERTIFICATE OF DETERMINATION OF
PREFERENCES OF SERIES H PREFERRED STOCK OF
HYPERMEDIA COMMUNICATIONS, INC.
A California Corporation
The undersigned, Todd Hagen, does hereby certify that:
A. He is the duly elected and acting Vice President of Finance and
Administration and Chief Financial Officer of HyperMedia Communications, Inc., a
California corporation (the "Corporation").
B. Pursuant to authority given by the Corporation's Restated Articles of
Incorporation, the Board of Directors of the Corporation has duly adopted the
following recitals and resolutions:
WHEREAS, the Restated Articles of Incorporation of the Corporation (the
"Articles") provide for a class of shares known as Preferred Stock,
issuable from time to time in one or more series; and
WHEREAS, the Board of Directors of the Corporation is authorized to
determine or alter the rights, preferences, privileges and restrictions
relating to any unissued series of said Preferred Stock and the number of
shares constituting and the designation of said series;
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors hereby
designates, fixes the number of shares constituting, and determines the
rights, preferences, privileges, and restrictions relating to a new series
of Preferred Stock:
1. Designation. The new series of Preferred Stock shall be designated
"Series H Preferred Stock." The number of shares constituting the Series H
Preferred Stock shall be 400,000. The "Initial Sales Price" of the Series H
Preferred Stock shall mean the price per share at which shares of Series H
Preferred Stock are first sold to investors, and the "Original Issue Date" shall
mean the date of such sale. The relative rights, preferences, privileges and
restrictions granted to or imposed upon the Series H Preferred Stock or the
holders thereof are specified below.
<PAGE>
1. Dividend Rights of Series H Preferred Stock.
a. No dividend (payable other than in Common Stock of the
Corporation) may be paid on or declared or set apart for the Common Stock in any
one fiscal year unless a dividend at the rate of five percent (5%) of the
Initial Sales Price is paid on, or declared and set apart for, each share of
Series H Preferred Stock. The amount of dividend shall be prorated for a share
of Series H Preferred Stock which is not issued and outstanding for an entire
fiscal year. The dividends on the Series H Preferred Stock shall be paid out of
any assets legally available therefor, when, as and if declared by the Board of
Directors. Dividends on the Series H Preferred Stock shall not be cumulative and
no rights shall accrue to the holders of the Series H Preferred Stock in the
event the Corporation shall fail to declare or pay dividends on the Series H
Preferred Stock in the amount of five percent (5%) of the Initial Sales Price
per share per fiscal year or in any amount in any prior year of the Corporation,
whether or not the earnings of the Corporation in that previous fiscal year were
sufficient to pay such dividends in whole or in part. In the event the Board of
Directors of the Corporation declares dividends in a fiscal year in an amount
less than the aggregate of all the dividend preferences of the Series E
Preferred Stock, the Series F Preferred Stock, the Series G Preferred Stock and
the Series H Preferred Stock, then the entire amount of dividends declared by
the Board of Directors shall be distributed ratably among the holders of the
Series E Preferred Stock, the Series F Preferred Stock, the Series G Preferred
Stock and the Series H Preferred Stock such that the same percentage of the
annual dividend to which each series of Preferred Stock is entitled is paid on
each share of Series E Preferred Stock, Series F Preferred Stock, Series G
Preferred Stock and Series H Preferred Stock.
b. As authorized by Section 402.5(c) of the California
Corporations Code, the provisions of Sections 502 and 503 of the California
Corporations Code shall not apply with respect to repurchases by the Corporation
of shares of Common Stock issued to or held by employees, officers, directors or
consultants of the Corporation or its subsidiaries upon termination of their
employment or services pursuant to agreements providing for the right of said
repurchase.
2. Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution, or winding up of the Corporation, after the payment to
the holders of the Series E Preferred Stock, Series F Preferred Stock and Series
G Preferred Stock are entitled as set forth in the Articles (the "Series E,
Series F and Series G Distribution") has been made, no distribution shall be
made on the shares of Common Stock without first making a distribution on the
shares of Series H Preferred Stock equal to the amount of the Initial Sales
Price per share for each share of Preferred Stock, plus all declared but unpaid
dividends thereon. If upon occurrence of such event, and after the Series E,
Series F and Series G Distribution, the assets and property thus distributed
among the holders of the Series H Preferred Stock shall be insufficient to
permit the payment to such holders of their full respective preferential
amounts, then the entire assets and property of the Corporation legally
available for distribution shall be distributed ratably among the holders of the
Series H Preferred Stock such that the same percentage of the preferential
amount to which each series of Series H Preferred Stock is entitled is paid on
each share of Series H Preferred Stock. A consolidation or merger of the
Corporation with or into any other corporation or corporations, other
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<PAGE>
than a merger or consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Corporation or such surviving entity
outstanding immediately after such merger or consolidation, or a sale of all or
substantially all of the assets of the Corporation, shall be deemed to be a
liquidation, dissolution, or winding up of the Corporation.
3. Conversion.
a. Right to Convert. Each share of Series H Preferred Stock
shall be convertible, at the option of the holder thereof, at any time after the
date of issuance of such share at the office of the Corporation or any transfer
agent for the Series H Preferred Stock, into that number of fully-paid and
nonassessable shares of Common Stock that is equal to the Initial Sales Price
divided by the appropriate Conversion Price (as hereinafter defined). The
Conversion Price for the Series H Preferred Stock shall initially be the Initial
Sales Price and shall be subject to adjustment as provided herein. (The number
of shares of Common Stock into which each share of Series H Preferred Stock may
be converted is hereinafter referred to as the "Conversion Rate".) Upon any
decrease or increase in the Conversion Price or the Conversion Rate as described
in this Section 4, the Conversion Rate or Conversion Price, as the case may be,
shall be appropriately increased or decreased.
b. Automatic Conversion. All shares of Series H Preferred
Stock then outstanding shall automatically convert into shares of Common Stock
upon the election of at least 67% of the authorized, issued and outstanding
shares of Series H Preferred Stock to convert shares of Series H Preferred Stock
into Common Stock.
c. Mechanics of Conversion. No fractional shares of Common
Stock shall be issued upon conversion of Series H Preferred Stock. In lieu of
any fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then fair
market value of such fractional shares as determined by the Board of Directors
of the Corporation. Before any holder of Series H Preferred Stock shall be
entitled to convert the same into full shares of Common Stock, and to receive
certificates therefor, he shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation or of any transfer
agent for the Series H Preferred Stock, and shall give written notice to the
Corporation at such office that he elects to convert the same; provided,
however, that in the event of an automatic conversion pursuant to paragraph 4(b)
above, the outstanding shares of Series H Preferred Stock shall be converted
automatically without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to the
Corporation or its transfer agent; provided further, however, that the
Corporation shall not be obligated to issue certificates evidencing the shares
of Common Stock issuable upon such automatic conversion unless either the
certificates evidencing such shares of Series H Preferred Stock are delivered to
the Corporation or its transfer agent as provided above, or the holder notifies
the Corporation or its transfer agent that such certificates have
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<PAGE>
been lost, stolen or destroyed and executes an agreement satisfactory to the
Corporation to indemnify the Corporation from any loss incurred by it in
connection with such certificates.
The Corporation shall, as soon as practicable after such
delivery, or after such agreement and indemnification, issue and deliver at such
office to such holder of Series H Preferred Stock, a certificate or certificates
for the number of shares of Common Stock to which he shall be entitled as
aforesaid and a check payable to the holder in the amount of any cash amounts
payable as the result of a conversion into fractional shares of Common Stock,
plus any declared and unpaid dividends on the converted Series H Preferred
Stock. Such conversion shall be deemed to have been made immediately prior to
the close of business on the date of such surrender of the shares of Series H
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock on
such date.
d. Adjustments to Conversion Price for Diluting Issues.
i. Special Definition. For purposes of this
paragraph 4(d), "Additional Shares of
Common" shall mean all shares of Common
Stock issued (or, pursuant to paragraph
4(d)(iii), deemed to be issued) by the
Corporation after the Original Issue Date,
other than shares of Common Stock issued or
issuable:
(1) upon conversion of shares of
Preferred Stock;
(2) to the Corporation's employees,
officers, directors and consultants
as may be determined by the
Corporation's Board of Directors
from time to time;
(3) as a dividend or distribution on
Preferred Stock or pursuant to any
event for which adjustment is made
pursuant to paragraph 4(e)(i) or
(ii) hereof;
(4) pursuant to commercial borrowing,
secured lending or lease financing
transactions approved by the Board
of Directors;
(5) in any transaction, other than
issuance by the Company of Series H
Preferred Stock in which the
issuance (or, pursuant to paragraph
4(d)(iii), deemed issuance) by the
Corporation of such shares of Common
Stock results in net proceeds to the
Corporation of less than $500,000;
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<PAGE>
(6) upon exercise of any options or
warrants outstanding as of the
Original Issue Date to purchase the
Company's Common Stock or Preferred
Stock.
ii. No Adjustment of Conversion Price. No
adjustment in the Conversion Price of a
particular share of Series H Preferred Stock
shall be made in respect of the issuance of
Additional Shares of Common unless the
consideration per share for an Additional
Share of Common issued or deemed to be
issued by the Corporation is less than the
Conversion Price in effect on the date of,
and immediately prior to such issue, for
such share of Series H Preferred Stock.
iii. Deemed Issue of Additional Shares of Common.
In the event the Corporation at any time or
from time to time after the Original Issue
Date shall issue any options, warrants or
convertible securities or shall fix a record
date for the determination of holders of any
class of securities entitled to receive any
such options, warrants or convertible
securities, then the maximum number of
shares (as set forth in the instrument
relating thereto without regard to any
provisions contained therein for a
subsequent adjustment of such number) of
Common Stock issuable upon the exercise of
such options or warrants or, in the case of
convertible securities and options or
warrants therefor, the conversion or
exchange of such convertible securities or
exercise of such options or warrants, shall
be deemed to be Additional Shares of Common
issued as of the time of such issue or, in
case such a record date shall have been
fixed, as of the close of business on such
record date, provided that Additional Shares
of Common shall not be deemed to have been
issued unless the consideration per share
(determined pursuant to paragraph 4(d)(v)
hereof) of such Additional Shares of Common
would be less than the Conversion Price in
effect on the date of and immediately prior
to such issue, or such record date, as the
case may be, and provided further that in
any such case in which Additional Shares of
Common are deemed to be issued:
(1) no further adjustment in the
Conversion Price shall be made upon
the subsequent issue of convertible
securities or shares of Common Stock
upon the exercise of such options or
warrants or conversion or exchange
of such convertible securities;
(7) if such options, warrants or
convertible securities by their
terms provide, with the passage of
time or otherwise, for any increase
or decrease in the consideration
payable to the Corporation, or
increase or decrease in the number
of shares of Common Stock
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<PAGE>
issuable, upon the exercise,
conversion or exchange thereof, the
Conversion Price computed upon the
original issue thereof (or upon the
occurrence of a record date with
respect thereto), and any subsequent
adjustments based thereon, shall,
upon any such increase or decrease
becoming effective, be recomputed to
reflect such increase or decrease
insofar as it affects such options
or warrants or the rights of
conversion or exchange under such
convertible securities;
(2) no readjustment pursuant to clause
(2) above shall have the effect of
increasing the Conversion Price to
an amount which exceeds the lower of
(i) the Conversion Price on the
original adjustment date, or (ii)
the Conversion Price that would have
resulted from any issuance of
Additional Shares of Common between
the original adjustment date and
such readjustment date;
(8) upon the expiration of any such
options or warrants or any rights of
conversion or exchange under such
convertible securities which shall
not have been exercised, the
Conversion Price computed upon the
original issue thereof (or upon the
occurrence of a record date with
respect thereto) and any subsequent
adjustments based thereon shall,
upon such expiration, be recomputed
as if:
(a) in the case of convertible
securities or options or
warrants for Common Stock,
the only Additional Shares
of Common issued were the
shares of Common Stock, if
any, actually issued upon
the exercise of such
options or warrants or the
conversion or exchange of
such convertible securities
and the consideration
received therefor was the
consideration actually
received by the Corporation
for the issue of such
exercised options or
warrants plus the
consideration actually
received by the Corporation
upon such exercise or for
the issue of all such
convertible securities
which were actually
converted or exchanged,
plus the additional
consideration, if any,
actually received by the
Corporation upon such
conversion or exchange, and
(b) in the case of options or
warrants for convertible
securities, only the
convertible securities, if
any, actually issued upon
the exercise thereof were
issued at
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<PAGE>
the time of issue of such
options or warrants, and
the consideration received
by the Corporation for the
Additional Shares of Common
deemed to have been then
issued was the
consideration actually
received by the Corporation
for the issue of such
exercised options or
warrants, plus the
consideration deemed to
have been received by the
Corporation (determined
pursuant to paragraph
4(d)(v)) upon the issue of
the convertible securities
with respect to which such
options or warrants were
actually exercised; and
(9) if such record date shall have been
fixed and such options, warrants or
convertible securities are not
issued on the date fixed therefor,
the adjustment previously made in
the Conversion Price which became
effective on such record date shall
be canceled as of the close of
business on such record date, and
thereafter the Conversion Price
shall be adjusted pursuant to this
paragraph 4(d)(iii) as of the actual
date of their issuance.
iv. Adjustment of Conversion Price Upon Issuance
of Additional Shares of Common. In the event
the Corporation, on or before the earlier of
(i) the first anniversary of the final sale
by the Company of Series H Preferred Stock
prior to June 30, 1998 and (ii) June 30,
1999 (the earlier of which dates is referred
to as the "Determination Date"), issues
Additional Shares of Common (including
Additional Shares of Common deemed to be
issued pursuant to paragraph 4(d)(iii))
without consideration or for a consideration
per share less than the Conversion Price for
the Series H Preferred Stock in effect on
the date of and immediately prior to such
issue (a "Dilutive Issuance"), then and in
such event such Conversion Price shall be
reduced, concurrently with such issue, to a
price equal to such consideration per share
of the Additional Shares of Common. The
Conversion Price shall not be reduced as a
result of any Dilutive Issuance that occurs
after the Determination Date.
v. Determination of Consideration. For purposes
of this subsection 4(d), the consideration
received by the Corporation for the issue of
any Additional Shares of Common shall be
computed as follows:
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<PAGE>
(1) Cash and Property. Such consideration
shall:
(1) insofar as it consists of
cash, be computed at the
aggregate amount of cash
received by the Corporation
excluding amounts paid or
payable for accrued
interest or accrued
dividends;
(2) insofar as it consists of
property other than cash,
be computed at the fair
value thereof at the time
of such issue, as
determined in good faith by
the Board of Directors; and
(c) in the event Additional
Shares of Common are issued
together with other shares
or securities or other
assets of the Corporation
for consideration which
covers both, be the
proportion of such
consideration so received,
computed as provided in
clauses a) and b) above, as
determined in good faith by
the Board of Directors.
(2) Options and Convertible Securities. The
consideration per share received by the
Corporation for Additional Shares of Common
deemed to have been issued pursuant to
paragraph 4(d)(iii), relating to options,
warrants and convertible securities, shall
be determined by dividing
(a) the total amount, if any,
received or receivable by
the Corporation as
consideration for the issue
of such options, warrants
or convertible securities,
plus the minimum aggregate
amount of additional
consideration (as set forth
in the instruments relating
thereto, without regard to
any provision contained
therein for a subsequent
adjustment of such
consideration) payable to
the Corporation upon the
exercise of such options or
warrants or the conversion
or exchange of such
convertible securities, or
in the case of options or
warrants for convertible
securities, the exercise of
such options for
convertible securities and
the conversion or exchange
of such convertible
securities by
(b) the maximum number of
shares of Common Stock (as
set forth in the
instruments relating
thereto, without regard to
any provision contained
therein for a subsequent
adjustment of such number)
issuable upon
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<PAGE>
the exercise of such
options or warrants or the
conversion or exchange of
such convertible
securities.
2. Adjustments to Conversion Rate.
1. Adjustments for Subdivisions, Splits, Combinations,
Consolidations, Reorganizations or Reclassifications
of Common Stock. In the event that after the date of
the first issuance of the Series H Preferred Stock
the outstanding shares of Common Stock shall be (a)
subdivided or split into a greater number of shares
of Common Stock; (b) combined or consolidated, by
reclassification or otherwise, into a lesser number
of shares of Common Stock or (c) changed into a
different number of shares of any other class or
classes of stock, whether by capital reorganization,
reclassification or otherwise, the holders of the
shares of Series H Preferred Stock shall receive upon
conversion, the stock and/or securities to which the
holder would have been entitled had the holder held,
at the time of said split, subdivision, combination,
consolidation, reorganization or reclassification,
the same number of shares of Common Stock as the
number of Series H Preferred Stock converted.
2. Adjustments for Other Dividends and Distributions. In
the event the Corporation at any time after the date
of the first issuance of the Series H Preferred Stock
makes, or fixes a record date for, the determination
of holders of Common Stock entitled to receive, a
dividend or other distribution payable in the
securities of the Corporation, then the holders of
the shares of Series H Preferred Stock shall receive
upon conversion, in addition to the number of shares
of Common Stock receivable thereupon, the stock or
securities to which the holder would have been
entitled had the holder held, at the time of said
dividend or other distribution, the same number of
shares of Common Stock as the number of Series H
Preferred Stock converted, and had they thereafter
during the period from the date of such event to and
including the date of conversion, retained such stock
or securities receivable by them as aforesaid during
such period, subject to all other adjustments called
for during such period under this Section 4 with
respect to the rights of the holders of the Series H
Preferred Stock.
4. Voting Rights. Except as otherwise required by law, the holders of
Series H Preferred Stock shall be entitled to notice of any shareholders"
meeting in accordance with the Bylaws of the Corporation and to vote together as
a single class with the holders of the Common Stock (except with respect to
those matters required by law to be submitted to a separate class or series
vote) upon
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<PAGE>
the election of directors and upon any other matter submitted to shareholders
for a vote, on the following basis:
a. Series H Preferred Stock Vote. Each share of Series H
Preferred Stock issued and outstanding shall have the number of votes equal to
the number of shares of Common Stock into which it is convertible, as adjusted
from time to time under Section 4 hereof. Fractional votes shall not, however,
be permitted and any fractional voting rights resulting from the above formula
(after aggregating all shares into which shares of Series H Preferred Stock held
by each holder could be converted) shall be rounded to the nearest whole number
(with one-half being rounded upward).
b. Cumulative Voting. Notwithstanding the above, for the
election of directors each holder of Series H Preferred Stock shall after giving
the notice required by Section 708 of the California Corporations Code, as
amended from time to time, be entitled to the number of votes as determined
pursuant to paragraph (a) above multiplied by the number of directors to be
elected, with each shareholder being entitled to cumulate such votes for one
candidate or to distribute such votes among the candidates as the shareholder
sees fit.
5. Covenants. In addition to any other rights provided by law, so long
as 33% of the total issued Series H Preferred Stock shall be outstanding, this
Corporation shall not, without first obtaining the affirmative vote or written
consent of the holders of not less than a majority of the outstanding shares of
the Series H Preferred Stock:
(a) amend or repeal any provision of, or add any provision to,
this Corporation's Articles of Incorporation if such action would
materially and adversely alter or change the preferences, rights,
privileges or powers of, or the restrictions provided for the benefit
of, the Series H Preferred Stock authorized hereby;
(b) authorize or issue shares of any class of stock having any
preference or priority as to dividends or assets superior to any such
preference or priority of the Series H Preferred Stock; or
(c) reclassify any shares of Common Stock into shares having
any preference or priority as to dividends or assets superior to any
such preference or priority of the Series H Preferred Stock.
C. The authorized number of shares of Preferred Stock of the
Corporation is 10,064,516. There are 8,197,110 shares of Preferred Stock
outstanding, 8,064,516 of which are Series E Preferred Stock, 82,250 of which
are Series F Preferred Stock and 50,344 of which are Series G Preferred Stock.
No shares of Series H Preferred Stock have been issued. The number of authorized
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<PAGE>
shares of Series H Preferred Stock is 400,000. The total number of shares voting
in favor of this Certificate equaled or exceeded the vote required. The
percentage vote required was a simple majority of each of the outstanding shares
of Series E Preferred Stock, Series F Preferred Stock and Series G Preferred
Stock.
[This space left blank intentionally]
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<PAGE>
I further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this Certificate are true and
correct of my own knowledge.
Executed in San Mateo, California on September 17, 1997
/s/ TODD HAGEN
---------------------------------------
Todd Hagen
Vice President of Finance and
Administration and Chief Financial
Officer
HyperMedia Communications, Inc.
SEC Form 10-K FY97
Exhibit 3.1d
<PAGE>
CERTIFICATE OF DETERMINATION OF
PREFERENCES OF SERIES I PREFERRED STOCK OF
HYPERMEDIA COMMUNICATIONS, INC.
A California Corporation
The undersigned, Todd Hagen, does hereby certify that:
A. He is the duly elected and acting Vice President of Finance and
Administration and Chief Financial Officer of HyperMedia Communications, Inc., a
California corporation (the "Corporation").
B. Pursuant to authority given by the Corporation's Amended and
Restated Articles of Incorporation, the Board of Directors of the Corporation
has duly adopted the following recitals and resolutions:
WHEREAS, the Amended and Restated Articles of Incorporation of the
Corporation (the "Articles") provide for a class of shares known as
Preferred Stock, issuable from time to time in one or more series; and
WHEREAS, the Board of Directors of the Corporation is authorized to
determine or alter the rights, preferences, privileges and restrictions
relating to any unissued series of said Preferred Stock and the number
of shares constituting and the designation of said series;
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors hereby
designates, fixes the number of shares constituting, and determines the
rights, preferences, privileges, and restrictions relating to a new
series of Preferred Stock:
1. Designation. The new series of Preferred Stock shall be designated
"Series I Preferred Stock." The number of shares constituting the Series I
Preferred Stock shall be 200,000. The "Initial Sales Price" of the Series I
Preferred Stock shall mean the price per share at which shares of Series I
Preferred Stock are first sold to investors, and the "Original Issue Date" shall
mean the date of such sale. The relative rights, preferences, privileges and
restrictions granted to or imposed upon the Series I Preferred Stock or the
holders thereof are specified below.
<PAGE>
2. Dividend Rights of Series I Preferred Stock.
a. No dividend (payable other than in Common Stock of the
Corporation) may be paid on or declared or set apart for the Common Stock in any
one fiscal year unless a dividend at the rate of five percent (5%) of the
Initial Sales Price is paid on, or declared and set apart for, each share of
Series I Preferred Stock. The amount of dividend shall be prorated for a share
of Series I Preferred Stock which is not issued and outstanding for an entire
fiscal year. The dividends on the Series I Preferred Stock shall be paid out of
any assets legally available therefor, when, as and if declared by the Board of
Directors. Dividends on the Series I Preferred Stock shall not be cumulative and
no rights shall accrue to the holders of the Series I Preferred Stock in the
event the Corporation shall fail to declare or pay dividends on the Series I
Preferred Stock in the amount of five percent (5%) of the Initial Sales Price
per share per fiscal year or in any amount in any prior year of the Corporation,
whether or not the earnings of the Corporation in that previous fiscal year were
sufficient to pay such dividends in whole or in part. In the event the Board of
Directors of the Corporation declares dividends in a fiscal year in an amount
less than the aggregate of all the dividend preferences of the Series E
Preferred Stock, the Series F Preferred Stock, the Series G Preferred Stock, the
Series H Preferred Stock and the Series I Preferred Stock, then the entire
amount of dividends declared by the Board of Directors shall be distributed
ratably among the holders of the Series E Preferred Stock, the Series F
Preferred Stock, the Series G Preferred Stock, the Series H Preferred Stock and
the Series I Preferred Stock such that the same percentage of the annual
dividend to which each series of Preferred Stock is entitled is paid on each
share of Series E Preferred Stock, Series F Preferred Stock, Series G Preferred
Stock, Series H Preferred Stock and Series I Preferred Stock.
b. As authorized by Section 402.5(c) of the California
Corporations Code, the provisions of Sections 502 and 503 of the California
Corporations Code shall not apply with respect to repurchases by the Corporation
of shares of Common Stock issued to or held by employees, officers, directors or
consultants of the Corporation or its subsidiaries upon termination of their
employment or services pursuant to agreements providing for the right of said
repurchase.
3. Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution, or winding up of the Corporation, after the payment to
which the holders of the Series E Preferred Stock, Series F Preferred Stock,
Series G Preferred Stock and Series H Preferred Stock are entitled as set forth
in the Articles of Incorporation, including the Certificate of Determination of
Preferences of Series H Preferred Stock (the "Series E, Series F, Series G and
Series H Distribution") has been made, no distribution shall be made on the
shares of Common Stock without first making a distribution on the shares of
Series I Preferred Stock equal to the amount of the Initial Sales Price per
share for each share of Series I Preferred Stock, plus all declared but unpaid
dividends thereon. If upon occurrence of such event, and after the Series E,
Series F and Series G Distribution, the assets and property thus distributed
among the holders of the Series I Preferred Stock shall be insufficient to
permit the payment to such holders of their full respective preferential
amounts, then the entire assets and property of the Corporation legally
available for distribution shall be distributed ratably among the holders of the
Series I Preferred Stock such that the same
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<PAGE>
percentage of the preferential amount to which each series of Series I Preferred
Stock is entitled is paid on each share of Series I Preferred Stock. A
consolidation or merger of the Corporation with or into any other corporation or
corporations, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least fifty percent (50%) of
the total voting power represented by the voting securities of the Corporation
or such surviving entity outstanding immediately after such merger or
consolidation, or a sale of all or substantially all of the assets of the
Corporation, shall be deemed to be a liquidation, dissolution, or winding up of
the Corporation.
4. Conversion.
a. Right to Convert. Each share of Series I Preferred Stock
shall be convertible, at the option of the holder thereof, at any time after the
date of issuance of such share at the office of the Corporation or any transfer
agent for the Series I Preferred Stock, into that number of fully-paid and
nonassessable shares of Common Stock that is equal to the Initial Sales Price
divided by the appropriate Conversion Price (as hereinafter defined). The
Conversion Price for the Series I Preferred Stock shall initially be the Initial
Sales Price divided by ten (10) and shall be subject to adjustment as provided
herein. (The number of shares of Common Stock into which each share of Series I
Preferred Stock may be converted is hereinafter referred to as the "Conversion
Rate".) Upon any decrease or increase in the Conversion Price or the Conversion
Rate as described in this Section 4, the Conversion Rate or Conversion Price, as
the case may be, shall be appropriately increased or decreased.
b. Automatic Conversion. All shares of Series I Preferred
Stock then outstanding shall automatically convert into shares of Common Stock
upon the election of at least 67% of the authorized, issued and outstanding
shares of Series I Preferred Stock to convert shares of Series I Preferred Stock
into Common Stock.
c. Mechanics of Conversion. No fractional shares of Common
Stock shall be issued upon conversion of Series I Preferred Stock. In lieu of
any fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then fair
market value of such fractional shares as determined by the Board of Directors
of the Corporation. Before any holder of Series I Preferred Stock shall be
entitled to convert the same into full shares of Common Stock, and to receive
certificates therefor, he shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation or of any transfer
agent for the Series I Preferred Stock, and shall give written notice to the
Corporation at such office that he elects to convert the same; provided,
however, that in the event of an automatic conversion pursuant to paragraph 4(b)
above, the outstanding shares of Series I Preferred Stock shall be converted
automatically without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to the
Corporation or its transfer agent; provided further, however, that the
Corporation shall not be obligated to issue certificates evidencing the shares
of Common Stock issuable upon such automatic conversion unless either the
certificates evidencing
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<PAGE>
such shares of Series I Preferred Stock are delivered to the Corporation or its
transfer agent as provided above, or the holder notifies the Corporation or its
transfer agent that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Corporation to indemnify the
Corporation from any loss incurred by it in connection with such certificates.
The Corporation shall, as soon as practicable after
such delivery, or after such agreement and indemnification, issue and deliver at
such office to such holder of Series I Preferred Stock, a certificate or
certificates for the number of shares of Common Stock to which he shall be
entitled as aforesaid and a check payable to the holder in the amount of any
cash amounts payable as the result of a conversion into fractional shares of
Common Stock, plus any declared and unpaid dividends on the converted Series I
Preferred Stock. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares of
Series I Preferred Stock to be converted, and the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock on such date.
d. Adjustments to Conversion Price for Diluting Issues.
(i) Special Definition. For purposes of this
paragraph 4(d), "Additional Shares of Common" shall mean all shares of Common
Stock issued (or, pursuant to paragraph 4(d)(iii), deemed to be issued) by the
Corporation after the Original Issue Date, other than shares of Common Stock
issued or issuable:
(1) upon conversion of shares of Preferred
Stock;
(2) to the Corporation's employees,
officers, directors and consultants as may be determined by the Corporation's
Board of Directors from time to time;
(3) as a dividend or distribution on
Preferred Stock or pursuant to any event for which adjustment is made pursuant
to paragraph 4(e)(i) or (ii) hereof;
(4) pursuant to commercial borrowing,
secured lending or lease financing transactions approved by the Board of
Directors;
(5) in any transaction, other than the
issuance by the Corporation of Series I Preferred Stock, in which the issuance
(or, pursuant to paragraph 4(d)(iii), deemed issuance) by the Corporation of
such shares of Common Stock results in net proceeds to the Corporation of less
than $500,000;
(6) upon exercise of any options or warrants
outstanding as of the Original Issue Date to purchase the Company's Common Stock
or Preferred Stock.
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<PAGE>
(ii) No Adjustment of Conversion Price. No adjustment
in the Conversion Price of a particular share of Series I Preferred Stock shall
be made in respect of the issuance of Additional Shares of Common unless the
consideration per share for an Additional Share of Common issued or deemed to be
issued by the Corporation is less than the Conversion Price in effect on the
date of, and immediately prior to such issue, for such share of Series I
Preferred Stock.
(iii) Deemed Issue of Additional Shares of Common. In
the event the Corporation at any time or from time to time after the Original
Issue Date shall issue any options, warrants or convertible securities or shall
fix a record date for the determination of holders of any class of securities
entitled to receive any such options, warrants or convertible securities, then
the maximum number of shares (as set forth in the instrument relating thereto
without regard to any provisions contained therein for a subsequent adjustment
of such number) of Common Stock issuable upon the exercise of such options or
warrants or, in the case of convertible securities and options or warrants
therefor, the conversion or exchange of such convertible securities or exercise
of such options or warrants, shall be deemed to be Additional Shares of Common
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that
Additional Shares of Common shall not be deemed to have been issued unless the
consideration per share (determined pursuant to paragraph 4(d)(v) hereof) of
such Additional Shares of Common would be less than the Conversion Price in
effect on the date of and immediately prior to such issue, or such record date,
as the case may be, and provided further that in any such case in which
Additional Shares of Common are deemed to be issued:
(1) no further adjustment in the Conversion
Price shall be made upon the subsequent issue of convertible securities or
shares of Common Stock upon the exercise of such options or warrants or
conversion or exchange of such convertible securities;
(2) if such options, warrants or convertible
securities by their terms provide, with the passage of time or otherwise, for
any increase or decrease in the consideration payable to the Corporation, or
increase or decrease in the number of shares of Common Stock issuable, upon the
exercise, conversion or exchange thereof, the Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such options or warrants or the rights of
conversion or exchange under such convertible securities;
(3) no readjustment pursuant to clause (2)
above shall have the effect of increasing the Conversion Price to an amount
which exceeds the lower of (i) the Conversion Price on the original adjustment
date, or (ii) the Conversion Price that would have resulted from any issuance of
Additional Shares of Common between the original adjustment date and such
readjustment date;
(4) upon the expiration of any such options
or warrants or any rights of conversion or exchange under such convertible
securities which shall not have been
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<PAGE>
exercised, the Conversion Price computed upon the original issue thereof (or
upon the occurrence of a record date with respect thereto) and any subsequent
adjustments based thereon shall, upon such expiration, be recomputed as if:
(a) in the case of convertible
securities or options or warrants for Common Stock, the only Additional Shares
of Common issued were the shares of Common Stock, if any, actually issued upon
the exercise of such options or warrants or the conversion or exchange of such
convertible securities and the consideration received therefor was the
consideration actually received by the Corporation for the issue of such
exercised options or warrants plus the consideration actually received by the
Corporation upon such exercise or for the issue of all such convertible
securities which were actually converted or exchanged, plus the additional
consideration, if any, actually received by the Corporation upon such conversion
or exchange, and
(b) in the case of options or
warrants for convertible securities, only the convertible securities, if any,
actually issued upon the exercise thereof were issued at the time of issue of
such options or warrants, and the consideration received by the Corporation for
the Additional Shares of Common deemed to have been then issued was the
consideration actually received by the Corporation for the issue of such
exercised options or warrants, plus the consideration deemed to have been
received by the Corporation (determined pursuant to paragraph 4(d)(v)) upon the
issue of the convertible securities with respect to which such options or
warrants were actually exercised; and
(5) if such record date shall have been
fixed and such options, warrants or convertible securities are not issued on the
date fixed therefor, the adjustment previously made in the Conversion Price
which became effective on such record date shall be canceled as of the close of
business on such record date, and thereafter the Conversion Price shall be
adjusted pursuant to this paragraph 4(d)(iii) as of the actual date of their
issuance.
(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common. In the event the Corporation, on or before the
earlier of (i) the first anniversary of the final sale by the Company of Series
I Preferred Stock prior to June 30, 1998 and (ii) June 30, 1999 (the earlier of
which dates is referred to as the "Determination Date"), issues Additional
Shares of Common (including Additional Shares of Common deemed to be issued
pursuant to paragraph 4(d)(iii)) without consideration or for a consideration
per share less than the Conversion Price for the Series I Preferred Stock in
effect on the date of and immediately prior to such issue (a "Dilutive
Issuance"), then and in such event such Conversion Price shall be reduced,
concurrently with such issue, to a price equal to such consideration per share
of the Additional Shares of Common. The Conversion Price shall not be reduced as
a result of any Dilutive Issuance that occurs after the Determination Date.
(v) Determination of Consideration. For purposes of
this subsection 4(d), the consideration received by the Corporation for the
issue of any Additional Shares of Common shall be computed as follows:
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<PAGE>
(1) Cash and Property. Such consideration
shall:
(a) insofar as it consists of cash,
be computed at the aggregate amount of cash received by the Corporation
excluding amounts paid or payable for accrued interest or accrued dividends;
(b) insofar as it consists of
property other than cash, be computed at the fair value thereof at the time of
such issue, as determined in good faith by the Board of Directors; and
(c) in the event Additional Shares of
Common are issued together with other shares or securities or other assets of
the Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses a) and b) above, as
determined in good faith by the Board of Directors.
(2) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common deemed to have been issued pursuant to paragraph 4(d)(iii), relating to
options, warrants and convertible securities, shall be determined by dividing
(a) the total amount, if any,
received or receivable by the Corporation as consideration for the issue of such
options, warrants or convertible securities, plus the minimum aggregate amount
of additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment of
such consideration) payable to the Corporation upon the exercise of such options
or warrants or the conversion or exchange of such convertible securities, or in
the case of options or warrants for convertible securities, the exercise of such
options for convertible securities and the conversion or exchange of such
convertible securities by
(b) the maximum number of shares of
Common Stock (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such options or warrants or the conversion or
exchange of such convertible securities.
e. Adjustments to Conversion Rate.
(i) Adjustments for Subdivisions, Splits,
Combinations, Consolidations, Reorganizations or Reclassifications of Common
Stock. In the event that after the date of the first issuance of the Series I
Preferred Stock the outstanding shares of Common Stock shall be (a) subdivided
or split into a greater number of shares of Common Stock; (b) combined or
consolidated, by reclassification or otherwise, into a lesser number of shares
of Common Stock or (c) changed into a different number of shares of any other
class or classes of stock, whether by capital reorganization, reclassification
or otherwise, the holders of the shares of Series I Preferred
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<PAGE>
Stock shall receive upon conversion, the stock and/or securities to which the
holder would have been entitled had the holder held, at the time of said split,
subdivision, combination, consolidation, reorganization or reclassification, the
same number of shares of Common Stock as the number of Series I Preferred Stock
converted.
(ii) Adjustments for Other Dividends and
Distributions. In the event the Corporation at any time after the date of the
first issuance of the Series I Preferred Stock makes, or fixes a record date
for, the determination of holders of Common Stock entitled to receive, a
dividend or other distribution payable in the securities of the Corporation,
then the holders of the shares of Series I Preferred Stock shall receive upon
conversion, in addition to the number of shares of Common Stock receivable
thereupon, the stock or securities to which the holder would have been entitled
had the holder held, at the time of said dividend or other distribution, the
same number of shares of Common Stock as the number of Series I Preferred Stock
converted, and had they thereafter during the period from the date of such event
to and including the date of conversion, retained such stock or securities
receivable by them as aforesaid during such period, subject to all other
adjustments called for during such period under this Section 4 with respect to
the rights of the holders of the Series I Preferred Stock.
5. Voting Rights. Except as otherwise required by law, the holders of
Series I Preferred stock shall be entitled to notice of any shareholders'
meeting in accordance with the Bylaws of the Corporation and to vote together as
a single class with the holders of the Common Stock (except with respect to
those matters required by law to be submitted to a separate class or series
vote) upon the election of directors and upon any other matter submitted to
shareholders for a vote, on the following basis:
a. Series I Preferred Stock Vote. Each share of Series I
Preferred Stock issued and outstanding shall have the number of votes equal to
the number of shares of Common stock into which it is convertible, as adjusted
from time to time under Section 4 hereof. Fractional votes shall not, however,
be permitted and any fractional voting rights resulting from the above formula
(after aggregating all shares into which shares of Series I Preferred Stock held
by each holder could be converted) shall be rounded to the nearest whole number
(with one-half being rounded upward).
b. Cumulative Voting. Notwithstanding the above, for the
election of directors each holder of Series I Preferred Stock shall after giving
the notice required by Section 708 of the California Corporations Code, as
amended from time to time, be entitled to the number of votes as determined
pursuant to paragraph (a) above multiplied by the number of directors to be
elected, with each shareholder being entitled to cumulate such votes for one
candidate or to distribute such votes among the candidates as the shareholder
sees fit.
6. Covenants. In addition to any other rights provided by law, so long
as 33% of the total issued Series I Preferred Stock shall be outstanding, this
Corporation shall not, without first obtaining the affirmative vote or written
consent of the holders of not less than a majority of the outstanding shares of
the Series I Preferred Stock:
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<PAGE>
a. amend or repeal any provision of, or add any provision to,
this Corporation's Articles of Incorporation if such action would materially and
adversely alter or change the preferences, rights, privileges or powers of, or
the restrictions provided for the benefit of, the Series I Preferred Stock
authorized hereby;
b. authorize or issue shares of any class of stock having any
preference or priority as to dividends or assets superior to any such preference
or priority of the Series I Preferred Stock; or
c. reclassify any shares of Common Stock into shares having
any preference or priority as to dividends or assets superior to any such
preference or priority of the Series I Preferred Stock.
-9-
<PAGE>
C. The authorized number of shares of Preferred Stock of the
Corporation is 10,064,516. There are 8,314,110 shares of Preferred Stock
outstanding, 8,064,516 of which are Series E Preferred Stock, 82,250 of which
are Series F Preferred Stock and 50,344 of which are Series G Preferred Stock,
and 117,000 of which are Series H Preferred Stock. No shares of Series I
Preferred Stock have been issued. The number of authorized shares of Series I
Preferred Stock is 200,000. The total number of shares voting in favor of this
Certificate equaled or exceeded the vote required. The percentage vote required
was a simple majority of each of the outstanding shares of Series E Preferred
Stock, Series F Preferred Stock, Series G Preferred Stock, and Series H
Preferred Stock.
I further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this Certificate are true and
correct of my own knowledge.
Executed in San Mateo, California on December 19, 1997.
/s/ TODD HAGEN
---------------------------------------------
Todd Hagen
Vice President of Finance and Administration
and Chief Financial Officer
HyperMedia Communications, Inc.
SEC Form 10-K FY97
Exhibit 3.1e
<PAGE>
CERTIFICATE OF DETERMINATION OF
PREFERENCES OF SERIES J PREFERRED STOCK OF
HYPERMEDIA COMMUNICATIONS, INC.
A California Corporation
The undersigned, Todd Hagen, does hereby certify that:
A. He is the duly elected and acting Vice President of Finance and
Administration and Chief Financial Officer of HyperMedia Communications, Inc., a
California corporation (the "Corporation").
B. Pursuant to authority given by the Corporation's Amended and
Restated Articles of Incorporation, the Board of Directors of the Corporation
has duly adopted the following recitals and resolutions:
WHEREAS, the Amended and Restated Articles of Incorporation of the
Corporation (the "Articles") provide for a class of shares known as
Preferred Stock, issuable from time to time in one or more series; and
WHEREAS, the Board of Directors of the Corporation is authorized to
determine or alter the rights, preferences, privileges and restrictions
relating to any unissued series of said Preferred Stock and the number
of shares constituting and the designation of said series;
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors hereby
designates, fixes the number of shares constituting, and determines the
rights, preferences, privileges, and restrictions relating to a new
series of Preferred Stock:
1. Designation. The new series of Preferred Stock shall be designated
"Series J Preferred Stock." The number of shares constituting the Series J
Preferred Stock shall be 250,000. The "Initial Sales Price" of the Series J
Preferred Stock shall mean the price per share at which shares of Series J
Preferred Stock are first sold to investors, and the "Original Issue Date" shall
mean the date of such sale. The relative rights, preferences, privileges and
restrictions granted to or imposed upon the Series J Preferred Stock or the
holders thereof are specified below.
<PAGE>
2. Dividend Rights of Series J Preferred Stock.
a. No dividend (payable other than in Common Stock of the
Corporation) may be paid on or declared or set apart for the Common Stock in any
one fiscal year unless a dividend at the rate of five percent (5%) of the
Initial Sales Price is paid on, or declared and set apart for, each share of
Series J Preferred Stock. The amount of dividend shall be prorated for a share
of Series J Preferred Stock which is not issued and outstanding for an entire
fiscal year. The dividends on the Series J Preferred Stock shall be paid out of
any assets legally available therefor, when, as and if declared by the Board of
Directors. Dividends on the Series J Preferred Stock shall not be cumulative and
no rights shall accrue to the holders of the Series J Preferred Stock in the
event the Corporation shall fail to declare or pay dividends on the Series J
Preferred Stock in the amount of five percent (5%) of the Initial Sales Price
per share per fiscal year or in any amount in any prior year of the Corporation,
whether or not the earnings of the Corporation in that previous fiscal year were
sufficient to pay such dividends in whole or in part. In the event the Board of
Directors of the Corporation declares dividends in a fiscal year in an amount
less than the aggregate of all the dividend preferences of the Series E
Preferred Stock, the Series F Preferred Stock, the Series G Preferred Stock, the
Series H Preferred Stock, the Series I Preferred Stock and the Series J
Preferred Stock, then the entire amount of dividends declared by the Board of
Directors shall be distributed ratably among the holders of the Series E
Preferred Stock, the Series F Preferred Stock, the Series G Preferred Stock, the
Series H Preferred Stock, the Series I Preferred Stock and the Series J
Preferred Stock such that the same percentage of the annual dividend to which
each series of Preferred Stock is entitled is paid on each share of Series E
Preferred Stock, Series F Preferred Stock, Series G Preferred Stock, Series H
Preferred Stock, Series I Preferred Stock and the Series J Preferred Stock.
b. As authorized by Section 402.5(c) of the California
Corporations Code, the provisions of Sections 502 and 503 of the California
Corporations Code shall not apply with respect to repurchases by the Corporation
of shares of Common Stock issued to or held by employees, officers, directors or
consultants of the Corporation or its subsidiaries upon termination of their
employment or services pursuant to agreements providing for the right of said
repurchase.
3. Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution, or winding up of the Corporation, after the payment to
which the holders of the Series E Preferred Stock, Series F Preferred Stock,
Series G Preferred Stock, Series H Preferred Stock and Series I Preferred Stock
are entitled as set forth in the Articles of Incorporation, including the
Certificate of Determination of Preferences of Series H Preferred Stock and the
Certificate of Determination of Series I Preferred Stock (the "Series E, Series
F, Series G, Series H and Series I Distribution") has been made, no distribution
shall be made on the shares of Common Stock without first making a distribution
on the shares of Series J Preferred Stock equal to the amount of the Initial
Sales Price per share for each share of Series J Preferred Stock, plus all
declared but unpaid dividends thereon. If upon occurrence of such event, and
after the Series E, Series F, Series G, Series H and Series I Distribution, the
assets and property thus distributed among the holders of the Series J Preferred
Stock shall be insufficient to permit the payment to such holders of their full
respective preferential amounts, then the entire assets and property of the
Corporation legally
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<PAGE>
available for distribution shall be distributed ratably among the holders of the
Series J Preferred Stock such that the same percentage of the preferential
amount to which each series of Series J Preferred Stock is entitled is paid on
each share of Series J Preferred Stock. A consolidation or merger of the
Corporation with or into any other corporation or corporations, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Corporation or such surviving entity
outstanding immediately after such merger or consolidation, or a sale of all or
substantially all of the assets of the Corporation, shall be deemed to be a
liquidation, dissolution, or winding up of the Corporation.
4. Conversion.
a. Right to Convert. Each share of Series J Preferred Stock
shall be convertible, at the option of the holder thereof, at any time after the
date of issuance of such share at the office of the Corporation or any transfer
agent for the Series J Preferred Stock, into that number of fully-paid and
nonassessable shares of Common Stock that is equal to the Initial Sales Price
divided by the appropriate Conversion Price (as hereinafter defined). The
Conversion Price for the Series J Preferred Stock shall initially be the Initial
Sales Price divided by twenty (20) and shall be subject to adjustment as
provided herein. (The number of shares of Common Stock into which each share of
Series J Preferred Stock may be converted is hereinafter referred to as the
"Conversion Rate".) Upon any decrease or increase in the Conversion Price or the
Conversion Rate as described in this Section 4, the Conversion Rate or
Conversion Price, as the case may be, shall be appropriately increased or
decreased.
b. Automatic Conversion. All shares of Series J Preferred
Stock then outstanding shall automatically convert into shares of Common Stock
upon the election of at least 67% of the authorized, issued and outstanding
shares of Series J Preferred Stock to convert shares of Series J Preferred Stock
into Common Stock.
c. Mechanics of Conversion. No fractional shares of Common
Stock shall be issued upon conversion of Series J Preferred Stock. In lieu of
any fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then fair
market value of such fractional shares as determined by the Board of Directors
of the Corporation. Before any holder of Series J Preferred Stock shall be
entitled to convert the same into full shares of Common Stock, and to receive
certificates therefor, he shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation or of any transfer
agent for the Series J Preferred Stock, and shall give written notice to the
Corporation at such office that he elects to convert the same; provided,
however, that in the event of an automatic conversion pursuant to paragraph 4(b)
above, the outstanding shares of Series J Preferred Stock shall be converted
automatically without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to the
Corporation or its transfer agent; provided further,
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<PAGE>
however, that the Corporation shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such automatic conversion
unless either the certificates evidencing such shares of Series J Preferred
Stock are delivered to the Corporation or its transfer agent as provided above,
or the holder notifies the Corporation or its transfer agent that such
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection with such certificates.
The Corporation shall, as soon as practicable after
such delivery, or after such agreement and indemnification, issue and deliver at
such office to such holder of Series J Preferred Stock, a certificate or
certificates for the number of shares of Common Stock to which he shall be
entitled as aforesaid and a check payable to the holder in the amount of any
cash amounts payable as the result of a conversion into fractional shares of
Common Stock, plus any declared and unpaid dividends on the converted Series J
Preferred Stock. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares of
Series J Preferred Stock to be converted, and the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock on such date.
d. Adjustments to Conversion Price for Diluting Issues.
(i) Special Definition. For purposes of this
paragraph 4(d), "Additional Shares of Common" shall mean all shares of Common
Stock issued (or, pursuant to paragraph 4(d)(iii), deemed to be issued) by the
Corporation after the Original Issue Date, other than shares of Common Stock
issued or issuable:
(1) upon conversion of shares of Preferred
Stock;
(2) to the Corporation's employees,
officers, directors and consultants as may be determined by the Corporation's
Board of Directors from time to time;
(3) as a dividend or distribution on
Preferred Stock or pursuant to any event for which adjustment is made pursuant
to paragraph 4(e)(i) or (ii) hereof;
(4) pursuant to commercial borrowing,
secured lending or lease financing transactions approved by the Board of
Directors;
(5) in any transaction, other than the
issuance by the Corporation of Series J Preferred Stock, in which the issuance
(or, pursuant to paragraph 4(d)(iii), deemed issuance) by the Corporation of
such shares of Common Stock results in net proceeds to the Corporation of less
than $500,000;
(6) upon exercise of any options or warrants
outstanding as of the Original Issue Date to purchase the Company's Common Stock
or Preferred Stock.
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<PAGE>
(ii) No Adjustment of Conversion Price. No adjustment
in the Conversion Price of a particular share of Series J Preferred Stock shall
be made in respect of the issuance of Additional Shares of Common unless the
consideration per share for an Additional Share of Common issued or deemed to be
issued by the Corporation is less than the Conversion Price in effect on the
date of, and immediately prior to such issue, for such share of Series J
Preferred Stock.
(iii) Deemed Issue of Additional Shares of Common. In
the event the Corporation at any time or from time to time after the Original
Issue Date shall issue any options, warrants or convertible securities or shall
fix a record date for the determination of holders of any class of securities
entitled to receive any such options, warrants or convertible securities, then
the maximum number of shares (as set forth in the instrument relating thereto
without regard to any provisions contained therein for a subsequent adjustment
of such number) of Common Stock issuable upon the exercise of such options or
warrants or, in the case of convertible securities and options or warrants
therefor, the conversion or exchange of such convertible securities or exercise
of such options or warrants, shall be deemed to be Additional Shares of Common
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that
Additional Shares of Common shall not be deemed to have been issued unless the
consideration per share (determined pursuant to paragraph 4(d)(v) hereof) of
such Additional Shares of Common would be less than the Conversion Price in
effect on the date of and immediately prior to such issue, or such record date,
as the case may be, and provided further that in any such case in which
Additional Shares of Common are deemed to be issued:
(1) no further adjustment in the Conversion
Price shall be made upon the subsequent issue of convertible securities or
shares of Common Stock upon the exercise of such options or warrants or
conversion or exchange of such convertible securities;
(2) if such options, warrants or convertible
securities by their terms provide, with the passage of time or otherwise, for
any increase or decrease in the consideration payable to the Corporation, or
increase or decrease in the number of shares of Common Stock issuable, upon the
exercise, conversion or exchange thereof, the Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such options or warrants or the rights of
conversion or exchange under such convertible securities;
(3) no readjustment pursuant to clause (2)
above shall have the effect of increasing the Conversion Price to an amount
which exceeds the lower of (i) the Conversion Price on the original adjustment
date, or (ii) the Conversion Price that would have resulted from any issuance of
Additional Shares of Common between the original adjustment date and such
readjustment date;
-5-
<PAGE>
(4) upon the expiration of any such options
or warrants or any rights of conversion or exchange under such convertible
securities which shall not have been exercised, the Conversion Price computed
upon the original issue thereof (or upon the occurrence of a record date with
respect thereto) and any subsequent adjustments based thereon shall, upon such
expiration, be recomputed as if:
(a) in the case of convertible
securities or options or warrants for Common Stock, the only Additional Shares
of Common issued were the shares of Common Stock, if any, actually issued upon
the exercise of such options or warrants or the conversion or exchange of such
convertible securities and the consideration received therefor was the
consideration actually received by the Corporation for the issue of such
exercised options or warrants plus the consideration actually received by the
Corporation upon such exercise or for the issue of all such convertible
securities which were actually converted or exchanged, plus the additional
consideration, if any, actually received by the Corporation upon such conversion
or exchange, and
(b) in the case of options or
warrants for convertible securities, only the convertible securities, if any,
actually issued upon the exercise thereof were issued at the time of issue of
such options or warrants, and the consideration received by the Corporation for
the Additional Shares of Common deemed to have been then issued was the
consideration actually received by the Corporation for the issue of such
exercised options or warrants, plus the consideration deemed to have been
received by the Corporation (determined pursuant to paragraph 4(d)(v)) upon the
issue of the convertible securities with respect to which such options or
warrants were actually exercised; and
(5) if such record date shall have been
fixed and such options, warrants or convertible securities are not issued on the
date fixed therefor, the adjustment previously made in the Conversion Price
which became effective on such record date shall be canceled as of the close of
business on such record date, and thereafter the Conversion Price shall be
adjusted pursuant to this paragraph 4(d)(iii) as of the actual date of their
issuance.
(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common. In the event the Corporation, on or before the
earlier of (i) the first anniversary of the final sale by the Company of Series
J Preferred Stock prior to August 22, 1998 and (ii) August 22, 1999 (the earlier
of which dates is referred to as the "Determination Date"), issues Additional
Shares of Common (including Additional Shares of Common deemed to be issued
pursuant to paragraph 4(d)(iii)) without consideration or for a consideration
per share less than the Conversion Price for the Series J Preferred Stock in
effect on the date of and immediately prior to such issue (a "Dilutive
Issuance"), then and in such event such Conversion Price shall be reduced,
concurrently with such issue, to a price equal to such consideration per share
of the Additional Shares of Common. The Conversion Price shall not be reduced as
a result of any Dilutive Issuance that occurs after the Determination Date.
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<PAGE>
(v) Determination of Consideration. For purposes of
this subsection 4(d), the consideration received by the Corporation for the
issue of any Additional Shares of Common shall be computed as follows:
(1) Cash and Property. Such consideration
shall:
(a) insofar as it consists of cash,
be computed at the aggregate amount of cash received by the Corporation
excluding amounts paid or payable for accrued interest or accrued dividends;
(b) insofar as it consists of
property other than cash, be computed at the fair value thereof at the time of
such issue, as determined in good faith by the Board of Directors; and
(c) in the event Additional Shares of
Common are issued together with other shares or securities or other assets of
the Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses a) and b) above, as
determined in good faith by the Board of Directors.
(2) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common deemed to have been issued pursuant to paragraph 4(d)(iii), relating to
options, warrants and convertible securities, shall be determined by dividing
(a) the total amount, if any,
received or receivable by the Corporation as consideration for the issue of such
options, warrants or convertible securities, plus the minimum aggregate amount
of additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment of
such consideration) payable to the Corporation upon the exercise of such options
or warrants or the conversion or exchange of such convertible securities, or in
the case of options or warrants for convertible securities, the exercise of such
options for convertible securities and the conversion or exchange of such
convertible securities by
(b) the maximum number of shares of
Common Stock (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such options or warrants or the conversion or
exchange of such convertible securities.
e. Adjustments to Conversion Rate.
(i) Adjustments for Subdivisions, Splits,
Combinations, Consolidations, Reorganizations or Reclassifications of Common
Stock. In the event that after the date of the first issuance of the Series J
Preferred Stock the outstanding shares of Common Stock shall be (a) subdivided
or split into a greater number of shares of Common Stock; (b) combined or
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<PAGE>
consolidated, by reclassification or otherwise, into a lesser number of shares
of Common Stock or (c) changed into a different number of shares of any other
class or classes of stock, whether by capital reorganization, reclassification
or otherwise, the holders of the shares of Series J Preferred Stock shall
receive upon conversion, the stock and/or securities to which the holder would
have been entitled had the holder held, at the time of said split, subdivision,
combination, consolidation, reorganization or reclassification, the same number
of shares of Common Stock as the number of Series J Preferred Stock converted.
(ii) Adjustments for Other Dividends and
Distributions. In the event the Corporation at any time after the date of the
first issuance of the Series J Preferred Stock makes, or fixes a record date
for, the determination of holders of Common Stock entitled to receive, a
dividend or other distribution payable in the securities of the Corporation,
then the holders of the shares of Series J Preferred Stock shall receive upon
conversion, in addition to the number of shares of Common Stock receivable
thereupon, the stock or securities to which the holder would have been entitled
had the holder held, at the time of said dividend or other distribution, the
same number of shares of Common Stock as the number of Series J Preferred Stock
converted, and had they thereafter during the period from the date of such event
to and including the date of conversion, retained such stock or securities
receivable by them as aforesaid during such period, subject to all other
adjustments called for during such period under this Section 4 with respect to
the rights of the holders of the Series J Preferred Stock.
5. Voting Rights. Except as otherwise required by law, the holders of
Series J Preferred Stock shall be entitled to notice of any shareholders'
meeting in accordance with the Bylaws of the Corporation and to vote together as
a single class with the holders of the Common Stock (except with respect to
those matters required by law to be submitted to a separate class or series
vote) upon the election of directors and upon any other matter submitted to
shareholders for a vote, on the following basis:
a. Series J Preferred Stock Vote. Each share of Series J
Preferred Stock issued and outstanding shall have the number of votes equal to
the number of shares of Common Stock into which it is convertible, as adjusted
from time to time under Section 4 hereof. Fractional votes shall not, however,
be permitted and any fractional voting rights resulting from the above formula
(after aggregating all shares into which shares of Series J Preferred Stock held
by each holder could be converted) shall be rounded to the nearest whole number
(with one-half being rounded upward).
b. Cumulative Voting. Notwithstanding the above, for the
election of directors each holder of Series J Preferred Stock shall after giving
the notice required by Section 708 of the California Corporations Code, as
amended from time to time, be entitled to the number of votes as determined
pursuant to paragraph (a) above multiplied by the number of directors to be
elected, with each shareholder being entitled to cumulate such votes for one
candidate or to distribute such votes among the candidates as the shareholder
sees fit.
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<PAGE>
6. Covenants. In addition to any other rights provided by law, so long
as 33% of the total issued Series J Preferred Stock shall be outstanding, this
Corporation shall not, without first obtaining the affirmative vote or written
consent of the holders of not less than a majority of the outstanding shares of
the Series J Preferred Stock:
a. amend or repeal any provision of, or add any provision to,
this Corporation's Articles of Incorporation if such action would materially and
adversely alter or change the preferences, rights, privileges or powers of, or
the restrictions provided for the benefit of, the Series J Preferred Stock
authorized hereby;
b. authorize or issue shares of any class of stock having any
preference or priority as to dividends or assets superior to any such preference
or priority of the Series J Preferred Stock; or
c. reclassify any shares of Common Stock into shares having
any preference or priority as to dividends or assets superior to any such
preference or priority of the Series J Preferred Stock.
-9-
<PAGE>
C. The authorized number of shares of Preferred Stock of the
Corporation is 10,064,516. There are 8,342,910 shares of Preferred Stock
outstanding, 8,064,516 of which are Series E Preferred Stock, 82,250 of which
are Series F Preferred Stock and 50,344 of which are Series G Preferred Stock,
117,000 of which are Series H Preferred Stock, and 28,800 of which are Series I
Preferred Stock. No shares of Series J Preferred Stock have been issued. The
number of authorized shares of Series J Preferred Stock is 250,000. The total
number of shares voting in favor of this Certificate equaled or exceeded the
vote required. The percentage vote required was a simple majority of each of the
outstanding shares of Series E Preferred Stock, Series F Preferred Stock, Series
G Preferred Stock, Series H Preferred Stock, and Series I Preferred Stock.
I further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this Certificate are true and
correct of my own knowledge.
Executed in San Mateo, California on February 13, 1998.
/s/ TODD HAGEN
---------------------------------------------
Todd Hagen
Vice President of Finance and Administration
and Chief Financial Officer
HyperMedia Communications, Inc.
SEC Form 10-K FY97
Exhibit 4.18
<PAGE>
HYPERMEDIA COMMUNICATIONS, INC.
SERIES G PREFERRED STOCK PURCHASE AGREEMENT
July 3, 1996
<PAGE>
TABLE OF CONTENTS
Page
----
1. Purchase and Sale of Stock............................................1
1.1 Sale and Issuance of Series G Preferred Stock................1
1.2 Closings.....................................................1
2. Representations and Warranties of the Company.........................2
2.1 Organization, Good Standing and Qualification................2
2.2 Capitalization...............................................2
2.3 Subsidiaries.................................................2
2.4 Authorization................................................2
2.5 Valid Issuance of Preferred and Common Stock.................3
2.6 Governmental Consents........................................3
2.7 Litigation...................................................3
2.8 Patents and Trademarks.......................................4
2.9 Compliance with Other Instruments............................4
2.10 Permits......................................................4
2.11 Disclosure...................................................4
2.12 Title to Property and Assets.................................5
2.13 Tax Returns and Audits.......................................5
2.14 Brokers or Finders...........................................5
3. Representations and Warranties of the Investor........................5
3.1 Experience...................................................5
3.2 Investment...................................................5
3.3 Rule 144.....................................................6
3.4 Access to Data...............................................6
3.5 Authorization................................................6
3.6 Accredited Investor..........................................6
4. Conditions of Investor's Obligations at Closing.......................6
4.1 Representations and Warranties...............................6
4.2 Performance..................................................7
4.3 Compliance Certificate.......................................7
4.4 Blue Sky.....................................................7
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<PAGE>
5. Conditions of the Company's Obligations at Closing....................7
5.1 Representations and Warranties...............................7
5.2 Payment of Purchase Price....................................7
5.3 Blue Sky.....................................................7
5.4 Proceedings and Documents....................................7
6. Restrictions on Transferability; Registration Rights..................7
6.1 Certain Definitions..........................................7
6.2 Restrictions.................................................9
6.3 Restrictive Legend...........................................9
6.4 Notice of Proposed Transfers.................................9
6.5 Requested Registration......................................10
6.6 Company Registration........................................12
6.7 Registration on Form S-3....................................13
6.8 Limitations on Subsequent Registration Rights...............14
6.9 Expenses of Registration....................................14
6.10 Registration Procedures.....................................14
6.11 Indemnification.............................................16
6.12 Information by Holder.......................................17
6.13 Rule 144 Reporting..........................................17
6.14 Transfer of Registration Rights.............................18
6.15 Standoff Agreement..........................................18
7. Miscellaneous........................................................18
7.1 Governing Law...............................................18
7.2 Survival....................................................19
7.3 Successors and Assigns......................................19
7.4 Entire Agreement; Amendment.................................19
7.5 Notices, Etc................................................19
7.6 Delays or Omissions.........................................19
7.7 California Corporate Securities Law.........................20
7.8 Expenses....................................................20
7.9 Finder's Fee................................................20
7.10 Counterparts................................................20
7.11 Severability................................................20
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<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
Exhibit A Schedule of Investors
Exhibit B Certificate of Determination of Preferences of Series G
Preferred Stock
Exhibit C Schedule of Exceptions
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<PAGE>
SERIES G PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES G PREFERRED STOCK PURCHASE AGREEMENT is made as of the 30th
day of June, 1996, by and between HYPERMEDIA COMMUNICATIONS, INC., a California
corporation (the "Company"), and MK GVD FUND (the "Investor").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
1.1 Sale and Issuance of Series G Preferred Stock.
(a) The Board of Directors of the Company shall adopt
and file with the Secretary of State of California on or before the Initial
Closing (as defined below) the Certificate of Determination of Preferences of
Series G Preferred Stock (the "Certificate of Determination"), in the form
attached hereto as Exhibit A.
(b) Subject to the terms and conditions of this
Agreement, the Investor agrees to purchase at the Initial Closing, and the
Company agrees to sell and issue to the Investor at the Initial Closing and any
Subsequent Closings (as defined below), an aggregate of up to that number of
shares (the "Shares") of the Company's Series G Preferred Stock (the "Series G
Preferred") equal to $250,000 divided by the Purchase Price (as defined below)
at each Closing. The number of shares of Series G Preferred to be sold and
issued at each Closing shall be determined by the Company in its sole discretion
on or before the date of such Closing, but in no event shall the aggregate of
such numbers exceed the maximum set forth in the preceding sentence. The
purchase price per Share (the "Purchase Price") shall be equal to 85% of the
average closing bid price of a share of the Company's Common Stock as reported
on the Nasdaq SmallCap Market for the 10 trading days ending 5 business days
before the date of a Closing.
1.2 Closings. The purchase and sale of the Shares shall take
place at the offices of Wilson, Sonsini, Goodrich & Rosati, 650 Page Mill Road,
Palo Alto, California, at any times on or before December 31, 1996 as the
Company and the Investor agree upon orally or in writing (the first of which
times is designated the "Initial Closing," all others of which are designated
"Subsequent Closings" and all of which times are collectively designated as
"Closings"), but in any event no later than three business days after Investor's
receipt of a written request from the Company setting forth the number of shares
to be purchased and sold at the Closing in question. At each Closing the Company
shall deliver to the Investor a certificate representing the Series G Preferred
that the Investor is purchasing against payment of the aggregate purchase price
therefor by check, wire transfer or any combination thereof.
<PAGE>
2. Representations and Warranties of the Company. Except as set forth
in (i) the forms, reports and documents, including the exhibits thereto, filed
by the Company with the Securities and Exchange Commission, (ii) the documents
and other materials provided to directors of the Company prior to and during
meetings of the Company's Board of Directors or (iii) the Schedule of Exceptions
attached hereto as Exhibit B, the Company hereby represents and warrants as
follows:
2.1 Organization, Good Standing and Qualification. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of California and has all requisite corporate power and
authority to carry on its business as currently conducted. The Company is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure to so qualify would have a material adverse effect on its
business or properties. True and accurate copies of the Company's Articles of
Incorporation and Bylaws, each as amended and in effect at the Initial Closing,
have been delivered to the Investor.
2.2 Capitalization. The authorized capital stock of the
Company consists of 50,000,000 shares of Common Stock ("Common Stock"), of which
[3,011,433] shares are issued and outstanding on the date of this Agreement, and
10,064,516 shares of Preferred Stock ("Preferred Stock"), of which (i) 8,064,516
shares are designated Series E Preferred Stock, all of which are issued and
outstanding, (ii) 82,250 shares are designated Series F Preferred Stock, all of
which are issued and outstanding, and (iii) 175,000 shares are designated Series
G Preferred Stock, none of which is issued and outstanding. All such issued and
outstanding shares have been duly authorized and validly issued and are fully
paid and nonassessable. The Company has reserved an aggregate of 175,000 shares
of Series G Preferred for issuance hereunder. The Company has reserved 175,000
shares of Common Stock for issuance upon conversion of the Series G Preferred.
An aggregate of 1,000,000 shares of Common Stock are reserved for issuance under
the Company's 1991 Stock Plan, 1993 Director Option Plan and 1996 Employee Stock
Purchase Plan. There are options outstanding under the Company's 1991 Stock Plan
and 1993 Director Option Plan to purchase an aggregate of approximately 335,000
shares and approximately 120,000 shares, respectively, of the Company's Common
Stock. There are warrants outstanding to purchase an aggregate of approximately
671,000 shares of the Company's Common Stock. There are no other outstanding
rights, options, warrants, preemptive rights, rights of first refusal or similar
rights for the purchase or acquisition from the Company of any securities of the
Company. All outstanding shares have been issued in compliance with state and
federal securities laws.
2.3 Subsidiaries. The Company does not presently own or
control, directly or indirectly, any interest in any other corporation,
association, or other business entity. The Company is not a participant in any
joint venture, partnership, or similar arrangement.
2.4 Authorization. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, the performance of all
obligations of the Company hereunder and thereunder, and the authorization,
issuance (or reservation for issuance), sale and delivery of the Shares being
sold hereunder and the Common Stock issuable upon conversion of the Shares has
been taken or will be taken prior to the Initial Closing, and this Agreement
constitutes a valid and legally binding obligation of the
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Company, enforceable in accordance with its terms, subject to: (i) judicial
principles limiting the availability of specific performance, injunctive relief,
and other equitable remedies; and (ii) bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect generally relating
to or affecting creditors' rights.
2.5 Valid Issuance of Preferred and Common Stock. The shares
of Series G Preferred that are being purchased by the Investors hereunder, when
issued, sold and delivered in accordance with the terms of this Agreement for
the consideration expressed herein, will be duly and validly issued, fully paid,
and nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement and under applicable state and
federal securities laws. The Common Stock issuable upon conversion of the Series
G Preferred purchased under this Agreement has been duly and validly reserved
for issuance and, upon issuance in accordance with the terms of the Certificate
of Determination and the Amended and Restated Articles of Incorporation (the
"Restated Articles"), will be duly and validly issued, fully paid, and
nonassessable and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement and under applicable state and
federal securities laws.
2.6 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the offer, sale or issuance of the
Shares (and the Common Stock issuable upon conversion of the Shares) or the
consummation of any other transaction contemplated hereby, except for the
following: (i) the filing of the Certificate of Determination in the office of
the Secretary of State of the State of California, which shall be filed by the
Company on or prior to the Initial Closing; (ii) the filing of such notices as
may be required under the Securities Act of 1933, as amended (the "Securities
Act"); and (iii) the filing of a notice of exemption pursuant to Section
25102(f) of the California Corporate Securities Law of 1968, as amended (the
"California Securities Law"), which shall be filed by the Company promptly
following each Closing. Based in part on the representations of the Investors
set forth in Section 3 below, the offer, sale and issuance of the Shares in
conformity with the terms of this Agreement are exempt from the registration
requirements of Section 5 of the Securities Act and from the qualification
requirements of Section 25110 of the California Securities Law.
2.7 Litigation. There is no action, suit, proceeding or
investigation pending or, to the best of the Company's knowledge, currently
threatened before any court, administrative agency or other governmental body
against the Company which questions the validity of this Agreement or the right
of the Company to enter into it, or to consummate the transactions contemplated
hereby, or which could result, either individually or in the aggregate, in any
material adverse change in the condition (financial or otherwise), business,
property, assets or liabilities of the Company. The foregoing includes, without
limitation, actions, suits, proceedings or investigations pending or threatened
(or any basis therefor known to the Company) involving the prior employment of
any of the Company's employees, their use in connection with the Company's
business of any information or techniques allegedly proprietary to any of their
former employers, or their obligations under any agreements with prior
employers. The Company is not a party or subject to, and none of its assets is
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bound by, the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality.
2.8 Patents and Trademarks. The Company has sufficient title
and ownership of all patents, trademarks, service marks, trade names,
copyrights, trade secrets, information, proprietary rights and processes
(collectively, "Intellectual Property") necessary for its business as now
conducted without any conflict with or infringement of the rights of others.
There are no outstanding options, licenses, or agreements of any kind relating
to the foregoing, nor is the Company bound by or a party to any options,
licenses or agreements of any kind with respect to the Intellectual Property of
any other person or entity. The Company has not received any communications
alleging that any material Intellectual Property of the Company has violated or
would violate any of the Intellectual Property of any other person or entity.
2.9 Compliance with Other Instruments. The Company is not in
violation or default of any provision of its Articles of Incorporation or
Bylaws, each as amended and in effect on and as of each Closing. The Company is
not in violation or default of any material provision of any instrument,
mortgage, deed of trust, loan, contract, commitment, judgment, decree, order or
obligation to which it is a party or by which it or any of its properties or
assets are bound which would materially adversely affect the condition
(financial or otherwise), business, property, assets or liabilities of the
Company or, to the best of its knowledge, of any provision of any federal, state
or local statute, rule or governmental regulation which would materially
adversely affect the condition (financial or otherwise), business, property,
assets or liabilities of the Company. The execution, delivery and performance of
and compliance with this Agreement, and the issuance and sale of the Shares,
will not result in any such violation, be in conflict with or constitute, with
or without the passage of time or giving of notice, a default under any such
provision, require any consent or waiver under any such provision (other than
any consents or waivers that have been obtained), or result in the creation of
any mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company pursuant to any such provision.
2.10 Permits. The Company has all franchises, permits,
licenses, and any similar authority necessary for the conduct of its business as
now being conducted by it, the lack of which could materially and adversely
affect the business, properties, prospects, or financial condition of the
Company, and the Company believes it can obtain, without undue burden or
expense, any similar authority for the conduct of its business as planned to be
conducted. The Company is not in default in any material respect under any of
such franchises, permits, licenses, or other similar authority.
2.11 Disclosure. No representation, warranty or statement by
the Company in this Agreement, or in any written statement or certificate
furnished to the Investors pursuant to this Agreement or the transactions
contemplated hereby, contains any untrue statement of a material fact or, when
taken together, omits to state a material fact necessary to make the statements
made herein or therein, in light of the circumstances under which they were
made, not misleading.
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2.12 Title to Property and Assets. The Company has good and
marketable title to all of its properties and assets free and clear of all
mortgages, liens and encumbrances, except liens for current taxes and
assessments not yet due and possible minor liens and encumbrances which do not,
in any case, in the aggregate, materially detract from the value of the property
subject thereto or materially impair the operations of the Company. With respect
to the property and assets it leases, the Company is in compliance with such
leases and, to the best of its knowledge, holds a valid leasehold interest free
of all liens, claims or encumbrances. The Company's properties and assets are in
good condition and repair in all material respects.
2.13 Tax Returns and Audits. The Company has accurately
prepared all United States income tax returns and all state and municipal tax
returns required to be filed by it, if any, has paid all taxes, assessments,
fees and charges when and as due under such returns and has made adequate
provision for the payment of all other taxes, assessments, fees and charges
shown on such returns or on assessments received by the Company. To the best of
the Company's knowledge, no deficiency assessment or proposed adjustment of the
Company's United States income tax or state or municipal taxes is pending.
2.14 Brokers or Finders. The Company has not agreed to incur,
directly or indirectly, any liability for brokerage or finders' fees, agents'
commissions or other similar charges in connection with this Agreement or any of
the transactions contemplated hereby.
3. Representations and Warranties of the Investor. The Investor hereby
represents and warrants that:
3.1 Experience. The Investor is experienced in evaluating
companies such as the Company, is able to fend for itself in transactions such
as the one contemplated by this Agreement, has such knowledge and experience in
financial and business matters that Investor is capable of evaluating the merits
and risks of Investor's prospective investment in the Company, and has the
ability to bear the economic risks of the investment.
3.2 Investment. The Investor is acquiring the Shares (and the
Common Stock issuable upon conversion of the Shares) for investment for such
Investor's own account and not with the view to, or for resale in connection
with, any distribution thereof. Such Investor understands that the Shares (and
the Common Stock issuable upon conversion of the Shares) have not been
registered under the Securities Act by reason of a specific exemption from the
registration provisions of the Securities Act which depends upon, among other
things, the bona fide nature of the investment intent as expressed herein. Such
Investor further represents that it does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participation to any third person with respect to any of the Shares (or any
Common Stock acquired upon conversion thereof). Such Investor understands and
acknowledges that the offering of the Shares pursuant to this Agreement will
not, and any issuance of Common Stock on conversion may not, be registered under
the Securities Act on the ground that the sale provided for in this Agreement
and the issuance of securities hereunder is exempt from the registration
requirements of the Securities Act.
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3.3 Rule 144. The Investor acknowledges that the Shares (and
the Common Stock issuable upon conversion of the Shares) must be held
indefinitely unless subsequently registered under the Securities Act or an
exemption from such registration is available. Such Investor is aware of the
provisions of Rule 144 promulgated under the Securities Act which permit limited
resale of shares purchased in a private placement subject to the satisfaction of
certain conditions. Such Investor covenants that, in the absence of an effective
registration statement covering the stock in question, such Investor will sell,
transfer, or otherwise dispose of the Shares (and any Common Stock issued on
conversion thereof) only in a manner consistent with such Investor's
representations and covenants set forth in this Section 3. In connection
therewith, such Investor acknowledges that the Company will make a notation on
its stock books regarding the restrictions on transfers set forth in this
Section 3 and will transfer securities on the books of the Company only to the
extent not inconsistent therewith.
3.4 Access to Data. The Investor has received and reviewed
information about the Company and has had an opportunity to discuss the
Company's business, management and financial affairs with its management and to
review the Company's facilities. Such Investor understands that such
discussions, as well as any written information issued by the Company, were
intended to describe the aspects of the Company's business and prospects which
the Company believes to be material, but were not necessarily a thorough or
exhaustive description. The foregoing, however, does not limit or modify the
representations and warranties of the Company in Section 2 of this Agreement or
the right of the Investor to rely thereon.
3.5 Authorization. This Agreement when executed and delivered
by the Investor will constitute a valid and legally binding obligation of the
Investor, enforceable in accordance with its terms, subject to: (i) judicial
principles respecting election of remedies or limiting the availability of
specific performance, injunctive relief, and other equitable remedies; and (ii)
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect generally relating to or affecting creditors' rights.
3.6 Accredited Investor. The Investor acknowledges that it is
an "accredited investor" as defined in Rule 501 of Regulation D as promulgated
by the Securities and Exchange Commission under the Securities Act and shall
submit to the Company such further assurances of such status as may be
reasonably requested by the Company. For state securities law purposes, the
principal address of the Investor is that set forth on Exhibit A.
4. Conditions of Investor's Obligations at Closing. The obligations of
the Investor under subsection 1.1(b) of this Agreement are subject to the
fulfillment on or before each Closing of each of the following conditions, the
waiver of which shall not be effective against any Investor who does not consent
in writing thereto:
4.1 Representations and Warranties. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing.
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4.2 Performance. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing.
4.3 Compliance Certificate. The President of the Company shall
deliver to the Investor at the Closing a certificate stating that the conditions
specified in Sections 4.1 and 4.2 have been fulfilled.
4.4 Blue Sky. The Company shall have obtained all necessary
permits and qualifications, if any, or secured an exemption therefrom, required
by any state or country prior to the offer and sale of the Shares.
5. Conditions of the Company's Obligations at Closing. The obligations
of the Company to the Investor under this Agreement are subject to the
fulfillment on or before each Closing of each of the following conditions by
that Investor:
5.1 Representations and Warranties. The representations and
warranties of the Investor contained in Section 3 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the Closing.
5.2 Payment of Purchase Price. The Investor shall have
delivered the purchase price specified in Section 1.1 against delivery of the
Shares.
5.3 Blue Sky. The Company shall have obtained all necessary
permits and qualifications, if any, or secured an exemption therefrom, required
by any state or country for the offer and sale of the Shares.
5.4 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby, and all documents and instruments incident to these transactions, shall
be reasonably satisfactory in substance to the Company and its counsel.
6. Restrictions on Transferability; Registration Rights
6.1 Certain Definitions. As used in this Section 6, the
following terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
"Conversion Shares" means the Common Stock issued or issuable
upon conversion of the Shares.
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<PAGE>
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Holder" shall mean the Investor, if it still holds
Registrable Securities, and any person holding Registrable Securities to whom
the rights under this Agreement have been transferred in accordance with Section
6.14 hereof.
"Initiating Holders" shall mean the Investor or transferees of
the Investor under Section 6.14 hereof who in the aggregate are Holders of not
less than 35% of the Registrable Securities.
The terms "register", "registered" and "registration" refer to
a registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by
the Company in complying with Sections 6.5, 6.6 and 6.7 hereof, including,
without limitation, all registration, qualification and filing fees, printing
expenses, escrow fees, fees and disbursements of counsel for the Company, blue
sky fees and expenses, and the expense of any special audits incident to or
required by any such registration (but excluding the compensation of regular
employees of the Company which shall be paid in any event by the Company).
"Registrable Securities" means any Common Stock of the Company
issued or issuable in respect of the Shares or Conversion Shares or other
securities issued or issuable with respect to the Shares or Conversion Shares
upon any stock split, stock dividend, recapitalization, or similar event, or any
Common Stock otherwise issued or issuable with respect to the Shares or
Conversion Shares; provided, however, that shares of Common Stock or other
securities shall only be treated as Registrable Securities if and so long as
they have not been (A) sold to or through a broker or dealer or underwriter in a
public distribution or a public securities transaction, or (B) sold in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act under Section 4(1) thereof so that all transfer restrictions
and restrictive legends with respect thereto are removed upon the consummation
of such sale.
"Restricted Securities" shall mean the securities of the
Company required to bear the legend set forth in Section 6.3 hereof.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts,
selling commissions and stock transfer taxes applicable to the securities
registered by the Holders and all fees and disbursements of counsel for the
Holders (as limited by Section 6.9).
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6.2 Restrictions. The Shares and the Conversion Shares shall
not be sold, assigned, transferred or pledged except upon the conditions
specified in this Section 6, which conditions are intended to ensure compliance
with the provisions of the Securities Act. The Investor will cause any proposed
purchaser, assignee, transferee or pledgee of the Shares and the Conversion
Shares to agree to take and hold such securities subject to the provisions and
upon the conditions specified in this Section 6.
6.3 Restrictive Legend. Each certificate representing (i) the
Shares, (ii) the Conversion Shares, and (iii) any other securities issued in
respect of the securities referenced in clauses (i) and (ii) upon any stock
split, stock dividend, recapitalization, merger, consolidation or similar event,
shall (unless otherwise permitted by the provisions of Section 6.4 below) be
stamped or otherwise imprinted with a legend in the following form (in addition
to any legend required under applicable state securities laws):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD,
TRANSFERRED OR PLEDGED IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY
BE COUNSEL FOR THE COMPANY) REASONABLY ACCEPTABLE TO IT
STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID
ACT."
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED
ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE
COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH
THE SECRETARY OF THE COMPANY."
Each Investor consents to the Company making a notation on its
records and giving instructions to any transfer agent of the Restricted
Securities in order to implement the restrictions on transfer established in
this Section 6.
6.4 Notice of Proposed Transfers. The holder of each
certificate representing Restricted Securities, by acceptance thereof, agrees to
comply in all respects with the provisions of this Section 6. Prior to any
proposed sale, assignment, transfer or pledge of any Restricted Securities,
unless there is in effect a registration statement under the Securities Act
covering the proposed transfer, the holder thereof shall give written notice to
the Company of such holder's intention to effect such transfer, sale, assignment
or pledge. Each such notice shall describe the manner and circumstances of the
proposed transfer, sale, assignment or pledge in sufficient detail, and shall be
accompanied at such holder's expense by either (i) a written opinion of legal
counsel who shall, and whose legal opinion shall be, reasonably satisfactory to
the Company, addressed to the Company, to the effect that the proposed transfer
of the Restricted Securities may be effected
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without registration under the Securities Act, or (ii) a "no action" letter from
the Commission to the effect that the transfer of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, or (iii) any other evidence
reasonably satisfactory to counsel to the Company, whereupon the holder of such
Restricted Securities shall be entitled to transfer such Restricted Securities
in accordance with the terms of the notice delivered by the holder to the
Company. The Company will not require such a legal opinion or "no action" letter
(a) in any transaction in compliance with Rule 144, (b) in any transaction in
which an Investor which is a corporation distributes Restricted Securities after
six (6) months after the purchase thereof solely to its majority owned
subsidiaries or affiliates for no consideration, or (c) in any transaction in
which an Investor which is a partnership distributes Restricted Securities after
six (6) months after the purchase thereof solely to partners thereof for no
consideration; provided that each transferee agrees in writing to be subject to
the terms of this Section 6.4. Each certificate evidencing the Restricted
Securities transferred as above provided shall bear, except if such transfer is
made pursuant to Rule 144, the appropriate restrictive legend set forth in
Section 6.3 above, except that such certificate shall not bear such restrictive
legend if, in the opinion of counsel for such holder and the Company, such
legend is not required in order to establish compliance with any provisions of
the Securities Act.
6.5 Requested Registration.
(a) Request for Registration. In case the Company
shall receive from Initiating Holders a written request that the Company effect
any registration, qualification or compliance with respect to the Registrable
Securities, the Company will:
(i) promptly give written notice of the
proposed registration, qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best
efforts to effect such registration, qualification or compliance (including,
without limitation, the execution of an undertaking to file post-effective
amendments, appropriate qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations issued
under the Securities Act and any other governmental requirements or regulations)
as may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any Holder or Holders joining in such request as are specified in
a written request received by the Company within thirty (30) days after receipt
of such written notice from the Company; provided, however, that the Company
shall not be obligated to take any action to effect any such registration,
qualification or compliance pursuant to this Section 6.5:
(1) In any particular jurisdiction in
which the Company would be required to execute a general consent to service of
process in effecting such registration, qualification or compliance unless the
Company is already subject to service in such jurisdiction and except as may be
required by the Securities Act;
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(2) During the period starting with
the date sixty (60) days prior to the Company's estimated date of filing of, and
ending on the date six (6) months immediately following the effective date of,
any registration statement pertaining to securities of the Company (other than a
registration of securities in a Rule 145 transaction or with respect to an
employee benefit plan), provided that the Company is actively employing in good
faith all reasonable efforts to cause such registration statement to become
effective and that the Company's estimate of the date of filing such
registration statement is made in good faith;
(3) After the Company has effected
two (2) such registrations pursuant to this subparagraph 6.5(a), each such
registration has been declared or ordered effective and the securities offered
pursuant to each such registration have been sold; or
(4) If the Company shall furnish to
such Holders a certificate, signed by the President of the Company, stating that
in the good faith judgment of the Board of Directors it would be seriously
detrimental to the Company or its shareholders for a registration statement to
be filed in the near future, then the Company's obligation to use its best
efforts to register, qualify or comply under this Section 6.5 shall be deferred
for a period not to exceed one hundred eighty (180) days from the date of
receipt of written request from the Initiating Holders; provided, however, that
the Company may not use this right more than once in any twelve (12) month
period.
Subject to the foregoing clauses (1) through (4), the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Initiating Holders.
(b) Underwriting. In the event that a registration
pursuant to Section 6.5 is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as part of the notice
given pursuant to Section 6.5(a)(i). The right of any Holder to registration
pursuant to Section 6.5 shall be conditioned upon such Holder's participation in
the underwriting arrangements required by this Section 6.5 and the inclusion of
such Holder's Registrable Securities in the underwriting, to the extent
requested, to the extent provided herein.
The Company shall (together with all Holders proposing to distribute
their securities through such underwriting) enter into an underwriting agreement
in customary form with the managing underwriter selected for such underwriting
by a majority in interest of the Initiating Holders (which managing underwriter
shall be reasonably acceptable to the Company). Notwithstanding any other
provision of this Section 6.5, if the managing underwriter advises the
Initiating Holders in writing that marketing factors require a limitation of the
number of shares to be underwritten, then the Company shall so advise all
Holders of Registrable Securities and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated among all Holders thereof in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities held by such Holders at the
time of filing the registration statement; provided, however, that the number of
shares of Registrable Securities to be included in such underwriting shall not
be reduced unless all other securities are first entirely excluded from the
underwriting. No
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Registrable Securities excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such registration. To
facilitate the allocation of shares in accordance with the above provisions, the
Company or the underwriters may round the number of shares allocated to any
Holder to the nearest 100 shares.
If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the managing underwriter and the Initiating Holders. The
Registrable Securities and/or other securities so withdrawn shall also be
withdrawn from registration, and such Registrable Securities shall not be
transferred in a public distribution prior to ninety (90) days after the
effective date of such registration.
6.6 Company Registration.
(a) Notice of Registration. If at any time or from
time to time, the Company shall determine to register any of its securities,
either for its own account or the account of a security holder or holders other
than (i) a registration relating solely to employee benefit plans, or (ii) a
registration relating solely to a Commission Rule 145 transaction, the Company
will:
(i) promptly give to each Holder written
notice thereof; and
(ii) include in such registration (and any
related qualification under blue sky laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities specified in a
written request or requests made within thirty (30) days after receipt of such
written notice from the Company by any Holder, but only to the extent that such
inclusion will not diminish the number of securities included by holders of the
Company's securities who have demanded such registration.
(b) Underwriting. If the registration of which the
Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as a part of the written
notice given pursuant to Section 6.6(a)(i). In such event, the right of any
Holder to registration pursuant to Section 6.6 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of Registrable
Securities in the underwriting to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company and the other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the managing underwriter selected for such underwriting by the Company
(or by the holders who have demanded such registration). Notwithstanding any
other provision of this Section 6.6, if the managing underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, the managing underwriter may limit the number of Registrable
Securities to be included in the registration and underwriting on a pro rata
basis based on the total number of securities (including, without limitation,
Registrable Securities) entitled to registration pursuant to registration rights
granted to the participating Holders by the Company; provided, however, that no
such reduction may reduce the number of securities being sold by the Holders to
less than thirty percent (30%) of the shares being sold in such offering. To
facilitate the allocation of shares in
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<PAGE>
accordance with the above provisions, the Company or the underwriters may round
the number of shares allocated to any Holder or other holder to the nearest 100
shares. If any Holder or other holder disapproves of the terms of any such
underwriting, he or she may elect to withdraw therefrom by written notice to the
Company and the managing underwriter. Any securities excluded or withdrawn from
such underwriting shall be withdrawn from such registration, and shall not be
transferred in a public distribution prior to ninety (90) days after the
effective date of the registration statement relating thereto.
(c) Right to Terminate Registration. The Company
shall have the right to terminate or withdraw any registration initiated by it
under this Section 6.6 prior to the effectiveness of such registration, whether
or not any Holder has elected to include securities in such registration.
6.7 Registration on Form S-3.
(a) If any Holder or Holders of not less than twenty
percent (20%) of the Registrable Securities requests that the Company file a
registration statement on Form S-3 (or any successor form to Form S-3) for a
public offering of shares of the Registrable Securities, the reasonably
anticipated aggregate price to the public of which, net of underwriting
discounts and commissions, would exceed $500,000, and the Company is a
registrant entitled to use Form S-3 to register the Registrable Securities for
such an offering, the Company shall use its best efforts to cause such
Registrable Securities to be registered for the offering on such form. The
Company will (i) promptly give written notice of the proposed registration to
all other Holders, and (ii) as soon as practicable, use its best efforts to
effect such registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act and any other
governmental requirements or regulations) as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any Holder or Holders joining in
such request as are specified in a written request received by the Company
within thirty (30) days after receipt of such written notice from the Company.
The substantive provisions of Section 6.5(b) shall be applicable to each
registration initiated under this Section 6.7.
(b) Notwithstanding the foregoing, the Company shall
not be obligated to take any action pursuant to this Section 6.7: (i) in any
particular jurisdiction in which the Company would be required to execute a
general consent to service of process in effecting such registration,
qualification or compliance unless the Company is already subject to service in
such jurisdiction and except as may be required by the Securities Act; (ii)
during the period starting with the date sixty (60) days prior to the Company's
estimated date of filing of, and ending on the date six (6) months immediately
following the effective date of, a registration statement (other than with
respect to a registration statement relating to a Rule 145 transaction, an
offering solely to employees or any other registration which is not appropriate
for the registration of Registrable Securities), provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or (iii) if the Company shall
furnish to such Holder a certificate
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signed by the President of the Company stating that, in the good faith judgment
of the Board of Directors, it would be seriously detrimental to the Company or
its shareholders for registration statements to be filed in the near future,
then the Company's obligation to use its best efforts to file a registration
statement shall be deferred for a period not to exceed one hundred eighty (180)
days from the receipt of the request to file such registration by such Holder or
Holders; provided, however, that the Company may not utilize this right more
than once in any twelve (12) month period.
6.8 Limitations on Subsequent Registration Rights. From and
after the date hereof, the Company shall not enter into any agreement granting
any holder or prospective holder of any securities of the Company registration
rights with respect to such securities unless such new registration rights,
including standoff obligations, are subordinate to the registration rights
granted Holders hereunder.
6.9 Expenses of Registration. All Registration Expenses
incurred in connection with any registration pursuant to Sections 6.5, 6.6 and
6.7 and the reasonable cost of one special legal counsel to represent all of the
Holders together in any such registration shall be borne by the Company. If a
registration proceeding is begun upon the request of Initiating Holders pursuant
to Section 6.5, but such request is subsequently withdrawn, then the Holders of
Registrable Securities to have been registered may either: (i) bear all
Registration Expenses of such proceeding, pro rata on the basis of the number of
shares to have been registered, in which case the Company shall be deemed not to
have effected a registration pursuant to subparagraph 6.5(a) of this Agreement;
or (ii) require the Company to bear all Registration Expenses of such
proceeding, in which case the Company shall be deemed to have effected a
registration pursuant to subparagraph 6.5(a) of this Agreement. Notwithstanding
the foregoing, however, if at the time of the withdrawal, the Holders have
learned of a material adverse change in the condition, business or prospects of
the Company from that known to the Holders at the time of their request, then
the Holders shall not be required to pay any of said Registration Expenses. In
such case, the Company shall be deemed not to have effected a registration
pursuant to subparagraph 6.5(a) of this Agreement. Unless otherwise stated, all
other Selling Expenses relating to securities registered on behalf of the
Holders shall be borne by the Holders of the registered securities included in
such registration pro rata on the basis of the number of shares so registered.
6.10 Registration Procedures. In the case of each
registration, qualification or compliance effected by the Company pursuant to
this Section 6, the Company will keep each Holder advised in writing as to the
initiation of each registration, qualification and compliance and as to the
completion thereof. At its expense the Company will:
(a) Prepare and file with the Commission a
registration statement with respect to such securities and use its best efforts
to cause such registration statement to become and remain effective for at least
one hundred eighty (180) days or until the distribution described in the
registration statement has been completed; and
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<PAGE>
(b) Prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders participating in such
registration and to the underwriters of the securities being registered such
reasonable number of copies of the registration statement, preliminary
prospectus, final prospectus and such other documents as such underwriters may
reasonably request in order to facilitate the public offering of such
securities.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders; provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Act.
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Cause all such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange on which similar
securities issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all
Registrable Securities registered pursuant hereunder and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date of
such registration.
(i) Use its best efforts to furnish, at the request
of any Holder requesting registration of Registrable Securities pursuant to this
Section 6, on the date that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant to this Section
6, if such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes effective, (i) an
opinion, dated such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given to
underwriters in an
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<PAGE>
underwritten public offering, addressed to the underwriters, if any, and to the
Holders requesting registration of Registrable Securities and (ii) a letter
dated such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Holders requesting registration of
Registrable Securities.
6.11 Indemnification.
(a) The Company will indemnify each Holder, each of
its officers and directors and partners, and each person controlling such Holder
within the meaning of Section 15 of the Securities Act, with respect to which
registration, qualification or compliance has been effected pursuant to this
Section 6, and each underwriter, if any, and each person who controls any
underwriter within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, preliminary prospectus, offering circular or
other document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading, or any violation or any alleged violation by the
Company of any rule or regulation promulgated under the Securities Act or the
Exchange Act or any state securities law applicable to the Company in connection
with any such registration, qualification or compliance, and the Company will
reimburse each such Holder, each of its officers and directors, and each person
controlling such Holder, each such underwriter and each person who controls any
such underwriter, for any legal and any other expenses as reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, as such expenses are incurred, provided that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability or expense arises out of or is based on any untrue
statement or omission or alleged untrue statement or omission, made in reliance
upon and in conformity with written information furnished to the Company by an
instrument duly executed by such Holder, controlling person or underwriter and
stated to be specifically for use therein.
(b) Each Holder will, if Registrable Securities held
by such Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of Section 15 of the
Securities Act, and each other such Holder, each of its officers and directors
and each person controlling such Holder within the meaning of Section 15 of the
Securities Act, against all claims, losses, damages and liabilities (or actions
in respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will
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<PAGE>
reimburse the Company, such Holders, such directors, officers, persons,
underwriters or control persons for any legal or any other expenses as
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, as such expenses are incurred, in each
case to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by such Holder and stated to be
specifically for use therein.
(c) Each party entitled to indemnification under this
Section 6.11 (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense; provided, however, that an Indemnified Party
(together with all other Indemnified Parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the Indemnifying Party, if
representation of such Indemnified Party by the counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential differing
interests between such Indemnified Party and any other party represented by such
counsel in such proceeding. The failure of any Indemnified Party to give notice
as provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 6 unless the failure to give such notice is materially
prejudicial to an Indemnifying Party's ability to defend such action. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation.
6.12 Information by Holder. The Holder or Holders of
Registrable Securities included in any registration shall furnish to the Company
such information regarding such Holder or Holders, the Registrable Securities
held by them and the distribution proposed by such Holder or Holders as the
Company may request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Section 6.
6.13 Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Restricted Securities to the public without
registration, after such time as a public market exists for the Common Stock of
the Company, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as
those terms are understood and defined in Rule 144 under the Securities Act, at
all times after the effective date that the Company becomes subject to the
reporting requirements of the Securities Act or the Exchange Act;
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<PAGE>
(b) File with the Commission in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Exchange Act (at any time after it has become subject to such reporting
requirements); and
(c) So long as a Holder owns any Restricted
Securities, to furnish to the Holder forthwith upon request a written statement
by the Company as to its compliance with the reporting requirements of said Rule
144 (at any time after ninety (90) days after the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), and of the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents of the Company and other information in the possession of or
reasonably obtainable by the Company as a Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing a Holder to
sell any such securities without registration.
6.14 Transfer of Registration Rights. The rights to cause the
Company to register securities granted to any party hereto under Sections 6.5,
6.6 and 6.7 may be assigned to a transferee or assignee reasonably acceptable to
the Company in connection with any transfer or assignment of Registrable
Securities by such party (together with any affiliate); provided that (a) such
transfer may otherwise be effected in accordance with applicable securities
laws, (b) notice of such assignment is given to the Company, and (c) such
transferee or assignee (i) is a wholly-owned subsidiary or constituent partner
(including limited partners, retired partners, spouses and ancestors, lineal
descendants and siblings of such partners or spouses who acquire Registrable
Securities by gift, will or intestate succession) of such party, or (ii)
acquires from such party at least 50,000 shares of Restricted Securities (as
appropriately adjusted for stock splits and the like).
6.15 Standoff Agreement. Each Holder agrees in connection with
any registration of the Company's securities (other than a registration of
securities in a Rule 145 transaction or with respect to an employee benefit
plan), upon request of the Company or the underwriters managing any underwritten
offering of the Company's securities, not to sell, make any short sale of, loan,
pledge (or otherwise encumber or hypothecate), grant any option for the purchase
of, or otherwise directly or indirectly dispose of any Registrable Securities
(other than those included in the registration) without the prior written
consent of the Company and such managing underwriters for such period of time,
not to exceed ninety (90) days, as the Board of Directors establishes pursuant
to its good faith negotiations with such managing underwriters; provided,
however, that such Holder shall not be subject to such lockup unless the
officers and directors of the Company who own stock of the Company shall also be
bound by such restrictions.
7. Miscellaneous.
7.1 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of California, without regard to any
provisions thereof relating to conflicts of laws among different jurisdictions.
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7.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by the Investor and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or exhibit delivered by or on
behalf of the Company pursuant hereto shall be deemed to be the representations
and warranties of the Company hereunder as of such date of such certificate or
exhibit.
7.3 Successors and Assigns. Except as otherwise provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto; provided, however, that the rights of an Investor to purchase
Shares shall not be assignable without the consent of the Company.
7.4 Entire Agreement; Amendment. This Agreement and the other
documents delivered pursuant hereto constitute the full and entire understanding
and agreement among the parties with regard to the subjects hereof and thereof.
Neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought;
provided, however, that holders of fifty-one percent (51%) of the outstanding
Shares (whether or not converted) may waive or amend, on behalf of the Investor
and other holders of Shares, any provisions hereof benefitting the Investor so
long as the effect thereof will be that the Investor and other holders of Shares
will be treated equally.
7.5 Notices, Etc. All notices and other communications
required or permitted hereunder shall be in writing and shall be mailed by
registered or certified mail, postage prepaid, return receipt requested, or
otherwise delivered by hand or by messenger, addressed (a) if to the Investor,
at the Investor's principal offices at 2471 E. Bayshore, Suite 520, Palo Alto,
California 94303, or at such other address as the Investor shall have furnished
to the Company in writing, or (b) if to any other holder of any Shares, at such
address as such holder shall have furnished the Company in writing, or, until
any such holder so furnishes an address to the Company, then to and at the
address of the last holder of such Shares who has so furnished an address to the
Company, or (c) if to the Company, at its principal offices at 901 Mariner's
Island Boulevard, Suite 365, San Mateo, California 94404 addressed to the
attention of the Corporate Secretary, or at such other address as the Company
shall have furnished to the Investor. If notice is provided by mail, notice
shall be deemed to be given three (3) business days after proper deposit in the
U.S. Mail.
7.6 Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to any holder of any Shares upon any breach or
default of the Company under this Agreement shall impair any such right, power
or remedy of such holder, nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this
Agreement, or any waiver on the part of any holder of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such
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<PAGE>
writing or as provided in this Agreement. All remedies, either under this
Agreement or by law or otherwise afforded to any holder, shall be cumulative and
not alternative.
7.7 California Corporate Securities Law. THE SALE OF THE
SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF
SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION
THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES
IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE
CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE
EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS
SO EXEMPT.
7.8 Expenses. The Company and the Investor shall bear their
own expenses and legal fees incurred on its behalf with respect to this
Agreement and the transactions contemplated hereby.
7.9 Finder's Fee. The Company and the Investor shall each
indemnify and hold the other harmless from any liability for any commission or
compensation in the nature of a finder's fee (including the costs, expenses and
legal fees of defending against such liability) for which the Company or the
Investor, or any of their respective partners, employees, or representatives, as
the case may be, is responsible.
7.10 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be enforceable against the parties
actually executing such counterparts, and all of which together shall constitute
one instrument.
7.11 Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to any
party.
[This space left blank intentionally]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
HYPERMEDIA COMMUNICATIONS, INC. MK GVD FUND
Signature: /s/ TODD HAGEN Signature: /s/ GREG LAHANN
--------------------- --------------------------
By: By:
---------------------------- --------------------------------
Its: Chief Financial Officer Its: General Partner
-------------------------- --------------------------------
<PAGE>
EXHIBIT A
CERTIFICATE OF DETERMINATION OF PREFERENCES
OF SERIES G PREFERRED STOCK
[see Tab 3]
<PAGE>
EXHIBIT B
SCHEDULE OF EXCEPTIONS
This disclosure of exceptions is made and given pursuant to Section 2
of the Series G Preferred Stock Purchase Agreement dated as of July 3, 1996 (the
"Agreement"), by and between HyperMedia Communications, Inc. (the "Company") and
MK GVD Fund (the "Investor"). Unless the context otherwise requires, all
capitalized terms are used herein as defined in the Agreement. The numbers below
correspond to the section numbers of representations and warranties in the
Agreement that are most directly modified by the disclosures, but all
disclosures are intended to modify all of the Company's representations and
warranties.
2.8 The Company has received a letter, dated May 2, 1996, from the law firm
of Herman Roof Borgognoni & Moore on behalf of Elk Industries, Inc.
("Elk"), alleging that a product and/or service of the Company
infringes a patent issued to Elk. Because the Company views the
allegation as groundless, it has not responded to the letter.
The Company recently received a letter from Steinhart & Falconer on
behalf of Testdrive Corporation demanding the Company cease using the
name "TestDrive" in NewMedia Magazine. The Company is conducting
background research into the circumstances of this matter.
The Company recently became aware of a company based in Maine named
"HyperMedia Communications, Inc." ("Maine HyperMedia"). Wilson Sonsini
Goodrich & Rosati, on behalf of the Company, sent Maine HyperMedia a
letter dated June 18, 1996 asking Maine HyperMedia to cease and desist
from using the name "HyperMedia Communications, Inc." The Company has
not yet received a response to this letter.
2.12 Imperial Bank has a security interest, perfected in a filed UCC-1, in
most of the Company's assets. The Bank waived the Company's requirement
to comply with the covenant that the Company be profitable in the
second quarter of fiscal 1996.
HyperMedia Communications, Inc.
SEC Form 10-K FY97
Exhibit 4.19
<PAGE>
HYPERMEDIA COMMUNICATIONS, INC.
SERIES H PREFERRED STOCK PURCHASE AGREEMENT
September 18, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
1. Purchase and Sale of Stock...........................................1
1.1 Sale and Issuance of Series H Preferred Stock...............1
1.2 Closings....................................................1
2. Representations and Warranties of the Company........................2
2.1 Organization, Good Standing and Qualification...............2
2.2 Capitalization..............................................2
2.3 Subsidiaries................................................2
2.4 Authorization...............................................2
2.5 Valid Issuance of Preferred and Common Stock................3
2.6 Governmental Consents.......................................3
2.7 Litigation..................................................3
2.8 Patents and Trademarks......................................4
2.9 Compliance with Other Instruments...........................4
2.10 Permits.....................................................4
2.11 Disclosure..................................................4
2.12 Title to Property and Assets................................5
2.13 Tax Returns and Audits......................................5
2.14 Brokers or Finders..........................................5
3. Representations and Warranties of the Investor.......................5
3.1 Experience..................................................5
3.2 Investment..................................................5
3.3 Rule 144....................................................6
3.4 Access to Data..............................................6
3.5 Authorization...............................................6
3.6 Accredited Investor.........................................6
4. Conditions of Investor's Obligations at Closing......................6
4.1 Representations and Warranties..............................6
4.2 Performance.................................................7
4.3 Compliance Certificate......................................7
4.4 Blue Sky....................................................7
5. Conditions of the Company's Obligations at Closing...................7
5.1 Representations and Warranties..............................7
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<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
5.2 Payment of Purchase Price...................................7
5.3 Blue Sky....................................................7
5.4 Proceedings and Documents...................................7
6. Restrictions on Transferability; Registration Rights.................7
6.1 Certain Definitions.........................................7
6.2 Restrictions................................................9
6.3 Restrictive Legend..........................................9
6.4 Notice of Proposed Transfers................................9
6.5 Requested Registration.....................................10
6.6 Company Registration.......................................12
6.7 Registration on Form S-3...................................13
6.8 Limitations on Subsequent Registration Rights..............14
6.9 Expenses of Registration...................................14
6.10 Registration Procedures....................................14
6.11 Indemnification............................................16
6.12 Information by Holder......................................17
6.13 Rule 144 Reporting.........................................17
6.14 Transfer of Registration Rights............................18
6.15 Standoff Agreement.........................................18
7. Miscellaneous.......................................................18
7.1 Governing Law..............................................18
7.2 Survival...................................................19
7.3 Successors and Assigns.....................................19
7.4 Entire Agreement; Amendment................................19
7.5 Notices, Etc...............................................19
7.6 Delays or Omissions........................................19
7.7 California Corporate Securities Law........................20
7.8 Expenses...................................................20
7.9 Finder=s Fee...............................................20
7.10 Counterparts...............................................20
7.11 Severability...............................................20
Exhibit A Certificate of Determination of Preferences of Series H
Preferred Stock
Exhibit B Schedule of Exceptions
Exhibit C Schedule of Investors
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<PAGE>
SERIES H PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES H PREFERRED STOCK PURCHASE AGREEMENT is made as of the __
day of September, 1997, by and between HYPERMEDIA COMMUNICATIONS, INC., a
California corporation (the "Company"), and MK GVD FUND (the "Investor").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
1.1 Sale and Issuance of Series H Preferred Stock.
(a) The Board of Directors of the Company shall adopt
and file with the Secretary of State of California on or before the Initial
Closing (as defined below) the Certificate of Determination of Preferences of
Series H Preferred Stock (the "Certificate of Determination"), in the form
attached hereto as Exhibit A.
(b) Subject to the terms and conditions of this
Agreement, the Investor agrees to purchase at the Initial Closing, and the
Company agrees to sell and issue to the Investor at the Initial Closing and any
Subsequent Closings (as defined below), an aggregate of up to that number of
shares (the "Shares") of the Company's Series H Preferred Stock (the "Series H
Preferred") equal to $400,000 divided by the Purchase Price (as defined below)
at each Closing. The number of shares of Series H Preferred to be sold and
issued at each Closing shall be determined by the Company in its sole discretion
on or before the date of such Closing, but in no event shall the aggregate of
such numbers exceed the maximum set forth in the preceding sentence. The
purchase price per Share (the "Purchase Price") shall be equal to 85% of the
average closing bid price of a share of the Company's Common Stock as reported
on the Nasdaq SmallCap Market for the 10 trading days ending 5 business days
before the date of a Closing.
1.2 Closings. The purchase and sale of the Shares shall take
place at the offices of Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road,
Palo Alto, California, at any times on or before June 30, 1998 as the Company
and the Investor agree upon orally or in writing (the first of which times is
designated the "Initial Closing," all others of which are designated "Subsequent
Closings" and all of which times are collectively designated as "Closings"), but
in any event no later than three business days after Investor's receipt of a
written request from the Company setting forth the number of shares to be
purchased and sold at the Closing in question. At each Closing the Company shall
deliver to the Investor a certificate representing the Series H Preferred that
the Investor is purchasing against payment of the aggregate purchase price
therefor by check, wire transfer or any combination thereof.
<PAGE>
2. Representations and Warranties of the Company. Except as set forth
in (i) the forms, reports and documents, including the exhibits thereto, filed
by the Company with the Securities and Exchange Commission, (ii) the documents
and other materials provided to directors of the Company prior to and during
meetings of the Company's Board of Directors or (iii) the Schedule of Exceptions
attached hereto as Exhibit B, the Company hereby represents and warrants as
follows:
2.1 Organization, Good Standing and Qualification. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of California and has all requisite corporate power and
authority to carry on its business as currently conducted. The Company is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure to so qualify would have a material adverse effect on its
business or properties. True and accurate copies of the Company's Articles of
Incorporation and Bylaws, each as amended and in effect at the Initial Closing,
have been delivered to the Investor.
2.2 Capitalization. The authorized capital stock of the
Company consists of 50,000,000 shares of Common Stock ("Common Stock"), of which
3,200,137 shares are issued and outstanding on the date of this Agreement, and
10,064,516 shares of Preferred Stock ("Preferred Stock"), of which (i) 8,064,516
shares are designated Series E Preferred Stock, all of which are issued and
outstanding, (ii) 175,000 shares are designated Series F Preferred Stock, 82,250
of which are issued and outstanding, (iii) 175,000 shares are designated Series
G Preferred Stock, 50,344 of which are issued and outstanding, and (iv) 400,000
shares are designated Series H Preferred Stock, none of which is issued and
outstanding. All such issued and outstanding shares have been duly authorized
and validly issued and are fully paid and nonassessable. The Company has
reserved an aggregate of 400,000 shares of Series H Preferred for issuance
hereunder. The Company has reserved 400,000 shares of Common Stock for issuance
upon conversion of the Series H Preferred. An aggregate of 1,100,000 shares of
Common Stock are reserved for issuance under the Company's 1991 Stock Plan, 1993
Director Option Plan and 1996 Employee Stock Purchase Plan. There are options
outstanding under the Company's 1991 Stock Plan and 1993 Director Option Plan to
purchase an aggregate of approximately 518,554 shares and approximately 160,000
shares, respectively, of the Company's Common Stock. There are warrants
outstanding to purchase an aggregate of approximately 491,591 shares of the
Company's Common Stock. There are no other outstanding rights, options,
warrants, preemptive rights, rights of first refusal or similar rights for the
purchase or acquisition from the Company of any securities of the Company. All
outstanding shares have been issued in compliance with state and federal
securities laws.
2.3 Subsidiaries. The Company does not presently own or
control, directly or indirectly, any interest in any other corporation,
association, or other business entity. The Company is not a participant in any
joint venture, partnership, or similar arrangement.
2.4 Authorization. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, the performance of all
obligations of the Company hereunder and thereunder, and the authorization,
issuance (or reservation for issuance), sale and delivery of the Shares being
sold hereunder and the Common Stock issuable upon conversion of the Shares has
been taken or will be taken prior to the
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<PAGE>
Initial Closing, and this Agreement constitutes a valid and legally binding
obligation of the Company, enforceable in accordance with its terms, subject to:
(i) judicial principles limiting the availability of specific performance,
injunctive relief, and other equitable remedies; and (ii) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect generally relating to or affecting creditors" rights.
2.5 Valid Issuance of Preferred and Common Stock. The shares
of Series H Preferred that are being purchased by the Investors hereunder, when
issued, sold and delivered in accordance with the terms of this Agreement for
the consideration expressed herein, will be duly and validly issued, fully paid,
and nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement and under applicable state and
federal securities laws. The Common Stock issuable upon conversion of the Series
H Preferred purchased under this Agreement has been duly and validly reserved
for issuance and, upon issuance in accordance with the terms of the Certificate
of Determination and the Amended and Restated Articles of Incorporation (the
"Restated Articles"), will be duly and validly issued, fully paid, and
nonassessable and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement and under applicable state and
federal securities laws.
2.6 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the offer, sale or issuance of the
Shares (and the Common Stock issuable upon conversion of the Shares) or the
consummation of any other transaction contemplated hereby, except for the
following: (i) the filing of the Certificate of Determination in the office of
the Secretary of State of the State of California, which shall be filed by the
Company on or prior to the Initial Closing; (ii) the filing of such notices as
may be required under the Securities Act of 1933, as amended (the "Securities
Act"); and (iii) the filing of a notice of exemption pursuant to Section
25102(f) of the California Corporate Securities Law of 1968, as amended (the
"California Securities Law"), which shall be filed by the Company promptly
following each Closing. Based in part on the representations of the Investors
set forth in Section 3 below, the offer, sale and issuance of the Shares in
conformity with the terms of this Agreement are exempt from the registration
requirements of Section 5 of the Securities Act and from the qualification
requirements of Section 25110 of the California Securities Law.
2.7 Litigation. There is no action, suit, proceeding or
investigation pending or, to the best of the Company's knowledge, currently
threatened before any court, administrative agency or other governmental body
against the Company which questions the validity of this Agreement or the right
of the Company to enter into it, or to consummate the transactions contemplated
hereby, or which could result, either individually or in the aggregate, in any
material adverse change in the condition (financial or otherwise), business,
property, assets or liabilities of the Company. The foregoing includes, without
limitation, actions, suits, proceedings or investigations pending or threatened
(or any basis therefor known to the Company) involving the prior employment of
any of the Company's employees, their use in connection with the Company's
business of any information or techniques allegedly proprietary to any of their
former employers, or their obligations under any agreements with prior
employers. The Company is not a party or subject to, and none of its assets is
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<PAGE>
bound by, the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality.
2.8 Patents and Trademarks. The Company has sufficient title
and ownership of all patents, trademarks, service marks, trade names,
copyrights, trade secrets, information, proprietary rights and processes
(collectively, "Intellectual Property") necessary for its business as now
conducted without any conflict with or infringement of the rights of others.
There are no outstanding options, licenses, or agreements of any kind relating
to the foregoing, nor is the Company bound by or a party to any options,
licenses or agreements of any kind with respect to the Intellectual Property of
any other person or entity. The Company has not received any communications
alleging that any material Intellectual Property of the Company has violated or
would violate any of the Intellectual Property of any other person or entity.
2.9 Compliance with Other Instruments. The Company is not in
violation or default of any provision of its Restated Articles of Incorporation
or Bylaws, each as amended and in effect on and as of each Closing. The Company
is not in violation or default of any material provision of any instrument,
mortgage, deed of trust, loan, contract, commitment, judgment, decree, order or
obligation to which it is a party or by which it or any of its properties or
assets are bound which would materially adversely affect the condition
(financial or otherwise), business, property, assets or liabilities of the
Company or, to the best of its knowledge, of any provision of any federal, state
or local statute, rule or governmental regulation which would materially
adversely affect the condition (financial or otherwise), business, property,
assets or liabilities of the Company. The execution, delivery and performance of
and compliance with this Agreement, and the issuance and sale of the Shares,
will not result in any such violation, be in conflict with or constitute, with
or without the passage of time or giving of notice, a default under any such
provision, require any consent or waiver under any such provision (other than
any consents or waivers that have been obtained), or result in the creation of
any mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company pursuant to any such provision.
2.10 Permits. The Company has all franchises, permits,
licenses, and any similar authority necessary for the conduct of its business as
now being conducted by it, the lack of which could materially and adversely
affect the business, properties, prospects, or financial condition of the
Company, and the Company believes it can obtain, without undue burden or
expense, any similar authority for the conduct of its business as planned to be
conducted. The Company is not in default in any material respect under any of
such franchises, permits, licenses, or other similar authority.
2.11 Disclosure. No representation, warranty or statement by
the Company in this Agreement, or in any written statement or certificate
furnished to the Investors pursuant to this Agreement or the transactions
contemplated hereby, contains any untrue statement of a material fact or, when
taken together, omits to state a material fact necessary to make the statements
made herein or therein, in light of the circumstances under which they were
made, not misleading.
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<PAGE>
2.12 Title to Property and Assets. The Company has good and
marketable title to all of its properties and assets free and clear of all
mortgages, liens and encumbrances, except liens for current taxes and
assessments not yet due and possible minor liens and encumbrances which do not,
in any case, in the aggregate, materially detract from the value of the property
subject thereto or materially impair the operations of the Company. With respect
to the property and assets it leases, the Company is in compliance with such
leases and, to the best of its knowledge, holds a valid leasehold interest free
of all liens, claims or encumbrances. The Company's properties and assets are in
good condition and repair in all material respects.
2.13 Tax Returns and Audits. The Company has accurately
prepared all United States income tax returns and all state and municipal tax
returns required to be filed by it, if any, has paid all taxes, assessments,
fees and charges when and as due under such returns and has made adequate
provision for the payment of all other taxes, assessments, fees and charges
shown on such returns or on assessments received by the Company. To the best of
the Company's knowledge, no deficiency assessment or proposed adjustment of the
Company's United States income tax or state or municipal taxes is pending.
2.14 Brokers or Finders. The Company has not agreed to incur,
directly or indirectly, any liability for brokerage or finders' fees, agents'
commissions or other similar charges in connection with this Agreement or any of
the transactions contemplated hereby.
3. Representations and Warranties of the Investor. The Investor hereby
represents and warrants that:
3.1 Experience. The Investor is experienced in evaluating
companies such as the Company, is able to fend for itself in transactions such
as the one contemplated by this Agreement, has such knowledge and experience in
financial and business matters that Investor is capable of evaluating the merits
and risks of Investor's prospective investment in the Company, and has the
ability to bear the economic risks of the investment.
3.2 Investment. The Investor is acquiring the Shares (and the
Common Stock issuable upon conversion of the Shares) for investment for such
Investor's own account and not with the view to, or for resale in connection
with, any distribution thereof. Such Investor understands that the Shares (and
the Common Stock issuable upon conversion of the Shares) have not been
registered under the Securities Act by reason of a specific exemption from the
registration provisions of the Securities Act which depends upon, among other
things, the bona fide nature of the investment intent as expressed herein. Such
Investor further represents that it does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participation to any third person with respect to any of the Shares (or any
Common Stock acquired upon conversion thereof). Such Investor understands and
acknowledges that the offering of the Shares pursuant to this Agreement will
not, and any issuance of Common Stock on conversion may not, be registered under
the Securities Act on the ground that the sale provided for in this Agreement
and the issuance of securities hereunder is exempt from the registration
requirements of the Securities Act.
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<PAGE>
3.3 Rule 144. The Investor acknowledges that the Shares (and
the Common Stock issuable upon conversion of the Shares) must be held
indefinitely unless subsequently registered under the Securities Act or an
exemption from such registration is available. Such Investor is aware of the
provisions of Rule 144 promulgated under the Securities Act which permit limited
resale of shares purchased in a private placement subject to the satisfaction of
certain conditions. Such Investor covenants that, in the absence of an effective
registration statement covering the stock in question, such Investor will sell,
transfer, or otherwise dispose of the Shares (and any Common Stock issued on
conversion thereof) only in a manner consistent with such Investor's
representations and covenants set forth in this Section 3. In connection
therewith, such Investor acknowledges that the Company will make a notation on
its stock books regarding the restrictions on transfers set forth in this
Section 3 and will transfer securities on the books of the Company only to the
extent not inconsistent therewith.
3.4 Access to Data. The Investor has received and reviewed
information about the Company and has had an opportunity to discuss the
Company's business, management and financial affairs with its management and to
review the Company's facilities. Such Investor understands that such
discussions, as well as any written information issued by the Company, were
intended to describe the aspects of the Company's business and prospects which
the Company believes to be material, but were not necessarily a thorough or
exhaustive description. The foregoing, however, does not limit or modify the
representations and warranties of the Company in Section 2 of this Agreement or
the right of the Investor to rely thereon.
3.5 Authorization. This Agreement when executed and delivered
by the Investor will constitute a valid and legally binding obligation of the
Investor, enforceable in accordance with its terms, subject to: (i) judicial
principles respecting election of remedies or limiting the availability of
specific performance, injunctive relief, and other equitable remedies; and (ii)
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect generally relating to or affecting creditors' rights.
3.6 Accredited Investor. The Investor acknowledges that it is
an "accredited investor" as defined in Rule 501 of Regulation D as promulgated
by the Securities and Exchange Commission under the Securities Act and shall
submit to the Company such further assurances of such status as may be
reasonably requested by the Company. For state securities law purposes, the
principal address of the Investor is that set forth on Exhibit C.
4. Conditions of Investor's Obligations at Closing. The obligations of
the Investor under subsection 1.1(b) of this Agreement are subject to the
fulfillment on or before each Closing of each of the following conditions, the
waiver of which shall not be effective against any Investor who does not consent
in writing thereto:
4.1 Representations and Warranties. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing.
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<PAGE>
4.2 Performance. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing.
4.3 Compliance Certificate. The President of the Company shall
deliver to the Investor at the Closing a certificate stating that the conditions
specified in Sections 4.1 and 4.2 have been fulfilled.
4.4 Blue Sky. The Company shall have obtained all necessary
permits and qualifications, if any, or secured an exemption therefrom, required
by any state or country prior to the offer and sale of the Shares.
5. Conditions of the Company's Obligations at Closing. The obligations
of the Company to the Investor under this Agreement are subject to the
fulfillment on or before each Closing of each of the following conditions by
that Investor:
5.1 Representations and Warranties. The representations and
warranties of the Investor contained in Section 3 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the Closing.
5.2 Payment of Purchase Price. The Investor shall have
delivered the purchase price specified in Section 1.1 against delivery of the
Shares.
5.3 Blue Sky. The Company shall have obtained all necessary
permits and qualifications, if any, or secured an exemption therefrom, required
by any state or country for the offer and sale of the Shares.
5.4 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby, and all documents and instruments incident to these transactions, shall
be reasonably satisfactory in substance to the Company and its counsel.
6. Restrictions on Transferability; Registration Rights
6.1 Certain Definitions. As used in this Section 6, the
following terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
"Conversion Shares" means the Common Stock issued or issuable
upon conversion of the Shares.
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<PAGE>
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Holder" shall mean the Investor, if it still holds
Registrable Securities, and any person holding Registrable Securities to whom
the rights under this Agreement have been transferred in accordance with Section
6.14 hereof.
"Initiating Holders" shall mean the Investor or transferees of
the Investor under Section 6.14 hereof who in the aggregate are Holders of not
less than 35% of the Registrable Securities.
The terms "register", "registered" and "registration" refer to
a registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by
the Company in complying with Sections 6.5, 6.6 and 6.7 hereof, including,
without limitation, all registration, qualification and filing fees, printing
expenses, escrow fees, fees and disbursements of counsel for the Company, blue
sky fees and expenses, and the expense of any special audits incident to or
required by any such registration (but excluding the compensation of regular
employees of the Company which shall be paid in any event by the Company).
"Registrable Securities" means any Common Stock of the Company
issued or issuable in respect of the Shares or Conversion Shares or other
securities issued or issuable with respect to the Shares or Conversion Shares
upon any stock split, stock dividend, recapitalization, or similar event, or any
Common Stock otherwise issued or issuable with respect to the Shares or
Conversion Shares; provided, however, that shares of Common Stock or other
securities shall only be treated as Registrable Securities if and so long as
they have not been (A) sold to or through a broker or dealer or underwriter in a
public distribution or a public securities transaction, or (B) sold in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act under Section 4(1) thereof so that all transfer restrictions
and restrictive legends with respect thereto are removed upon the consummation
of such sale.
"Restricted Securities" shall mean the securities of the
Company required to bear the legend set forth in Section 6.3 hereof.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts,
selling commissions and stock transfer taxes applicable to the securities
registered by the Holders and all fees and disbursements of counsel for the
Holders (as limited by Section 6.9).
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<PAGE>
6.2 Restrictions. The Shares and the Conversion Shares shall
not be sold, assigned, transferred or pledged except upon the conditions
specified in this Section 6, which conditions are intended to ensure compliance
with the provisions of the Securities Act. The Investor will cause any proposed
purchaser, assignee, transferee or pledgee of the Shares and the Conversion
Shares to agree to take and hold such securities subject to the provisions and
upon the conditions specified in this Section 6.
6.3 Restrictive Legend. Each certificate representing (i) the
Shares, (ii) the Conversion Shares, and (iii) any other securities issued in
respect of the securities referenced in clauses (i) and (ii) upon any stock
split, stock dividend, recapitalization, merger, consolidation or similar event,
shall (unless otherwise permitted by the provisions of Section 6.4 below) be
stamped or otherwise imprinted with a legend in the following form (in addition
to any legend required under applicable state securities laws):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD,
TRANSFERRED OR PLEDGED IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY
BE COUNSEL FOR THE COMPANY) REASONABLY ACCEPTABLE TO IT
STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID
ACT."
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED
ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE
COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH
THE SECRETARY OF THE COMPANY."
Each Investor consents to the Company making a notation on its
records and giving instructions to any transfer agent of the Restricted
Securities in order to implement the restrictions on transfer established in
this Section 6.
6.4 Notice of Proposed Transfers. The holder of each
certificate representing Restricted Securities, by acceptance thereof, agrees to
comply in all respects with the provisions of this Section 6. Prior to any
proposed sale, assignment, transfer or pledge of any Restricted Securities,
unless there is in effect a registration statement under the Securities Act
covering the proposed transfer, the holder thereof shall give written notice to
the Company of such holder's intention to effect such transfer, sale, assignment
or pledge. Each such notice shall describe the manner and circumstances of the
proposed transfer, sale, assignment or pledge in sufficient detail, and shall be
accompanied at such holder's expense by either (i) a written opinion of legal
counsel who shall, and whose legal opinion shall be, reasonably satisfactory to
the Company, addressed to the Company, to the effect that the proposed transfer
of the Restricted Securities may be effected
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<PAGE>
without registration under the Securities Act, or (ii) a "no action" letter from
the Commission to the effect that the transfer of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, or (iii) any other evidence
reasonably satisfactory to counsel to the Company, whereupon the holder of such
Restricted Securities shall be entitled to transfer such Restricted Securities
in accordance with the terms of the notice delivered by the holder to the
Company. The Company will not require such a legal opinion or "no action" letter
(a) in any transaction in compliance with Rule 144, (b) in any transaction in
which an Investor which is a corporation distributes Restricted Securities after
six (6) months after the purchase thereof solely to its majority owned
subsidiaries or affiliates for no consideration, or (c) in any transaction in
which an Investor which is a partnership distributes Restricted Securities after
six (6) months after the purchase thereof solely to partners thereof for no
consideration; provided that each transferee agrees in writing to be subject to
the terms of this Section 6.4. Each certificate evidencing the Restricted
Securities transferred as above provided shall bear, except if such transfer is
made pursuant to Rule 144, the appropriate restrictive legend set forth in
Section 6.3 above, except that such certificate shall not bear such restrictive
legend if, in the opinion of counsel for such holder and the Company, such
legend is not required in order to establish compliance with any provisions of
the Securities Act.
6.5 Requested Registration.
(a) Request for Registration. In case the Company
shall receive from Initiating Holders a written request that the Company effect
any registration, qualification or compliance with respect to the Registrable
Securities, the Company will:
(i) promptly give written notice of the
proposed registration, qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best
efforts to effect such registration, qualification or compliance (including,
without limitation, the execution of an undertaking to file post-effective
amendments, appropriate qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations issued
under the Securities Act and any other governmental requirements or regulations)
as may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any Holder or Holders joining in such request as are specified in
a written request received by the Company within thirty (30) days after receipt
of such written notice from the Company; provided, however, that the Company
shall not be obligated to take any action to effect any such registration,
qualification or compliance pursuant to this Section 6.5:
(1) In any particular jurisdiction in
which the Company would be required to execute a general consent to service of
process in effecting such registration, qualification or compliance unless the
Company is already subject to service in such jurisdiction and except as may be
required by the Securities Act;
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(2) During the period starting with
the date sixty (60) days prior to the Company's estimated date of filing of, and
ending on the date six (6) months immediately following the effective date of,
any registration statement pertaining to securities of the Company (other than a
registration of securities in a Rule 145 transaction or with respect to an
employee benefit plan), provided that the Company is actively employing in good
faith all reasonable efforts to cause such registration statement to become
effective and that the Company's estimate of the date of filing such
registration statement is made in good faith;
(3) After the Company has effected
two (2) such registrations pursuant to this subparagraph 6.5(a), each such
registration has been declared or ordered effective and the securities offered
pursuant to each such registration have been sold; or
(4) If the Company shall furnish to
such Holders a certificate, signed by the President of the Company, stating that
in the good faith judgment of the Board of Directors it would be seriously
detrimental to the Company or its shareholders for a registration statement to
be filed in the near future, then the Company's obligation to use its best
efforts to register, qualify or comply under this Section 6.5 shall be deferred
for a period not to exceed one hundred eighty (180) days from the date of
receipt of written request from the Initiating Holders; provided, however, that
the Company may not use this right more than once in any twelve (12) month
period.
Subject to the foregoing clauses (1) through (4), the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Initiating Holders.
(b) Underwriting. In the event that a registration
pursuant to Section 6.5 is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as part of the notice
given pursuant to Section 6.5(a)(i). The right of any Holder to registration
pursuant to Section 6.5 shall be conditioned upon such Holder's participation in
the underwriting arrangements required by this Section 6.5 and the inclusion of
such Holder's Registrable Securities in the underwriting, to the extent
requested, to the extent provided herein.
The Company shall (together with all Holders proposing to distribute
their securities through such underwriting) enter into an underwriting agreement
in customary form with the managing underwriter selected for such underwriting
by a majority in interest of the Initiating Holders (which managing underwriter
shall be reasonably acceptable to the Company). Notwithstanding any other
provision of this Section 6.5, if the managing underwriter advises the
Initiating Holders in writing that marketing factors require a limitation of the
number of shares to be underwritten, then the Company shall so advise all
Holders of Registrable Securities and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated among all Holders thereof in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities held by such Holders at the
time of filing the registration statement; provided, however, that the number of
shares of Registrable Securities to be included in such underwriting shall not
be reduced unless all other securities are first entirely excluded from the
underwriting. No
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Registrable Securities excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such registration. To
facilitate the allocation of shares in accordance with the above provisions, the
Company or the underwriters may round the number of shares allocated to any
Holder to the nearest 100 shares.
If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the managing underwriter and the Initiating Holders. The
Registrable Securities and/or other securities so withdrawn shall also be
withdrawn from registration, and such Registrable Securities shall not be
transferred in a public distribution prior to ninety (90) days after the
effective date of such registration.
6.6 Company Registration.
(a) Notice of Registration. If at any time or from
time to time, the Company shall determine to register any of its securities,
either for its own account or the account of a security holder or holders other
than (i) a registration relating solely to employee benefit plans, or (ii) a
registration relating solely to a Commission Rule 145 transaction, the Company
will:
(i) promptly give to each Holder written
notice thereof; and
(ii) include in such registration (and any
related qualification under blue sky laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities specified in a
written request or requests made within thirty (30) days after receipt of such
written notice from the Company by any Holder, but only to the extent that such
inclusion will not diminish the number of securities included by holders of the
Company's securities who have demanded such registration.
(b) Underwriting. If the registration of which the
Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as a part of the written
notice given pursuant to Section 6.6(a)(i). In such event, the right of any
Holder to registration pursuant to Section 6.6 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of Registrable
Securities in the underwriting to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company and the other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the managing underwriter selected for such underwriting by the Company
(or by the holders who have demanded such registration). Notwithstanding any
other provision of this Section 6.6, if the managing underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, the managing underwriter may limit the number of Registrable
Securities to be included in the registration and underwriting on a pro rata
basis based on the total number of securities (including, without limitation,
Registrable Securities) entitled to registration pursuant to registration rights
granted to the participating Holders by the Company; provided, however, that no
such reduction may reduce the number of securities being sold by the Holders to
less than thirty percent (30%) of the shares being sold in such offering. To
facilitate the allocation of shares in
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accordance with the above provisions, the Company or the underwriters may round
the number of shares allocated to any Holder or other holder to the nearest 100
shares. If any Holder or other holder disapproves of the terms of any such
underwriting, he or she may elect to withdraw therefrom by written notice to the
Company and the managing underwriter. Any securities excluded or withdrawn from
such underwriting shall be withdrawn from such registration, and shall not be
transferred in a public distribution prior to ninety (90) days after the
effective date of the registration statement relating thereto.
(c) Right to Terminate Registration. The Company
shall have the right to terminate or withdraw any registration initiated by it
under this Section 6.6 prior to the effectiveness of such registration, whether
or not any Holder has elected to include securities in such registration.
6.7 Registration on Form S-3.
(a) If any Holder or Holders of not less than twenty
percent (20%) of the Registrable Securities requests that the Company file a
registration statement on Form S-3 (or any successor form to Form S-3) for a
public offering of shares of the Registrable Securities, the reasonably
anticipated aggregate price to the public of which, net of underwriting
discounts and commissions, would exceed $500,000, and the Company is a
registrant entitled to use Form S-3 to register the Registrable Securities for
such an offering, the Company shall use its best efforts to cause such
Registrable Securities to be registered for the offering on such form. The
Company will (i) promptly give written notice of the proposed registration to
all other Holders, and (ii) as soon as practicable, use its best efforts to
effect such registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act and any other
governmental requirements or regulations) as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any Holder or Holders joining in
such request as are specified in a written request received by the Company
within thirty (30) days after receipt of such written notice from the Company.
The substantive provisions of Section 6.5(b) shall be applicable to each
registration initiated under this Section 6.7.
(b) Notwithstanding the foregoing, the Company shall
not be obligated to take any action pursuant to this Section 6.7: (i) in any
particular jurisdiction in which the Company would be required to execute a
general consent to service of process in effecting such registration,
qualification or compliance unless the Company is already subject to service in
such jurisdiction and except as may be required by the Securities Act; (ii)
during the period starting with the date sixty (60) days prior to the Company's
estimated date of filing of, and ending on the date six (6) months immediately
following the effective date of, a registration statement (other than with
respect to a registration statement relating to a Rule 145 transaction, an
offering solely to employees or any other registration which is not appropriate
for the registration of Registrable Securities), provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or (iii) if the Company shall
furnish to such Holder a certificate
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signed by the President of the Company stating that, in the good faith judgment
of the Board of Directors, it would be seriously detrimental to the Company or
its shareholders for registration statements to be filed in the near future,
then the Company's obligation to use its best efforts to file a registration
statement shall be deferred for a period not to exceed one hundred eighty (180)
days from the receipt of the request to file such registration by such Holder or
Holders; provided, however, that the Company may not utilize this right more
than once in any twelve (12) month period.
6.8 Limitations on Subsequent Registration Rights. From and
after the date hereof, the Company shall not enter into any agreement granting
any holder or prospective holder of any securities of the Company registration
rights with respect to such securities unless such new registration rights,
including standoff obligations, are subordinate to the registration rights
granted Holders hereunder.
6.9 Expenses of Registration. All Registration Expenses
incurred in connection with any registration pursuant to Sections 6.5, 6.6 and
6.7 and the reasonable cost of one special legal counsel to represent all of the
Holders together in any such registration shall be borne by the Company. If a
registration proceeding is begun upon the request of Initiating Holders pursuant
to Section 6.5, but such request is subsequently withdrawn, then the Holders of
Registrable Securities to have been registered may either: (i) bear all
Registration Expenses of such proceeding, pro rata on the basis of the number of
shares to have been registered, in which case the Company shall be deemed not to
have effected a registration pursuant to subparagraph 6.5(a) of this Agreement;
or (ii) require the Company to bear all Registration Expenses of such
proceeding, in which case the Company shall be deemed to have effected a
registration pursuant to subparagraph 6.5(a) of this Agreement. Notwithstanding
the foregoing, however, if at the time of the withdrawal, the Holders have
learned of a material adverse change in the condition, business or prospects of
the Company from that known to the Holders at the time of their request, then
the Holders shall not be required to pay any of said Registration Expenses. In
such case, the Company shall be deemed not to have effected a registration
pursuant to subparagraph 6.5(a) of this Agreement. Unless otherwise stated, all
other Selling Expenses relating to securities registered on behalf of the
Holders shall be borne by the Holders of the registered securities included in
such registration pro rata on the basis of the number of shares so registered.
6.10 Registration Procedures. In the case of each
registration, qualification or compliance effected by the Company pursuant to
this Section 6, the Company will keep each Holder advised in writing as to the
initiation of each registration, qualification and compliance and as to the
completion thereof. At its expense the Company will:
(a) Prepare and file with the Commission a
registration statement with respect to such securities and use its best efforts
to cause such registration statement to become and remain effective for at least
one hundred eighty (180) days or until the distribution described in the
registration statement has been completed; and
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<PAGE>
(b) Prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders participating in such
registration and to the underwriters of the securities being registered such
reasonable number of copies of the registration statement, preliminary
prospectus, final prospectus and such other documents as such underwriters may
reasonably request in order to facilitate the public offering of such
securities.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders; provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Act.
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Cause all such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange on which similar
securities issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all
Registrable Securities registered pursuant hereunder and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date of
such registration.
(i) Use its best efforts to furnish, at the request
of any Holder requesting registration of Registrable Securities pursuant to this
Section 6, on the date that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant to this Section
6, if such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes effective, (i) an
opinion, dated such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given to
underwriters in an
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<PAGE>
underwritten public offering, addressed to the underwriters, if any, and to the
Holders requesting registration of Registrable Securities and (ii) a letter
dated such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Holders requesting registration of
Registrable Securities.
6.11 Indemnification.
(a) The Company will indemnify each Holder, each of
its officers and directors and partners, and each person controlling such Holder
within the meaning of Section 15 of the Securities Act, with respect to which
registration, qualification or compliance has been effected pursuant to this
Section 6, and each underwriter, if any, and each person who controls any
underwriter within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, preliminary prospectus, offering circular or
other document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading, or any violation or any alleged violation by the
Company of any rule or regulation promulgated under the Securities Act or the
Exchange Act or any state securities law applicable to the Company in connection
with any such registration, qualification or compliance, and the Company will
reimburse each such Holder, each of its officers and directors, and each person
controlling such Holder, each such underwriter and each person who controls any
such underwriter, for any legal and any other expenses as reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, as such expenses are incurred, provided that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability or expense arises out of or is based on any untrue
statement or omission or alleged untrue statement or omission, made in reliance
upon and in conformity with written information furnished to the Company by an
instrument duly executed by such Holder, controlling person or underwriter and
stated to be specifically for use therein.
(b) Each Holder will, if Registrable Securities held
by such Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of Section 15 of the
Securities Act, and each other such Holder, each of its officers and directors
and each person controlling such Holder within the meaning of Section 15 of the
Securities Act, against all claims, losses, damages and liabilities (or actions
in respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will
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<PAGE>
reimburse the Company, such Holders, such directors, officers, persons,
underwriters or control persons for any legal or any other expenses as
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, as such expenses are incurred, in each
case to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by such Holder and stated to be
specifically for use therein.
(c) Each party entitled to indemnification under this
Section 6.11 (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense; provided, however, that an Indemnified Party
(together with all other Indemnified Parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the Indemnifying Party, if
representation of such Indemnified Party by the counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential differing
interests between such Indemnified Party and any other party represented by such
counsel in such proceeding. The failure of any Indemnified Party to give notice
as provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 6 unless the failure to give such notice is materially
prejudicial to an Indemnifying Party's ability to defend such action. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation.
6.12 Information by Holder. The Holder or Holders of
Registrable Securities included in any registration shall furnish to the Company
such information regarding such Holder or Holders, the Registrable Securities
held by them and the distribution proposed by such Holder or Holders as the
Company may request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Section 6.
6.13 Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Restricted Securities to the public without
registration, after such time as a public market exists for the Common Stock of
the Company, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as
those terms are understood and defined in Rule 144 under the Securities Act, at
all times after the effective date that the Company becomes subject to the
reporting requirements of the Securities Act or the Exchange Act;
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(b) File with the Commission in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Exchange Act (at any time after it has become subject to such reporting
requirements); and
(c) So long as a Holder owns any Restricted
Securities, to furnish to the Holder forthwith upon request a written statement
by the Company as to its compliance with the reporting requirements of said Rule
144 (at any time after ninety (90) days after the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), and of the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents of the Company and other information in the possession of or
reasonably obtainable by the Company as a Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing a Holder to
sell any such securities without registration.
6.14 Transfer of Registration Rights. The rights to cause the
Company to register securities granted to any party hereto under Sections 6.5,
6.6 and 6.7 may be assigned to a transferee or assignee reasonably acceptable to
the Company in connection with any transfer or assignment of Registrable
Securities by such party (together with any affiliate); provided that (a) such
transfer may otherwise be effected in accordance with applicable securities
laws, (b) notice of such assignment is given to the Company, and (c) such
transferee or assignee (i) is a wholly-owned subsidiary or constituent partner
(including limited partners, retired partners, spouses and ancestors, lineal
descendants and siblings of such partners or spouses who acquire Registrable
Securities by gift, will or intestate succession) of such party, or (ii)
acquires from such party at least 50,000 shares of Restricted Securities (as
appropriately adjusted for stock splits and the like).
6.15 Standoff Agreement. Each Holder agrees in connection with
any registration of the Company's securities (other than a registration of
securities in a Rule 145 transaction or with respect to an employee benefit
plan), upon request of the Company or the underwriters managing any underwritten
offering of the Company's securities, not to sell, make any short sale of, loan,
pledge (or otherwise encumber or hypothecate), grant any option for the purchase
of, or otherwise directly or indirectly dispose of any Registrable Securities
(other than those included in the registration) without the prior written
consent of the Company and such managing underwriters for such period of time,
not to exceed ninety (90) days, as the Board of Directors establishes pursuant
to its good faith negotiations with such managing underwriters; provided,
however, that such Holder shall not be subject to such lockup unless the
officers and directors of the Company who own stock of the Company shall also be
bound by such restrictions.
7. Miscellaneous.
7.1 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of California, without regard to any
provisions thereof relating to conflicts of laws among different jurisdictions.
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7.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by the Investor and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or exhibit delivered by or on
behalf of the Company pursuant hereto shall be deemed to be the representations
and warranties of the Company hereunder as of such date of such certificate or
exhibit.
7.3 Successors and Assigns. Except as otherwise provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto; provided, however, that the rights of an Investor to purchase
Shares shall not be assignable without the consent of the Company.
7.4 Entire Agreement; Amendment. This Agreement and the other
documents delivered pursuant hereto constitute the full and entire understanding
and agreement among the parties with regard to the subjects hereof and thereof.
Neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought;
provided, however, that holders of fifty-one percent (51%) of the outstanding
Shares (whether or not converted) may waive or amend, on behalf of the Investor
and other holders of Shares, any provisions hereof benefitting the Investor so
long as the effect thereof will be that the Investor and other holders of Shares
will be treated equally.
7.5 Notices, Etc. All notices and other communications
required or permitted hereunder shall be in writing and shall be mailed by
registered or certified mail, postage prepaid, return receipt requested, or
otherwise delivered by hand or by messenger, addressed (a) if to the Investor,
at the Investor's principal offices at 2471 E. Bayshore, Suite 520, Palo Alto,
California 94303, or at such other address as the Investor shall have furnished
to the Company in writing, or (b) if to any other holder of any Shares, at such
address as such holder shall have furnished the Company in writing, or, until
any such holder so furnishes an address to the Company, then to and at the
address of the last holder of such Shares who has so furnished an address to the
Company, or (c) if to the Company, at its principal offices at 901 Mariner's
Island Boulevard, Suite 365, San Mateo, California 94404 addressed to the
attention of the Corporate Secretary, or at such other address as the Company
shall have furnished to the Investor. If notice is provided by mail, notice
shall be deemed to be given three (3) business days after proper deposit in the
U.S. Mail.
7.6 Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to any holder of any Shares upon any breach or
default of the Company under this Agreement shall impair any such right, power
or remedy of such holder, nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this
Agreement, or any waiver on the part of any holder of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such
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<PAGE>
writing or as provided in this Agreement. All remedies, either under this
Agreement or by law or otherwise afforded to any holder, shall be cumulative and
not alternative.
7.7 California Corporate Securities Law. THE SALE OF THE
SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF
SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION
THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES
IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE
CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE
EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS
SO EXEMPT.
7.8 Expenses. The Company and the Investor shall bear their
own expenses and legal fees incurred on its behalf with respect to this
Agreement and the transactions contemplated hereby.
7.9 Finder's Fee. The Company and the Investor shall each
indemnify and hold the other harmless from any liability for any commission or
compensation in the nature of a finder's fee (including the costs, expenses and
legal fees of defending against such liability) for which the Company or the
Investor, or any of their respective partners, employees, or representatives, as
the case may be, is responsible.
7.10 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be enforceable against the parties
actually executing such counterparts, and all of which together shall constitute
one instrument.
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7.11 Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to any
party.
[This space left blank intentionally]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
HYPERMEDIA COMMUNICATIONS, INC. MK GVD FUND
Signature: /s/ TODD HAGEN Signature: /s/ GREG LAHANN
---------------------- --------------------------
By: By:
----------------------------- -------------------------------
Its: Chief Financial Officer Its: General Partner
--------------------------- -------------------------------
<PAGE>
EXHIBIT A
CERTIFICATE OF DETERMINATION OF PREFERENCES
OF SERIES H PREFERRED STOCK
<PAGE>
EXHIBIT B
SCHEDULE OF EXCEPTIONS
This disclosure of exceptions is made and given pursuant to Section 2
of the Series H Preferred Stock Purchase Agreement dated as of September __,
1997 (the "Agreement"), by and between HyperMedia Communications, Inc. (the
"Company") and MK GVD Fund (the "Investor"). Unless the context otherwise
requires, all capitalized terms are used herein as defined in the Agreement. The
numbers below correspond to the section numbers of representations and
warranties in the Agreement that are most directly modified by the disclosures,
but all disclosures are intended to modify all of the Company's representations
and warranties.
2.8 The Company has received a letter, dated May 2, 1996, from the law firm
of Herman Roof Borgognoni & Moore on behalf of Elk Industries, Inc.
("Elk"), alleging that a product and/or service of the Company
infringes a patent issued to Elk. Because the Company views the
allegation as groundless, it has not responded to the letter.
The Company recently received a letter from Steinhart & Falconer on
behalf of Testdrive Corporation demanding the Company cease using the
name "TestDrive" in NewMedia Magazine. In response to such letter, the
Company has indicated to Testdrive that it believes the Company has
superior rights to the name "Test Drive". The Company has received no
further correspondence with respect to this matter.
The Company is aware of a company based in Maine named "HyperMedia
Communications, Inc." ("Maine HyperMedia"). Wilson Sonsini Goodrich &
Rosati, on behalf of the Company, sent Maine HyperMedia a letter dated
June 18, 1996 asking Maine HyperMedia to cease and desist from using
the name "HyperMedia Communications, Inc." Maine HyperMedia continues
to use the name and the Company is not pursuing any action against them
at this time.
2.12 Imperial Bank has a security interest, perfected in a filed UCC-1, in
most of the Company's assets. The Bank waived the Company's requirement
to comply with the covenant that the Company be profitable in the
second quarter of fiscal 1996. The Company anticipates that it will
request a similar waiver from the Bank with respect to the third
quarter of fiscal 1997.
HyperMedia Communications, Inc.
SEC Form 10-K FY97
Exhibit 4.20
<PAGE>
HYPERMEDIA COMMUNICATIONS, INC.
SERIES I PREFERRED STOCK PURCHASE AGREEMENT
December 23, 1997
<PAGE>
TABLE OF CONTENTS
Page
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1. Purchase and Sale of Stock............................................1
1.1 Sale and Issuance of Series I Preferred Stock................1
2. Representations and Warranties of the Company.........................2
2.1 Organization, Good Standing and Qualification................2
2.2 Capitalization...............................................2
2.3 Subsidiaries.................................................2
2.4 Authorization................................................3
2.5 Valid Issuance of Preferred and Common Stock.................3
2.6 Governmental Consents........................................3
2.7 Litigation...................................................3
2.8 Patents and Trademarks.......................................4
2.9 Compliance with Other Instruments............................4
2.10 Permits......................................................4
2.11 Disclosure...................................................5
2.12 Title to Property and Assets.................................5
2.13 Tax Returns and Audits.......................................5
2.14 Brokers or Finders...........................................5
3. Representations and Warranties of the Investor........................5
3.1 Experience...................................................5
3.2 Investment...................................................5
3.3 Rule 144.....................................................6
3.4 Access to Data...............................................6
3.5 Authorization................................................6
3.6 Accredited Investor..........................................6
4. Conditions of Investor's Obligations at Closing.......................7
4.1 Representations and Warranties...............................7
4.2 Performance..................................................7
4.3 Compliance Certificate.......................................7
4.4 Blue Sky.....................................................7
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TABLE OF CONTENTS
(continued)
Page
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5. Conditions of the Company's Obligations at Closing....................7
5.1 Representations and Warranties...............................7
5.2 Payment of Purchase Price....................................7
5.3 Blue Sky.....................................................7
5.4 Proceedings and Documents....................................7
6. Restrictions on Transferability; Registration Rights..................8
6.1 Certain Definitions..........................................8
6.2 Restrictions.................................................9
6.3 Restrictive Legend...........................................9
6.4 Notice of Proposed Transfers................................10
6.5 Requested Registration......................................10
6.6 Company Registration........................................12
6.7 Registration on Form S-3....................................13
6.8 Limitations on Subsequent Registration Rights...............14
6.9 Expenses of Registration....................................14
6.10 Registration Procedures.....................................15
6.11 Indemnification.............................................16
6.12 Information by Holder.......................................18
6.13 Rule 144 Reporting..........................................18
6.14 Transfer of Registration Rights.............................19
6.15 Standoff Agreement..........................................19
7. Miscellaneous........................................................19
7.1 Governing Law...............................................19
7.2 Survival....................................................19
7.3 Successors and Assigns......................................20
7.4 Entire Agreement; Amendment.................................20
7.5 Notices, Etc................................................20
7.6 Delays or Omissions.........................................20
7.7 California Corporate Securities Law.........................21
7.8 Expenses....................................................21
7.9 Finder's Fee................................................21
7.10 Counterparts................................................21
7.11 Severability................................................21
Exhibit A Certificate of Determination of Preferences of Series I
Preferred Stock
Exhibit B Schedule of Exceptions
Exhibit C Schedule of Investors
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SERIES I PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES I PREFERRED STOCK PURCHASE AGREEMENT is made as of the 23rd
day of December, 1997, by and between HYPERMEDIA COMMUNICATIONS, INC., a
California corporation (the "Company"), and MK GVD FUND (the "Investor").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
1.1 Sale and Issuance of Series I Preferred Stock.
(a) The Board of Directors of the Company shall adopt
and file with the Secretary of State of California on or before the Initial
Closing (as defined below) the Certificate of Determination of Preferences of
Series I Preferred Stock (the "Certificate of Determination"), in the form
attached hereto as Exhibit A.
(b) Subject to the terms and conditions of this
Agreement, the Investor agrees to purchase at the Initial Closing, and the
Company agrees to sell and issue to the Investor at the Initial Closing and any
Subsequent Closings (as defined below), an aggregate of up to that number of
shares (the "Shares") of the Company's Series I Preferred Stock (the "Series I
Preferred") equal to $2,000,000 divided by the Purchase Price (as defined below)
at each Closing. The number of shares of Series I Preferred to be sold and
issued at each Closing shall be determined by the Company and the Investor on or
before the date of such Closing, but in no event shall the aggregate of such
numbers exceed the maximum set forth in the preceding sentence. The purchase
price per Share (the "Purchase Price") shall be determined by multiplying 10
times 85% of the average closing bid price of a share of the Company's Common
Stock as reported on the Nasdaq SmallCap Market for the 10 trading days ending 5
business days before the date of a Closing.
(c) Purchase and Sale Closings. The purchase and sale
of the Shares shall take place at the offices of Wilson Sonsini Goodrich &
Rosati, 650 Page Mill Road, Palo Alto, California, at any times on or before
June 30, 1998 as the Company and the Investor agree upon orally or in writing
(the first of which times is designated the "Initial Closing," all others of
which are designated "Subsequent Closings" and all of which times are
collectively designated as "Closings"), but in any event no later than three
business days after Investor's receipt of a written request from the Company
setting forth the number of shares to be purchased and sold at the Closing in
question. At each Closing the Company shall deliver to the Investor a
certificate representing the Series I Preferred that the Investor is purchasing
against payment of the aggregate purchase price therefor by check, wire transfer
or any combination thereof.
<PAGE>
2. Representations and Warranties of the Company.
Except as set forth in (i) the forms, reports and documents, including the
exhibits thereto, filed by the Company with the Securities and Exchange
Commission, (ii) the documents and other materials provided to directors of the
Company prior to and during meetings of the Company's Board of Directors or
(iii) the Schedule of Exceptions attached hereto as Exhibit B, the Company
hereby represents and warrants as follows:
2.1 Organization, Good Standing and Qualification. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of California and has all requisite corporate power and
authority to carry on its business as currently conducted. The Company is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure to so qualify would have a material adverse effect on its
business or properties. True and accurate copies of the Company's Articles of
Incorporation and Bylaws, each as amended and in effect at the Initial Closing,
have been delivered to the Investor.
2.2 Capitalization. Immediately prior to the Initial Closing,
the authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock ("Common Stock"), of which 3,200,137 shares are issued and
outstanding on the date of this Agreement, and 10,064,516 shares of Preferred
Stock ("Preferred Stock"), of which (i) 8,064,516 shares are designated Series E
Preferred Stock, all of which are issued and outstanding, (ii) 175,000 shares
are designated Series F Preferred Stock, 82,250 of which are issued and
outstanding, (iii) 175,000 shares are designated Series G Preferred Stock,
50,344 of which are issued and outstanding, (iv) 400,000 shares are designated
Series H Preferred Stock, 117,000 of which are issued and outstanding and (v)
200,000 shares are designated Series I Preferred Stock, none of which is issued
and outstanding. All such issued and outstanding shares have been duly
authorized and validly issued and are fully paid and nonassessable. The Company
has reserved an aggregate of 200,000 shares of Series I Preferred for issuance
hereunder. The Company has reserved 2,000,000 shares of Common Stock for
issuance upon conversion of the Series I Preferred. An aggregate of 1,100,000
shares of Common Stock are reserved for issuance under the Company's 1991 Stock
Plan, 1993 Director Option Plan and 1996 Employee Stock Purchase Plan. There are
options outstanding under the Company's 1991 Stock Plan and 1993 Director Option
Plan to purchase an aggregate of approximately 553,554 shares and approximately
155,000 shares, respectively, of the Company's Common Stock. There are warrants
outstanding to purchase an aggregate of approximately 183,356 shares of the
Company's Common Stock. There are no other outstanding rights, options,
warrants, preemptive rights, rights of first refusal or similar rights for the
purchase or acquisition from the Company of any securities of the Company. All
outstanding shares have been issued in compliance with state and federal
securities laws.
2.3 Subsidiaries. The Company does not presently own or
control, directly or indirectly, any interest in any other corporation,
association, or other business entity. The Company is not a participant in any
joint venture, partnership, or similar arrangement.
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2.4 Authorization. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, the performance of all
obligations of the Company hereunder and thereunder, and the authorization,
issuance (or reservation for issuance), sale and delivery of the Shares being
sold hereunder and the Common Stock issuable upon conversion of the Shares has
been taken or will be taken prior to the Initial Closing, and this Agreement
constitutes a valid and legally binding obligation of the Company, enforceable
in accordance with its terms, subject to: (i) judicial principles limiting the
availability of specific performance, injunctive relief, and other equitable
remedies; and (ii) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect generally relating to or affecting
creditors' rights.
2.5 Valid Issuance of Preferred and Common Stock. The shares
of Series I Preferred that are being purchased by the Investor hereunder, when
issued, sold and delivered in accordance with the terms of this Agreement for
the consideration expressed herein, will be duly and validly issued, fully paid,
and nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement and under applicable state and
federal securities laws. The Common Stock issuable upon conversion of the Series
I Preferred purchased under this Agreement has been duly and validly reserved
for issuance and, upon issuance in accordance with the terms of the Certificate
of Determination and the Amended and Restated Articles of Incorporation (the
"Restated Articles"), will be duly and validly issued, fully paid, and
nonassessable and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement and under applicable state and
federal securities laws.
2.6 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the offer, sale or issuance of the
Shares (and the Common Stock issuable upon conversion of the Shares) or the
consummation of any other transaction contemplated hereby, except for the
following: (i) the filing of the Certificate of Determination in the office of
the Secretary of State of the State of California, which shall be filed by the
Company on or prior to the Initial Closing; (ii) the filing of such notices as
may be required under the Securities Act of 1933, as amended (the "Securities
Act"); and (iii) the filing of a notice of exemption pursuant to Section
25102(f) of the California Corporate Securities Law of 1968, as amended (the
"California Securities Law"), which shall be filed by the Company promptly
following each Closing. Based in part on the representations of the Investor set
forth in Section 3 below, the offer, sale and issuance of the Shares in
conformity with the terms of this Agreement are exempt from the registration
requirements of Section 5 of the Securities Act and from the qualification
requirements of Section 25110 of the California Securities Law.
2.7 Litigation. There is no action, suit, proceeding or
investigation pending or, to the best of the Company's knowledge, currently
threatened before any court, administrative agency or other governmental body
against the Company which questions the validity of this Agreement or the right
of the Company to enter into it, or to consummate the transactions contemplated
hereby, or
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which could result, either individually or in the aggregate, in any material
adverse change in the condition (financial or otherwise), business, property,
assets or liabilities of the Company. The foregoing includes, without
limitation, actions, suits, proceedings or investigations pending or threatened
(or any basis therefor known to the Company) involving the prior employment of
any of the Company's employees, their use in connection with the Company's
business of any information or techniques allegedly proprietary to any of their
former employers, or their obligations under any agreements with prior
employers. The Company is not a party or subject to, and none of its assets is
bound by, the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality.
2.8 Patents and Trademarks. The Company has sufficient title
and ownership of all patents, trademarks, service marks, trade names,
copyrights, trade secrets, information, proprietary rights and processes
(collectively, "Intellectual Property") necessary for its business as now
conducted without any conflict with or infringement of the rights of others.
There are no outstanding options, licenses, or agreements of any kind relating
to the foregoing, nor is the Company bound by or a party to any options,
licenses or agreements of any kind with respect to the Intellectual Property of
any other person or entity. The Company has not received any communications
alleging that any material Intellectual Property of the Company has violated or
would violate any of the Intellectual Property of any other person or entity.
2.9 Compliance with Other Instruments. The Company is not in
violation or default of any provision of its Articles of Incorporation or
Bylaws, each as amended and in effect on and as of each Closing. The Company is
not in violation or default of any material provision of any instrument,
mortgage, deed of trust, loan, contract, commitment, judgment, decree, order or
obligation to which it is a party or by which it or any of its properties or
assets are bound which would materially adversely affect the condition
(financial or otherwise), business, property, assets or liabilities of the
Company or, to the best of its knowledge, of any provision of any federal, state
or local statute, rule or governmental regulation which would materially
adversely affect the condition (financial or otherwise), business, property,
assets or liabilities of the Company. The execution, delivery and performance of
and compliance with this Agreement, and the issuance and sale of the Shares,
will not result in any such violation, be in conflict with or constitute, with
or without the passage of time or giving of notice, a default under any such
provision, require any consent or waiver under any such provision (other than
any consents or waivers that have been obtained), or result in the creation of
any mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company pursuant to any such provision.
2.10 Permits. The Company has all franchises, permits,
licenses, and any similar authority necessary for the conduct of its business as
now being conducted by it, the lack of which could materially and adversely
affect the business, properties, prospects, or financial condition of the
Company, and the Company believes it can obtain, without undue burden or
expense, any similar authority for the conduct of its business as planned to be
conducted. The Company is not in default in any material respect under any of
such franchises, permits, licenses, or other similar authority.
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<PAGE>
2.11 Disclosure. No representation, warranty or statement by
the Company in this Agreement, or in any written statement or certificate
furnished to the Investor pursuant to this Agreement or the transactions
contemplated hereby, contains any untrue statement of a material fact or, when
taken together, omits to state a material fact necessary to make the statements
made herein or therein, in light of the circumstances under which they were
made, not misleading.
2.12 Title to Property and Assets. The Company has good and
marketable title to all of its properties and assets free and clear of all
mortgages, liens and encumbrances, except liens for current taxes and
assessments not yet due and possible minor liens and encumbrances which do not,
in any case, in the aggregate, materially detract from the value of the property
subject thereto or materially impair the operations of the Company. With respect
to the property and assets it leases, the Company is in compliance with such
leases and, to the best of its knowledge, holds a valid leasehold interest free
of all liens, claims or encumbrances. The Company's properties and assets are in
good condition and repair in all material respects.
2.13 Tax Returns and Audits. The Company has accurately
prepared all United States income tax returns and all state and municipal tax
returns required to be filed by it, if any, has paid all taxes, assessments,
fees and charges when and as due under such returns and has made adequate
provision for the payment of all other taxes, assessments, fees and charges
shown on such returns or on assessments received by the Company. To the best of
the Company's knowledge, no deficiency assessment or proposed adjustment of the
Company's United States income tax or state or municipal taxes is pending.
2.14 Brokers or Finders. The Company has not agreed to incur,
directly or indirectly, any liability for brokerage or finders' fees, agents'
commissions or other similar charges in connection with this Agreement or any of
the transactions contemplated hereby.
3. Representations and Warranties of the Investor. The Investor hereby
represents and warrants that:
3.1 Experience. The Investor is experienced in evaluating
companies such as the Company, is able to fend for itself in transactions such
as the one contemplated by this Agreement, has such knowledge and experience in
financial and business matters that Investor is capable of evaluating the merits
and risks of Investor's prospective investment in the Company, and has the
ability to bear the economic risks of the investment.
3.2 Investment. The Investor is acquiring the Shares (and the
Common Stock issuable upon conversion of the Shares) for investment for such
Investor's own account and not with the view to, or for resale in connection
with, any distribution thereof. Such Investor understands that the Shares (and
the Common Stock issuable upon conversion of the Shares) have not been
registered under the Securities Act by reason of a specific exemption from the
registration provisions of the Securities Act which depends upon, among other
things, the bona fide nature of the investment intent
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<PAGE>
as expressed herein. Such Investor further represents that it does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participation to any third person with respect to any of the
Shares (or any Common Stock acquired upon conversion thereof). Such Investor
understands and acknowledges that the offering of the Shares pursuant to this
Agreement will not, and any issuance of Common Stock on conversion may not, be
registered under the Securities Act on the ground that the sale provided for in
this Agreement and the issuance of securities hereunder is exempt from the
registration requirements of the Securities Act.
3.3 Rule 144. The Investor acknowledges that the Shares (and
the Common Stock issuable upon conversion of the Shares) must be held
indefinitely unless subsequently registered under the Securities Act or an
exemption from such registration is available. Such Investor is aware of the
provisions of Rule 144 promulgated under the Securities Act which permit limited
resale of shares purchased in a private placement subject to the satisfaction of
certain conditions. Such Investor covenants that, in the absence of an effective
registration statement covering the stock in question, such Investor will sell,
transfer, or otherwise dispose of the Shares (and any Common Stock issued on
conversion thereof) only in a manner consistent with such Investor's
representations and covenants set forth in this Section 3. In connection
therewith, such Investor acknowledges that the Company will make a notation on
its stock books regarding the restrictions on transfers set forth in this
Section 3 and will transfer securities on the books of the Company only to the
extent not inconsistent therewith.
3.4 Access to Data. The Investor has received and reviewed
information about the Company and has had an opportunity to discuss the
Company's business, management and financial affairs with its management and to
review the Company's facilities. Such Investor understands that such
discussions, as well as any written information issued by the Company, were
intended to describe the aspects of the Company's business and prospects which
the Company believes to be material, but were not necessarily a thorough or
exhaustive description. The foregoing, however, does not limit or modify the
representations and warranties of the Company in Section 2 of this Agreement or
the right of the Investor to rely thereon.
3.5 Authorization. This Agreement when executed and delivered
by the Investor will constitute a valid and legally binding obligation of the
Investor, enforceable in accordance with its terms, subject to: (i) judicial
principles respecting election of remedies or limiting the availability of
specific performance, injunctive relief, and other equitable remedies; and (ii)
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect generally relating to or affecting creditors' rights.
3.6 Accredited Investor. The Investor acknowledges that it is
an "accredited investor" as defined in Rule 501 of Regulation D as promulgated
by the Securities and Exchange Commission under the Securities Act and shall
submit to the Company such further assurances of such status as may be
reasonably requested by the Company. For state securities law purposes, the
principal address of the Investor is that set forth on Exhibit C.
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4. Conditions of Investor's Obligations at Closing. The obligations of
the Investor under subsection 1.1(b) of this Agreement are subject to the
fulfillment on or before each Closing of each of the following conditions, the
waiver of which shall not be effective against any Investor who does not consent
in writing thereto:
4.1 Representations and Warranties. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing.
4.2 Performance. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing.
4.3 Compliance Certificate. The President or any Vice
President of the Company shall deliver to the Investor at the Closing a
certificate stating that the conditions specified in Sections 4.1 and 4.2 have
been fulfilled.
4.4 Blue Sky. The Company shall have obtained all necessary
permits and qualifications, if any, or secured an exemption therefrom, required
by any state or country prior to the offer and sale of the Shares.
5. Conditions of the Company's Obligations at Closing. The obligations
of the Company to the Investor under this Agreement are subject to the
fulfillment on or before each Closing of each of the following conditions by
that Investor:
5.1 Representations and Warranties. The representations and
warranties of the Investor contained in Section 3 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the Closing.
5.2 Payment of Purchase Price. The Investor shall have
delivered the purchase price specified in Section 1.1 against delivery of the
Shares.
5.3 Blue Sky. The Company shall have obtained all necessary
permits and qualifications, if any, or secured an exemption therefrom, required
by any state or country for the offer and sale of the Shares.
5.4 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby, and all documents and instruments incident to these transactions, shall
be reasonably satisfactory in substance to the Company and its counsel.
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6. Restrictions on Transferability; Registration Rights
6.1 Certain Definitions. As used in this Section 6, the
following terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
"Conversion Shares" means the Common Stock issued or issuable
upon conversion of the Shares.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Holder" shall mean the Investor, if it still holds
Registrable Securities, and any person holding Registrable Securities to whom
the rights under this Agreement have been transferred in accordance with Section
6.14 hereof.
"Initiating Holders" shall mean the Investor or transferees of
the Investor under Section 6.14 hereof who in the aggregate are Holders of not
less than 35% of the Registrable Securities.
The terms "register", "registered" and "registration" refer to
a registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by
the Company in complying with Sections 6.5, 6.6 and 6.7 hereof, including,
without limitation, all registration, qualification and filing fees, printing
expenses, escrow fees, fees and disbursements of counsel for the Company, blue
sky fees and expenses, and the expense of any special audits incident to or
required by any such registration (but excluding the compensation of regular
employees of the Company which shall be paid in any event by the Company).
"Registrable Securities" means any Common Stock of the Company
issued or issuable in respect of the Shares or Conversion Shares or other
securities issued or issuable with respect to the Shares or Conversion Shares
upon any stock split, stock dividend, recapitalization, or similar event, or any
Common Stock otherwise issued or issuable with respect to the Shares or
Conversion Shares; provided, however, that shares of Common Stock or other
securities shall only be treated as Registrable Securities if and so long as
they have not been (A) sold to or through a broker or dealer or underwriter in a
public distribution or a public securities transaction, or (B) sold in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities
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<PAGE>
Act under Section 4(1) thereof so that all transfer restrictions and restrictive
legends with respect thereto are removed upon the consummation of such sale.
"Restricted Securities" shall mean the securities of the
Company required to bear the legend set forth in Section 6.3 hereof.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts,
selling commissions and stock transfer taxes applicable to the securities
registered by the Holders and all fees and disbursements of counsel for the
Holders (as limited by Section 6.9).
6.2 Restrictions. The Shares and the Conversion Shares shall
not be sold, assigned, transferred or pledged except upon the conditions
specified in this Section 6, which conditions are intended to ensure compliance
with the provisions of the Securities Act. The Investor will cause any proposed
purchaser, assignee, transferee or pledgee of the Shares and the Conversion
Shares to agree to take and hold such securities subject to the provisions and
upon the conditions specified in this Section 6.
6.3 Restrictive Legend. Each certificate representing (i) the
Shares, (ii) the Conversion Shares, and (iii) any other securities issued in
respect of the securities referenced in clauses (i) and (ii) upon any stock
split, stock dividend, recapitalization, merger, consolidation or similar event,
shall (unless otherwise permitted by the provisions of Section 6.4 below) be
stamped or otherwise imprinted with a legend in the following form (in addition
to any legend required under applicable state securities laws):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD,
TRANSFERRED OR PLEDGED IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY
BE COUNSEL FOR THE COMPANY) REASONABLY ACCEPTABLE TO IT
STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID
ACT."
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED
ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE
COMPANY AND THE SHAREHOLDER,
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A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY."
Each Investor consents to the Company making a notation on its
records and giving instructions to any transfer agent of the Restricted
Securities in order to implement the restrictions on transfer established in
this Section 6.
6.4 Notice of Proposed Transfers. The holder of each
certificate representing Restricted Securities, by acceptance thereof, agrees to
comply in all respects with the provisions of this Section 6. Prior to any
proposed sale, assignment, transfer or pledge of any Restricted Securities,
unless there is in effect a registration statement under the Securities Act
covering the proposed transfer, the holder thereof shall give written notice to
the Company of such holder's intention to effect such transfer, sale, assignment
or pledge. Each such notice shall describe the manner and circumstances of the
proposed transfer, sale, assignment or pledge in sufficient detail, and shall be
accompanied at such holder's expense by either (i) a written opinion of legal
counsel who shall, and whose legal opinion shall be, reasonably satisfactory to
the Company, addressed to the Company, to the effect that the proposed transfer
of the Restricted Securities may be effected without registration under the
Securities Act, or (ii) a "no action" letter from the Commission to the effect
that the transfer of such securities without registration will not result in a
recommendation by the staff of the Commission that action be taken with respect
thereto, or (iii) any other evidence reasonably satisfactory to counsel to the
Company, whereupon the holder of such Restricted Securities shall be entitled to
transfer such Restricted Securities in accordance with the terms of the notice
delivered by the holder to the Company. The Company will not require such a
legal opinion or "no action" letter (a) in any transaction in compliance with
Rule 144, (b) in any transaction in which an Investor which is a corporation
distributes Restricted Securities after six (6) months after the purchase
thereof solely to its majority owned subsidiaries or affiliates for no
consideration, or (c) in any transaction in which an Investor which is a
partnership distributes Restricted Securities after six (6) months after the
purchase thereof solely to partners thereof for no consideration; provided that
each transferee agrees in writing to be subject to the terms of this Section
6.4. Each certificate evidencing the Restricted Securities transferred as above
provided shall bear, except if such transfer is made pursuant to Rule 144, the
appropriate restrictive legend set forth in Section 6.3 above, except that such
certificate shall not bear such restrictive legend if, in the opinion of counsel
for such holder and the Company, such legend is not required in order to
establish compliance with any provisions of the Securities Act.
6.5 Requested Registration.
(a) Request for Registration. In case the Company
shall receive from Initiating Holders a written request that the Company effect
any registration, qualification or compliance with respect to the Registrable
Securities, the Company will:
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(i) promptly give written notice of the
proposed registration, qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best
efforts to effect such registration, qualification or compliance (including,
without limitation, the execution of an undertaking to file post-effective
amendments, appropriate qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations issued
under the Securities Act and any other governmental requirements or regulations)
as may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any Holder or Holders joining in such request as are specified in
a written request received by the Company within thirty (30) days after receipt
of such written notice from the Company; provided, however, that the Company
shall not be obligated to take any action to effect any such registration,
qualification or compliance pursuant to this Section 6.5:
(1) In any particular jurisdiction in
which the Company would be required to execute a general consent to service of
process in effecting such registration, qualification or compliance unless the
Company is already subject to service in such jurisdiction and except as may be
required by the Securities Act;
(2) During the period starting with
the date sixty (60) days prior to the Company's estimated date of filing of, and
ending on the date six (6) months immediately following the effective date of,
any registration statement pertaining to securities of the Company (other than a
registration of securities in a Rule 145 transaction or with respect to an
employee benefit plan), provided that the Company is actively employing in good
faith all reasonable efforts to cause such registration statement to become
effective and that the Company's estimate of the date of filing such
registration statement is made in good faith;
(3) After the Company has effected
two (2) such registrations pursuant to this subparagraph 6.5(a), each such
registration has been declared or ordered effective and the securities offered
pursuant to each such registration have been sold; or
(4) If the Company shall furnish to
such Holders a certificate, signed by the President of the Company, stating that
in the good faith judgment of the Board of Directors it would be seriously
detrimental to the Company or its shareholders for a registration statement to
be filed in the near future, then the Company's obligation to use its best
efforts to register, qualify or comply under this Section 6.5 shall be deferred
for a period not to exceed one hundred eighty (180) days from the date of
receipt of written request from the Initiating Holders; provided, however, that
the Company may not use this right more than once in any twelve (12) month
period.
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Subject to the foregoing clauses (1) through (4), the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Initiating Holders.
(b) Underwriting. In the event that a registration
pursuant to Section 6.5 is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as part of the notice
given pursuant to Section 6.5(a)(i). The right of any Holder to registration
pursuant to Section 6.5 shall be conditioned upon such Holder's participation in
the underwriting arrangements required by this Section 6.5 and the inclusion of
such Holder's Registrable Securities in the underwriting, to the extent
requested, to the extent provided herein.
The Company shall (together with all Holders proposing to distribute
their securities through such underwriting) enter into an underwriting agreement
in customary form with the managing underwriter selected for such underwriting
by a majority in interest of the Initiating Holders (which managing underwriter
shall be reasonably acceptable to the Company). Notwithstanding any other
provision of this Section 6.5, if the managing underwriter advises the
Initiating Holders in writing that marketing factors require a limitation of the
number of shares to be underwritten, then the Company shall so advise all
Holders of Registrable Securities and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated among all Holders thereof in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities held by such Holders at the
time of filing the registration statement; provided, however, that the number of
shares of Registrable Securities to be included in such underwriting shall not
be reduced unless all other securities are first entirely excluded from the
underwriting. No Registrable Securities excluded from the underwriting by reason
of the underwriter's marketing limitation shall be included in such
registration. To facilitate the allocation of shares in accordance with the
above provisions, the Company or the underwriters may round the number of shares
allocated to any Holder to the nearest 100 shares.
If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the managing underwriter and the Initiating Holders. The
Registrable Securities and/or other securities so withdrawn shall also be
withdrawn from registration, and such Registrable Securities shall not be
transferred in a public distribution prior to ninety (90) days after the
effective date of such registration.
6.6 Company Registration.
(a) Notice of Registration. If at any time or from
time to time, the Company shall determine to register any of its securities,
either for its own account or the account of a security holder or holders other
than (i) a registration relating solely to employee benefit plans, or (ii) a
registration relating solely to a Commission Rule 145 transaction, the Company
will:
(i) promptly give to each Holder written
notice thereof; and
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<PAGE>
(ii) include in such registration (and any
related qualification under blue sky laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities specified in a
written request or requests made within thirty (30) days after receipt of such
written notice from the Company by any Holder, but only to the extent that such
inclusion will not diminish the number of securities included by holders of the
Company's securities who have demanded such registration.
(b) Underwriting. If the registration of which the
Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as a part of the written
notice given pursuant to Section 6.6(a)(i). In such event, the right of any
Holder to registration pursuant to Section 6.6 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of Registrable
Securities in the underwriting to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company and the other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the managing underwriter selected for such underwriting by the Company
(or by the holders who have demanded such registration). Notwithstanding any
other provision of this Section 6.6, if the managing underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, the managing underwriter may limit the number of Registrable
Securities to be included in the registration and underwriting on a pro rata
basis based on the total number of securities (including, without limitation,
Registrable Securities) entitled to registration pursuant to registration rights
granted to the participating Holders by the Company; provided, however, that no
such reduction may reduce the number of securities being sold by the Holders to
less than thirty percent (30%) of the shares being sold in such offering. To
facilitate the allocation of shares in accordance with the above provisions, the
Company or the underwriters may round the number of shares allocated to any
Holder or other holder to the nearest 100 shares. If any Holder or other holder
disapproves of the terms of any such underwriting, he or she may elect to
withdraw therefrom by written notice to the Company and the managing
underwriter. Any securities excluded or withdrawn from such underwriting shall
be withdrawn from such registration, and shall not be transferred in a public
distribution prior to ninety (90) days after the effective date of the
registration statement relating thereto.
(c) Right to Terminate Registration. The Company
shall have the right to terminate or withdraw any registration initiated by it
under this Section 6.6 prior to the effectiveness of such registration, whether
or not any Holder has elected to include securities in such registration.
6.7 Registration on Form S-3.
(a) If any Holder or Holders of not less than twenty
percent (20%) of the Registrable Securities requests that the Company file a
registration statement on Form S-3 (or any successor form to Form S-3) for a
public offering of shares of the Registrable Securities, the reasonably
anticipated aggregate price to the public of which, net of underwriting
discounts and
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commissions, would exceed $500,000, and the Company is a registrant entitled to
use Form S-3 to register the Registrable Securities for such an offering, the
Company shall use its best efforts to cause such Registrable Securities to be
registered for the offering on such form. The Company will (i) promptly give
written notice of the proposed registration to all other Holders, and (ii) as
soon as practicable, use its best efforts to effect such registration
(including, without limitation, the execution of an undertaking to file
post-effective amendments, appropriate qualification under applicable blue sky
or other state securities laws and appropriate compliance with applicable
regulations issued under the Securities Act and any other governmental
requirements or regulations) as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Registrable
Securities as are specified in such request, together with all or such portion
of the Registrable Securities of any Holder or Holders joining in such request
as are specified in a written request received by the Company within thirty (30)
days after receipt of such written notice from the Company. The substantive
provisions of Section 6.5(b) shall be applicable to each registration initiated
under this Section 6.7.
(b) Notwithstanding the foregoing, the Company shall
not be obligated to take any action pursuant to this Section 6.7: (i) in any
particular jurisdiction in which the Company would be required to execute a
general consent to service of process in effecting such registration,
qualification or compliance unless the Company is already subject to service in
such jurisdiction and except as may be required by the Securities Act; (ii)
during the period starting with the date sixty (60) days prior to the Company's
estimated date of filing of, and ending on the date six (6) months immediately
following the effective date of, a registration statement (other than with
respect to a registration statement relating to a Rule 145 transaction, an
offering solely to employees or any other registration which is not appropriate
for the registration of Registrable Securities), provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or (iii) if the Company shall
furnish to such Holder a certificate signed by the President of the Company
stating that, in the good faith judgment of the Board of Directors, it would be
seriously detrimental to the Company or its shareholders for registration
statements to be filed in the near future, then the Company's obligation to use
its best efforts to file a registration statement shall be deferred for a period
not to exceed one hundred eighty (180) days from the receipt of the request to
file such registration by such Holder or Holders; provided, however, that the
Company may not utilize this right more than once in any twelve (12) month
period.
6.8 Limitations on Subsequent Registration Rights. From and
after the date hereof, the Company shall not enter into any agreement granting
any holder or prospective holder of any securities of the Company registration
rights with respect to such securities unless such new registration rights,
including standoff obligations, are subordinate to the registration rights
granted Holders hereunder.
6.9 Expenses of Registration. All Registration Expenses
incurred in connection with any registration pursuant to Sections 6.5, 6.6 and
6.7 and the reasonable cost of one special
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legal counsel to represent all of the Holders together in any such registration
shall be borne by the Company. If a registration proceeding is begun upon the
request of Initiating Holders pursuant to Section 6.5, but such request is
subsequently withdrawn, then the Holders of Registrable Securities to have been
registered may either: (i) bear all Registration Expenses of such proceeding,
pro rata on the basis of the number of shares to have been registered, in which
case the Company shall be deemed not to have effected a registration pursuant to
subparagraph 6.5(a) of this Agreement; or (ii) require the Company to bear all
Registration Expenses of such proceeding, in which case the Company shall be
deemed to have effected a registration pursuant to subparagraph 6.5(a) of this
Agreement. Notwithstanding the foregoing, however, if at the time of the
withdrawal, the Holders have learned of a material adverse change in the
condition, business or prospects of the Company from that known to the Holders
at the time of their request, then the Holders shall not be required to pay any
of said Registration Expenses. In such case, the Company shall be deemed not to
have effected a registration pursuant to subparagraph 6.5(a) of this Agreement.
Unless otherwise stated, all other Selling Expenses relating to securities
registered on behalf of the Holders shall be borne by the Holders of the
registered securities included in such registration pro rata on the basis of the
number of shares so registered.
6.10 Registration Procedures. In the case of each
registration, qualification or compliance effected by the Company pursuant to
this Section 6, the Company will keep each Holder advised in writing as to the
initiation of each registration, qualification and compliance and as to the
completion thereof. At its expense the Company will:
(a) Prepare and file with the Commission a
registration statement with respect to such securities and use its best efforts
to cause such registration statement to become and remain effective for at least
one hundred eighty (180) days or until the distribution described in the
registration statement has been completed; and
(b) Prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders participating in such
registration and to the underwriters of the securities being registered such
reasonable number of copies of the registration statement, preliminary
prospectus, final prospectus and such other documents as such underwriters may
reasonably request in order to facilitate the public offering of such
securities.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders; provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to
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<PAGE>
service of process in any such states or jurisdictions, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Act.
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Cause all such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange on which similar
securities issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all
Registrable Securities registered pursuant hereunder and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date of
such registration.
(i) Use its best efforts to furnish, at the request
of any Holder requesting registration of Registrable Securities pursuant to this
Section 6, on the date that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant to this Section
6, if such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes effective, (i) an
opinion, dated such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities and
(ii) a letter dated such date, from the independent certified public accountants
of the Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities.
6.11 Indemnification.
(a) The Company will indemnify each Holder, each of
its officers and directors and partners, and each person controlling such Holder
within the meaning of Section 15 of the Securities Act, with respect to which
registration, qualification or compliance has been effected pursuant to this
Section 6, and each underwriter, if any, and each person who controls any
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<PAGE>
underwriter within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, preliminary prospectus, offering circular or
other document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading, or any violation or any alleged violation by the
Company of any rule or regulation promulgated under the Securities Act or the
Exchange Act or any state securities law applicable to the Company in connection
with any such registration, qualification or compliance, and the Company will
reimburse each such Holder, each of its officers and directors, and each person
controlling such Holder, each such underwriter and each person who controls any
such underwriter, for any legal and any other expenses as reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, as such expenses are incurred, provided that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability or expense arises out of or is based on any untrue
statement or omission or alleged untrue statement or omission, made in reliance
upon and in conformity with written information furnished to the Company by an
instrument duly executed by such Holder, controlling person or underwriter and
stated to be specifically for use therein.
(b) Each Holder will, if Registrable Securities held
by such Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of Section 15 of the
Securities Act, and each other such Holder, each of its officers and directors
and each person controlling such Holder within the meaning of Section 15 of the
Securities Act, against all claims, losses, damages and liabilities (or actions
in respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company, such Holders, such directors, officers, persons, underwriters or
control persons for any legal or any other expenses as reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, as such expenses are incurred, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder and stated to be specifically for use therein.
(c) Each party entitled to indemnification under this
Section 6.11 (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the
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"Indemnifying Party") promptly after such Indemnified Party has actual knowledge
of any claim as to which indemnity may be sought, and shall permit the
Indemnifying Party to assume the defense of any such claim or any litigation
resulting therefrom, provided that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or litigation, shall be approved by the
Indemnified Party (whose approval shall not unreasonably be withheld), and the
Indemnified Party may participate in such defense at such party's expense;
provided, however, that an Indemnified Party (together with all other
Indemnified Parties which may be represented without conflict by one counsel)
shall have the right to retain one separate counsel, with the fees and expenses
to be paid by the Indemnifying Party, if representation of such Indemnified
Party by the counsel retained by the Indemnifying Party would be inappropriate
due to actual or potential differing interests between such Indemnified Party
and any other party represented by such counsel in such proceeding. The failure
of any Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 6 unless the failure to
give such notice is materially prejudicial to an Indemnifying Party's ability to
defend such action. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
6.12 Information by Holder. The Holder or Holders of
Registrable Securities included in any registration shall furnish to the Company
such information regarding such Holder or Holders, the Registrable Securities
held by them and the distribution proposed by such Holder or Holders as the
Company may request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Section 6.
6.13 Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Restricted Securities to the public without
registration, after such time as a public market exists for the Common Stock of
the Company, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as
those terms are understood and defined in Rule 144 under the Securities Act, at
all times after the effective date that the Company becomes subject to the
reporting requirements of the Securities Act or the Exchange Act;
(b) File with the Commission in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Exchange Act (at any time after it has become subject to such reporting
requirements); and
(c) So long as a Holder owns any Restricted
Securities, to furnish to the Holder forthwith upon request a written statement
by the Company as to its compliance with the reporting requirements of said Rule
144 (at any time after ninety (90) days after the effective date of
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the first registration statement filed by the Company for an offering of its
securities to the general public), and of the Securities Act and the Exchange
Act (at any time after it has become subject to such reporting requirements), a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents of the Company and other information in the
possession of or reasonably obtainable by the Company as a Holder may reasonably
request in availing itself of any rule or regulation of the Commission allowing
a Holder to sell any such securities without registration.
6.14 Transfer of Registration Rights. The rights to cause the
Company to register securities granted to any party hereto under Sections 6.5,
6.6 and 6.7 may be assigned to a transferee or assignee reasonably acceptable to
the Company in connection with any transfer or assignment of Registrable
Securities by such party (together with any affiliate); provided that (a) such
transfer may otherwise be effected in accordance with applicable securities
laws, (b) notice of such assignment is given to the Company, and (c) such
transferee or assignee (i) is a wholly-owned subsidiary or constituent partner
(including limited partners, retired partners, spouses and ancestors, lineal
descendants and siblings of such partners or spouses who acquire Registrable
Securities by gift, will or intestate succession) of such party, or (ii)
acquires from such party at least 50,000 shares of Registrable Securities (as
appropriately adjusted for stock splits and the like).
6.15 Standoff Agreement. Each Holder agrees in connection with
any registration of the Company's securities (other than a registration of
securities in a Rule 145 transaction or with respect to an employee benefit
plan), upon request of the Company or the underwriters managing any underwritten
offering of the Company's securities, not to sell, make any short sale of, loan,
pledge (or otherwise encumber or hypothecate), grant any option for the purchase
of, or otherwise directly or indirectly dispose of any Registrable Securities
(other than those included in the registration) without the prior written
consent of the Company and such managing underwriters for such period of time,
not to exceed ninety (90) days, as the Board of Directors establishes pursuant
to its good faith negotiations with such managing underwriters; provided,
however, that such Holder shall not be subject to such lockup unless the
officers and directors of the Company who own stock of the Company shall also be
bound by such restrictions.
7. Miscellaneous.
7.1 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of California, without regard to any
provisions thereof relating to conflicts of laws among different jurisdictions.
7.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by the Investor and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or exhibit
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delivered by or on behalf of the Company pursuant hereto shall be deemed to be
the representations and warranties of the Company hereunder as of such date of
such certificate or exhibit.
7.3 Successors and Assigns. Except as otherwise provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto; provided, however, that the rights of an Investor to purchase
Shares shall not be assignable without the consent of the Company.
7.4 Entire Agreement; Amendment. This Agreement and the other
documents delivered pursuant hereto constitute the full and entire understanding
and agreement among the parties with regard to the subjects hereof and thereof.
Neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought;
provided, however, that holders of fifty-one percent (51%) of the outstanding
Shares (whether or not converted) may waive or amend, on behalf of the Investor
and other holders of Shares, any provisions hereof benefitting the Investor so
long as the effect thereof will be that the Investor and other holders of Shares
will be treated equally.
7.5 Notices, Etc. All notices and other communications
required or permitted hereunder shall be in writing and shall be mailed by
registered or certified mail, postage prepaid, return receipt requested, or
otherwise delivered by hand or by messenger, addressed (a) if to the Investor,
at the Investor's principal offices at 2471 E. Bayshore, Suite 520, Palo Alto,
California 94303, or at such other address as the Investor shall have furnished
to the Company in writing, or (b) if to any other holder of any Shares, at such
address as such holder shall have furnished the Company in writing, or, until
any such holder so furnishes an address to the Company, then to and at the
address of the last holder of such Shares who has so furnished an address to the
Company, or (c) if to the Company, at its principal offices at 901 Mariner's
Island Boulevard, Suite 365, San Mateo, California 94404 addressed to the
attention of the Corporate Secretary, or at such other address as the Company
shall have furnished to the Investor. If notice is provided by mail, notice
shall be deemed to be given three (3) business days after proper deposit in the
U.S. Mail.
7.6 Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to any holder of any Shares upon any breach or
default of the Company under this Agreement shall impair any such right, power
or remedy of such holder, nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this
Agreement, or any waiver on the part of any holder of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing or as provided in this
Agreement. All remedies, either under this Agreement or by law or otherwise
afforded to any holder, shall be cumulative and not alternative.
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7.7 California Corporate Securities Law. THE SALE OF THE
SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF
SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION
THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES
IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE
CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE
EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS
SO EXEMPT.
7.8 Expenses. The Company and the Investor shall bear their
own expenses and legal fees incurred on its behalf with respect to this
Agreement and the transactions contemplated hereby.
7.9 Finder's Fee. The Company and the Investor shall each
indemnify and hold the other harmless from any liability for any commission or
compensation in the nature of a finder's fee (including the costs, expenses and
legal fees of defending against such liability) for which the Company or the
Investor, or any of their respective partners, employees, or representatives, as
the case may be, is responsible.
7.10 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be enforceable against the parties
actually executing such counterparts, and all of which together shall constitute
one instrument.
7.11 Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to any
party.
[This space left blank intentionally]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
HYPERMEDIA COMMUNICATIONS, INC. MK GVD FUND
Signature: /s/ TODD HAGEN Signature: /s/ GREG LAHANN
----------------------- ---------------------------
By: By:
------------------------------ ----------------------------------
Its: CFO Its: General Partner
----------------------------- --------------------------------
<PAGE>
EXHIBIT A
CERTIFICATE OF DETERMINATION OF PREFERENCES
OF SERIES I PREFERRED STOCK
[See Tab 5]
<PAGE>
EXHIBIT B
SCHEDULE OF EXCEPTIONS
This disclosure of exceptions is made and given pursuant to Section 2
of the Series I Preferred Stock Purchase Agreement dated as of December 23, 1997
(the "Agreement"), by and between HyperMedia Communications, Inc. (the
"Company") and MK GVD Fund (the "Investor"). Unless the context otherwise
requires, all capitalized terms are used herein as defined in the Agreement. The
numbers below correspond to the section numbers of representations and
warranties in the Agreement that are most directly modified by the disclosures,
but all disclosures are intended to modify all of the Company's representations
and warranties.
2.8 The Company has received a letter, dated May 2, 1996, from the law firm
of Herman Roof Borgognoni & Moore on behalf of Elk Industries, Inc.
("Elk"), alleging that a product and/or service of the Company
infringes a patent issued to Elk. Because the Company views the
allegation as groundless, it has not responded to the letter.
The Company recently received a letter from Steinhart & Falconer on
behalf of Testdrive Corporation demanding the Company cease using the
name "TestDrive" in NewMedia Magazine. In response to such letter, the
Company has indicated to Testdrive that it believes the Company has
superior rights to the name "Test Drive". The Company has received no
further correspondence with respect to this matter.
The Company is aware of a company based in Maine named "HyperMedia
Communications, Inc." ("Maine HyperMedia"). Wilson Sonsini Goodrich &
Rosati, on behalf of the Company, sent Maine HyperMedia a letter dated
June 18, 1996 asking Maine HyperMedia to cease and desist from using
the name "HyperMedia Communications, Inc." Maine HyperMedia continues
to use the name and the Company is not pursuing any action against them
at this time.
2.9 The Company received a letter from the Nasdaq Stock Market, Inc.
threatening delisting of the Company's Common Stock from the SmallCap
based on inadequate levels of capital and surplus.
2.12 Imperial Bank has a security interest, perfected in a filed UCC-1, in
most of the Company's assets. The Bank issued a "First Amendment to
Credit Terms and Conditions and Addendum Thereto" which deleted future
profitability covenants through the balance of the term of the
agreement starting with the third quarter of 1997.
HyperMedia Communications, Inc.
SEC Form 10-K FY97
Exhibit 4.21
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HYPERMEDIA COMMUNICATIONS, INC.
SERIES J PREFERRED STOCK PURCHASE AGREEMENT
February 19, 1998
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TABLE OF CONTENTS
Page
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1. Purchase and Sale of Stock............................................1
1.1 Sale and Issuance of Series J Preferred Stock................1
2. Representations and Warranties of the Company.........................2
2.1 Organization, Good Standing and Qualification................2
2.2 Capitalization...............................................2
2.3 Subsidiaries.................................................2
2.4 Authorization................................................3
2.5 Valid Issuance of Preferred and Common Stock.................3
2.6 Governmental Consents........................................3
2.7 Litigation...................................................3
2.8 Patents and Trademarks.......................................4
2.9 Compliance with Other Instruments............................4
2.10 Permits......................................................4
2.11 Disclosure...................................................5
2.12 Title to Property and Assets.................................5
2.13 Tax Returns and Audits.......................................5
2.14 Brokers or Finders...........................................5
3. Representations and Warranties of the Investor........................5
3.1 Experience...................................................5
3.2 Investment...................................................5
3.3 Rule 144.....................................................6
3.4 Access to Data...............................................6
3.5 Authorization................................................6
3.6 Accredited Investor..........................................6
4. Conditions of Investor's Obligations at Closing.......................7
4.1 Representations and Warranties...............................7
4.2 Performance..................................................7
4.3 Compliance Certificate.......................................7
4.4 Blue Sky.....................................................7
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TABLE OF CONTENTS
(continued)
Page
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5. Conditions of the Company's Obligations at Closing....................7
5.1 Representations and Warranties...............................7
5.2 Payment of Purchase Price....................................7
5.3 Blue Sky.....................................................7
5.4 Proceedings and Documents....................................7
6. Restrictions on Transferability; Registration Rights..................8
6.1 Certain Definitions..........................................8
6.2 Restrictions.................................................9
6.3 Restrictive Legend...........................................9
6.4 Notice of Proposed Transfers................................10
6.5 Requested Registration......................................10
6.6 Company Registration........................................12
6.7 Registration on Form S-3....................................13
6.8 Limitations on Subsequent Registration Rights...............14
6.9 Expenses of Registration....................................14
6.10 Registration Procedures.....................................15
6.11 Indemnification.............................................16
6.12 Information by Holder.......................................18
6.13 Rule 144 Reporting..........................................18
6.14 Transfer of Registration Rights.............................19
6.15 Standoff Agreement..........................................19
7. Miscellaneous........................................................19
7.1 Governing Law...............................................19
7.2 Survival....................................................19
7.3 Successors and Assigns......................................20
7.4 Entire Agreement; Amendment.................................20
7.5 Notices, Etc................................................20
7.6 Delays or Omissions.........................................20
7.7 California Corporate Securities Law.........................21
7.8 Expenses....................................................21
7.9 Finder's Fee................................................21
7.10 Counterparts................................................21
7.11 Severability................................................21
Exhibit A Certificate of Determination of Preferences of Series I
Preferred Stock
Exhibit B Schedule of Exceptions
Exhibit C Schedule of Investors
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SERIES J PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES J PREFERRED STOCK PURCHASE AGREEMENT is made as of the 19th
day of February, 1998, by and between HYPERMEDIA COMMUNICATIONS, INC., a
California corporation (the "Company"), and MK GVD FUND (the "Investor").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
1.1 Sale and Issuance of Series J Preferred Stock.
(a) The Board of Directors of the Company shall adopt
and file with the Secretary of State of California on or before the Initial
Closing (as defined below) the Certificate of Determination of Preferences of
Series J Preferred Stock (the "Certificate of Determination"), in the form
attached hereto as Exhibit A.
(b) Subject to the terms and conditions of this
Agreement, the Investor agrees to purchase at the Initial Closing, and the
Company agrees to sell and issue to the Investor at the Initial Closing and any
Subsequent Closings (as defined below), an aggregate of up to that number of
shares (the "Shares") of the Company's Series J Preferred Stock (the "Series J
Preferred") equal to $2,000,000 divided by the Purchase Price (as defined below)
at each Closing. The number of shares of Series J Preferred to be sold and
issued at each Closing shall be determined by the Company and the Investor on or
before the date of such Closing, but in no event shall the aggregate of such
numbers exceed the maximum set forth in the preceding sentence. The purchase
price per Share (the "Purchase Price") shall be determined by multiplying 20
times 85% of the average closing bid price of a share of the Company's Common
Stock as reported on the Nasdaq SmallCap Market for the 10 trading days ending 5
business days before the date of a Closing.
(c) Purchase and Sale Closings. The purchase and sale
of the Shares shall take place at the offices of Wilson Sonsini Goodrich &
Rosati, 650 Page Mill Road, Palo Alto, California, at any times on or before
August 21, 1998 as the Company and the Investor agree upon orally or in writing
(the first of which times is designated the "Initial Closing," all others of
which are designated "Subsequent Closings" and all of which times are
collectively designated as "Closings"), but in any event no later than one
business day after Investor's receipt and acceptance of a written request from
the Company setting forth the number of shares to be purchased and sold at the
Initial Closing and no later than three business days after Investor's receipt
of a written request from the Company setting forth the number of shares to be
purchased and sold at any subsequent Closing in question. At each Closing the
Company shall deliver to the Investor a certificate representing the Series J
Preferred that the Investor is purchasing against payment of the aggregate
purchase price therefor by check, wire transfer or any combination thereof.
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2. Representations and Warranties of the Company.
Except as set forth in (i) the forms, reports and documents, including the
exhibits thereto, filed by the Company with the Securities and Exchange
Commission, (ii) the documents and other materials provided to directors of the
Company prior to and during meetings of the Company's Board of Directors or
(iii) the Schedule of Exceptions attached hereto as Exhibit B, the Company
hereby represents and warrants as follows:
2.1 Organization, Good Standing and Qualification. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of California and has all requisite corporate power and
authority to carry on its business as currently conducted. The Company is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure to so qualify would have a material adverse effect on its
business or properties. True and accurate copies of the Company's Articles of
Incorporation and Bylaws, each as amended and in effect at the Initial Closing,
have been delivered to the Investor.
2.2 Capitalization. Immediately prior to the Initial Closing,
the authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock ("Common Stock"), of which 3,200,137 shares are issued and
outstanding on the date of this Agreement, and 10,064,516 shares of Preferred
Stock ("Preferred Stock"), of which (i) 8,064,516 shares are designated Series E
Preferred Stock, all of which are issued and outstanding, (ii) 175,000 shares
are designated Series F Preferred Stock, 82,250 of which are issued and
outstanding, (iii) 175,000 shares are designated Series G Preferred Stock,
50,344 of which are issued and outstanding, (iv) 400,000 shares are designated
Series H Preferred Stock, 117,000 of which are issued and outstanding (v)
200,000 shares are designated Series I Preferred Stock, 28,800 of which are
issued and outstanding and (vi) 250,000 shares are designated Series J Preferred
Stock, none of which is issued and outstanding. All such issued and outstanding
shares have been duly authorized and validly issued and are fully paid and
nonassessable. The Company has reserved an aggregate of 250,000 shares of Series
J Preferred for issuance hereunder. The Company has reserved 5,000,000 shares of
Common Stock for issuance upon conversion of the Series J Preferred. An
aggregate of 1,100,000 shares of Common Stock are reserved for issuance under
the Company's 1991 Stock Plan, 1993 Director Option Plan and 1996 Employee Stock
Purchase Plan. There are options outstanding under the Company's 1991 Stock Plan
and 1993 Director Option Plan to purchase an aggregate of approximately 553,554
shares and approximately 155,000 shares, respectively, of the Company's Common
Stock. There are warrants outstanding to purchase an aggregate of approximately
[183,356] shares of the Company's Common Stock. There are no other outstanding
rights, options, warrants, preemptive rights, rights of first refusal or similar
rights for the purchase or acquisition from the Company of any securities of the
Company. All outstanding shares have been issued in compliance with state and
federal securities laws.
2.3 Subsidiaries. The Company does not presently own or
control, directly or indirectly, any interest in any other corporation,
association, or other business entity. The Company is not a participant in any
joint venture, partnership, or similar arrangement.
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2.4 Authorization. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, the performance of all
obligations of the Company hereunder and thereunder, and the authorization,
issuance (or reservation for issuance), sale and delivery of the Shares being
sold hereunder and the Common Stock issuable upon conversion of the Shares has
been taken or will be taken prior to the Initial Closing, and this Agreement
constitutes a valid and legally binding obligation of the Company, enforceable
in accordance with its terms, subject to: (i) judicial principles limiting the
availability of specific performance, injunctive relief, and other equitable
remedies; and (ii) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect generally relating to or affecting
creditors' rights.
2.5 Valid Issuance of Preferred and Common Stock. The shares
of Series J Preferred that are being purchased by the Investor hereunder, when
issued, sold and delivered in accordance with the terms of this Agreement for
the consideration expressed herein, will be duly and validly issued, fully paid,
and nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement and under applicable state and
federal securities laws. The Common Stock issuable upon conversion of the Series
J Preferred purchased under this Agreement has been duly and validly reserved
for issuance and, upon issuance in accordance with the terms of the Certificate
of Determination and the Amended and Restated Articles of Incorporation (the
"Restated Articles"), will be duly and validly issued, fully paid, and
nonassessable and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement and under applicable state and
federal securities laws.
2.6 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the offer, sale or issuance of the
Shares (and the Common Stock issuable upon conversion of the Shares) or the
consummation of any other transaction contemplated hereby, except for the
following: (i) the filing of the Certificate of Determination in the office of
the Secretary of State of the State of California, which shall be filed by the
Company on or prior to the Initial Closing; (ii) the filing of such notices as
may be required under the Securities Act of 1933, as amended (the "Securities
Act"); and (iii) the filing of a notice of exemption pursuant to Section
25102(f) of the California Corporate Securities Law of 1968, as amended (the
"California Securities Law"), which shall be filed by the Company promptly
following each Closing. Based in part on the representations of the Investor set
forth in Section 3 below, the offer, sale and issuance of the Shares in
conformity with the terms of this Agreement are exempt from the registration
requirements of Section 5 of the Securities Act and from the qualification
requirements of Section 25110 of the California Securities Law.
2.7 Litigation. There is no action, suit, proceeding or
investigation pending or, to the best of the Company's knowledge, currently
threatened before any court, administrative agency or other governmental body
against the Company which questions the validity of this Agreement or the right
of the Company to enter into it, or to consummate the transactions contemplated
hereby, or
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<PAGE>
which could result, either individually or in the aggregate, in any material
adverse change in the condition (financial or otherwise), business, property,
assets or liabilities of the Company. The foregoing includes, without
limitation, actions, suits, proceedings or investigations pending or threatened
(or any basis therefor known to the Company) involving the prior employment of
any of the Company's employees, their use in connection with the Company's
business of any information or techniques allegedly proprietary to any of their
former employers, or their obligations under any agreements with prior
employers. The Company is not a party or subject to, and none of its assets is
bound by, the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality.
2.8 Patents and Trademarks. The Company has sufficient title
and ownership of all patents, trademarks, service marks, trade names,
copyrights, trade secrets, information, proprietary rights and processes
(collectively, "Intellectual Property") necessary for its business as now
conducted without any conflict with or infringement of the rights of others.
There are no outstanding options, licenses, or agreements of any kind relating
to the foregoing, nor is the Company bound by or a party to any options,
licenses or agreements of any kind with respect to the Intellectual Property of
any other person or entity. The Company has not received any communications
alleging that any material Intellectual Property of the Company has violated or
would violate any of the Intellectual Property of any other person or entity.
2.9 Compliance with Other Instruments. The Company is not in
violation or default of any provision of its Articles of Incorporation or
Bylaws, each as amended and in effect on and as of each Closing. The Company is
not in violation or default of any material provision of any instrument,
mortgage, deed of trust, loan, contract, commitment, judgment, decree, order or
obligation to which it is a party or by which it or any of its properties or
assets are bound which would materially adversely affect the condition
(financial or otherwise), business, property, assets or liabilities of the
Company or, to the best of its knowledge, of any provision of any federal, state
or local statute, rule or governmental regulation which would materially
adversely affect the condition (financial or otherwise), business, property,
assets or liabilities of the Company. The execution, delivery and performance of
and compliance with this Agreement, and the issuance and sale of the Shares,
will not result in any such violation, be in conflict with or constitute, with
or without the passage of time or giving of notice, a default under any such
provision, require any consent or waiver under any such provision (other than
any consents or waivers that have been obtained), or result in the creation of
any mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company pursuant to any such provision.
2.10 Permits. The Company has all franchises, permits,
licenses, and any similar authority necessary for the conduct of its business as
now being conducted by it, the lack of which could materially and adversely
affect the business, properties, prospects, or financial condition of the
Company, and the Company believes it can obtain, without undue burden or
expense, any similar authority for the conduct of its business as planned to be
conducted. The Company is not in default in any material respect under any of
such franchises, permits, licenses, or other similar authority.
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<PAGE>
2.11 Disclosure. No representation, warranty or statement by
the Company in this Agreement, or in any written statement or certificate
furnished to the Investor pursuant to this Agreement or the transactions
contemplated hereby, contains any untrue statement of a material fact or, when
taken together, omits to state a material fact necessary to make the statements
made herein or therein, in light of the circumstances under which they were
made, not misleading.
2.12 Title to Property and Assets. The Company has good and
marketable title to all of its properties and assets free and clear of all
mortgages, liens and encumbrances, except liens for current taxes and
assessments not yet due and possible minor liens and encumbrances which do not,
in any case, in the aggregate, materially detract from the value of the property
subject thereto or materially impair the operations of the Company. With respect
to the property and assets it leases, the Company is in compliance with such
leases and, to the best of its knowledge, holds a valid leasehold interest free
of all liens, claims or encumbrances. The Company's properties and assets are in
good condition and repair in all material respects.
2.13 Tax Returns and Audits. The Company has accurately
prepared all United States income tax returns and all state and municipal tax
returns required to be filed by it, if any, has paid all taxes, assessments,
fees and charges when and as due under such returns and has made adequate
provision for the payment of all other taxes, assessments, fees and charges
shown on such returns or on assessments received by the Company. To the best of
the Company's knowledge, no deficiency assessment or proposed adjustment of the
Company's United States income tax or state or municipal taxes is pending.
2.14 Brokers or Finders. The Company has not agreed to incur,
directly or indirectly, any liability for brokerage or finders' fees, agents'
commissions or other similar charges in connection with this Agreement or any of
the transactions contemplated hereby.
3. Representations and Warranties of the Investor. The Investor hereby
represents and warrants that:
3.1 Experience. The Investor is experienced in evaluating
companies such as the Company, is able to fend for itself in transactions such
as the one contemplated by this Agreement, has such knowledge and experience in
financial and business matters that Investor is capable of evaluating the merits
and risks of Investor's prospective investment in the Company, and has the
ability to bear the economic risks of the investment.
3.2 Investment. The Investor is acquiring the Shares (and the
Common Stock issuable upon conversion of the Shares) for investment for such
Investor's own account and not with the view to, or for resale in connection
with, any distribution thereof. Such Investor understands that the Shares (and
the Common Stock issuable upon conversion of the Shares) have not been
registered under the Securities Act by reason of a specific exemption from the
registration provisions of the Securities Act which depends upon, among other
things, the bona fide nature of the investment intent
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<PAGE>
as expressed herein. Such Investor further represents that it does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participation to any third person with respect to any of the
Shares (or any Common Stock acquired upon conversion thereof). Such Investor
understands and acknowledges that the offering of the Shares pursuant to this
Agreement will not, and any issuance of Common Stock on conversion may not, be
registered under the Securities Act on the ground that the sale provided for in
this Agreement and the issuance of securities hereunder is exempt from the
registration requirements of the Securities Act.
3.3 Rule 144. The Investor acknowledges that the Shares (and
the Common Stock issuable upon conversion of the Shares) must be held
indefinitely unless subsequently registered under the Securities Act or an
exemption from such registration is available. Such Investor is aware of the
provisions of Rule 144 promulgated under the Securities Act which permit limited
resale of shares purchased in a private placement subject to the satisfaction of
certain conditions. Such Investor covenants that, in the absence of an effective
registration statement covering the stock in question, such Investor will sell,
transfer, or otherwise dispose of the Shares (and any Common Stock issued on
conversion thereof) only in a manner consistent with such Investor's
representations and covenants set forth in this Section 3. In connection
therewith, such Investor acknowledges that the Company will make a notation on
its stock books regarding the restrictions on transfers set forth in this
Section 3 and will transfer securities on the books of the Company only to the
extent not inconsistent therewith.
3.4 Access to Data. The Investor has received and reviewed
information about the Company and has had an opportunity to discuss the
Company's business, management and financial affairs with its management and to
review the Company's facilities. Such Investor understands that such
discussions, as well as any written information issued by the Company, were
intended to describe the aspects of the Company's business and prospects which
the Company believes to be material, but were not necessarily a thorough or
exhaustive description. The foregoing, however, does not limit or modify the
representations and warranties of the Company in Section 2 of this Agreement or
the right of the Investor to rely thereon.
3.5 Authorization. This Agreement when executed and delivered
by the Investor will constitute a valid and legally binding obligation of the
Investor, enforceable in accordance with its terms, subject to: (i) judicial
principles respecting election of remedies or limiting the availability of
specific performance, injunctive relief, and other equitable remedies; and (ii)
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect generally relating to or affecting creditors' rights.
3.6 Accredited Investor. The Investor acknowledges that it is
an "accredited investor" as defined in Rule 501 of Regulation D as promulgated
by the Securities and Exchange Commission under the Securities Act and shall
submit to the Company such further assurances of such status as may be
reasonably requested by the Company. For state securities law purposes, the
principal address of the Investor is that set forth on Exhibit C.
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4. Conditions of Investor's Obligations at Closing. The obligations of
the Investor under subsection 1.1(b) of this Agreement are subject to the
fulfillment on or before each Closing of each of the following conditions, the
waiver of which shall not be effective against any Investor who does not consent
in writing thereto:
4.1 Representations and Warranties. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing.
4.2 Performance. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing.
4.3 Compliance Certificate. The President or any Vice
President of the Company shall deliver to the Investor at the Closing a
certificate stating that the conditions specified in Sections 4.1 and 4.2 have
been fulfilled.
4.4 Blue Sky. The Company shall have obtained all necessary
permits and qualifications, if any, or secured an exemption therefrom, required
by any state or country prior to the offer and sale of the Shares.
5. Conditions of the Company's Obligations at Closing. The obligations
of the Company to the Investor under this Agreement are subject to the
fulfillment on or before each Closing of each of the following conditions by
that Investor:
5.1 Representations and Warranties. The representations and
warranties of the Investor contained in Section 3 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the Closing.
5.2 Payment of Purchase Price. The Investor shall have
delivered the purchase price specified in Section 1.1 against delivery of the
Shares.
5.3 Blue Sky. The Company shall have obtained all necessary
permits and qualifications, if any, or secured an exemption therefrom, required
by any state or country for the offer and sale of the Shares.
5.4 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby, and all documents and instruments incident to these transactions, shall
be reasonably satisfactory in substance to the Company and its counsel.
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6. Restrictions on Transferability; Registration Rights
6.1 Certain Definitions. As used in this Section 6, the
following terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
"Conversion Shares" means the Common Stock issued or issuable
upon conversion of the Shares.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Holder" shall mean the Investor, if it still holds
Registrable Securities, and any person holding Registrable Securities to whom
the rights under this Agreement have been transferred in accordance with Section
6.14 hereof.
"Initiating Holders" shall mean the Investor or transferees of
the Investor under Section 6.14 hereof who in the aggregate are Holders of not
less than 35% of the Registrable Securities.
The terms "register", "registered" and "registration" refer to
a registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by
the Company in complying with Sections 6.5, 6.6 and 6.7 hereof, including,
without limitation, all registration, qualification and filing fees, printing
expenses, escrow fees, fees and disbursements of counsel for the Company, blue
sky fees and expenses, and the expense of any special audits incident to or
required by any such registration (but excluding the compensation of regular
employees of the Company which shall be paid in any event by the Company).
"Registrable Securities" means any Common Stock of the Company
issued or issuable in respect of the Shares or Conversion Shares or other
securities issued or issuable with respect to the Shares or Conversion Shares
upon any stock split, stock dividend, recapitalization, or similar event, or any
Common Stock otherwise issued or issuable with respect to the Shares or
Conversion Shares; provided, however, that shares of Common Stock or other
securities shall only be treated as Registrable Securities if and so long as
they have not been (A) sold to or through a broker or dealer or underwriter in a
public distribution or a public securities transaction, or (B) sold in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities
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<PAGE>
Act under Section 4(1) thereof so that all transfer restrictions and restrictive
legends with respect thereto are removed upon the consummation of such sale.
"Restricted Securities" shall mean the securities of the
Company required to bear the legend set forth in Section 6.3 hereof.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts,
selling commissions and stock transfer taxes applicable to the securities
registered by the Holders and all fees and disbursements of counsel for the
Holders (as limited by Section 6.9).
6.2 Restrictions. The Shares and the Conversion Shares shall
not be sold, assigned, transferred or pledged except upon the conditions
specified in this Section 6, which conditions are intended to ensure compliance
with the provisions of the Securities Act. The Investor will cause any proposed
purchaser, assignee, transferee or pledgee of the Shares and the Conversion
Shares to agree to take and hold such securities subject to the provisions and
upon the conditions specified in this Section 6.
6.3 Restrictive Legend. Each certificate representing (i) the
Shares, (ii) the Conversion Shares, and (iii) any other securities issued in
respect of the securities referenced in clauses (i) and (ii) upon any stock
split, stock dividend, recapitalization, merger, consolidation or similar event,
shall (unless otherwise permitted by the provisions of Section 6.4 below) be
stamped or otherwise imprinted with a legend in the following form (in addition
to any legend required under applicable state securities laws):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD,
TRANSFERRED OR PLEDGED IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY
BE COUNSEL FOR THE COMPANY) REASONABLY ACCEPTABLE TO IT
STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID
ACT."
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED
ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE
COMPANY AND THE SHAREHOLDER,
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A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY."
Each Investor consents to the Company making a notation on its
records and giving instructions to any transfer agent of the Restricted
Securities in order to implement the restrictions on transfer established in
this Section 6.
6.4 Notice of Proposed Transfers. The holder of each
certificate representing Restricted Securities, by acceptance thereof, agrees to
comply in all respects with the provisions of this Section 6. Prior to any
proposed sale, assignment, transfer or pledge of any Restricted Securities,
unless there is in effect a registration statement under the Securities Act
covering the proposed transfer, the holder thereof shall give written notice to
the Company of such holder's intention to effect such transfer, sale, assignment
or pledge. Each such notice shall describe the manner and circumstances of the
proposed transfer, sale, assignment or pledge in sufficient detail, and shall be
accompanied at such holder's expense by either (i) a written opinion of legal
counsel who shall, and whose legal opinion shall be, reasonably satisfactory to
the Company, addressed to the Company, to the effect that the proposed transfer
of the Restricted Securities may be effected without registration under the
Securities Act, or (ii) a "no action" letter from the Commission to the effect
that the transfer of such securities without registration will not result in a
recommendation by the staff of the Commission that action be taken with respect
thereto, or (iii) any other evidence reasonably satisfactory to counsel to the
Company, whereupon the holder of such Restricted Securities shall be entitled to
transfer such Restricted Securities in accordance with the terms of the notice
delivered by the holder to the Company. The Company will not require such a
legal opinion or "no action" letter (a) in any transaction in compliance with
Rule 144, (b) in any transaction in which an Investor which is a corporation
distributes Restricted Securities after six (6) months after the purchase
thereof solely to its majority owned subsidiaries or affiliates for no
consideration, or (c) in any transaction in which an Investor which is a
partnership distributes Restricted Securities after six (6) months after the
purchase thereof solely to partners thereof for no consideration; provided that
each transferee agrees in writing to be subject to the terms of this Section
6.4. Each certificate evidencing the Restricted Securities transferred as above
provided shall bear, except if such transfer is made pursuant to Rule 144, the
appropriate restrictive legend set forth in Section 6.3 above, except that such
certificate shall not bear such restrictive legend if, in the opinion of counsel
for such holder and the Company, such legend is not required in order to
establish compliance with any provisions of the Securities Act.
6.5 Requested Registration.
(a) Request for Registration. In case the Company
shall receive from Initiating Holders a written request that the Company effect
any registration, qualification or compliance with respect to the Registrable
Securities, the Company will:
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(i) promptly give written notice of the
proposed registration, qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best
efforts to effect such registration, qualification or compliance (including,
without limitation, the execution of an undertaking to file post-effective
amendments, appropriate qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations issued
under the Securities Act and any other governmental requirements or regulations)
as may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any Holder or Holders joining in such request as are specified in
a written request received by the Company within thirty (30) days after receipt
of such written notice from the Company; provided, however, that the Company
shall not be obligated to take any action to effect any such registration,
qualification or compliance pursuant to this Section 6.5:
(1) In any particular jurisdiction in
which the Company would be required to execute a general consent to service of
process in effecting such registration, qualification or compliance unless the
Company is already subject to service in such jurisdiction and except as may be
required by the Securities Act;
(2) During the period starting with
the date sixty (60) days prior to the Company's estimated date of filing of, and
ending on the date six (6) months immediately following the effective date of,
any registration statement pertaining to securities of the Company (other than a
registration of securities in a Rule 145 transaction or with respect to an
employee benefit plan), provided that the Company is actively employing in good
faith all reasonable efforts to cause such registration statement to become
effective and that the Company's estimate of the date of filing such
registration statement is made in good faith;
(3) After the Company has effected
two (2) such registrations pursuant to this subparagraph 6.5(a), each such
registration has been declared or ordered effective and the securities offered
pursuant to each such registration have been sold; or
(4) If the Company shall furnish to
such Holders a certificate, signed by the President of the Company, stating that
in the good faith judgment of the Board of Directors it would be seriously
detrimental to the Company or its shareholders for a registration statement to
be filed in the near future, then the Company's obligation to use its best
efforts to register, qualify or comply under this Section 6.5 shall be deferred
for a period not to exceed one hundred eighty (180) days from the date of
receipt of written request from the Initiating Holders; provided, however, that
the Company may not use this right more than once in any twelve (12) month
period.
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Subject to the foregoing clauses (1) through (4), the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Initiating Holders.
(b) Underwriting. In the event that a registration
pursuant to Section 6.5 is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as part of the notice
given pursuant to Section 6.5(a)(i). The right of any Holder to registration
pursuant to Section 6.5 shall be conditioned upon such Holder's participation in
the underwriting arrangements required by this Section 6.5 and the inclusion of
such Holder's Registrable Securities in the underwriting, to the extent
requested, to the extent provided herein.
The Company shall (together with all Holders proposing to distribute
their securities through such underwriting) enter into an underwriting agreement
in customary form with the managing underwriter selected for such underwriting
by a majority in interest of the Initiating Holders (which managing underwriter
shall be reasonably acceptable to the Company). Notwithstanding any other
provision of this Section 6.5, if the managing underwriter advises the
Initiating Holders in writing that marketing factors require a limitation of the
number of shares to be underwritten, then the Company shall so advise all
Holders of Registrable Securities and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated among all Holders thereof in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities held by such Holders at the
time of filing the registration statement; provided, however, that the number of
shares of Registrable Securities to be included in such underwriting shall not
be reduced unless all other securities are first entirely excluded from the
underwriting. No Registrable Securities excluded from the underwriting by reason
of the underwriter's marketing limitation shall be included in such
registration. To facilitate the allocation of shares in accordance with the
above provisions, the Company or the underwriters may round the number of shares
allocated to any Holder to the nearest 100 shares.
If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the managing underwriter and the Initiating Holders. The
Registrable Securities and/or other securities so withdrawn shall also be
withdrawn from registration, and such Registrable Securities shall not be
transferred in a public distribution prior to ninety (90) days after the
effective date of such registration.
6.6 Company Registration.
(a) Notice of Registration. If at any time or from
time to time, the Company shall determine to register any of its securities,
either for its own account or the account of a security holder or holders other
than (i) a registration relating solely to employee benefit plans, or (ii) a
registration relating solely to a Commission Rule 145 transaction, the Company
will:
(i) promptly give to each Holder written
notice thereof; and
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(ii) include in such registration (and any
related qualification under blue sky laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities specified in a
written request or requests made within thirty (30) days after receipt of such
written notice from the Company by any Holder, but only to the extent that such
inclusion will not diminish the number of securities included by holders of the
Company's securities who have demanded such registration.
(b) Underwriting. If the registration of which the
Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as a part of the written
notice given pursuant to Section 6.6(a)(i). In such event, the right of any
Holder to registration pursuant to Section 6.6 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of Registrable
Securities in the underwriting to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company and the other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the managing underwriter selected for such underwriting by the Company
(or by the holders who have demanded such registration). Notwithstanding any
other provision of this Section 6.6, if the managing underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, the managing underwriter may limit the number of Registrable
Securities to be included in the registration and underwriting on a pro rata
basis based on the total number of securities (including, without limitation,
Registrable Securities) entitled to registration pursuant to registration rights
granted to the participating Holders by the Company; provided, however, that no
such reduction may reduce the number of securities being sold by the Holders to
less than thirty percent (30%) of the shares being sold in such offering. To
facilitate the allocation of shares in accordance with the above provisions, the
Company or the underwriters may round the number of shares allocated to any
Holder or other holder to the nearest 100 shares. If any Holder or other holder
disapproves of the terms of any such underwriting, he or she may elect to
withdraw therefrom by written notice to the Company and the managing
underwriter. Any securities excluded or withdrawn from such underwriting shall
be withdrawn from such registration, and shall not be transferred in a public
distribution prior to ninety (90) days after the effective date of the
registration statement relating thereto.
(c) Right to Terminate Registration. The Company
shall have the right to terminate or withdraw any registration initiated by it
under this Section 6.6 prior to the effectiveness of such registration, whether
or not any Holder has elected to include securities in such registration.
6.7 Registration on Form S-3.
(a) If any Holder or Holders of not less than twenty
percent (20%) of the Registrable Securities requests that the Company file a
registration statement on Form S-3 (or any successor form to Form S-3) for a
public offering of shares of the Registrable Securities, the reasonably
anticipated aggregate price to the public of which, net of underwriting
discounts and
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commissions, would exceed $500,000, and the Company is a registrant entitled to
use Form S-3 to register the Registrable Securities for such an offering, the
Company shall use its best efforts to cause such Registrable Securities to be
registered for the offering on such form. The Company will (i) promptly give
written notice of the proposed registration to all other Holders, and (ii) as
soon as practicable, use its best efforts to effect such registration
(including, without limitation, the execution of an undertaking to file
post-effective amendments, appropriate qualification under applicable blue sky
or other state securities laws and appropriate compliance with applicable
regulations issued under the Securities Act and any other governmental
requirements or regulations) as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Registrable
Securities as are specified in such request, together with all or such portion
of the Registrable Securities of any Holder or Holders joining in such request
as are specified in a written request received by the Company within thirty (30)
days after receipt of such written notice from the Company. The substantive
provisions of Section 6.5(b) shall be applicable to each registration initiated
under this Section 6.7.
(b) Notwithstanding the foregoing, the Company shall
not be obligated to take any action pursuant to this Section 6.7: (i) in any
particular jurisdiction in which the Company would be required to execute a
general consent to service of process in effecting such registration,
qualification or compliance unless the Company is already subject to service in
such jurisdiction and except as may be required by the Securities Act; (ii)
during the period starting with the date sixty (60) days prior to the Company's
estimated date of filing of, and ending on the date six (6) months immediately
following the effective date of, a registration statement (other than with
respect to a registration statement relating to a Rule 145 transaction, an
offering solely to employees or any other registration which is not appropriate
for the registration of Registrable Securities), provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or (iii) if the Company shall
furnish to such Holder a certificate signed by the President of the Company
stating that, in the good faith judgment of the Board of Directors, it would be
seriously detrimental to the Company or its shareholders for registration
statements to be filed in the near future, then the Company's obligation to use
its best efforts to file a registration statement shall be deferred for a period
not to exceed one hundred eighty (180) days from the receipt of the request to
file such registration by such Holder or Holders; provided, however, that the
Company may not utilize this right more than once in any twelve (12) month
period.
6.8 Limitations on Subsequent Registration Rights. From and
after the date hereof, the Company shall not enter into any agreement granting
any holder or prospective holder of any securities of the Company registration
rights with respect to such securities unless such new registration rights,
including standoff obligations, are subordinate to the registration rights
granted Holders hereunder.
6.9 Expenses of Registration. All Registration Expenses
incurred in connection with any registration pursuant to Sections 6.5, 6.6 and
6.7 and the reasonable cost of one special
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legal counsel to represent all of the Holders together in any such registration
shall be borne by the Company. If a registration proceeding is begun upon the
request of Initiating Holders pursuant to Section 6.5, but such request is
subsequently withdrawn, then the Holders of Registrable Securities to have been
registered may either: (i) bear all Registration Expenses of such proceeding,
pro rata on the basis of the number of shares to have been registered, in which
case the Company shall be deemed not to have effected a registration pursuant to
subparagraph 6.5(a) of this Agreement; or (ii) require the Company to bear all
Registration Expenses of such proceeding, in which case the Company shall be
deemed to have effected a registration pursuant to subparagraph 6.5(a) of this
Agreement. Notwithstanding the foregoing, however, if at the time of the
withdrawal, the Holders have learned of a material adverse change in the
condition, business or prospects of the Company from that known to the Holders
at the time of their request, then the Holders shall not be required to pay any
of said Registration Expenses. In such case, the Company shall be deemed not to
have effected a registration pursuant to subparagraph 6.5(a) of this Agreement.
Unless otherwise stated, all other Selling Expenses relating to securities
registered on behalf of the Holders shall be borne by the Holders of the
registered securities included in such registration pro rata on the basis of the
number of shares so registered.
6.10 Registration Procedures. In the case of each
registration, qualification or compliance effected by the Company pursuant to
this Section 6, the Company will keep each Holder advised in writing as to the
initiation of each registration, qualification and compliance and as to the
completion thereof. At its expense the Company will:
(a) Prepare and file with the Commission a
registration statement with respect to such securities and use its best efforts
to cause such registration statement to become and remain effective for at least
one hundred eighty (180) days or until the distribution described in the
registration statement has been completed; and
(b) Prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders participating in such
registration and to the underwriters of the securities being registered such
reasonable number of copies of the registration statement, preliminary
prospectus, final prospectus and such other documents as such underwriters may
reasonably request in order to facilitate the public offering of such
securities.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders; provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to
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service of process in any such states or jurisdictions, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Act.
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Cause all such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange on which similar
securities issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all
Registrable Securities registered pursuant hereunder and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date of
such registration.
(i) Use its best efforts to furnish, at the request
of any Holder requesting registration of Registrable Securities pursuant to this
Section 6, on the date that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant to this Section
6, if such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes effective, (i) an
opinion, dated such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities and
(ii) a letter dated such date, from the independent certified public accountants
of the Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities.
6.11 Indemnification.
(a) The Company will indemnify each Holder, each of
its officers and directors and partners, and each person controlling such Holder
within the meaning of Section 15 of the Securities Act, with respect to which
registration, qualification or compliance has been effected pursuant to this
Section 6, and each underwriter, if any, and each person who controls any
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underwriter within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, preliminary prospectus, offering circular or
other document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading, or any violation or any alleged violation by the
Company of any rule or regulation promulgated under the Securities Act or the
Exchange Act or any state securities law applicable to the Company in connection
with any such registration, qualification or compliance, and the Company will
reimburse each such Holder, each of its officers and directors, and each person
controlling such Holder, each such underwriter and each person who controls any
such underwriter, for any legal and any other expenses as reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, as such expenses are incurred, provided that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability or expense arises out of or is based on any untrue
statement or omission or alleged untrue statement or omission, made in reliance
upon and in conformity with written information furnished to the Company by an
instrument duly executed by such Holder, controlling person or underwriter and
stated to be specifically for use therein.
(b) Each Holder will, if Registrable Securities held
by such Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of Section 15 of the
Securities Act, and each other such Holder, each of its officers and directors
and each person controlling such Holder within the meaning of Section 15 of the
Securities Act, against all claims, losses, damages and liabilities (or actions
in respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company, such Holders, such directors, officers, persons, underwriters or
control persons for any legal or any other expenses as reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, as such expenses are incurred, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder and stated to be specifically for use therein.
(c) Each party entitled to indemnification under this
Section 6.11 (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the
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"Indemnifying Party") promptly after such Indemnified Party has actual knowledge
of any claim as to which indemnity may be sought, and shall permit the
Indemnifying Party to assume the defense of any such claim or any litigation
resulting therefrom, provided that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or litigation, shall be approved by the
Indemnified Party (whose approval shall not unreasonably be withheld), and the
Indemnified Party may participate in such defense at such party's expense;
provided, however, that an Indemnified Party (together with all other
Indemnified Parties which may be represented without conflict by one counsel)
shall have the right to retain one separate counsel, with the fees and expenses
to be paid by the Indemnifying Party, if representation of such Indemnified
Party by the counsel retained by the Indemnifying Party would be inappropriate
due to actual or potential differing interests between such Indemnified Party
and any other party represented by such counsel in such proceeding. The failure
of any Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 6 unless the failure to
give such notice is materially prejudicial to an Indemnifying Party's ability to
defend such action. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
6.12 Information by Holder. The Holder or Holders of
Registrable Securities included in any registration shall furnish to the Company
such information regarding such Holder or Holders, the Registrable Securities
held by them and the distribution proposed by such Holder or Holders as the
Company may request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Section 6.
6.13 Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Restricted Securities to the public without
registration, after such time as a public market exists for the Common Stock of
the Company, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as
those terms are understood and defined in Rule 144 under the Securities Act, at
all times after the effective date that the Company becomes subject to the
reporting requirements of the Securities Act or the Exchange Act;
(b) File with the Commission in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Exchange Act (at any time after it has become subject to such reporting
requirements); and
(c) So long as a Holder owns any Restricted
Securities, to furnish to the Holder forthwith upon request a written statement
by the Company as to its compliance with the reporting requirements of said Rule
144 (at any time after ninety (90) days after the effective date of
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the first registration statement filed by the Company for an offering of its
securities to the general public), and of the Securities Act and the Exchange
Act (at any time after it has become subject to such reporting requirements), a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents of the Company and other information in the
possession of or reasonably obtainable by the Company as a Holder may reasonably
request in availing itself of any rule or regulation of the Commission allowing
a Holder to sell any such securities without registration.
6.14 Transfer of Registration Rights. The rights to cause the
Company to register securities granted to any party hereto under Sections 6.5,
6.6 and 6.7 may be assigned to a transferee or assignee reasonably acceptable to
the Company in connection with any transfer or assignment of Registrable
Securities by such party (together with any affiliate); provided that (a) such
transfer may otherwise be effected in accordance with applicable securities
laws, (b) notice of such assignment is given to the Company, and (c) such
transferee or assignee (i) is a wholly-owned subsidiary or constituent partner
(including limited partners, retired partners, spouses and ancestors, lineal
descendants and siblings of such partners or spouses who acquire Registrable
Securities by gift, will or intestate succession) of such party, or (ii)
acquires from such party at least 50,000 shares of Registrable Securities (as
appropriately adjusted for stock splits and the like).
6.15 Standoff Agreement. Each Holder agrees in connection with
any registration of the Company's securities (other than a registration of
securities in a Rule 145 transaction or with respect to an employee benefit
plan), upon request of the Company or the underwriters managing any underwritten
offering of the Company's securities, not to sell, make any short sale of, loan,
pledge (or otherwise encumber or hypothecate), grant any option for the purchase
of, or otherwise directly or indirectly dispose of any Registrable Securities
(other than those included in the registration) without the prior written
consent of the Company and such managing underwriters for such period of time,
not to exceed ninety (90) days, as the Board of Directors establishes pursuant
to its good faith negotiations with such managing underwriters; provided,
however, that such Holder shall not be subject to such lockup unless the
officers and directors of the Company who own stock of the Company shall also be
bound by such restrictions.
7. Miscellaneous.
7.1 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of California, without regard to any
provisions thereof relating to conflicts of laws among different jurisdictions.
7.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by the Investor and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or exhibit
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delivered by or on behalf of the Company pursuant hereto shall be deemed to be
the representations and warranties of the Company hereunder as of such date of
such certificate or exhibit.
7.3 Successors and Assigns. Except as otherwise provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto; provided, however, that the rights of an Investor to purchase
Shares shall not be assignable without the consent of the Company.
7.4 Entire Agreement; Amendment. This Agreement and the other
documents delivered pursuant hereto constitute the full and entire understanding
and agreement among the parties with regard to the subjects hereof and thereof.
Neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought;
provided, however, that holders of fifty-one percent (51%) of the outstanding
Shares (whether or not converted) may waive or amend, on behalf of the Investor
and other holders of Shares, any provisions hereof benefitting the Investor so
long as the effect thereof will be that the Investor and other holders of Shares
will be treated equally.
7.5 Notices, Etc. All notices and other communications
required or permitted hereunder shall be in writing and shall be mailed by
registered or certified mail, postage prepaid, return receipt requested, or
otherwise delivered by hand or by messenger, addressed (a) if to the Investor,
at the Investor's principal offices at 2471 E. Bayshore, Suite 520, Palo Alto,
California 94303, or at such other address as the Investor shall have furnished
to the Company in writing, or (b) if to any other holder of any Shares, at such
address as such holder shall have furnished the Company in writing, or, until
any such holder so furnishes an address to the Company, then to and at the
address of the last holder of such Shares who has so furnished an address to the
Company, or (c) if to the Company, at its principal offices at 901 Mariner's
Island Boulevard, Suite 365, San Mateo, California 94404 addressed to the
attention of the Corporate Secretary, or at such other address as the Company
shall have furnished to the Investor. If notice is provided by mail, notice
shall be deemed to be given three (3) business days after proper deposit in the
U.S. Mail.
7.6 Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to any holder of any Shares upon any breach or
default of the Company under this Agreement shall impair any such right, power
or remedy of such holder, nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this
Agreement, or any waiver on the part of any holder of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing or as provided in this
Agreement. All remedies, either under this Agreement or by law or otherwise
afforded to any holder, shall be cumulative and not alternative.
-20-
<PAGE>
7.7 California Corporate Securities Law. THE SALE OF THE
SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF
SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION
THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES
IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE
CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE
EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS
SO EXEMPT.
7.8 Expenses. The Company and the Investor shall bear their
own expenses and legal fees incurred on its behalf with respect to this
Agreement and the transactions contemplated hereby.
7.9 Finder's Fee. The Company and the Investor shall each
indemnify and hold the other harmless from any liability for any commission or
compensation in the nature of a finder's fee (including the costs, expenses and
legal fees of defending against such liability) for which the Company or the
Investor, or any of their respective partners, employees, or representatives, as
the case may be, is responsible.
7.10 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be enforceable against the parties
actually executing such counterparts, and all of which together shall constitute
one instrument.
7.11 Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to any
party.
[This space left blank intentionally]
-21-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
HYPERMEDIA COMMUNICATIONS, INC. MK GVD FUND
Signature: /s/ TODD HAGEN Signature: /s/ GREG LAHANN
--------------------- -------------------------
By: By:
---------------------------- -------------------------------
Its: Chief Financial Officer Its: General Partner
--------------------------- ------------------------------
<PAGE>
EXHIBIT A
CERTIFICATE OF DETERMINATION OF PREFERENCES
OF SERIES J PREFERRED STOCK
<PAGE>
EXHIBIT B
SCHEDULE OF EXCEPTIONS
This disclosure of exceptions is made and given pursuant to Section 2
of the Series J Preferred Stock Purchase Agreement dated as of February 19, 1998
(the "Agreement"), by and between HyperMedia Communications, Inc. (the
"Company") and MK GVD Fund (the "Investor"). Unless the context otherwise
requires, all capitalized terms are used herein as defined in the Agreement. The
numbers below correspond to the section numbers of representations and
warranties in the Agreement that are most directly modified by the disclosures,
but all disclosures are intended to modify all of the Company's representations
and warranties.
2.8 The Company has received a letter, dated May 2, 1996, from the law firm
of Herman Roof Borgognoni & Moore on behalf of Elk Industries, Inc.
("Elk"), alleging that a product and/or service of the Company
infringes a patent issued to Elk. Because the Company views the
allegation as groundless, it has not responded to the letter.
The Company recently received a letter from Steinhart & Falconer on
behalf of Testdrive Corporation demanding the Company cease using the
name "TestDrive" in NewMedia Magazine. In response to such letter, the
Company has indicated to Testdrive that it believes the Company has
superior rights to the name "Test Drive". The Company has received no
further correspondence with respect to this matter.
The Company is aware of a company based in Maine named "HyperMedia
Communications, Inc." ("Maine HyperMedia"). Wilson Sonsini Goodrich &
Rosati, on behalf of the Company, sent Maine HyperMedia a letter dated
June 18, 1996 asking Maine HyperMedia to cease and desist from using
the name "HyperMedia Communications, Inc." Maine HyperMedia continues
to use the name and the Company is not pursuing any action against them
at this time.
2.9 The Company received a letter from the Nasdaq Stock Market, Inc.
threatening delisting of the Company's Common Stock from the SmallCap
based on inadequate levels of capital and surplus. The Company has been
further notified by Nasdaq that if it is not in compliance by February
23, 1998, that it will be delisted and that in order to be relisted the
Company must go through a formal appeal process.
Although the purpose of this equity financing is to maintain the
Company's shareholder equity requirements for its Nasdaq listing, there
can be no assurance that the Company will be able to maintain its
listing on Nasdaq or the Pacific Exchange.
<PAGE>
2.12 Imperial Bank has a security interest, perfected in a filed UCC-1, in
most of the Company's assets. The Bank issued a "First Amendment to
Credit Terms and Conditions and Addendum Thereto" which deleted future
profitability covenants through the balance of the term of the
agreement starting with the third quarter of 1997.
-2-
HyperMedia Communications, Inc.
SEC Form 10-K FY97
Exhibit 10.8
<PAGE>
IMPERIAL BANK
Member FDIC
SECURITY AND LOAN AGREEMENT
(ACCOUNTS RECEIVABLE)
This Agreement is entered into between HYPERMEDIA COMMUNICATIONS, INC., a
Corporation (herein called "Borrower") and IMPERIAL BANK (herein called "Bank").
1. Bank hereby commits, subject to all the terms and conditions of this
Agreement and prior to the termination of its commitment as hereinafter
provided, to make loans to Borrower from time to time in such amounts as may be
determined by Bank up to, but not exceeding in the aggregate unpaid principal
balance, the following Borrowing Base:
70% of Eligible Accounts
and in no event more than $1,000,000.
2. The amount of each loan made by Bank to Borrower hereunder shall be debited
to the loan ledger account of Borrower maintained by Bank (herein called "Loan
Account") and Bank shall credit the Loan Account with all loan repayments made
by Borrower. Borrower promises to pay Bank (a) the unpaid balance of Borrower's
Loan Account on March 18, 1999 and (b) on or before the tenth day of each month,
interest on the average daily unpaid balance of the Loan Account during the
immediately preceding month at the rate of two percent (2.0%) per annum in
excess of the rate of interest which Bank has announced as its prime lending
rate ("Prime Rate") which shall vary concurrently with any change in such Prime
Rate. Interest shall be computed at the above rate on the basis of the actual
number of days during which the principal balance of the loan account is
outstanding divided by 360, which shall for interest computation purposes be
considered one year. Upon uncured Event of Default, Bank may demand payment of
any or all of the amount due under the Loan Account including accrued but unpaid
interest at any time. Such notice may be given verbally or in writing and should
be effective upon receipt by Borrower. Bank is hereby authorized to charge
Borrower's deposit account(s) with Bank for all sums due Bank under this
Agreement.
3. Requests for loans hereunder shall be in writing duly executed by Borrower in
a form satisfactory to Bank and shall contain a certification setting forth the
matters referred to in Section 1, which shall disclose that Borrower is entitled
to the amount of loan being requested.
4. As used in this Agreement, the following terms shall have the following
meanings:
A. "Accounts" means any right to payment for goods sold or leased, or to be
sold or to be leased, or for services rendered or to be rendered no matter
how evidenced, including accounts receivable, contract rights, chattel
paper, instruments, purchase orders, notes, drafts, acceptances, general
intangibles and other forms of obligations and receivables,
B. "Collateral" means any and all personal property of Borrower which is
assigned or hereafter is assigned to Bank as security or in which Bank now
has or hereafter acquires a security interest.
C. "Eligible Accounts" means all of Borrower's Accounts excluding, however,
(1) all Accounts under which payment is not received within 90 days from
any invoice date, (2) all Accounts against which the account debtor or any
other person obligated to make payment thereon asserts any defense, offset,
counterclaim or other right to avoid or reduce the liability represented by
the Account and (3) any Accounts if the account debtor or any other person
liable in connection therewith is insolvent, subject to bankruptcy or
receivership proceedings or has made an assignment for the benefit of
creditors or whose credit standing is unacceptable to Bank and Bank has so
notified Borrower. Eligible Accounts shall only include such accounts as
Bank in its sole discretion shall determine are eligible from time to time.
The obligations of the Borrower hereunder are secured by that certain General
Security Agreement dated February 4, 1994 and the Borrower agrees that where the
term "incurred in connection with the Loan and Security Agreement dated March 1,
1994 " appears in the first paragraph of the General Security Agreement it shall
refer to this Security and Loan Agreement.
5.
Page 1 of 3
<PAGE>
8. Borrower represents and warrants to Bank: (i) If Borrower is a corporation,
that Borrower is duly organized and existing in the State of its incorporation
and the execution, delivery and performance hereof are within Borrower's
corporate powers, have been duly authorized and are not in conflict with law or
the terms of any charter, by-law or other incorporation papers, or of any
indenture, agreement or undertaking to which Borrower is a party or by which
Borrower is found or affected; (ii) Borrower is, or at the time the collateral
becomes subject to Bank's security interest will be, the true and lawful owner
of and has, or at the time the Collateral becomes subject to Bank's security
interest will have, good and clear title to the Collateral, subject only to
Bank's rights therein; (iii) Each Account is, or at the time the Account comes
into existence will be, a true and correct statement of a bona fide indebtedness
incurred by the debtor named therein in the amount of the Account for either
merchandise sold or delivered (or being held subject to Borrower's delivery
instructions) to, or services rendered, performed and accepted by, the account
debtor; (iv) that there are or will be no material defenses, counterclaims, or
setoffs which may be asserted against the Accounts; and (v) any and all
financial information, including information relating to the Collateral,
submitted by Borrower to Bank, whether previously or in the future, is or will
be true and correct in all material respects.
9. Borrower will: (i) Furnish Bank from time to time such financial statements
and information as required under the Credit Terms and Conditions with Addendum
dated March 19, 1997 and amended March 19, 1998 (the "Credit Terms and
Conditions"); (iv) Promptly notify Bank of any attachment or other legal process
levied against any of the Collateral and any information received by Borrower
relative to the Collateral, including the Accounts, the account debtors or other
persons obligated in connection therewith, which may in any way materially
affect the value of the Collateral or the rights and remedies of Bank in respect
thereto; (v) Reimburse Bank upon demand for any and all legal costs, including
reasonable attorneys' fees, and other expense incurred in collecting any sums
payable by Borrower under Borrower's Loan Account or any other obligation
secured hereby, enforcing any term or provision of this Security Agreement or
otherwise or in the checking, handling and collection of the Collateral and the
preparation and enforcement of any agreement relating thereto; (vi) Notify Bank
of each location and of each office of Borrower at which records of Borrower
relating to the Accounts are kept; (vii) Provide, maintain and deliver to Bank
policies insuring the Collateral against loss or damage by such risks and in
such amounts, forms and companies as Bank may require and with loss payable
solely to Bank, and, in the event Bank takes possession of the Collateral, the
insurance policy or policies and any unearned or returned premium thereon shall
at the option of Bank become the sole property of Bank, such policies and the
proceeds of any other Insurance covering or in any way relating to the
Collateral, whether now in existence or hereafter obtained, being hereby
assigned to Bank; and (viii) In the event the unpaid balance of Borrower's Loan
Account shall exceed the maximum amount of outstanding loans to which Borrower
is entitled under Section 1 hereof, Borrower shall immediately pay to Bank, from
its own funds and not from the proceeds of Collateral, for credit to Borrower's
Loan Account the amount of such excess.
10. Upon an Event of Default which is not cured within the applicable cure
period, Bank may at any time, with 5 days prior written notice to Borrower,
collect the Accounts and may give notice of assignment to any and all account
debtors, and Borrower does hereby make, constitute and appoint Bank its
irrevocable, true and lawful attorney with power to receive, open and dispose of
all mail addressed to Borrower, to endorse the name of Borrower upon any checks
or other evidences of payment that may come into the possession of Bank upon the
Accounts to endorse the name of the undersigned upon any document or instrument
relating to the Collateral; in its name or otherwise, to demand, sue for,
collect and give acquittances for any and all moneys due or to become due upon
the Accounts; to compromise, prosecute or defend any action, claim or proceeding
with respect thereto; and to do any and all things necessary and proper to carry
out the purpose herein contemplated.
Page 2 of 3
<PAGE>
12. Should an Event of Default (as defined in the Credit Terms and Conditions)
occur and be continuing after the applicable cure period; then in any such
event, Bank may, at its option and without demand first made and without notice
to Borrower, do any one or more of the following: (a) Terminate its obligation
to make loans to Borrower as provided in Section 1 hereof; (b) Declare all sums
secured hereby immediately due and payable; (c) Immediately take possession of
the Collateral wherever it may be found, using all necessary force so to do, or
require Borrower to assemble the Collateral and make it available to Bank at a
place designated by Bank which is reasonably convenient to Borrower and Bank,
and Borrower waives all claims for damages due to or arising from or connected
with any such taking; (d) Proceed in the foreclosure of Bank's security interest
and sale of the Collateral in any manner permitted by law, or provided for
herein; (e) Sell, lease or otherwise dispose of the Collateral at public or
private sale, with or without having the Collateral at the place of sale, and
upon terms and in such manner as Bank may determine, and Bank may purchase same
at any such sale; (f) Retain the Collateral in full satisfaction of the
obligations secured thereby; (g) Exercise any remedies of a secured party under
the Uniform Commercial Code as in effect in the State of California. Prior to
any such disposition, Bank may, at its option. cause any of the Collateral to be
repaired or reconditioned in such manner and to such extent as Bank may deem
advisable, and any sums expanded therefor by Bank shall be repaid by Borrower
and secured hereby. Bank shall have the right to enforce one or more remedies
hereunder successively or concurrently, and any such action shall not estop or
prevent Bank from pursuing any further remedy which it may have hereunder or by
law. If a sufficient sum is not realized from any such disposition of Collateral
to pay all obligations secured by this Security Agreement, Borrower hereby
promises and agrees to pay Bank any deficiency.
13. If any writ of material attachment, garnishment, execution or other legal
process be issued against any property of Borrower, or if any assessment for
taxes against Borrower, other than real property, is made by the Federal or
State government or any department thereof, the obligation of Bank to make loans
to Borrower as provided in Section 1 hereof shall immediately terminate and the
unpaid balance of the Loan Account, all other obligations secured hereby and all
other sums due hereunder shall within 10 days become due and payable without
demand, presentment or notice.
14. Borrower authorizes Bank to destroy all invoices, delivery receipts, reports
and other types of documents and records submitted to Bank in connection with
the transactions contemplated herein at any time subsequent to four months from
the time such items are delivered to Bank.
15. Nothing herein shall in any way limit the effect of the conditions set forth
in any other security or other agreement executed by Borrower, but each and
every condition hereof shall be in addition thereto.
16. Additional Provisions: To the extent of any conflict between the terms
hereof and the terms contained in the letter agreement dated March 12, 1997,
(and accepted and agreed to March 12, 1997) and the Credit Terms and Conditions,
the terms of the Credit Terms and Conditions will prevail.
<TABLE>
Executed this 19th day of March, 1998
<CAPTION>
<S> <C>
HYPERMEDIA COMMUNICATIONS, INC.
IMPERIAL BANK By: /s/ Todd Hagen Chief Financial Officer
-------------------------------------------------------------
(Authorized Signature and Title)
By : /s/ Erin L. Haney, Assistant Vice President By:
-------------------------------------------- --------------------------------------------------------------
(Title) (Authorized Signature and Title)
</TABLE>
Page 3 of 3
EXHIBIT 11.1
HYPERMEDIA COMMUNICATIONS, INC.
COMPUTATION OF BASIC AND DILUTED NET LOSS PER SHARE
Year Ended December 31,
----------------------------------------
1997 1996 1995
----------- ----------- -----------
Net loss ........................... $ (886,000) $ (291,000) $ (462,000)
=========== =========== ===========
Weighted average shares outstanding:
Common Stock ............. 3,185,043 3,019,004 3,011,433
Preferred Stock .......... -- -- --
Common stock
equivalents from
options and warrants .... -- -- --
----------- ----------- -----------
Weighted average common shares ..... 3,185,043 3,019,004 3,011,433
=========== =========== ===========
Basic and diluted loss per share ... $ (0.28) $ (0.10) $ (0.15)
=========== =========== ===========
EXHIBIT 23.1
HYPERMEDIA COMMUNICATIONS, INC.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-67172) of HyperMedia Communications, Inc. of our
report dated February 5, 1998, except for Notes 5 and 11 which are as of March
19, 1998, appearing on pages 36 and 41 of this Annual Report on Form 10-K.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
San Jose, California
March 26, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 269
<SECURITIES> 0
<RECEIVABLES> 1,165
<ALLOWANCES> 110
<INVENTORY> 0
<CURRENT-ASSETS> 2,001
<PP&E> 1,418
<DEPRECIATION> 967
<TOTAL-ASSETS> 2,452
<CURRENT-LIABILITIES> 1,426
<BONDS> 0
0
2,003
<COMMON> 10,127
<OTHER-SE> (11,404)
<TOTAL-LIABILITY-AND-EQUITY> 2,452
<SALES> 7,637
<TOTAL-REVENUES> 7,637
<CGS> 0
<TOTAL-COSTS> 8,491
<OTHER-EXPENSES> 32
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32
<INCOME-PRETAX> (886)
<INCOME-TAX> 0
<INCOME-CONTINUING> (886)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (886)
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.28
</TABLE>
