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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JUNE 25, 1998
GENERAL MAGIC, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 000-25374 77-0250147
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(State or other jurisdiction of (Commission File Number) (I.R.S. Employer)
incorporation or organization) Identification No.)
420 NORTH MARY AVENUE
SUNNYVALE, CALIFORNIA 94086
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 774-4000
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Not applicable.
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(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS
On June 25, 1998, the Registrant issued and sold 3,000 shares of its
Series C Convertible Preferred Stock (the "Series C Shares") and warrants to
purchase 150,000 shares of the Registrant's Common Stock at an exercise price of
$17.22 per share (the "Warrants") to four existing stockholders of the
Registrant for an aggregate purchase price of $30,000,000 (the "Series C
Financing").
The Series C Shares are convertible, at the option of the holder, into
shares of the Registrant's Common Stock at the lower of (i) $19.49 and (ii) a
price based on the market price of the Company's Common Stock prior to
conversion. With limited exceptions, the Series C Shares are not convertible
into Common Stock until five months after the date of issuance and, subject to
extension under certain circumstances, shall automatically convert into Common
Stock on June 25, 2001, unless sooner converted. The number of shares of Common
Stock into which the Series C Shares are convertible is subject to adjustment
if the Registrant fails to satisfy various conditions, including, among other
things, conditions relating to the timely registration of the Common Stock into
which the Series C Preferred Stock is convertible and timely delivery of shares
of Common Stock upon such conversion. The Series C Shares accrue dividends at a
rate of 5% per annum, payable quarterly in cash or in shares of the
Registrant's Common Stock.
In connection with the Series C Financing, certain holders of shares of
the Company's 5 1/2% Cumulative Convertible Series B Preferred Stock (the
"Series B Preferred Stock") agreed (i) to purchase 2,000 additional shares of
Series B Preferred Stock and warrants to purchase an additional 160,000 shares
of Common Stock for an aggregate purchase price of $2,000,000 and (ii) to
convert at least 2,500 currently oustanding shares of Series B Preferred Stock
into Common Stock. In addition, the Company waived its rights to require the
holders of the Series B Preferred Stock to purchase an additional 5,000 shares
of Series B Preferred Stock and warrants to acquire 400,000 shares of Common
Stock.
The foregoing description of the Series C Financing is qualified in its
entirety by the Securities Purchase Agreement, dated June 24, 1998, and the
other agreements and instruments executed in connection therewith, copies of
which are attached as exhibits to this Current Report on Form 8-K.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. Not applicable.
(b) PRO FORMA FINANCIAL INFORMATION. Not applicable.
(c) EXHIBITS.
Exhibit No. Description
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3.1 Certificate of Designations, Preferences and
Rights of Series C Convertible Preferred Stock
of the Registrant, filed with the Secretary of
State of the State of Delaware on June 25, 1998
4.1 Securities Purchase Agreement (the "Securities
Purchase Agreement"), dated June 24, 1998, by
and among the Registrant and the buyers listed
on the Schedule of Buyers thereto (the "Buyers")
4.2 Form of Warrant issued to the Buyers pursuant to
the Securities Purchase Agreement
4.3 Registration Rights Agreement, dated June 24,
1998, by and among the Registrant and the Buyers
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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.
General Magic, Inc.
June 29, 1998 By: /s/ Mary E. Doyle
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Mary E. Doyle
General Counsel and Secretary
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EXHIBIT INDEX
Exhibit No. Description
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3.1 Certificate of Designations, Preferences and Rights of Series
C Convertible Preferred Stock of the Registrant, filed with
the Secretary of State of the State of Delaware on June 25,
1998
4.1 Securities Purchase Agreement (the "Securities Purchase
Agreement"), dated June 24, 1998, by and among the Registrant
and the buyers listed on the Schedule of Buyers thereto (the
"Buyers")
4.2 Form of Warrant issued to the Buyers pursuant to the
Securities Purchase Agreement
4.3 Registration Rights Agreement, dated June 24, 1998, by and
among the Registrant and the Buyers
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Exhibit 3.1
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES C CONVERTIBLE PREFERRED STOCK
OF
GENERAL MAGIC, INC.
General Magic, Inc. (the "COMPANY"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, does hereby
certify that, pursuant to authority conferred upon the Board of Directors of the
Company by the Certificate of Incorporation, as amended, of the Company, and
pursuant to Section 151 of the General Corporation Law of the State of Delaware,
the Board of Directors of the Company duly held adopted resolutions (i)
authorizing a series of the Company's previously authorized preferred stock, par
value $.001 per share, and (ii) providing for the designations, preferences and
relative, participating, optional or other rights, and the qualifications,
limitations or restrictions thereof, of Three Thousand (3,000) shares of Series
C Convertible Preferred Stock of the Company, as follows:
RESOLVED, that the Company is authorized to issue 3,000 shares of
Series C Convertible Preferred Stock (the "PREFERRED SHARES"), par value
$.001 per share, which shall have the following powers, designations,
preferences and other special rights:
(1) Dividends. The Preferred Shares shall bear dividends
("DIVIDENDS") at a rate of 5% of the Stated Value (as defined below) per
annum, which shall be cumulative, accrue daily from the Issuance Date
(as defined below) and be payable on the last day of each Calendar
Quarter (as defined below) beginning on the last day of the Calendar
Quarter on September 30, 1998 (each a "DIVIDEND DATE"). If a Dividend
Date is not a Business Day (as defined below) then the Dividend shall be
due and payable on the Business Day immediately following the Dividend
Date. Dividends shall be payable in shares of Common Stock at the
Conversion Rate (as defined below) by adding accrued Dividends to the
Additional Amount (as defined below) or, at the option of the Company,
in cash, provided that the Dividends which accrued during any period
shall be payable in cash only if the Company provides written notice
("DIVIDEND ELECTION NOTICE") to each holder of Preferred Shares at least
five days prior to the Dividend Date. Any accrued and unpaid Dividends
which the Company has elected to pay in cash and which are not paid
within five (5) Business Days of such accrued and unpaid dividends'
Dividend Date
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shall bear interest at the rate of 1.5% per month (pro rated for partial
months) from such Dividend Date until the same is paid (the "DEFAULT
INTEREST").
(2) Holder's Conversion of Preferred Shares. A holder of
Preferred Shares shall have the right, at such holder's option, to convert the
Preferred Shares into shares of the Company's common stock, par value $.001 per
share (the "COMMON STOCK"), on the following terms and conditions:
(a) Conversion Right. Subject to the provisions of Section 2(j),
at any time or times on or after the Issuance Date (as defined below),
any holder of Preferred Shares shall be entitled to convert any whole
number of Preferred Shares into fully paid and nonassessable shares
(rounded to the nearest whole share in accordance with Section 2(h)) of
Common Stock, at the Conversion Rate (as defined below); provided,
however, that in no event shall any holder be entitled to convert
Preferred Shares in excess of that number of Preferred Shares which,
upon giving effect to such conversion, would cause the aggregate number
of shares of Common Stock beneficially owned by the holder and its
affiliates to exceed 4.99% of the outstanding shares of the Common Stock
following such conversion. For purposes of the foregoing proviso, the
aggregate number of shares of Common Stock beneficially owned by the
holder and its affiliates shall include the number of shares of Common
Stock issuable upon conversion of the Preferred Shares with respect to
which the determination of such proviso is being made, but shall exclude
the number of shares of Common Stock which would be issuable upon (i)
conversion of the remaining, nonconverted Preferred Shares beneficially
owned by the holder and its affiliates, and (ii) exercise or conversion
of the unexercised or unconverted portion of any other securities of the
Company (including, without limitation, any warrants or convertible
preferred stock) subject to a limitation on conversion or exercise
analogous to the limitation contained herein beneficially owned by the
holder and its affiliates. Except as set forth in the preceding
sentence, for purposes of this Section 2(a), beneficial ownership shall
be calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended. The holder may waive the foregoing
limitations by written notice to the Company upon not less than 61 days
prior notice (with such waiver taking effect only upon the expiration of
such 61 day notice period).
(b) Conversion Rate and Other Definitions. The number of shares
of Common Stock issuable upon conversion of each of the Preferred Shares
pursuant to Sections (2)(a) and 2(g) shall be determined according to
the following formula (the "CONVERSION RATE"):
Conversion Amount
Conversion Price
For purposes of this Certificate of Designations, the following
terms shall have the following meanings:
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(i) "CONVERSION PRICE" means, as of any Conversion Date
(as defined in Section 2(f)) or other date of determination, the lower of the
Fixed Conversion Price (as defined below) and the Floating Conversion Price (as
defined below), each in effect as of such date and subject to adjustment as
provided herein.
(ii) "FIXED CONVERSION PRICE" means 135% of the Closing
Bid Price of the Common Stock on the trading day immediately preceding the
Issuance Date, subject to adjustment as provided herein.
(iii) "FLOATING CONVERSION PRICE" means, as of any date of
determination, the amount obtained by multiplying the Conversion Percentage (as
defined below) in effect as of such date by the Market Price (as defined below)
of the Common Stock as of such date.
(iv) "CONVERSION PERCENTAGE" means 100%, subject to
adjustment as provided herein.
(v) "MARKET PRICE" means, with respect to any security for
any date, the average of the four lowest Closing Bid Prices for such security
during the Pricing Period.
(vi) "PRICING PERIOD" means, subject to adjustment as
provided in Section 2(l), the 20 consecutive trading days immediately preceding
a Conversion Date.
(vii) "CLOSING BID PRICE" means, for any security as of
any date, the last closing bid price for such security on the Nasdaq National
Market ("NASDAQ") as reported by Bloomberg Financial Markets ("BLOOMBERG"), or,
if NASDAQ is not the principal trading market for such security, the last
closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg,
or if the foregoing do not apply, the last closing bid price of such security in
the over-the-counter market on the electronic bulletin board for such security
as reported by Bloomberg, or, if no closing bid price is reported for such
security by Bloomberg, the last closing trade price of such security as reported
by Bloomberg, or, if no last closing trade price is reported for such security
by Bloomberg, the average of the bid prices of any market makers for such
security as reported in the "pink sheets" by the National Quotation Bureau, Inc.
If the Closing Bid Price cannot be calculated for such security on such date on
any of the foregoing bases, the Closing Bid Price of such security on such date
shall be the fair market value as mutually determined by the Company and the
holders of a majority of the outstanding Preferred Shares (including for
purposes of this determination any Preferred Shares with respect to which the
Closing Bid Price is being determined). If the Company and the
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holders of Preferred Shares are unable to agree upon the fair market value of
the Common Stock, then such dispute shall be resolved pursuant to Section
2(f)(iii) with the term "Closing Bid Price" being substituted for the term
"Market Price." (All such determinations to be appropriately adjusted for any
stock dividend, stock split or other similar transaction during any period for
which the Closing Bid Price is being determined).
(viii) "N" means the number of days from, but excluding,
the Issuance Date through and including the Conversion Date for the Preferred
Shares for which conversion is being elected.
(ix) "ISSUANCE DATE" means, with respect to each Preferred
Share, the date of issuance of the applicable Preferred Share.
(x) "CONVERSION AMOUNT" means the sum of (A) the
Additional Amount (as defined below) and (B) the Stated Value (as defined
below).
(xi) "ADDITIONAL AMOUNT" means, on a per share basis, the
sum of (A) unpaid Default Interest through the date of determination, plus (B)
the unpaid Registration Delay Payments (as defined in the Registration Rights
Agreement) which a holder of Preferred Shares has elected to have added to this
Additional Amount pursuant to Section 3(h) of the Registration Rights
Agreement), plus (C) the result of the following formula: (I)
(.05)(N/365)(Stated Value) minus (II) the amount of any Dividends which the
Company has elected to pay in cash pursuant to Section 1(a) and which the
Company has paid on or prior to the date of determination.
(xii) "BUSINESS DAY" means any day other than Saturday,
Sunday or other day on which commercial banks in the City of New York are
authorized or required by law to remain closed;
(xiii) "CALENDAR QUARTER" means, subject to Section
2(c)(ii), each of the period beginning on and including January 1 and ending on
and including March 31, the period beginning on and including April 1 and ending
on and including June 30, the period beginning on and including July 1 and
ending on and including September 30, and the period beginning on and including
October 1 and ending on and including December 31;
(xiv) "SECURITIES PURCHASE AGREEMENT" means that certain
securities purchase agreement, dated as of June 24, 1998, between the Company
and the initial holders of the Preferred Shares;
(xv) "STATED VALUE" means $10,000;
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(xvi) "REGISTRATION STATEMENT" means the registration
statement covering the resale of the shares of Common Stock issuable upon
conversion or exercise of the Preferred Shares and Warrants (as defined in the
Securities Purchase Agreement) and required to be filed by the Company pursuant
the Registration Rights Agreement (as defined below); and
(xvii) "REGISTRATION RIGHTS AGREEMENT" means the
Registration Rights Agreement, dated June 24, 1998, between the Company and the
Buyers referred to therein;
(c) Adjustment to Conversion Price -- Registration Statement
Failures. In addition to any other adjustment to the Conversion Price provided
for in this Certificate of Designations, if after the Registration Statement is
declared effective by the Securities and Exchange Commission ("SEC"), the
Registration Statement is not available (other than on any days during any
Allowable Grace Period (as defined in Section 3(f) of the Registration Rights
Agreement)) for the sale of at least all the Registrable Securities (as defined
in the Registration Rights Agreement) (whether because of a failure to keep the
Registration Statement effective, to disclose such information as is necessary
for sales to be made pursuant to the Registration Statement, to register
sufficient shares of Common Stock or otherwise); then, as partial relief for the
damages to any holder by reason of any such delay in or reduction of its ability
to sell the underlying shares of Common Stock (which remedy shall not be
exclusive of any other remedies available at law or in equity), the Conversion
Percentage and the Fixed Conversion Price shall be adjusted as follows:
(i) Conversion Percentage. The Conversion Percentage in effect
at such time shall be reduced by two percentage points; and
(ii) Fixed Conversion Price. The Fixed Conversion Price in
effect at such time shall be reduced by an amount equal to the product
of (I) the Fixed Conversion Price in effect as of the Issuance Date of
the applicable Preferred Shares, multiplied by (II) .02.
(d) Adjustment to Conversion Price -- Dilution and Other Events.
In order to prevent dilution of the rights granted under this Certificate of
Designations, the Conversion Price will be subject to adjustment from time to
time as provided in this Section 2(d).
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(i) Adjustment of Fixed Conversion Price upon Issuance of
Common Stock. If and whenever on or after the Issuance Date, the Company issues
or sells, or is deemed to have issued or sold, any shares of Common Stock (other
than the Conversion Shares (as defined in the Securities Purchase Agreement),
the Warrant Shares (as defined in the Securities Purchase Agreement) and shares
of Common Stock deemed to have been issued by the Company in connection with an
Approved Stock Plan (as defined below)) for a consideration per share less than
a price (the "APPLICABLE PRICE") equal to the Fixed Conversion Price in effect
immediately prior to such issuance or sale, then immediately after such issue or
sale, the Fixed Conversion Price then in effect shall be reduced to an amount
(A) in the event such issue or sale occurs on or prior to the date which is the
earlier of (I) the date on which an aggregate of at least 1,800 Preferred Shares
have been converted pursuant to Section 2 and (II) the date which is one year
after the date the Registration Statement is declared effective by the SEC, then
equal to the consideration per share which the Company issued or sold, or was
deemed to have issued or sold, for one share of Common Stock pursuant to such
issuance or sale or (B) in the event such issue or sale occurs after the date on
which an aggregate of at least 1,800 Preferred Shares have been converted
pursuant to Section 2, then equal to the product of (x) the Fixed Conversion
Price in effect immediately prior to such issue or sale and (y) the quotient
determined by dividing (1) the sum of (I) the product of the Applicable Price
and the number of shares of Common Stock Deemed Outstanding (as defined below)
immediately prior to such issue or sale, and (II) the consideration, if any,
received by the Company upon such issue or sale, by (2) the product of (I) the
Applicable Price and (II) the number of shares of Common Stock Deemed
Outstanding immediately after such issue or sale. For purposes of determining
the adjusted Fixed Conversion Price under this Section 2(d)(i), the following
shall be applicable:
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(A) Issuance of Options. If the Company in
any manner grants any rights or options to subscribe for or to purchase
Common Stock (other than pursuant to an Approved Stock Plan or upon
conversion of the Preferred Shares) or any stock or other securities
convertible into or exchangeable for Common Stock (such rights or
options being herein called "OPTIONS" and such convertible or
exchangeable stock or securities being herein called "CONVERTIBLE
SECURITIES") and the price per share for which Common Stock is issuable
upon the exercise of such Options or upon conversion or exchange of such
Convertible Securities is less than the Applicable Price, then the total
maximum number of shares of Common Stock issuable upon the exercise of
such Options or upon conversion or exchange of the total maximum amount
of such Convertible Securities issuable upon the exercise of such
Options shall be deemed to be outstanding and to have been issued and
sold by the Company for such price per share. For purposes of this
Section 2(d)(i)(A), the "price per share for which Common Stock is
issuable upon exercise of such Options or upon conversion or exchange of
such Convertible Securities" is determined by dividing (I) the total
amount, if any, received or receivable by the Company as consideration
for the granting of such Options, plus the minimum aggregate amount of
additional consideration payable to the Company upon the exercise of all
such Options, plus in the case of such Options which relate to
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the issuance or sale
of such Convertible Securities and the conversion or exchange thereof,
by (II) the total maximum number of shares of Common Stock issuable upon
exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options. No
adjustment of the Fixed Conversion Price shall be made upon the actual
issuance of such Common Stock or of such Convertible Securities upon the
exercise of such Options or upon the actual issuance of such Common
Stock upon conversion or exchange of such Convertible Securities. Upon
the expiration of any such Options which shall not have been exercised,
the Fixed Conversion Price computed upon the original issue thereof, and
any subsequent adjustments based thereon, shall, upon such expiration,
be recomputed as if: (i) in the case Options for Common Stock, the only
shares of Common Stock issued were shares of Common Stock, if any,
actually issued upon the exercise of such Options and the consideration
received therefor was the consideration actually received by the Company
for the issue of all such Options, whether or not exercised, plus the
consideration actually received by the Company upon such exercise, and
(ii) in the case of Options for Convertible Securities, only the
Convertible Securities, if any, actually issued upon the exercise
thereof were issued at the time of issue of such Options, and the
consideration received by the Company for the shares of Common Stock
deemed to have been then issued was the consideration actually received
by the Company for the issue of all such Options, whether or not
exercised, plus the consideration deemed to have been received by the
Company upon the issue of the Convertible Securities with respect to
which such Options were actually exercised.
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(B) Issuance of Convertible Securities. If
the Company in any manner issues or sells any Convertible Securities and
the price per share for which Common Stock is issuable upon such
conversion or exchange is less than the Applicable Price, then the
maximum number of shares of Common Stock issuable upon conversion or
exchange of such Convertible Securities shall be deemed to be
outstanding and to have been issued and sold by the Company for such
price per share. For the purposes of this Section 2(d)(i)(B), the "price
per share for which Common Stock is issuable upon such conversion or
exchange" is determined by dividing (I) the total amount received or
receivable by the Company as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or
exchange thereof, by (II) the total maximum number of shares of Common
Stock issuable upon the conversion or exchange of all such Convertible
Securities. No adjustment of the Fixed Conversion Price shall be made
upon the actual issue of such Common Stock upon conversion or exchange
of such Convertible Securities, and if any such issue or sale of such
Convertible Securities is made upon exercise of any Options for which
adjustment of the Fixed Conversion Price had been or are to be made
pursuant to other provisions of this Section 2(d)(i), no further
adjustment of the Fixed Conversion Price shall be made by reason of such
issue or sale. Upon the expiration of any rights of conversion or
exchange under such Convertible Securities which shall not have been
exercised, the Fixed Conversion Price computed upon the original issue
thereof, and any subsequent adjustments based thereon, shall, upon such
expiration, be recomputed as if the only shares of Common Stock issued
were shares of Common Stock, if any, actually issued upon the conversion
or exchange of such Convertible Securities and the consideration
received therefor was the consideration actually received by the Company
for the issue of all such Convertible Securities which were actually
converted or exchanged, plus the additional consideration, if any,
actually received by the Company upon such conversion or exchange.
(C) Change in Option Price or Rate of
Conversion. If the purchase price provided for in any Options, the
additional consideration, if any, payable upon the issue, conversion or
exchange of any Convertible Securities, or the rate at which any
Convertible Securities are convertible into or exchangeable for Common
Stock change at any time, the Fixed Conversion Price in effect at the
time of such change shall be readjusted to the Fixed Conversion Price
which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed
purchase price, additional consideration or changed conversion rate, as
the case may be, at the time initially granted, issued or sold; provided
that no adjustment shall be made if such adjustment would result in an
increase of the Fixed Conversion Price then in effect.
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(D) Certain Definitions. For purposes of
determining the adjusted Fixed Conversion Price under this Section
2(d)(i), the following terms have the meanings set forth below:
(I) "APPROVED STOCK PLAN" shall mean
any contract, plan or agreement which has been approved by the Board of
Directors of the Company, pursuant to which the Company's securities may
be issued to any employee, officer, director, consultant or other
service provider.
(II) "COMMON STOCK DEEMED OUTSTANDING"
means, at any given time, the number of shares of Common Stock actually
outstanding at such time, plus the number of shares of Common Stock
deemed to be outstanding pursuant to Sections 2(d)(i)(A) and 2(d)(i)(B)
hereof regardless of whether the Options or Convertible Securities are
actually exercisable at such time, but excluding any shares of Common
Stock issuable upon conversion of the Preferred Shares or upon exercise
of the Warrants (as defined in the Securities Purchase Agreement).
(E) Effect on Fixed Conversion Price of
Certain Events. For purposes of determining the adjusted Fixed
Conversion Price under this Section 2(d)(i), the following shall be
applicable:
(I) Calculation of Consideration
Received. If any Common Stock, Options or Convertible Securities are
issued or sold or deemed to have been issued or sold for cash, the
consideration received therefor will be deemed to be the amount received
by the Company therefor, before deduction of commissions, underwriting
discounts or allowances or placement agent or finder fees (but only to
the extent that such commissions, discounts, allowances and fees do not
exceed, in the aggregate, 6% of the gross proceeds to the Company) and
other reasonable expenses paid or incurred by the Company in connection
with such issuance or sale, provided that any amounts paid to the
purchasers of such Common Stock, Options or Convertible Securities or to
any affiliates of such purchasers in connection with such issuance or
sale shall be deducted from the amount of consideration received by the
Company. In case any Common Stock, Options or Convertible Securities are
issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by the Company will be the fair
value of such consideration, except where such consideration consists of
securities, in which case the amount of consideration received by the
Company will be the average of the Closing Bid Prices of such securities
for the five consecutive trading days immediately preceding the date of
receipt. The fair value of any consideration other than cash or
securities will be determined jointly by the Company and the holders of
a majority of the Preferred Shares then outstanding. If such parties are
unable to reach agreement within ten (10) days after the occurrence of
an event requiring valuation (the "VALUATION Event"), the fair value of
such consideration will be determined within 48 hours of the tenth
(10th) day following the Valuation Event by an
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independent, reputable appraiser selected by the Company. The
determination of such appraiser shall be binding upon all parties absent
manifest error.
(II) Integrated Transactions. In case
any Option is issued in connection with the issue or sale of other
securities of the Company, together comprising one integrated
transaction in which no specific consideration is allocated to such
Options by the parties thereto, the Options will be deemed to have been
issued for a consideration of $.01.
(III) Treasury Shares. The number of
shares of Common Stock outstanding at any given time does not include
shares owned or held by or for the account of the Company, and the
disposition of any shares so owned or held will be considered an issue
or sale of Common Stock.
(IV) Record Date. If the Company takes
a record of the holders of Common Stock for the purpose of entitling
them (1) to receive a dividend or other distribution payable in Common
Stock, Options or in Convertible Securities, or (2) to subscribe for or
purchase Common Stock, Options or Convertible Securities, then such
record date will be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or
the date of the granting of such right of subscription or purchase, as
the case may be.
(ii) Adjustment of Fixed Conversion Price upon
Subdivision or Combination of Common Stock. If the Company at any time
subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock
into a greater number of shares, the Fixed Conversion Price in effect
immediately prior to such subdivision will be proportionately reduced.
If the Company at any time combines (by combination, reverse stock split
or otherwise) one or more classes of its outstanding shares of Common
Stock into a smaller number of shares, the Fixed Conversion Price in
effect immediately prior to such combination will be proportionately
increased.
(iii) Adjustment of Floating Conversion Price upon
Issuance of Convertible Securities. If during the period beginning on
the Issuance Date and ending on and including the date which is one year
after the Registration Statement is declared effective by the SEC the
Company in any manner issues or sells Convertible Securities that are
convertible into or exchangeable for Common Stock at a price which
varies with the market price of the Common Stock (the formulation for
such variable price being herein referred to as, the "VARIABLE PRICE")
and such Variable Price is not calculated using the same formula used to
calculate the Floating Conversion Price in effect immediately prior to
the time of such issue or sale, the Company shall provide written notice
thereof via facsimile and overnight courier to each holder of the
Preferred Shares
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("VARIABLE NOTICE") on the date of issuance of such Convertible
Securities. If the holders of Preferred Shares representing at least
two-thirds (2/3) of the Preferred Shares then outstanding provide
written notice via facsimile and overnight courier (the "VARIABLE PRICE
ELECTION NOTICE") to the Company within five (5) business days of
receiving a Variable Notice that such holders desire to replace the
Floating Conversion Price then in effect with the Variable Price
described in such Variable Notice, then from and after the date of the
Company's receipt of the Variable Price Election Notice the Floating
Conversion Price will automatically be replaced with the Variable Price
(together with such modifications to this Certificate of Designations as
may be required to give full effect to the substitution of the Variable
Price for the Floating Conversion Price). A holder's delivery of a
Variable Price Election Notice shall serve as the consent required to
amend this Certificate of Designations pursuant to Section 13 below. In
the event that a holder delivers a Conversion Notice at any time after
the Company's issuance of Convertible Securities with a Variable Price
but before such holder's receipt of the Company's Variable Notice, then
such holder shall have the option by written notice to the Company to
rescind such Conversion Notice or to have the Conversion Price be equal
to such Variable Price for the conversion effected by such Conversion
Notice.
(iv) Reorganization, Reclassification,
Consolidation, Merger or Sale. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially
all of the Company's assets to another Person (as defined below) or
other transaction which is effected in such a way that holders of Common
Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in exchange
for Common Stock is referred to herein as "ORGANIC CHANGE." Prior to the
consummation of any Organic Change, the Company will make appropriate
provision (in form and substance satisfactory to the holders of a
majority of the Preferred Shares then outstanding) to insure that each
of the holders of the Preferred Shares will thereafter have the right to
acquire and receive in lieu of or in addition to (as the case may be)
the shares of Common Stock otherwise acquirable and receivable upon the
conversion of such holder's Preferred Shares, such shares of stock,
securities or assets that would have been issued or payable in such
Organic Change with respect to or in exchange for the number of shares
of Common Stock which would have been acquirable and receivable upon the
conversion of such holder's Preferred Shares had such Organic Change not
taken place (without taking into account any limitations or restrictions
on the timing or amount of conversions). In any such case, the Company
will make appropriate provision (in form and substance satisfactory to
the holders of a majority of the Preferred Shares then outstanding) with
respect to such holders' rights and interests to insure that the
provisions of this Section 2(d) and Section 2(e) will thereafter be
applicable to the Preferred Shares. The Company will not effect any such
consolidation, merger or sale, unless prior to the consummation thereof,
the successor entity (if other than the Company) resulting from
consolidation or merger or the entity purchasing such assets assumes, by
written instrument (in form and substance reasonably satisfactory to the
holders of a majority of the Preferred Shares then outstanding), the
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<PAGE> 12
obligation to deliver to each holder of Preferred Shares such shares of
stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to acquire. "PERSON" shall mean
an individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
(v) Certain Events. If any event occurs of the type
contemplated by the provisions of this Section 2(d) but not expressly
provided for by such provisions (including, without limitation, the
granting of stock appreciation rights, phantom stock rights or other
rights with equity features), then the Company's Board of Directors will
make an appropriate adjustment in the Conversion Price so as to protect
the rights of the holders of the Preferred Shares; provided, however,
that no such adjustment will increase the Conversion Price as otherwise
determined pursuant to this Section 2(d).
(vi) Notices.
(A) Immediately upon any adjustment of the
Conversion Price, the Company will give written notice thereof to each
holder of the Preferred Shares, setting forth in reasonable detail and
certifying the calculation of such adjustment.
(B) The Company will give written notice to
each holder of the Preferred Shares at least 10 days prior to the date
on which the Company closes its books or takes a record (I) with respect
to any dividend or distribution upon the Common Stock, (II) with respect
to any pro rata subscription offer to holders of Common Stock, or (III)
for determining rights to vote with respect to any Organic Change,
dissolution or liquidation and in no event shall such notice be provided
to such holder prior to such information being made known to the public.
(C) The Company will also give written
notice to each holder of the Preferred Shares at least 10 days prior to
the date on which any Organic Change, dissolution or liquidation will
take place and in no event shall such notice be provided to such holder
prior to such information being made known to the public.
(e) Purchase Rights. In addition to any adjustments of the
Conversion Price pursuant to Section 2(d), if at any time after the
Issuance Date the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities
or other property pro rata to the record holders of any class of Common
Stock (the "PURCHASE RIGHTS"), then the holders of the Preferred Shares
will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which such holder could have
acquired if such holder had held the number of shares of Common Stock
acquirable upon complete conversion of the Preferred Shares (without
taking into account any limitations or restrictions on the timing or
amount of
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<PAGE> 13
conversions) immediately before the date on which a record is taken for
the grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of the Common
Stock are to be determined for the grant, issue or sale of such Purchase
Rights.
(f) Mechanics of Conversion. Subject to the Company's
inability to fully satisfy its obligations under a Conversion Notice (as
defined below) as provided for in Section 4:
(i) Holder's Delivery Requirements. To convert
Preferred Shares into full shares of Common Stock on any date (the
"CONVERSION DATE"), the holder thereof shall (A) transmit by facsimile
(or otherwise deliver), for receipt on or prior to 11:59 p.m. Eastern
Time, on such date, a copy of a fully executed notice of conversion in
the form attached hereto as Exhibit I (the "CONVERSION NOTICE") to the
Company and its designated transfer agent (the "TRANSFER AGENT"), and
(B) surrender to a common carrier, for delivery to the Company or the
Transfer Agent as soon as practicable following such date, the original
certificate(s) representing the Preferred Shares being converted (or an
indemnification undertaking with respect to such shares in the case of
their loss, theft or destruction) (the "PREFERRED STOCK CERTIFICATE(S)")
and the originally executed Conversion Notice.
(ii) Company's Response. Upon receipt by the
Company of a facsimile copy of a Conversion Notice, the Company shall as
soon as practicable, but in any event not later than the next business
day, send, via facsimile, a confirmation of receipt of such Conversion
Notice to such holder. Upon receipt by the Company or the Transfer Agent
of the Preferred Stock Certificate(s) to be converted pursuant to a
Conversion Notice, together with the originally executed Conversion
Notice, the Company or the Transfer Agent (as applicable) shall, on the
next business day following the date of receipt, (I) issue and surrender
to a common carrier for overnight delivery to the address specified in
the Conversion Notice, a certificate, registered in the name of the
holder or its designee, for the number of shares of Common Stock to
which the holder shall be entitled, or (II) credit such aggregate number
of shares of Common Stock to which the holder shall be entitled to the
holder's or its designee's balance account with The Depository Trust
Company. If the number of Preferred Shares represented by the Preferred
Stock Certificate(s) submitted for conversion is greater than the number
of Preferred Shares being converted, then the Company or Transfer Agent,
as the case may be, shall, as soon as practicable and in no event later
than two business days after receipt of the Preferred Stock
Certificate(s) and at its own expense, issue and deliver to the holder a
new Preferred Stock Certificate representing the number of Preferred
Shares not converted.
(iii) Dispute Resolution. In the case of a dispute
as to the determination of the Market Price or the arithmetic
calculation of the Conversion Rate,
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<PAGE> 14
the Company shall promptly issue to the holder the number of shares of
Common Stock that is not disputed and shall submit the disputed
determinations or arithmetic calculations to the holder via facsimile
within one business day of receipt of such holder's Conversion Notice.
If such holder and the Company are unable to agree upon the
determination of the Market Price or arithmetic calculation of the
Conversion Rate within one business day of such disputed determination
or arithmetic calculation being submitted to the holder, then the
Company shall within one business day submit via facsimile (A) the
disputed determination of the Market Price to an independent, reputable
investment bank, or (B) the disputed arithmetic calculation of the
Conversion Rate to its independent, outside accountant. The Company
shall cause the investment bank or the accountant, as the case may be,
to perform the determinations or calculations and notify the Company and
the holder of the results no later than 48 hours from the time it
receives the disputed determinations or calculations. Such investment
bank's or accountant's determination or calculation, as the case may be,
shall be binding upon all parties absent manifest error.
(iv) Record Holder. The person or persons entitled
to receive the shares of Common Stock issuable upon a conversion of
Preferred Shares shall be treated for all purposes as the record holder
or holders of such shares of Common Stock on the Conversion Date.
(v) Company's Failure to Timely Convert. If within
five business days after the Company's or the Transfer Agent's receipt
of the Preferred Stock Certificates to be converted and the Conversion
Notice the Company shall fail (I) to issue a certificate for the number
of shares of Common Stock to which a holder is entitled or to credit the
holder's balance account with The Depository Trust Company for such
number of shares of Common Stock to which the holder is entitled upon
such holder's conversion of the Preferred Shares, or (II) to issue a new
Preferred Stock Certificate representing the number of Preferred Shares
to which such holder is entitled, pursuant to Section 2(f)(ii), in
addition to all other available remedies which such holder may pursue
hereunder and under the Securities Purchase Agreement (including
indemnification pursuant to Section 8 thereof), the Company shall pay
additional damages to such holder on each date after such fifth (5th)
business day that such conversion or delivery of such Preferred Stock
Certificates, as the case may be, is not timely effected in an amount
equal to 0.5% of the product of (A) the sum of the number of shares of
Common Stock not issued to the holder on a timely basis pursuant to
Section 2(f)(ii) and to which such holder is entitled and, in the event
the Company has failed to deliver a Preferred Stock Certificate to the
holder on a timely basis pursuant to Section 2(f)(ii), the number of
shares of Common Stock issuable upon conversion of the Preferred Shares
represented by such Preferred Stock Certificate as of the last possible
date which the Company could have issued such Preferred Stock
Certificate to such holder without violating Section 2(f)(ii); and (B)
the Closing Bid Price of the Common Stock on the last possible date
which the Company could have issued such Common Stock and the Preferred
Stock Certificate, as the case may be, to such holder without violating
Section 2(f)(ii).
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<PAGE> 15
(g) Mandatory Conversion at Maturity. If any Preferred
Shares remain outstanding on the Maturity Date (as defined below), then
all such Preferred Shares shall be converted as of such date in
accordance with this Section 2 as if the holders of such Preferred
Shares had given the Conversion Notice on the Maturity Date; provided,
however, that if a Triggering Event (other than a Triggering Event
resulting from the Section 3(d)(vi) due to the Company's breach of a
representation) has occurred and is continuing on the Mandatory
Conversion Date, then the Company shall, within five business days
following the Maturity Date (unless otherwise notified in writing by the
holder of its request to have the Preferred Shares converted into Common
Stock), pay to each holder of Preferred Shares then outstanding, in
immediately available funds, an amount equal to the Triggering Event
Redemption Price as of the Maturity Date. All holders of Preferred
Shares shall thereupon surrender all Preferred Stock Certificates, duly
endorsed for cancellation, to the Company or the Transfer Agent,
provided that the Company has complied with its obligations under this
Section 2(h). "MATURITY DATE" means the date which is three years after
the Issuance Date, subject to extension pursuant to Section 3(u) of the
Registration Rights Agreement, which extension shall be equal to one and
one-half (1 1/2) day for each day in any Grace Period (as defined in the
Registration Rights Agreement).
(h) Fractional Shares. The Company shall not issue any
fraction of a share of Common Stock upon any conversion. All shares of
Common Stock (including fractions thereof) issuable upon conversion of
more than one Preferred Share by a holder thereof shall be aggregated
for purposes of determining whether the conversion would result in the
issuance of a fraction of a share of Common Stock. If, after the
aforementioned aggregation, the issuance would result in the issuance of
a fraction of a share of Common Stock, the Company shall round such
fraction of a share of Common Stock up or down to the nearest whole
share.
(i) Taxes. The Company shall pay any and all taxes which
may be imposed upon it, other than income and franchise taxes of the
holder of Preferred Shares, with respect to the issuance and delivery of
shares of Common Stock upon the conversion of the Preferred Shares.
(j) Conversion Restrictions. The right of a holder of
Preferred Shares to convert Preferred Shares pursuant to this Section 2
shall be limited as set forth below. Without the prior consent of the
Company, a holder of Preferred Shares shall not be entitled to convert
an aggregate number of Preferred Shares from the Issuance Date of such
Preferred Shares through the date of this determination in excess of the
number of Preferred Shares which when divided by the number of Preferred
Shares purchased by such holder on such Issuance Date would exceed (i)
0.00 for the period beginning on the Issuance Date and ending on and
including the date which is 150 days after the Issuance Date, (ii) 0.25
for the period beginning on and including the date which is 151 days
after
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<PAGE> 16
the Issuance Date and ending on and including the date which is 180 days
after the Issuance Date, (iii) 0.50 for the period beginning on and
including the date which is 181 days after the Issuance Date and ending
on and including the date which is 210 days after the Issuance Date,
(iv) 0.75 for the period beginning on and including the date which is
211 days after the Issuance Date and ending on and including the date
which is 240 days after the Issuance Date, and (v) 1.00 for the period
beginning on and including the date which is 241 days after the Issuance
Date and ending on and including the Maturity Date. Notwithstanding the
foregoing, the conversion restrictions set forth in this Section 2(j)
shall not apply (A) on and after any date on which the Common Stock is
not listed on NASDAQ, The New York Stock Exchange, Inc. or The American
Stock Exchange, Inc. or has been suspended from trading (excluding
suspensions of not more than one day resulting from business
announcements), or any such delisting or suspension, to the knowledge of
the Company, is threatened or pending (B) on or after any date on which
there shall have occurred an event constituting a Major Transaction (as
defined in Section 3(c)), Triggering Event (as defined in Section 3(d))
or a Material Adverse Change (as defined below), (C) with respect to any
conversion of Preferred Shares at a Conversion Price which is equal to
the Fixed Conversion Price then in effect, (D) on or after any date on
which there shall have been an announcement of a pending Major
Transaction or (E) to any conversions on any day on which the Common
Stock trades at a price greater than or equal to (I) 115% of the
Floating Conversion Price on such date or (II) the Fixed Conversion
Price. "MATERIAL ADVERSE CHANGE" means any change, event, result or
happening involving the Company or any of its subsidiaries resulting in
a material adverse effect on the business, prospects, financial
condition or results of operations of the Company and its subsidiaries,
taken as a whole.
(k) Adjustment of Conversion Restrictions upon Issuance of
Convertible Securities. If the Company in any manner issues or sells
Convertible Securities that are convertible into or exchangeable for
Common Stock at a price which varies with the market price of the Common
Stock and which Convertible Securities are subject to (i) restrictions
on the amount of shares that can be converted, or (ii) no restrictions
on the amount of shares that can be converted (the restriction on
conversions or lack thereof being herein referred to as the "CONVERSION
RESTRICTION"), and such Conversion Restriction is not formulated using
the same time periods and percentages used in Section 2(j), then the
Company shall provide written notice thereof via facsimile and overnight
courier to each holder of the Preferred Shares ("CONVERSION RESTRICTION
NOTICE") on the date of issuance of such Convertible Securities. If the
holders of Preferred Shares representing at least two-thirds (2/3) of
the Preferred Shares then outstanding which remain subject to the
restrictions in Section 2(j) provide written notice via facsimile and
overnight courier (the "CONVERSION RESTRICTION ELECTION NOTICE") to the
Company within five (5) business days of receiving a Conversion
Restriction Notice that such holders desire to replace the conversion
restrictions set forth in Section 2(j) then in effect with the
Conversion Restriction described in such Conversion Restriction Notice,
then from and after the date of the Company's receipt of the Conversion
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<PAGE> 17
Restriction Election Notice the conversion restrictions set forth in
Section 2(j) automatically will be replaced with the Conversion
Restrictions (together with such modifications to this Certificate of
Designations as may be required to give full effect to the substitution
of the Conversion Restrictions for the conversion restrictions set forth
in Section 2(j)). A holder's delivery of a Conversion Restriction
Election Notice shall serve as the consent required to amend this
Certificate of Designations pursuant to Section 13 below.
(l) Adjustment for Restricted Periods. In addition to any
other adjustment to the Conversion Price provided for in this
Certificate of Designations, if (i) the Registration Statement is not
declared effective by the SEC on or before the date which is 90 days
after the Issuance Date (the "SCHEDULED EFFECTIVE DATE") or (ii) after
the Registration Statement is declared effective by the Securities and
Exchange Commission, the Registration Statement is not available
(including on those days during any Grace Period or Allowable Grace
Period (each as defined in Section 3(f) of the Registration Rights
Agreement)) for the sale of at least all the Registrable Securities (as
defined in the Registration Rights Agreement) (whether because of a
failure to keep the Registration Statement effective, to disclose such
information as is necessary for sales to be made pursuant to the
Registration Statement, to amend or supplement the prospectus included
in the Registration Statement, to register sufficient shares of Common
Stock or otherwise); then, at the election of each holder of Preferred
Shares, the Pricing Period shall be comprised of (x) in the case of an
event described in clause (i) above, the trading days during the period
beginning on and including the date which is 20 consecutive trading days
preceding the Scheduled Effective Date and ending on and including the
date which is three trading days after the Registration Statement is
declared effective by the SEC and (y) in the case of an event described
in clause (ii) above, the trading days during the period beginning on
and including the date which is 20 consecutive trading days prior to the
date on which such holder of Preferred Shares is first notified that
sales may not be made pursuant to the Registration Statement and ending
on and including that date on which such holder is first notified that
such sales may again be made under the Registration Statement. If a
holder of Preferred Shares determines that such sales may not be made
pursuant to the Registration Statement for any reason it shall so notify
the Company in writing and, unless the Company provides such holder with
a written opinion, in form and substance reasonably satisfactory to such
holder, of the Company's counsel to the contrary, such determination
shall be final and binding for purposes of this paragraph.
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<PAGE> 18
(3) Redemption at Option of Holders.
(a) Redemption Option Upon Major Transaction. In addition
to all other rights of the holders of Preferred Shares contained herein,
simultaneous with or after the occurrence of a Major Transaction (as
defined below), each holder of Preferred Shares shall have the right, at
such holder's option, to require the Company to redeem all or a portion
of such holder's Preferred Shares at a price per Preferred Share equal
to 130% of the Liquidation Value (as defined in Section 9) (the "MAJOR
TRANSACTION REDEMPTION PRICE").
(b) Redemption Option Upon Triggering Event. In addition
to all other rights of the holders of Preferred Shares contained herein,
simultaneous with or after the occurrence of a Triggering Event (as
defined below), each holder of Preferred Shares shall have the right, at
such holder's option, to require the Company to redeem all or a portion
of such holder's Preferred Shares at a price per Preferred Share equal
to (I) in the case of a Triggering Event under subparagraphs (i), (ii),
(iii) or (iv) of Section 3(d), the greater of (i) 130% of the
Liquidation Value; and (ii) the product of (A) the Conversion Rate on
the date of such holder's delivery of a Notice of Redemption at Option
of Holder Upon Triggering Event (as defined in Section 3(f)), and (B)
the greater of (I) the Closing Bid Price on the trading day immediately
preceding such Triggering Event or (II) the Closing Bid Price on the
date of the holder's delivery to the Company of a Notice of Redemption
at Option of Buyer Upon Triggering Event (as defined below) or, if such
date of delivery is not a trading day, the next date on which the
exchange or market on which the Common Stock is traded is open, or (II)
in the case of a Triggering Event under subparagraphs (v) or (vi) of
Section 3(d), 130% of the Liquidation Value (collectively, the
"TRIGGERING EVENT REDEMPTION PRICE" and, collectively with the Major
Transaction Redemption Price, the "REDEMPTION PRICE").
(c) "Major Transaction". A "MAJOR TRANSACTION" shall be
deemed to have occurred at such time as any of the following events:
(i) the consolidation, merger or other business
combination of the Company with or into another Person (other than (A) a
consolidation, merger or other business combination in which holders of
the Company's voting power immediately prior to the transaction continue
after the transaction to hold, directly or indirectly, the voting power
of the surviving entity or entities necessary to elect a majority of the
members of the board of directors (or their equivalent if other than a
corporation) of such entity or entities, or (B) pursuant to a migratory
merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Company);
(ii) the sale or transfer of all or substantially
all of the Company's assets; or
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<PAGE> 19
(iii) a purchase, tender or exchange offer made to
and accepted by the holders of more than 50% of the outstanding shares
of Common Stock.
(d) "Triggering Event". A "TRIGGERING EVENT" shall be
deemed to have occurred at such time as any of the following events:
(i) the failure of the Registration Statement to be
declared effective by the SEC on or prior to the date that is 150 days
after the Issuance Date;
(ii) while the Registration Statement is required
to be maintained effective pursuant to the terms of the Registration
Rights Agreement, the effectiveness of the Registration Statement lapses
for any reason (including, without limitation, the issuance of a stop
order) or is unavailable (other than on any days during any Allowable
Grace Period (as defined in Section 3(f) of the Registration Rights
Agreement)) to the holder of the Preferred Shares for sale of the
Registrable Securities (as defined in the Registration Rights Agreement)
in accordance with the terms of the Registration Rights Agreement, and
such lapse or unavailability continues for a period of at least five
consecutive days (other than on any days during any Allowable Grace
Period) or for an aggregate of at least 10 days (other than on any days
during any Allowable Grace Period) in any 365-day period;
(iii) delisting or suspension from listing of the
Common Stock from NASDAQ, The American Stock Exchange, Inc. or The New
York Stock Exchange, Inc. for a period of 15 consecutive days or for an
aggregate of at least 45 days in any 365-day period;
(iv) the Company's notice to any holder of
Preferred Shares, including by way of public announcement, at any time,
of its intention not to comply with proper requests for conversion of
any Preferred Shares into shares of Common Stock, including due to any
of the reasons set forth in Section 4(a) below, or the Company's failure
to deliver Conversion Shares within ten days of the Conversion Date;
(v) following a Proxy Statement Trigger Date (as
defined in the Securities Purchase Agreement), the Company fails to
obtain the shareholder approval described in Section 4(l) of the
Securities Purchase Agreement in a timely manner; or
(vi) any representation or warranty by the Company
was not true and correct at the time made (including the Issuance Date)
or the Company breaches any covenant or other term or condition of the
Securities Purchase Agreement, the Registration Rights Agreement, this
Certificate of Designations, the Irrevocable Transfer Agent Instructions
(as defined in the Securities Purchase Agreement), or any other
agreement, document, certificate or other instrument delivered in
connection with the transactions contemplated thereby or hereby, except
(i) to the extent that such breach
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<PAGE> 20
would not have a Material Adverse Effect (as defined in Section 3(a) of
the Securities Purchase Agreement), and (ii) in the case of a breach of
a covenant which is curable, such breach continues for a period of less
than ten days.
(e) Mechanics of Redemption at Option of Holder Upon Major
Transaction. No sooner than 15 days nor later than 10 days prior to the
consummation of a Major Transaction, but not prior to the public
announcement of such Major Transaction, the Company shall deliver
written notice thereof via facsimile and overnight courier (a "NOTICE OF
MAJOR TRANSACTION") to each holder of Preferred Shares. At any time
after receipt of a Notice of Major Transaction (or, in the event a
Notice of Major Transaction is not delivered at least 10 days prior to a
Major Transaction, at any time on or after the date which is 10 days
prior to a Major Transaction), any holder of the Preferred Shares then
outstanding may require the Company to redeem all or a portion of the
holder's Preferred Shares, which redemption shall be effective
concurrent with the consummation of the Major Transaction, then
outstanding by delivering written notice thereof via facsimile and
overnight courier (a "NOTICE OF REDEMPTION AT OPTION OF HOLDER UPON
MAJOR TRANSACTION") to the Company, which Notice of Redemption at Option
of Buyer Upon Major Transaction shall indicate (i) the number of
Preferred Shares that such holder is submitting for redemption, and (ii)
the applicable Major Transaction Redemption Price, as calculated
pursuant to Section 3(a).
(f) Mechanics of Redemption at Option of Buyer Upon
Triggering Event. Within one business day after the occurrence of a
Triggering Event, the Company shall deliver written notice thereof via
facsimile and overnight courier (a "NOTICE OF TRIGGERING EVENT") to each
holder of Preferred Shares. At any time after the earlier of a holder's
receipt of a Notice of Triggering Event and such holder becoming aware
of a Triggering Event, any holder of Preferred Shares then outstanding
may require the Company to redeem all or a portion of the holder's
Preferred Shares then outstanding by delivering written notice thereof
via facsimile and overnight courier (a "NOTICE OF REDEMPTION AT OPTION
OF HOLDER UPON TRIGGERING EVENT") to the Company, which Notice of
Redemption at Option of Holder Upon Triggering Event shall indicate (i)
the number of Preferred Shares that such holder is submitting for
redemption, and (ii) the applicable Triggering Event Redemption Price,
as calculated pursuant to Section 3(b).
(g) Payment of Redemption Price. Upon the Company's
receipt of a Notice(s) of Redemption at Option of Holder Upon Triggering
Event or a Notice(s) of Redemption at Option of Holder Upon Major
Transaction from any holder of Preferred Shares, the Company shall
immediately notify each holder of Preferred Shares by facsimile of the
Company's receipt of such Notice(s) of Redemption at Option of Holder
Upon Triggering Event or Notice(s) of Redemption at Option of Holder
Upon Major Transaction and each holder which has sent such a notice
shall promptly submit to the Company or its Transfer Agent such holder's
Preferred Stock Certificates which such
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<PAGE> 21
holder has elected to have redeemed. The Company shall deliver the
applicable Triggering Event Redemption Price, in the case of a
redemption pursuant to Section 3(f), to such holder within five business
days after the Company's receipt of a Notice of Redemption at Option of
Holder Upon Triggering Event and, in the case of a redemption pursuant
to Section 3(e), the Company shall deliver the applicable Major
Transaction Redemption Price concurrent with the consummation of the
Major Transaction; provided that a holder's Preferred Stock Certificates
shall have been so delivered to the Company; and provided further that
if the Company is unable to redeem all of the Preferred Shares to be
redeemed, the Company shall redeem an amount from each holder of
Preferred Shares being redeemed equal to such holder's pro-rata amount
(based on the number of Preferred Shares held by such holder relative to
the number of Preferred Shares outstanding) of all Preferred Shares
being redeemed. If the Company shall fail to redeem all of the Preferred
Shares submitted for redemption, in addition to any remedy such holder
of Preferred Shares may have under this Certificate of Designations, the
Securities Purchase Agreement and the Registration Rights Agreement, the
applicable Redemption Price payable in respect of such unredeemed
Preferred Shares shall bear interest at the rate of 1.5% per month (pro
rated for partial months) until paid in full. Until the Company pays
such unpaid applicable Redemption Price in full to a holder of Preferred
Shares submitted for redemption, such holder shall have the option (the
"VOID OPTIONAL REDEMPTION OPTION") to, in lieu of redemption, require
the Company to promptly return to such holder(s) all of the Preferred
Shares that were submitted for redemption by such holder(s) under this
Section 3 and for which the applicable Redemption Price has not been
paid, by sending written notice thereof to the Company via facsimile
(the "VOID OPTIONAL REDEMPTION NOTICE"). Upon the Company's receipt of
such Void Optional Redemption Notice(s) and prior to payment of the full
applicable Redemption Price to such holder, (i) the Notice(s) of
Redemption at Option of Holder Upon Triggering Event or the Notice(s) of
Redemption at Option of Holder Upon Major Transaction, as the case may
be, shall be null and void with respect to those Preferred Shares
submitted for redemption and for which the applicable Redemption Price
has not been paid, (ii) the Company shall immediately return any
Preferred Shares submitted to the Company by each holder for redemption
under this Section 3(g) and for which the applicable Redemption Price
has not been paid and (iii) if the redemption was caused by a Triggering
Event involving the Company's inability to issue Conversion Shares
because of the Exchange Cap (as defined in Section 12(a)), the holders
of at least two-thirds of the Preferred Shares then outstanding,
including Preferred Shares submitted for redemption pursuant to this
Section 3 with respect to which the applicable Redemption Price has not
been paid, may direct the Company to immediately delist the Common Stock
from the exchange or automated quotation system on which the Common
Stock is traded and have the Common Stock, at such holders' option,
traded in the electronic bulletin board or the "pink sheets."
Notwithstanding the foregoing, in the event of a dispute as to the
determination of the Closing Bid Price or the arithmetic calculation of
the Redemption Price, such dispute shall be resolved pursuant to Section
2(f)(iii) above with the term "Closing Bid Price" being substituted for
the term "Market Price" and the term
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<PAGE> 22
"Redemption Price" being substituted for the term "Conversion Rate". A
holder's delivery of a Void Optional Redemption Notice and exercise of
its rights following such notice shall not effect the Company's
obligations to make any payments which have accrued prior to the date of
such notice. Payments provided for in this Section 3 shall have priority
to payments to other stockholders in connection with a Major
Transaction.
(4) Inability to Fully Convert.
(a) Holder's Option if Company Cannot Fully Convert. If,
upon the Company's receipt of a Conversion Notice or on the Maturity
Date, the Company cannot issue shares of Common Stock registered for
resale under the Registration Statement (or which are exempt from the
registration requirements under the 1933 Act pursuant to Rule 144(k)
under the 1933 Act) for any reason, including, without limitation,
because the Company (x) does not have a sufficient number of shares of
Common Stock authorized and available, (y) is otherwise prohibited by
applicable law or by the rules or regulations of any stock exchange,
interdealer quotation system or other self-regulatory organization with
jurisdiction over the Company or its Securities, including without
limitation the Exchange Cap, from issuing all of the Common Stock which
is to be issued to a holder of Preferred Shares pursuant to a Conversion
Notice or (z) fails to have a sufficient number of shares of Common
Stock registered for resale under the Registration Statement, then the
Company shall issue as many shares of Common Stock as it is able to
issue in accordance with such holder's Conversion Notice and pursuant to
Section 2(f) and, with respect to the unconverted Preferred Shares, the
holder, solely at such holder's option, can elect to:
(i) require the Company to redeem from such holder
those Preferred Shares for which the Company is unable to issue Common
Stock in accordance with such holder's Conversion Notice ("MANDATORY
REDEMPTION") at a price per Preferred Share (the "MANDATORY REDEMPTION
PRICE") equal to the Triggering Event Redemption Price for a Triggering
Event under subparagraphs (i), (ii), (iii) or (iv) of Section 3(d) as of
such Conversion Date;;
(ii) if the Company's inability to fully convert
Preferred Shares is pursuant to Section 4(a)(z), require the Company to
issue restricted shares of Common Stock in accordance with such holder's
Conversion Notice and pursuant to Section 2(f);
(iii) void its Conversion Notice and retain or have
returned, as the case may be, the nonconverted Preferred Shares that
were to be converted pursuant to such holder's Conversion Notice
(provided that a holder's voiding its Conversion Notice shall not effect
the Company's obligations to make any payments which have accrued prior
to the date of such notice); or
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<PAGE> 23
(iv) if the Company's inability to fully convert
Preferred Shares is pursuant to the Exchange Cap described in Section
4(a)(y), require the Company to issue shares of Common Stock in
accordance with such holder's Conversion Notice and pursuant to Section
2(f) at a Conversion Price equal to the average of Closing Bid Prices of
the Common Stock for the five consecutive trading days preceding such
holder's Notice in Response to Inability to Convert (as defined below).
(b) Mechanics of Fulfilling Holder's Election. The Company
shall immediately send via facsimile to a holder of Preferred Shares,
upon receipt of a facsimile copy of a Conversion Notice from such holder
which cannot be fully satisfied as described in Section 4(a), a notice
of the Company's inability to fully satisfy such holder's Conversion
Notice (the "INABILITY TO FULLY CONVERT NOTICE"). Such Inability to
Fully Convert Notice shall indicate (i) the reason why the Company is
unable to fully satisfy such holder's Conversion Notice, (ii) the number
of Preferred Shares which cannot be converted and (iii) the applicable
Mandatory Redemption Price. Such holder shall notify the Company of its
election pursuant to Section 4(a) above by delivering written notice via
facsimile to the Company ("NOTICE IN RESPONSE TO INABILITY TO CONVERT").
(c) Payment of Mandatory Redemption Price. If such holder
shall elect to have its shares redeemed pursuant to Section 4(a)(i), the
Company shall pay the Mandatory Redemption Price in cash to such holder
within ten days of the Company's receipt of the holder's Notice in
Response to Inability to Convert. If the Company shall fail to pay the
applicable Mandatory Redemption Price to such holder on a timely basis
as described in this Section 4(c) (other than pursuant to a dispute as
to the determination of the arithmetic calculation of the Redemption
Price), in addition to any remedy such holder of Preferred Shares may
have under this Certificate of Designations, the Securities Purchase
Agreement and the Registration Rights Agreement, such unpaid amount
shall bear interest at the rate of 1.5% per month (pro rated for partial
months) until paid in full. Until the full Mandatory Redemption Price is
paid in full to such holder, such holder may void the Mandatory
Redemption with respect to those Preferred Shares for which the full
Mandatory Redemption Price has not been paid and receive back such
Preferred Shares. Notwithstanding the foregoing, if the Company fails to
pay the applicable Mandatory Redemption Price within such ten-day period
due to a dispute as to the determination of the Mandatory Redemption
Price, such dispute shall be resolved pursuant to Section 2(f)(iii) with
the term "Mandatory Redemption Price" being substituted for the term
"Conversion Rate".
(d) Pro-rata Conversion and Redemption. In the event the
Company receives a Conversion Notice, Notice of Redemption at Option of
Buyer Upon Major Transaction or Notice of Redemption at Option of Buyer
Upon Triggering Event from more than one holder of Preferred Shares on
the same day and the Company can convert and/or redeem some, but not
all, of the Preferred Shares pursuant to this Section 4, the
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<PAGE> 24
Company shall convert and/or redeem from each holder of Preferred Shares
electing to have Preferred Shares converted and/or redeemed at such time
an amount equal to such holder's pro-rata amount (based on the number of
Preferred Shares held by such holder relative to the number of Preferred
Shares outstanding) of all Preferred Shares being converted and redeemed
at such time.
(5) Company's Right to Redeem in Lieu of Conversion. (a)
Notwithstanding Section 2 or anything herein to the contrary, but subject to
Section 5(e), at any time after the Issuance Date, the Company may elect to
redeem Preferred Shares submitted for conversion in lieu of converting such
Preferred Shares, provided that such Preferred Shares are submitted for
conversion at a Conversion Price (as indicated on the Conversion Notice with
respect to such conversion) less than $5.00 (appropriately adjusted for any
stock dividend, stock split or other similar transaction) (a "COMPANY REDEMPTION
IN LIEU OF CONVERSION"). If the Company elects to redeem some, but not all, of
the Preferred Shares submitted for conversion, the Company shall redeem a number
of Preferred Shares from each holder of Preferred Shares submitted for
conversion on the applicable date equal to such holder's pro-rata amount (based
on the number of Preferred Shares held by such holder relative to the number of
Preferred Shares outstanding) of all Preferred Shares submitted for conversion
which the Company elects to redeem.
(b) Redemption Price of Company Redemption in Lieu of
Conversion. The "REDEMPTION PRICE OF COMPANY REDEMPTION IN LIEU OF
CONVERSION" shall be an amount per Preferred Share equal to 110% of the
Conversion Amount on the Conversion Date.
(c) Mechanics of Company Redemption in Lieu of Conversion.
The Company shall exercise its right to redeem by delivering written
notice by facsimile and overnight courier ("NOTICE OF COMPANY REDEMPTION
IN LIEU OF CONVERSION") to (i) each holder of the Preferred Shares and
(ii) the Transfer Agent. Such Notice of Company Redemption in Lieu of
Conversion shall confirm the time period during which the Company may
effect Company Redemption in Lieu of conversion, which period shall
begin on and include the date which is thirty business days after the
date of receipt by all of the holders' of the Notice of Redemption in
Lieu of Conversion and shall end on and include the date specified in
the Notice of Company Redemption in Lieu of Conversion (the "REDEMPTION
IN LIEU OF CONVERSION PERIOD"). The Company may terminate a Redemption
in Lieu of Conversion Period at any time with respect to Preferred
Shares which have not been submitted for conversion by delivering
written notice of such termination to each holder of Preferred Shares by
facsimile and overnight courier at least fifteen days business days
prior to the date of such termination.
(d) Payment of Redemption Price. The Company shall pay the
applicable Redemption Price of Company Redemption in Lieu of Conversion
to the holder of the Preferred Shares being redeemed in cash within five
business days after the Conversion Date, but not prior to such holder's
delivery to the Company of the Preferred
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<PAGE> 25
Stock Certificates representing the Preferred Shares being redeemed. If
the Company shall fail to pay the applicable Redemption Price of Company
Redemption in Lieu of Conversion to such holder on a timely basis as
described in this Section 5(d), in addition to any remedy such holder of
Preferred Shares may have under these Articles of Amendment, the
Securities Purchase Agreement and the Registration Rights Agreement,
such unpaid amount shall bear interest at the rate of 1.5% per month
(pro rated for partial months) until paid in full. Until the Company
pays such unpaid applicable Redemption Price of Company Redemption in
Lieu of Conversion in full to each holder, each holder of Preferred
Shares submitted for redemption pursuant to this Section 5 and for which
the applicable Redemption Price of Company Redemption in Lieu of
Conversion has not been paid, shall have the option (the "VOID COMPANY
REDEMPTION OPTION") to, in lieu of redemption, require the Company to
promptly return to each holder all of the Preferred Shares that were
submitted for redemption by such holder under this Section 5 and for
which the applicable Redemption Price of Company Redemption in Lieu of
Conversion has not been paid, by sending written notice thereof to the
Company via facsimile (the "VOID COMPANY REDEMPTION NOTICE"). Upon the
Company's receipt of such Void Company Redemption Notice(s) prior to
payment of the full applicable redemption price to each holder, (i) the
Company's Redemption in Lieu of Conversion shall be null and void with
respect to those Preferred Shares submitted for redemption and for which
the applicable Redemption Price has not been paid, (ii) the Company
shall immediately return any Preferred Shares submitted to the Company
by each holder for redemption under this Section 5 and for which the
applicable Redemption Price of Company Redemption in Lieu of Conversion
has not been paid and (iii) the Fixed Conversion Price of such returned
Preferred Shares shall be adjusted to the lesser of (A) the Conversion
Price applicable to such conversion on the date on which such Preferred
Shares were originally presented for conversion and (B) the Conversion
Price which would have been effect if such Preferred Shares were
presented for conversion on the business day immediately following the
last day on which the Company could have effected a timely Company
Redemption in Lieu of Conversion. Notwithstanding the foregoing, if the
Company fails to pay the applicable Redemption Price of Company
Redemption in Lieu of Conversion to a holder within the time period
described in this Section 5(d) due to a dispute as to the arithmetic
calculation of the Redemption Price of Company Redemption in Lieu of
Conversion, such dispute shall be resolved pursuant to Section 2(f)(iii)
above with the term "Redemption Price of Company Redemption in Lieu of
Conversion" being substituted for the term "Conversion Rate." If the
Company fails to timely effect a Company Redemption in Lieu of
Conversion in accordance with this Section 5, the Company shall not be
allowed to submit another Notice of Company Redemption in Lieu of
Conversion without the prior written consent of the holders of at least
two-thirds (2/3) of the Preferred Shares then outstanding.
(e) Company Must Have Immediately Available Funds or
Credit Facilities. The Company shall not be entitled to send any Notice
of Company
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<PAGE> 26
Redemption in Lieu of Conversion pursuant to Section 5(b) above and
begin the redemption procedure under this Section 5, unless it has:
(i) the full amount of the Redemption Price of Company
Redemption in Lieu of Conversion in cash, available in a demand or other
immediately available account in a bank or similar financial
institution;
(ii) credit facilities, with a bank or similar financial
institutions that are immediately available and unrestricted for use in
redeeming the Preferred Shares, in the full amount of the Redemption
Price of Company Redemption in Lieu of Conversion;
(iii) a written agreement with a standby underwriter or
qualified buyer ready, willing and able to purchase from the Company a
sufficient number of shares of stock to provide proceeds necessary to
redeem any Preferred Shares that have not been converted prior to a
Company Redemption in Lieu of Conversion; or
(iv) a combination of the items set forth in the preceding
clauses (i), (ii) and (iii), aggregating the full amount of the
Redemption Price of Company Redemption in Lieu of Conversion.
(6) Reissuance of Certificates. In the event of a conversion or
redemption pursuant to this Certificate of Designations of less than all of the
Preferred Shares represented by a particular Preferred Stock Certificate, the
Company shall promptly cause to be issued and delivered to the holder of such
Preferred Shares a preferred stock certificate representing the remaining
Preferred Shares which have not been so converted or redeemed.
(7) Reservation of Shares. The Company shall, so long as any of
the Preferred Shares are outstanding, reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the Preferred Shares, such number of shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all of the
Preferred Shares then outstanding (without regard to any limitations on
conversions); provided that the number of shares of Common Stock so reserved
shall at no time be less than 200% of the number of shares of Common Stock for
which the Preferred Shares are at any time convertible. The initial number of
shares of Common Stock reserved for conversions of the Preferred Shares and each
increase in the number of shares so reserved shall be allocated pro rata among
the holders of the Preferred Shares based on the number of Preferred Shares held
by each holder at the time of issuance of the Preferred Shares or increase in
the number of reserved shares, as the case may be. In the event a holder shall
sell or otherwise transfer any of such holder's Preferred Shares, each
transferee shall be allocated a pro rata portion of the number of reserved
shares of Common Stock reserved for such transferor. Any shares of Common Stock
reserved and which remain allocated to any person or entity which does not hold
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<PAGE> 27
any Preferred Shares shall be allocated to the remaining holders of Preferred
Shares, pro rata based on the number of Preferred Shares then held by such
holder.
(8) Voting Rights. Holders of Preferred Shares shall have no
voting rights, except as required by law, including but not limited to the
General Corporation Law of the State of Delaware, and as expressly provided in
this Certificate of Designations.
(9) Liquidation, Dissolution, Winding-Up. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company,
the holders of the Preferred Shares shall be entitled to receive in cash out of
the assets of the Company, whether from capital or from earnings available for
distribution to its stockholders (the "PREFERRED FUNDS"), before any amount
shall be paid to the holders of any of the capital stock of the Company of any
class junior in rank to the Preferred Shares in respect of the preferences as to
the distributions and payments on the liquidation, dissolution and winding up of
the Company, an amount per Preferred Share equal to the sum of (i) $10,000 and
(ii) an amount equal to the product of the Additional Amount as of such date
(such sum being referred to as the "LIQUIDATION VALUE"); provided that, if the
Preferred Funds are insufficient to pay the full amount due to the holders of
Preferred Shares and holders of shares of other classes or series of preferred
stock of the Company that are of equal rank with the Preferred Shares as to
payments of Preferred Funds (the "PARI PASSU SHARES"), then each holder of
Preferred Shares and Pari Passu Shares shall receive a percentage of the
Preferred Funds equal to the full amount of Preferred Funds payable to such
holder as a liquidation preference, in accordance with their respective
Certificate of Designations, Preferences and Rights, as a percentage of the full
amount of Preferred Funds payable to all holders of Preferred Shares and Pari
Passu Shares. The purchase or redemption by the Company of stock of any class,
in any manner permitted by law, shall not, for the purposes hereof, be regarded
as a liquidation, dissolution or winding up of the Company. Neither the
consolidation or merger of the Company with or into any other Person, nor the
sale or transfer by the Company of less than substantially all of its assets,
shall, for the purposes hereof, be deemed to be a liquidation, dissolution or
winding up of the Company. No holder of Preferred Shares shall be entitled to
receive any amounts with respect thereto upon any liquidation, dissolution or
winding up of the Company other than the amounts provided for herein; provided
that a holder of Preferred Shares shall be entitled to all amounts previously
accrued with respect to amounts owed hereunder.
(10) Preferred Rank; Participation. (i) All shares of Common
Stock shall be of junior rank to all Preferred Shares in respect to the
preferences as to distributions and payments upon the liquidation, dissolution
and winding up of the Company. The rights of the shares of Common Stock shall be
subject to the preferences and relative rights of the Preferred Shares. Without
the prior express written consent of the holders of not less than two-thirds
(2/3) of the then outstanding Preferred Shares, the Company shall not hereafter
authorize or issue additional or other capital stock that is of senior rank to
the Preferred Shares in respect of the preferences as to distributions and
payments upon the liquidation, dissolution and winding up of the Company.
Without the prior express written consent of the holders of not less than
two-
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<PAGE> 28
thirds (2/3) of the then outstanding Preferred Shares, the Company shall not
hereafter authorize or make any amendment to the Company's Certificate of
Incorporation or bylaws, or file any resolution of the board of directors of the
Company with the Secretary of State of the State of Delaware containing any
provisions, which would adversely affect or otherwise impair the rights or
relative priority of the holders of the Preferred Shares relative to the holders
of the Common Stock or the holders of any other class of capital stock. In the
event of the merger or consolidation of the Company with or into another
corporation, the Preferred Shares shall maintain their relative powers,
designations and preferences provided for herein and no merger shall result
inconsistent therewith.
(ii) Subject to the rights of the holders, if any, of the Pari Passu
Shares, the holders of the Preferred Shares shall, as holders of Preferred
Stock, be entitled to such dividends paid and distributions made to the holders
of Common Stock to the same extent as if such holders of Preferred Shares had
converted the Preferred Shares into Common Stock (without regard to any
limitations on conversion herein or elsewhere) and had held such shares of
Common Stock on the record date for such dividends and distributions. Payments
under the preceding sentence shall be made concurrently with the dividend or
distribution to the holders of Common Stock.
(11) Restriction on Redemption and Cash Dividends with respect to
Other Capital Stock. Until all of the Preferred Shares have been converted or
redeemed as provided herein, the Company shall not, directly or indirectly,
redeem, or declare or pay any cash dividend or distribution on, its Common Stock
without the prior express written consent of the holders of not less than
two-thirds (2/3) of the then outstanding Preferred Shares.
(12) Limitation on Number of Conversion Shares. (a)
Notwithstanding any other provision herein, the Company shall not be obligated
to issue any shares of Common Stock upon conversion of the Preferred Shares if
the issuance of such shares of Common Stock would exceed that number of shares
of Common Stock which the Company may issue upon Conversion of the Preferred
Shares (the "EXCHANGE CAP") without breaching the Company's obligations under
the rules or regulations of NASDAQ, except that such limitation shall not apply
in the event that the Company (i) obtains the approval of its stockholders as
required by applicable rules and regulations of NASDAQ for issuances of Common
Stock in excess of the Exchange Cap or (ii) obtains a written opinion from
outside counsel to the Company that such approval is not required, which opinion
shall be reasonably satisfactory to the holders of a majority of the Preferred
Shares then outstanding. Until such approval or written opinion is obtained, no
purchaser of Preferred Shares pursuant to the Securities Purchase Agreement (the
"PURCHASERS") shall be issued, upon conversion of Preferred Shares, shares of
Common Stock in an amount greater than the product of (x) the Exchange Cap
amount multiplied by (y) a fraction, the numerator of which is the number of
Preferred Shares issued to such Purchaser pursuant to the Securities Purchase
Agreement and the denominator of which is the aggregate amount of all the
Preferred Shares issued to the Purchasers pursuant to the Securities Purchase
Agreement (the "CAP ALLOCATION AMOUNT"). In the event that any Purchaser shall
sell or otherwise transfer any of such Purchaser's Preferred Shares, the
transferee shall be allocated a pro rata portion of such
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<PAGE> 29
Purchaser's Cap Allocation Amount. In the event that any holder of Preferred
Shares shall convert all of such holder's Preferred Shares into a number of
shares of Common Stock which, in the aggregate, is less than such holder's Cap
Allocation Amount, then the difference between such holder's Cap Allocation
Amount and the number of shares of Common Stock actually issued to such holder
shall be allocated to the respective Cap Allocation Amounts of the remaining
holders of Preferred Shares on a pro rata basis in proportion to the number of
Preferred Shares then held by each such holder.
(b) Notwithstanding any other provision herein, the Company shall
not be obligated to issue any shares of Common Stock upon conversion of
the Preferred Shares if a holder of Preferred Shares has waived the
beneficial ownership limitation set forth in Section 2(a) and the
issuance of such shares of Common Stock would exceed that number of
shares of Common Stock which the Company may issue upon Conversion of
the Preferred Shares (the "HSR CAP") without breaching the pre-merger
notification and waiting period requirements under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), except
that such limitation shall not apply in the event that (i) the Company
and the proposed holder of the Conversion Shares subject to the HSR Cap
make all pre-merger notification filings required under the HSR Act and
all applicable waiting periods under the HSR Act have expired or (ii)
the Company obtains a written opinion from outside counsel to the
Company that such filings and waiting periods referred to in clause (i)
above are not required, which opinion shall be reasonably satisfactory
to the holder whose conversion of Preferred Shares is subject to the HSR
Cap. In the event that a conversion of Preferred Shares would be
restricted by the foregoing limitation, the Company shall use its
reasonable best efforts to make the filings, if any, required by the
Company to satisfy the filing and holding requirements of the HSR Act.
(13) Vote to Change the Terms of or Issue Preferred Shares. The
affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting, of the holders of not less than two-thirds (2/3) of
the then outstanding Preferred Shares, shall be required for (a) any change to
this Certificate of Designations or the Company's Certificate of Incorporation
which would amend, alter, change or repeal any of the powers, designations,
preferences and rights of the Preferred Shares, or (b) any issuance of Preferred
Shares other than pursuant to the Securities Purchase Agreement.
(14) Lost or Stolen Certificates. Upon receipt by the Company of
evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of any Preferred Stock Certificates representing the Preferred
Shares, and, in the case of loss, theft or destruction, of an indemnification
undertaking by the holder to the Company and, in the case of mutilation, upon
surrender and cancellation of the Preferred Stock Certificate(s), the Company
shall execute and deliver new preferred stock certificate(s) of like tenor and
date; provided, however, the Company shall not be obligated to re-issue
preferred stock certificates if the holder contemporaneously requests the
Company to convert such Preferred Shares into Common Stock.
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<PAGE> 30
(15) Remedies, Characterizations, Other Obligations, Breaches and
Injunctive Relief. The remedies provided in this Certificate of Designations
shall be cumulative and in addition to all other remedies available under this
Certificate of Designations, at law or in equity (including a decree of specific
performance and/or other injunctive relief), no remedy contained herein shall be
deemed a waiver of compliance with the provisions giving rise to such remedy and
nothing herein shall limit a holder's right to pursue actual damages for any
failure by the Company to comply with the terms of this Certificate of
Designations. The Company covenants to each holder of Preferred Shares that
there shall be no characterization concerning this instrument other than as
expressly provided herein. Amounts set forth or provided for herein with respect
to payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by the holder thereof and shall not, except as expressly
provided herein, be subject to any other obligation of the Company (or the
performance thereof). The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the holders of the
Preferred Shares and that the remedy at law for any such breach may be
inadequate. The Company therefore agrees that, in the event of any such breach
or threatened breach, the holders of the Preferred Shares shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach, without the necessity of showing economic loss and without any bond or
other security being required.
(16) Specific Shall Not Limit General; Construction. No specific
provision contained in this Certificate of Designations shall limit or modify
any more general provision contained herein. This Certificate of Designations
shall be deemed to be jointly drafted by the Company and the initial holders of
the Preferred Shares and shall not be construed against any person as the
drafter hereof.
(17) Failure or Indulgence Not Waiver. No failure or delay on the
part of a holder of Preferred Shares in the exercise of any power, right or
privilege hereunder shall operate as a waiver thereof (except to the extent that
such power, right or privilege must, in accordance with the terms of this
Certificate of Designations, be exercised within a specified period of time and
such period of time has lapsed without such power, right or privilege being
exercised), nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other right,
power or privilege.
(18) Notices. Any notice required to be delivered pursuant to the
terms of this Certificate of Designations shall be delivered, unless otherwise
provided in this Certificate of Designations, in accordance with the terms, and
subject to the notice provisions of, the Securities Purchase Agreement.
* * * * * *
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<PAGE> 31
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designations to be signed by ________________________, its _________________, as
of June __, 1998.
GENERAL MAGIC, INC.
By: /s/
---------------------------------------
Name:
Its:
<PAGE> 32
EXHIBIT I
GENERAL MAGIC, INC.
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and Rights of
Series C Convertible Preferred Stock (the "CERTIFICATE OF DESIGNATIONS"). In
accordance with and pursuant to the Certificate of Designations, the undersigned
hereby elects to convert the number of shares of Series C Convertible Preferred
Stock, par value $.001 per share (the "PREFERRED SHARES"), of General Magic,
Inc., a Delaware corporation (the "COMPANY"), indicated below into shares of
Common Stock, par value $.001 per share (the "COMMON STOCK"), of the Company, by
tendering the stock certificate(s) representing the Preferred Shares specified
below as of the date specified below.
Date of Conversion: _________________________________________________
Number of Preferred Shares to be converted:_____________________________
Stock certificate no(s). of Preferred Shares to be converted:___________
Please confirm the following information:
Conversion Price:_______________________________________________________
Number of shares of Common Stock to be issued:__________________________
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to: ___________________________________________
___________________________________________
Facsimile Number: ___________________________________________
Authorization: ___________________________________________
By:________________________________________
Title:_____________________________________
Dated: ___________________________________________
Account Number:
(if electronic book entry transfer):__________________________________
Transaction Code Number
(if electronic book entry transfer):__________________________________
THIS NOTICE MUST BE DELIVERED TO COMPANY AND TRANSFER AGENT
<PAGE> 1
Exhibit 4.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of June 24,
1998, by and among General Magic, Inc., a Delaware corporation, with
headquarters located at 420 N. Mary Avenue, Sunnyvale, California 94086 (the
"COMPANY"), and the investors listed on the Schedule of Buyers attached hereto
(individually, a "BUYER" and collectively, the "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D ("REGULATION D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 ACT");
B. The Company has authorized the following new series of its Preferred
Stock, par value $.001 per share (the "PREFERRED STOCK"): the Company's Series C
Convertible Preferred Stock (the "PREFERRED SHARES"), which shall be convertible
into shares of the Company's Common Stock, par value $.001 per share (the
"COMMON STOCK") (as converted, the "CONVERSION SHARES"), in accordance with the
terms of the Company's Certificate of Designations, Preferences and Rights of
the Preferred Shares, substantially in the form attached hereto as Exhibit A
(the "CERTIFICATE OF DESIGNATIONS");
C. The Buyers wish to purchase, upon the terms and conditions stated in
this Agreement an aggregate of 3,000 of the Preferred Shares in the respective
amounts set forth opposite each Buyer's name on the Schedule of Buyers and one
warrant for each Preferred Share purchased, in substantially the form attached
hereto as Exhibit E (the "WARRANT"), to acquire 50 shares of Common Stock (the
"WARRANT SHARES") (the Preferred Shares, the Conversion Shares, the Warrants,
the Warrant Shares and any shares of Common Stock (the "REGISTRATION DELAY
PAYMENT SHARES") issued as payment of Registration Delay Payments (as defined in
the Registration Rights Agreement referred to below) are collectively referred
to in this Agreement as the "SECURITIES"); and
D. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto as Exhibit B (the "REGISTRATION RIGHTS
AGREEMENT") pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
<PAGE> 2
'
NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES.
a. Purchase of Preferred Shares. Subject to satisfaction (or
waiver) of the conditions set forth in Sections 6 and 7, the Company shall issue
and sell to the Buyers and the Buyers severally shall purchase from the Company
an aggregate of 3,000 Preferred Shares, along with the related Warrants, in the
respective amounts set forth opposite each Buyer's name on the Schedule of
Buyers (the "CLOSING"). The purchase price (the "PURCHASE PRICE") of each
Preferred Share and the related Warrant at the Closing shall be $10,000.
b. The Closing Date. The date and time of the Closing (the
"CLOSING DATE") shall be 10:00 a.m. Central Time within three (3) business days
following the date hereof, subject to satisfaction (or waiver) of the conditions
to the Closing set forth in Sections 6 and 7 (or such later date as is mutually
agreed to by the Company and the Buyers). The Closing shall occur on the Closing
Date at the offices of Katten Muchin & Zavis, 525 West Monroe Street, Suite
1600, Chicago, Illinois 60661-3693 or at such other place as the Company and the
Buyers may mutually agree.
c. Form of Payment. On the Closing Date, (i) each Buyer shall pay
the Purchase Price to the Company for the Preferred Shares and the related
Warrants to be issued and sold to such Buyer at the Closing, by wire transfer of
immediately available funds in accordance with the Company's written wire
instructions; and (ii) the Company shall deliver to each Buyer (A) stock
certificates (in the denominations as such Buyer shall request) (the "STOCK
CERTIFICATES") representing such number of Preferred Shares which such Buyer is
then purchasing, and (B) the related Warrants which the Buyer is then purchasing
at the Closing, duly executed on behalf of the Company and registered in the
name of such Buyer or its designee.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself
that:
a. Investment Purpose. Such Buyer (i) is acquiring the Preferred
Shares and the Warrants, (ii) upon conversion of the Preferred Shares, will
acquire the Conversion Shares then issuable, and (iii) upon exercise of the
Warrants, will acquire the Warrant Shares for its own account for investment
only and not with a view towards, or for resale in connection with, the public
sale or distribution thereof, except pursuant to sales registered or exempted
under the 1933 Act; provided, however, that by making the representations
herein, such Buyer does not agree to hold any of the Securities for any minimum
or other specific term, except as may be otherwise provided in Section 2(j) of
the Certificate of Designations, and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act.
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<PAGE> 3
b. Accredited Investor Status. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D.
c. Reliance on Exemptions. Such Buyer understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.
d. Information. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
in Sections 3 and 9(m). Such Buyer understands that its investment in the
Securities involves a high degree of risk. Such Buyer has sought such
accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the Securities.
e. No Governmental Review. Such Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
f. Transfer or Resale. Such Buyer understands that, except as
provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in form and substance reasonably satisfactory to
the Company, to the effect that the Securities to be sold, assigned or
transferred may be sold, assigned or transferred pursuant to an exemption from
such registration, or (C) such Buyer provides the Company with reasonable
assurance that the Securities can be sold, assigned or transferred pursuant to
Rule 144 promulgated under the 1933 Act (or a successor rule thereto)("RULE
144"); (ii) any sale of the Securities made in reliance on Rule 144 may be made
only in accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the person through whom the sale is made) may be deemed to be an underwriter
(as that term is defined in the 1933 Act) may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the SEC thereunder;
and (iii) neither the Company nor any other person is under any
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<PAGE> 4
obligation to register such Securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder. Notwithstanding the foregoing, the Securities may be pledged in
connection with a bona fide margin account.
g. Legends. Such Buyer understands that the certificates or other
instruments representing the Preferred Shares and the Warrants and, until such
time as the sale of the Conversion Shares and the Warrant Shares have been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement, the stock certificates representing the Conversion Shares and the
Warrant Shares, except as set forth below, shall bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS, OR AN OPINION OF COUNSEL, IN FORM AND SUBSTANCE REASONABLY
ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID
ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE
144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES
REPRESENTED BY THIS CERTIFICATE MAY BE PLEDGED IN CONNECTION WITH A BONA
FIDE MARGIN ACCOUNT.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if (i) such Securities are registered for sale under the 1933 Act, (ii)
in connection with a sale transaction, such holder provides the Company with an
opinion of counsel, in form and substance reasonably acceptable to the Company,
to the effect that a public sale, assignment or transfer of such Securities may
be made without registration under the 1933 Act, or (iii) such holder provides
the Company with reasonable assurances that such Securities can be sold without
restriction pursuant to Rule 144(k). Each Buyer acknowledges, covenants and
agrees to sell the Securities represented by a certificate(s) from which the
legend has been removed, only pursuant to (i) a registration statement effective
under the 1933 Act, or (ii) advice of counsel that such sale is exempt from
registration required by Section 5 of the 1933 Act.
h. Authorization; Enforcement. This Agreement and the
Registration Rights Agreement have been duly and validly authorized, executed
and delivered on behalf of such Buyer and constitute valid and binding
agreements of such Buyer enforceable against such Buyer
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<PAGE> 5
in accordance with their terms, subject as to enforceability to general
principles of equity and to applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation and other similar laws relating to, or affecting
generally, the enforcement of applicable creditors' rights and remedies.
i. Residency. Such Buyer is a resident of that country or
jurisdiction specified on the Schedule of Buyers.
j. No Conflicts. The execution, delivery and performance of this
Agreement and the Registration Rights Agreement by such Buyer and the
consummation by such Buyer of the transactions contemplated hereby and thereby
will not result in a violation of the certificate of incorporation, by-laws or
other documents of organization of such Buyer.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that:
a. Organization and Qualification. Set forth in Schedule 3(a) is
a complete list of each entity in which the Company, directly or indirectly,
owns any capital stock or holds an equity or similar interest. The Company and
its "Subsidiaries" (which for purposes of this Agreement means any entity in
which the Company, directly or indirectly, owns more than 20% of the outstanding
capital stock or holds an equity or similar interest representing at least 20%
of the outstanding equity or similar interests of such entity) (a complete list
of which is set forth in Schedule 3(a)) are corporations duly organized and
validly existing in good standing under the laws of the jurisdiction in which
they are incorporated, and have the requisite corporate power and authorization
to own their properties and to carry on their business as now being conducted.
Each of the Company and its Subsidiaries is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which its ownership of property or the nature of the business conducted by it
makes such qualification necessary, except to the extent that the failure to be
so qualified or be in good standing would not have a Material Adverse Effect. As
used in this Agreement, "MATERIAL ADVERSE EFFECT" means any material adverse
effect on the business, properties, assets, operations, results of operations,
financial condition or prospects of the Company and its Subsidiaries, if any,
taken as a whole, or on the transactions contemplated hereby or by the
agreements and instruments to be entered into in connection herewith, or on the
authority or ability of the Company to perform its obligations under the
Transaction Documents (as defined below) or the Certificate of Designations.
b. Authorization; Enforcement; Compliance with Other Instruments.
(i) The Company has the requisite corporate power and authority to enter into
and perform its obligations under this Agreement, the Warrants, the Registration
Rights Agreement, and the Irrevocable Transfer Agent Instructions (as defined in
Section 5) and each of the other agreements entered into by the parties hereto
in connection with the transactions contemplated by this Agreement
(collectively, the "TRANSACTION DOCUMENTS"), and to issue the Securities in
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<PAGE> 6
accordance with the terms hereof and thereof; (ii) the execution and delivery of
the Transaction Documents and the Certificate of Designations by the Company and
the consummation by it of the transactions contemplated hereby and thereby
(including, without limitation, the issuance of the Preferred Shares and the
Warrants and the reservation for issuance and the issuance of the Conversion
Shares and the Warrant Shares issuable upon conversion or exercise, as the case
may be) have been duly authorized by the Company's Board of Directors and no
further consent or authorization is required by the Company, its Board of
Directors or its stockholders, except for, if required by The Nasdaq Stock
Market, Inc., approval by its stockholders prior to the issuance of a number of
shares of Common Stock equal to or in excess of 20% of the number of shares of
Common Stock outstanding immediately prior to the Closing Date; (iii) the
Transaction Documents have been duly executed and delivered by the Company; (iv)
the Transaction Documents constitute the valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies; and (v) prior to the Closing Date, the Certificate of
Designations will have been filed with the Secretary of State of the State of
Delaware and will be in full force and effect, enforceable against the Company
in accordance with its terms.
c. Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of (i) 60,000,000 shares of Common Stock, of which
as of the date hereof, 29,074,669 shares were issued and outstanding, 5,204,894
shares are issuable and reserved for issuance pursuant to the Company's stock
option and purchase plans and 5,723,942 shares are issuable and reserved for
issuance pursuant to securities (other than the Preferred Shares and the
Warrants) exercisable or exchangeable for, or convertible into, shares of Common
Stock; and (ii) 500,000 shares of Preferred Stock, of which as of the date
hereof, 50,000 shares of Series A Preferred Stock and 5,000 shares of Series B
Preferred Stock were issued and outstanding. All of such outstanding shares have
been, or upon issuance will be, validly issued and are fully paid and
nonassessable. Except as disclosed in Schedule 3(c), (i) no shares of the
Company's capital stock are subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the Company; (ii)
there are no outstanding debt securities; (iii) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries; (iv) there are no agreements or arrangements
under which the Company or any of its Subsidiaries is obligated to register the
sale of any of their securities under the 1933 Act (except the Registration
Rights Agreement); (v) there are no outstanding securities of the Company or any
of its Subsidiaries which contain any redemption or similar provisions, and
there are no contracts, commitments, understandings or arrangements by which the
Company or
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<PAGE> 7
any of its Subsidiaries is or may become bound to redeem a security of the
Company or any of its Subsidiaries; (vi) there are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance of the Securities as described in this Agreement; and (vii) the Company
does not have any stock appreciation rights or "phantom stock" plans or
agreements or any similar plan or agreement. The Company has furnished to the
Buyers true and correct copies of the Company's Certificate of Incorporation, as
amended and as in effect on the date hereof (the "CERTIFICATE OF
INCORPORATION"), and the Company's By-laws, as in effect on the date hereof (the
"BY-LAWS"), and the terms of all securities convertible into or exercisable for
Common Stock and the material rights of the holders thereof in respect thereto.
d. Issuance of Securities. The Preferred Shares and the Warrants
are duly authorized and, upon issuance in accordance with the terms hereof,
shall be (i) validly issued, fully paid and non-assessable, (ii) free from all
taxes, liens and charges with respect to the issue thereof and (iii) entitled to
the rights and preferences set forth in the Certificate of Designations and the
Warrants. At least that number of shares of common required to be reserved by
the Company pursuant to Section 4(f) (subject to adjustment pursuant to the
Company's covenant set forth in Section 4(f) below) have been duly authorized
and reserved for issuance upon conversion of the Preferred Shares and upon
exercise of the Warrants. Upon conversion or exercise in accordance with the
Certificate of Designations or the Warrants (as the case may be) the Conversion
Shares and the Warrant Shares, and upon issuance, the Registration Delay Payment
Shares, will be validly issued, fully paid and nonassessable and free from all
taxes, liens and charges with respect to the issue thereof, with the holders
being entitled to all rights accorded to a holder of Common Stock and entitled
to be traded on the Nasdaq National Market, The New York Stock Exchange, Inc.
("NYSE") or The American Stock Exchange, Inc. ("AMEX"). The issuance by the
Company of the Securities is exempt from registration under the 1933 Act.
e. No Conflicts. Except as disclosed in Schedule 3(e), the
execution, delivery and performance of the Transaction Documents by the Company,
the performance by the Company of its obligations under the Certificate of
Designations and the Warrants and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
reservation for issuance and issuance of the Conversion Shares and the Warrant
Shares) will not (i) result in a violation of the Certificate of Incorporation,
any Certificate of Designations, Preferences and Rights of any outstanding
series of Preferred Stock of the Company or the By-laws; (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party; or (iii)
result in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations and the rules and
regulations of the principal market or exchange on which the Common Stock is
traded or listed) applicable to the Company or any of its Subsidiaries or by
which any property or asset of the Company or any of its Subsidiaries is bound
or affected. Except as disclosed in Schedule 3(e), neither the Company nor its
Subsidiaries is in violation of any term of or in default under (x) its
Certificate of Incorporation, any Certificate of
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<PAGE> 8
Designation, Preferences and Rights of any outstanding series of Preferred Stock
or By-laws or their organizational charter or by-laws, respectively, or (y) any
contract, agreement, mortgage, indebtedness, indenture, instrument, judgment,
decree or order or any statute, rule or regulation applicable to the Company or
its Subsidiaries, except for such violations which have not had and, to the
knowledge of the Company, will not have a Material Adverse Effect. The business
of the Company and its Subsidiaries is not being conducted, and shall not be
conducted, in violation of any law, ordinance or regulation of any governmental
entity, except for any violations which individually or in the aggregate will
not have a Material Adverse Effect. Except as specifically contemplated by this
Agreement and as required under the 1933 Act, the Company is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency or any regulatory or
self-regulatory agency in order for it to execute, deliver or perform any of its
obligations under or contemplated by the Transaction Documents or the
Certificate of Designations in accordance with the terms hereof or thereof.
Except as disclosed in Schedule 3(e), all consents, authorizations, orders,
filings and registrations which the Company is required to obtain pursuant to
the preceding sentence have been obtained or effected on or prior to the date
hereof. The Company complies with and is not in violation of the listing
requirements of the Nasdaq National Market as in effect on the date hereof and
the Closing Date and is not aware of any facts which would reasonably lead to
delisting or suspension of the Common Stock by the Nasdaq National Market in the
foreseeable future.
f. SEC Documents; Financial Statements. Since December 31, 1996,
the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "1934 ACT")
(all of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as the "SEC
DOCUMENTS"). The Company has delivered to or made available for review by the
Buyers or their respective representatives true and complete copies of the SEC
Documents. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
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<PAGE> 9
No other written information provided by or on behalf of the Company to the
Buyers which is not included in the SEC Documents, including, without
limitation, the information referred to in Section 2(d) of this Agreement,
contains any untrue statement of a material fact or omits to state any material
fact necessary in order to make the statements therein, in the light of the
circumstance under which they are or were made, not misleading. Neither the
Company nor any of its Subsidiaries or any of their officers, directors, agents
or employees have provided the Buyers with any material, nonpublic information.
g. Absence of Certain Changes. Except as disclosed in Schedule
3(g) or the SEC Documents filed on EDGAR at least five business days prior to
the date hereof, since December 31, 1997, there has been no adverse change and
no adverse development in the business, properties, operations, financial
condition, prospects, liabilities or results of operations of the Company or its
Subsidiaries which has had or, to the knowledge of the Company or its
Subsidiaries, may have a Material Adverse Effect. The Company has not taken any
steps, and does not currently expect to take any steps, to seek protection
pursuant to any bankruptcy law nor does the Company or any of its Subsidiaries
have any knowledge or reason to believe that its creditors intend to initiate
involuntary bankruptcy proceedings.
h. Absence of Litigation. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company or any of its Subsidiaries, threatened against or affecting the Company,
the Common Stock or any of the Company's Subsidiaries or any of the Company's or
the Company's Subsidiaries' officers or directors in their capacities as such,
except as set forth in Schedule 3(h).
i. Acknowledgment Regarding Buyers' Purchase of Preferred Shares.
The Company acknowledges and agrees that each of the Buyers is acting solely in
the capacity of arm's length purchaser with respect to the Transaction Documents
and the transactions contemplated thereby. The Company further acknowledges that
each Buyer is not acting as a financial advisor or fiduciary of the Company (or
in any similar capacity) with respect to the Transaction Documents and the
Certificate of Designations and the transactions contemplated thereby and any
advice given by any of the Buyers or any of their respective representatives or
agents in connection with the Transaction Documents and the Certificate of
Designations and the transactions contemplated thereby is merely incidental to
such Buyer's purchase of the Securities. The Company further represents to each
Buyer that the Company's decision to enter into the Transaction Documents has
been based solely on the independent evaluation by the Company and its
representatives.
j. No Undisclosed Events, Liabilities, Developments or
Circumstances. No event, liability, development or circumstance has occurred or
exists with respect to the Company or its Subsidiaries or their respective
business, properties, prospects, operations or financial condition, that would
be required to be disclosed by the Company under applicable securities
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<PAGE> 10
laws on a registration statement filed with the SEC relating to an issuance and
sale by the Company of its Common Stock and which has not been publicly
disclosed.
k. No General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Securities.
l. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering of Securities to be
integrated with prior offerings by the Company (other than the offer and sale by
the Company of its 5 1/2% Cumulative Convertible Series B Preferred Stock) for
purposes of the 1933 Act or any applicable stockholder approval provisions,
including, without limitation, under the rules and regulations of The Nasdaq
Stock Market, Inc., nor will the Company or any of its Subsidiaries take any
action or steps that would require registration of the Securities under the 1933
Act or cause the offering of the Securities to be integrated with other
offerings.
m. Employee Relations. Neither the Company nor any of its
Subsidiaries is involved in any material union labor dispute nor, to the
knowledge of the Company or any of its Subsidiaries, is any such dispute
threatened. Neither the Company nor any of its Subsidiaries is a party to a
collective bargaining agreement. The Company and its Subsidiaries believe that
relations between the Company and its Subsidiaries and their respective
employees are good. No executive officer (as defined in Rule 501(f) of the 1933
Act) has notified the Company that such officer intends to leave the Company or
otherwise terminate such officer's employment with the Company.
n. Intellectual Property Rights. The Company and its Subsidiaries
own or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. Except as set forth on Schedule 3(n), none of the
Company's trademarks, trade names, service marks, service mark registrations,
service names, patents, patent rights, copyrights, inventions, licenses,
approvals, government authorizations, trade secrets or other intellectual
property rights have expired or terminated, or are expected to expire or
terminate within two years from the date of this Agreement, where the result of
such expiration or termination would have, individually or in the aggregate, a
Material Adverse Effect. The Company and its Subsidiaries do not have any
knowledge of any infringement by the Company or its Subsidiaries of trademarks,
trade name rights, patents, patent rights, copyrights, inventions, licenses,
service names, service marks, service mark registrations, trade secret or other
similar rights of others, or of any such development of similar or identical
trade secret or technical information by others which infringement could have a
Material Adverse
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<PAGE> 11
Effect, and, except as set forth on Schedule 3(n), there is no claim, action or
proceeding being made or brought against, or to the Company's knowledge, being
threatened against, the Company or its Subsidiaries regarding trademarks, trade
name rights, patents, patent rights, inventions, copyrights, licenses, service
names, service marks, service mark registrations, trade secrets or other
infringement. The Company and its Subsidiaries have taken reasonable security
measures to protect the secrecy, confidentiality and value of all of their
intellectual properties.
o. Environmental Laws. The Company and its Subsidiaries (i) are
in compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, where such noncompliance or
failure to receive permits, licenses or approvals referred to in clauses (i),
(ii) and (iii) above could have, individually or in the aggregate, a Material
Adverse Effect.
p. Title. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 3(p) or such
as do not materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company or any of
its Subsidiaries. Any real property and facilities held under lease by the
Company or any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
q. Insurance. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has been
refused any insurance coverage sought or applied for and neither the Company nor
any such Subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company
and its Subsidiaries, taken as a whole.
r. Regulatory Permits. The Company and its Subsidiaries possess
all material certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company
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<PAGE> 12
nor any such Subsidiary has received any notice of proceedings relating to the
revocation or a modification of any such certificate, authorization or permit.
s. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
t. Foreign Corrupt Practices Act. To the knowledge of the
Company, neither the Company, nor any director, officer, agent, employee or
other person acting on behalf of the Company or any Subsidiary has, in the
course of acting for, or on behalf of, the Company, used any corporate funds for
any unlawful contribution, gift, entertainment or other unlawful expenses
relating to political activity; made any direct or indirect unlawful payment to
any foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977; or made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to any foreign or domestic government
official or employee.
u. Tax Status. Except as set forth on Schedule 3(u), the Company
and each of its Subsidiaries has made or filed all federal and state income and
all other tax returns, reports and declarations required by any jurisdiction to
which it is subject (unless and only to the extent that the Company and each of
its Subsidiaries has set aside on its books provisions reasonably adequate for
the payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any such
claim.
v. Certain Transactions. Except as set forth on Schedule 3(v) and
in the SEC Documents filed on EDGAR at least five business days prior to the
date hereof and except for arm's length transactions pursuant to which the
Company makes payments in the ordinary course of business upon terms no less
favorable than the Company could obtain from third parties and other than the
grant of stock options disclosed on Schedule 3(c), none of the officers,
directors, or employees of the Company is presently a party to any transaction
with the Company or any of its Subsidiaries (other than for services as
employees, officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to
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<PAGE> 13
or from any officer, director or such employee or, to the knowledge of the
Company, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
w. Dilutive Effect. The Company understands and acknowledges that
the number of Conversion Shares issuable upon conversion of the Preferred Shares
will increase in certain circumstances. The Company further acknowledges that
its obligation to issue Conversion Shares upon conversion of the Preferred
Shares in accordance with this Agreement and the Certificate of Designations is
absolute and unconditional regardless of the dilutive effect that such issuance
may have on the ownership interests of other stockholders of the Company.
x. No Other Agreements. The Company has not, directly or
indirectly, made any agreements with any Buyers relating to the terms or
conditions of the transactions contemplated by the Transaction Documents except
as set forth in the Transaction Documents.
4. COVENANTS.
a. Best Efforts. Each party shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.
b. Form D. The Company agrees to file a Form D with respect to
the Securities as required under Regulation D and to provide a copy thereof to
each Buyer promptly after such filing. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary to qualify the Securities for, or obtain exemption for the Securities
for, sale to the Buyers at the Closing pursuant to this Agreement under
applicable securities or "Blue Sky" laws of the states of the United States, and
shall provide evidence of any such action so taken to the Buyers on or prior to
the Closing Date. The Company shall make all filings and reports relating to the
offer and sale of the Securities required under applicable securities or "Blue
Sky" laws of the states of the United States following the Closing Date.
c. Reporting Status. Until the earlier of (i) the date which is
one year after the date as of which the Investors (as that term is defined in
the Registration Rights Agreement) may sell all of the Conversion Shares and the
Warrant Shares without restriction pursuant to Rule 144(k) promulgated under the
1933 Act (or successor thereto); or (ii) the date on which (A) the Investors
shall have sold all the Conversion Shares and the Warrant Shares, and (B) none
of the Preferred Shares or Warrants is outstanding (the "REGISTRATION PERIOD");
the Company (I) shall file all reports required to be filed with the SEC
pursuant to the 1934 Act, and (II) except as a result of a Major Transaction (as
defined in the Certificate of Designations) (provided that the Company has
complied with Sections 2(d)(iv) and 3(g) of the Certificate of Designations and
Section 9(f) of the Warrants), shall not terminate its status as an issuer
required to file reports under the 1934 Act even if the 1934 Act or the rules
and regulations thereunder would otherwise permit such termination.
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<PAGE> 14
d. Use of Proceeds. The Company will use the proceeds from the
sale of the Preferred Shares and the Warrants for general corporate purposes.
e. Financial Information. The Company agrees to send the
following to each Investor (as that term is defined in the Registration Rights
Agreement) during the Registration Period: (i) within two business days after
the filing thereof with the SEC, a copy of its Annual Reports on Form 10-K, its
Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and any
registration statements or amendments (other than on Form S-8) filed pursuant to
the 1933 Act; (ii) using the Company's reasonable best efforts to deliver on the
same day as the release thereof, facsimile copies of all press releases issued
by the Company or any of its Subsidiaries, and (iii) copies of any notices and
other information made available or given to the stockholders of the Company
generally, contemporaneously with the making available or giving thereof to the
stockholders.
f. Reservation of Shares. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than 200% of the number of shares of Common Stock needed to
provide for the issuance of the Conversion Shares and 150% of the number of
shares of Common Stock needed to provide for the issuance of the Warrant Shares
(without regard to any limitations on conversions or exercises).
g. No Discounted Convertible Offerings. Notwithstanding any other
provision of the Transaction Documents or the Certificate of Designations, until
the earlier of (x) the date which is one year after the Closing Date, (y) the
date on which in excess of 1,800 Preferred Shares have been converted and (z)
the date which is the last day during a period of 60 consecutive trading days
beginning after the Registration Statement (as defined in the Registration
Rights Agreement) has been declared effective by the SEC provided that the
Closing Bid Price (as defined in the Certificate of Designations) on each
trading day during such 60 trading day period is at least 120% of the Fixed
Conversion Price (as defined in the Certificate of Designations) on the Closing
Date (subject to adjustment for stock splits, stock dividends, combinations and
other similar events), the Company will not without the consent of Buyers
holding at least two-thirds (2/3) of the Preferred Shares then outstanding offer
or sell any securities convertible into or exercisable or exchangeable for
Common Stock where the conversion, exercise and/or exchange price of such
security is a function of or varies with (i) the market price of the underlying
security at or during some period of time prior to such conversion or (ii) the
price at which any holder of the underlying security sells that security on or
about the date of such conversion, exercise or exchange.
h. Listing. The Company shall promptly secure the listing of all
of the Registrable Securities (as defined in the Registration Rights Agreement)
upon each national securities exchange and automated quotation system (including
The Nasdaq SmallCap Market and the Nasdaq National Market), if any, upon which
shares of Common Stock are then listed (subject to official notice of issuance)
and shall maintain, so long as any other shares of Common
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<PAGE> 15
Stock shall be so listed, such listing of all Registrable Securities from time
to time issuable under the terms of the Transaction Documents and the
Certificate of Designations. The Company shall maintain the Common Stock's
authorization for listing on the Nasdaq National Market, AMEX or NYSE. Neither
the Company nor any of its Subsidiaries shall take any action which may result
in the delisting or suspension of the Common Stock on the Nasdaq National
Market, AMEX or NYSE (other than to switch listings from the Nasdaq National
Market to AMEX or NYSE or from AMEX to the Nasdaq National Market or NYSE). The
Company shall promptly provide to each Buyer copies of any notices it receives
from the Nasdaq National Market, AMEX or NYSE regarding the continued
eligibility of the Common Stock for listing on such automated quotation system
or securities exchange. The Company shall pay all fees and expenses in
connection with satisfying its obligations under this Section 4(h).
i. Expenses. Subject to Section 9(l) below, following the
Closing, the Company shall reimburse the Buyers for the Buyers' expenses
(including attorneys' fees and expenses) in connection with negotiating and
preparing the Transaction Documents and consummating the transactions
contemplated thereby up to an aggregate of $40,000.
j. Transactions With Affiliates. So long as any Preferred Shares
are outstanding the Company shall not, and shall cause each of its Subsidiaries
not to, enter into, amend, modify or supplement, or permit any Subsidiary to
enter into, amend, modify or supplement, any agreement, transaction, commitment
or arrangement with any of its or any Subsidiary's officers, directors, person
who were officers or directors at any time during the previous two years,
stockholders who beneficially own 5% or more of the Common Stock, or affiliates
or with any individual related by blood, marriage or adoption to any such
individual or with any entity in which any such entity or individual owns a 5%
or more beneficial interest (each a "RELATED PARTY"), except for (a) customary
employment arrangements and benefit programs on reasonable terms, (b) any
agreement, transaction, commitment or arrangement on an arms-length basis on
terms no less favorable than terms which would have been obtainable from a
person other than such Related Party, or (c) any agreement, transaction,
commitment or arrangement which is approved by a majority of the disinterested
directors of the Company. For purposes hereof, any director who is also an
officer of the Company or any Subsidiary of the Company shall not be a
disinterested director with respect to any such agreement, transaction,
commitment or arrangement. "AFFILIATE" for purposes hereof means, with respect
to any person or entity, another person or entity that, directly or indirectly,
(i) has a 5% or more equity interest in that person or entity, (ii) has 5% or
more common ownership with that person or entity, (iii) controls that person or
entity, or (iv) shares common control with that person or entity. "CONTROL" or
"CONTROLS" for purposes hereof means that a person or entity has the power,
direct or indirect, to conduct or govern the policies of another person or
entity.
k. Filing of Form 8-K. On or before the second business day
following the Closing Date, the Company shall file a Form 8-K with the SEC
describing the terms of the transaction contemplated by the Transaction
Documents and consummated at the Closing, in the form required by the 1934 Act.
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<PAGE> 16
l. Proxy Statement. Upon the earlier to occur of (i) any date
after the Closing Date on which the sum of (A) the number of Conversion Shares
and Warrant Shares issued and (B) the number of Conversion Shares and Warrant
Shares issuable as of such date pursuant to the conversion of all outstanding
Preferred Shares and the exercise of all outstanding Warrants, respectively,
(without regard to any limitations on conversions or exercises), exceeds 15% of
the number of shares of Common Stock outstanding immediately prior to the
Closing and (ii) May 1, 1999 (the earlier of such dates being referred to herein
as the "PROXY STATEMENT TRIGGER DATE"), the Company shall provide each
stockholder entitled to vote at the next meeting of stockholders of the Company,
which meeting shall not be later than 60 days after the Proxy Statement Trigger
Date (the "STOCKHOLDER MEETING DEADLINE"), a proxy statement, which has been
previously reviewed by the Buyers and a counsel of their choice, soliciting each
such stockholder's affirmative vote at such stockholder meeting for approval of
the Company's issuance of all of the Securities as described in this Agreement,
and the Company shall use its reasonable best efforts to solicit its
stockholders' approval of such issuance of the Securities and cause the Board of
Directors of the Company to recommend to the stockholders that they approve such
proposal. If the Company fails to hold a meeting of its stockholders by the
Stockholder Meeting Deadline, then, as partial relief (which remedy shall not be
exclusive of any other remedies available at law or in equity), the Company
shall pay to each holder of Preferred Shares an amount in cash per Preferred
Share equal to the product of (i) $10,000; multiplied by (ii) .02; multiplied by
(iii) the quotient of (x) the number of days after the Stockholder Meeting
Deadline that a meeting of the Company's stockholders is not held, divided by
(y) 30. The Company shall make the payments referred to in the immediately
preceding sentence within five days of the earlier of (I) the holding of the
meeting of the Company's stockholders, the failure of which resulted in the
requirement to make such payments, and (II) the last day of each 30-day period
beginning on the Stockholder Meeting Deadline. In the event the Company fails to
make such payments in a timely manner, such payments shall bear interest at the
rate of 1.5% per month (pro rated for partial months) until paid in full.
m. Right of First Refusal. Subject to the exceptions described
below, the Company and its Subsidiaries shall not contract with any party for
any equity financing (including any debt financing with an equity component) or
issue any equity securities of the Company or any Subsidiary or securities
convertible or exchangeable into or for equity securities of the Company or any
Subsidiary (including debt securities with an equity component) in any form
("FUTURE OFFERINGS") during the period beginning on the Closing Date and ending
on and including the date which is 365 days after the date the Registration
Statement is declared effective by the SEC, unless it shall have first delivered
to each Buyer or a designee appointed by such Buyer written notice (the "FUTURE
OFFERING NOTICE") describing the proposed Future Offering, including the terms
and conditions thereof, and providing each Buyer an option to purchase up to its
Aggregate Percentage (as defined below), as of the date of delivery of the
Future Offering Notice, of an amount of the Future Offering (the "RIGHT OF FIRST
REFUSAL AMOUNT") equal to the greater of (x) 50% of the Future Offering and (y)
the Conversion Amount (as defined in the Certificate of Designations) of the
Preferred Stock outstanding on the date the Company delivers
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<PAGE> 17
such Future Offering Notice (the limitations referred to in this sentence are
collectively referred to as the "CAPITAL RAISING LIMITATION"). For purposes of
this Section 4(m), "AGGREGATE PERCENTAGE" at any time with respect to any Buyer
shall mean the percentage obtained by dividing (i) the aggregate number of
Preferred Shares purchased by such Buyer at the Closing by (ii) the aggregate
number of Preferred Shares purchased by all Buyers at the Closing. A Buyer can
exercise its option to participate in a Future Offering by delivering written
notice thereof to participate to the Company within ten (10) business days of
receipt of a Future Offering Notice, which notice shall state the quantity of
securities being offered in the Future Offering that such Buyer will purchase,
up to its Aggregate Percentage of the Right of First Refusal Amount, and that
number of securities it is willing to purchase in excess of its Aggregate
Percentage of the Right of First Refusal Amount. In the event that one or more
Buyers fail to elect to purchase up to each such Buyer's Aggregate Percentage of
the Right of First Refusal Amount then each Buyer which has indicated that it is
willing to purchase a number of securities in excess of its Aggregate Percentage
of the Right of First Refusal Amount shall be entitled to purchase its pro rata
portion (determined in the same manner as described in the preceding sentence)
of the securities in the Future Offering which one or more Buyers have not
elected to purchase. In the event the Buyers fail to elect to fully participate
in the Future Offering within the periods described in this Section 4(m), the
Company shall have 45 days thereafter to sell the securities of the Future
Offering that the Buyers did not elect to purchase, upon terms and conditions
(including the amount thereof), no more favorable to the purchasers thereof than
specified in the Future Offering Notice. In the event the Company has not sold
such securities of the Future Offering within such 45 day period, the Company
shall not thereafter issue or sell such securities without first offering such
securities to the Buyers in the manner provided in this Section 4(m). The
Capital Raising Limitation shall not apply to (i) a loan from a bank or
institutional lender which does not have any equity feature other than warrants
exercisable at an exercise price greater than 50% of the market price of the
Common Stock at the time of such loan and exercisable for a number of shares of
Common Stock which does not exceed the quotient of (I) 10% of the proceeds to
the Company from such loan, divided by (II) the market price of the Common Stock
at the time of such loan, (ii) any transaction involving the Company's issuances
of securities (A) as consideration in a merger or consolidation, (B) in
connection with any strategic partnership or joint venture (the primary purpose
of which is not to raise equity capital), or (C) as consideration for the
acquisition of a business, product or license or other assets by the Company,
(iii) the issuance of Common Stock in a firm commitment, underwritten public
offering, (iv) the issuance of securities upon exercise or conversion of the
Company's options, warrants or other convertible securities outstanding as of
the date hereof, (v) the grant of additional options or warrants, or the
issuance of additional securities, under any contract, plan or agreement which
has been approved by the board of directors of the Company pursuant to which the
Company's securities may be issued to any employee, officer, director,
consultant or other service providers or (vi) the issuance of securities
pursuant to an offering by the Company in reliance upon Rule 144A under the 1933
Act with proceeds to the Company of at least $75,000,000. The Buyers shall not
be required to participate or exercise their right of first refusal with respect
to a particular Future Offering in order to exercise their right of first
refusal with respect to later Future Offerings.
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<PAGE> 18
o. Corporate Existence. So long as a Buyer beneficially owns any
Preferred Shares or Warrants, the Company shall maintain its corporate existence
and shall not sell all or substantially all of the Company's assets, except in
the event of a merger or consolidation or sale of all or substantially all of
the Company's assets, where the surviving or successor entity in such
transaction (i) assumes the Company's obligations hereunder and under the
agreements and instruments entered into in connection herewith and (ii) is a
publicly traded corporation whose common stock is listed for trading on the
Nasdaq National Market, NYSE or AMEX.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its transfer
agent, and any subsequent transfer agent, to issue certificates, registered in
the name of each Buyer or its respective nominee(s), for the Conversion Shares
and the Warrant Shares in such amounts as specified from time to time by each
Buyer to the Company upon conversion of the Preferred Shares or exercise of the
Warrants, as the case may be (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS").
Prior to registration of the Conversion Shares and the Warrant Shares under the
1933 Act, all such certificates shall bear the restrictive legend specified in
Section 2(g) of this Agreement. The Company warrants that no instruction other
than the Irrevocable Transfer Agent Instructions and stop transfer instructions
permitted by the Irrevocable Transfer Agent Instructions or to give effect to
Section 2(f) (in the case of the Conversion Shares and the Warrant Shares, prior
to registration of the Conversion Shares and the Warrant Shares under the 1933
Act) will be given by the Company to its transfer agent and that the Securities
shall otherwise be freely transferable on the books and records of the Company
as and to the extent provided in this Agreement and the Registration Rights
Agreement. Nothing in this Section 5 shall affect in any way each Buyer's
obligations and agreements set forth in Section 2(g) to comply with all
applicable prospectus delivery requirements, if any, upon resale of the
Securities. If a Buyer provides the Company with an opinion of counsel, in form
and substance generally acceptable to the Company, that registration of a resale
by such Buyer of any of such Securities is not required under the 1933 Act, the
Company shall permit the transfer, and, in the case of the Conversion Shares or
the Warrant Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by such Buyer
and without any restrictive legends. The Company acknowledges that a breach by
it of its obligations hereunder will cause irreparable harm to the Buyers by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Section 5 will be inadequate and agrees, in the event of
a breach or threatened breach by the Company of the provisions of this Section
5, that the Buyers shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach and requiring immediate
issuance and transfer, without the necessity of showing economic loss and
without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
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<PAGE> 19
The obligation of the Company hereunder to issue and sell the
Preferred Shares and the related Warrants to each Buyer at the Closing is
subject to the satisfaction, at or before the Closing Date, of each of the
following conditions, provided that these conditions are for the Company's sole
benefit and may be waived by the Company at any time in its sole discretion by
providing each Buyer with prior written notice thereof:
(a) Each Buyer shall have executed each of this Agreement and the
Registration Rights Agreement and delivered the same to the Company.
(b) The Certificate of Designations shall have been filed with
the Secretary of State of the State of Delaware.
(c) All of the Buyers shall have delivered to the Company the
Purchase Price for the Preferred Shares and the related Warrants being
purchased by the Buyers at the Closing by wire transfer of immediately
available funds pursuant to the wire instructions provided by the
Company.
(d) The representations and warranties of each Buyer shall be
true and correct as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties that
speak as of a specific date), and such Buyer shall have performed,
satisfied and complied with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or
complied with by such Buyer at or prior to the Closing Date.
(e) Each Buyer shall have executed the Amendment and Conversion
Agreement, dated as of the date hereof, and delivered the same to the
Company and shall have performed, satisfied and complied with the
covenants, agreements and conditions required by such Amendment and
Conversion Agreement to be performed, satisfied or complied with by such
Buyer at or prior to the Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase the Preferred
Shares and the related Warrants at the Closing is subject to the satisfaction,
at or before the Closing Date, of each of the following conditions, provided
that these conditions are for each Buyer's sole benefit and may be waived by
such Buyer at any time in its sole discretion:
(a) The Company shall have executed each of the Transaction
Documents, and delivered the same to such Buyer.
(b) The Certificate of Designations, shall have been filed with
the Secretary of State of the State of Delaware, and a copy thereof
certified by such Secretary of State shall have been delivered to such
Buyer.
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(c) The Common Stock shall be authorized for quotation on the
Nasdaq National Market or listing on AMEX or NYSE, trading in the Common
Stock issuable upon conversion of the Preferred Shares to be traded on
the Nasdaq National Market, AMEX or NYSE shall not have been suspended
by the SEC, The Nasdaq Stock Market, Inc., AMEX or NYSE and all of the
Conversion Shares and Warrant Shares issuable upon conversion of the
Preferred Shares or exercise of the Warrants, as the case may be, to be
sold at the Closing shall be listed upon the Nasdaq National Market,
AMEX or NYSE.
(d) The representations and warranties of the Company shall be
true and correct as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties that
speak as of a specific date) and the Company shall have performed,
satisfied and complied with the covenants, agreements and conditions
required by the Transaction Documents or Certificate of Designations to
be performed, satisfied or complied with by the Company at or prior to
the Closing Date. Such Buyer shall have received a certificate, executed
by the Chief Executive Officer of the Company, dated as of the Closing
Date, to the foregoing effect and as to such other matters as may be
reasonably requested by such Buyer including, without limitation, an
update as of the Closing Date regarding the representation contained in
Section 3(c) above.
(e) Such Buyer shall have received the opinion of Gray Cary Ware
& Freidenrich, dated as of the Closing Date, in form, scope and
substance reasonably satisfactory to such Buyer and in substantially the
form of Exhibit C attached hereto.
(f) The Company shall have executed and delivered to such Buyer
(i) the Stock Certificates (in such denominations as such Buyer shall
request) for the Preferred Shares, and (ii) the Warrants being purchased
by such Buyer at the Closing.
(g) The Board of Directors of the Company shall have adopted
resolutions consistent with Section 3(b)(ii) above and in a form
reasonably acceptable to such Buyer (the "RESOLUTIONS").
(h) As of the Closing Date, the Company shall have reserved out
of its authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the Preferred Shares and exercise of the
Warrants, at least that number of shares of Common Stock required to be
reserved by the Company pursuant to Section 4(f).
(i) The Irrevocable Transfer Agent Instructions, in the form of
Exhibit D attached hereto, shall have been delivered to and acknowledged
in writing by the Company's transfer agent.
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(j) The Company shall have delivered to such Buyer a certificate
evidencing the incorporation and good standing of the Company and each
Subsidiary in such corporation's state of incorporation issued by the
Secretary of State of such state of incorporation as of a date within
ten days of the Closing Date.
(k) The Company shall have delivered to such Buyer a secretary's
certificate certifying as to (A) the Resolutions, (B) certified copies
of its Certificate of Incorporation and (C) By-laws, each as in effect
at the Closing.
(l) The Company shall have delivered to such Buyer a certified
copy of its Certificate of Incorporation as certified by the Secretary
of State of the State of Delaware within ten days of the Closing Date.
(m) The Company shall have delivered to such Buyer a letter from
the Company's transfer agent certifying the number of shares of Common
Stock outstanding as of a date within five days of the Closing Date.
(n) The Company shall have executed the Amendment and Conversion
Agreement, dated as of the date hereof, and delivered the same to such
Buyer and shall have performed, satisfied and complied with the
covenants, agreements and conditions required by such Amendment and
Conversion Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing Date.
(o) The Company shall have delivered to such Buyer such other
documents relating to the transactions contemplated by the Transaction
Documents as such Buyer or its counsel may reasonably request.
8. INDEMNIFICATION. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents and the Certificate of Designations, the Company shall defend,
protect, indemnify and hold harmless each Buyer and each other holder of the
Securities and all of their stockholders, officers, directors, employees and
direct or indirect investors and any of the forgoing person's agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"INDEMNITEES") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "INDEMNIFIED LIABILITIES"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or the Certificate of Designations or any
other certificate, instrument or document contemplated hereby or thereby, (b)
any breach
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<PAGE> 22
of any covenant, agreement or obligation of the Company contained in the
Transaction Documents or the Certificate of Designations or any other
certificate, instrument or document contemplated hereby or thereby, (c) any
cause of action, suit or claim brought or made against such Indemnitee (other
than a cause of action, suit or claim by another Buyer) and arising out of or
resulting from the execution, delivery, performance, breach or enforcement of
the Transaction Documents or the Certificate of Designations, (d) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, excluding
losses resulting solely from a decline in the market value of the Company's
securities, or (e) the status of such Buyer or holder of the Securities as an
investor in the Company. Notwithstanding the foregoing, Indemnified Liabilities
shall not include any liability of any Indemnitee arising solely out of such
Indemnitee's willful misconduct or fraudulent action(s). To the extent that the
foregoing undertaking by the Company may be unenforceable for any reason, the
Company shall make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities which is permissible under applicable law.
Except as otherwise set forth herein, the mechanics and procedures with respect
to the rights and obligations under this Section 8 shall be the same as those
set forth in Sections 6(a) and (d) of the Registration Rights Agreement,
including, without limitation, those procedures with respect to the settlement
of claims and Company's right to assume the defense of claims.
9. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. The corporate laws of the State of Delaware
shall govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
interpreted in accordance with the laws of the State of New York without regard
to the principles of conflict of laws. Each party hereby irrevocably submits to
the non-exclusive jurisdiction of (i) the state and federal courts sitting in
the City of New York, borough of Manhattan and (ii) the state and federal courts
sitting in the State of California, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper. Each party hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address for such
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law.
b. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon
-22-
<PAGE> 23
the signatory thereto with the same force and effect as if the signature were an
original, not a facsimile signature.
c. Headings. The headings of this Agreement are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement supersedes all
other prior oral or written agreements between the Buyers, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the holders of at least two-thirds (2/3) of the Preferred Shares and
the Conversion Shares held by holders or former holders of the Preferred Shares
(determined on an as converted to Common Stock basis at the time of such
determination) then outstanding, and no provision hereof may be waived other
than by an instrument in writing signed by the party against whom enforcement is
sought. No such amendment shall be effective to the extent that it applies to
less than all of the holders of the Preferred Shares then outstanding. No
consideration shall be offered or paid to any person to amend or consent to a
waiver or modification of any provision of any of the Transaction Documents or
the Certificate of Designations unless the same consideration also is offered to
all of the parties to the Transaction Documents or holders of the Preferred
Shares, as the case may be.
-23-
<PAGE> 24
f. Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically generated and kept on
file by the sending party); or (iii) upon receipt, when delivered by a delivery
service, in each case properly addressed to the party to receive the same. The
addresses and facsimile numbers for such communications shall be:
If to the Company:
General Magic, Inc.
420 N. Mary Avenue
Sunnyvale, California 94086
Telephone: (408) 774-4000
Facsimile: (408) 774-4033
Attention: President
With a copy to:
Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, California 94301
Telephone: (650) 328-6561
Facsimile: (650) 327-3699
Attention: James Koshland, Esq.
If to the Transfer Agent:
Boston EquiServe LP
150 Royall Street
Canton, Massachusetts 06321
Telephone: (781) 575-0044
Facsimile: (781) 575-2549
Attention: Greg Bartek
If to a Buyer, to its address and facsimile number on the Schedule of
Buyers, with copies to such Buyer's representatives as set forth on the Schedule
of Buyers.
Each party shall provide five days' prior written notice to the other
party of any change in address or facsimile number.
g. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers
-24-
<PAGE> 25
of the Preferred Shares. The Company shall not assign this Agreement or any
rights or obligations hereunder without the prior written consent of the holders
of two-thirds (2/3) of the Preferred Shares then outstanding, including by
merger or consolidation, except pursuant to a Major Transaction with respect to
which the Company is in compliance with Section 4(o) of this Agreement and
Sections 2(d)(iv) and 3 of the Certificate of Designations. A Buyer may assign
some or all of its rights hereunder without the consent of the Company;
provided, however, that any such assignment shall not release such Buyer from
its obligations hereunder unless such obligations are assumed by such assignee
and the Company has consented to such assignment and assumption. Notwithstanding
anything to the contrary contained in the Transaction Documents, each Buyer
shall be entitled to pledge the Securities in connection with a bona fide margin
account.
h. No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. Survival. Unless this Agreement is terminated under Section
9(l), the representations and warranties of the Company and the Buyers contained
in Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and
9, and the indemnification provisions set forth in Section 8, shall survive the
Closing. Each Buyer shall be responsible only for its own representations,
warranties, agreements and covenants hereunder.
j. Publicity. The Company and each Buyer shall have the right to
approve before issuance any press releases or any other public statements with
respect to the transactions contemplated hereby; provided, however, that the
Company shall be entitled, without the prior approval of any Buyer, to make any
press release or other public disclosure with respect to such transactions as is
required by applicable law and regulations (although each Buyer shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release and shall be provided with a copy
thereof).
k. Further Assurances. Each party shall do and perform, or cause
to be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and documents,
as the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. Termination. In the event that the Closing shall not have
occurred with respect to a Buyer on or before three business days from the date
hereof due to the Company's or such Buyer's failure to satisfy the conditions
set forth in Sections 6 and 7 above (and the nonbreaching party's failure to
waive such unsatisfied condition(s)), the nonbreaching party shall have the
option to terminate this Agreement with respect to such breaching party at the
close of business on such date without liability of any party to any other
party; provided, however, that if this Agreement is terminated pursuant to this
Section 9(l), the Company shall remain obligated to
-25-
<PAGE> 26
reimburse the Buyers for expenses up to the amount described in Section 4(i),
provided that no Buyer has failed to satisfy the conditions set forth in Section
7.
m. Placement Agent. Each Buyer, severally and not jointly,
acknowledges that it has engaged AFO Capital Advisors, LLC as placement agent in
connection with the purchase of the Preferred Shares and the related Warrants,
which placement agent may have formally or informally engaged other agents on
its behalf. Each Buyer, severally and not jointly, shall be responsible for the
payment of AFO Capital Advisors, LLC's placement agent's fees or brokers
commissions relating to or arising out of the transactions contemplated hereby.
Each Buyer, severally and not jointly, shall pay, and hold the Company harmless
against, any liability, loss or expense (including, without limitation,
attorneys' fees and out of pocket expenses) arising in connection with any such
claim by AFO Capital Advisors, LLC. The Company acknowledges that it has not
engaged any placement agent in connection with the sale of the Preferred Shares
and the related Warrants. The Company shall be responsible for the payment of
any placement agent's fees or brokers commissions (other than those of AFO
Capital Advisors, LLC in connection with the Buyers' engagement of AFO Capital
Advisors, LLC as placement agent in connection with the purchase of the
Preferred Shares and Warrants) relating to or arising out of the transactions
contemplated hereby. The Company shall pay, and hold each Buyer harmless
against, any liability, loss or expense (including, without limitation,
attorneys' fees and out of pocket expenses) arising in connection with any such
claim.
n. No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
o. Remedies. Each Buyer and each holder of Preferred Shares or
Conversion Shares shall have all rights and remedies set forth in the
Transaction Documents and the Certificate of Designations and all rights and
remedies which such holders have been granted at any time under any other
agreement or contract relating to the subject matter hereof and all of the
rights which such holders have under any law. Any person having any rights under
any provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.
p. Payment Set Aside. To the extent that the Company makes a
payment or payments to the Buyers hereunder or pursuant to the Certificate of
Designations or the Buyers enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other person under any law (including, without limitation, any
bankruptcy law, state or federal law, common law or equitable cause of action),
then to the extent of any such restoration the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full
-26-
<PAGE> 27
force and effect as if such payment had not been made or such enforcement or
setoff had not occurred.
* * * * * *
-27-
<PAGE> 28
IN WITNESS WHEREOF, the Buyers and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
COMPANY: BUYERS:
GENERAL MAGIC, INC. THEMIS PARTNERS L.P.
By: Promethean Investment Group L.L.C.
Its: General Partner
By: /s/
--------------------------------
Name:
Its: By: /s/
-----------------------------------
Name: James F. O'Brien, Jr.
Its: President
HERACLES FUND
By: Promethean Investment Group L.L.C.
Its: Investment Advisor
By: /s/
----------------------------------
Name: James F. O'Brien, Jr.
Its: President
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P.
Its: Investment Advisor
By: RGC General Partner Corp.
Its: General Partner
By: /s/
----------------------------------
Name: Wayne Bloch
Its: Managing Director
<PAGE> 29
HALIFAX FUND, L.P.
By: The Palladin Group, L.P.
Its: Attorney-in-Fact
By: /s/
----------------------------------
Name: Robert Chender
Title: Managing Director
PALLADIN PARTNERS I, L.P.
By: Palladin Asset Management, L.L.C.
Its: General Partner
By: /s/
----------------------------------
Name: Robert Chender
Title: Managing Director
PALLADIN OVERSEAS FUND LIMITED
By: The Palladin Group L.P.
Its: Attorney-in-Fact
By: /s/
---------------------------------
Name: Robert Chender
Title: Managing Director
THE GLENEAGLES FUND COMPANY
By: The Palladin Group L.P
Its: Attorney-in-Fact
By: /s/
----------------------------------
Name: Robert Chender
Title: Managing Director
<PAGE> 30
PALLADIN SECURITIES, LLC
By: /s/
---------------------------------
Name: Robert Chender
Title: Principal
COLONIAL PENN LIFE INSURANCE COMPANY
By: The Palladin Group L.P.
Its: Attorney-in-Fact
By: /s/
---------------------------------
Name: Robert Chender
Title: Managing Director
<PAGE> 31
<TABLE>
<CAPTION>
SCHEDULE OF BUYERS
INVESTOR NAME INVESTOR ADDRESS NUMBER INVESTOR'S
AND FACSIMILE NUMBER OF REPRESENTATIVES' ADDRESS
PREFERRED AND FACSIMILE NUMBER
SHARES
- ---------------------- --------------------------------- -------- -----------------------------------
<S> <C> <C> <C>
Themis Partners L.P. Promethean Investment Group, L.L.C. 250 Promethean Investment Group, L.L.C.
40 West 57th Street, Suite 1520 40 West 57th Street,
New York, New York 10019 Suite 1520
Attn: James F. O'Brien, Jr. New York, New York 10019
Facsimile: 212-698-0505 Attn: James F. O'Brien, Jr.
Residence: New York E. Kurt Kim
Facsimile: 212-698-0505
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661-3693
Attn: Robert J. Brantman, Esq.
Facsimile: 312-902-1061
Heracles Fund Bank of Bermuda (Cayman) Limited 550 Promethean Investment
P.O. Box 513 Group, L.L.C.
3rd Floor British American 40 West 57th Street,
Center Suite 1520
Dr. Roy's Drive New York, New York 10019
Georgetown, Grand Cayman Attn: James F. O'Brien, Jr.
Cayman Island, BWI E. Kurt Kim
Attn: Allen J. Bernardo Facsimile: 212-698-0505
Facsimile: 809-949-7802
Residence: Gayman Islands Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661-3693
Attn: Robert J. Brantman, Esq.
Facsimile: 312-902-1061
RGC International c/o Rose Glen Capital 1,200 Rose Glen Capital
Investors, LDC Management, L.P. Management, L.P.
3 Bala Plaza East, Suite 200 3 Bala Plaza East, Suite 200
Bala Cynwyd, Pennsylvania Bala Cynwyd, Pennsylvania
Attn: Gary Kaminsky Attn: Gary Kaminsky
Facsimile: 610-617-0570 Facsimile: 610-617-0570
Residence: Pennsylvania
Palladin Partners I, c/o The Palladin Group L.P. 100 The Palladin Group L.P.
L.P. 40 West 57th Street As Investment Advisor
15th Floor 40 West 57th Street
New York, NY 10019 15th Floor
Attn: Kevin Gerlitz New York, NY 10019
Facsimile: 212-698-0563 Attn: Kevin Gerlitz
Facsimile: 212-698-0563
Residence: New York
Halifax Fund, L.P. c/o Citco Fund Services (Cayman 700 The Palladin Group L.P.
Islands) Ltd. As Investment Advisor
Corporate Centre, West Bay Road 40 West 57th Street
P.O. Box 31106 SMB 15th Floor
Grand Cayman, Cayman Islands New York, NY 10019
Facsimile: 345-949-3877 Attn: Kevin Gerlitz
Facsimile: 212-698-0563
Residence: Cayman Islands
</TABLE>
<PAGE> 32
<TABLE>
<CAPTION>
INVESTOR NAME INVESTOR ADDRESS NUMBER INVESTOR'S
AND FACSIMILE NUMBER OF REPRESENTATIVES' ADDRESS
PREFERRED AND FACSIMILE NUMBER
SHARES
- ---------------------- --------------------------------- -------- -----------------------------------
<S> <C> <C> <C>
The Gleneagles Fund c/o Citco Fund Services (Cayman 50 The Palladin Group L.P.
Company Islands) Ltd. As Investment Advisor
Corporate Centre, West Bay Road 40 West 57th Street
P.O. Box 31106 SMB 15th Floor
Grand Cayman, Cayman Islands New York, NY 10019
Facsimile: 345-949-3877 Attn: Kevin Gerlitz
Facsimile: 212-698-0563
Residence: Cayman Islands
Palladin Overseas c/o Citco Fund Services (Cayman 50 The Palladin Group L.P.
Fund Limited Islands) Ltd. As Investment Advisor
Corporate Centre, West Bay Road 40 West 57th Street
P.O. Box 31106 SMB 15th Floor
Grand Cayman, Cayman Islands New York, NY 10019
Facsimile: 345-949-3877 Attn: Kevin Gerlitz
Facsimile: 212-698-0563
Residence: Cayman Islands
Colonial Penn Life Colonial Penn Life Insurance 50 The Palladin Group L.P.
Insurance Company Company As Investment Advisor
1818 Market Street 40 West 57th Street
Philadelphia, PA 19181 15th Floor
New York, NY 10019
Residence: Pennsylvania Attn: Kevin Gerlitz
Facsimile: 212-698-0563
Palladin Securities, c/o The Palladin Group L.P. 50 The Palladin Group L.P.
LLC 40 West 57th Street As Investment Advisor
15th Floor 40 West 57th Street
New York, NY 10019 15th Floor
Attn: Kevin Gerlitz New York, NY 10019
Facsimile: 212-698-0563 Attn: Kevin Gerlitz
Facsimile: 212-698-0563
Residence: New York
</TABLE>
<PAGE> 33
LIST OF SCHEDULES
SCHEDULE 3(a) Subsidiaries
SCHEDULE 3(c) Capitalization
SCHEDULE 3(e) Conflicts
SCHEDULE 3(g) Material Changes
SCHEDULE 3(h) Litigation
SCHEDULE 3(n) Intellectual Property
SCHEDULE 3(p) Liens
SCHEDULE 3(u) Tax Status
SCHEDULE 3(v) Certain Transactions
LIST OF EXHIBITS
EXHIBIT A Form of Certificate of Designations, Preferences and Rights of
the Preferred Shares
EXHIBIT B Form of Registration Rights Agreement
EXHIBIT C Form of Company Counsel Opinion
EXHIBIT D Form of Irrevocable Transfer Agent Instructions
EXHIBIT E Form of Warrant
<PAGE> 1
Exhibit 4.2
EXHIBIT E
FORM OF WARRANT
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN FORM AND
SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD
PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT.
GENERAL MAGIC, INC.
WARRANT TO PURCHASE COMMON STOCK
Warrant No.: _______________________ Number of Shares:________
Date of Issuance: June 25, 1998
General Magic, Inc., a Delaware corporation (the "COMPANY"), hereby certifies
that, for Ten United States Dollars ($10.00) and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
____________________, the registered holder hereof or its permitted assigns, is
entitled, subject to the terms set forth below, to purchase from the Company
upon surrender of this Warrant, at any time or times on or after the date
hereof, but not after 11:59 P.M. Eastern Time on the Expiration Date (as defined
herein) ___ (___) [INSERT 50 FOR EACH PREFERRED SHARE] fully paid nonassessable
shares of Common Stock (as defined in Section 1(b)) of the Company (the "WARRANT
SHARES") at the purchase price per share provided in Section 1(b) below (the
"WARRANT EXERCISE PRICE"); provided, however, that in no event shall the holder
be entitled to exercise this Warrant for a number of Warrant Shares in excess of
that number of Warrant Shares which, upon giving effect to such exercise, would
cause the aggregate number of shares of Common Stock beneficially owned by the
holder and its affiliates to exceed 4.99% of the outstanding shares of the
Common Stock following such exercise. For purposes of the foregoing proviso, the
aggregate number of shares of Common Stock beneficially owned by the holder and
its affiliates shall include the
<PAGE> 2
number of shares of Common Stock issuable upon exercise of this Warrant with
respect to which the determination of such proviso is being made, but shall
exclude shares of Common Stock which would be issuable upon (i) exercise of the
remaining, unexercised Warrants beneficially owned by the holder and its
affiliates and (ii) exercise or conversion of the unexercised or unconverted
portion of any other securities of the Company beneficially owned by the holder
and its affiliates (including, without limitation, any convertible notes,
convertible preferred stock, warrants or rights to receive shares of Common
Stock) subject to a limitation on conversion or exercise analogous to the
limitation contained herein. Except as set forth in the preceding sentence, for
purposes of this paragraph, beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended. The holder may waive the foregoing limitations by written notice to the
Company upon not less than 61 days prior notice (with such waiver taking effect
only upon the expiration of such 61 day notice period).
1.
(a) Securities Purchase Agreement. This Warrant is one of the
warrants (the "PREFERRED SHARE WARRANTS") issued pursuant to Section 1 of that
certain Securities Purchase Agreement dated as of June 24, 1998, among the
Company and the Buyers referred to therein (the "PURCHASE AGREEMENT").
(b) Definitions. The following words and terms as used in this
Warrant shall have the following meanings:
"MARKET PRICE" means, with respect to any security for\
any date, the average of the Closing Bid Prices (as defined below) for such
security during the five consecutive trading days immediately preceding such
date.
"CLOSING BID PRICE" means, for any security as of any
date, the last closing bid price for such security on the Nasdaq National Market
("NASDAQ") as reported by Bloomberg Financial Markets ("BLOOMBERG"), or, if
NASDAQ is not the principal trading market for such security, the last closing
bid price of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no closing bid price is reported for such security
by Bloomberg, the last closing trade price for such security as reported by
Bloomberg, or, if no last closing trade price is reported for such security by
Bloomberg, the average of the bid prices of any market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the
Closing Bid Price cannot be calculated for such security on such date on any of
the foregoing bases, the Closing Bid Price of such security on such date shall
be the fair market value as mutually determined by the Company and the holders
of the Preferred Shares. If the Company and the holders of the Preferred Shares
are unable to agree upon the fair market value of the Common Stock, then such
dispute shall be resolved pursuant to Section 2(a) of this Warrant with the term
"Closing Bid Price" being
-2-
<PAGE> 3
substituted for the term "Market Price." (All such determinations to be
appropriately adjusted for any stock dividend, stock split or other similar
transaction during such period.)
"APPROVED STOCK PLAN" shall mean any plan which has been
approved by the Board of Directors of the Company, pursuant to which the
Company's securities may be issued to any employee, officer, director or
consultant for services provided to the Company.
"CERTIFICATE OF DESIGNATIONS" means the Certificate of
Designations, Preferences and Rights of the Preferred Shares (as defined below).
"COMMON STOCK" means (i) the Company's common stock, par
value $.01 per share, and (ii) any capital stock into which such Common Stock
shall have been changed or any capital stock resulting from a reclassification
of such Common Stock.
"COMMON STOCK DEEMED OUTSTANDING" means, at any given
time, the number of shares of Common Stock actually outstanding at such time,
plus the number of shares of Common Stock deemed to be outstanding pursuant to
Sections 8(b)(i) and 8(b)(ii) hereof regardless of whether the Options (as
defined in Section 8(b)(i)) or Convertible Securities (as defined in Section
8(b)(i)) are actually exercisable or convertible at such time, but excluding any
shares of Common Stock issuable upon exercise of the Preferred Share Warrants.
"EXPIRATION DATE" means the date three years from the
original date of this Warrant or, if such date falls on a Saturday, Sunday or
other day on which banks are required or authorized to be closed in the City of
New York or the State of New York (a "HOLIDAY"), the next preceding date that is
not a Holiday.
"OTHER SECURITIES" means (i) those warrants, options or
convertible securities of the Company issued prior to, and outstanding on, the
date of issuance of this Warrant, (ii) the Preferred Shares (as defined below)
and (iii) the shares of Common Stock issued upon conversion of the Preferred
Shares.
"PERSON" means an individual, a limited liability company,
a partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
"PREFERRED SHARES" means the shares of the Company's
Series C Convertible Preferred Stock issued pursuant to the Purchase Agreement.
"REGISTRATION RIGHTS AGREEMENT" means the Registration
Rights Agreement dated June 24, 1998 among the Company and the Buyers named
therein entered into in connection with the Purchase Agreement.
"SECURITIES ACT" means the Securities Act of 1933, as
amended.
-3-
<PAGE> 4
"WARRANT" means this Warrant and all Warrants issued in
exchange, transfer or replacement of any thereof.
"WARRANT EXERCISE PRICE" shall be $17.22, subject to
adjustment as hereinafter provided.
(c) Other Definitional Provisions.
(i) Except as otherwise specified herein, all references
herein (A) to the Company shall be deemed to include the Company's successors
and (B) to any applicable law defined or referred to herein, shall be deemed
references to such applicable law as the same may have been or may be amended or
supplemented from time to time.
(ii) When used in this Warrant, the words "HEREIN,"
"HEREOF," and "HEREUNDER," and words of similar import, shall refer to this
Warrant as a whole and not to any provision of this Warrant, and the words
"SECTION," "SCHEDULE," and "EXHIBIT" shall refer to Sections of, and Schedules
and Exhibits to, this Warrant unless otherwise specified.
(iii) Whenever the context so requires, the neuter gender
includes the masculine or feminine, and the singular number includes the plural,
and vice versa.
2. Exercise of Warrant.
(a) Subject to the terms and conditions hereof, this Warrant may
be exercised by the holder hereof then registered on the books of the Company,
in whole or in part, at any time during normal business hours on any business
day on or after the opening of business on the date hereof and prior to 11:59
P.M. Eastern Time on the Expiration Date by (i) delivery of a written notice, in
the form of the subscription notice attached as Exhibit A hereto, of such
holder's election to exercise this Warrant, which notice shall specify the
number of Warrant Shares to be purchased, (ii) payment to the Company of an
amount equal to the Warrant Exercise Price multiplied by the number of Warrant
Shares as to which the Warrant is being exercised (the "AGGREGATE EXERCISE
PRICE") in cash or by check or wire transfer of immediately available funds, and
(iii) the surrender of this Warrant, at the principal office of the Company;
provided, that if such Warrant Shares are to be issued in any name other than
that of the registered holder of this Warrant, such issuance shall be deemed a
transfer and the provisions of Section 7 shall be applicable. In the event of
any exercise of the rights represented by this Warrant in compliance with this
Section 2(a), a certificate or certificates for the Warrant Shares so purchased,
in such denominations as may be requested by the holder hereof and registered in
the name of, or as directed by, the holder, shall be delivered at the Company's
expense to, or as directed by, such holder as soon as practicable after such
rights shall have been so exercised, and in any event no later than three
business days after such exercise. In the case of a dispute as to the
determination of the Warrant Exercise Price of a security or the arithmetic
calculation of the Warrant Shares,
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<PAGE> 5
the Company shall promptly issue to the holder the number of shares of Common
Stock that is not disputed and shall submit the disputed determinations or
arithmetic calculations to the holder via facsimile within one business day of
receipt of the holder's subscription notice. If the holder and the Company are
unable to agree upon the determination of the Warrant Exercise Price or
arithmetic calculation of the Warrant Shares within one business day of such
disputed determination or arithmetic calculation being submitted to the holder,
then the Company shall immediately submit via facsimile (i) the disputed
determination of the Warrant Exercise Price to an independent, reputable
investment banking firm or (ii) the disputed arithmetic calculation of the
Warrant Shares to its independent, outside accountant. The Company shall cause
the investment banking firm or the accountant, as the case may be, to perform
the determinations or calculations and notify the Company and the holder of the
results no later than 48 hours from the time it receives the disputed
determinations or calculations. Such investment banking firm's or accountant's
determination or calculation, as the case may be, shall be deemed conclusive
absent manifest error.
(b) Unless the rights represented by this Warrant shall have
expired or shall have been fully exercised, the Company shall, as soon as
practicable and in no event later than five business days after any exercise and
at its own expense, issue a new Warrant identical in all respects to the Warrant
exercised except (i) it shall represent rights to purchase the number of Warrant
Shares purchasable immediately prior to such exercise under the Warrant
exercised, less the number of Warrant Shares with respect to which such Warrant
is exercised, and (ii) the holder thereof shall be deemed for all corporate
purposes to have become the holder of record of such Warrant Shares immediately
prior to the close of business on the date on which the Warrant is surrendered
and payment of the amount due in respect of such exercise and any applicable
taxes is made, irrespective of the date of delivery of certificates evidencing
such Warrant Shares, except that, if the date of such surrender and payment is a
date when the stock transfer books of the Company are properly closed, such
person shall be deemed to have become the holder of such Warrant Shares at the
opening of business on the next succeeding date on which the stock transfer
books are open.
(c) No fractional shares of Common Stock are to be issued upon
the exercise of this Warrant, but rather the number of shares of Common Stock
issued upon exercise of this Warrant shall be rounded up or down to the nearest
whole number.
(d) If the Company shall fail for any reason or for no reason to
issue to the holder on a timely basis as described in this Section 2, a
certificate for the number of shares of Common Stock to which the holder is
entitled upon the holder's exercise of this Warrant or a new Warrant for the
number of shares of Common Stock to which such holder is entitled pursuant to
Section 2(b) hereof, the Company, in addition to any other remedies under this
Warrant or the Securities Purchase Agreement or otherwise available to such
holder, including any indemnification under Section 8 of the Securities Purchase
Agreement, shall pay as additional damages in cash to such holder on each date
after the fifth business day following receipt by the Company of the exercise
notice that such exercise is not timely effected in an
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<PAGE> 6
amount equal to 0.5% of the product of (A) the sum of the number of shares of
Common Stock not issued to the holder on a timely basis and to which the holder
is entitled and, in the event the Company has failed to timely deliver a new
Warrant, the number of shares represented by the portion of this Warrant which
is not being converted, as the case may be, and (B) the average of the Closing
Bid Prices for the three consecutive trading days immediately preceding the last
possible date which the Company could have issued such Common Stock to the
holder without violating this Section 2.
(e) Notwithstanding anything contained herein to the contrary,
the holder of this Warrant may, at its election exercised in its sole
discretion, exercise this Warrant in whole or in part and, in lieu of making the
cash payment otherwise contemplated to be made to the Company upon such exercise
in payment of the Aggregate Exercise Price, elect instead to receive upon such
exercise the "Net Number" of shares of Common Stock determined according to the
following formula:
Net Number = (A x B) - (A x C)
----------------
B
For purposes of the foregoing formula:
A= the total number shares with respect to which this
Warrant is then being exercised.
B= the last reported sale price (as reported by Bloomberg)
of the Common Stock on the date immediately preceding the
date of the subscription notice.
C= the Warrant Exercise Price then in effect at the time
of such exercise.
3. Covenants as to Common Stock. The Company hereby covenants and agrees as
follows:
(a) This Warrant is, and any Preferred Share Warrants issued in
substitution for or replacement of this Warrant will upon issuance be, duly
authorized and validly issued.
(b) All Warrant Shares which may be issued upon the exercise of
the rights represented by this Warrant will, upon issuance, be validly issued,
fully paid and nonassessable and free from all taxes, liens and charges with
respect to the issue thereof.
(c) During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized and
reserved at least 100% of the
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<PAGE> 7
number of shares of Common Stock needed to provide for the exercise of the
rights then represented by this Warrant and the par value of said shares will at
all times be less than or equal to the applicable Warrant Exercise Price.
(d) The Company shall promptly secure the listing of the shares
of Common Stock issuable upon exercise of this Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance upon
exercise of this Warrant) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all shares of Common Stock from
time to time issuable upon the exercise of this Warrant; and the Company shall
so list on each national securities exchange or automated quotation system, as
the case may be, and shall maintain such listing of, any other shares of capital
stock of the Company issuable upon the exercise of this Warrant if and so long
as any shares of the same class shall be listed on such national securities
exchange or automated quotation system.
(e) The Company will not, by amendment of its charter or through
any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities, or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed by it hereunder, but will at all times in good faith assist in the
carrying out of all the provisions of this Warrant and in the taking of all such
action as may reasonably be requested by the holder of this Warrant in order to
protect the exercise privilege of the holder of this Warrant against dilution or
other impairment, consistent with the tenor and purpose of this Warrant. No
impairment of the designations, preferences and rights of the Preferred Shares
contained in the Certificate of Designations or any waiver thereof which has an
adverse effect on the rights granted hereunder shall be given effect until the
Company has taken appropriate action (satisfactory to the holders of Preferred
Share Warrants representing a majority of the shares of Common Stock issuable
upon the exercise of such Preferred Share Warrants then outstanding) to avoid
such adverse effect with respect to this Warrant. Without limiting the
generality of the foregoing, the Company (i) will not increase the par value of
any shares of Common Stock receivable upon the exercise of this Warrant above
the Warrant Exercise Price then in effect, and (ii) will take all such actions
as may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant.
(f) This Warrant will be binding upon any entity succeeding to
the Company by merger, consolidation or acquisition of all or substantially all
of the Company's assets.
4. Taxes. The Company shall pay any and all taxes which may be imposed upon it,
other than income and franchise taxes of the holder of this Warrant, with
respect to the issuance and delivery of Warrant Shares upon exercise of this
Warrant.
5. Warrant Holder Not Deemed a Stockholder. Except as otherwise specifically
provided herein, no holder, as such, of this Warrant shall be entitled to vote
or receive dividends
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<PAGE> 8
or be deemed the holder of shares of the Company for any purpose, nor shall
anything contained in this Warrant be construed to confer upon the holder
hereof, as such, any of the rights of a stockholder of the Company or any right
to vote, give or withhold consent to any corporate action (whether any
reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive dividends
or subscription rights, or otherwise, prior to the issuance to the holder of
this Warrant of the Warrant Shares which he or she is then entitled to receive
upon the due exercise of this Warrant. In addition, nothing contained in this
Warrant shall be construed as imposing any liabilities on such holder to
purchase any securities or as a stockholder of the Company, whether such
liabilities are asserted by the Company or by creditors of the Company.
Notwithstanding this Section 5, the Company will provide the holder of this
Warrant with copies of the same notices and other information given to the
stockholders of the Company generally, contemporaneously with the giving thereof
to the stockholders.
6. Representations of Holder. The holder of this Warrant, by the acceptance
hereof, represents that it is acquiring this Warrant and the Warrant Shares for
its own account for investment and not with a view to, or for sale in connection
with, any distribution hereof or of any of the shares of Common Stock or other
securities issuable upon the exercise thereof, and not with any present
intention of distributing any of the same. The holder of this Warrant further
represents, by acceptance hereof, that, as of this date, such holder is an
"ACCREDITED INVESTOR" as such term is defined in Rule 501(a) of Regulation D
promulgated by the Securities and Exchange Commission under the Securities Act
(an "ACCREDITED INVESTOR"). Upon exercise of this Warrant, the holder shall, if
requested by the Company, confirm in writing, in a form satisfactory to the
Company, that the Warrant Shares so purchased are being acquired solely for the
holder's own account and not as a nominee for any other party, for investment,
and not with a view toward distribution or resale other than pursuant to an
effective registration statement or an exemption under the Securities Act and
that such holder is an Accredited Investor. Notwithstanding the foregoing, by
making the representations herein, the holder does not agree to hold the Warrant
or the Warrant Shares for any minimum or other specified term and reserves the
right to dispose of the Warrant and the Warrant Shares at any time in accordance
with or pursuant to a registration statement or an exemption under the
Securities Act. If such holder cannot make such representations because they
would be factually incorrect, it shall be a condition to such holder's exercise
of the Warrant that the Company receive such other representations as the
Company considers reasonably necessary to assure the Company that the issuance
of its securities upon exercise of the Warrant shall not violate any United
States or state securities laws.
7. Ownership and Transfer.
(a) The Company shall maintain at its principal executive offices
(or such other office or agency of the Company as it may designate by notice to
the holder hereof), a register for this Warrant, in which the Company shall
record the name and address of the person in whose name this Warrant has been
issued, as well as the name and address of each transferee.
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<PAGE> 9
The Company may treat the person in whose name any Warrant is registered on the
register as the owner and holder thereof for all purposes, notwithstanding any
notice to the contrary, but in all events recognizing any transfers made in
accordance with the terms of this Warrant.
(b) This Warrant and the rights granted to the holder hereof are
transferable to affiliates or associates of the holder hereof, without the
written consent of the Company, and to other Persons, with the consent of the
Company, which consent shall not be unreasonably withheld, in whole or in part,
upon surrender of this Warrant, together with a properly executed warrant power
in the form of Exhibit B attached hereto; provided, however, that any transfer
or assignment shall be subject to the conditions set forth in Section 7(c)
below.
(c) The holder of this Warrant understands that this Warrant has
not been and is not expected to be, registered under the Securities Act or any
state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (a) subsequently registered thereunder, or (b) such holder
shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company, to the effect that the
securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration; provided that (i)
any sale of such securities made in reliance on Rule 144 promulgated under the
Securities Act may be made only in accordance with the terms of said Rule and
further, if said Rule is not applicable, any resale of such securities under
circumstances in which the seller (or the person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the Securities
Act) may require compliance with some other exemption under the Securities Act
or the rules and regulations of the Securities and Exchange Commission
thereunder; and (ii) neither the Company nor any other person is under any
obligation to register the Preferred Share Warrants under the Securities Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder.
(d) The Company is obligated to register the Warrant Shares for
resale under the Securities Act pursuant to the Registration Rights Agreement
and the initial holder of this Warrant (and certain assignees thereof) is
entitled to the registration rights in respect of the Warrant Shares as set
forth in the Registration Rights Agreement.
8. Adjustment of Warrant Exercise Price and Number of Shares. In order to
prevent dilution of the rights granted under this Warrant, the Warrant Exercise
Price and the number of shares of Common Stock issuable upon exercise of this
Warrant shall be adjusted from time to time as follows:
(a) Adjustment of Warrant Exercise Price and Number of Shares
upon Issuance of Common Stock. If and whenever on or after the date of issuance
of this Warrant, the Company issues or sells, or is deemed to have issued or
sold, any shares of Common Stock (other than shares of Common Stock deemed to
have been issued by the Company in connection with an Approved Stock Plan or
upon exercise or conversion of the Other Securities) for a consideration per
share less than a price (the "APPLICABLE PRICE") equal to the Warrant Exercise
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<PAGE> 10
Price in effect immediately prior to such issuance or sale, then immediately
after such issue or sale the Warrant Exercise Price then in effect shall be
reduced to an amount equal to the product of (x) the Warrant Exercise Price in
effect immediately prior to such issue or sale and (y) the quotient determined
by dividing (1) the sum of (I) the product of the Applicable Price and the
number of shares of Common Stock Deemed Outstanding immediately prior to such
issue or sale, and (II) the consideration, if any, received by the Company upon
such issue or sale, by (2) the product of (I) the Applicable Price and (II) the
number of shares of Common Stock Deemed Outstanding immediately after such issue
or sale. Upon each such adjustment of the Warrant Exercise Price hereunder, the
number of shares of Common Stock acquirable upon exercise of this Warrant shall
be adjusted to the number of shares determined by multiplying the Warrant
Exercise Price in effect immediately prior to such adjustment by the number of
shares of Common Stock acquirable upon exercise of this Warrant immediately
prior to such adjustment and dividing the product thereof by the Warrant
Exercise Price resulting from such adjustment.
(b) Effect on Warrant Exercise Price of Certain Events. For
purposes of determining the adjusted Warrant Exercise Price under Section 8(a),
the following shall be applicable:
(i) Issuance of Options. If the Company in any manner
grants any rights or options to subscribe for or to purchase Common Stock (other
than pursuant to an Approved Stock Plan or Other Securities) or any stock or
other securities convertible into or exchangeable for, directly or indirectly,
Common Stock (such rights or options being herein called "OPTIONS" and such
convertible or exchangeable stock or securities being herein called "CONVERTIBLE
SECURITIES") and the price per share for which Common Stock is issuable upon the
exercise of such Options or upon conversion or exchange of such Convertible
Securities is less than the Applicable Price, then the total maximum number of
shares of Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Options shall be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For purposes of this Section 8(b)(i), the "price per share for which
Common Stock is issuable upon exercise of such Options or upon conversion or
exchange of such Convertible Securities" is determined by dividing (A) the total
amount, if any, received or receivable by the Company as consideration for the
granting of such Options, plus the minimum aggregate amount of additional
consideration payable to the Company upon the exercise of all such Options, plus
in the case of such Options which relate to Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable to the Company
upon the issuance or sale of such Convertible Securities and the conversion or
exchange thereof, by (B) the total maximum number of shares of Common Stock
issuable upon exercise of such Options or upon the conversion or exchange of all
such Convertible Securities issuable upon the exercise of such Options. No
adjustment of the Warrant Exercise Price shall be made upon the actual issuance
of such Common Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such Common Stock upon conversion or
exchange of such Convertible Securities.
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<PAGE> 11
(ii) Issuance of Convertible Securities. If the Company
in any manner issues or sells any Convertible Securities and the price per share
for which Common Stock is issuable upon such conversion or exchange is less than
the Applicable Price, then the maximum number of shares of Common Stock issuable
upon conversion or exchange of such Convertible Securities shall be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For the purposes of this Section 8(b)(ii), the "price per share for which
Common Stock is issuable upon such conversion or exchange" is determined by
dividing (A) the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any, payable to the
Company upon the conversion or exchange thereof, by (B) the total maximum number
of shares of Common Stock issuable upon the conversion or exchange of all such
Convertible Securities. No adjustment of the Warrant Exercise Price shall be
made upon the actual issue of such Common Stock upon conversion or exchange of
such Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustment of the
Warrant Exercise Price had been or are to be made pursuant to other provisions
of this Section 8(b), no further adjustment of the Warrant Exercise Price shall
be made by reason of such issue or sale.
(iii) Change in Option Price or Rate of Conversion. If
the purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable for Common Stock change at any time, the Warrant Exercise Price
in effect at the time of such change shall be readjusted to the Warrant Exercise
Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold and the number of shares of Common
Stock acquirable hereunder shall be correspondingly readjusted; provided that no
adjustment shall be made if such adjustment would result in an increase of the
Warrant Exercise Price then in effect.
(c) Effect on Warrant Exercise Price of Certain Events. For
purposes of determining the adjusted Warrant Exercise Price under Sections 8(a)
and 8(b), the following shall be applicable:
(i) Calculation of Consideration Received. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the net amount received by the Company therefor. In case any Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of the consideration other than cash received by the
Company will be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Company will be the Market Price of such securities on the date
of receipt. In case any Common Stock, Options or Convertible Securities are
issued to the owners of the non-surviving entity in
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<PAGE> 12
connection with any merger in which the Company is the surviving entity the
amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair value of any consideration other than cash or securities
will be determined jointly by the Company and the holders of Warrants
representing a majority of the shares of Common Stock issuable upon exercise of
such Warrants then outstanding. If such parties are unable to reach agreement
within ten (10) days after the occurrence of an event requiring valuation (the
"VALUATION EVENT"), the fair value of such consideration will be determined
within 48 hours of the tenth day following the Valuation Event by an
independent, reputable appraiser selected by the Company. The determination of
such appraiser shall be binding upon all parties absent manifest error.
(ii) Integrated Transactions. In case any Option is
issued in connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $.01.
(iii) Treasury Shares. The number of shares of Common
Stock outstanding at any given time does not include shares owned or held by or
for the account of the Company, and the disposition of any shares so owned or
held will be considered an issue or sale of Common Stock.
(iv) Record Date. If the Company takes a record of the
holders of Common Stock for the purpose of entitling them (1) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (2) to subscribe for or purchase Common Stock, Options
or Convertible Securities, then such record date will be deemed to be the date
of the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(d) Adjustment of Warrant Exercise Price upon Subdivision or
Combination of Common Stock. If the Company at any time after the date of
issuance of this Warrant subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Warrant Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced and
the number of shares of Common Stock obtainable upon exercise of this Warrant
will be proportionately increased. If the Company at any time after the date of
issuance of this Warrant combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Warrant Exercise Price in effect immediately prior
to such combination will be proportionately increased and the number of shares
of Common Stock obtainable upon exercise of this Warrant will be proportionately
decreased.
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<PAGE> 13
(e) Reorganization, Reclassification, Consolidation, Merger or
Sale. Any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Company's assets to another
Person (as defined below) or other transaction which is effected in such a way
that holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as "ORGANIC CHANGE." Prior to
the consummation of any Organic Change, the Company will make appropriate
provision (in form and substance reasonably satisfactory to the holders of the
Preferred Share Warrants representing a majority of the shares of Common Stock
issuable upon exercise of such Preferred Share Warrants then outstanding) to
insure that each of the holders of the Preferred Share Warrants will thereafter
have the right to acquire and receive in lieu of or in addition to (as the case
may be) the shares of Common Stock immediately theretofore acquirable and
receivable upon the exercise of such holder's Preferred Share Warrants, such
shares of stock, securities or assets as may be issued or payable in the Organic
Change with respect to or in exchange for the number of shares of Common Stock
immediately theretofore acquirable and receivable upon the exercise of such
holder's Preferred Share Warrants had such Organic Change not taken place
(without taking into account any limitations or restrictions on exercise). In
any such case, the Company will make appropriate provision (in form and
substance satisfactory to the holders of the Preferred Share Warrants
representing a majority of the shares of Common Stock issuable upon exercise of
such Preferred Share Warrants then outstanding) with respect to such holders'
rights and interests to insure that the provisions of this Section 9 and Section
10 will thereafter be applicable to the Preferred Share Warrants. The Company
will not effect any such consolidation, merger or sale, unless prior to the
consummation thereof, the successor entity (if other than the Company) resulting
from consolidation or merger or the entity purchasing such assets assumes, by
written instrument (in form and substance satisfactory to the holders of
Preferred Share Warrants representing a majority of shares of Common Stock
issuable upon exercise of the Preferred Share Warrants then outstanding), the
obligation to deliver to each holder of Preferred Share Warrants such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to acquire.
(f) Distribution of Assets. If the Company shall declare or make
any distribution of its assets (or rights to acquire its assets) to holders of
Common Stock as a partial liquidating dividend, by way or return of capital or
otherwise (including any dividend or distribution to the Company's stockholders
of cash or shares (or rights to acquire shares) of capital stock of a
subsidiary) (a "DISTRIBUTION"), at any time after the issuance of this Warrant,
then the holder of this Warrant shall be entitled upon exercise of this Warrant
for the purchase of any or all of the shares of Common Stock subject hereto,
after the record date for determining shareholders entitled to receive such
Distribution, to receive the amount of such assets (or rights) which would have
been payable to the holder had such holder been the holder of such shares of
Common Stock on the record date for determination of stockholders entitled to
such Distribution.
(g) Certain Events. If any event occurs of the type contemplated
by the provisions of this Section 9 but not expressly provided for by such
provisions (including, without
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<PAGE> 14
limitation, the granting of stock appreciation rights, phantom stock rights or
other rights with equity features), then the Company's Board of Directors will
make an appropriate adjustment in the Warrant Exercise Price and the number of
shares of Common Stock obtainable upon exercise of this Warrant so as to protect
the rights of the holders of the Preferred Share Warrants; provided that no such
adjustment will increase the Warrant Exercise Price or decrease the number of
shares of Common Stock obtainable as otherwise determined pursuant to this
Section 8.
(h) Notices.
(i) Immediately upon any adjustment of the Warrant
Exercise Price, the Company will give written notice thereof to the holder of
this Warrant, setting forth in reasonable detail and certifying the calculation
of such adjustment.
(ii) The Company will give written notice to the holder\
of this Warrant at least 10 days prior to the date on which the Company closes
its books or takes a record (A) with respect to any dividend or distribution
upon the Common Stock, (B) with respect to any pro rata subscription offer to
holders of Common Stock or (C) for determining rights to vote with respect to
any Organic Change, dissolution or liquidation and in no event shall such notice
be provided to such holder prior to such information being made known to the
public.
(iii) The Company will also give written notice to the
holder of this Warrant at least 10 days prior to the date on which any Organic
Change, dissolution or liquidation will take place and in no event shall such
notice be provided to such holder prior to such information being made known to
the public.
9. Purchase Rights. In addition to any adjustments pursuant to Section 8 above,
if at any time the Company grants, issues or sells any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other property
pro rata to the record holders of any class of Common Stock (the "PURCHASE
RIGHTS"), then the holder of this Warrant will be entitled to acquire, upon the
terms applicable to such Purchase Rights, the aggregate Purchase Rights which
such holder could have acquired if such holder had held the number of shares of
Common Stock acquirable upon complete exercise of this Warrant immediately
before the date on which a record is taken for the grant, issuance or sale of
such Purchase Rights, or, if no such record is taken, the date as of which the
record holders of Common Stock are to be determined for the grant, issue or sale
of such Purchase Rights.
10. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is lost,
stolen, mutilated or destroyed, the Company shall, on receipt of an
indemnification undertaking, issue a new Warrant of like denomination and tenor
as the Warrant so lost, stolen, mutilated or destroyed.
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<PAGE> 15
11. Notice. Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Warrant must be in writing and
will be deemed to have been delivered (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) upon receipt, when delivered by a delivery service, in
each case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
If to the Company:
General Magic, Inc.
420 N. Mary Avenue
Sunnyvale, California 94086
Telephone: (408) 774-4000
Facsimile: (408) 774-4033
Attention: President
With copy to:
Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Telephone: (650) 328-6561
Facsimile: (650) 327-3699
Attention: James Koshland, Esq.
If to a holder of this Warrant, to it at the address set forth
below such holder's signature on the signature page hereof.
Each party shall provide five days' prior written notice to the other party of
any change in address or facsimile number.
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<PAGE> 16
12. Miscellaneous. This Warrant and any term hereof may be changed, waived,
discharged, or terminated only by an instrument in writing signed by the party
or holder hereof against which enforcement of such change, waiver, discharge or
termination is sought. The headings in this Warrant are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof. This
Warrant shall be governed by and interpreted under the laws of the State of New
York.
13. Date. The date of this Warrant is June 25, 1998. This Warrant, in all
events, shall be wholly void and of no effect after the close of business on the
Expiration Date, except that notwithstanding any other provisions hereof, the
provisions of Section 7 shall continue in full force and effect after such date
as to any Warrant Shares or other securities issued upon the exercise of this
Warrant.
GENERAL MAGIC, INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
* * * *
<PAGE> 17
EXHIBIT A TO WARRANT
FORM OF SUBSCRIPTION NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT
GENERAL MAGIC, INC.
The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("WARRANT SHARES") of General
Magic, Inc., a Delaware corporation (the "COMPANY"), evidenced by the attached
Warrant (the "WARRANT"). Capitalized terms used herein and not otherwise defined
shall have the respective meanings set forth in the Warrant.
1. Form of Warrant Exercise Price. The Holder intends that payment of
the Warrant Exercise Price shall be made as:
____________ a "Cash Exercise" with respect to _________________
Warrant Shares; and/or
____________ a "Cashless Exercise" with respect to
___________________ Warrant Shares (to the
extent permitted by the terms of the
Warrant).
2. Payment of Warrant Exercise Price. In the event that the holder has
elected a Cash Exercise with respect to some or all of the Warrant Shares to be
issued pursuant hereto, the holder shall pay the sum of $___________________ to
the Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.
Date: _______________ __, ______
- --------------------------------
Name of Registered Holder
By:
-----------------------------
Name:
Title:
Page 1 of 2
<PAGE> 18
EXHIBIT B TO WARRANT
FORM OF WARRANT POWER
FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
________________, Federal Identification No. __________, a warrant to purchase
____________ shares of the capital stock of General Magic, Inc., a Delaware
corporation, represented by warrant certificate no. _____, standing in the name
of the undersigned on the books of said corporation. The undersigned does hereby
irrevocably constitute and appoint ______________, attorney to transfer the
warrants of said corporation, with full power of substitution in the premises.
Dated: _________, 199_
------------------------------------
By: _____________________________
Its: _____________________________
<PAGE> 1
Exhibit 4.3
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of June 24,
1998, by and among GENERAL MAGIC, INC., a Delaware corporation, with
headquarters located at 420 N. Mary Avenue, Sunnyvale, California 94086 (the
"COMPANY"), and the undersigned buyers (each, a "BUYER" and collectively, the
"BUYERS").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among the
parties of even date herewith (the "SECURITIES PURCHASE AGREEMENT"), the Company
has agreed, upon the terms and subject to the conditions of the Securities
Purchase Agreement, to issue and sell to the Buyers (i) shares of the Company's
Series C Convertible Preferred Stock (the "PREFERRED SHARES"), which will be
convertible into shares of the Company's common stock, par value $.001 per share
(the "COMMON STOCK") (as converted, the "CONVERSION SHARES"), in accordance with
the terms of the Company's Certificate of Designations, Preferences and Rights
of Series C Convertible Preferred Stock (the "CERTIFICATE OF DESIGNATIONS"); and
(ii) warrants to acquire shares of Common Stock (the "WARRANTS") (the shares of
Common Stock issuable upon exercise of the Warrants are referred to herein as
the "WARRANT SHARES"); and
B. To induce the Buyers to execute and deliver the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "1933 ACT"), and
applicable state securities laws:
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Buyers hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
a. "INVESTOR" means a Buyer and any transferee or assignee
thereof to whom a Buyer assigns its rights under this Agreement in accordance
with Section 9 and who agrees to become bound by the provisions of this
Agreement in accordance with Section 9.
<PAGE> 2
b. "PERSON" means a corporation, a limited liability company, an
association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
c. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing one or more Registration
Statements in compliance with the 1933 Act and pursuant to Rule 415 under the
1933 Act or any successor rule providing for offering securities on a continuous
basis ("RULE 415"), and the declaration or ordering of effectiveness of such
Registration Statement(s) by the United States Securities and Exchange
Commission (the "SEC").
d. "REGISTRABLE SECURITIES" means the Conversion Shares and the
Warrant Shares issued or issuable upon conversion of the Preferred Shares or the
exercise of the Warrants, as the case may be, the Registration Delay Payment
Shares (as defined in Section 2(h)) and any shares of capital stock issued or
issuable with respect to the Conversion Shares, the Preferred Shares, the
Warrant Shares, the Warrants or the Registration Delay Payment Shares as a
result of any stock split, stock dividend, recapitalization, exchange or similar
event or otherwise, regardless of any limitation on conversions of Preferred
Shares or on exercise of the Warrants.
e. "REGISTRATION STATEMENT" means a registration statement of the
Company filed under the 1933 Act.
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Securities Purchase Agreement.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and, as
soon as practicable but in no event later than 30 days after the date of
issuance of the Preferred Shares, file with the SEC a Registration Statement or
Registration Statements (as is necessary) on Form S-3 (or, if such form is
unavailable for such a registration, on such other form as is available for such
a registration, subject to the consent of the Investors holding a majority of
the Registrable Securities and the provisions of Section 2(c), which consent
will not be unreasonably withheld), covering the resale of all of the
Registrable Securities, which Registration Statement(s) shall state that, in
accordance with Rule 416 promulgated under the 1933 Act ("RULE 416"), such
Registration Statement(s) also covers such indeterminate number of additional
shares of Common Stock as may become issuable upon conversion of the Preferred
Shares and exercise of the Warrants (i) to prevent dilution resulting from stock
splits, stock dividends or similar transactions, and (ii) if permitted by law,
by reason of changes in the Conversion Price or Conversion Rate of the Preferred
Shares in accordance with the terms of the Certificate of Designations or
changes in the number of Warrant Shares issuable upon exercise of the Warrants
in accordance with the terms of the Warrants. Such Registration Statement shall
initially register
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<PAGE> 3
for resale a number of shares of Common Stock equal to at least 200% of the
number of Conversion Shares issued and issuable and 150% of the number of
Warrant Shares issued and issuable as of the business day immediately preceding
the date the Company files the Registration Statement (without regard to any
limitations on conversions or exercises), subject to adjustment as provided in
Section 3(b). Such registered shares of Common Stock shall be allocated among
the Investors pro rata based on the total number of Registrable Securities
issued or issuable as of each date that a Registration Statement, as amended,
relating to the resale of the Registrable Securities is declared effective by
the SEC. The Company shall use its best efforts to have the Registration
Statement(s) declared effective by the SEC as soon as practicable, but in no
event later than 90 days after the issuance of the relevant Preferred Shares.
b. Allocation of Registrable Securities. The initial number of
Registrable Securities included in any Registration Statement and each increase
in the number of Registrable Securities included therein shall be allocated pro
rata among the Investors based on the number of Registrable Securities held by
each Investor at the time of such establishment or increase, as the case may be.
In the event an Investor shall sell or otherwise transfer any of such holder's
Registrable Securities, each transferee shall be allocated a pro rata portion of
the then remaining number of Registrable Securities included in such
Registration Statement for such transferor. Any shares of Common Stock included
in a Registration Statement and which remain allocated to any person or entity
which does not hold any Registrable Securities shall be allocated to the
remaining Investors, pro rata based on the number of Registrable Securities then
held by such Investors. For the avoidance of doubt, the number of Registrable
Securities held by any Investor shall be determined as if all Preferred Shares
and Warrants then outstanding were converted into or exercised for Registrable
Securities, without regard to any limitations on conversions or exercises.
c. Counsel. Subject to Section 5 hereof, in connection with any
offering pursuant to this Section 2, the Investors shall have the right to
select one legal counsel, which counsel shall be selected by the Investors
holding a majority of the Registrable Securities. The Company shall reasonably
cooperate with any such counsel.
d. Piggy-Back Registrations. If at any time prior to the
expiration of the Registration Period (as hereinafter defined) the number of
shares of Common Stock available for sale under an effective Registration
Statement is insufficient to cover all of the Registrable Securities (as defined
in Section 3(b)) and the Company proposes to file with the SEC a Registration
Statement relating to an offering for its own account or the account of others
under the 1933 Act of any shares of Common Stock (other than on Form S-4 or Form
S-8 or their then equivalents relating to securities to be issued solely in
connection with any acquisition of any entity or business or equity securities
issuable in connection with stock option or other employee benefit plans) the
Company shall promptly send to each Investor who is entitled to registration
rights under this Section 2(d) written notice of the Company's intention to file
a Registration Statement and of such Investor's rights under this Section 2(d)
and, if within 20 days after receipt of such notice, such Investor shall so
request in writing, the Company shall include in such
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<PAGE> 4
Registration Statement all or any part of the Registrable Securities such
Investor requests to be registered, subject to the priorities set forth in
Section 2(e) below. No right to registration of Registrable Securities under
this Section 2(d) shall be construed to limit any registration required under
Section 2(a). The obligations of the Company under this Section 2(d) may be
waived by Investors holding a majority of the Registrable Securities. If an
offering in connection with which an Investor is entitled to registration under
this Section 2(d) is an underwritten offering, then each Investor whose
Registrable Securities are included in such Registration Statement shall, unless
otherwise agreed by the Company, offer and sell such Registrable Securities in
an underwritten offering using the same underwriter or underwriters and, subject
to the provisions of this Agreement, on the same terms and conditions as other
shares of Common Stock included in such underwritten offering.
e. Priority in Piggy-Back Registration Rights in connection with
Registrations for Company Account. If the registration referred to in Section
2(d) is to be an underwritten public offering and the managing underwriter(s)
advise the Company in writing that, in their reasonable good faith opinion,
marketing or other factors dictate that a limitation on the number of shares of
Common Stock which may be included in the Registration Statement is necessary to
facilitate and not adversely affect the proposed offering, then the Company
shall include in such registration: (1) first, all securities the Company
proposes to sell for its own account, (2) second, up to the full number of
securities proposed to be registered for the account of the holders of
securities entitled to inclusion of their securities in the Registration
Statement by reason of demand registration rights, and (3) third, the securities
requested to be registered by the Investors and other holders of securities
entitled to participate in the registration, as of the date hereof, drawn from
them pro rata based on the number each has requested to be included in such
registration.
f. Eligibility for Form S-3. The Company represents, warrants and
covenants that on and after the date hereof it meets and will meet the
requirements for the use of Form S-3 for registration of the sale by the
Investors of the Registrable Securities and the Company has filed and shall file
all reports required to be filed by the Company with the SEC in a timely manner
so as to obtain and maintain such eligibility for the use of Form S-3. In the
event that Form S-3 is not available for sale by the Investors of the
Registrable Securities, then the Company (i) with the consent of the Investors
holding a majority of the Registrable Securities pursuant to Section 2(a), shall
register the sale of the Registrable Securities on another appropriate form, and
(ii) the Company shall undertake to register the Registrable Securities on Form
S-3 as soon as such form is available, provided that the Company shall maintain
the effectiveness of the Registration Statement then in effect until such time
as a Registration Statement on Form S-3 covering the Registrable Securities has
been declared effective by the SEC.
g. Rule 416. The Company and the Investors each acknowledge that
an indeterminate number of Registrable Securities shall be registered pursuant
to Rule 416 under the 1933 Act so as to include in such Registration Statement
any and all Registrable Securities which
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<PAGE> 5
may become issuable (i) to prevent dilution resulting from stock splits, stock
dividends or similar transactions, and (ii) if permitted by law, by reason of
reductions in the Conversion Price (as defined in the Certificate of
Designations) of the Preferred Shares in accordance with the terms thereof,
including, without limitation, the terms which cause the Floating Conversion
Price (as defined in the Certificate of Designations) to decrease as the price
of the Common Stock decreases or changes in the number of Warrant Shares
issuable upon exercise of the Warrants in accordance with the terms of the
Warrants (collectively, the "RULE 416 SECURITIES"). In this regard, the Company
agrees to use all reasonable efforts to ensure that the maximum number of
Registrable Securities which may be registered pursuant to Rule 416 under the
1933 Act are covered by the Registration Statement and, absent guidance from the
SEC or other definitive authority to the contrary, the Company shall use all
reasonable efforts to affirmatively support and to not take any position adverse
to the position that the Registration Statement filed hereunder covers all of
the Rule 416 Securities. If the Company takes a position adverse to the position
that the Registration Statement filed hereunder covers all of the Rule 416
Securities, then the Company shall immediately provide to each Investor written
notice setting forth the basis for the Company's position and the authority
therefor.
h. Effect of Failure to Obtain and Maintain Effectiveness of
Registration Statement. If (i) the Registration Statement is not filed on or
before 60 days after the Issuance Date (as defined in the Certificate of
Designations) of the Preferred Shares (the "SCHEDULED FILING DATE"); (ii) the
Registration Statement is not declared effective by the SEC on or before 90 days
after the Issuance Date of the Preferred Shares (the "SCHEDULED EFFECTIVE
DATE"); or (iii) after the Registration Statement has been declared effective by
the SEC, sales cannot be made (other than on any days during any Allowable Grace
Period (as defined in Section 3(f)) pursuant to the Registration Statement
(whether because of a failure to keep the Registration Statement effective, to
disclose such information as is necessary for sales to be made pursuant to the
Registration Statement, to register sufficient shares of Common Stock or
otherwise); then, as partial relief for the damages to any holder by reason of
any such delay in or reduction of its ability to sell any of the Registrable
Securities (which remedy shall not be exclusive of any other remedies available
at law or in equity), the Company shall pay to each holder of Preferred Shares
an amount in cash per Preferred Share held equal to the product of (i) $10,000
multiplied by (ii) the sum of (A) .010, if the Registration Statement is not
filed by the Scheduled Filing Date, plus (B) .010, if the Registration Statement
is not declared effective by the SEC by the Scheduled Effective Date, plus (C)
the product of (I) .0005 multiplied by (II) the sum of (x) the number of days
after the Scheduled Filing Date and prior to the date that the relevant
Registration Statement has not been filed with the SEC, (y) the number of days
after the Scheduled Effective Date and prior to the date that the relevant
Registration Statement has not been declared effective by the SEC, and (z) the
number of days after the Registration Statement has been declared effective by
the SEC that the Registration Statement is not available (other than on any days
during any Allowable Grace Period) for sales of at least all of the Registrable
Securities. The payments to which a holder shall be entitled pursuant to this
Section 2(h) are referred to herein as "REGISTRATION DELAY PAYMENTS."
Registration Delay Payments shall be paid within five business days of the
earlier of (A) the first day of the month following the occurrence of the
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<PAGE> 6
event resulting in the requirement to make Registration Delay Payments, or (B)
the date on which the event resulting in the requirement to make Registration
Delay Payments is cured. In the event the Company fails to make Registration
Delay Payments in a timely manner, such Registration Delay Payments shall bear
interest at the rate of 1.5% per month (or the maximum rate permitted by law),
prorated for partial months, until paid in full. Registration Delay Payments,
and any interest thereon, shall be paid in cash, unless an Investor elects to
have such amounts included in the Additional Amount (as defined in the
Certificate of Designations) by providing the Company written notice of such
election at any time prior to the Company's payment of such amounts. If the
Company fails to pay the Registration Delay Payments, including any interest
thereon, within 15 business days of the applicable payment date, then the holder
entitled to such payments shall have the right at any time, so long as the
Company continues to fail to make such payments, to require the Company, upon
written notice, to immediately issue, in lieu of the Registration Delay
Payments, including any interest thereon, the number of shares of Common Stock
(the "REGISTRATION DELAY PAYMENT SHARES") equal to the quotient of (X) the sum
of the Registration Delay Payments and all interest accrued thereon, divided by
(Y) the lowest Closing Bid Price on any day during the period beginning on and
including the date the Registration Delay Payments were due and payable and
ending on and including the date the holder delivers written notice to the
Company of its election to receive shares of Common Stock in lieu of the
Registration Delay Payments.
3. RELATED OBLIGATIONS.
Whenever an Investor has requested that any Registrable Securities be
registered pursuant to Section 2(d) or at such time as the Company is obligated
to file a Registration Statement with the SEC pursuant to Section 2(a), the
Company will use its best efforts to effect the registration of the Registrable
Securities in accordance with the intended method of disposition thereof and,
pursuant thereto, the Company shall have the following obligations:
a. The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the Registrable Securities (on or prior
to the thirtieth day after the date of issuance of the Preferred Shares for the
registration of Registrable Securities pursuant to Section 2(a)) and use its
best efforts to cause such Registration Statement relating to the Registrable
Securities to become effective as soon as possible after such filing (but in no
event later than the Scheduled Effective Date, for the registration of
Registrable Securities pursuant to Section 2(a)), and keep such Registration
Statement effective pursuant to Rule 415 at all times until the earlier of (i)
the date as of which the Investors may sell all of the Registrable Securities
without restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or
successor thereto), or (ii) the date on which (A) the Investors shall have sold
all the Registrable Securities and (B) none of the Preferred Shares or Warrants
is outstanding (the "REGISTRATION PERIOD"), which Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein) shall not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein, or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading. The Company shall
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<PAGE> 7
submit to the SEC, within three business days after the Company learns that no
review of the Registration Statement will be made by the staff of the SEC or
that the staff of the SEC has no further comments on the Registration Statement,
as the case may be, a request for acceleration of effectiveness of the
Registration Statement to a time and date not later than 48 hours after the
submission of such request.
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to a
Registration Statement and the prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the 1933 Act, as may be necessary to keep such Registration
Statement effective at all times during the Registration Period, and, during
such period, comply with the provisions of the 1933 Act with respect to the
disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such Registration
Statement. In the event the number of shares available under a Registration
Statement filed pursuant to this Agreement is insufficient to cover all of the
Registrable Securities, the Company shall amend such Registration Statement, or
file a new Registration Statement (on the short form available therefor, if
applicable), or both, so as to cover all of the Registrable Securities for all
Investors, in each case, as soon as practicable, but in any event within 15 days
after the necessity therefore arises. The Company shall use its best efforts to
cause such amendment and/or new Registration Statement to become effective as
soon as practicable following the filing thereof. For purposes of the foregoing
provision, the number of shares available under a Registration Statement shall
be deemed "insufficient to cover all of the Registrable Securities" if at any
time the number of Registrable Securities issued upon conversion of the
Preferred Shares or upon exercise of the Warrants or issuable upon conversion of
the then outstanding Preferred Shares or upon exercise of the then outstanding
Warrants is greater than the quotient determined by dividing (i) the number of
shares of Common Stock available for resale under such Registration Statement by
(ii) 1.5. For purposes of the calculation set forth in the foregoing sentence,
any restrictions on the convertibility of the Preferred Shares or on the
exercisability of the Warrants shall be disregarded and such calculation shall
assume that the Preferred Shares and Warrants are then convertible and
exercisable, respectively, into shares of Common Stock at the then prevailing
Conversion Rate (as defined in the Certificate of Designations) or Warrant
Exercise Price (as defined in the Warrants), as the case may be.
c. The Company shall furnish to each Investor whose Registrable
Securities are included in any Registration Statement and its legal counsel
without charge (i) promptly after the same is prepared and filed with the SEC at
least one copy of such Registration Statement and any amendment(s) thereto,
including financial statements and schedules, all documents incorporated therein
by reference and all exhibits, the prospectus included in such Registration
Statement (including each preliminary prospectus) and, with regards to such
Registration Statement(s), any correspondence by or on behalf of the Company to
the SEC or the staff of the SEC and any correspondence from the SEC or the staff
of the SEC to the Company or its
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<PAGE> 8
representatives, (ii) promptly after the effectiveness of any Registration
Statement, ten copies of the prospectus included in such Registration Statement
and all amendments and supplements thereto (or such other number of copies as
such Investor may reasonably request), and (iii) such other documents, including
copies of any preliminary or final prospectus, as such Investor may reasonably
request from time to time in order to facilitate the disposition of the
Registrable Securities owned by such Investor.
d. The Company shall use reasonable efforts to (i) register and
qualify the Registrable Securities covered by a Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the United
States as any Investor reasonably requests, (ii) prepare and file in those
jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (y) subject itself
to general taxation in any such jurisdiction, or (z) file a general consent to
service of process in any such jurisdiction. The Company shall promptly notify
each Investor who holds Registrable Securities of the receipt by the Company of
any notification with respect to the suspension of the registration or
qualification of any of the Registrable Securities for sale under the securities
or "blue sky" laws of any jurisdiction in the United States or its receipt of
actual notice of the initiation or threatening of any proceeding for such
purpose.
e. Intentionally omitted.
f. As promptly as practicable after becoming aware of such event,
the Company shall notify each Investor in writing of the happening of any event
as a result of which the prospectus included in a Registration Statement, as
then in effect, includes an untrue statement of a material fact or omission to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and promptly prepare a supplement or amendment to such
Registration Statement to correct such untrue statement or omission, and deliver
ten copies of such supplement or amendment to each Investor (or such other
number of copies as such Investor may reasonably request). The Company shall
also promptly notify each Investor in writing (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and when a
Registration Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to each Investor by
facsimile on the same day of such effectiveness and by overnight mail), (ii) of
any request by the SEC for amendments or supplements to a Registration Statement
or related prospectus or related information, and (iii) of the Company's
reasonable determination that a post-effective amendment to a Registration
Statement would be appropriate. Notwithstanding anything to the contrary in this
Section 3(f), at
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<PAGE> 9
any time after the Registration Statement has been declared effective, the
Company may delay the disclosure of material non-public information concerning
the Company, the disclosure of which at the time is not, in the good faith
opinion of the Board of Directors of the Company and its counsel, in the best
interest of the Company and, in the opinion of counsel to the Company, otherwise
required (a "GRACE PERIOD"); provided, that the Company shall promptly (I)
notify the Investors in writing of the existence of (but in no event, without
the prior written consent of an Investor, shall the Company disclose to such
Investor any of the facts or circumstances regarding) material non-public
information giving rise to a Grace Period and the date on which the Grace Period
will begin, and (II) notify the Investors in writing of the date on which the
Grace Period ends; and, provided further, that no Grace Period shall exceed 15
consecutive calendar days and during any consecutive 365-day period, the Grace
Period shall not exceed 45 calendar days in the aggregate (an "ALLOWABLE GRACE
PERIOD"). For purposes of determining the length of a Grace Period above, the
Grace Period shall begin on and include the date the holders receive the notice
referred to in clause (I) and shall end on and include the date the holders
receive the notice referred to in clause (II). The provisions of Section 2(h) of
this Agreement and Section 2(c)(ii) of the Certificate of Designations shall not
be applicable during the period of any Grace Period. Upon expiration of the
Allowable Grace Period, the Company shall again be bound by the first sentence
of this Section 3(f) with respect to the information giving rise thereto. In the
event a Grace Period exceeds the Allowable Grace Period, the Maturity Date (as
defined in the Certificate of Designations) shall be delayed one and one-half (1
1/2) days for each day in excess of the Allowable Grace Period as provided in
Section 2(g) of the Certificate of Designations.
g. The Company shall use its best efforts to prevent the issuance
of any stop order or other suspension of effectiveness of a Registration
Statement, or the suspension of the qualification of any of the Registrable
Securities for sale in any jurisdiction and, if such an order or suspension is
issued, to obtain the withdrawal of such order or suspension at the earliest
possible moment and to notify each Investor who holds Registrable Securities
being sold (and, in the event of an underwritten offering, the managing
underwriters) of the issuance of such order and the resolution thereof or its
receipt of actual notice of the initiation or threat of any proceeding for such
purpose.
h. The Company shall permit each Investor and a single counsel,
initially Katten Muchin & Zavis or such other counsel as thereafter designated
as selling stockholders' counsel by the Investors who hold a majority of the
Registrable Securities being sold, to review and comment upon a Registration
Statement and all amendments and supplements thereto at least five business days
prior to their filing with the SEC, and shall not file any document in a form to
which such counsel reasonably objects. The Company shall not submit a request
for acceleration of the effectiveness of a Registration Statement or any
amendment or supplement thereto without the prior approval of such counsel,
which consent shall not be unreasonably withheld.
i. At the request of any Investor and at such Investor's expense,
the Company shall use its best efforts to furnish to such Investor, on the date
of the effectiveness of
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<PAGE> 10
the Registration Statement and thereafter from time to time on such dates as an
Investor may reasonably request (i) a letter, dated such date, from the
Company's independent certified public accountants in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering, addressed to the underwriters, and (ii) an
opinion, dated as of such date, of counsel representing the Company for purposes
of such Registration Statement, in form, scope and substance as is customarily
given in an underwritten public offering, addressed to the underwriters and the
Investors.
j. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to a
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Investors, and (iv) one firm of attorneys
retained by all such underwriters (collectively, the "INSPECTORS") all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "RECORDS"), as shall be reasonably deemed
necessary by each Inspector, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request;
provided, however, that each Inspector shall hold in strict confidence and shall
not make any disclosure (except to an Investor) or use of any Record or other
information which the Company determines in good faith to be confidential, and
of which determination the Inspectors are so notified, unless (a) the disclosure
of such Records is necessary to avoid or correct a misstatement or omission in
any Registration Statement or is otherwise required under the 1933 Act, (b) the
release of such Records is ordered pursuant to a final, non-appealable subpoena
or order from a court or government body of competent jurisdiction, or (c) the
information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement of which
the Inspector has knowledge. Each Investor agrees that it shall, upon learning
that disclosure of such Records is sought in or by a court or governmental body
of competent jurisdiction or through other means, give prompt notice to the
Company and allow the Company, at its expense, to undertake appropriate action
to prevent disclosure of, or to obtain a protective order for, the Records
deemed confidential.
k. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement. The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor and allow such Investor, at the Investor's
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.
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l. The Company shall use its best efforts either to (i) cause all
the Registrable Securities covered by a Registration Statement to be listed on
each securities exchange on which securities of the same class or series issued
by the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or (ii) secure
designation and quotation of all the Registrable Securities covered by the
Registration Statement on the Nasdaq SmallCap Market, or the Nasdaq National
Market, The American Stock Exchange, Inc. or The New York Stock Exchange, Inc.,
as the case may be, and, without limiting the generality of the foregoing, to
arrange for at least two market makers to register with the National Association
of Securities Dealers, Inc. ("NASD") as such with respect to such Registrable
Securities. The Company shall pay all fees and expenses in connection with
satisfying its obligation under this Section 3(l).
m. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, any managing
underwriter or underwriters, to facilitate the timely preparation and delivery
of certificates (not bearing any restrictive legend) representing the
Registrable Securities to be offered pursuant to a Registration Statement and
enable such certificates to be in such denominations or amounts, as the case may
be, as the managing underwriter or underwriters, if any, or, if there is no
managing underwriter or underwriters, the Investors may reasonably request and
registered in such names as the managing underwriter or underwriters, if any, or
the Investors may request.
n. The Company shall take all other reasonable actions necessary
to expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to a Registration Statement.
o. The Company shall provide a transfer agent and registrar for
all such Registrable Securities not later than the effective date of such
Registration Statement.
p. If requested by the managing underwriters or an Investor, the
Company shall (i) immediately incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriters and the
Investors agree should be included therein relating to the sale and distribution
of Registrable Securities, including, without limitation, information with
respect to the number of Registrable Securities being sold to such underwriters,
the purchase price being paid therefor by such underwriters and any other terms
of the underwritten (or best efforts underwritten) offering of the Registrable
Securities to be sold in such offering; (ii) make all required filings of such
prospectus supplement or post-effective amendment as soon as notified of the
matters to be incorporated in such prospectus supplement or post-effective
amendment; and (iii) supplement or make any reasonable amendments to any
Registration Statement or the related prospectus if requested by an Investor or
any underwriter of such Registrable Securities.
q. The Company shall use its best efforts to cause the
Registrable Securities covered by the applicable Registration Statement to be
registered with or approved by such other
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<PAGE> 12
governmental agencies or authorities as may be necessary to consummate the
disposition of such Registrable Securities.
r. The Company shall make generally available to its security
holders as soon as practical, but not later than 90 days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the 1933 Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal quarter next
following the effective date of the Registration Statement.
s. The Company shall otherwise use its best efforts to comply
with all applicable rules and regulations of the SEC in connection with any
registration hereunder.
t. Within two (2) business days after the Registration Statement
which includes the Registrable Securities is ordered effective by the SEC, the
Company shall deliver, and shall cause legal counsel for the Company to deliver,
to the transfer agent for such Registrable Securities (with copies to the
Investors whose Registrable Securities are included in such Registration
Statement) confirmation that the Registration Statement has been declared
effective by the SEC in the form attached hereto as Exhibit A.
u. From and after the date of this Agreement, the Company shall
not, and shall not agree to, allow the holders of any securities of the Company
to include more than 750,000 shares of Common Stock in any Registration
Statement under Section 2(a) or any amendment of supplement thereto without the
consent of the Investors holding a majority of the Registrable Securities.
4. OBLIGATIONS OF THE INVESTORS.
a. At least seven days prior to the first anticipated filing date
of a Registration Statement, the Company shall notify each Investor in writing
of the information the Company requires from each such Investor if such Investor
elects to have any of such Investor's Registrable Securities included in such
Registration Statement. It shall be a condition precedent to the obligations of
the Company to complete the registration pursuant to this Agreement with respect
to the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request.
b. Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of any
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from such Registration Statement.
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<PAGE> 13
c. In the event any Investor elects to participate in an
underwritten public offering pursuant to Section 2, each such Investor agrees to
enter into and perform such Investor's obligations under an underwriting
agreement, in usual and customary form, including, without limitation, customary
indemnification and contribution obligations (only with respect to violations
which occur in reliance upon and in conformity with information furnished in
writing to the Company by such Investor expressly for use in the Registration
Statement for such underwritten public offering), with the managing underwriter
of such offering and take such other actions as are reasonably required in order
to expedite or facilitate the disposition of the Registrable Securities, unless
such Investor notifies the Company in writing of such Investor's election to
exclude all of such Investor's Registrable Securities from such Registration
Statement.
d. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(g) or
the first sentence of Section 3(f), such Investor will immediately discontinue
disposition of Registrable Securities pursuant to any Registration Statement(s)
covering such Registrable Securities until such Investor's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 3(g) or the
first sentence of Section 3(f), or until, in the case of a Grace Period, after
the date on which the Allowable Grace Period ended.
e. No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements approved by
the Investors entitled hereunder to approve such arrangements, (ii) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements, and (iii) agrees to pay its pro rata share of all
underwriting discounts and commissions.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees, and
fees and disbursements of counsel for the Company and fees and disbursements of
one counsel for the Investors selected by the Investors holding a majority of
the Registrable Securities, shall be paid by the Company.
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<PAGE> 14
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
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<PAGE> 15
a. To the fullest extent permitted by law, the Company will, and
hereby does, indemnify, hold harmless and defend each Investor who holds such
Registrable Securities, the directors, officers, partners, employees, agents of,
and each Person, if any, who controls, any Investor within the meaning of the
1933 Act or the Securities Exchange Act of 1934, as amended (the "1934 ACT"),
and any underwriter (as defined in the 1933 Act) for the Investors, and the
directors and officers of, and each Person, if any, who controls, any such
underwriter within the meaning of the 1933 Act or the 1934 Act (each, an
"INDEMNIFIED PERSON"), against any losses, claims, damages, liabilities,
judgments, fines, penalties, charges, costs, attorneys' fees, amounts paid in
settlement or expenses, joint or several, (collectively, "CLAIMS") incurred in
investigating, preparing or defending any action, claim, suit, inquiry,
proceeding, investigation or appeal taken from the foregoing by or before any
court or governmental, administrative or other regulatory agency, body or the
SEC, whether pending or threatened, whether or not an indemnified party is or
may be a party thereto ("INDEMNIFIED DAMAGES"), to which any of them may become
subject insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or any post-effective amendment thereto or in any filing made in
connection with the qualification of the offering under the securities or other
"blue sky" laws of any jurisdiction in which Registrable Securities are offered
("BLUE SKY FILING"), or the omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus if used prior to the
effective date of such Registration Statement, or contained in the final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading, or (iii) any violation or alleged violation by the Company
of the 1933 Act, the 1934 Act, any other law, including, without limitation, any
state securities law, or any rule or regulation thereunder relating to the offer
or sale of the Registrable Securities pursuant to a Registration Statement (the
matters in the foregoing clauses (i) through (iii) being, collectively,
"VIOLATIONS"). Subject to the restrictions set forth in Section 6(d) with
respect to the number of legal counsel, the Company shall reimburse each
Indemnified Person promptly as such expenses are incurred and are due and
payable, for any legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a): (i) shall not apply to a Claim arising out of or
based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company by any Indemnified Person or
underwriter for such Indemnified Person expressly for use in connection with the
preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(c); (ii) with respect to any preliminary prospectus, shall
not inure to the benefit of any such person from whom the person asserting any
such Claim purchased the Registrable Securities that are the subject thereof (or
to the benefit of any person controlling such person) if the untrue statement or
omission of material
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<PAGE> 16
fact contained in the preliminary prospectus was corrected in the prospectus, as
then amended or supplemented, if such prospectus was timely made available by
the Company pursuant to Section 3(c), and the Indemnified Person was promptly
advised in writing not to use the incorrect prospectus prior to the use giving
rise to a violation and such Indemnified Person, notwithstanding such advice,
used it; (iii) shall not be available to the extent such Claim is based on a
failure of the Investor to deliver or to cause to be delivered the prospectus
made available by the Company; and (iv) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Person and shall survive the transfer or
disposition of the Registrable Securities by the Investors.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, each of its directors, each
of its officers, each Person, if any, who controls the Company within the
meaning of the 1933 Act or the 1934 Act (collectively and together with an
Indemnified Person, an "INDEMNIFIED PARTY"), against any Claim or Indemnified
Damages to which any of them may become subject, under the 1933 Act, the 1934
Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or
are based upon any Violation, in each case to the extent, and only to the
extent, that such Violation occurs in reliance upon and in conformity with
written information furnished to the Company by such Investor expressly for use
in connection with such Registration Statement; and, subject to Section 6(d),
such Investor will reimburse any legal or other expenses reasonably incurred by
them promptly as such expenses are incurred and are due and payable in
connection with investigating or defending any such Claim; provided, however,
that the indemnity agreement contained in this Section 6(b) and the agreement
with respect to contribution contained in Section 7 shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without the prior
written consent of such Investor, which consent shall not be unreasonably
withheld; provided, further, however, that the Investor shall be liable under
this Section 6(b) for only that amount of a Claim or Indemnified Damages as does
not exceed the net proceeds to such Investor as a result of the sale of
Registrable Securities pursuant to such Registration Statement. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of such Indemnified Party and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(b) with respect to any preliminary prospectus shall
not inure to the benefit of any Indemnified Party if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
on a timely basis in the prospectus, as then amended or supplemented.
c. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information such persons so furnished in writing
expressly for inclusion in the Registration Statement.
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<PAGE> 17
d. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action or
proceeding (including any governmental action or proceeding) involving a Claim,
such Indemnified Person or Indemnified Party shall, if a claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement thereof,
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
selected by the indemnifying party and approved by the Indemnified Person or the
Indemnified Party, as the case may be, which approval shall not be unreasonably
withheld; provided, however, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the fees and expenses to be
paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. The indemnifying party shall pay for only one
separate legal counsel for the Indemnified Persons or the Indemnified Parties,
as applicable, and such counsel shall be selected by Investors holding a
majority-in-interest of the Registrable Securities included in the Registration
Statement to which the Claim relates, if the Investors are entitled to
indemnification hereunder, or the Company, if the Company is entitled to
indemnification hereunder, as applicable. The Indemnified Party or Indemnified
Person shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all nonpriviledged information
reasonably available to the Indemnified Party or Indemnified Person which
relates to such action or claim. The indemnifying party shall keep the
Indemnified Party or Indemnified Person fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. No
indemnifying party shall, without the consent of the Indemnified Party or
Indemnified Person, consent to entry of any judgment or enter into any
settlement or other compromise which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party or
Indemnified Person of a release from all liability in respect to such claim or
litigation. Following indemnification as provided for hereunder, the
indemnifying party shall be subrogated to all rights of the Indemnified Party or
Indemnified Person with respect to all third parties, firms or corporations
relating to the matter for which indemnification has been made. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section 6,
except to the extent that the indemnifying party is materially prejudiced in its
ability to defend such action.
e. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or Indemnified Damages
are incurred.
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f. The indemnity agreements contained herein shall be in addition
to (i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6; (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of fraudulent misrepresentation; and (iii) contribution by any seller of
Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of
Rule 144 promulgated under the 1933 Act or any other similar rule or regulation
of the SEC that may at any time permit the Investors to sell securities of the
Company to the public without registration ("RULE 144"), the Company agrees to:
a. make and keep public information available, as those terms are
understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the investors to sell such securities pursuant to Rule 144.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
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<PAGE> 19
The rights under this Agreement shall be automatically assignable
by the Investors to any transferee of all or any portion of Registrable
Securities if: (i) the Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment; (ii) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (a) the name and address of such transferee or assignee, and
(b) the securities with respect to which such registration rights are being
transferred or assigned; (iii) immediately following such transfer or assignment
the further disposition of such securities by the transferee or assignee is
restricted under the 1933 Act and applicable state securities laws; (iv) at or
before the time the Company receives the written notice contemplated by clause
(ii) of this sentence the transferee or assignee agrees in writing with the
Company to be bound by all of the provisions contained herein; and (v) such
transfer shall have been made in accordance with the applicable requirements of
the Securities Purchase Agreement.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Investors who hold two-thirds (_) of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon each Investor and the Company. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the Registrable
Securities. No consideration shall be offered or paid to any person to amend or
consent to a waiver or modification of any provision of any of this Agreement
unless the same consideration also is offered to all of the parties to this
Agreement.
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided a
confirmation of transmission is mechanically generated and kept on file by the
sending party); (iii) upon receipt, when delivered by a delivery service, in
each case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
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If to the Company:
General Magic, Inc.
420 N. Mary Avenue
Sunnyvale, California 94086
Telephone: 408-774-4000
Facsimile: 408-774-4033
Attention: President
With a copy to:
Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, California 94301
Telephone: 650-328-6561
Facsimile: 650-327-3699
Attention: James Koshland, Esq.
If to a Buyer, to its address and facsimile number on the Schedule of
Buyers attached hereto, with copies to such Buyer's counsel as set forth
on the Schedule of Buyers.
Each party shall provide five days prior notice to the other party of any change
in address, phone number or facsimile number.
c. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
d. The corporate laws of the State of Delaware shall govern all
issues concerning the relative rights of the Company and its stockholders. All
other questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York without regard to the
principles of conflict of laws. Each party hereby irrevocably submits to the
non-exclusive jurisdiction of (i) the state and federal courts sitting in the
City of New York, borough of Manhattan and (ii) the state and federal courts
sitting in the State of California, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper. Each party hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address for such
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process
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and notice thereof. Nothing contained herein shall be deemed to limit in any way
any right to serve process in any manner permitted by law. If any provision of
this Agreement shall be invalid or unenforceable in any jurisdiction, such
invalidity or unenforceability shall not affect the validity or enforceability
of the remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. This Agreement and the Securities Purchase Agreement
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
therein. This Agreement and the Securities Purchase Agreement supersede all
prior agreements and understandings among the parties hereto with respect to the
subject matter hereof and thereof.
f. Subject to the requirements of Section 9, this Agreement shall
inure to the benefit of and be binding upon the permitted successors and assigns
of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more identical
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a party,
may be delivered to the other party hereto by facsimile transmission of a copy
of this Agreement bearing the signature of the party so delivering this
Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. All consents and other determinations to be made by the
Investors pursuant to this Agreement shall be made, unless otherwise specified
in this Agreement, by Investors holding a majority of the Registrable
Securities, determined as if all of the Preferred Shares and Warrants then
outstanding have been converted into or exercised for, as the case may be,
Registrable Securities (without regard to any limitations on conversions or
exercises).
k. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent and no rules of
strict construction will be applied against any party.
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IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY: BUYERS:
GENERAL MAGIC, INC. THEMIS PARTNERS L.P.
By: Promethean Investment Group L.L.C.
Its: General Partner
By: /s/
----------------------------
Name:
Its: By: /s/
-----------------------------------
Name: James F. O'Brien, Jr.
Its: President
HERACLES FUND
By: Promethean Investment Group L.L.C.
Its: Investment Advisor
By: /s/
-----------------------------------
Name: James F. O'Brien, Jr.
Its: President
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P.
Its: Investment Advisor
By: RGC General Partner Corp.
Its: General Partner
By: /s/
-----------------------------------
Name: Wayne Bloch
Its: Managing Director
-22-
<PAGE> 23
HALIFAX FUND, L.P.
By: The Palladin Group, L.P.
Its: Attorney-in-Fact
By: /s/
-----------------------------------
Name: Robert Chender
Title: Managing Director
PALLADIN PARTNERS I, L.P.
By: Palladin Asset Management, L.L.C.
Its: General Partner
By: /s/
-----------------------------------
Name: Robert Chender
Title: Managing Director
PALLADIN OVERSEAS FUND LIMITED
By: The Palladin Group L.P.
Its: Attorney-in-Fact
By: /s/
-----------------------------------
Name: Robert Chender
Title: Managing Director
THE GLENEAGLES FUND COMPANY
By: The Palladin Group L.P
Its: Attorney-in-Fact
By: /s/
-----------------------------------
Name: Robert Chender
Title: Managing Director
<PAGE> 24
PALLADIN SECURITIES, LLC
By: /s/
-----------------------------------
Name: Robert Chender
Title: Principal
COLONIAL PENN LIFE INSURANCE COMPANY
By: The Palladin Group L.P.
Its: Attorney-in-Fact
By: /s/
-----------------------------------
Name: Robert Chender
Title: Managing Director
<PAGE> 25
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
INVESTOR NAME INVESTOR ADDRESS INVESTOR'S REPRESENTATIVES' ADDRESS
- -------------------- ------------------------------- -----------------------------------
<S> <C> <C>
Themis Partners L.P. Promethean Investment Group, L.L.C. Promethean Investment Group, L.L.C.
40 West 57th Street, Suite 1520 40 West 57th Street, Suite 1520
New York, New York 10019 New York, New York 10019
Attn: James F. O'Brien, Jr. Attn: James F. O'Brien, Jr.
Facsimile: 212-698-0505 E. Kurt Kim
Facsimile: 212-698-0505
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661-3693
Attn: Robert J. Brantman,
Esq.
Facsimile: 312-902-1061
Heracles Fund Bank of Bermuda (Cayman) Limited Promethean Investment Group,
P.O. Box 513 L.L.C.
3rd Floor British American Center 40 West 57th Street, Suite 1520
Dr. Roy's Drive New York, New York 10019
Georgetown, Grand Cayman Attn: James F. O'Brien, Jr.
Cayman Island, BWI E. Kurt Kim
Attn: Allen J. Bernardo Facsimile: 212-698-0505
Facsimile: 809-949-7802
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661-3693
Attn: Robert J. Brantman,
Esq.
Facsimile: 312-902-1061
RGC International c/o Rose Glen Capital Rose Glen Capital Management,
Investors, LDC Management, L.P. L.P.
3 Bala Plaza East, Suite 200 3 Bala Plaza East, Suite 200
Bala Cynwyd, Pennsylvania Bala Cynwyd, Pennsylvania
Attn: Gary Kaminsky Attn: Gary Kaminsky
Facsimile: 610-617-0570 Facsimile: 610-617-0570
Palladin Partners I, c/o The Palladin Group L.P. The Palladin Group L.P.
L.P. 40 West 57th Street As Investment Advisor
15th Floor 40 West 57th Street
New York, NY 10019 15th Floor
Attn: Kevin Gerlitz New York, NY 10019
Facsimile: 212-698-0563 Attn: Kevin Gerlitz
Facsimile: 212-698-0563
Halifax Fund, L.P. c/o Citco Fund Services (Cayman The Palladin Group L.P.
Islands) Ltd. As Investment Advisor
Corporate Centre, West Bay Road 40 West 57th Street
P.O. Box 31106 SMB 15th Floor
Grand Cayman, Cayman Islands New York, NY 10019
Facsimile: 345-949-3877 Attn: Kevin Gerlitz
Facsimile: 212-698-0563
The Gleneagles Fund c/o Citco Fund Services (Cayman The Palladin Group L.P.
Company Islands) Ltd. As Investment Advisor
Corporate Centre, West Bay Road 40 West 57th Street
P.O. Box 31106 SMB 15th Floor
Grand Cayman, Cayman Islands New York, NY 10019
Facsimile: 345-949-3877 Attn: Kevin Gerlitz
Facsimile: 212-698-0563
</TABLE>
<PAGE> 26
<TABLE>
<CAPTION>
INVESTOR NAME INVESTOR ADDRESS INVESTOR'S REPRESENTATIVES' ADDRESS
- -------------------- ------------------------------- -----------------------------------
<S> <C> <C>
Palladin Overseas c/o Citco Fund Services (Cayman The Palladin Group L.P.
Fund Limited Islands) Ltd. As Investment Advisor
Corporate Centre, West Bay Road 40 West 57th Street
P.O. Box 31106 SMB 15th Floor
Grand Cayman, Cayman Islands New York, NY 10019
Facsimile: 345-949-3877 Attn: Kevin Gerlitz
Facsimile: 212-698-0563
Colonial Penn Life Colonial Penn Life Insurance The Palladin Group L.P.
Insurance Company Company As Investment Advisor
1818 Market Street 40 West 57th Street
Philadelphia, PA 19181 15th Floor
New York, NY 10019
Attn: Kevin Gerlitz
Facsimile: 212-698-0563
Palladin Securities, c/o The Palladin Group L.P. The Palladin Group L.P.
LLC 40 West 57th Street As Investment Advisor
15th Floor 40 West 57th Street
New York, NY 10019 15th Floor
Attn: Kevin Gerlitz New York, NY 10019
Facsimile: 212-698-0563 Attn: Kevin Gerlitz
Facsimile: 212-698-0563
</TABLE>
<PAGE> 27
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
[TRANSFER AGENT]
Attn: ___________________
RE: GENERAL MAGIC, INC.
Ladies and Gentlemen:
We are counsel to GENERAL MAGIC, INC., a Delaware corporation (the
"COMPANY"), and have represented the Company in connection with that certain
Securities Purchase Agreement (the "PURCHASE AGREEMENT") entered into by and
among the Company and the Buyers named therein (collectively, the "HOLDERS")
pursuant to which the Company issued to the Holders shares of its Series C
Convertible Preferred Stock, par value $.001 per share (the "PREFERRED SHARES"),
and warrants (the "WARRANTS") to purchase shares of the Company's common stock,
par value $.01 per share (the "COMMON STOCK"). Pursuant to the Purchase
Agreement, the Company also has entered into a Registration Rights Agreement
with the Holders (the "REGISTRATION RIGHTS AGREEMENT") pursuant to which the
Company agreed, among other things, to register the Registrable Securities (as
defined in the Registration Rights Agreement), including the shares of Common
Stock issuable upon conversion of the Preferred Shares and exercise of the
Warrants, under the Securities Act of 1933, as amended (the "1933 ACT"). In
connection with the Company's obligations under the Registration Rights
Agreement, on ____________ ___, 1998, the Company filed a Registration Statement
on Form S-3 (File No. 333-_____________) (the "REGISTRATION STATEMENT") with the
Securities and Exchange Commission (the "SEC") relating to the Registrable
Securities which names each of the Holders as a selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge as
of the date hereof, after telephonic inquiry of a member of the SEC's staff,
that any stop order suspending its effectiveness has been issued or that any
proceedings for that purpose are pending before, or threatened by, the SEC and
the Registrable Securities are available for resale under the 1933 Act pursuant
to the Registration Statement.
Very truly yours,
[COMPANY COUNSEL]
<PAGE> 28
By:
--------------------------------
cc: [LIST NAMES OF HOLDERS]
<PAGE> 1
EXHIBIT 99.1
Thursday June 25, 8:58 am Eastern Time
Company Press Release
GENERAL MAGIC SECURES $35 MILLION IN ADDED FINANCING
SUNNYVALE, Calif.--(BUSINESS WIRE)--June 25, 1998--General Magic, Inc.
(NASDAQ:GMGC - news) today announced that it has secured commitments for equity
investments and obtained bank financing that will provide the Company with a
total of $35 million in additional cash.
General Magic expects that the proceeds of these transactions will be used to
help fund the anticipated growth of the Company's network service, called
Portico.
General Magic has announced that the Portico service is expected to be available
on July 30 through resellers nationwide. Portico is designed for today's mobile
professional work force and enables users to access, retrieve and redistribute
information across computer and telephone networks through the magicTalk(TM)
voice user interface using any telephone and a normal speaking voice.
Portico lets subscribers access their voice mail, email, address book, and
calendar as well as public content such as company news and stock quotes.
A total of $32 million in equity investments was secured through two
transactions with investment funds managed by the Palladin Group LP, Rose Glen
Capital Management, LP and Promethian Investments Group, LLC.
In the first transaction, General Magic agreed to sell these investors $30
million of Series C convertible preferred stock. The Series C stock can be
converted into common stock at 135% of the market price of General Magic's
common stock at the time of closing, or at a price based on the market price of
the Company's stock prior to conversion, whichever is less. With limited
exceptions, the Series C preferred stock is not convertible until after a
five-month period following the date of issuance.
In addition, the investors will exercise their right to purchase an additional
$2 million of Series B preferred stock under an agreement between the investors
and General Magic reached in March of this year.
The Company will also issue to the investors 150,000 three-year warrants and
160,000 five-year warrants to purchase additional shares of common stock at a
premium to the common stock price as of the date of issue.
The remaining $3 million will come from Silicon Valley Bank's Software Capital
Practice Group to finance additional equipment requirements for General Magic.
<PAGE> 2
"These financing arrangements give us considerable leverage as an organization,"
said Steve Markman, chairman, CEO and president of General Magic.
"Not only will this help General Magic secure the resources needed to drive the
market for integrated voice and data applications, it will also put us in a
sound financial position through 1999."
Added James McCormick, CFO of General Magic, "Now that Portico is nearing
commercial availability, additional financing will allow us to make the best
long-term decisions for the service and for General Magic.
These transactions give the Company the flexibility to meet the demands of
building and maintaining a growing base of subscribers as well as creating brand
awareness for the Portico service and the magicTalk natural language voice user
interface."
In accordance with U.S. securities law, General Magic notes that this press
release contains forward-looking statements. There are risks that may cause
actual results to vary materially.
These risks include, but are not limited to, the challenges inherent in the
development and delivery of complex technologies; market acceptance of the
Company's Portico service; the Company's dependence on establishing distribution
relationships; the Company's ability to respond to competitive pressures; and
the Company's reliance on attracting, retaining and motivating key technical,
marketing and management personnel.
These and other risk factors are detailed in General Magic's 1997 Form 10-K, and
first quarter 1998 Form 10-Q filed with the Securities and Exchange Commission.
General Magic offers integrated voice and data applications making communication
and access to information easy and convenient for people, no matter where they
are.
The Company's development efforts are founded on its patented agent technology,
innovative user-interface and communication-centric designs to provide simple,
yet effective ways for people to keep in touch with the information they need to
be successful. The Company is headquartered in Sunnyvale. For more information
on General Magic, please visit the Company's Web site at
http://www.generalmagic.com.
Note to Editors: General Magic, Portico and magicTalk are registered trademarks
of General Magic, Inc.
-2-
<PAGE> 3
Contact:
General Magic, Inc., Sunnyvale
Buck Krawczyk, 408/774-4000
http://www.genmagic.com
or
The Financial Relations Board
Don Markley, 415/986-1591
[email protected]
Cathy Roberts, 415/986-1591
[email protected]
-3-
