UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
SOURCE MEDIA, INC.
(Name of Issuer)
COMMON STOCK, $.001 PAR VALUE
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(Title of Class of Securities)
836153-30-40
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(CUSIP Number)
Michael S. Willner
Insight Communications Company, Inc.
126 East 56th Street
New York, NY 10022
212-371-2266
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(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
November 17, 1999
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box{ } .
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act.
<PAGE>
SCHEDULE 13D
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CUSIP No. 836153-30-40 Page 2 of 12
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF Insight Interactive, LLC
ABOVE PERSON
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) { }
(b){ }
Not Applicable
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3 SEC USE ONLY
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4 SOURCE OF FUNDS AF
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) { }
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6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware
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NUMBER OF 7 SOLE VOTING POWER
SHARES 5,438,891 shares of BENEFICIALLY Common Stock;
OWNED BY See Item 1, 3-5.
EACH
REPORTING
PERSON
WITH
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8 SHARED VOTING POWER
0
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9 SOLE DISPOSITIVE POWER
5,438,891 shares of
Common Stock; See Item 1,
3-5.
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10 SHARED DISPOSITIVE POWER
0
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
5,438,891 shares consisting of (i) 842,105 shares of Common
Stock, and (ii) a presently exercisable Warrant to purchase
an additional 4,596,786 shares of Common Stock. See Items
1, 3-5.
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES
{ } Not Applicable
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2
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
28.5%
The shares of Common Stock held by the Reporting Person
represent approximately 28.5% of the outstanding Common
Stock of the Company, calculated in accordance with Rule
13d-3 (which requires the Reporting Person (i) to assume
the exercise and conversion of the Warrant held by
Reporting Person and (ii) to disregard all outstanding
shares of Common Stock represented by Warrants held by
third parties). See Items 1-5.
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14 TYPE OF REPORTING PERSON OO
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3
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CUSIP No. 836153-30-40 Page 4 of 12
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1 NAME OF REPORTING PERSON
S.S. O S.S OR I.R.S. IDENTIFICATION NO. OF Insight Communications
ABOVE PERSON Company, Inc.
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) { }
(b){ }
Not applicable
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3 SEC USE ONLY
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4 SOURCE OF FUNDS WC
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) r
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6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware
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NUMBER OF 7 SOLE VOTING POWER
SHARES 5,438,891 shares of Common Stock; See Item
BENEFICIALLY 1, 3-5.0
OWNED BY
EACH
REPORTING
PERSON
WITH
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8 SHARED VOTING POWER
0
- ---------------------------- -------- ------------------------------------------
- ---------------------------- -------- ------------------------------------------
9 SOLE DISPOSITIVE POWER
5,438,891 shares of
Common Stock; See
Item 1, 3-5.
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- ---------------------------- -------- ------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- ---------------------------- -------- ------------------------------------------
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
5,438,891 shares consisting of (i) 842,105 shares Common
Stock, and (ii) a presently exercisable Warrant to purchase
an additional 4,596,786 shares of Common Stock. See Items
1, 3-5
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES
{ } Not Applicable
4
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
28.5%
The shares of Common Stock held by the Reporting Person
represents approximately 28.5% of the outstanding Common
Stock of the Company, calculated in accordance with Rule
13d-3 (which requires the Reporting Person (i) to assume
the exercise and conversion of the Warrant held by
Reporting Person and (ii) to disregard all outstanding
shares of Common Stock represented by Warrants held by
third parties). See Items 1-5.
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14 TYPE OF REPORTING PERSON CO
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<PAGE>
INTRODUCTION
This report on Schedule 13D (this "Report") is being jointly filed by
Insight Interactive, LLC, a Delaware limited liability company ("Interactive"),
and Insight Communications Company, Inc., a Delaware corporation
("Communications," and with Interactive, the "Reporting Persons").
ITEM 1. Security and Issuer.
This Report relates to the Common Stock, $.001 par value ("Common
Stock"), of Source Media, Inc., a Delaware corporation (the "Issuer," the
"Company", or "Source").
The principal executive offices of the Company are located at 5400 LBJ
Freeway, Suite 680, Dallas, Texas 75240.
Pursuant to Rule 13d-3 promulgated under the Securities and Exchange
Act of 1934, as amended (the "Exchange Act"), this Report relates to the shares
of Common Stock issued by Source, which are (i) held by Interactive and (ii)
issuable upon exercise of a Warrant held by Interactive (all such securities are
collectively referred to in this Report as the "Securities"). The Securities
beneficially owned by the Reporting Persons were acquired pursuant to the Common
Stock and Warrants Purchase Agreement, dated as of July 29, 1999, by and between
Source and Interactive (the "Purchase Agreement"), incorporated by reference as
Exhibit 10.1, and pursuant the Stock Purchase Warrant, dated as of November 17,
1999 (the "Warrant"), attached hereto as Exhibit 10.2.
The Warrant is presently exercisable for 4,596,786 shares of Common
Stock and the exercisable price per share is $20; provided, however, that until
(a) April 1, 2004, Interactive may exercise only such portion of the Warrant
that would entitle Interactive to own up to forty-five percent (45%) of the
Common Stock of Source, on a fully diluted basis and (b) June 24, 2000,
Interactive may exercise only such portion of the Warrant that would entitle
Interactive to own up to 24.99% of the outstanding Common Stock of Source. The
Warrant also contains antidilution provisions designed to insure appropriate
adjustment to the exercisable price and/or the number of Warrant shares to be
acquired in the event of future issuances of capital stock or securities into
which the Warrant may ultimately be converted.
The summary descriptions contained in this Report of certain agreements
and documents are qualified in their entirety by reference to the complete texts
of such agreements and documents filed as Exhibits hereto.
ITEM 2. Identity and Background.
This Report is being filed jointly by the Reporting Persons.
Interactive is a Delaware limited liability company. Communications is a
Delaware corporation. The principal business
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<PAGE>
of Interactive is to serve as a holding company for the Securities. The
principal business of Communications is operating and managing cable
television systems serving approximately one million customers in Indiana,
Kentucky, Ohio, Illinois, California and Georgia. Communications operates a
clustered set of cable systems that allow it to offer its customers an array of
entertainment, information and telecommunication services on a bundled basis.
The principal office and business address of the Reporting Persons is 126 East
56th Street, New York, NY 10022.
The following information concerning the directors and executive
officers of the Reporting Persons is set forth on Exhibit 99.1 attached hereto:
(i) name;
(ii) residence or business address; and
(iii) present principal occupation or employment and the name,
principal business and address of any corporation or other
organization in which such employment is conducted.
During the last five years, to the best knowledge of the persons filing
this Report, none of the Reporting Person or any of their respective executive
officers or directors has been convicted in any criminal proceedings (excluding
traffic violations and similar misdemeanors).
During the last five years, to the best knowledge of the persons filing
this Report, none of the Reporting Persons or any of their respective executive
officers or directors has been a party to any civil proceeding of a judicial or
administrative body of competent jurisdiction as the result of which it, he or
she was or is subject to any judgment, decree or final order enjoining future
violations of, or prohibiting or mandating activities subject to, federal or
state securities laws or finding any violation with respect to such laws.
To the best knowledge of the persons filing this Report, all of the
individuals listed on Exhibit 99.1 are citizens of the United States of America.
The filing of this Report shall not constitute an admission by any of
the Reporting Persons that such parties are the beneficial owners of the
Securities or that the Reporting Persons are acting as or otherwise constitute a
"group" for purposes of Rule 13d-5.
ITEM 3. Source and Amount of Funds or Other Consideration.
The consideration paid by Interactive for the 842,105 shares of Common
Stock was $12,000,000 and the consideration paid by Interactive for the Warrant
to purchase 4,596,786 shares of Common Stock was $10.00 and other good and
valuable consideration. Communications contributed this capital to Interactive.
The source of these funds was Communications' working capital.
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ITEM 4. Purpose of Transaction.
The purpose of the acquisition of the Common Stock was to facilitate a
joint venture ("NewCo, LLC") between the Reporting Persons and Source.
Interactive, a wholly-owned subsidiary of Communications, entered into a
Contribution Agreement, by and among Interactive, Source, and NewCo, LLC, dated
as of July 29, 1999 (the "Contribution Agreement"), incorporated by reference as
Exhibit 10.3, providing for the creation of NewCo, LLC. Pursuant to the terms of
the Contribution Agreement, Source contributed its virtual Modem 28 software,
the Interactive Channel's grid-less, server-based navigator, SourceGroup, local
Source television content and will manage the operations of NewCo, LLC. The
Reporting Persons provided $13 million in equity financing to NewCo, LLC. Source
and Interactive each own 50% of NewCo, LLC. The summary descriptions of
Contribution Agreement described herein do not purport to be complete and are
qualified by their entirety by reference to the text of the document which has
been attached as an Exhibit to this Report.
Pursuant to the Purchase Agreement, Source amended its Bylaws on
November 17, 1999, and created through a Certificate of Designations for
Non-Participating Preferred Stock, attached hereto as Exhibit 10.4, a new class
of stock, consisting of one share of Non-Participating Preferred Stock, par
value $0.001 per share ("Preferred Stock"). The Preferred Stock was issued to
Interactive for no additional consideration. As the holder of the Preferred
Stock, Interactive has no voting rights but is entitled to designate a number of
voting members of the Board of Directors ("Board") of Source in accordance with
the following schedule:
<TABLE>
<S> <C> <C>
Number of Board Seats Number of Board Seats Percentage of Voting Stock Owned by Interactive
Appointed by Interactive on 7 Appointed by Interactive on 10 on a Fully Diluted Basis
Person Board Person Board
3 4 15% or greater
2 3 7.5% or more but less than 15%
1 2 5% more or but less than 7.5%
1 1 2.5% or more but less than 5%
0 0 less than 2.5%
Source's Board shall be comprised of seven (7) members or ten (10)
members and Interactive is entitled to appoint the number of members set forth
above based upon Interactive's stock ownership. Source may only change the
number of Board members to a number other than seven (7) or ten (10) with the
written consent of the Reporting Persons. The Reporting Persons currently seat
three directors on the Board of Source.
At any time that Interactive is entitled to at least one Board
representative, Interactive is entitled to have at least one voting
representative on each committee of the Board, including but
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<PAGE>
not limited to the executive committee, audit committee and compensation
committee. Interactive also has the preemptive right to purchase up to its
proportionate share of any new securities which Source may, from time to time,
propose to sell or issue.
Interactive acquired the Warrant for its own account, for investment
purposes only, and not with a view to, or for a sale in connection with, a
distribution, as that term is used in Section 2(11) of the 1933 Act, in a manner
which would require registration under the 1933 Act or any state securities
laws.
The Reporting Persons intend to continuously review their investment in
the Company, and may in the future determine to (i) acquire additional
securities of the Company, through open market purchases or private agreements,
(ii) dispose of all or a portion of the Securities they beneficially own, or
(iii) take any other available course of action, which could involve one or more
of the types of transactions or have one or more of the results described in the
last paragraph of Item 4 of Schedule 13D. Notwithstanding anything contained
herein, the Reporting Persons reserve the right to change their intentions with
respect to any or all of such matters. In reaching any decision as to their
course of action (as well as to the specific elements thereof), the Reporting
Persons currently expect that they would take into consideration a variety of
factors, including, but not limited to, the Company's business and prospects,
other developments concerning the Company, the cable industry generally, other
business opportunities available to the Reporting Persons, other developments
with respect to the businesses of the Reporting Persons, general economic
conditions and money and stock market conditions, including the market price of
the Common Stock.
The summary descriptions of certain provisions described herein do not
purport to be complete and are qualified by their entirety by reference to the
text of such documents which have been filed by Reference as Exhibits to this
Report.
ITEM 5. Interests in Securities of the Issuer.
Interactive currently holds 842,105 shares of Common Stock and a
presently exercisable Warrant, entitling it to purchase 4,596,786 shares of
Common Stock; provided, however, that until (a) April 1, 2004, Interactive may
exercise only such portion of the Warrant that would entitle Interactive to own
up to forty-five percent (45%) of the Common Stock of Source, on a fully diluted
basis and (b) June 24, 2000, Interactive may exercise only such portion of the
Warrant that would entitle Interactive to own up to 24.99% of the outstanding
Common Stock of Source. As a result, Interactive may be deemed to beneficially
own up to 5,438,891 shares of Common Stock. As the sole member of Interactive,
Communications may be deemed to beneficially own all of the Common Stock that
Interactive is deemed to beneficially own. Such shares represent approximately
28.5% of the outstanding Common Stock, calculated in accordance with Rule 13d-3
(which requires the Reporting Person to (i) assume the exercise and conversion
of the Warrant held by Reporting Person and (ii) to disregard all outstanding
shares of
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<PAGE>
Common Stock represented by Warrants held by third parties). Since each share
of Common Stock is entitled to one vote, such shares represent approximately
28.5% of the voting power in Source.
As described in Item 4, the Reporting Persons own 1 share of Preferred
Stock. The Preferred Stock is non-convertible and does not include voting
rights. In accordance with 13d-1(i), this share is not included in the
calculation of the Reporting Persons ownership because it is not an equity
security for the purpose of Schedule 13D.
The foregoing amounts exclude shares of Common Stock held by executive
officers and directors of the Reporting Persons, if any. The Reporting Persons
disclaim beneficial ownership of any such shares held by such officers and
directors.
ITEM 6. Contracts, Arrangements, Understandings or Relationships with
Respect to Securities of the Issuer.
The information set forth in Items 1 and 4 of the Report is hereby
incorporated by reference herein.
The summary descriptions of certain provisions described herein do not
purport to be complete and are qualified by their entirety by reference to the
text of such documents which have been filed by Reference as Exhibits to this
Report.
ITEM 7. Material to be filed as Exhibits.
Exhibit 10.1: Common Stock and Warrants Purchase Agreement, dated as of
July 29, 1999, by and between the Company and Interactive (incorporated by
reference to Exhibit 2.2 of the Company's 10Q/A, dated August 26, 1999).
Exhibit 10.2: Stock Purchase Warrant, dated as of November 17, 1999.
Exhibit 10.3: Contribution Agreement, dated as of July 29, 1999, by and
among Interactive, the Company, and NewCo, LLC (incorporated by reference to
Exhibit 2.1 of the Company's 10Q/A, dated August 26, 1999).
Exhibit 10.4: Certificate of Designations for Non-Participating
Preferred Stock
Exhibit 10.5: Joint Filing Agreement, dated as of January 12, 2000, by
and among Interactive and Communications.
Exhibit 99.1: Executive Officers and Directors of Interactive and
Communications.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Insight Interactive, LLC
By: Insight Communications Company, Inc., its
sole member
January 12, 2000
- ---------------- By: /s/Kim D. Kelly
Date ------------------------------------------
Executive Vice President, Chief Operating
and Financial Officer and Secretary
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Insight Communications Company, Inc.
By:/s/Kim D. Kelly
- --------------- -----------------------------------------
Date Kim D. Kelly
Executive Vice President, Chief Operating
and Financial Officer and Secretary
12
</TABLE>
<PAGE>
Exhibit 10.2
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Warrant
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED.
STOCK PURCHASE WARRANT
THIS STOCK PURCHASE WARRANT CERTIFIES THAT, for the agreed upon value
of $10.00 and for other good and valuable consideration, INSIGHT INTERACTIVE,
LLC or its registered successors and assigns (collectively, the "Holder"), is
entitled to purchase fully paid and nonassessable shares of the $.001 par value
per share common stock (the "Common Stock") of SOURCE MEDIA, INC., a Delaware
corporation (the "Company") at $20.00 per share (the "Exercise Price") all as
set forth herein and as adjusted pursuant to Article 2 of this Warrant, subject
to the provisions and upon the terms and conditions set forth in this Warrant.
This Warrant allows the Holder to purchase 4,596,786 shares of Common Stock,
subject to adjustment as provided herein, and the shares so subject to purchase
hereunder shall be referred to herein as the "Warrant Shares". This Warrant is
issued pursuant to the terms of the Common Stock and Warrants Purchase
Agreement, dated as of July 29, 1999 (the "Purchase Agreement") between the
Company and the Holder, as well as pursuant to the terms of the Contribution
Agreement dated as of July 29, 1999 ("Contribution Agreement") among the Holder,
the Company and SourceSuite LLC ("SourceSuite") and the Limited Liability
Company Agreement of SourceSuite LLC ("Operating Agreement") which will be
executed and delivered at the Closing of the Contribution Agreement and which
was made and entered into by and between the Company and the Holder, pursuant to
which the Company and the Holder have agreed to form, capitalize and thereafter
manage SourceSuite to conduct certain specified businesses previously conducted
separately. Capitalized terms used herein but not otherwise defined herein shall
have the meanings set forth for such terms in the Purchase Agreement. The amount
and kind of securities receivable pursuant to the rights granted hereunder are
subject to adjustment pursuant to the provisions contained in this Warrant.
This Warrant is subject to the following provisions:
ARTICLE 1
EXERCISE
1.1 Method of Exercise. The Holder may exercise this Warrant in whole
or in part at any time and from time to time after the date of issuance up to
and including the fifth anniversary of the date of issuance (the "Expiration
Date"); provided, however, that until (a) April 1, 2004, the Holder may exercise
only such portion of this Warrant that would entitle the Holder to own up to
forty-five percent (45%) of the Common Stock of the Company, on a Fully Diluted
basis
<PAGE>
and (b) June 24, 2000 the Holder may exercise only such portion of this
Warrant that would entitle the Holder to own up to 24.99% of the outstanding
Common Stock of the Company. Deferral of the exercise of a portion of this
Warrant shall not affect or limit in any manner the anti-dilution provisions of
Article 2, which shall apply as if this Warrant were exercisable at any time.
Between April 1, 2004 and the Expiration Date, the Holder may exercise this
Warrant in whole or in part without restriction. The Holder may exercise this
Warrant by delivering a duly executed Notice of Exercise in substantially the
form attached as Appendix 1, to the principal office of the Company. The Holder
shall also deliver to the Company a check for the aggregate Exercise Price for
the Warrant Shares being purchased.
1.2 [Intentionally Omitted]
1.3 Share Coverage. The number of Warrant Shares for which this Warrant
may be exercised shall be 4,596,786 shares of Common Stock, subject to
adjustment as provided herein.
1.4 Fair Market Value. The fair market value of the Warrant Shares for
purposes of Section 2.1.1(a) below shall be the higher of (i) the average
closing price of the Warrant Shares reported for the five (5) Trading Days
immediately before the Holder delivers its Notice of Exercise to the Company, or
the date of the issuance of additional shares under Section 2.1.1(a) below, as
applicable; or (ii) the average closing price of the Warrant Shares reported for
the thirty (30) Trading Days immediately before the Holder delivers its Notice
of Exercise, or the date of the issuance of additional shares under Section
2.1.1(a) below, as applicable. The reported closing price for each day shall be
the reported closing price (and if no sales take place on any day, such day
shall not be a Trading Day), as reported in the principal consolidated or
composite transaction reporting system on the principal national securities
exchange on which such security is listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, on the Nasdaq
National Market or, if such security is not quoted on the Nasdaq National
Market, the average of the closing bid and asked prices on such day in the
over-the-counter market as reported by Nasdaq. As used herein, the term "Trading
Day" means a day on which the New York Stock Exchange, each national securities
exchange on which the Warrant Shares is listed and the Nasdaq National Market
are open for business. If the Warrant Shares are not then traded in a public
market, the Board of Directors of the Company shall propose the fair market
value in its reasonable good faith judgment. The foregoing notwithstanding, if
the Holder advises the Board of Directors in writing that the Holder disagrees
with such proposed fair market value, then each of the Company and the Holder
shall select a reputable investment banking firm, and the two firms so selected
shall promptly agree upon a third reputable investment banking firm, and the
three firms shall undertake such valuation. If the valuation of such investment
banking firms is greater than that determined by the Board of Directors, then
all fees and expenses of such investment banking firms shall be paid by the
Company. In all other circumstances, such fees and expenses shall be paid by the
Holder.
1.5 Delivery of Certificate and New Warrant. In the event of any
exercise of this Warrant, in whole or in part, certificates for the Warrant
Shares so purchased representing the aggregate number of shares specified in the
Notice of Exercise, shall be delivered to the Holder within a reasonable time,
not exceeding seven business days, after this Warrant shall have been so
exercised. If this Warrant shall have been exercised only in part, then, unless
this Warrant has
<PAGE>
expired, the Company shall, at its expense, at the time of delivery of said
certificates representing the Warrant Shares, deliver to the Holder a new
Warrant representing the Warrant Shares not so exercised. The Company will
pay all taxes and other expenses in connection with the preparation,
execution and delivery of the certificates except that, in the case such
certificates are to be registered in a name or names other than the Holder,
the Holder will pay any and all stock transfer taxes associated with such
transfer.
1.6 Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver in lieu of this Warrant, a
new warrant of like tenor.
ARTICLE 2
ADJUSTMENT TO THE WARRANT SHARES
2.1 Antidilution Provisions. The intent of this Article 2 is to insure
appropriate adjustment to the Exercise Price and/or number of Warrant Shares to
be acquired in the event of the exercise of this Warrant, in the event of future
issuances of capital stock or securities into which this Warrant may ultimately
be convertible in the instances described below, to the end that the provisions
set forth herein (including adjustments to the Exercise Price) shall be made to
provide the Holder the right to receive essentially the same proportion of
shares of capital stock (in relation to all shares of capital stock outstanding)
on the date of conversion, redemption or other exchange as the Holder would have
been entitled to had it initially been issued shares of Common Stock on the date
hereof. Simultaneously with each adjustment to the Exercise Price set forth in
this Article 2, an appropriate adjustment in the number of Warrant Shares
obtainable upon the exercise of this Warrant shall be made so that the holder of
this Warrant shall receive the same number and kind of securities and other
property such holder would have been entitled to receive had this Warrant been
exercised and converted into Warrant Shares immediately prior to the event or
occurrence giving rise to the adjustment to the Exercise Price.
2.1.1 Adjustments for Diluting Issuances.
(a) In the event the Company shall issue additional shares of
capital stock without consideration or for a consideration per share
which is less than both the Exercise Price for the Warrant Shares and
the fair market value for the Warrant Shares as determined pursuant to
Section 1.4 above, then and in each such event, the Exercise Price
shall be reduced, concurrently with such issue of shares, to an amount
equal to the quotient of: (a) the sum of (i) the number of shares of
Common Stock outstanding (on a Fully Diluted basis) immediately prior
to such issuance multiplied by the Exercise Price plus (ii) the
aggregate consideration received by the Company upon such issuance,
divided by (b) the number of shares of Common Stock outstanding (on a
Fully Diluted basis) immediately after such issuance. For purposes of
this Section 2.1, the consideration received by the Company for the
issue of any additional shares of capital stock shall be computed as
follows: (i) insofar as such consideration consists of cash,
<PAGE>
such consideration shall consist of the aggregate amount of cash
received by the Company excluding amounts paid or payable for accrued
interest or accrued dividends, and without deduction of any expenses
incurred or underwriting commissions or concessions paid or allowed by
the Company;(ii) insofar as such consideration consists of property
other than cash,such consideration shall be computed at the fair market
value thereof at the time of such issue, as determined in good faith by
the Board of Directors of the Company, except where such consideration
consists of securities, in which case the amount of consideration
received by the Company shall be the fair market value thereof
(determined as provided in Section 1.4 hereof) as of the date of
receipt, but in each such case without deduction therefrom of any
expenses incurred or any underwriting commissions or concessions paid
or allowed by the Company in connection therewith. In computing the
market price of a note or other obligation that is not listed or
admitted to trading on any securities exchange or quoted in the Nasdaq
Stock Market or reported by the National Quotation Bureau, Inc., or a
similar reporting organization, the total consideration to be received
by the Company thereunder (including interest) shall be discounted to
present value at the prime rate announced or published in The Wall
Street Journal under the caption "Money Rate" in effect at the time the
note or obligation is deemed to have been issued; and (iii) in the
event additional Shares of capital stock are issued together with other
securities or other assets of the Company for consideration which
covers both, such consideration shall be the proportion of such
consideration so received, computed as determined in good faith by the
Board of Directors of the Company.
(b) Treatment of Options and Convertible Securities.
(i) In the event the Company should ever grant rights
to subscribe for or purchase, or any options for the purchase
of any shares of its capital stock or securities convertible
into or exchangeable for capital stock (such rights and
options herein referred to as "Options", and such convertible
or exchangeable securities herein referred to as "Convertible
Securities"), whether or not such Options or rights to convert
or exchange any such Convertible Securities are immediately
exercisable, and the price per share for which capital stock
is issuable upon the exercise of such Option or upon the
conversion or exchange of such Convertible Securities shall be
less than the Exercise Price in effect immediately prior to
the time of the granting of such Options, then the total
maximum number of shares of capital stock issuable upon the
exercise of such Options or upon the conversion or exchange of
the total maximum amount of such Convertible Securities
issuable upon the exercise of such Options shall (as of the
date of granting of such Options) be deemed to be outstanding
and to have been issued and sold for such price per share and
the Exercise Price shall be reduced to the extent required by
Section 2.1.1(a). For purposes of this Section 2.1.1(b)(i),
the price per share for which such capital stock is issuable
shall be determined by dividing (x) the total amount, if any,
received or receivable by the Company as consideration for the
granting of such Options, plus the minimum aggregate amount of
additional consideration payable to the Company upon the
exercise of such Options, plus, in the case of any such
Options which relate to
<PAGE>
Convertible Securities, the minimum aggregate amount of
additional consideration, if any, other than such Convertible
Securities, payable to the Company upon the conversion or
exchange of such Convertible Securities, by (y) the total
maximum number of shares of capital stock issuable upon
the exercise of such Options or upon the conversion or
exchange of all such Convertible Securities issuable upon
the exercise of such Options. No further adjustments of the
Exercise Price shall be made upon the actual issue of such
capital stock or of such Convertible Securities upon the
exercise of such Options or upon the actual issue of such
capital stock upon the conversion or exchange of such
Convertible Securities.
(ii) If at any time the Company shall issue or sell
Convertible Securities, whether or not the rights to convert
or exchange such Convertible Securities are immediately
exercisable, and the price per share for which capital stock
is issuable upon the conversion or exchange of such
Convertible Securities shall be less than the Exercise Price
in effect immediately prior to the time of the issue or sale
of such Convertible Securities, then the total maximum number
of shares of capital stock issuable upon the conversion or
exchange of all such Convertible Securities shall (as of the
date of the issue or sale of such Convertible Securities) be
deemed to be outstanding and to have been issued and sold for
such price per share and the Exercise Price shall be reduced
to the extent required by Section 2.1.1(a), provided that (a)
except as provided in Section 2.1.1(b)(vi) hereof, no further
adjustments of the Exercise Price shall be made upon the
actual issue of such capital stock upon the conversion or
exchange of such Convertible Securities and (b) if any such
issue or sale of such Convertible Securities is made upon
exercise of any Options for which adjustments of the Exercise
Price have been or are to be made pursuant to other provisions
of this Section 2.1.1, no further adjustment of the Exercise
Price shall be made by reason of such issue or sale. For
purposes of this Section 2.1.1(b)(ii), the price per share for
which capital stock is issuable shall be determined by
dividing (x) the total amount received or receivable by the
Company as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, other than such Convertible
Securities, payable to the Company upon the conversion or
exchange thereof, by (y) the total maximum number of shares of
capital stock issuable upon the conversion or exchange of all
such Convertible Securities.
(iii) If at any time the Company shall pay a dividend
or make any other distribution upon the capital stock payable
in capital stock or Convertible Securities, any capital stock
or Convertible Securities, as the case may be, issuable in
payment of such dividend or distribution shall be deemed to
have been issued without consideration, and the Exercise Price
shall be reduced as if the Company had subdivided the
outstanding shares of capital stock into a greater number of
shares as provided in Section 2.2 hereof.
<PAGE>
(iv) In case at any time the Company shall take a
record of the holders of capital stock for the purpose of
entitling them (a) to receive a dividend or other distribution
payable in capital stock or Convertible Securities, or (b) to
subscribe for or purchase capital stock or Convertible
Securities, then such record date shall be deemed to be the
date of the issue or sale of such capital stock or Convertible
Securities.
(v) If the purchase price provided for in any Option
referred to in Section 2.1.1(b)(i) hereof, or the price at
which any Convertible Securities referred to in Sections
2.1.1(b)(i) or (iii) hereof are convertible into or
exchangeable for capital stock, shall change at any time
(whether by reason of provisions designed to protect against
dilution or otherwise), the Exercise Price then in effect
hereunder shall forthwith be increased or decreased to such
Exercise Price as would have obtained had the adjustments made
upon the issuance of such Options or Convertible Securities
been made upon the basis of (a) the issuance of the number of
shares of capital stock theretofore actually delivered upon
the exercise of such Options or upon the conversion or
exchange of such Convertible Securities, and the total
consideration received therefor, and (b) the number of shares
of capital stock to be issued for the consideration, if any,
received by the Company therefor and to be received on the
basis of such changed price.
(vi) If any adjustment has been made in the Exercise
Price because of the issuance of Options or Convertible
Securities and if any of such Options or rights to convert or
exchange such Convertible Securities expire or otherwise
terminate, then the Exercise Price shall be readjusted to
eliminate the adjustments previously made in connection with
the Options or rights to convert or exchange Convertible
Securities which have expired or terminated.
(vii) The number of shares of capital stock
outstanding at any given time shall not include shares owned
or held by or for the account of the Company, and the
disposition of any such treasury shares shall be considered an
issue or sale of capital stock.
(viii) Anything in Section 2.1.1 hereof to the
contrary notwithstanding, the Company shall not be required to
make any adjustment of the Exercise Price in the case of (A)
the issuance of the Warrants or any other warrant issued to
the Holder, (B) the issuance of shares of Common Stock upon
exercise of the Warrants or any other warrant issued to the
Holder, (C) the granting of stock options by the Company or
any of its subsidiaries pursuant to the option plans
identified on Schedule 4.3 to the Purchase Agreement, provided
that the exercise price of such stock options is at least
equal to the fair market value of such shares of capital stock
(as determined by the appropriate plan) on the date such stock
options are granted, (D) the issuance of shares of capital
stock upon the exercise of the stock options referred to in
clause (C) above, and (E) the issuance of shares of capital
stock upon the exercise, conversion, or exchange of the
securities which
<PAGE>
are set forth on Schedule 4.3 of the Purchase Agreement, all
of which were issued prior to or simultaneously with the date
of the original issue of this Warrant.
2.2. Adjustment for Subdivisions and Combinations. In the event at any
time the Company shall, by subdivision, stock split, reverse stock split,
dividend, combination or reclassification of any shares of its capital stock or
otherwise change any of the securities then issuable upon the exercise of this
Warrant into the same or a different number of securities of any class or
classes, this Warrant shall thereafter be exercisable, for the same period as
the remaining duration of the period during which this Warrant is exercisable,
for the same number and kind of securities which the holder hereof would have
received had this Warrant been exercised and converted into Warrant Shares
immediately prior to such change, whether by subdivision, stock split, reverse
stock split, dividend, combination or reclassification of any shares of its
capital stock or otherwise. In the event at any time the Company shall, by
subdivision, dividend, stock split, reclassification or otherwise, change the
outstanding shares of capital stock into a greater number of shares, the
Exercise Price in effect immediately prior to such subdivision shall be
proportionately reduced, and conversely, in case the outstanding shares of
capital stock shall be combined into a smaller number of shares, by reverse
stock split, combination, reclassification or otherwise, the Exercise Price in
effect immediately prior to such combination shall be proportionately increased.
An adjustment made pursuant to this Section 2.2 shall become effective
immediately after the effective date of such subdivision or combination.
2.3. Adjustment for Dividends and Distributions. If at any time the
Company shall pay a dividend or make a distribution to all holders of capital
stock, as such, which dividend or distribution is payable otherwise than in cash
out of earnings or earned surplus and otherwise than in capital stock,
Convertible Securities, or Options, then thereafter the Holder of this Warrant,
upon the exercise of this Warrant, shall be entitled to receive the number of
shares of Common Stock being purchased upon such exercise and, in addition
thereto and without further payment, the stock and other securities and property
(including cash) which such Holder would have received by way of dividends or
distributions (otherwise than in cash out of earnings or earned surplus or in
capital stock, Convertible Securities, or Options) as if continuously, since the
date of the original issue of this Warrant, such Holder (a) had been the record
holder of the number of shares of Common Stock then being purchased, and (b) had
retained all dividends and distributions in stock or other securities (other
than capital stock, Convertible Securities, or Options) which would have been
paid in respect of such Common Stock or in respect of any stock or other
securities which would have been paid as dividends or distributions on such
Common Stock.
<PAGE>
2.4 Repurchase on Sale, Merger, or Consolidation of the Company.
2.4.1 Acquisition. For the purpose of this Warrant,
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than fifty percent (50%)
of the outstanding voting securities of the surviving entity after the
transaction.
2.4.2 Assumption of Warrant. If such Acquisition shall be
effected in such a way that the holders of Common Stock (or any other securities
of the Company then issuable upon the exercise of this Warrant) shall be
entitled to receive stock or other securities or property (including cash) with
respect to or in exchange for Common Stock (or such other securities), then
lawful and adequate provision shall be made whereby the Holder of this Warrant
shall thereafter have the right to purchase and receive upon the basis and upon
the terms and conditions specified in this Warrant, and in lieu of the shares of
Common Stock (or such other securities) immediately theretofore purchasable and
receivable upon the exercise hereof, such stock or other securities or property
(including cash) as may be issuable or payable with respect to or in exchange
for a number of outstanding shares of Common Stock (or such other securities)
equal to the number of shares of Common Stock (or such other securities)
immediately theretofore purchasable and receivable upon the exercise of this
Warrant, had such Acquisition not taken place. In any such case appropriate
provision shall be made with respect to the rights and interests of the Holder
to the end that the provisions hereof (including, without limitation, the
provisions for adjustments of the Exercise Price and of the number of Warrant
Shares purchasable upon exercise hereof) shall thereafter be applicable, as
nearly as reasonably may be, in relation to the stock or other securities or
property thereafter deliverable upon the exercise hereof. In the event of a
consolidation or merger of the Company with or into another corporation or
entity as a result of which a greater or lesser number of shares of common stock
of the surviving corporation or entity are issuable to holders of capital stock
in respect of the number of shares of capital stock outstanding immediately
prior to such consolidation or merger, then the Exercise Price in effect
immediately prior to such consolidation or merger shall be adjusted in the same
manner as though there were a subdivision or combination of the outstanding
shares of capital stock.
2.5 Reclassification, Exchange or Substitution. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, the Holder shall be entitled to receive, upon
exercise or conversion of this Warrant, the number and kind of securities and
property that the Holder would have received for the Warrant Shares if this
Warrant had been exercised immediately before such reclassification, exchange,
substitution, or other event. Such an event shall include any automatic
conversion of the outstanding or issuable securities of the Company of the same
class or series as the Warrant Shares to Common Stock pursuant to the terms of
the Company's Certificate of Incorporation upon the closing of a new registered
public offering of the Company's Common Stock. The Company or its successor
shall promptly issue to the Holder a new Warrant for such new securities or
other property. The new Warrant shall provide for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Article 2 including, without limitation, adjustments to the Exercise Price and
to the number of securities or property issuable upon exercise of the new
Warrant. The provisions of this Section 2.5 shall similarly apply to successive
reclassifications, exchanges, substitutions, or other events.
2.6 Record Date Adjustments. In any case in which this Article 2
requires that a downward adjustment of the Exercise Price shall become effective
immediately after a record date for an event, the Company may defer until the
occurrence of such event (a) issuing to the Holder of this Warrant (exercised
after such record date and before the occurrence of such event)
<PAGE>
the additional Warrant Shares issuable upon such exercise by reason of the
adjustment required by such event over and above the Warrant Shares issuable
upon such exercise before giving effect to such adjustment and (b) paying to
such Holder any amount in cash in lieu of a fractional share pursuant to Section
2.8 hereof.
2.7 Minimum Adjustment of Exercise Price. No adjustment of the Exercise
Price shall be made in an amount less than $.05 per share in effect at the time
such adjustment is otherwise required to be made, but any such lesser adjustment
shall be carried forward and shall be made at the time and together with the
next subsequent adjustment which, together with any adjustments so carried
forward, shall amount to not less than $.05 per share. In case at any time the
Company shall issue capital stock by way of dividend on capital stock or
subdivide or combine the outstanding shares of capital stock, said amount of
$.05 per share (as theretofore increased or decreased, if the said amount shall
have been adjusted in accordance with the provisions of this Section 2.7) shall
forthwith be proportionately increased in the case of such a combination or
decreased in the case of such a subdivision or stock dividend so as
appropriately to reflect the same.
2.8 Fractional Shares. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the number of Warrant Shares to be
issued shall be rounded down to the nearest whole Share. If a fractional share
interest arises upon any exercise or conversion of the Warrant, the Company
shall eliminate such fractional share interest by paying the Holder an amount
computed by multiplying the fractional interest by the last reported sale price
of the Common Stock on the trading day immediately preceding the date of
exercise.
2.9 Certificate as to Adjustments. Upon each adjustment of the Exercise
Price, the Company, at its expense, shall promptly compute such adjustment, and
furnish the Holder with a certificate of its Chief Financial Officer setting
forth such adjustment, and the corresponding adjustment in the number of Warrant
shares obtainable upon the exercise of this Warrant, and the facts upon which
such adjustments are based. The Company shall, upon written request, furnish the
Holder a certificate setting forth the Exercise Price in effect upon the date
thereof and the series of adjustments leading to such Exercise Price.
2.10 Certain Events. If any event occurs of the type contemplated by
the provisions of this Article 2 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's Board of Directors shall make an appropriate adjustment in the number
of Warrant Shares obtainable upon exercise of this Warrant and in the Exercise
Price so as to protect the rights of the Holder of this Warrant; provided that
no such adjustment shall decrease the number of Warrant Shares obtainable as
otherwise determined pursuant to this Article 2.
2.11 Purchase Rights. If at any time the Company grants, issues or
sells any rights to purchase stock, warrants, securities or other property pro
rata to the record holders of any class of stock (the "Purchase Rights") then
the Holder of this Warrant shall be entitled to obtain, upon the same terms on
which the holders of Common Stock are to receive such Purchase Rights, the
aggregate Purchase Rights which such Holder could have acquired if such Holder
had held the
<PAGE>
number of Warrant Shares acquirable upon complete exercise of this Warrant
immediately before the date on which a record is taken for the grant,
issuance or sale of such Purchase Rights, or, if no such record is taken, the
date as of which the record holders of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights.
ARTICLE 3
REPRESENTATIONS AND COVENANTS OF THE COMPANY
The Company hereby represents and warrants to the Holder as follows:
3.1 Title to Warrant Shares. All Warrant Shares which may be issued
upon the exercise of the rights represented by this Warrant, and all securities,
if any, issuable upon conversion of the Warrant Shares, shall, upon issuance be
duly authorized, validly issued, fully paid and nonassessable, and free of any
liens and encumbrances.
3.2 Reservation of Shares. During the period which this Warrant may be
exercised, the Company will at all times have authorized and reserved for
issuance a sufficient number of shares of Common Stock to cover such exercise.
3.3 No Impairment. The Company shall not, by amendment of its
Certificate of Incorporation or through a 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 under this Warrant by the Company, but
shall at all times in good faith assist in carrying out all the provisions of
this Warrant and in taking all such action as may be necessary or appropriate to
protect the Holder's rights under this Warrant against impairment. If the
Company takes any action affecting the Shares or its Common Stock other than as
provided for above that adversely affects the Holder's rights under this
Warrant, then the Company shall make appropriate adjustment to the Exercise
Price and/or the number of Warrant Shares to carry out the intent of Article 2
as set forth in Section 2.1.
3.4 Notice of Certain Events. If the Company proposes at any time to
(a) declare any dividend or distribution upon its Common Stock, whether in cash,
property, stock or other securities and whether or not a regular cash dividend;
(b) offer for subscription pro rata to the holders of any class or series of
stock any additional shares of stock of any class or series or other rights; (c)
effect any reclassification or recapitalization of Common Stock; or (d) merge or
consolidate with or into any other corporation, or sell, lease, license, or
convey all or substantially all of its assets, or to liquidate, dissolve or wind
up, then, in connection with each such event, the Company shall give the Holder:
(1) at least twenty (20) days prior written notice of the date on which a record
will be taken for such dividend, distribution, or subscription rights (and
specifying the date on which the holders of Common Stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; and (2) in the case of the matters referred to
in (c) and (d) above at least twenty (20) days prior written notice of the date
when the same will take place (and specifying the date on which the holders of
Common Stock will be entitled to exchange their Common Stock for securities or
other property deliverable upon the occurrence of such event).
<PAGE>
3.5 Registration under the Securities Act of 1933.
3.5.1 Piggyback Rights. In the event that the Company files a
registration statement under the Securities Act of 1933, as amended
(the "Act") which relates to an offering of securities of the Company
by the Company or any holder of securities (except in connection with
an offering to or by employees), such registration statement and the
prospectus included therein shall also, at the written request to the
Company by the Holder, include and relate to, and meet the requirements
of the Act with respect to, the public offering of such Warrant Shares
as the Holder indicates it intends to exercise and offer under the
registration statement for sale and sell, so as to permit the public
sale thereof in compliance with the Act, and any related qualifications
under blue sky laws or other compliance or any underwriting involved
therein shall also relate thereto. The Company shall use its best
efforts to effect such registration, any such qualification, any such
compliance and any such underwriting as soon as practicable. The
Company shall give prompt written notice to the Holder of its intention
to file a registration statement under the Act relating to an offering
of the aforesaid securities of the Company, but in no event less than
twenty-five (25) days prior to the filing of such registration
statement, and the written request provided for in the first sentence
of this Section shall be made by the Holder ten (10) or more days prior
to the date specified in the notice as the date on which it is intended
to file such registration statement. Neither the delivery of such
notice by the Company nor of such request pursuant to this Section
3.5.1 by the Holder shall in any way obligate the Company to file any
such registration statement and, notwithstanding the filing of such
registration statement, the Company may, at any time prior to the
effective date thereof, determine not to offer the securities to which
such registration statement relates, without liability to the Holder,
except that the Company shall pay such expenses as are contemplated to
be paid by it under Section 3.5.3 and by the Holder pursuant to Section
3.5.3(d). Provided, that, anything above in this Section 3.5.1 to the
contrary notwithstanding, the inclusion of Warrant Shares in any such
registration will require the approval of the underwriters, if any, but
which approval shall not be unreasonably withheld, and such inclusion
shall be conditioned upon the provision by the Holder to the Company of
all information regarding the Holder reasonably required to be included
in the registration statement under applicable law and the rules and
regulations promulgated by the Securities and Exchange Commission (the
"SEC") pursuant to the Act. The "piggy-back" registration rights
granted hereunder shall terminate five (5) years from the date hereof.
3.5.2 Demand Registration Rights.
(a) In addition, upon written notice at any time
after the second anniversary of the date of this Warrant, and
on or before the Expiration Date, upon written request from a
holder or holders of fifty percent (50%) or more of the
securities issued or issuable upon exercise of this Warrant,
<PAGE>
the Company, as promptly as possible after the receipt of such
notice, shall file a new registration statement under the Act
with respect to the Warrant Shares covered by such notice and
use its best efforts to effect such registration, all
qualifications under blue sky laws and all other compliance as
soon as practicable. Within ten (10) days after receiving any
such notice, the Company shall give notice to any other
Holders of the Warrant Shares issued or issuable pursuant to
this Warrant, advising that the Company is proceeding with
such registration statement to include therein Warrant Shares
of such Holders. The Company shall not be obligated to any
such other Holder unless such other Holder shall accept such
offer by notice in writing to the Company within ten (10) days
thereafter. The Company shall be required to effect two (2)
registrations of Warrant Shares pursuant to this Section
3.5.2. The Holder agrees to become subject to a customary
lock-up agreement, for a reasonable period of time, if
required by the underwriter of a public offering by the
Company during the period in which the Holder is entitled to
registration of the Warrant Shares under this Section 3.5.2;
provided, however, that the Expiration Date shall be extended
by the effective period of any such lock-up agreement. The
Company may postpone, one time, for up to ninety (90) days the
registration of Warrant Shares pursuant to this Section 3.5.2
if its Board of Directors determines in good faith that such
registration would have a material adverse effect on a
significant transaction proposed by the Company; provided,
however, that the Expiration Date shall be extended by the
period of any such postponement. The distribution of Warrant
Shares covered by the request of a Holder pursuant to this
Section 3.5.2 shall be effected by means of the method of
distribution selected by such Holder. If such distribution is
effected by means of an underwriting, the Company shall enter
into an underwriting agreement in customary form with a
managing underwriter of nationally recognized standing
selected for such underwriting by the Holder and approved by
the Company, which approval shall not be unreasonably
withheld. Notwithstanding any other provision of this Section
3.5.2, if the managing underwriter advises the Holder in
writing that marketing factors require limitation of the
number of shares to be underwritten, then the underwriters may
exclude shares requested to be included in such registration.
The number of shares to be included in the registration and
underwriting shall be allocated first among the Holders who
requested registration pursuant to this Section 3.5.2 and then
among other Holders who have requested registration of
securities in such registration and underwriting in proportion
as nearly as practicable to the respective amounts of
securities of the Company held by such Holders at the time of
filing the registration statement. No securities excluded from
the underwriting by reason of the managing underwriter's
marketing limitation shall be included in such registration.
If any Holder disapproves of the terms of the underwriting,
such Holder may elect to
withdraw therefrom by written notice to the Company, the
managing underwriter and the Holder requesting such
registration pursuant to this Section 3.5.2 and the
securities so withdrawn shall also be withdrawn from
registration. If the distribution of the Warrant Shares is
being effected by means of an underwriting and if the managing
underwriter has not limited the number of securities to be
underwritten, the Company may include securities for its own
account in such registration if the managing underwriter so
agrees and may include securities for the account of holders
of securities other than Holders of the Warrant Shares issued
or issuable upon exercise of this Warrant. The inclusion of
such securities by the Company or such other holders shall be
on the same terms as the registration of Warrant Shares held
by the Holders requesting registration pursuant to this
Section 3.5.2. In the event that the underwriters exclude some
of the securities to be registered, the securities to be sold
for the account of the Company and any other holders shall be
excluded in their entirety prior to the exclusion of any
Warrant Shares issued or issuable pursuant to this Warrant.
(b) If the Company is a registrant for purposes of
the Act which is entitled to use Form S-3 (or any successor
form to Form S-3) to register securities for any registration
requested pursuant to Section 3.5.2, at the request of a
holder pursuant to Section 3.5.2, the Company shall use its
best efforts to cause the shares to be registered on Form S-3.
(c) A holder requesting registration pursuant to
Section 3.5.2 shall have the right to cancel a proposed
registration pursuant to Section 3.5.2 when, in its
discretion, market conditions are so unfavorable as to be
seriously detrimental to an offering pursuant to such
registration. For the avoidance of doubt, such cancellation of
a registration shall not be counted as one of the two (2)
registrations pursuant to Section 3.5.2, subject to the
condition that the canceling Holder shall promptly reimburse
the Company for its expenses reasonably incurred in connection
with the cancelled registration, unless such registration was
cancelled after having been deferred, postponed or interrupted
by the Company pursuant to Section 3.5.2, in which case, such
expense reimbursement shall not be required.
3.5.3 Agreements Related to Registrations. In each instance in
which pursuant to Sections 3.5.1 and 3.5.2 of this Section, the Company
shall take any action to permit a public offering or sale or other
distribution of the Warrant Shares, the Company shall:
(a) Supply to the Holders of Warrant Shares intending
to make a public distribution of their Warrant Shares a
reasonable number of copies of the preliminary, final and
other prospectus in conformity with requirements of the Act
and the rules and regulations promulgated
<PAGE>
thereunder and such other documents as the Holders shall
reasonably request.
(b) In regard to a registration under Section 3.5.2
only, cooperate in taking such action as may be necessary to
register or qualify the Warrant Shares under such other
securities acts or blue sky laws of such jurisdictions as the
Holders shall reasonably request and to do any and all other
acts and things which may be necessary or advisable to enable
the Holders of such Warrant Shares to consummate such proposed
sale or other disposition of the Warrant Shares in any such
jurisdiction.
(c) Keep effective all such registrations under the
Act and cooperate in taking such action as may be necessary to
facilitate a public sale or other disposition of such Warrant
Shares by such Holders.
(d) Pay all expenses of any registration under
Section 3.5.2. Each registration under Section 3.5.1 shall be
at the Company's expense, except for the direct, incremental
costs attributable to the "piggy-backed" Warrant Shares, which
shall be paid by the Holders thereof. The Company shall not be
required to pay any underwriting discount or commission or
applicable transfer taxes relating to the disposition of the
Warrant Shares.
(e) Indemnify and hold harmless each Holder with
respect to which registration, qualification or compliance has
been effected pursuant to this Agreement and any underwriter,
within the meaning of the Act who may purchase from or sell
for any Holder any Warrant Shares, and each of their
respective officers, directors, partners and such Holder's
legal counsel and independent accountants, if any, and such
person controlling such persons, within the meaning of the
Act, from and against any and all losses, claims, damages,
expenses and liabilities (including, but not limited to, legal
fees and expenses and any and all expenses whatsoever
reasonably incurred in investigating, preparing, defending or
settling any claim (including, but not limited to, legal fees
and expenses)) arising from or based on (i) any untrue
statement (or alleged untrue statement) of a material fact
contained in any registration statement furnished pursuant to
clause (a) of this Section, or any prospectus included therein
or any amendment or supplement thereto, (ii) 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 (unless such untrue statement (or alleged
untrue statement) or omission (or alleged omission) was based
upon and in conformity with information furnished in writing,
or required to be furnished, to the Company by the Holder or
underwriter expressly for use therein), or (iii) any violation
by the Company of any rule or regulation promulgated under the
Act or any state securities law applicable
<PAGE>
to the Company and relating to action or inaction by the
Company in connection with any such registration,
qualification or compliance.
(f) Each Holder which has securities included in any
registration pursuant to this Agreement shall indemnify and
hold harmless the Company and any underwriter, within the
meaning of the Act, and each of their respective officers,
directors, partners, legal counsel and independent
accountants, and each person controlling such persons within
the meaning of the Act, from and against any and all losses,
claims, damages, expenses and liabilities (including, but not
limited to, legal fees and expenses and any and all expenses
whatsoever reasonably incurred in investigating, preparing,
defending or settling any claim (including, but not limited
to, legal fees and expenses)) arising from or based on (i) any
untrue statement (or alleged untrue statement) of a material
fact contained in any registration statement furnished
pursuant to clause (a) of this Section or any prospectus
included therein or any amendment or supplement thereto, or
(ii) 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, provided, that the
indemnity by such Holder shall be limited to liability based
upon information furnished in writing, or required to be
furnished, to the Company by such Holder expressly for use
therein. The indemnity agreement of the Company herein shall
not inure to the benefit of any such underwriter (or to the
benefit of any person who controls such underwriter) on
account of any losses, claims, damages, liabilities (or
actions or proceedings in respect thereof) arising from the
sale of any of such Warrant Shares by such underwriter to any
person if such underwriter failed to send or give a copy of
the prospectus furnished pursuant to clause (a) of this
Section, to such person with or prior to the written
confirmation of the sale involved. The obligation of any
Holder pursuant to this Section 3.5.3(f) shall be limited to
an amount equal to the net proceeds to such Holder from
securities sold in such registration pursuant to this
Agreement.
(g) Each party entitled to indemnification hereunder
(the "Indemnifying 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 be unreasonably
withheld). The Indemnified Party may participate in such
defense at such party's expense; provided, however, that the
Indemnifying Party shall bear the expense of such defense of
the Indemnified Party if representation of both parties by the
same counsel would be inappropriate due to actual or potential
conflicts of interest. The failure of any Indemnified Party to
give notice as
<PAGE>
provided herein shall not relieve the Indemnifying
Party of its obligations under this Agreement, unless and to
the extent such failure is prejudicial to the ability of the
Indemnifying Party to defend the 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
of such claim or litigation.
(h) If the indemnification provided for in paragraphs
(e) and (f) above is unavailable or insufficient to hold
harmless an Indemnified Party, then each Indemnifying Party
shall contribute to the amount paid or payable by such
Indemnified Party as a result of the expenses, claims, losses,
damages or liabilities (or actions or proceedings in respect
thereof) referred to in such paragraphs in such proportion as
is appropriate to reflect the relative fault of the Company,
on the one hand, and the holders of securities registered
pursuant hereto, on the other hand, in connection with the
statement or omissions which resulted in such losses, claims,
damages, expenses and liabilities, as well as any other
relevant equitable considerations. The relative fault shall be
determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates
to information supplied by the Company or any such holder and
the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or
omission. The Company and the Holder agree that it would not
be just and equitable if contributions pursuant to this
paragraph (h) were to be determined by pro rata allocation or
by any other method of allocation which does not take account
of the equitable consideration referred to in this paragraph.
No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such
fraudulent misrepresentation.
(i) In addition, in connection with any registration
requested pursuant hereto, the Company shall:
(1) prepare and file with the SEC pursuant
to the Act such amendments and supplements to such
registration statement and prospectus included
therein as may be necessary to effect and maintain
the effectiveness of such registration statement for
a period of 180 days or such longer period as may be
required in order to complete the distribution of the
securities covered thereby and furnish to the Holders
of such securities copies of any such supplement or
amendment prior to it being used and/or filed with
the SEC and comply with the provisions of the Act
<PAGE>
with respect to the disposition of all securities to
be included in such registration statement.
(2) provide the Holders, any underwriters in
connection therewith, one counsel for such
underwriters and one counsel for the Holders the
opportunity to participate in the preparation of such
registration statement and each amendment and
supplement thereto.
(3) for a reasonable period prior to the
filing of the registration statement and throughout
the period specified in paragraph (1) above, make
available for inspection by the parties specified in
paragraph (2) above such financial and other
information and books and records of the Company, and
cause the officers, directors, employees and
representatives of the Company to respond to such
inquiries as shall be reasonably necessary to conduct
a reasonable investigation of the Company within the
meaning of the Act.
(4) promptly notify the holders of
securities included in such registration statement
and the managing underwriter in connection therewith
(and confirm such advice in writing) (A) when such
registration statement or the prospectus included
therein or any prospectus amendment or supplement or
post-effective amendment has been filed, and, with
respect to such registration statement or any
post-effective amendment, when the same has become
effective, (B) of any comments by the SEC and by the
blue sky or securities commissioner or regulator of
any state with respect thereto or any request by the
SEC for amendments or supplements to such
registration statement or the prospectus or for
additional information, (C) of the issuance by the
SEC of any stop order suspending the effectiveness of
such registration statement or the initiation of any
proceedings for that purpose, (D) of the receipt by
the Company of any notification with respect to the
suspension of the qualification of the securities for
sale in any jurisdiction or the initiation of any
proceeding for such purpose, or (E) if it shall be
the case, at any time when a prospectus is required
to be delivered under the Act, that such registration
statement, prospectus, or any document incorporated
by reference, in any of the foregoing contains 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 light of the circumstances then
existing, in which case such Holders of securities
covered by such registration statement shall suspend
sales of such securities until they have been advised
by the Company that an appropriate prospectus
amendment or supplement or post-effective amendment
has been filed; provided, however, that in such
instance the Company shall use its best efforts to
promptly file such prospectus amendment or supplement
or post-effective amendment and the period during
which such holders shall be so required to suspend
sales hereunder shall not exceed 30 days.
<PAGE>
(5) use its best efforts to obtain the
withdrawal of any order suspending the effectiveness
of such registration statement or any post-effective
amendment thereto at the earliest practicable date.
(6) enter into one or more underwriting
agreements, engagement letters, agency agreements,
"best efforts" underwriting agreements, lock-up
agreements or similar agreements, as appropriate, and
take such other actions in connection therewith as
the Holders of securities registered pursuant hereto
shall reasonably request in order to expedite or
facilitate the disposition of such securities.
(7) whether or not an agreement of the type
referred to in the preceding paragraph is entered
into and whether or not any portion of the offering
contemplated by such registration statement is an
underwritten offering, (A) make such representations
and warranties to the Holders of securities
registered pursuant hereto and any underwriters
thereof, in form, substance and scope as are
customarily made in connection with any offering of
equity securities pursuant to any appropriate
agreement and/or to a registration statement filed on
the form applicable to such registration statement,
(B) obtain an opinion of counsel to the Company in
customary form and covering such matters of the type
customarily covered by such an opinion as the
managing underwriters and Holders of securities
registered pursuant hereto may reasonably request,
(C) obtain a "cold" comfort letter or letters from
the independent certified public accountants of the
Company addressed to the Holders and the
underwriters, if any, dated the effective date of
such registration statement , the effective date of
any prospectus supplement to the prospectus included
in such registration statement or post-effective
amendment to such registration statement and the date
of any consummation of the sale of securities
pursuant hereto, such letter or letters to be in
customary form and covering such matters of the type
customarily covered by letters of such type, (D)
deliver such documents and certificates as may
reasonably be requested by the holders of securities
covered by such registration statement and the
managing underwriter, if any, and (E) undertake such
obligations relating to expense reimbursement,
indemnification and contribution as are provided
herein.
(8) otherwise use its best efforts to comply
with all applicable rules and regulations of the SEC
and otherwise take all actions as may reasonably be
necessary to accomplish the intentions and purposes
of this Section 3.5.
3.6 Additional Covenants. The Company and Holder understand that the
possibility exists that in connection with the exercise (including certain
partial exercises) of this Warrant, each of the Company and Holder may be
required to make certain filings under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 ("HSR"). The Company covenants that it shall file
<PAGE>
with the Federal Trade Commission and the Department of Justice the notification
form, together with all necessary materials and information, to attempt to
secure the expiration or termination of all applicable waiting period(s)
relating to any or all exercises of the Warrant hereunder as required on its
part under HSR (each an "HSR Warrant Consent"), in the event the Company is
notified by the Holder that the Holder has been advised by its counsel of the
necessity of making such filings. This covenant is in addition to any covenants
to obtain the HSR Consent under the Purchase Agreement. The Company agrees and
covenants that it shall use good faith commercially reasonable efforts to obtain
the HSR Warrant Consent to allow the Holder to exercise the Warrant, and shall
inform the Holder of all material developments in the Company's efforts to
obtain the HSR Warrant Consent, and that simultaneously with the transmittal to
third parties or to governmental agencies, it shall provide the Holder with
copies of all correspondence, filings or other written documentation related to
efforts to obtain the HSR Warrant Consent. If, notwithstanding the Company's
satisfaction of its obligations above, the Company fails to obtain the HSR
Warrant Consent, then the Company shall issue Warrant Shares in the maximum
number of shares permissible without obtaining HSR consent and in lieu of
issuing the remaining Warrant Shares in Common Stock (meaning those that cannot
be issued without HSR Consent), the Company shall issue an equivalent number of
shares of a new class of non-voting common stock of the Company ("Non-Voting
Stock") which shall be identical in all respects to the Common Stock, except
that shares of Non-Voting Stock shall not have the right to vote on any matters
presented to the Company's stockholders, unless otherwise required by law; and
by their terms the Non-Voting Stock shall automatically, without notice or any
other further action on the part of either the Company or the Holder, be
converted into shares of Common Stock if they are transferred by the Holder.
Thus, if HSR Warrant Consent shall not have been obtained, the Holder shall
continue to have the right to exercise this Warrant, as otherwise allowed in
accordance with the terms hereof; provided, that upon such exercise, in lieu of
receiving Warrant Shares, the Holder shall receive an equal number of shares of
Non-Voting Stock, to the extent of the affected Warrant Shares (i.e., if a
portion of the Warrant Shares can then be issued without HSR Warrant Consent,
the Non-Voting Stock shall be issued only with respect to the remainder of the
Warrant Shares then exercised as evidenced by this Warrant). The Amendment of
the Restated Certificate of Incorporation of the Company adopted pursuant to
Section 3.4 of the Purchase Agreement and which is attached thereto as Exhibit
B-1 authorized a number of shares of Non-Voting Stock equal to or greater than
the number of Warrant Shares.
The intent of this Section 3.6 is to place the Holder in the position
most nearly identical to the position that the Holder would have been in upon
such exercise if either the HSR Warrant Consent was not necessary or had been
obtained. The Company covenants that, at the cost and expense of the Holder, it
will use commercially reasonable efforts and continue to take all reasonable
steps to attempt to secure for the Holder the Warrant Shares or equivalents
which deliver to the Holder the voting rights and economic benefits bargained
for under the Purchase Agreement, which efforts shall include, but not be
limited to, appealing any decision of the Federal Trade Commission and/or
Justice Department which denies consent to the exercise in question if, in the
opinion of counsel to the Holder, there is a reasonable basis for such appeal.
In the event the Company is unable to issue the Non-Voting Stock as contemplated
herein, the Company covenants that it will use commercially reasonable efforts
to secure for the Holder the benefits set forth herein.
<PAGE>
ARTICLE 4
MISCELLANEOUS
4.1 Term. This Warrant is exercisable, in whole or in part, at any time
and from time to time on or before the Expiration Date set forth above.
4.2 Legends. This Warrant shall be imprinted with a legend in
substantially the following form:
NEITHER THIS SECURITY NOR THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF
UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT
REQUIRED.
4.3 Compliance with Securities Laws on Transfer. This Warrant may not
be transferred or assigned by the Company. This Warrant may not be transferred
or assigned by the Holder in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as reasonably
requested by the Company). The Company shall not require the Holder to provide
an opinion of counsel if the transfer is to (a) an Affiliate of the Holder; (b)
the respective successors of the Holder in a merger or consolidation; (c) the
purchaser of all or substantially all of the assets of Holder; (d) the
shareholders of the Holder in the event the Holder is liquidated or dissolved;
or (e) any other person or entity with respect to whom such transfer has been
approved by the Company. If requested by the Company, and if the transfer is
other than a circumstance described above, the Holder shall provide a reasonable
opinion of counsel in connection with the transfer of the Warrant Shares
pursuant to Rule 144.
4.4 Transfer Procedure. Subject to the provisions of Section 4.3, the
Holder may transfer all or part of this Warrant or the Warrant Shares issuable
upon exercise of this Warrant (or the securities issuable, directly or
indirectly, upon conversion of the Warrant Shares, if any).
4.5 Notices. All notices and other communications from the Company to
the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address set forth in the Purchase Agreement or as may have been
thereafter furnished to the Company or the Holder, as the case may be, in
writing by the Company or such the Holder from time to time.
4.6 Waiver. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.7 Attorneys Fees. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to
<PAGE>
collect from the other party all costs incurred in such dispute, including
reasonable attorney's fees.
4.8 Governing Law; Jurisdiction and Venue. This Warrant shall be
governed by, construed and enforced in accordance with the internal laws of the
State of Delaware, excluding the conflict of laws provisions thereof that would
otherwise require the application of the law of any other jurisdiction. The
Company acknowledges and agrees that the state and federal courts sitting in the
State of Delaware shall have jurisdiction in any matter arising out of this
Warrant, and the Company hereby consents to such jurisdiction and agrees that
the venue of any such matter shall also be proper in such state and federal
courts sitting in the State of Delaware.
Dated November 17, 1999.
SOURCE MEDIA, INC.
By:/s/Stephen W. Palley
------------------------------------
Stephen W. Palley
President and Chief Executive Officer
<PAGE>
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase shares of the Common Stock
of Source Media, Inc., pursuant to the terms of the attached Warrant, and
tenders herewith payment of the purchase price of such shares in full.
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name as is specified below:
(Name)
(Address)
3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
(Signature)
Title
(Date)
Exhibit 10.4
------------
Certificate of Designations
CERTIFICATE OF DESIGNATIONS
FOR NON-PARTICIPATING
PREFERRED STOCK
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
Source Media, Inc. (the "Corporation"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware, does hereby certify that, pursuant to authority conferred upon the
board of directors of the Corporation (the "Board") by its Certificate of
Incorporation, as amended (the "Certificate of Incorporation"), and pursuant to
the provisions of Section 151 of the General Corporation Law of the State of
Delaware, on August 25, 1999, the Board duly approved and adopted the following
resolution:
RESOLVED, that, pursuant to the authority vested in
the Board by the Certificate of Incorporation, the Board does
hereby create, authorize and provide for the issuance of a
class of Non-Participating Preferred Stock, par value $0.001
per share, such class consisting of one (1) share, having the
designations and rights that are set forth in the Certificate
of Incorporation and in this Resolution as follows:
1. Designation. There is hereby created out of the authorized
and unissued shares of Preferred Stock of the Corporation a class of Preferred
Stock designated as the "Non-Participating Preferred Stock." The number of
shares constituting such class shall be one (1). The holder (the "Holder") of
the share of Non-Participating Preferred Stock shall not be entitled to receive
dividends or have any other special rights except as provided herein.
2. Rank. The Non-Participating Preferred Stock shall, with
respect to distributions upon liquidation, winding-up and dissolution of the
Corporation, rank senior to all classes of Common Stock of the Corporation,
junior to the Corporation's 13 1/2% Senior Payment-In-Kind Preferred Stock and,
with respect to any other class or series of preferred stock, as shall be
provided in the resolutions of the Board creating such other classes or series.
3. Liquidation Preference. (a) In the event of any voluntary
or involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, the Holder shall be
<PAGE>
entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders an amount in cash equal to the liquidation
preference as set forth in paragraph (c) below. Except as provided in the
preceding sentence, the Holder shall not be entitled to any distribution in
the event of any liquidation, dissolution or winding up of the affairs of the
Corporation.
(b) For the purposes of this Section 3, neither the sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property or assets of the
Corporation nor the consolidation or merger of the Corporation with or into one
or more entities shall be deemed to be a liquidation, dissolution or winding up
of the affairs of the Corporation.
(c) The liquidation preference of the Non-Participating
Preferred Stock shall be $100.00 per share.
4. Voting Rights. (a) Except as otherwise required
under Delaware law or as set forth in this Section 4, the Holder shall not be
entitled or permitted to vote on any matter required or permitted to be voted
upon by the stockholders of the Corporation.
(b) At all such times as the Board shall consist of seven or
ten members, the Holder shall have the exclusive right, voting separately as a
single class, to elect the number of members of the Board in accordance with the
following schedule:
<TABLE>
<S> <C> <C>
Number of Board Seats Member of Board Seats Percentage of Voting Stock Owned by the Holder
Appointed by the Holder on 7 Appointed by the Holder on 10 ----------------------------------------------
----------------------------- ------------------------------ on a Fully Voting Diluted Basis
Person Board Person Board ----------------------------------
------------ ------------
3 4 15% or greater
2 3 7.5% or more but less than 15%
1 2 5% of more but less than 7.5%
1 1 2.5% or more but less than 5%
0 0 less than 2.5%
(c) The written consent of the Holder will be required in the
event the Board is ever to be comprised of a number of members other than seven
or ten. The Holder may protect its proportionate representation in giving or not
giving its consent in its sole discretion.
(d) At any time that the Holder is entitled to elect at least
one Board representative, the Holder will be entitled to elect one voting
representative to each committee of the Board.
(e) The foregoing rights of the Holder to take any actions as
provided in this Section 4 may be exercised at any annual meeting of
stockholders or any special meeting of stockholders or the Holder held for such
purposes as provided herein or at any adjournment thereof, or by the written
consent of the Holder delivered to the Secretary of the Corporation.
<PAGE>
(f) So long as such right to vote continues (and unless such
right has been exercised by written consent of the Holder), the Chairman of the
Board of the Corporation may call, and upon the written request of the Holder
delivered to the Secretary of the Corporation shall call, a special meeting of
the Holder. Such meeting shall be held within 10 days after delivery of such
request to the Secretary, at the place and upon the notice provided by law and
in the By-laws of the Corporation for the holding of meetings of stockholders.
(g) The failure of the Holder to elect members of the Board
shall not prevent the election of directors other than those to be elected by
the Holder, and the absence of a quorum of the holders of shares of any other
class or series of capital stock shall not prevent the election of directors to
be elected by the Holder or the taking of any action as provided in this Section
4.
(h) Each director elected by the Holder, as provided in this
Section 4 shall, unless such director's term shall expire earlier or be
terminated in accordance with this Section 4, hold office until the annual
meeting of stockholders next succeeding his election or until his successor, if
any, is elected and qualified.
(i) In case any vacancy shall occur among the directors
elected by the Holder, such vacancy may be filled for the unexpired portion of
the term by vote of the remaining director or directors theretofore elected by
the Holder (if there is a remaining director or directors). If any such vacancy
is not so filled within 10 days after the creation thereof or if any or all of
the directors so elected by the Holder shall cease to serve as directors before
their terms shall expire, the Holder, by written consent as herein provided, or
at a special meeting of the Holder called as provided herein, may elect a
successor or successors to hold office for the unexpired terms of the directors
whose places shall be vacant.
(j) Any director elected by the Holder may be removed from
office with or without cause by the vote or written consent of the Holder. A
special meeting of the Holder may be called in accordance with the procedures
set forth in paragraph 4(f) above to effect such removal.
(k) The Non-Participating Preferred Stock shall be subject to
mandatory redemption at a redemption price equal to the liquidation preference
set forth in paragraph 3(c) above in the event the Holder owns less than two and
a half percent (2.5%) of the Voting Stock of the Corporation on a Fully Diluted
Basis. Such redemption shall be automatic and shall not require any notice or
other action on the part of the Corporation. Upon such redemption, the Holder
shall surrender the certificate representing the share of Non-Participating
Preferred Stock to the Corporation, duly endorsed (or otherwise in proper form
for transfer, as determined by the Corporation), in such manner and at such
place as may be designated by the Corporation.
12. Preemptive Rights. (a) The Holder shall have the
preemptive right to purchase up to its Proportionate Share of any New Securities
which the Corporation may, from time to time, propose to sell or issue.
<PAGE>
(b) In the event the Corporation proposes to undertake an
issuance or sale of New Securities, the Corporation will give the Holder thirty
(30) days prior written notice of its intention, describing the type of New
Securities and the price and the specific terms upon which the Corporation
proposes to issue or sell the same. Thereafter, the Holder will have thirty (30)
days from the date of such notice to give the Corporation written notice of its
intention to purchase up to its Proportionate Share of such New Securities, for
the same price and upon the terms pursuant to which the New Securities will be
offered, as specified in the Corporation's notice, and stating therein the
quantity of such New Securities the Holder intends to purchase. If the
consideration for the New Securities is in a form other than cash, the Holder
shall pay equivalent value on a per share basis in cash. The Holder shall
further have a forty-five (45) day period from the date of the original notice
from the Corporation in which to commit funding to the purchase of any New
Securities and close the acquisition thereof. Failure by the Holder to give
notice within the thirty (30) day period shall be deemed a waiver by the Holder
of the preemptive right with respect to such New Securities, provided the
Corporation consummates the issuance of New Securities within ninety (90) days
after the expiration of such thirty (30) day period in the amount, at
substantially the same price and on substantially the same terms specified in
the notice given by the Corporation under this paragraph 5(b). In the event the
New Securities are to be issued pursuant to an underwritten public offering or
under similar circumstances so that the final price or other material terms of
the New Securities are not established by the Corporation at the time the thirty
day notice is provided to the Holder, the Corporation's notice to the Holder
will provide its anticipated price of, and general terms pursuant to which it
intends to issue such New Securities. Notwithstanding the fact that the Holder
may notify the Corporation within such thirty day period that it intends to
purchase up to its Proportionate Share of such New Securities, the Holder will
not be bound by such election until the final price and terms of such offering
are established by the Corporation. Upon the final price and terms being
established, the Corporation shall provide the Holder immediate notice thereof
prior to the Corporation's proposed sale and issuance. If such final price is
not greater than one hundred ten percent (110%) of the price stated in the
original notice, the Holder will be bound by its notice to exercise its
preemptive rights; if such final price is greater than one hundred ten percent
(110%) of the price stated in the original notice, the Holder shall not be bound
by its original election, but shall have the right for a period not to exceed
two (2) hours after receiving notice of the final price to elect to purchase in
accordance with the terms of this Section 5. In order to both minimize the
potential disruption to the Corporation's ability to offer such New Securities
in an underwritten public offering and to afford the Holder with as much notice
and information as possible regarding the terms and pricing thereof, the
Corporation will keep the Holder reasonably informed of the status of the
on-going negotiations with the managing underwriter with respect to such terms
and anticipated pricing, and further will afford the Holder, if the Holder so
requests, the right to have a representative present to observe the negotiation
of the final pricing terms immediately prior to the execution of the applicable
underwriting agreement.
(c) The right of the Holder to purchase New Securities
pursuant to this Section 5 may be exercised, in whole or in part, by any of the
Holder's Affiliates, if the Holder expressly grants such right of exercise to
such Affiliates, subject to compliance with applicable federal and state
securities laws.
<PAGE>
(d) The right of the Holder to elect members to the Board (and
committees thereof) in accordance with the provisions of Sections 4(b) and 4(d),
and the preemptive rights granted to the Holder as set forth in Section 5, shall
lapse in the event the Holder owns less than five percent (5%) of the Voting
Stock of the Company on a Fully Diluted basis.
13. Transfer Restrictions. Except as specifically permitted
under this Section 6, the Holder may not without the prior written consent of
the Corporation sell, assign, transfer or otherwise dispose of the
Non-Participating Preferred Stock, or any attribute, component or right in
respect thereof, except to an Affiliate of the Holder. Any purported disposition
in violation of this Section 6 shall be void and of no force or effect.
"Affiliate" as used herein shall mean any person or entity that directly or
indirectly or through one or more intermediaries Controls, is Controlled by or
is under common Control with, the Holder, with "Control" meaning the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of the person or entity Controlled (whether through
ownership of securities, partnership interests or other ownership interests, by
contract or otherwise).
14. Certain Definitions. As used in this Certificate of
Designations, the following terms have the meanings set forth below. Other terms
that are defined elsewhere in this Certificate of Designations shall have the
meaning as therein set forth.
"Fully Diluted" shall mean, as of any date of determination,
that for purposes of calculating the relevant percentage there shall be
deemed outstanding at the time of calculation all shares of Voting
Stock issuable, whether at such time or upon the passage of time or the
occurrence of future events, upon the exercise, conversion or exchange
of any warrant, option or other right to subscribe for, purchase or
otherwise acquire directly or indirectly, any such shares of Voting
Stock.
"New Securities" shall mean any equity securities of the
Corporation, whether now or hereafter authorized and including Common
Stock and preferred stock, and all rights, options or warrants to
purchase any such securities of the Corporation, and securities and
indebtedness of any type whatsoever that are, or may become convertible
into or exchangeable for capital stock of the Corporation, in each case
to the extent issued after the date of filing of this Certificate of
Designation, other than (i) up to a maximum of 8,147,139 shares of
Common Stock which may hereafter be issued in accordance with the
exercise of warrants, stock options or put rights identified on
Schedule 4.3 to the Common Stock and Warrants Purchase Agreement by and
between the Corporation and Insight Interactive, LLC dated as of July
29, 1999 (the "Purchase Agreement"), (ii) the stock, options and
warrants (and the stock issued upon exercise of such options and
warrants) set forth in Notes A, B and C on Schedule 4.3 to the Purchase
Agreement, (iii) the grant of employee stock options, stock
appreciation rights or other awards pursuant to any stock option plan
adopted by the Board of Directors of the Corporation, (iv) the issuance
of Common Stock upon the exercise of any of the employee stock options,
stock appreciation rights or other awards specified in clause (iii)
above, (v) the issuance of any Common Stock, preferred stock or Rights
in order to effect any merger, consolidation or other acquisition of
any Person, business, division or assets outside the ordinary course of
<PAGE>
business, and (vi) the issuance of any capital stock or Rights by the
Corporation for sale pursuant to a registration statement filed with
the Securities and Exchange Commission.
"Person" shall mean a domestic or foreign natural person,
general or limited partnership, limited liability partnership, limited
liability company, trust, estate, association or corporation.
"Proportionate Share" shall mean a fraction, the numerator of
which is the total number of shares of Common Stock of the Corporation
owned by a Person and the denominator of which is the total number of
shares of Common Stock of the Corporation issued and outstanding.
"Rights" shall mean any option, warrant, security, rights or
other instrument convertible into or exchangeable or exercisable for,
or otherwise giving the holder thereof the right to acquire, directly
or indirectly, any Common Stock of the Corporation or any other such
option, warrant, security, right or instrument, including without
limitation, any instrument the value of which is measured by reference
to the value of the Common Stock of the Corporation.
"Voting Stock" shall mean equity interests with voting power
under ordinary circumstances entitling the holders thereof to elect the
board of directors or other governing body.
IN WITNESS WHEREOF, Source Media, Inc. has caused this
Certificate of Designations to be signed by Stephen W. Palley, its President and
Chief Executive Officer, this 17th day of November, 1999.
SOURCE MEDIA, INC.
By:/s/Stephen W. Palley
-------------------------------------
Stephen W. Palley
President and Chief Executive Officer
</TABLE>
Exhibit 10.5
------------
JOINT FILING AGREEMENT
In accordance with Rule 13d-1(k) under the Securities Exchange Act of
1934, as amended, the undersigned hereby agree to the joint filing on behalf of
each of them of a statement on Schedule 13D (including amendments thereto) or
any subsequent filings on Schedule 13G (including amendments thereto) with
respect to the Common Stock, $.001 par value ("Common Stock"), of Source Media,
Inc., a Delaware corporation, and that this Joint Filing Agreement (this
"Agreement") be included as an Exhibit to such joint filing.
IN WITNESS WHEREOF, the undersigned hereby execute this Agreement as of
this __th day of January, 2000.
Insight Interactive, LLC
BY: Insight communications
company, inc., its sole member
By: /s/Kim D. Kelly
------------------------------
Kim D. Kelly
Executive Vice President,
Chief Operating and Financial
Officer and Secretary
INSIGHT COMMUNICATIONS COMPANY, INC.
By: /s/Kim D. Kelly
-------------------------------
Kim D. Kelly
Executive Vice President, Chief
Operating and Financial Officer
and Secretary
Exhibit 99.1
------------
Insight Communications Company, Inc.
Executive Officers and Directors
<TABLE>
<S> <C> <C> <C>
- ------------------------- --------------------------- ---------------------------- ------------------------------
Name Position Principal Occupation Business Address
- ------------------------- --------------------------- ---------------------------- ------------------------------
- ------------------------- --------------------------- ---------------------------- ------------------------------
Michael S. Willner* President and Chief President and Chief Insight Communications
Executive Officer Executive Officer Company, Inc.
126 East 56th Street
New York, NY 10022
- ------------------------- --------------------------- ---------------------------- ------------------------------
- ------------------------- --------------------------- ---------------------------- ------------------------------
Sidney R. Knafel* Chairman of the Board Chairman of the Board Insight Communications
Company, Inc.
126 East 56th Street
New York, NY 10022
- ------------------------- --------------------------- ---------------------------- ------------------------------
- ------------------------- --------------------------- ---------------------------- ------------------------------
Kim D. Kelly* Executive Vice President, Executive Vice President, Insight Communications
Chief Operating and Chief Operating and Company, Inc.
Financial Officer and Financial Officer and 126 East 56th Street
Secretary Secretary New York, NY 10022
- ------------------------- --------------------------- ---------------------------- ------------------------------
- ------------------------- --------------------------- ---------------------------- ------------------------------
Steven E. Sklar Senior Vice President of Senior Vice President of Insight Communications
Finance and Business Finance and Business Company, Inc.
Development Development 126 East 56th Street
New York, NY 10022
- ------------------------- --------------------------- ---------------------------- ------------------------------
- ------------------------- --------------------------- ---------------------------- ------------------------------
James A. Stewart Senior Vice President of Senior Vice President of Insight Communications
Operations Operations Company, Inc.
126 East 56th Street
New York, NY 10022
- ------------------------- --------------------------- ---------------------------- ------------------------------
- ------------------------- --------------------------- ---------------------------- ------------------------------
E. Scott Cooley Senior Vice President, Senior Vice President, Insight Communications
Insight Communications of Insight Communications of Company, Inc.
Indiana, LLC Indiana, LLC 8440 Woodfield Crossing,
Suite 320
Indianapolis, Indiana 46240
- ------------------------- --------------------------- ---------------------------- ------------------------------
- ------------------------- --------------------------- ---------------------------- ------------------------------
Pamela Euler Halling Senior Vice President of Senior Vice President of Insight Communications
Marketing and Programming Marketing and Programming Company, Inc.
126 East 56th Street
New York, NY 10022
- ------------------------- --------------------------- ---------------------------- ------------------------------
- ------------------------- --------------------------- ---------------------------- ------------------------------
Charles E. Dietz Senior Vice President of Senior Vice President of Insight Communications
Engineering Engineering Company, Inc.
126 East 56th Street
New York, NY 10022
- ------------------------- --------------------------- ---------------------------- ------------------------------
- ------------------------- --------------------------- ---------------------------- ------------------------------
Daniel Mannino Senior Vice President and Senior Vice President and Insight Communications
Controller Controller Company, Inc.
126 East 56th Street
New York, NY 10022
<PAGE>
- ------------------------- --------------------------- ---------------------------- ------------------------------
- ------------------------- --------------------------- ---------------------------- ------------------------------
Gregory B. Graff Senior Vice President and Senior Vice President and Insight Communications
General Manager of General Manager of Insight Company, Inc.
Insight Communications of Communications of Central 3770 East Livingston Avenue
Central Ohio, LLC Ohio, LLC Columbus, Ohio 43227
- ------------------------- --------------------------- ---------------------------- ------------------------------
- ------------------------- --------------------------- ---------------------------- ------------------------------
Colleen Quinn Senior Vice President of Senior Vice President of Insight Communications
Corporate Relations Corporate Relations Company, Inc.
126 East 56th Street
New York, NY 10022
- ------------------------- --------------------------- ---------------------------- ------------------------------
- ------------------------- --------------------------- ---------------------------- ------------------------------
William Gilbert Vice President of Vice President of Insight Communications
Advertising Sales Advertising Sales Company, Inc.
126 East 56th Street
New York, NY 10022
- ------------------------- --------------------------- ---------------------------- ------------------------------
- ------------------------- --------------------------- ---------------------------- ------------------------------
Susane Newell Vice President of Vice President of Insight Communications
Programming Programming Company, Inc.
126 East 56th Street
New York, NY 10022
- ------------------------- --------------------------- ---------------------------- ------------------------------
- ------------------------- --------------------------- ---------------------------- ------------------------------
Elizabeth Grier Vice President of Vice President of Insight Communications
Administration Administration Company, Inc.
126 East 56th Street
New York, NY 10022
- ------------------------- --------------------------- ---------------------------- ------------------------------
- ------------------------- --------------------------- ---------------------------- ------------------------------
Judy Poole Vice President of Human Vice President of Human Insight Communications
Resources Resources Company, Inc.
126 East 56th Street
New York, NY 10022
- ------------------------- --------------------------- ---------------------------- ------------------------------
- ------------------------- --------------------------- ---------------------------- ------------------------------
Mary Rhodes Vice President of Vice President of Customer Insight Communications
Customer Service Service Administration Company, Inc.
Administration 126 East 56th Street
New York, NY 10022
- ------------------------- --------------------------- ---------------------------- ------------------------------
- ------------------------- --------------------------- ---------------------------- ------------------------------
Heather Wright Vice President of Vice President of Insight Communications
Strategic Marketing Strategic Marketing Company, Inc.
126 East 56th Street
New York, NY 10022
- ------------------------- --------------------------- ---------------------------- ------------------------------
- ------------------------- --------------------------- ---------------------------- ------------------------------
Lori Urias Gehris Vice President of Training Vice President of Training Insight Communications
Company, Inc.
126 East 56th Street
New York, NY 10022
- ------------------------- --------------------------- ---------------------------- ------------------------------
- ------------------------- --------------------------- ---------------------------- ------------------------------
Thomas L. Kempner Director Chairman and Chief Loeb Partners Corporation
Executive Officer of Loeb 61 Broadway, 24th Floor
Partners Corporation New York, NY 10006
- ------------------------- --------------------------- ---------------------------- ------------------------------
- ------------------------- --------------------------- ---------------------------- ------------------------------
James S. Marcus Director President, Metropolitan 720 Park Avenue
Opera New York, NY 10021
- ------------------------- --------------------------- ---------------------------- ------------------------------
- ------------------------- --------------------------- ---------------------------- ------------------------------
Prakash A. Melwani Director Managing Director of Vestar Capital Partners
Vestar Capital Partners 245 Park Avenue, 41st Floor
New York, NY 10167
- ------------------------- --------------------------- ---------------------------- ------------------------------
- ------------------------- --------------------------- ---------------------------- ------------------------------
Daniel S. O'Connell Director Chief Executive Officer of Vestar Capital Partners
Vestar Capital Partners 245 Park Avenue, 41stFloor
New York, NY 10167
- ------------------------- --------------------------- ---------------------------- ------------------------------
* Also a Director.
<PAGE>
Insight Interactive, LLC
Executive Officers and Directors
- -------------------------------------- ------------------- ------------------------- ----------------------------------
Name Position Principal Occupation Business Address
- -------------------------------------- ------------------- ------------------------- ----------------------------------
- -------------------------------------- ------------------- ------------------------- ----------------------------------
Michael S. Willner Chief Executive President and Chief Insight Communications Company,
Officer Executive Officer Inc.
126 East 56th Street
New York, NY 10022
- -------------------------------------- ------------------- ------------------------- ----------------------------------
- -------------------------------------- ------------------- ------------------------- ----------------------------------
Sidney R. Knafel Chairman of the Chairman of the Board Insight Communications Company,
Board Inc.
126 East 56th Street
New York, NY 10022
- -------------------------------------- ------------------- ------------------------- ----------------------------------
- -------------------------------------- ------------------- ------------------------- ----------------------------------
Kim D. Kelly Executive Vice Executive Vice Insight Communications Company,
President, Chief President, Chief Inc.
Operating and Operating and Financial 126 East 56th Street
Financial Officer Officer New York, NY 10022
- -------------------------------------- ------------------- ------------------------- ----------------------------------
- -------------------------------------- ------------------- ------------------------- ----------------------------------
Elizabeth Grier Secretary Secretary Insight Communications Company,
Inc.
126 East 56th Street
New York, NY 10022
- -------------------------------------- ------------------- ------------------------- ----------------------------------
- -------------------------------------- ------------------- ------------------------- ----------------------------------
Daniel Mannino Treasurer Treasurer Insight Communications Company,
Inc.
126 East 56th Street
New York, NY 10022
- -------------------------------------- ------------------- ------------------------- ----------------------------------
</TABLE>
