SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: AUGUST 20, 1999
NAVARRE CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota 0-22982 41-1704319
(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of Incorporation)
7400 49TH AVENUE NORTH, NEW HOPE, MN 55428
(Address of principal executive offices)
Registrant's telephone number, including area code: (612) 535-8333
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Items 1, 2, 3, 4, 6, and 8 are not applicable and therefore omitted.
Item 5. Other Events.
ISSUANCE OF CLASS B CONVERTIBLE PREFERRED STOCK
On August 20, 1999, Navarre announced that it had entered into a
subscription agreement with Fletcher International Limited ("Fletcher") for the
issuance of up to 150,000 shares of Navarre's Class B Convertible Preferred
Stock ("Class B Preferred Stock") for an aggregate purchase price of up to $37.5
million (the "Subscription Agreement"). The Class B Preferred Stock may be
issued in three principal tranches. On August 20, 1999, Navarre issued the first
tranche, consisting of 34,000 shares of Class B Preferred Stock and a three-year
warrant to purchase up to 16,000 shares of Class B Preferred Stock. Fletcher
paid a purchase price of $8.5 million, or $250 per share of Class B Preferred
Stock, and will pay an additional $4.0 million, or $250 per share of Class B
Preferred Stock, if Fletcher exercises the warrant in its entirety.
Subject to certain conditions, Navarre may require Fletcher to purchase
the second tranche at any time beginning six months from the date a registration
statement covering the common stock underlying the Class B Preferred Stock
issued in the first tranche is declared effective and ending on August 20, 2002.
The second tranche consists of 34,000 shares of Class B Preferred Stock and a
three-year warrant to purchase up to 16,000 shares of Class B Preferred Stock.
The purchase price will be equal to $8.5 million, or $250 per share of Class B
Preferred Stock, and the warrant exercise price is $4.0 million, or $250 per
share of Class B Preferred Stock, if Fletcher exercises the warrant in its
entirety. If Navarre fails to exercise its option within this time frame,
Fletcher will have one year to demand that Navarre issue Fletcher up to 50,000
additional shares of Class B Preferred Stock at a purchase price of $250 per
share.
The third tranche consists of 34,000 shares of Class B Preferred Stock
and a four-year warrant to purchase 16,000 shares of Class B Preferred Stock.
Subject to certain conditions, Navarre is required to issue the third tranche,
at Fletcher's option, during the period beginning six months from the date a
registration statement covering the common stock underlying the securities
issued in the first tranche becomes effective and ending three years from the
date the option commences. The purchase price will be $8.5 million, or $250 per
share of Class B Preferred Stock, and the warrant exercise price is $4.0
million, or $250 per share of Class B Preferred Stock, if Fletcher exercises the
warrant in its entirety. If the Fletcher fails to exercise its option within
this time frame, Navarre will have one year to demand that Fletcher purchase up
to 50,000 additional shares of Class B Preferred Stock at a purchase price of
$250 per share.
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Fletcher may convert shares of Class B Preferred Stock into shares of
Navarre's common stock ("Common Stock") at any time after issuance provided
certain conditions are met. In addition, subject to certain conditions, Navarre
may demand conversion of the 34,000 shares of Class B Preferred Stock issued in
the first tranche and the 34,000 share of Class B Preferred Stock issued in the
second tranche one year from the date the Class B Preferred Stock was issued.
The conversion ratio is determined by dividing $250 by a variable conversion
price which is tied to the market price of the Common Stock. The conversion
price can be no greater than 180% of the closing price of the Common Stock on
the date prior to the date the Class B Preferred Stock or the warrant covering
shares of Class B Preferred Stock was issued. In addition, for the six month
period ended February 20, 2000, the conversion price can be no less than $9.25.
Subject to certain conditions, the Class B Preferred Stock will be automatically
converted into Common Stock three years after the issuance of the Class B
Preferred Stock.
The holders of Class B Preferred Stock are entitled to a $250 per share
liquidation preference in the event Navarre ceases operations. Holders of Class
B Preferred Stock are not entitled to receive dividends unless a default event
has occurred. If a default event occurs, the holders of Class B Preferred Stock
are entitled to receive dividends of fifteen percent (15%) of $250 on an annual
basis for each share owned until the default event is cured. Holders of Class B
Preferred Stock do not have voting rights unless a default event has occurred
and Navarre fails to pay dividends. Upon the occurrence of a default event and
non-payment of dividends, the holders may appoint members of the Board of
Directors in proportion to their ownership of outstanding Common Stock as though
all outstanding Class B Preferred Stock had been converted into Common Stock.
A default event occurs if Navarre fails to (i) register the Common
Stock underlying the Class B Preferred Stock within a specified time frame, (ii)
obtain the consent of its shareholders to the issuance of shares when required,
or (iii) redeem Class B Preferred Stock owned by holders who objected to
combinations that do not meet certain criteria for a 33% premium over the
liquidation preference.
In connection with the execution of the Subscription Agreement, and the
issuance of the Class B Preferred Stock to Fletcher, Navarre engaged Wit Capital
Corporation as its investment banker and agreed to pay Wit Capital Corporation a
fee of five percent (5%) of the gross proceeds it receives under the
Subscription Agreement. Fees will be paid as funds are received by Navarre.
The Subscription Agreement was dated and entered into on July 31, 1999,
but was subject to subsequent approval by the Navarre Board of Directors and
satisfaction of certain closing conditions.
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Item 7(c) Exhibits
Exhibit 1. Subscription Agreement between Navarre Corporation and
Fletcher International Limited
Exhibit 2. Certificate of Rights and Preferences of Class B Convertible
Preferred Stock
Exhibit 3. Form of Warrant
Exhibit 4. Press Release dated August 23, 1999 announcing execution of
the Subscription Agreement
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
NAVARRE CORPORATION
By /s/ Charles E. Cheney
--------------------------------
Charles E. Cheney
Executive Vice President, Chief
Financial Officer and Secretary
September 1, 1999
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EXHIBIT 1
AMENDED AND RESTATED
SUBSCRIPTION AGREEMENT
This Amended and Restated Subscription Agreement (this "Agreement") dated
as of July 31, 1999 is entered into by and between Navarre Corporation, a
corporation organized under the laws of Minnesota (together with its successors,
"Navarre"), and Fletcher International Limited, a company organized under the
laws of the Cayman Islands (together with its successors, "Fletcher").
The parties hereto agree as follows:
1. Purchase and Sale; Rights. In consideration of and upon the basis of
the representations, warranties and agreements and subject to the terms and
conditions set forth in this Agreement:
a. Initial Preferred Shares and Warrant.
(i) Fletcher agrees to purchase from Navarre, and Navarre
agrees to sell to Fletcher on the Initial Closing Date (as defined
below), in accordance with Section 2 below, 34,000 shares (the
"Initial Preferred Shares") of Navarre's Class B Convertible
Preferred Stock, liquidation preference $250 per share (the "Class B
Preferred Stock"), having the terms and conditions set forth in the
Certificate of Rights and Preferences attached hereto as Annex A
(the "Certificate of Rights and Preferences"), at an aggregate
purchase price of $8,500,000. In addition, Navarre shall issue to
Fletcher on the Initial Closing Date one warrant substantially in
the form attached hereto as Annex B (a "Warrant") to purchase from
time to time up to an aggregate of 16,000 shares of Class B
Preferred Stock at a per share purchase price equal to the
liquidation preference of the Class B Preferred Stock, not to exceed
an aggregate purchase price of $4,000,000. Navarre shall have the
right to require Fletcher to convert the outstanding Initial
Preferred Shares into shares of Common Stock in the manner, and
subject to the terms, specified in Section 1.e. of this Agreement.
(ii) The closing (the "Initial Closing") of the sale of the
Initial Preferred Shares shall occur on the third Trading Day
following the Effective Date (as defined in Section 1.f), upon
satisfaction or, if applicable, waiver of the conditions set forth
in Sections 8 and 9 hereof, or at such other date and time as
Fletcher and Navarre shall mutually agree
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(such date, the "Initial Closing Date"). As used herein, the term
"Initial Common Shares" means the shares of Navarre common stock, no
par value (the "Common Stock"), issuable upon conversion of the
Initial Preferred Shares and upon conversion of the shares of Class
B Preferred Stock issuable upon exercise of the Warrant issued on
the Initial Closing Date; the term "Investment Securities" means all
Warrants and shares of Class B Preferred Stock issued or issuable
hereunder (including shares issued or issuable upon exercise of
Warrants), and all shares of Common Stock issued or issuable upon
conversion of such shares of Class B Preferred Stock; the term
"Trading Day" means any day on which the Common Stock is quoted on
Nasdaq; and the term "Nasdaq" means the Nasdaq National Market, but
if the Nasdaq National Market is not then the principal U.S. trading
market for the Common Stock, then "Nasdaq" shall be deemed to mean
the principal U.S. national securities exchange (as defined in the
Securities Exchange Act of 1934, as amended ("the Exchange Act")) on
which the Common Stock is then traded.
b. Navarre Rights. Fletcher grants Navarre the right to issue to
Fletcher, and Fletcher agrees to buy, an additional number of shares of
Class B Preferred Stock as determined below:
(i) Primary Navarre Right. During the period (the "Primary
Navarre Exercise Period") beginning on the sixth month anniversary
of the date the Registration Requirement (as defined in Section
1.b.iv below) is satisfied with respect to the Initial Common Shares
and ending on the third annual anniversary of the Effective Date,
Fletcher grants Navarre the right (the "Primary Navarre Right") to
issue to Fletcher, and Fletcher agrees to buy on the Primary Navarre
Closing Date (as defined below), an aggregate of 34,000 shares (the
"Primary Navarre Shares") of Class B Preferred Stock at an aggregate
purchase price of $8,500,000. Upon exercise of the Primary Navarre
Right, Navarre shall also issue to Fletcher on the Primary Navarre
Closing Date one additional Warrant. Navarre shall have the right to
require Fletcher to convert the outstanding Primary Navarre Shares
into shares of Common Stock in the manner, and subject to the terms,
specified in Section 1.e. of this Agreement.
(ii) Rollover Navarre Right. In the event Fletcher does not
exercise its Primary Fletcher Right (as defined in Section 1.c
below), then, during the Rollover Navarre Exercise Period, Fletcher
grants Navarre the right (the "Rollover Navarre Right" and, together
with the Primary Navarre Right, the "Navarre Rights") to issue to
Fletcher from time to
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time, and Fletcher agrees to buy on the applicable Rollover Navarre
Closing Date (as defined below), up to an aggregate of 50,000 shares
(the "Rollover Navarre Shares" and, together with the Primary
Navarre Shares, the "Navarre Preferred Shares") of Class B Preferred
Stock at a per share purchase price equal to $250, not to exceed an
aggregate purchase price of $12,500,000. The "Rollover Navarre
Exercise Period" means the period from but excluding the last day of
the Primary Fletcher Exercise Period and ending on the one year
anniversary thereof, provided that, in the event Navarre issues on
the applicable Rollover Navarre Closing Date a lesser number of
shares of Class B Preferred Stock than the number specified in its
Navarre Notice (as defined below) for that date (the difference
between the specified number and the lesser number being the
"Remaining Number") solely because of Navarre's failure to satisfy
in full the condition to exercise specified in Section 1.b.(iv)(E),
then, as to the Remaining Number, the Rollover Navarre Exercise
Period shall be extended by one Trading Day for each Trading Day
that such condition to exercise remains unsatisfied, up to a maximum
of 14 months.
(iii) Notice of Exercise. To exercise any Navarre Rights,
Navarre shall have delivered to Fletcher a written notice in the
form attached hereto as Annex C during the Primary Navarre Exercise
Period, in the case of the Primary Navarre Right, and a written
notice in the form attached hereto as Annex D during the Rollover
Navarre Exercise Period, in the case of the Rollover Navarre Right
(each such notice is referred to as a "Navarre Notice" and each such
date of delivery, a "Navarre Notice Date"). In all cases, a Navarre
Notice must be delivered on a Trading Day prior to 5:00 p.m. eastern
time. Each time that a Navarre Right is exercised, the closing of
the sale of the shares of Class B Preferred Stock (a "Navarre
Closing") shall take place in accordance with Section 2 on the
twenty-third Trading Day following and excluding the Navarre Notice
Date or such other date and time as Navarre and Fletcher shall
mutually agree (such date and time being referred to herein as the
"Primary Navarre Closing Date" in the case of the Primary Navarre
Right and a "Rollover Navarre Closing Date" in the case of the
Rollover Navarre Right, and collectively as the "Navarre Closing
Dates"), upon satisfaction of the terms and conditions described
herein, including satisfaction (or, if applicable, waiver) of the
relevant conditions set forth in Sections 8 and 9 hereof.
(iv) Conditions to Exercise. Notwithstanding anything else in
this Agreement to the contrary, no Navarre Rights may be
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exercised unless the following conditions are satisfied as of the
Navarre Notice Date and the corresponding Navarre Closing Date:
(A) the shares of Common Stock are listed on Nasdaq;
(B) one or more Registration Statements are effective
for all then outstanding shares of Common Stock issued
hereunder and all shares of Common Stock issuable upon
conversion of outstanding Preferred Shares (as defined in
Section 1.c below), and contain a current prospectus that can
be used by Fletcher for resale purposes (the "Registration
Requirement");
(C) there has been no Blackout Period (as defined in
Section 3.A.) or any other period in which the Registration
Statements referred to in the immediately preceding clause (B)
are not effective or not able to be used by Fletcher for
resales within the preceding thirty Trading Days;
(D) the volume weighted average price of the Common
Stock for each of the preceding three Trading Days has
continually exceeded $6.00;
(E) the number of Assumed Shares does not exceed 9.9% of
the number of shares of Common Stock then outstanding, where
"Assumed Shares" means the sum of:
(i) the number of shares of Common Stock issuable
upon conversion of the Class B Preferred Stock (x) to be
issued on the applicable Navarre Closing Date and (y) in
the case of the exercise of the Primary Navarre Right,
issuable upon exercise of the Warrant issuable on the
Primary Navarre Closing Date, as if such Warrant had
been exercised in full on such date;
(ii) the number of shares of Common Stock issued
during the preceding 14 months upon prior conversion of
shares of Class B Preferred Stock;
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(iii) the number of shares of Common Stock
issuable upon conversion of all outstanding shares of
Class B Preferred Stock issued during the preceding 14
months;
(iv) the number of shares of Common Stock issuable
upon conversion of shares of Class B Preferred Stock
that remain issuable upon exercise of outstanding
Warrants; and
(v) the number of shares of Common Stock issuable
upon conversion of shares of Class B Preferred Stock
issuable under any unexercised Rollover Fletcher Right
still in effect at that time;
provided that the shares of Class B Preferred Stock referred
to in the preceding clauses (i), (iii), (iv) and (v) shall be
assumed to be converted into shares of Common Stock on (x) the
applicable Navarre Notice Date for purposes of determining
Navarre's satisfaction of the condition specified in this
paragraph (E) on such date, and (y) the applicable Navarre
Closing Date for purposes of determining Navarre's
satisfaction of the condition specified in this paragraph (E)
on such date;
(F) Eric H. Paulson shall continue to serve as the
Chairman of the Board, President and Chief Executive Officer
of Navarre and Charles E. Cheney shall continue to serve as
Executive Vice President and Chief Financial Officer or Co-
Chairman of the Board of Navarre (in each case performing at
least substantially the same responsibilities as they were
performing on the Effective Date), except if one of them
becomes incapacitated due to illness or death;
(G) The number of shares of Common Stock (i) issued
pursuant to prior conversions of shares of Class B Preferred
Stock, (ii) issued in satisfaction of Navarre's dividend
obligations pursuant to Section 2(B) of the Certificate of
Rights and Preferences, and (iii) issuable upon the assumed
conversion, as of that Navarre Closing Date, of all of the
shares of Class B Preferred Stock then outstanding or issuable
under this Agreement (including shares of Class B Preferred
Stock issuable upon exercise of unexercised Fletcher Rights
and issued or issuable Warrants) does
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not exceed the 19.9% Limit (as defined in Section 4(C) of the
Certificate of Rights and Preferences) unless the Required
Consent (as defined in Section 4(C) of the Certificate of
Rights and Preferences) has been obtained; and
(H) No Default Event (as defined in Section 2(C) of the
Certificate of Rights and Preferences) has occurred and is
continuing.
If any event occurs triggering any of the adjustment provisions in Section 10 of
the Certificate of Rights and Preferences, then the conditions to exercise of
the Navarre Rights set forth in the immediately preceding clauses (D) and (E)
shall also be proportionally adjusted, if necessary, so that they have
substantially the same force and effect immediately following any such event
that they would have had immediately prior to such action. All of the
adjustments provided for in the preceding sentence shall be made successively
whenever any such event shall occur.
c. Fletcher Rights. Navarre grants Fletcher the right to purchase
from Navarre, and Navarre agrees to issue to Fletcher, an additional
number of shares of Class B Preferred Stock as determined below:
(i) Primary Fletcher Right. During the period beginning on the
sixth month anniversary of the date the Registration Requirement is
satisfied with respect to the Initial Common Shares and ending on
the third annual anniversary of such beginning date (the "Primary
Fletcher Exercise Period"), Navarre grants Fletcher the right (the
"Primary Fletcher Right") to purchase from Navarre, and Navarre
agrees to issue on the Primary Fletcher Closing Date (as defined
below), an aggregate of 34,000 shares (the "Primary Fletcher
Shares") of Class B Preferred Stock at an aggregate purchase price
of $8,500,000. Upon exercise of the Primary Fletcher Right, Navarre
shall also issue to Fletcher on the Primary Fletcher Closing Date
one additional Warrant.
(ii) Rollover Fletcher Right. In the event Navarre does not
exercise its Primary Navarre Right, then, during the period from but
excluding the last day of the Primary Navarre Exercise Period and
ending on the one year anniversary thereof (the "Rollover Fletcher
Exercise Period"), Navarre grants Fletcher the right (the "Rollover
Fletcher Right" and, together with the Primary Fletcher Right, the
"Fletcher Rights") to purchase from Navarre from time to time, and
Navarre agrees to issue on the applicable Rollover Fletcher Closing
Date (as defined below), up to an aggregate of 50,000 shares (the
"Rollover Fletcher Shares" and, together with the Primary Fletcher
Shares, the "Fletcher Preferred Shares") of Class
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B Preferred Stock at a per share purchase price equal to $250, up to
an aggregate purchase price of $12,500,000. The term "Preferred
Shares" means the Initial Preferred Shares, the Navarre Preferred
Shares, the Fletcher Preferred Shares and all shares of Class B
Preferred Stock issuable upon exercise of the Warrants.
(iii) Notice of Exercise. To exercise any Fletcher Rights,
Fletcher shall have delivered to Navarre a written notice in the
form attached hereto as Annex E during the Primary Fletcher Exercise
Period, in the case of the Primary Fletcher Right, and a written
notice in the form attached hereto as Annex F during the Rollover
Fletcher Exercise Period, in the case of the Rollover Fletcher Right
(each such notice, a "Fletcher Notice" and each such date of
delivery, a "Fletcher Notice Date"). In all cases, a Fletcher Notice
must be delivered on a Trading Day prior to 5:00 p.m. central time.
Each time that a Fletcher Right is exercised, the closing of the
sale of the shares of Class B Preferred Stock (a "Fletcher Closing")
shall take place in accordance with Section 2 on the third Trading
Day following and excluding the Fletcher Notice Date or such other
date and time as Navarre and Fletcher shall mutually agree (such
date and time being referred to herein as the "Primary Fletcher
Closing Date" in the case of the Primary Fletcher Right and a
"Rollover Fletcher Closing Date" in the case of the Rollover
Fletcher Right, and collectively as the "Fletcher Closing Dates"),
upon satisfaction of the terms and conditions described herein,
including satisfaction (or, if applicable, waiver) of the relevant
conditions set forth in Sections 8 and 9 hereof.
d. Exercise Restriction. Notwithstanding anything else in this
Agreement, but subject to the last sentence of this paragraph, Navarre
Rights and Fletcher Rights may not be exercised on any date on which
Navarre has a current obligation under Section 3.A to register shares of
Common Stock issued or issuable hereunder or for a period of six months
following effectiveness of a Registration Statement covering such shares.
The Primary Fletcher Exercise Period shall be extended by one Trading Day
for each Trading Day past the second anniversary of the Effective Date on
which Fletcher is restricted from exercising the Primary Fletcher Right
under the preceding sentence and the Rollover Fletcher Exercise Period
shall be extended by one Trading Day for each Trading Day following the
Primary Navarre Exercise Period on which Fletcher is restricted from
exercising the Rollover Fletcher Right under the preceding sentence.
Notwithstanding the foregoing, Fletcher may exercise the Fletcher Rights
at any time following the announcement of a proposed Combination (as
defined in Section 6 below).
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e. Conversion Right. Fletcher grants Navarre the right (the
"Conversion Right") to require Fletcher to convert the outstanding Initial
Preferred Shares and Primary Navarre Shares into shares of Common Stock in
accordance with their terms on the twelve month anniversary of the later
of (i) the date of issuance thereof or (ii) the first date of
effectiveness of the relevant Registration Statement covering such shares
of Common Stock (the date in clause (i) or (ii) being referred to as the
"Initial Date"), upon prior written notice to Fletcher within two weeks
following and excluding the Initial Date, provided that, in each case,
Navarre's exercise of the Conversion Right shall be delayed by one Trading
Day for each Trading Day during that corresponding six month period that
either a Blackout Period (as defined in Section 3.A) is in effect or the
Registration Statement is otherwise not effective or a Default Event (as
defined in Section 2(C) of the Certificate of Rights and Preferences) has
occurred and continues.
f. Condition Precedent. Notwithstanding any other provision of this
Agreement to the contrary, it shall be a condition precedent to the
effectiveness of this Agreement that, on or before noon, eastern time, on
August 16, 1999, (x) the Board of Directors of Navarre shall, by written
resolution, have duly authorized the execution, delivery and performance
of this Agreement and the Certificate of Rights and Preferences and the
Warrants by Navarre (including the issuance of the Investment Securities)
and ratified and confirmed the due authorization of all actions previously
taken by any officer of Navarre in connection with this Agreement and the
Certificate of Rights and Preferences and the Warrants, (y) to the extent
deemed necessary by the Board of Directors of Navarre, the Board of
Directors of Net Radio Corporation ("Net Radio"), a majority-owned
subsidiary of the Company, shall have consented to Section 5.g of this
Agreement as it may relate to Net Radio (the Board approvals specified in
the preceding clauses (x) and (y) being referred to collectively as the
"Board Consent"); and (z) on the date the Board Consent is obtained (the
"Effective Date"), the Chief Executive Officer of Navarre shall have
delivered to Fletcher a certificate certifying that the Board Consent has
been obtained, and attaching a true, correct and complete copy of such
Board Consent. If the conditions specified in the preceding sentence have
not been satisfied by noon, eastern time, on August 16, 1999, this
Agreement shall be null and void and of no further force or effect without
any further action on the part of any party to this Agreement.
2. Closings. The Initial Closing and any Navarre Closings and Fletcher
Closings (any of the foregoing, an "Investment Closing") shall take place
initially via facsimile on the applicable closing date in the manner set forth
below; provided that original certificates representing shares of Class B
Preferred Stock and Warrants shall be delivered via Federal Express to Fletcher
as Fletcher instructs in writing, and provided further that each original
preferred stock certificate issued in accordance with this Section 2 shall
represent 3,400 shares of Class B Preferred Stock (except that to the extent the
number of shares of Class B
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Preferred Stock to be delivered at any given time is not evenly divisible by
3,400, one stock certificate shall represent the remaining shares). As used in
this Agreement, the term "Investment Closing Dates" refers collectively to the
Initial Closing Date and any Navarre Closing Date or Fletcher Closing Date.
a. Initial Closing Date. At the Initial Closing, the following
deliveries shall be made:
(i) Class B Preferred Stock and Warrant. Navarre shall deliver
to Fletcher ten stock certificates, each representing 3,400 shares
of Class B Preferred Stock, together with one Warrant duly executed
by Navarre in definitive form, in each case duly registered on the
books of Navarre as instructed by Fletcher.
(ii) Purchase Price. Fletcher shall cause to be wire
transferred to Navarre, in accordance with the instructions set
forth in Section 14, the aggregate purchase price of $8,500,000 in
immediately available United States dollars.
(iii) Closing Documents. The closing documents required by
Sections 8 and 9 shall be delivered to Fletcher and Navarre,
respectively.
(iv) Delivery Notice. An executed copy of the delivery notice
in the form attached hereto as Annex G shall be delivered to
Fletcher.
b. Primary Navarre Closing Date. On the Primary Navarre Closing
Date, if any, the following deliveries shall be made:
(i) Class B Preferred Stock and Warrant. Navarre shall deliver
to Fletcher ten stock certificates, each representing 3,400 shares
of Class B Preferred Stock, together with one Warrant duly executed
by Navarre in definitive form, in each case duly registered on the
books of Navarre as instructed by Fletcher.
(ii) Purchase Price. Fletcher shall cause to be wire
transferred to Navarre, in accordance with the instructions set
forth in Section 14, the aggregate purchase price of $8,500,000 in
immediately available United States dollars.
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(iii) Closing Documents. The closing documents required by
Sections 8 and 9 shall be delivered to Fletcher and Navarre,
respectively.
(iv) Delivery Notice. An executed copy of the delivery notice
in the form attached hereto as Annex G shall be delivered to
Fletcher.
c. Rollover Navarre Closing Dates. On each Rollover Navarre Closing
Date, if any, the following deliveries shall be made:
(i) Class B Preferred Stock. Navarre shall deliver to Fletcher
stock certificates collectively representing the aggregate number of
shares of Class B Preferred Stock to be issued on that closing date,
duly registered on the books of Navarre as instructed by Fletcher.
(ii) Purchase Price. Fletcher shall cause to be wire
transferred to Navarre, in accordance with the instructions set
forth in Section 14, the aggregate purchase price therefor in
immediately available United States dollars.
(iii) Closing Documents. The closing documents required by
Sections 8 and 9 shall be delivered to Fletcher and Navarre,
respectively.
(iv) Delivery Notice. An executed copy of the delivery notice
in the form attached hereto as Annex H shall be delivered to
Fletcher.
d. Primary Fletcher Closing Date. On the Primary Fletcher Closing
Date, if any, the following deliveries shall be made:
(i) Class B Preferred Stock and Warrant. Navarre shall deliver
to Fletcher ten stock certificates, each representing 3,400 shares
of Class B Preferred Stock, together with one Warrant duly executed
by Navarre in definitive form, in each case duly registered on the
books of Navarre as instructed by Fletcher.
(ii) Purchase Price. Fletcher shall cause to be wire
transferred to Navarre, in accordance with the instructions set
forth in Section 14, the aggregate purchase price of $8,500,000 in
immediately available United States dollars.
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(iii) Closing Documents. The closing documents required by
Sections 8 and 9 shall be delivered to Fletcher and Navarre,
respectively.
(iv) Delivery Notice. An executed copy of the delivery notice
in the form attached hereto as Annex G shall be delivered to
Fletcher.
e. Rollover Fletcher Closing Dates. On each Rollover Fletcher
Closing Date, if any, the following deliveries shall be made:
(i) Class B Preferred Stock. Navarre shall deliver to Fletcher
stock certificates collectively representing the aggregate number of
shares of Class B Preferred Stock to be issued on that closing date,
duly registered on the books of Navarre as instructed by Fletcher.
(ii) Purchase Price. Fletcher shall cause to be wire
transferred to Navarre, in accordance with the instructions set
forth in Section 14, the aggregate purchase price therefor in
immediately available United States dollars.
(iii) Closing Documents. The closing documents required by
Sections 8 and 9 shall be delivered to Fletcher and Navarre,
respectively.
(iv) Delivery Notice. An executed copy of the delivery notice
in the form attached hereto as Annex H shall be delivered to
Fletcher.
In the case of each of the preceding paragraphs (a) through (e), the deliveries
specified therein shall be deemed to occur simultaneously as part of a single
transaction, and no delivery shall be deemed to have been made until all such
deliveries have been made.
3. Representations and Warranties of Navarre. Navarre hereby represents
and warrants to Fletcher on the Effective Date, on each Investment Closing Date,
on each date that Fletcher exercises a Warrant and on each date any Preferred
Share is converted into Common Stock, as follows:
a. Navarre has been duly incorporated and is validly existing in
good standing under the laws of Minnesota or, after the Initial Closing
Date, if another entity has succeeded Navarre in accordance with the terms
hereof, under the laws of one of the states of the United States.
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b. Subject only to receipt of the Board Consent specified in Section
1.f. on or before noon, eastern time, on August 16, 1999, (i) the
execution, delivery and performance of this Agreement and the Certificate
of Rights and Preferences and the Warrants by Navarre (including the
issuance of the Investment Securities) have been duly authorized by all
requisite corporate action and no further consent or authorization of
Navarre, its Board of Directors or its shareholders is required, and (ii)
this Agreement has been duly executed and delivered by Navarre and, when
this Agreement is duly authorized, executed and delivered by Fletcher,
will be a valid and binding agreement enforceable against Navarre in
accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights generally and to general
principles of equity.
c. Navarre has full corporate power and authority necessary to
execute and deliver this Agreement and to perform its obligations
hereunder and under the Certificate of Rights and Preferences and the
Warrants (including the issuance of the Investment Securities).
d. No consent, approval, authorization or order of any court,
governmental agency or other body is required for execution and delivery
by Navarre of this Agreement or the performance by Navarre of any of its
obligations hereunder and under the Certificate of Rights and Preferences
and the Warrants other than such as may already have been received.
e. Neither the execution and delivery by Navarre of this Agreement
nor the performance by Navarre of any of its obligations hereunder and
under the Certificate of Rights and Preferences and the Warrants:
(1) violates, conflicts with, results in a breach of, or
constitutes a default (or an event which with the giving of notice
or the lapse of time or both would be reasonably likely to
constitute a default) under (A) the articles of incorporation or
by-laws of Navarre or any of its subsidiaries, (B) any decree,
judgment, order, law, treaty, rule, regulation or determination of
which Navarre is aware (after due inquiry) of any court,
governmental agency or body, or arbitrator having jurisdiction over
Navarre or any of its subsidiaries or any of their respective
properties or assets, (C) the terms of any bond, debenture, note or
any other evidence of indebtedness, or any agreement, stock option
or other similar plan, indenture, lease, mortgage, deed of trust or
other instrument to which Navarre or any of its subsidiaries is a
party, by which Navarre or any of its subsidiaries is bound, or to
which any of the
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properties or assets of Navarre or any of its subsidiaries is
subject, (D) the terms of any "lock-up" or similar provision of any
under writing or similar agreement to which Navarre or any of its
subsidiaries is a party or (E) any rules of the National Association
of Securities Dealers, Inc. or Nasdaq or any rules or regulations on
the markets where Navarre's securities are publicly traded
applicable to Navarre or the transactions contemplated hereby (other
than the Required Consent, as defined in Section 4(C) of Certificate
of Rights and Preferences); or
(2) results in the creation or imposition of any lien, charge
or encumbrance upon any Investment Securities or upon any of the
properties or assets of Navarre or any of its subsidiaries.
f. Navarre has validly reserved for issuance to Fletcher 150,000
shares of Class B Preferred Stock pursuant to this Agreement and
15,000,000 shares of Common Stock for issuance upon conversion of the
Preferred Shares. Navarre shall at all times reserve for issuance all the
Preferred Shares issuable under this Agreement (including upon exercise of
Warrants) and such number of its shares of Common Stock as shall from time
to time be sufficient to effect the conversion of all such Preferred
Shares and to satisfy its delivery obligation upon exercise of the Share
Option specified in Section 2(B) of the Certificate of Rights and
Preferences. When issued to Fletcher against payment therefor, each
Investment Security:
(1) will have been duly and validly authorized, duly and
validly issued, fully paid and non-assessable;
(2) will be free and clear of any security interests, liens,
claims or other encumbrances; and
(3) will not have been issued or sold in violation of any
preemptive or other similar rights of the holders of any securities
of Navarre.
g. Navarre satisfies all listing and quantitative maintenance
criteria of the Nasdaq National Market or, after the Effective Date, has a
valid exemption from such criteria of which it has previously notified
Fletcher in writing. All of the Covered Securities (as defined in Section
3.A.d) will, when issued, be duly listed and admitted for trading on all
of the markets where shares of Common Stock are traded, including the
Nasdaq National Market.
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h. There is no pending or, to the best knowledge of Navarre,
threatened action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over
Navarre or any of its affiliates that would materially affect the
execution by Navarre of, or the performance by Navarre of its obligations
under, this Agreement, the Certificate of Rights and Preferences or the
Warrants.
i. Since April 1, 1997, none of Navarre's filings with the United
States Securities and Exchange Commission (the "SEC") under the Securities
Act of 1933, as amended (the "Securities Act") or under Section 13(a) or
15(d) of the Exchange Act (each an "SEC Filing") contained any untrue
statement of a material fact or omitted to state any material fact
necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading. Since the date
of Navarre's most recent SEC Filing, there has not been, and Navarre is
not aware of, any development that is reasonably likely to result in any
material adverse change in the condition, financial or otherwise, or in
the business affairs or prospects of Navarre, whether or not arising in
the ordinary course of business.
j. The offer and sale of the Investment Securities to Fletcher
pursuant to this Agreement will, subject to compliance by Fletcher with
the applicable representations and warranties contained in Section 4
hereof and with the applicable covenants and agreements contained in
Section 7 hereof, be made in accordance with the provisions and
requirements of Regulation D promulgated under the Securities Act and any
applicable state law.
k. As of the date hereof, the authorized capital stock of Navarre
consists of 50,000,000 shares of Common Stock and 10,000,000 shares of
preferred stock, no par value ("Preferred Stock"). As of July 28, 1999,
(A) 23,504,394 shares of Common Stock and no shares of Preferred Stock
were issued and outstanding, (B) 80,498 shares of Common Stock and no
shares of Preferred Stock were reserved for issuance upon exercise of
outstanding stock options, warrants or other convertible rights, (C)
1,029,253 shares of Common Stock and no shares of Preferred Stock are
currently subject to issuance upon the exercise of outstanding stock
options, warrants or other convertible rights, (D) no shares of Common
Stock or Preferred Stock are held in the treasury of Navarre and (E) up to
1,300,000 additional shares of Common Stock may be issued under the 1992
Stock Option Plan. All of the outstanding shares of Common Stock are, and
all shares of capital stock which may be issued pursuant to stock options,
warrants or other convertible rights will be, when issued and paid for in
accordance with the respective terms thereof, duly authorized, validly
issued, fully paid and non-assessable and free of any preemptive rights in
respect thereof. As of the date hereof, except as set forth above, and
except for shares of Common Stock or other securities issued upon
conversion, exchange, exercise or
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purchase associated with the securities, options, warrants, rights and
other instruments referenced above, no shares of capital stock or other
voting securities of Navarre were outstanding, no equity equivalents,
interests in the ownership or earnings of Navarre or other similar rights
were outstanding, and there were no existing options, warrants, calls,
subscriptions or other rights or agreements or commitments relating to the
capital stock of Navarre or any of its subsidiaries or obligating Navarre
or any of its subsidiaries to issue, transfer, sell or redeem any shares
of capital stock, or other equity interest in, Navarre or any of its
subsidiaries or obligating Navarre or any of its subsidiaries to grant,
extend or enter into any such option, warrant, call, subscription or other
right, agreement or commitment.
l. Solvency. The sum of the assets of Navarre, both at a fair
valuation and at present fair salable value, exceeds its liabilities,
including contingent liabilities, Navarre has sufficient capital with
which to conduct its business as pres ently conducted and as proposed to
be conducted and Navarre has not incurred debts, and does not intend to
incur debts, beyond its ability to pay such debts as they mature. For
purposes of this paragraph, "debt" means any liability on a claim, and
"claim" means (x) a right to payment, whether or not such right is reduced
to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured, or unsecured,
or (y) a right to an equitable remedy for breach of performance if such
breach gives rise to a payment, whether or not such right to an equitable
remedy is reduced to judgment, fixed, contingent, matured, unmatured,
disputed, undisputed, secured, or unsecured. With respect to any such
contingent liabilities, such liabilities shall be computed at the amount
which, in light of all the facts and circumstances existing at the time,
represents the amount which can reasonably be expected to become an actual
or matured liability.
m. Audited Financials. Attached hereto as Annex K is a true, correct
and complete copy of the report of Ernst & Young LLP to the Board of
Directors and Shareholders of Navarre dated April 30, 1999, together with
the accompanying consolidated financial statements and schedule of Navarre
as of March 31, 1999 and 1998 and for each of the three years in the
period ended March 31, 1999, as such report appears in the Annual Report
on Form 10-K for the fiscal year ended March 31, 1999 filed by Navarre
with the SEC (the "E&Y Report").
3.A Registration Provisions.
a. Navarre shall as soon as practicable and at its own expense, but
in no event later than 30 days after the Effective Date, file a
Registration Statement (as defined below) under the Securities Act
covering the sale or resale of all of the Initial Common Shares and shall
use its best efforts to cause such Registration Statement to be declared
effective not later than the Required Registration Date (as
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defined below). Pursuant to the preceding sentence, Navarre shall register
not less than twice the number of shares that would be issuable on the
assumption that, on the day prior to the effectiveness of such
Registration Statement, all Initial Preferred Shares had been converted
into Initial Common Shares and all shares of Class B Preferred Stock
issuable upon exercise of the Warrant issued on the Initial Closing Date
had been converted into shares of Common Stock, and shall promptly amend
such Registration Statement from time to time if the maximum number of
Initial Common Shares is greater than the number of shares of Common Stock
registered pursuant to such Registration Statement, provided that Fletcher
shall have provided such information and cooperation in connection
therewith as Navarre may reasonably request.
b. Not later than five Trading Days after any Navarre Closing Date,
Navarre shall at its own expense file a Registration Statement under the
Securities Act covering the sale or resale of all of the shares of Common
Stock issuable upon conversion of (i) the shares of Class B Preferred
Stock issued on that Navarre Closing Date and (ii) in the case of the
Primary Navarre Right, the shares of Class B Preferred Stock issuable upon
exercise of the Warrant issued on that Navarre Closing Date. Navarre shall
use its best efforts to cause such Registration Statement to be declared
effective not later than the Required Registration Date. Pursuant to the
second preceding sentence, Navarre shall register not less than twice the
number of shares of Common Stock that would be issuable on the assumption
that, on the day prior to the effectiveness of such Registration
Statement, all the shares of Class B Preferred Stock issued on that
Navarre Closing Date had been converted into shares of Common Stock and,
in the case of the Primary Navarre Right, all shares of Class B Preferred
Stock issuable upon exercise of the Warrant issued on that Navarre Closing
Date had been converted into shares of Common Stock. Navarre shall
promptly amend such Registration Statement from time to time if the
maximum number of shares of Common Stock issuable under the first sentence
of this paragraph is greater than the number of shares of Common Stock
registered pursuant to such Registration Statement, provided that Fletcher
shall have provided such information and coop eration in connection
therewith as Navarre may reasonably request.
c. Navarre shall as soon as practicable and at its own expense, but
in no event later than 30 days after any Fletcher Closing Date, file a
Registration Statement under the Securities Act covering the sale or
resale of all of the shares of Common Stock issuable upon conversion of
(i) the shares of Class B Preferred Stock issued on that Fletcher Closing
Date and (ii) in the case of the Primary Fletcher Right, the shares of
Class B Preferred Stock issuable upon exercise of the Warrant issued on
that Fletcher Closing Date. Navarre shall use its best efforts to cause
such Regis tration Statement to be declared effective not later than the
Required Registration Date. Pursuant to the second preceding sentence,
Navarre shall register not less than
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<PAGE>
twice the number of shares of Common Stock that would be issuable on the
assumption that, on the day prior to the effectiveness of such
Registration Statement, all the shares of Class B Preferred Stock issued
on that Fletcher Closing Date had been converted into shares of Common
Stock and, in the case of the Primary Fletcher Right, all shares of Class
B Preferred Stock issuable upon exercise of the Warrant issued on that
Fletcher Closing Date had been converted into shares of Common Stock.
Navarre shall promptly amend such Registration Statement from time to time
if the maximum number of shares of Common Stock issuable under the first
sentence of this paragraph is greater than the number of shares of Common
Stock registered pursuant to such Registration Statement, provided that
Fletcher shall have provided such information and cooperation in
connection therewith as Navarre may reasonably request.
d. Each share of Common Stock issuable upon conversion of any share
of Class B Preferred Stock is a "Covered Security" and each registration
statement filed or required to be filed under the Securities Act in
accordance with Sections 3.A.a., 3.A.b., or 3.A.c. hereof is referred to
as a "Registration Statement"). The "Required Registration Date" means (i)
in the case of Section 3.A.a., the 90th calendar day after the Effective
Date, or, if Navarre is not eligible to register the Covered Securities on
Form S-3 under the Securities Act on such day, the 120th calendar day
after the Effective Date; (ii) in the case of Section 3.A.b., the 60th
calendar day after the Navarre Closing Date, or, if Navarre is not
eligible to register the Covered Securities on Form S-3 under the
Securities Act on such day, the 90th calendar day after the Navarre
Closing Date; and (iii) in the case of Section 3.A.c., the 90th calendar
day after the Fletcher Closing Date, or, if Navarre is not eligible to
register the Covered Securities on Form S-3 under the Securities Act on
such day, the 120th calendar day after the Fletcher Closing Date. Navarre
shall provide prompt written notice to Fletcher when each such
Registration Statement has been declared effective by the SEC.
e. Navarre will use its best efforts to: (A) keep such registration
effective until the earlier of (x) the second anniversary of the issuance
of each Covered Security (provided that, Fletcher may freely resell such
Covered Securities), (y) the later of the date all of the Preferred Shares
and Covered Securities shall have been sold by Fletcher and the date the
Navarre Rights and the Fletcher Rights expire or (z) such time as all of
the Covered Securities held by Fletcher can be sold by Fletcher or any of
its affiliates within a three-month period without compliance with the
registration requirements of the Securities Act pursuant to Rule 144 under
the Securities Act ("Rule 144"); (B) prepare and file with the SEC such
amendments and supplements to the Registration Statements and the
prospectus used in connection with the Registration Statements (as so
amended and supplemented from time to time, the "Prospectus") as may be
necessary to comply with the provisions of the Securities Act with respect
to the disposition of all Covered Securities by Fletcher
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<PAGE>
or any of its affiliates; (C) furnish such number of Prospectuses and
other documents incident thereto, including any amendment of or supplement
to the Prospectus, as Fletcher from time to time may reasonably request;
(D) cause all Covered Securities to be listed on each securities exchange
and quoted on each quotation service on which similar securities issued by
Navarre are then listed or quoted; (E) provide a transfer agent and
registrar for all Covered Securities and a CUSIP number for all Covered
Securities; (F) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC; and (G) file the documents
required of Navarre and otherwise use its best efforts to obtain and
maintain requisite blue sky clearance in (x) New York, Minnesota and all
other jurisdictions in which any of the shares of Common Stock were
originally sold and (y) all other states specified in writing by Fletcher,
provided, however, that as to this clause (y), Navarre shall not be
required to qualify to do business or consent to service of process in any
state in which it is not now so qualified or has not so consented.
Fletcher shall have the right to approve the description of the plan of
distribution and all other references to Fletcher contained in any
Prospectus.
f. Navarre shall furnish to Fletcher upon request a reasonable
number of copies of a supplement to or an amendment of such Prospectus as
may be necessary in order to facilitate the public sale or other
disposition of all or any of the Covered Securities by Fletcher or any of
its affiliates pursuant to the Registration Statement.
g. With a view to making available to Fletcher and its affiliates
the benefits of Rule 144 and Form S-3 under the Securities Act, Navarre
covenants and agrees to: (A) make and keep available adequate current
public information (within the meaning of Rule 144(c)) concerning Navarre,
until the earlier of (x) the second anniversary of the issuance of each
Covered Security (provided that, Fletcher may freely resell such Covered
Securities) or (y) such date as all of the Covered Securities shall have
been resold by Fletcher or any of its affiliates; and (B) furnish to
Fletcher upon request, as long as Fletcher owns any Covered Securities,
(x) a written statement by Navarre that it has complied with the reporting
requirements of the Securities Act and the Exchange Act, (y) a copy of the
most recent annual or quarterly report of Navarre, and (z) such other
information as may be reasonably requested in order to avail Fletcher and
its affiliates of Rule 144 or Form S-3 with respect to such Covered
Securities.
h. Notwithstanding anything else in this Section 3.A, if, at any
time during which a Prospectus is required to be delivered in connection
with the sale of any Covered Securities, Navarre determines in good faith
that a development has occurred or a condition exists as a result of which
the Registration Statement or the Prospectus contains a material
misstatement or omission, Navarre will immediately
22
<PAGE>
notify Fletcher thereof by telephone and in writing. Upon receipt of such
notification, Fletcher and its affiliates will immediately suspend all
offers and sales of any Covered Securities pursuant to the Registration
Statement. In such event, Navarre will amend or supplement the
Registration Statement as promptly as practicable and will take such other
steps as may be required to permit sales of the Covered Securities
thereunder by Fletcher and its affiliates in accordance with applicable
federal and state securities laws. Navarre will promptly notify Fletcher
after it has determined in good faith that such sales have become
permissible in such manner and will promptly deliver copies of the
Registration Statement and the Prospectus (as so amended or supplemented)
to Fletcher in accordance with paragraphs (e) and (f) of this Section 3.A.
Notwithstanding the foregoing, (A) under no circumstances shall Navarre be
entitled to exercise its right to suspend sales of any Covered Securities
pursuant to the Regis tration Statement more than two times in any
twelve-month period, (B) the period during which such sales may be
suspended (each a "Blackout Period") shall not exceed thirty days and (C)
no Blackout Period may commence less than 30 days after the end of the
preceding Blackout Period.
Upon the commencement of a Blackout Period pursuant to this Section
3.A, Fletcher will notify Navarre of any contracts to sell any Covered
Securities (each a "Sales Contract") that Fletcher or any of its
affiliates has entered into prior to the commencement of such Blackout
Period and that would require delivery of such Cov ered Securities during
such Blackout Period, which notice will contain the aggregate sale price
and volume of Covered Securities pursuant to such Sales Contract. Upon
receipt of such notice, Navarre will immediately notify Fletcher of its
election either (i) to terminate the Blackout Period and, as promptly as
practicable, amend or supplement the Registration Statements or the
Prospectus in order to correct the material misstatement or omission and
deliver to Fletcher copies of such amended or supplemented Registration
Statement and Prospectus in accordance with paragraphs (e) and (f) of this
Section 3.A or (ii) to continue the Blackout Period in accordance with
this paragraph. If Navarre elects to continue the Blackout Period, and
Fletcher or any of its affiliates are therefore unable to consummate the
sale of Covered Securities pursuant to the Sales Contract (such unsold
Covered Securities being hereinafter referred to herein as the "Unsold
Securities"), Navarre will promptly indemnify each Fletcher Indemnified
Party (as such term is defined in Section 12 below) against any Proceeding
(as such term is defined in Section 12 below) that each Fletcher
Indemnified Party may incur arising out of or in connection with
Fletcher's breach or alleged breach of any such Sales Contract, and
Navarre shall reimburse each Fletcher Indemnified Party for any reasonable
costs or expenses (including reasonable legal fees) incurred by such party
in investigating or defending any such Proceeding (collectively, the
"Indemnification Amount"); provided, however, that each Fletcher
Indemnified Party shall take all actions reasonably necessary or
appropriate to mitigate such Indemnification Amount; and provided further,
however, that the Indemnification
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Amount shall be reduced by an amount equal to the product of (x) the
number of Unsold Securities multiplied by (y) the amount, if any, by which
(i) the actual per share price received by Fletcher or any of its
affiliates upon the sale of the Unsold Securities (if such sale occurs
within three Trading Days of the end of the Blackout Period) or the
closing sale price of the Common Stock on Nasdaq on the third Trading Day
after the end of the Blackout Period (if the Unsold Securities are not
sold by Fletcher or any of its affiliates within three Trading Days of the
end of the Blackout Period) exceeds (ii) the per share sale price for the
Unsold Securities provided in the Sales Contract.
3.B. Conversion of Preferred Shares. Preferred Shares are convertible into
shares of Common Stock in accordance with the terms and conditions set forth in
Section 4 of the Certificate of Rights and Preferences. The form of the
"Conversion Notice" to be executed and delivered by Fletcher to Navarre as
specified therein is attached hereto as Annex I and the form of the "Conversion
Delivery Notice" to be executed and delivered by Navarre to Fletcher as
specified therein is attached hereto as Annex J.
4. Representations and Warranties of Fletcher. Fletcher hereby represents
and warrants to Navarre on the Effective Date and each Investment Closing Date:
a. Fletcher has been duly incorporated and is validly existing in
good standing under the laws of the Cayman Islands, or after the Effective
Date, under the laws of the jurisdiction of its organization.
b. The execution, delivery and performance of this Agreement by
Fletcher have been duly authorized by all requisite corporate action and
no further consent or authorization of Fletcher, its Board of Directors or
its shareholders is required. This Agreement has been duly executed and
delivered by Fletcher and, when duly authorized, executed and delivered by
Navarre, will be a valid and binding agreement enforceable against
Fletcher in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights generally and to general
principles of equity.
c. Fletcher understands that no United States federal or state
agency has passed on, reviewed or made any recommendation or endorsement
of the Investment Securities.
d. Subject to Section 3.A hereof, Fletcher understands that the
Investment Securities have not been registered under the Securities Act
and may not be re-offered or resold in the United States other than
pursuant to registration thereunder or an available exemption therefrom.
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<PAGE>
e. Fletcher is an "accredited investor" as such term is defined in
Regulation D promulgated under the Securities Act.
f. Fletcher is purchasing the Investment Securities for its own
account for investment only and not with a view to, or for resale in
connection with, the public sale or distribution thereof in the United
States, except pursuant to sales registered under the Securities Act.
g. Fletcher understands that the Investment Securities are being or
will be offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal securities laws and
that Navarre is relying on the truth and accuracy of, and Fletcher's
compliance with, the representations, warranties, agreements,
acknowledgments and understandings of Fletcher set forth herein in order
to determine the availability of such exemptions and the eligibility of
Fletcher to acquire the Investment Securities.
5. Covenants of Navarre. Navarre covenants and agrees with Fletcher as
follows:
a. For so long as Fletcher owns any Investment Securities, or any
Navarre Rights or Fletcher Rights exist, and in any case for a period of
90 days thereafter, Navarre will use its best efforts to (i) maintain the
eligibility of the Common Stock for quotation on the Nasdaq National
Market and (ii) regain the eligibility of the Common Stock for quotation
on all markets and exchanges including the Nasdaq National Market in the
event that the Common Stock is delisted by the Nasdaq National Market or
other applicable markets and exchanges.
b. Navarre will provide Fletcher with an opportunity to review and
comment on any public disclosure by Navarre of information regarding this
Agreement and the transactions contemplated hereby. Beginning on the date
hereof and for so long as any Navarre Rights or Fletcher Rights exist, and
in any case for a period of 90 days thereafter, Navarre will (i) promptly
notify Fletcher immediately following any public disclosure by Navarre of
material information regarding Navarre or its financial condition,
prospects or results of operation and (ii) provide Fletcher with copies of
all SEC Filings.
c. As soon as such information is available (but in no event later
than two weeks after the Effective Date), Navarre shall deliver to
Fletcher a written notice stating the number of outstanding shares of
Common Stock as of the Effective Date.
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<PAGE>
d. Navarre will make all filings required by law with respect to the
transactions contemplated hereby.
e. Navarre will cause the Common Stock issuable upon conversion of
the Preferred Shares to be duly listed and admitted for trading on the
Nasdaq National Market.
f. On the day following the Effective Date, Navarre will make the
appropriate filing for the Initial Common Shares to become duly listed and
admitted for trading on Nasdaq and thereafter Navarre shall use its best
efforts to ensure that all shares of Common Stock issuable upon conversion
of all other Preferred Shares become listed and admitted for trading as
soon as practicable. Moreover, Navarre will immediately notify Fletcher in
writing, pursuant to Section 14, once the shares are duly listed.
g. For a period beginning on the date hereof and ending on the day
which is one year after the Initial Closing Date or a Navarre Closing Date
or Fletcher Closing Date, whichever is later, Navarre will not, and will
not permit any of its subsidiaries to, issue any preferred stock, Common
Stock or other equity securities (or any securities convertible into or
exchangeable for such preferred stock, Common Stock or other equity
securities) in reliance upon Section 4(2) of the Securities Act or
Regulation D promulgated thereunder or under Regulation S promulgated
under the Securities Act without Fletcher's prior written consent,
provided that:
(i) Navarre may, in addition to the shares issuable upon
exercise of options and warrants listed in Section 3.k (other than
in Section 3.k.(E)) issue up to an additional 1,300,000 shares of
its Common Stock (or options exercisable for such number of shares
of Common Stock) pursuant to employee benefit plans, but only if
such issuances are made in the ordinary course of business
consistent with past practice, it being understood and agreed that
the term "issue" as used in this clause (i) shall not be deemed to
include sales of capital stock of Net Radio outstanding as of the
date hereof owned by Navarre, as long as such sales have received
Independent Director Approval. "Independent Director Approval" means
the prior written approval of a majority of the disinterested
directors of Navarre as being in the best interests of all the
shareholders of Navarre, both holders of Common Stock and holders of
Class B Preferred Stock.
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(ii) Navarre's subsidiaries (other than Net Radio) may issue
up to 5% of the then outstanding number of its shares of common
stock (or options exercisable for such number of shares of common
stock) pursuant to employee benefit plans, but only if such
issuances are made in the ordinary course of business consistent
with past practice.
(iii) If Net Radio is not a Public Company (as defined below),
Net Radio may issue additional shares of its common stock (or
options exercisable for shares of its common stock) pursuant to
employee benefit plans, but only if such issuances (i) are made in
the ordinary course of business consistent with past practice and
(ii) do not, in the aggregate, exceed 25% of the then currently
outstanding number of such shares of common stock of Net Radio. As
of the date hereof, the aggregate number of shares of common stock
of Net Radio (or options exercisable for shares of its common stock)
issued pursuant to employee benefit plans equals 21.4% of the
currently outstanding number of shares of common stock of Net Radio.
A "Public Company" means that at least 40% of the capital stock of
Net Radio is publicly owned (excluding holders of 10% or more of the
capital stock) and Navarre does not own more than 40% of the capital
stock of Net Radio.
(iv) If Net Radio is not a Public Company, Net Radio may issue
shares of its common stock in one or more private placements in
order to raise capital or enter into a strategic alliance, but only
if (x) such shares of common stock are not exercisable for,
convertible into, or exchangeable for shares of Common Stock and (y)
the issuance of such shares has received Independent Director
Approval.
(v) As long as Net Radio is a Public Company, the restrictions
set forth in this Section 5.g will not apply to issuances of capital
stock by Net Radio (other than issuances of capital stock to Navarre
or its other subsidiaries, as to which clause (vi) below will
apply).
(vi) Whether or not Net Radio is a Public Company, all
transactions between Net Radio, on the one hand, and Navarre or any
of Navarre's other subsidiaries, on the other, must receive
Independent Director Approval.
27
<PAGE>
h. Navarre will comply with the terms and conditions of the
Preferred Shares as set forth in the Certificate of Rights and
Preferences, and will not amend the Certificate of Rights and Preferences
without Fletcher's express written consent or issue any Preferred Stock
other than as provided hereunder without Fletcher's express written
consent.
i. Prior to the filing of each of its quarterly reports on Form 10-Q
with the SEC, Navarre shall cause Ernst & Young LLP to deliver to Navarre
a review report relating to the final consolidated unaudited financial
statements contained therein, prepared in accordance with Statements of
Auditing Standard No. 71.
6. Consolidation, Merger, Etc. In case Navarre shall be a party to any
transaction providing for (i) any acquisition of Navarre by means of merger or
other form of corporate reorganization in which outstanding shares of Navarre
are exchanged for securities or other consideration issued, or caused to be
issued, by the acquiring corporation (the "Acquirer") or its subsidiary or (ii)
a sale of all or substantially all of the assets of Navarre (on a consolidated
basis) or (iii) any other transaction or series of related transactions by
Navarre in which in excess of 50% of Navarre's voting power is transferred to a
single entity or group acting in concert (each of the foregoing being referred
to as a "Combination"), Fletcher, at its sole option for each separate exercise
of any Fletcher Rights and Warrants, or any portion thereof, may choose (in any
combination) to (1) exercise Fletcher Rights and Warrants (in whole or in part)
before the Combination is closed (the "Combination Closing") or simultaneously
with the Combination Closing to receive shares of Class B Preferred Stock; (2)
as part of the Combination Closing, cause each Fletcher Right and Warrant (in
whole or in part) to be converted into a right to acquire the same number of
shares of Acquirer Preferred Stock (as defined below) on the same terms and
conditions as the Fletcher Right and Warrant so converted, but only to the
extent that the Acquirer Preferred Stock would not, as of the date of the
Combination Closing, represent the right to acquire in excess of 1% of the
shares of Acquirer Common Stock outstanding immediately after the Combination
Closing, determined as if all such shares of Acquirer Preferred Stock had been
converted into Acquirer Common Stock on such date; or (3) receive cash, for any
Fletcher Rights and Warrants, or any portion thereof, which have not been
exercised or converted pursuant to (1) and (2) above, in an amount equal to
thirty-three percent of the U.S. dollar amount of the unexercised Fletcher
Rights and Warrants. Navarre agrees that it shall be a condition to any
Combination Closing that as of the Combination Closing, all shares of the
Acquirer Common Stock to be issued to Fletcher shall have been registered under
the Securities Act. Navarre further agrees that it will not enter into an
agreement with an Acquirer for a Combination unless such agreement expressly
obligates the Acquirer to assume all of Navarre's obligations under this
Agreement and the Warrants and to give Fletcher written notice that the Acquirer
has assumed such obligations. "Acquirer Preferred Stock" shall mean preferred
stock of the Acquirer with terms substantially identical to the Class B
Preferred Stock. The "Acquirer Common Stock" shall mean the class of publicly
traded common stock of the Acquirer
28
<PAGE>
having the largest market capitalization as of the Combination Closing Date.
Navarre shall provide Fletcher with written notice of any proposed Combination
as soon as the existence of a proposed Combination is made public by any person
(the "Combination Notice"), and shall notify Fletcher promptly of any material
developments with respect to such Combination, including reasonable advance
notice of the date the Combination is expected to become effective. Upon the
earlier of any Combination or Combination Notice, any unexercised Navarre Rights
shall be terminated and thereafter shall be null and void.
7. Covenants of Fletcher. Fletcher hereby covenants and agrees with
Navarre as follows:
a. Neither Fletcher nor any of its affiliates nor any person acting
on its or their behalf will at any time offer or sell any Investment
Securities other than pursuant to registration under the Securities Act or
pursuant to an available exemption therefrom.
b. Fletcher will not sell Covered Securities on Nasdaq on any
Pricing Day. Fletcher may execute short sales of Common Stock at any time,
but Fletcher may not use Covered Securities to cover such short positions.
Fletcher may enter into any other hedging or trading strategies relating
to the Common Stock, including without limitation, options, derivatives
and swaps, without restriction, except that Fletcher shall not enter into
a new hedging contract (but may extend an existing position) on any
Pricing Day. A "Pricing Day" means (x) if the actual applicable Conversion
Price for Preferred Shares is based on Section 4(E)(i) of the Certificate
of Rights and Preferences, each of the 15 Trading Days during the Pricing
Period and (y) if the actual applicable Conversion Price is based on
Section 4(E) (ii) of the Certificate of Rights and Preferences, each of
the first three Trading Days of the Pricing Period. As used in the
preceding sentence, the terms "Conversion Price" and "Pricing Period" have
the same meanings ascribed to them in Section 4(E) of the Certificate of
Rights and Preferences. For the avoidance of doubt, it is understood and
agreed that no Pricing Day shall be deemed to have occurred where the
actual applicable Conversion Price is based on Section 4(E)(iii) of the
Certificate of Rights and Preferences.
7.A. Legend. Subject to Section 3.A., Fletcher understands that the
certificates or other instruments representing the Investment Securities shall
bear a restrictive legend in the following form (and a stop transfer order may
be placed against transfer of such certificates or other instruments):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
APPLICABLE STATE SECURITIES LAWS. THE
29
<PAGE>
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR
SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS, OR UNLESS AN EXEMPTION FROM REGISTRATION
IS AVAILABLE.
The legend set forth above shall be removed and Navarre shall issue a
certificate without such legend to any holder of Investment Securities if,
unless otherwise required by state securities laws, (a) such shares are sold
pursuant to an effective Registration Statement under the Securities Act, or (b)
such holder provides Navarre with assurances reasonably satisfactory to Navarre
that such shares may be publicly sold pursuant to an exemption from such
registration requirements without restriction.
8. Conditions Precedent to Fletcher's Obligations. The obligations of
Fletcher hereunder are subject to the performance by Navarre of its obligations
hereunder and to the satisfaction of the following additional conditions
precedent, unless expressly waived in writing by Fletcher:
a. On each Investment Closing Date, (i) the representations and
warranties made by Navarre in this Agreement shall be true and correct,
and (ii) Navarre shall have complied fully with all of the covenants and
agreements in this Agreement; and Fletcher shall have received on each
such date a certificate of the Chief Executive Officer and the Chief
Financial Officer of Navarre dated such date and to such effect.
b. On each Investment Closing Date, Navarre shall have delivered to
Fletcher an opinion of Lindquist & Vennum P.L.L.P. reasonably satisfactory
to Fletcher, dated the date of delivery, confirming in substance the
matters covered in paragraphs (a), (b), (c), (d), (e), (f) and (h) of
Section 3 hereof and to the effect that the offer and sale of the
Investment Securities to Fletcher hereunder do not require registration
under the Securities Act.
c. On each Investment Closing Date, Fletcher shall have received a
letter from Ernst & Young LLP to the effect that, as of such date, they
are consenting to the inclusion in this Agreement of:
(i) in the event the Investment Closing Date occurs prior to
the filing by Navarre with the SEC of its Annual Report on Form 10-K
for the fiscal year ended March 31, 2000, the E&Y Report, and
30
<PAGE>
(ii) in the event the Investment Closing Date occurs on or
after the date of filing by Navarre with the SEC of its Annual
Report on Form 10-K for the fiscal year ended March 31, 2000, the
report of Ernst & Young LLP attached to the Delivery Notice
delivered by Navarre to Fletcher on the corresponding Investment
Closing Date in accordance with Section 2.b.(iv), 2.c.(iv), 2.d.(iv)
or 2.e.(iv) hereof, as applicable.
9. Conditions Precedent to Navarre's Obligations. The obligations of
Navarre hereunder are subject to the performance by Fletcher of its obligations
hereunder and to the satisfaction (unless expressly waived in writing by
Navarre) of the additional conditions precedent that, on the applicable
Investment Closing Date: (i) the representations and warranties made by Fletcher
in this Agreement shall be true and correct and (ii) Fletcher shall have
complied fully with all the covenants and agreements in this Agreement; and
Navarre shall have received on each such date a certificate of an appropriate
officer of Fletcher dated such date and to such effect.
10. Fees and Expenses. Each of Fletcher and Navarre agrees to pay its own
expenses incident to the performance of its obligations hereunder, including,
but not limited to the fees, expenses and disbursements of such party's counsel,
except as is otherwise expressly provided in this Agreement.
11. Non-Performance. If on any Investment Closing Date, Navarre shall fail
to deliver the Investment Securities to Fletcher required to be delivered
pursuant to this Agreement for any reason other than the failure of any
condition precedent to Navarre's obligations hereunder or the failure by
Fletcher to comply with its obligations hereunder, then Navarre shall:
a. hold Fletcher harmless against any loss, claim or damage
(including without limitation, incidental and consequential damages)
arising from or as a result of such failure by Navarre; and
b. reimburse Fletcher for all of its reasonable out-of-pocket
expenses, including fees and disbursements of its counsel, incurred by
Fletcher in connection with this Agreement and the transactions
contemplated herein and therein;
provided, however, that Navarre shall then be under no further liability to
Fletcher except as provided in this Section 11 and Section 12 hereof.
31
<PAGE>
12. Indemnification.
a. Indemnification of Fletcher. Navarre hereby agrees to indemnify
Fletcher and each of its officers, directors, employees, agents and
affiliates and each person that controls (within the meaning of Section 20
of the Exchange Act) any of the foregoing persons (each a "Fletcher
Indemnified Party") against any claim, demand, action, liability, damages,
loss, cost or expense (including, without limitation, reasonable legal
fees) (a "Proceeding"), that it may incur in connection with any of the
transactions contemplated hereby arising out of or based upon:
(1) any untrue or alleged untrue statement of a material fact
in an SEC Filing or this Agreement by Navarre or any of its
affiliates or any person acting on its or their behalf or omission
or alleged omission to state therein or herein any material fact
necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading by Navarre
or any of its affiliates or any person acting on its or their
behalf;
(2) any of the representations or warranties made by Navarre
herein being untrue or incorrect at the time such representation or
warranty was made; and
(3) any breach or non-performance by Navarre of any of its
covenants, agreements or obligations under this Agreement;
and Navarre hereby agrees to reimburse each Fletcher Indemnified Party for
any reasonable legal or other expenses incurred by such Fletcher
Indemnified Party in investigating or defending any such Proceeding;
provided, however, that the foregoing indemnity shall not apply to any
Proceeding to the extent that it arises out of or is based upon the gross
negligence or wilful misconduct of Fletcher in connection therewith.
Furthermore, the foregoing indemnity rights will not take effect unless or
until the total amount of the indemnification is $10,000 or greater.
b. Indemnification of Navarre. Fletcher hereby agrees to indemnify
Navarre and each of its officers, directors, employees, agents and
affiliates and each person that controls (within the meaning of Section 20
of the Exchange Act) any of the foregoing persons (each a "Navarre
Indemnified Party") against any Proceeding, that it may incur in
connection with any of the transactions contemplated hereby arising out of
or based upon:
32
<PAGE>
(1) any untrue or alleged untrue statement of a material fact
by Fletcher or any of its affiliates or any person acting on its or
their behalf or omission or alleged omission to state any material
fact necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading by Fletcher
or any of its affiliates or any person acting on its or their
behalf;
(2) any of the representations or warranties made by Fletcher
herein being untrue or incorrect at the time such representation or
warranty was made; and
(3) any breach or non-performance by Fletcher of any of its
covenants, agreements or obligations under this Agreement;
and Fletcher hereby agrees to reimburse each Navarre Indemnified Party for
any reasonable legal or other expenses incurred by such Navarre
Indemnified Party in investigating or defending any such Proceeding;
provided, however, that the foregoing indemnity shall not apply to any
Proceeding to the extent that it arises out of or is based upon the gross
negligence or wilful misconduct of Navarre in connection there with.
Furthermore, the foregoing indemnity rights will not take effect unless or
until the total amount of the indemnification is $10,000 or greater.
c. Conduct of Claims.
(1) Whenever a claim for indemnification shall arise under
this Section, the party seeking indemnification (the "Indemnified
Party"), shall notify the party from whom such indemnification is
sought (the "Indemnifying Party") in writing of the Proceeding and
the facts constituting the basis for such claim in reasonable
detail;
(2) Upon delivery of such notice, such Indemnified Party shall
have a duty to take all reasonable steps to mitigate any losses,
liabilities, costs, charges and expenses relating to any such
Proceeding;
(3) Such Indemnifying Party shall have the right to retain the
counsel of its choice in connection with such Proceeding and to
participate at its own expense in the defense of any such
Proceeding; provided, however, that counsel to the Indemnifying
Party shall not (except with the consent of the relevant Indemnified
Party) also be counsel to such Indemnified Party. In no event shall
the Indemnifying Party be liable for fees and expenses of more than
one counsel (in addition to any local counsel) separate from its own
counsel for all Indemnified Parties in
33
<PAGE>
connection with any one action or separate but similar or related
actions in the same jurisdiction arising out of the same general
allegations or circum stances; and
(4) No Indemnifying Party shall, without the prior written
consent of the Indemnified Parties (which consent shall not be un
reasonably withheld), settle or compromise or consent to the entry
of any judgment with respect to any litigation, or any investigation
or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever in respect of which
indemnification could be sought under this Section unless such
settlement, compromise or consent (A) includes an unconditional
release of each Indemnified Party from all liability arising out of
such litigation, investigation, proceeding or claim and (B) does not
include a statement as to or an admission of fault, culpability or a
failure to act by or on behalf of any Indemnified Party.
13. Survival of the Representations, Warranties, etc. The respective
representations, warranties, and agreements made herein by or on behalf of the
parties hereto shall remain in full force and effect, regardless of any
investigation made by or on behalf of the other party to this Agreement or any
officer, director or employee of, or person controlling or under common control
with, such party and will survive delivery of and payment for any Investment
Securities issuable hereunder.
14. Notices. All communications hereunder shall be in writing and
delivered as set forth below.
a. If sent to Fletcher, all communications shall be delivered by
hand, sent by registered mail or transmitted and confirmed by facsimile to
Fletcher, unless otherwise notified in writing of a substitute address,
at:
Fletcher International Limited
c/o Midland Bank Trust Corporation (Cayman) Limited
P.O. Box 1109
Mary Street
Grand Cayman, Cayman Islands, B.W.I.
Attn: Pamela Clements
Telephone: (345) 914-7515
Facsimile: (345) 949-7634
34
<PAGE>
with a copy to:
Fletcher Asset Management
22 East 67th Street
New York, NY 10021
Attn: Peter Zayfert
Telephone: (212) 284-4800
Facsimile: (212) 284-4801
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
1440 New York Avenue, N.W.
Washington, D.C. 20005
Attention: Stephen W. Hamilton
Telephone: (202) 371-7010
Facsimile: (202) 393-5760
To the extent that any funds shall be delivered to Fletcher by wire
transfer, unless otherwise instructed by Fletcher, such funds should be
delivered in accordance with the following wire instructions:
Fletcher International Limited
Bank:
ABA Number:
For the benefit of:
Account Number:
For credit to:
Account Number:
b. If sent to Navarre, all communications shall be delivered by
hand, sent by registered mail or transmitted and confirmed by facsimile to
Navarre, unless otherwise notified in writing of a substitute address, at:
Navarre Corporation
7400 49th Street North
New Hope, Minnesota 55428
Attention: Chief Financial Officer
Telephone: (612) 535-8333
Facsimile: (612) 504-1107
35
<PAGE>
with a copy to:
Lindquist & Vennum P.L.L.P.
1420 IDS Center
80 South Eighth Street
Minneapolis, Minnesota 55402
Attention: Thomas G. Lovett
Telephone: (612) 371-3270
Facsimile: (612) 371-3207
To the extent that any funds shall be delivered to Navarre by wire
transfer, unless otherwise instructed by Navarre, such funds should be
delivered in accordance with the following wire instructions:
Navarre Corporation
Account Number:
ABA Number:
Bank:
Account Name:
15. Miscellaneous.
a. This Agreement may be executed in one or more counterparts and it
is not necessary that signatures of all parties appear on the same
counterpart, but such counterparts together shall constitute but one and
the same agreement.
b. This Agreement shall inure to the benefit of and be binding upon
the parties hereto, their respective successors and assigns and, with
respect to Section 12 hereof, their respective officers, directors,
employees, agents, affiliates and controlling persons, and no other person
shall have any right or obligation hereunder. Navarre may not assign this
Agreement. Fletcher may assign any of its rights and associated
obligations, in whole or in part, at its sole discretion (including,
without limitation, any Fletcher Rights), provided that, without
restricting assignments to affiliates of Fletcher, Fletcher may not,
without Navarre's consent, (i) assign this Agreement to any person that
primarily operates a hedge fund, or that on the Effective Date is or is
affiliated with a principal competitor or principal customer of Navarre in
Navarre's primary business or (ii) assign its obligation under Section
1.b. to purchase the Navarre Preferred Shares on the Navarre Closing Date
and to purchase the number of shares of Class B Preferred Stock issuable
on the Rollover Navarre Closing Date, in each case upon satisfaction of
the terms and conditions described herein.
36
<PAGE>
c. This Agreement shall be governed by, and construed in accordance
with, the internal laws of the State of New York, and each of the parties
hereto hereby submits to the non-exclusive jurisdiction of any State or
Federal court in the State of New York and any court hearing any appeal
therefrom, over any suit, action or proceeding against it arising out of
or based upon this Agreement (a "Related Proceeding"). Each of the parties
hereto hereby waives any objection to any Related Proceeding in such
courts whether on the grounds of venue, residence or domicile or on the
ground that the Related Proceeding has been brought in an inconvenient
forum.
d. The parties shall take all actions reasonably necessary to cause
the transactions contemplated hereby to be consummated in accordance with
the terms hereof.
e. The headings of the sections of this document have been inserted
for convenience of reference only and shall not be deemed to be a part of
this Agreement. This Agreement constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral,
between the parties hereto with respect to the subject matter of this
Agreement. This Agreement is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder.
f. Each party represents and acknowledges that, in the negotiation
and drafting of this Agreement and the other instruments and documents
required or contemplated hereby, it has been represented by and relied
upon the advice of counsel of its choice. Each party hereby affirms that
its counsel has had a substantial role in the drafting and negotiation of
this Agreement and such other instruments and documents. Therefore, each
party agrees that no rule of construction to the effect that any
ambiguities are to be resolved against the drafter shall be employed in
the interpretation of this Agreement and such other instruments and
documents.
g. Without prejudice to other rights or remedies hereunder
(including any specified interest rate), interest shall be due on any
amount that is due pursuant to this Agreement and has not been paid when
due, calculated for the period from and including the due date to but
excluding the date on which such amount is paid at the prime rate of U.S.
money center banks as published in the Wall Street Journal (or if the Wall
Street Journal does not exist or publish such information, then the
average of the prime rates of three U.S. money center banks agreed to by
the parties) plus two percent.
16. Navarre's Obligations. Navarre agrees that the parties have negotiated
in good faith and at arms' length concerning the transactions contemplated
herein, and that Fletcher would not have agreed to the terms of this Agreement
without each and every of the
37
<PAGE>
terms, conditions, protections and remedies provided herein and in the
Certificate of Rights and Preferences. Except for Navarre's obligations to
deliver securities hereunder, Navarre's obligations, including, but not limited
to, Navarre's obligations to indemnify and hold Fletcher harmless in accordance
with Section 12 of this Agreement, to pay Fletcher cash in accordance with
Section 6 of this Agreement for any unexercised Fletcher Right or Warrant, to
pay dividends on the Class B Preferred Stock in the manner specified in Section
2(B) of the Certificate of Rights and Preferences, and to redeem the Class B
Preferred Stock in the manner specified in Section 11 of the Certificate of
Rights and Preferences, are debts of Navarre that Navarre promises to pay to
Fletcher when and as they become due and that Navarre promises to reflect them
as liabilities on its books and records. In addition, Navarre agrees that its
breach of its obligation to repay a debt to Fletcher shall give rise to a right
to payment in Fletcher for which Fletcher shall be entitled to file a proof of
claim in any bankruptcy or insolvency proceeding filed by or against Navarre,
and that such right to payment shall not be subject to subordination under 11
U.S.C. ss. 510(b) or any similar federal, state or local law.
17. Time of Essence. Time shall be of the essence in this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement, all as of the day and year first above written.
NAVARRE CORPORATION
By:
-------------------------------------
Name:
Title:
FLETCHER INTERNATIONAL LIMITED,
by its duly authorized investment advisor,
FLETCHER ASSET MANAGEMENT, INC.
By:
-------------------------------------
Name:
Title:
38
<PAGE>
ANNEX C
[FORM OF NOTICE OF PRIMARY NAVARRE RIGHT]
[date]
Fletcher International Limited
c/o Fletcher Asset Management
22 East 67th Street
New York, NY 10021
Attn: Peter Zayfert
Telephone: (212) 284-4800
Facsimile: (212) 284-4801
Ladies and Gentlemen:
Reference is made to the Amended and Restated Subscription Agreement
(the "Agreement") dated as of July 31, 1999 by and between Navarre Corporation
("Navarre") and Fletcher International Limited ("Fletcher"). Capitalized terms
not otherwise defined herein shall have the meanings ascribed thereto in the
Agreement.
Navarre hereby elects to exercise the Primary Navarre Right. In
accordance with and subject to the terms and conditions of the Agreement, the
Navarre Closing Date is ________ (the twenty-third Trading Day following and
excluding the date hereof). Navarre hereby represents and warrants that all of
the conditions to exercise of the Primary Navarre Right set forth in Section
1.b.(iv) of the Agreement are satisfied as of the date hereof.
NAVARRE CORPORATION
By:
-------------------------------------
Name:
Title:
39
<PAGE>
AGREED AND ACKNOWLEDGED (for purposes of the first two sentences of the second
paragraph above):
FLETCHER INTERNATIONAL LIMITED, by its duly authorized investment advisor,
FLETCHER ASSET MANAGEMENT, INC.
By:
-------------------------------------
Name:
Title:
40
<PAGE>
ANNEX D
[FORM OF NOTICE OF ROLLOVER NAVARRE RIGHT]
[date]
Fletcher International Limited
c/o Fletcher Asset Management
22 East 67th Street
New York, NY 10021
Attn: Peter Zayfert
Telephone: (212) 284-4800
Facsimile: (212) 284-4801
Ladies and Gentlemen:
Reference is made to the Amended and Restated Subscription Agreement
(the "Agreement") dated as of July 31, 1999 by and between Navarre Corporation
("Navarre") and Fletcher International Limited ("Fletcher"). Capitalized terms
not otherwise defined herein shall have the meanings ascribed thereto in the
Agreement.
Navarre hereby elects to exercise the Rollover Navarre Right in respect
of an aggregate of ________ shares of Class B Preferred Stock. In accordance
with and subject to the terms and conditions of the Agreement, the Navarre
Closing Date is ________ (the twenty-third Trading Day following and excluding
the date hereof) and the aggregate purchase price for the shares is $__________.
Navarre hereby represents and warrants that all of the conditions to exercise of
the Rollover Navarre Right set forth in Section 1.b.(iv) of the Agreement are
satisfied as of the date hereof.
NAVARRE CORPORATION
By:
-------------------------------------
Name:
Title:
D-1
<PAGE>
AGREED AND ACKNOWLEDGED (for purposes of the first two sentences of the second
paragraph above):
FLETCHER INTERNATIONAL LIMITED, by its duly authorized investment advisor,
FLETCHER ASSET MANAGEMENT, INC.
By:
-------------------------------------
Name:
Title:
D-2
<PAGE>
ANNEX E
[FORM OF NOTICE OF PRIMARY FLETCHER RIGHT]
[date]
Navarre Corporation
7400 49th Street North
New Hope, Minnesota 55428
Attention: Chief Financial Officer
Telephone: (612) 535-8333
Facsimile: (612) 504-1107
Ladies and Gentlemen:
Reference is made to the Amended and Restated Subscription Agreement
(the "Agreement") dated as of July 31, 1999 by and between Navarre Corporation
("Navarre") and Fletcher International Limited ("Fletcher"). Capitalized terms
not otherwise defined herein shall have the meanings ascribed thereto in the
Agreement.
Fletcher hereby elects to exercise the Primary Fletcher Right. In
accordance with and subject to the terms and conditions of the Agreement, the
Fletcher Closing Date is ________ (the third Trading Day following and excluding
the date hereof).
[share delivery mechanics to come]
FLETCHER INTERNATIONAL LIMITED, by its
duly authorized investment advisor,
FLETCHER ASSET MANAGEMENT, INC.
By:
-------------------------------------
Name:
Title:
E-1
<PAGE>
AGREED AND ACKNOWLEDGED:
NAVARRE CORPORATION
By:
-------------------------------------
Name:
Title:
E-2
<PAGE>
ANNEX F
[FORM OF NOTICE OF ROLLOVER FLETCHER RIGHT]
[date]
Navarre Corporation
7400 49th Street North
New Hope, Minnesota 55428
Attention: Chief Financial Officer
Telephone: (612) 535-8333
Facsimile: (612) 504-1107
Ladies and Gentlemen:
Reference is made to the Amended and Restated Subscription Agreement
(the "Agreement") dated as of July 31, 1999 by and between Navarre Corporation
("Navarre") and Fletcher International Limited ("Fletcher"). Capitalized terms
not otherwise defined herein shall have the meanings ascribed thereto in the
Agreement.
Fletcher hereby elects to exercise the Rollover Fletcher Right in
respect of an aggregate of ________ shares of Class B Preferred Stock. In
accordance with and subject to the terms and conditions of the Agreement, the
Fletcher Closing Date is ________ (the third Trading Day following and excluding
the date hereof).
[share delivery mechanics to come]
FLETCHER INTERNATIONAL LIMITED, by its
duly authorized investment advisor,
FLETCHER ASSET MANAGEMENT, INC.
By:
-------------------------------------
Name:
Title:
F-1
<PAGE>
AGREED AND ACKNOWLEDGED:
NAVARRE CORPORATION
By:
-------------------------------------
Name:
Title:
F-2
<PAGE>
ANNEX G
[FORM OF PRIMARY DELIVERY NOTICE]
[date]
Fletcher International Limited
c/o Fletcher Asset Management
22 East 67th Street
New York, NY 10021
Attn: Peter Zayfert
Telephone: (212) 284-4800
Facsimile: (212) 284-4801
Ladies and Gentlemen:
Reference is made to the Amended and Restated Subscription Agreement
(the "Agreement") dated as of July 31, 1999 by and between Navarre Corporation
("Navarre") and Fletcher International Limited ("Fletcher"). Capitalized terms
not otherwise defined herein shall have the meanings ascribed thereto in the
Agreement.
Attached are copies of the front and back of (i) the ten original stock
certificates, each representing 3,400 shares of Class B Preferred Stock,
purchased by Fletcher on the date hereof and (ii) Warrant No. __ issued to
Fletcher, together with a copy of the overnight courier air bill which will be
used to ship such stock certificates and warrant. We have the executed original
stock certificates and the warrant and other documents required to be delivered
in connection with the Investment Closing Date occurring on the date hereof.
Upon our confirmation of the payment of the $8,500,000 aggregate purchase price
therefor, we will send the original stock certificates and the warrant by
overnight courier to the following address:
[TO COME]
and we will send the other original documents by overnight courier to the
following address:
Fletcher International Limited
c/o Midland Bank Trust Corporation (Cayman) Limited
P.O. Box 1109
Mary Street
Grand Cayman, Cayman Islands, B.W.I.
Attn: Pamela Clements
G-1
<PAGE>
Telephone: (345) 914-7515
Facsimile: (345) 949-7634
with a copy to:
Fletcher International Limited
c/o Fletcher Asset Management
22 East 67th Street
New York, NY 10021-5805
Attn: Peter Zayfert
[INSERT THE FOLLOWING LANGUAGE IF THIS DELIVERY NOTICE IS BEING
DELIVERED ON OR AFTER THE FILING BY NAVARRE WITH THE SEC OF ITS ANNUAL REPORT ON
FORM 10-K FOR THE FISCAL YEAR ENDED MARCH 31, 2000: Attached hereto as Exhibit 1
is a true, correct and complete copy of the most recent report of Ernst & Young
LLP to the Board of Directors and Shareholders of Navarre, together with the
accompanying consolidated financial statements and schedule of Navarre, as such
report appears in the most recent Annual Report on Form 10-K filed by Navarre
with the SEC.]
NAVARRE CORPORATION
By:
-------------------------------------
Name:
Title:
G-2
<PAGE>
ANNEX H
[FORM OF ROLLOVER DELIVERY NOTICE]
[date]
Fletcher International Limited
c/o Fletcher Asset Management
22 East 67th Street
New York, NY 10021
Attn: Peter Zayfert
Telephone: (212) 284-4800
Facsimile: (212) 284-4801
Ladies and Gentlemen:
Reference is made to the Amended and Restated Subscription Agreement
(the "Agreement") dated as of July 31, 1999 by and between Navarre Corporation
("Navarre") and Fletcher International Limited ("Fletcher"). Capitalized terms
not otherwise defined herein shall have the meanings ascribed thereto in the
Agreement.
Attached are copies of the front and back of _____ original stock
certificates, each representing 3,400 shares of Class B Preferred Stock [plus
one additional certificate representing ____ remaining shares], purchased by
Fletcher on the date hereof, together with a copy of the overnight courier air
bill which will be used to ship the stock certificates. We have the executed
original stock certificates and other documents required to be delivered in
connection with the Investment Closing Date occurring on the date hereof. Upon
our confirmation of the payment of the $_________ aggregate purchase price
therefor, we will send the original stock certificates by overnight courier to
the following address:
[TO COME]
and we will send the other original documents by overnight courier to the
following address:
Fletcher International Limited
c/o Midland Bank Trust Corporation (Cayman) Limited
P.O. Box 1109
Mary Street
Grand Cayman, Cayman Islands, B.W.I.
Attn: Pamela Clements
H-1
<PAGE>
Telephone: (345) 914-7515
Facsimile: (345) 949-7634
with a copy to:
Fletcher International Limited
c/o Fletcher Asset Management
22 East 67th Street
New York, NY 10021-5805
Attn: Peter Zayfert
Attached hereto as Exhibit 1 is a true, correct and complete copy of
the most recent report of Ernst & Young LLP to the Board of Directors and
Shareholders of Navarre, together with the accompanying consolidated financial
statements and schedule of Navarre, as such report appears in the most recent
Annual Report on Form 10-K filed by Navarre with the SEC.
NAVARRE CORPORATION
By:
-------------------------------------
Name:
Title:
H-2
<PAGE>
ANNEX I
[FORM OF CONVERSION NOTICE]
[date]
Navarre Corporation
7400 49th Street North
New Hope, Minnesota 55428
Attention: Chief Financial Officer
Telephone: (612) 535-8333
Facsimile: (612) 504-1107
Ladies and Gentlemen:
Reference is made to the Amended and Restated Subscription Agreement
(the "Agreement") dated as of July 31, 1999 by and between Navarre Corporation
("Navarre") and Fletcher International Limited ("Fletcher"). Capitalized terms
not otherwise defined herein shall have the meanings ascribed thereto in the
Agreement.
Fletcher hereby elects to convert _________ shares of Class B Preferred
Stock into ________ shares of Common Stock at a Conversion Price (as defined in
the Certificate of Rights and Preferences) of ____________. In accordance with
Section 4 of the Certificate of Rights and Preferences, such shares of Common
Stock shall be delivered to Fletcher [in uncertificated form by book-entry
transfer][in certificated form at the address specified below:]
[delivery address to be added, if applicable]
FLETCHER INTERNATIONAL LIMITED, by its
duly authorized investment advisor,
FLETCHER ASSET MANAGEMENT, INC.
By:
-------------------------------------
Name:
Title:
I-1
<PAGE>
AGREED AND ACKNOWLEDGED:
NAVARRE CORPORATION
By:
-------------------------------------
Name:
Title:
I-2
<PAGE>
ANNEX J
[FORM OF CONVERSION DELIVERY NOTICE]
[date]
Fletcher International Limited
c/o Fletcher Asset Management
22 East 67th Street
New York, NY 10021
Attn: Peter Zayfert
Telephone: (212) 284-4800
Facsimile: (212) 284-4801
Ladies and Gentlemen:
Reference is made to the Amended and Restated Subscription Agreement
(the "Agreement") dated as of July 31, 1999 by and between Navarre Corporation
("Navarre") and Fletcher International Limited ("Fletcher"). Capitalized terms
not otherwise defined herein shall have the meanings ascribed thereto in the
Agreement.
This notice confirms that _________ shares of Class B Preferred Stock
have been converted by Fletcher into ________ shares of Common Stock at a
Conversion Price (as defined in the Certificate of Rights and Preferences) of
____________. [IF THE SHARES ARE BEING DELIVERED BY BOOK ENTRY TRANSFER, INSERT
THE FOLLOWING -- Such shares of Common Stock have been delivered to Fletcher in
uncertificated form by book-entry transfer.][IF THE SHARES ARE BEING DELIVERED
IN PHYSICAL FORM TO THE HOLDER, INSERT THE FOLLOWING -- Attached are copies of
the front and back of the ____ original stock certificates, each representing
______ shares of Common Stock, together with a copy of the overnight courier air
bill which will be used to ship such stock certificates. We will send the
original stock certificates by overnight courier to the following address:
[TO COME]
with a copy to:
Fletcher International Limited
c/o Fletcher Asset Management
22 East 67th Street
New York, NY 10021-5805
Attn: Peter Zayfert
J-1
<PAGE>
NAVARRE CORPORATION
By:
-------------------------------------
Name:
Title:
J-2
EXHIBIT 2
CERTIFICATE OF RIGHTS AND PREFERENCES OF
CLASS B CONVERTIBLE PREFERRED STOCK OF
NAVARRE CORPORATION
The undersigned officers of Navarre Corporation, a Minnesota
corporation (the "Corporation"), do hereby certify as follows:
1. Eric H. Paulson is the duly elected and acting President of the
Corporation and Charles E. Cheney is the duly elected and acting Secretary of
the Corporation.
2. Pursuant to the authority conferred upon the Board of Directors of
the Corporation by the Restated Articles of Incorporation of the Corporation,
the Board of Directors duly adopted on August 11, 1999 the following resolution
creating the powers, designations, preferences and other rights of a newly
authorized series of 150,000 shares of Preferred Stock designated as Class B
Convertible Preferred Stock as required by Section 302A.401 of the Minnesota
Business Corporation Act, which resolution has not been subsequently modified or
rescinded:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of the Corporation in accordance with the provisions of the
Corporation's Restated Articles of Incorporation, the Board of Directors hereby
creates a new series of Class B Convertible Preferred Stock, no par value per
share, of the Corporation and hereby states the designation and number of
shares, and fixes the relative rights, preferences, and limitations thereof, as
follows:
Class B Convertible Preferred Stock:
SECTION 1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "Class B Convertible Preferred Stock" ("Class B Preferred Stock")
and the number of shares constituting Class B Preferred Stock shall be 150,000.
Such number of shares may be increased or decreased by resolution of the Board
of Directors, provided that no decrease shall reduce the number of shares of
Class B Preferred Stock to a number less than the number of shares then
outstanding plus the number of shares reserved for issuance upon the exercise of
outstanding options, rights or warrants or upon the conversion of any
outstanding securities issued by the Corporation convertible into Class B
Preferred Stock.
SECTION 2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the provisions of paragraph (B) below, no dividends
shall accrue or be payable in respect of the Class B Preferred Stock.
<PAGE>
(B) Notwithstanding the limitation of paragraph (A) above, commencing
upon the date of occurrence (a "Default Event Date") of a Default Event (as
defined below), the holders of the Class B Preferred Stock shall be entitled to
receive, to the extent permitted by applicable law, in preference to the payment
of any dividend on any class or series of stock of the Corporation ranking
junior to the Class B Preferred Stock, cumulative dividends ("Dividends") on
each share of Class B Preferred Stock in an amount equal to, on an annualized
basis, $250.00 times fifteen percent (15%). Dividends shall accrue, whether or
not earned or declared, on each share of Class B Preferred Stock from the
Default Event Date through the earlier to occur of (i) the date on which any
Default Event shall have been resolved, and (ii) the redemption or conversion
thereof in accordance with the terms hereof. Accrued Dividends on shares of
Class B Preferred Stock shall be payable on the last day of each calendar
quarter (the "Dividend Payment Date") following a Default Event Date during
which a Default Event shall have occurred, and shall be paid in cash to the
holder of such shares within five (5) Trading Days (as defined below) following
the applicable Dividend Payment Date by delivering immediately available funds
to such holder in accordance with such holder's wiring instructions, provided
that, the Corporation may, at its option (the "Share Option"), pay 13% of such
accrued Dividends in the form of the Corporation's common stock, no par value
(the "Common Stock"), at a conversion price equal to the average closing bid
price of the Common Stock on the three Trading Days immediately preceding the
Dividend Payment Date, as long as, at the time of issuance, such shares of
Common Stock are duly registered under the Securities Act and are duly listed
and admitted for trading on Nasdaq. If the Corporation elects the Share Option,
the Corporation shall deliver to the holder within five (5) Trading Days
following the applicable Dividend Payment Date in the manner requested by the
holder, stock certificates representing such shares, duly registered on the
books of Navarre as instructed by such holder. If, on any date, Dividends on any
outstanding shares of Class B Preferred Stock are payable and have not been paid
with respect to all Dividend Payment Dates preceding such date, the aggregate
amount of such Dividends shall be fully paid before any distribution, whether by
way of dividend or otherwise, shall be declared, paid or set aside with respect
to any shares of stock of the Corporation ranking junior to the Class B
Preferred Stock. A "Trading Day" means any day on which the Common Stock is
quoted on Nasdaq. "Nasdaq" means the Nasdaq National Market, but if the Nasdaq
National Market is not then the principal U.S. trading market for the Common
Stock, then "Nasdaq" shall be deemed to mean the principal U.S. national
securities exchange (as defined in the Securities Exchange Act of 1934, as
amended) on which the Common Stock is then traded. Capitalized terms not
otherwise defined herein are used with the meanings contained in that certain
Amended and Restated Subscription Agreement of the Corporation dated as of July
31, 1999 (the "Subscription Agreement").
(C) A "Default Event" as used in this Certificate of Rights and
Preferences shall mean: (i) the failure of a Registration Statement to be
declared effective by the SEC before the Required Registration Date; or (ii) the
failure to obtain the Required Consent (as defined below) within 90 calendar
days of the 19.9% Limit (as defined below) becoming effective; or (iii) the
failure of the Corporation to redeem in full any shares of outstanding Class B
Preferred Stock which are Objecting Shares (as defined below) on or before the
date that is twenty (20) calendar days following
<PAGE>
completion of a Non-Qualifying Combination (as defined below). A Default Event
shall be deemed to have been resolved at such time as, in the case of clause
(i), the Registration Statement shall be declared effective by the SEC, or, in
the case of clause (ii), the Required Consent shall have been obtained, or, in
the case of clause (iii), the date on which the Corporation (or any Surviving
Entity, as defined below) shall redeem in full all shares of Class B Preferred
Stock (or Similar Preferred Stock, as defined below) which are Objecting Shares,
and in all cases, all Dividends required under Section 2(B) above have been paid
in full.
SECTION 3. VOTING RIGHTS.
(A) Subject to the provisions of paragraph (B) below, except as
required by applicable law or Section 12, the holders of shares of Class B
Preferred Stock shall not be entitled to vote on any matter submitted to a vote
of shareholders of the Corporation and their consent shall not be required for
taking any corporate action.
(B) Notwithstanding the limitation set forth in paragraph (A) above, if
the Corporation shall be required to pay Dividends in accordance with Section 2
above and fails to make timely payment in full of all Dividends so required to
be paid, then the holders of shares of Class B Preferred Stock shall be
entitled, voting as a separate class, to immediately elect and appoint to the
Board of Directors of the Corporation, and the Corporation shall otherwise take
appropriate action as necessary to permit the inclusion on the Board of
Directors of, a number of persons (not to be less than a minimum of one
designee) designated by the holders of the Class B Preferred Stock such that,
following such election, such designees represent a percentage of the total
members of the Board of Directors (assuming no vacancies) that most nearly
approximates the percentage of the total number of then outstanding shares of
Class B Preferred Stock (calculated on an as-if-converted to Common Stock basis
as of the date such election is held as if such date were the Conversion Date)
plus the total number of then outstanding shares of Common Stock into which
shares of Class B Preferred Stock have been converted and not sold to
unaffiliated parties, to the total outstanding shares of the voting capital
stock of the Corporation (also calculated on an as-if-converted to Common Stock
basis).
SECTION 4. CONVERSION.
(A) Subject to Section 4(C) and Section 4(D), a holder of shares of
Class B Preferred Stock may, at any time after the date of issuance of such
shares and on or prior to the fifth calendar day prior to such date, if any, as
may have been fixed for the redemption thereof in any permitted call for
redemption pursuant to Section 11 below, by delivering to the Corporation
written notice ("Conversion Notice"), convert one or more shares of Class B
Preferred Stock into the number of shares of Common Stock equal to (i) $250.00
divided by (ii) the Conversion Price (as defined in Section 4(E)). The
Conversion Notice shall specify the number of shares of Class B Preferred Stock
to be converted (which shall not be less than 5,000 shares of Class B Preferred
Stock, except if (i) all shares of Class B Preferred Stock then outstanding are
being converted to Common Stock or (ii)
<PAGE>
the Conversion Notice could trigger the 19.9% Limit), the applicable Conversion
Price and the number of shares of Common Stock issuable on conversion. From and
after the date on which the Corporation received a Conversion Notice from a
holder of a share of Class B Preferred Stock (or if such date is not a Trading
Day, the next succeeding Trading Day) (the "Conversion Date"), such share shall
cease to be outstanding and the converting holder shall be deemed the owner of
the number of shares of Common Stock into which such share of Class B Preferred
Stock was converted; provided, however, that in the event of a notice of
redemption of any shares of Class B Preferred Stock pursuant to Section 11
hereof, the right of the holder to convert the Class B Preferred Stock shall
terminate as to the number of shares designated for redemption at the close of
business on the fifth calendar day preceding the redemption date, unless default
is made in payment of the redemption price, in which event such right of the
holder to convert any rights of the holder under Sections 2 and 3 hereof shall
continue until such payment. The Corporation shall deliver (against delivery of
the certificate representing the Class B Preferred Stock (the "Preferred
Certificate")) to such holder an uncertificated security evidencing such shares
of Common Stock through book-entry transfer within three Trading Days following
the Conversion Date or, at the written request of the holder at such address as
specified in the Conversion Notice, a physical stock certificate registered in
such holder's name evidencing such shares within three Trading Days following
the Conversion Date (such date of delivery referred to as the "Issue Date"). The
Corporation shall also deliver a written notice to the holder on the Issue Date
(the "Conversion Delivery Notice") confirming the number of shares of Common
Stock being delivered to the holder and the method of delivery for those shares.
For purposes of the second preceding sentence, the first Trading Day following
the Conversion Date shall count as the first Trading Day for delivery of
evidence of such shares of Common Stock. The Conversion Notice may be delivered
via facsimile transmission to Navarre Corporation, attention: Chief Financial
Officer, telecopy no. 612-504-1107.
On the Issue Date, the Corporation shall issue and cause to be
delivered to the registered holder cash (if any) as provided in Section 6. If on
such Issue Date the number of shares of Class B Preferred Stock to be delivered
shall be less than the total number of shares represented by the Preferred
Certificate, there shall be issued to the holder thereof or his assignee on such
Issue Date a new Preferred Certificate evidencing the remaining shares of Class
B Preferred Stock represented thereby.
(B) Subject to Section 4(C) and Section 4(D), each share of Class B
Preferred Stock shall automatically convert into Common Stock in accordance with
the terms hereof but without the delivery of a Conversion Notice on the third
annual anniversary of the later of (i) the effective date of the registration
statement with respect to shares of Common Stock issuable upon Conversion of
such share of Class B Preferred Stock and (ii) issuance of such share of Class B
Preferred Stock (or if such date is not a Trading Day, the next succeeding
Trading Day) (the "Automatic Conversion Date"); provided, however, that the
Automatic Conversion Date shall be extended as provided in the following
circumstances: (I) if a Default Event identified in clauses (i) or (ii) of
Section 2(C) above shall have occurred and continues at the time that such share
of Class B Preferred Stock (or Similar Preferred Stock) would otherwise
automatically convert into Common
<PAGE>
Stock, then no such automatic conversion shall occur and the Automatic
Conversion Date shall be delayed for a period equal to 365 calendar days
following and excluding the date on which the Default Event shall have been
resolved pursuant to Section 2(C) hereof; (II) if a Default Event identified in
clause (iii) of Section 2(C) above shall have occurred and continues at the time
that such share of Class B Preferred Stock (or Similar Preferred Stock) would
otherwise automatically convert into Common Stock, then no such automatic
conversion shall occur and the Automatic Conversion Date shall be delayed for a
period equal to the number of days required for the resolution of such Default
Event; (III) if a Registration Statement relating to shares of Common Stock
issuable upon conversion of such share of Class B Preferred Stock is not
available for sales or resales for any reason within 360 calendar days of the
Automatic Conversion Date for such share of Class B Preferred Stock, then such
date shall be extended (even if no Default Event identified in clause (i) of
Section 2(C) shall have occurred) as necessary to ensure that the Automatic
Conversion Date is not less than 180 days from the date such Registration
Statement is available; and (IV) if a Required Consent has not been obtained
within 180 calendar days of the Automatic Conversion Date for such share of
Class B Preferred Stock, then such date shall be extended (even if no Default
Event identified in clause (ii) of Section 2(C) shall have occurred) as
necessary to ensure that the Automatic Conversion Date is not less than 90 days
from the date that the Required Consent is obtained. From and after the
Automatic Conversion Date, such shares of Class B Preferred Stock shall cease to
be outstanding and the converting holder shall be deemed the owner of the number
of shares of Common Stock into which such shares of Class B Preferred Stock were
converted. The Corporation shall deliver to such holder such shares of Common
Stock in accordance with Section 4(A). For such purpose and the purpose of
determining the applicable Conversion Price under Section 4(E), the Automatic
Conversion Date shall be deemed to be the Conversion Date.
(C) If, either at the time that the Corporation received a Conversion
Notice or on the Automatic Conversion Date, the aggregate number of shares of
Common Stock issuable pursuant to such Conversion Notice and all other
Conversion Notices received at that time (the "Subject Conversion Notices"),
when added to the aggregate number of shares of Common Stock (a) previously
issued pursuant to the conversion of shares of Class B Preferred Stock or upon
payment of accrued Dividends, as contemplated by Section 2(B), and (b) issuable
upon conversion of all unconverted shares of Class B Preferred Stock
(determining such number as if such Class B Preferred Stock were converted as of
the Conversion Date relating to such Conversion Notice), including Class B
Preferred Stock issuable (i) upon exercise by the Corporation of its right under
the Subscription Agreement to require the holder of the obligation thereunder to
purchase additional shares of Class B Preferred Stock, (ii) upon exercise by the
holder of the right under the Subscription Agreement to require the Corporation
to issue and sell to the holder additional shares of Class B Preferred Stock,
and (iii) upon exercise of Warrants issued or issuable under the Subscription
Agreement, in each case in accordance with the terms of the Subscription
Agreement, would exceed the number of shares equal to 19.9% of the total number
of shares of Common Stock outstanding (adjusted to reflect any split,
subdivision, combination, or consolidation of the Common Stock, whether by
reclassification, distribution of a dividend with respect to the outstanding
Common Stock payable in shares of Common Stock, or otherwise, or any
recapitalization of the Common Stock) on
<PAGE>
the Effective Date (the "19.9% Limit") and such circumstance would require the
approval of the holders of the Common Stock pursuant to the listing requirements
or rules of Nasdaq, then the Navarre Rights shall be suspended until the
required consent has been obtained, and the number of shares of Class B
Preferred Stock identified in the Subject Conversion Notices that, if converted
into shares of Common Stock, would equal or exceed the 19.9% Limit (the "Excess
Preferred Shares"), shall not be converted unless and until the shareholder
approval referred to in Section 5 (the "Required Consent") is obtained or is no
longer required. The Excess Preferred Shares will be allocated among the holders
delivering Subject Conversion Notices on a pro rata basis based on the relative
number of shares of Class B Preferred Stock identified in each such Subject
Conversion Notice. Any Excess Preferred Shares shall not be converted into
shares of Common Stock until the later of the date on which the Required Consent
is obtained and the Corporation received a subsequent Conversion Notice with
respect thereto.
(D) Shares of Class B Preferred Stock shall be convertible only into
the Maximum Number of shares of Common Stock. The "Maximum Number" is equal to
the sum of 2,115,395 plus the Convertible Number. The "Convertible Number" is
initially zero and thereafter may be increased upon expiration of a 65 day
period (the "Notice Period") after either (i) holders representing a majority of
the outstanding shares of Class B Preferred Stock deliver a notice (a "65 Day
Notice") to the Corporation designating an aggregate number of shares of Common
Stock in excess of the Maximum Number which will become issuable, or (ii) the
Corporation delivers to each holder a notice (an "Increase Notice") stating the
increase, if any, in the aggregate number (the "Increased Number") of shares of
Common Stock outstanding as of the last day of the preceding month over the
number outstanding as of the last day of the second preceding month, or in the
case of the first day of the month immediately following the Effective Date, the
number of shares outstanding as of such date, in which event the Convertible
Number shall be increased by the number which is 9.75% of the Increased Number.
Unless expressly waived by the holder, the Corporation shall deliver an Increase
Notice to the holder on or before the 10th day of each calendar month from and
including the initial date of issuance of shares of Class B Preferred Stock. A
65 Day Notice may be given at any time. If the initial 65 Day Notice does not
designate all of the shares of Common Stock then issuable upon exercise of
outstanding shares of Class B Preferred Stock, additional shares of Common Stock
will become issuable for some or all of the remaining shares of Common Stock
upon delivery of one or more 65 Day Notices increasing the Convertible Number
after a further Notice Period. From time to time following the Notice Period,
shares of Common Stock may be issued on any Trading Day for any quantity of
Common Stock, such that the aggregate number of shares of Common Stock issued
hereunder is less than or equal to the Maximum Number.
(E) Subject to the next sentence, "Conversion Price" means the lowest
of (i) the average of the daily volume-weighted per share average prices as
reported by Bloomberg, L.P. (or otherwise as agreed mutually between the
Corporation and the holder of record of Class B Preferred Stock delivering a
Conversion Notice) of the Common Stock on Nasdaq during the fifteen Trading Days
ending and excluding five Trading Days before and excluding the Conversion Date
(the "Pricing Period"), (ii) the average of the daily volume-weighted average
prices of the first three
<PAGE>
Trading Days of the Pricing Period, and (iii) 180% of the closing price of the
Common Stock (the "Conversion Ceiling Price") on the day prior to the Investment
Closing Date on which such shares of Class B Preferred Stock (or, if applicable,
the Warrant exercisable for such shares) had first been issued. Notwithstanding
the previous sentence, in the event the Initial Preferred Shares (or any shares
of Class B Preferred Stock issued upon prior exercise of the Warrant issued to
Fletcher on the Initial Closing Date) are converted during the period beginning
on the Initial Closing Date and ending on the sixth month anniversary thereof,
the Conversion Price shall not be less than $9.25 (the "Conversion Floor
Price"), but only if: (i) no Combination Notice has been issued and no
Combination has been announced or occurred, and (ii) no Default Event has
occurred and is continuing.
SECTION 5. SHAREHOLDER APPROVAL. In the event there are Excess
Preferred Shares as described in Section 4(C), the Corporation shall promptly
take all actions reasonably necessary to obtain the required consent, including
causing its Board of Directors to call a special meeting of shareholders and
recommend such approval.
SECTION 6. FRACTIONAL SHARES. Fractional shares of Common Stock shall
not be issued upon conversion of shares of Class B Preferred Stock. In lieu of
issuance of a fractional share, the Corporation shall pay to the holder of the
share of Class B Preferred Stock being converted a cash amount equal to such
fraction multiplied by the Conversion Price.
SECTION 7. RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Class B Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Class B Preferred Stock.
SECTION 8. LIQUIDATION, DISSOLUTION OR WINDING UP. In the event of any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, before any payment or distribution of the assets of the Corporation
(whether capital or surplus) shall be made to or set apart for the holders of
Common Stock or any other series or class or classes of stock of the Corporation
ranking junior to the Class B Preferred Stock upon liquidation, dissolution or
winding up, the holders of the shares of Class B Preferred Stock shall be
entitled to receive $250.00 per share plus the amount of any accrued and unpaid
Dividends (the "Liquidation Preference"). If, upon any liquidation, dissolution
or winding up of the Corporation, the assets of the Corporation, or proceeds
thereof, distributable among the holders of the shares of Class B Preferred
Stock shall be insufficient to pay in full the preferential amount aforesaid and
liquidating payments on any other shares of stock ranking, as to liquidation,
dissolution or winding up, on a parity with the Class B Preferred Stock, if any,
then such assets, or the proceeds thereof, shall be distributed among the
holders of shares of Class B Preferred Stock and any such other stock ratably in
accordance with the respective amounts which would be payable on such shares of
Class B Preferred Stock and any such other stock if all amounts payable thereon
were paid in full.
<PAGE>
SECTION 9. CONSOLIDATION, MERGER, ETC. In case the Corporation shall be
a party to any transaction providing for (i) any acquisition of the Corporation
by means of merger or other form of corporate reorganization in which
outstanding shares of the Corporation are exchanged for securities or other
consideration issued, or caused to be issued, by the acquiring corporation or
its subsidiary or (ii) a sale of all or substantially all of the assets of the
Corporation (on a consolidated basis) or (iii) any other transaction or series
of related transactions by the Corporation in which in excess of 50% of the
Corporation's voting power is transferred to a single entity or group acting in
concert (each of the foregoing being referred to as a "Combination"), each share
of Class B Preferred Stock which is not converted by the holder into the right
to receive Common Stock of the Corporation prior to or simultaneously with such
Combination shall thereafter be exchangeable at the election of the holder of
the Class B Preferred Stock for an equal number of shares of preferred stock of
the Surviving Entity (the "Similar Preferred Stock"), which preferred stock
shall have terms substantially identical to the terms provided in this
Certificate of Rights and Preferences, including without limitation, rights
specified in Sections 2 and 3 hereof and be convertible, at the holder's option,
into shares of any class of publicly traded common stock of the Surviving
Entity. For purposes hereof, "Surviving Entity" shall mean the direct or
indirect (as designated by holder) acquirer, purchaser or transferee
contemplated by clauses (i), (ii) and (iii), respectively, of the immediately
preceding sentence. The Corporation shall not be a party to any Combination
unless the terms of such Combination are consistent with the provisions of this
Section 9 and it shall not consent or agree to the occurrence of any Combination
unless and until the Corporation has entered into an agreement with the
Surviving Entity for the benefit of the holders of the Class B Preferred Stock
which will contain provisions ensuring the benefits contemplated by this Section
9 to the holders of the Class B Preferred Stock which remains outstanding after
such Combination and assuring compliance with the Subscription Agreement and the
Warrants. The provisions of this Section 9 shall apply similarly to successive
Combinations.
SECTION 10. STOCK DIVIDENDS, STOCK SPLITS, ETC. In case the Corporation
shall after the date of first issuance of shares of Class B Preferred Stock (A)
pay a dividend or make a distribution on its Common Stock in shares of its
Common Stock, (B) subdivide its outstanding Common Stock into a greater number
of shares, or (C) combine its outstanding Common Stock into a smaller number of
shares, which becomes effective on a Trading Day which is included in the
calculation of the Conversion Price, then the average of the daily
volume-weighted per share average prices of the Common Stock for the period from
the first Trading Day included in the calculation of the Conversion Price to
(but not including) the effective date of such event (the "Adjustable Average
Price"), the Conversion Ceiling Price and the Conversion Floor Price will be
proportionately adjusted to reflect such event in calculating the Conversion
Price. If the event in question causes an increase in the total number of
outstanding Common Stock, then the Adjustable Average Price, the Conversion
Ceiling Price and the Conversion Floor Price will be proportionately decreased.
If the event in question causes a decrease in the total number of outstanding
Common Stock, then the Adjustable Average Price, the Conversion Ceiling Price
and the Conversion Floor Price will be proportionately increased. In case the
Corporation shall after the date of the first issuance of the Class B Preferred
Stock issue any shares of capital stock by reclassification of its
<PAGE>
Common Stock (excluding any transaction as to which Section 9 applies), each
share of Class B Preferred Stock shall thereafter be convertible into the kind
and in the proportion of shares of stock and other securities and property
("Reclassification Consideration") receivable by a holder of one share of Common
Stock immediately prior to the record date or effective date of such
reclassification, as appropriate, and the Conversion Price in such circumstances
shall be determined based upon weighted prices of the Reclassification
Consideration. In the event the market price of any portion of the
Reclassification Consideration cannot be determined in a manner reasonably
consistent with Section 4(E), the market value of such portion of the
Reclassification Consideration shall be determined in good faith by the
Corporation's Board of Directors on the basis of independent professional
financial and legal advice. In addition, the Conversion Price, the Conversion
Ceiling Price and the Conversion Floor Price following such a reclassification
shall be adjusted as appropriate in a manner consistent with the first three
sentences of this Section 10. Adjustments made pursuant to this Section 10 shall
become effective immediately after the close of business on the record date in
the case of a dividend or distribution and shall become effective immediately
after the close of business on the record date or effective date, as applicable,
in the case of a subdivision, combination or reclassification. All of the
adjustments provided for in this paragraph shall be made successively whenever
any event specified above shall occur.
SECTION 11. REDEMPTION.
(A) Following a Combination as a result of which the Class B Preferred
Stock would be convertible into (I) a class of common stock with (x) an
aggregate market capitalization of less than $230 million or (y) an average
weekly traded value as reported by Bloomberg, L.P. over the preceding six months
of less than $75 million, or (II) consideration other than shares of publicly
traded common stock of the Surviving Entity (other than cash in lieu of
fractional amounts or in connection with the exercise of statutory appraisal
rights) (either (I) or (II), a "Non-Qualifying Combination"), and provided that
the Corporation shall have legally available funds therefor, the Corporation
shall have the right, at the election of its Board of Directors upon
satisfaction of the terms and conditions stated herein, to redeem any or all
Objecting Shares (as defined below).
(B) Upon the occurrence of a public announcement with respect to a
Combination, at least forty-five (45) calendar days prior to the completion of
the Combination, the Company shall provide written notice thereof (a
"Combination Notice") to the holders of the Class B Preferred Stock, stating the
expected completion date of the Combination and whether such Combination will be
a Non-Qualifying Combination. In the event such notice provides that the
Combination is not a Non-Qualifying Combination, then the holders shall be bound
by the provisions of this Certificate and the Corporation shall have no right of
redemption herein. In the event the Combination is a Non-Qualifying Combination
and if the redemption right is exercised, then the Combination Notice or other
notice concerning redemption shall be sent in accordance with and include the
information set forth in paragraph (C) below. Not later than ten (10) calendar
days prior to the announced completion date of the Non-Qualifying Combination,
each holder of the Class B Preferred Stock shall respond in writing to the
Corporation indicating whether the holder objects to the Non-
<PAGE>
Qualifying Combination and specifying the number of shares Class B Preferred
Stock as to which the holder thereof objects (the "Objecting Shares"). Each
holder of Class B Preferred Stock may object as to all, some or none of the
shares of Class B Preferred Stock held by it.
(C) The redemption price for each Objecting Share shall be equal to the
Liquidation Preference plus thirty-three percent (33%), and may be paid only out
of funds legally available therefor. Redemption of less than all of the then
outstanding shares of Class B Preferred Stock shall be pro rata among the
holders of the Class B Preferred Stock (as to the number of shares of Class B
Preferred Stock held on the date of the notice of redemption). Less than all of
the Class B Preferred Stock permitted to be redeemed hereunder may not be
redeemed until all Dividends, if any, accrued and unpaid on Class B Preferred
Stock outstanding shall have been paid. At least twenty (20) calendar days'
previous notice by first class mail, postage prepaid, shall be given to the
holders of record of the Objecting Shares for any permitted redemption, such
notice to be addressed to each holder at the address shown in the Corporation's
records and which shall specify the date of redemption, the number of shares of
the holder to be redeemed and the date at which the conversion rights provided
hereunder terminate. On or after the date of redemption as specified in such
notice, each holder shall surrender such holder's certificate for the number of
shares of Class B Preferred Stock to be redeemed as stated in the notice (except
that such number of shares shall be reduced by the number of shares of Class B
Preferred Stock which have been converted pursuant to the provisions of Section
4 above between the date of the notice and the date on which conversion rights
terminate) to the Corporation at the place specified in the notice. If less than
all of the shares represented by such certificates are redeemed, a new
certificate shall forthwith be issued for the unredeemed shares. Provided such
notice is duly given, and provided that on the redemption date specified there
shall be a source of funds legally available for such redemption and funds
necessary for the redemption shall have been paid in immediately available funds
in an account specified by the holder, then all rights with respect to such
shares shall, after the specified redemption date, terminate, whether or not
said certificates have been surrendered, excepting only in the latter instance
the right of the holder to receive the redemption price thereof, without
interest, upon such surrender. At least ten (10) days prior to the date of
redemption, the Corporation shall deposit the redemption price of all shares of
Class B Preferred Stock designated for redemption in said notice and not yet
redeemed with a bank or trust company having aggregate capital and surplus in
excess of $100,000,000 as a trust fund for the benefit of the respective holders
of the shares of Class B Preferred Stock designated for redemption and not yet
redeemed.
SECTION 12. AMENDMENT. So long as any shares of Class B Preferred Stock
are outstanding, the Corporation shall not, without first obtaining the approval
by vote or written consent, in the manner provided by law, of the holders of at
least a majority of the total number of shares of Class B Preferred Stock
outstanding, voting separately as a series, amend or repeal any provision of, or
add any provision to, the Corporation's Certificate of Incorporation if such
action would adversely affect the preferences, rights, privileges or powers of,
or the restrictions provided for the benefit of, the Class B Preferred Stock.
<PAGE>
SECTION 13. REACQUIRED SHARES. Any shares of Class B Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
preferred stock of the Corporation and may be reissued as part of a new series
of preferred stock subject to the conditions and restrictions on issuance set
forth herein, in the Certificate of Incorporation, or in any other Certificate
of Rights and Preferences creating a series of preferred stock of the
Corporation or any similar stock or as otherwise required by applicable law.
SECTION 14. RANK.
(A) With respect to liquidation preferences and payment of dividends,
the Class B Preferred Stock shall rank senior to all other existing capital
stock of the Corporation and shall rank senior to all series of any class of the
Corporation's capital stock issued after the date of the filing of this
Certificate of Rights and Preferences.
(B) So long as any shares of the Class B Preferred Stock are
outstanding, no Common Stock or other capital stock of the Corporation ranking
junior to the Class B Preferred Stock will be redeemed, purchased or otherwise
acquired for any consideration by the Corporation (except by conversion into or
exchange for stock of the Corporation ranking junior to the Class B Preferred
Stock and except pursuant to restricted stock purchase or similar agreements
providing for the Company's repurchase of shares of Common Stock at their
original cost in connection with termination of employment) unless, in each case
the Corporation offers to redeem all outstanding shares of the Class B Preferred
Stock on substantially the same terms (provided that the redemption price per
share shall not be less than the Liquidation Preference).
IN WITNESS WHEREOF, this Certificate of Rights and Preferences is
executed on behalf of the Corporation by the President of the Corporation and
attested by its Secretary this 20th day of August, 1999.
------------------------------
Name: Eric H. Paulson
Title: President
Attest:
------------------------------
Name: Charles E. Cheney
Title: Secretary
EXHIBIT 3
Neither the Warrant represented by this certificate nor the securities
issuable upon exercise hereof (including securities issuable upon conversion of
the Preferred Shares defined below) have been registered under the Securities
Act of 1933, as amended (the "Act") or applicable state securi ties laws. The
securities have been acquired for investment and may not be offered for sale,
sold, transferred or assigned in the absence of an effective registration
statement for the securities under the Act and applicable state securities laws,
or unless an exemption from registration is available.
WARRANT NO. W-1 UP TO 16,000 PREFERRED SHARES
WARRANT CERTIFICATE
NAVARRE CORPORATION
This Warrant Certificate certifies that Fletcher International Limited,
or its registered assigns, is the registered holder of one Warrant (the
"Warrant") expiring on the Termination Date (as defined below) to purchase
shares of Class B Preferred Stock, no par value (the "Preferred Shares"), of
NAVARRE CORPORATION, a Minnesota corporation (the "Issuer"). The Warrant
entitles the holder to purchase from the Issuer up to 16,000 Preferred Shares,
at an exercise price per Preferred Share of $250 (the "Exercise Price").
The Warrant represented hereby was issued on August 20, 1999 (the
"Issuance Date") pursuant to the Amended and Restated Subscription Agreement of
the Issuer dated as of July 31, 1999 (the "Subscription Agreement"), and is
subject to the terms and conditions thereof. The Issuance Date was the Initial
Closing Date under the Subscription Agreement. Unless otherwise defined herein,
capitalized terms used herein shall have the meanings set forth in the
Subscription Agreement. A copy of the Subscription Agreement may be obtained by
the registered holder hereof upon written request to the Issuer.
The Warrant represented hereby may be exercised on any Trading Day (a
"Warrant Exercise Date") from and including the Issuance Date to and including
(x) the third annual anniversary thereof, in the event this Warrant was issued
originally on the Initial Closing Date or the Primary Navarre Closing Date and
(y) the fourth annual anniversary thereof, in the event this Warrant was issued
originally on the Primary Fletcher Closing Date, plus, in the case of the
preceding clause (x) or (y) one additional Trading Day for each Trading Day that
the Registration Requirement (as defined in Section 3.A.d of the Subscription
Agreement) is not satisfied with respect to the shares of Common Stock issuable
upon conversion of the Preferred Shares issuable upon exercise of this
<PAGE>
Warrant. The Exercise Price multiplied by the Exercise Amount (as defined below)
at any Warrant Exercise Date is referred to herein as a "Warrant Purchase
Price".
The Warrant represented hereby shall have the following additional
terms:
1. To exercise the Warrant, the registered holder must, prior to the
Termination Date, surrender this Warrant Certificate to the Issuer at
its principal office with the Exercise Notice attached hereto (an
"Exercise Notice") duly completed and signed by the registered holder
hereof and stating the total number of Preferred Shares in respect of
which the Warrant is then exercised (the "Exercise Amount") and tender
in cash or by certified or official bank check the applicable Warrant
Purchase Price. The Warrant shall be exercisable only in the minimum
amount of 1,500 Preferred Shares (or such lesser amount as shall
constitute the full amount remaining of this Warrant).
2. On the third Trading Day following a Warrant Exercise Date (an "Issue
Date") the Issuer shall issue and cause to be delivered to the
registered holder hereof at such address as such holder shall specify
in the Exercise Notice a certificate or certificates for the number of
full Preferred Shares issuable upon the exercise of such Warrant,
registered in such holder's name, provided that the holder may, at its
option, instruct the Issuer to cause the simultaneous conversion on the
Issue Date of all or part of the Preferred Shares otherwise deliverable
to the holder into shares of Common Stock in accordance with the terms
thereof, in which case the Issuer shall instead deliver to the holder
on the Issue Date via book-entry transfer or, at the holder's option,
at such address specified by the holder, one or more certificates for
the number of shares of Common Stock so converted and, if the Preferred
Shares were not converted in whole, one or more stock certificates for
the number of Preferred Shares not so converted. Such certificate or
certificates shall be deemed to have been issued and any person so
designated to be named therein shall be deemed to have become a holder
of record of such Preferred Shares and shares of Common Stock, if any,
as of such Warrant Exercise Date.
3. If on such Issue Date the number of Preferred Shares to be delivered
shall be less than the total number of Preferred Shares deliverable
hereunder, there shall be issued to the holder hereof or his assignee
on such Issue Date a new warrant certificate substantially identical to
this Warrant Certificate, except that such new warrant certificate
shall evidence the right to purchase the number of Preferred Shares
equal to (x) the total number of Preferred Shares deliverable hereunder
less (y) the number of Preferred Shares so delivered.
4. For so long as the Warrant represented hereby has not been exercised in
full, the Issuer shall at all times prior to the Termination Date
reserve and keep available, free from pre-emptive rights, out of its
authorized but unissued capital stock, for issuance upon exercise of
the Warrant represented hereby, the maximum number of shares of
Preferred Shares then so issuable and shares of Common Stock issuable
upon conversion of such Preferred Shares in
<PAGE>
accordance with their terms. In the event the number of shares of
Common Stock issuable in respect of the Preferred Shares exceeds the
authorized number of shares of Common Stock or other securities, the
Issuer shall promptly take all actions necessary to increase the
authorized number, including causing its Board of Directors to call a
special meeting of shareholders and recommend such increase.
5. By accepting delivery of this Warrant Certificate, the registered
holder hereof covenants and agrees with the Issuer not to exercise the
Warrant or transfer the Warrant or the Preferred Shares represented
hereby except in compliance with the terms of the Subscription
Agreement and this Warrant Certificate.
6. By accepting delivery of this Warrant Certificate, the registered
holder hereof covenants and agrees with the Issuer that no Warrant may
be sold, assigned, conveyed, encumbered, pledged, hypothecated or in
any other manner disposed of or transferred, in whole or in part,
unless and until such holder shall deliver to the Issuer (i) written
notice of such transfer and of the name and address of the transferee
and such notice has been received by the Issuer; and (ii) a written
agreement of the transferee to comply with the terms of the
Subscription Agreement and this Warrant Certificate. If a portion of
the Warrant is transferred, all rights of the registered holder
hereunder may be exercised by the transferee provided that any
registered holder of the Warrant may deliver an Exercise Notice only
with respect to the Preferred Shares subject to such holder's portion
of the Warrant.
7. The Issuer will pay all documentary stamp taxes (if any) attributable
to the issuance of Preferred Shares upon the exercise of the Warrant by
the registered holder hereof; provided, however, that the Issuer shall
not be required to pay any tax or taxes which may be payable in respect
of any transfer involved in the registration of the Warrant Certificate
or any certificates for Preferred Shares in a name other than that of
the registered holder of the Warrant Certificate surrendered upon the
exercise of a Warrant, and the Issuer shall not be required to issue or
deliver the Warrant Certificate or certificates for Preferred Shares
unless or until the person or persons requesting the issuance thereof
shall have paid to the Issuer the amount of such tax or shall have
established to the satisfaction of the Issuer that such tax has been
paid.
8. In case this Warrant Certificate shall be mutilated, lost, stolen or
destroyed, the Issuer may in its discretion issue in exchange and
substitution for and upon cancellation of the mutilated Warrant
Certificate, or in lieu of and substitution for the Warrant Certificate
lost, stolen or destroyed, a new Warrant Certificate of like tenor, but
only upon receipt of evidence reasonably satisfactory to the Issuer of
such loss, theft or destruction of such Warrant Certificate and
indemnity, if requested, reasonably satisfactory to the Issuer.
Applicants for a substitute Warrant Certificate shall also comply with
such other reasonable regulations and pay such other reasonable charges
as the Issuer may prescribe.
<PAGE>
9. The Issuer shall serve as warrant agent (the "Warrant Agent") under
this Agreement. The Warrant Agent hereunder shall at all times maintain
a register (the "Warrant Register") of the holders of Warrants. Upon 30
days' notice to the registered holder hereof, the Issuer may appoint a
new Warrant Agent. Such new Warrant Agent shall be a corporation doing
business and in good standing under the laws of the United States or
any state thereof, and having a combined capital and surplus of not
less than $50,000,000. The combined capital and surplus of any such new
Warrant Agent shall be deemed to be the combined capital and surplus as
set forth in the most recent annual report of its condition published
by such Warrant Agent prior to its appointment; provided that such
reports are published at least annually pursuant to law or to the
requirements of a federal or state supervising or examining authority.
After acceptance in writing of such appointment by the new Warrant
Agent, it shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the
Warrant Agent, without any further assurance, conveyance, act or deed;
but if for any reason it shall be reasonably necessary or expedient to
execute and deliver any further assurance, conveyance, act or deed, the
same shall be done at the expense of the Issuer and shall be legally
and validly executed and delivered by the Issuer.
Any corporation into which the Issuer or any new Warrant Agent may be
merged or any corporation resulting from any consolidation to which the
Issuer or any new Warrant Agent shall be a party or any corporation to
which the Issuer or any new Warrant Agent transfers substantially all
of its corporate trust or shareholders services business shall be a
successor Warrant Agent under this Agreement without any further act;
provided that such corporation (i) would be eligible for appointment as
successor to the Warrant Agent under the provisions of this Section or
(ii) is a wholly owned subsidiary of the Warrant Agent. Any such
successor Warrant Agent shall promptly cause notice of its succession
as Warrant Agent to be mailed (by first class mail, postage prepaid) to
the registered holder hereof at such holder's last address as shown on
the Warrant Register.
This Warrant Certificate shall not be valid unless signed by the
Issuer.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
<PAGE>
IN WITNESS WHEREOF, Navarre Corporation has caused this Warrant
Certificate to be signed by its duly authorized officer.
Dated: August ___, 1999
NAVARRE CORPORATION
By:
-------------------------------------
Name:
Title:
EXHIBIT 4
Navarre Receives Investment from Institutional Investor
MINNEAPOLIS--(BUSINESS WIRE)--Aug. 23, 1999--Navarre Corporation (Nasdaq NMS:
NAVR - news) announced today that it has accepted an investment offer from
Fletcher International Limited. The Company agreed to allow Fletcher to purchase
a new class of convertible preferred stock.
Fletcher invested $8.5 million in Navarre Corporation, receiving 34,000 shares
of Class B Convertible Preferred Stock at $250 per share. The Class B
Convertible Preferred Stock is convertible into common shares at a rate based on
the future common stock price movement to be calculated at the time of
conversion or issuance of the Preferred Stock. From the Initial Closing Date
until the six-month anniversary of that date, the conversion price will be at
market price or $9.25 per share, which ever is greater. There is also a ceiling
on conversion equal to 180% of the common stock price on the day prior to the
issuance of the Preferred Stock. Fletcher also received a warrant to purchase an
additional $4 million, or 16,000 shares, of Navarre's Preferred Stock.
The agreement also provides up to an additional $29 million investment over the
next 3 years. Navarre has the right to require Fletcher to purchase an
additional $8.5 million in Class B Convertible Preferred Stock over the next
three years. In the event Navarre exercises this right, Fletcher will be granted
a warrant to purchase up to an additional $4 million of Navarre's Class B
Preferred Stock.
Eric Paulson, CEO and President of Navarre Corporation, stated "We were all very
pleased that an International Investment Fund recognizes the value of Navarre,
and is willing to make an investment in the Company at prices higher than the
current market. Navarre will use this new capital to create a 'war chest' to
expand and accelerate our core businesses' expansion into traditional and
digital distribution."
Under specified conditions, Fletcher has the right to invest an additional $8.5
million for Class B Preferred Stock over the next 3 years. If Fletcher exercises
this right, Fletcher will be granted a warrant to purchase an additional $4
million of Class B Preferred Stock. If either party fails to exercise its
respective right, the other party will have a rollover right pursuant to which
it can require the issuance of $12.5 million of Class B Preferred Stock. All
Preferred Stock is convertible to Common Stock at the then market price. There
is no dividend attached to the Preferred Stock.
<PAGE>
Fletcher International Limited is an investment fund managed by Fletcher Asset
Management, Inc. of New York. Fletcher makes direct investments in a wide range
of established and growing companies, including the Netherlands software firm,
Baan Company NV, into which it recently agreed to invest up to $70 million.
Fletcher's investments are made to provide capital to companies so that they may
productively pursue their strategic plans and to assist those companies in
creating value.
Wit Capital Corporation (Nasdaq: WITC - news) which served as agent to Navarre
in connection with the placement, is an online investment banking firm. With
offices in New York and San Francisco, Wit Capital is an issuer-driven,
Internet-centric company that offers a rapidly expanding array of investment
banking services, including underwriting for public offerings, private equity
services, strategic advisory, and institutional quality research. Wit Capital
also offers individual investors online brokerage services that include access
to IPOs and other securities.
Navarre Corporation, a Russell 2000 Index and Russell 3000 Index stock, operates
one of the first "business to business"' Internet E-Commerce web sites
www.navarre.com and provides fulfillment for both traditional and E-Commerce
retail sites. Navarre's major business groups are: Computer Products Division
which distributes quality consumer software to retailers nationwide; Independent
Music Distribution which is the distributor of independent music labels in the
United States and now Canada; Alternative Retail Markets which distributes major
label music to non-traditional retail outlets, and also distributes DVD Home
Video product; and the majority-owned subsidiary NetRadio.com, which is a
leading Internet radio network, featuring 120 channels of originally programmed
audio content at http://www.netradio.com and its online store CDPoint.
This press release contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to be covered by
the safe harbors created hereby. Statements in this release that are not
strictly historical are "forward looking" statements which are subject to risk
and uncertainty. Investors are cautioned that all "forward-looking" statements
contained herein may not be reasonable and assumptions could be inaccurate, and
should not be construed, considered or assumed as guarantees. The inclusion of
such information should not be regarded as a representation or guarantee by the
Company, or any other person, that the objections and plans stated herein will
be achieved. Unknown factors could cause actual results to differ as well as
other risks detailed in the Company's reports filed with the Securities and
Exchange Commission, including its prospectuses, and Forms 10-K and 10-Q
filings.
