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UNITED STATES 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): MARCH 30, 1999
GENERAL MAGIC, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 000-25374 77-0250147
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(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification Number)
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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 March 30, 1999, General Magic, Inc. (the "Company") issued and sold
to existing stockholders of the Company and an additional investor a total of
2,000 shares of its Series D Convertible Preferred Stock (the "Series D
Shares"), together with warrants to purchase 150,000 shares of the Company's
common stock at an exercise price of $5.078 per share (the "Warrants"), for an
aggregate purchase price of $20,000,000 (the "Series D Financing").
The Series D Shares will be convertible, at the option of the holder,
into common stock of the Company (the "Conversion Shares") at a conversion rate
equal to $10,000 plus accrued dividends divided by 110% of the average of the
closing bid prices during the ten consecutive trading days immediately after, at
the option of the Company, April 29, 1999, May 29, 1999 or June 28, 1999.
Subject to extension under certain circumstances, the Series D Shares will
automatically convert into shares of common stock on March 30, 2002, at a
conversion rate equal to $10,000 plus accrued dividends divided by the closing
bid price on that date, unless sooner converted or redeemed.
The number of shares of common stock into which the Series D Shares are
convertible is subject to adjustment (a "Reset") following the last day of each
September and March until March 30, 2002, and on December 31, 1999, and June 30,
2000, equal to 110% of the average of the closing bid prices of the Company's
common stock during the ten trading days immediately following each such date.
In addition, the conversion rate is subject to further adjustment in the event
the Company fails to satisfy various conditions. These conditions include, among
other things: (i) approval by the Company's stockholders of this transaction
pursuant to the rules of the Nasdaq Stock Market ("Nasdaq") for issuances of a
number of Conversion Shares which could potentially exceed 19.9% of the common
stock outstanding as of March 30, 1999, at conversion prices that are lower than
the market price of the common stock at March 30, 1999; and (ii) timely
registration with the Securities and Exchange Commission of the Conversion
Shares for resale.
The Series D Shares accrue dividends at a rate of 5% per annum, payable
quarterly either, at the Company's option, in cash or by adding such amount to
the liquidation value.
The Company may redeem the Series D Shares upon a consolidation, merger
or other business combination (a "Change of Control") at a price equal, subject
to limited exceptions, to 115% of the liquidation value. In the event that the
conversion price immediately after a Reset is less than 50% of the initial
conversion price, the Company may redeem the Series D Shares at liquidation
value. The holders may require the Company to redeem the Series D Shares upon
certain major transactions, including a Change of Control, at the greater of
125% of the liquidation value and the closing bid price on the date of the
announcement of any such transaction. In addition, the holders may require the
Company to redeem their Series D Shares at liquidation value upon certain
events, including, among other things: (i) failure to obtain stockholder
approval as required by Nasdaq; (ii) failure to maintain the registration of the
Conversion Shares for resale; or (iii) failure to maintain listing of the
Company's common stock on Nasdaq, AMEX or NYSE. If the Company fails to: (i)
timely file for registration of the Conversion Shares; (ii) use its best efforts
to maintain registration of the Conversion Shares; or (iii) to use its
reasonable best efforts to maintain the listing of its common stock on Nasdaq,
AMEX or NYSE, and in certain other events, the
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holders of the Series D Shares may require redemption at 130% of the liquidation
value or in certain cases, at the greater of 130% of the liquidation value and
the market value.
The foregoing description of the Series D Financing is qualified in its
entirety by the Securities Purchase Agreement, dated as of March 30, 1999, 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.
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Exhibit No. Description
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3.1 Certificate of Designations, Preferences and Rights
of Series D Convertible Preferred Stock of the
Registrant, filed with the Secretary of State of
the State of Delaware on March 30, 1999.
4.1 Securities Purchase Agreement, dated as of March
30, 1999, by and among the Registrant and the
buyers listed on the Schedule of Buyers thereto.
4.2 Form of Warrant issued to holders of the Series D
Convertible Preferred Stock.
4.3 Registration Rights Agreement, dated as of March
30, 1999, by and among the Registrant and the
holders of the Series D Convertible Preferred
Stock.
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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.
By: /s/ Mary E. Doyle
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April 2, 1999 Mary E. Doyle
General Counsel and Secretary
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EXHIBIT INDEX
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Exhibit No. Description
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3.1 Certificate of Designations, Preferences and Rights of Series D
Convertible Preferred Stock of the Registrant, filed with the
Secretary of State of the State of Delaware on March 30, 1999.
4.1 Securities Purchase Agreement, dated as of March 30, 1999, by and
among the Registrant and the buyers listed on the Schedule of
Buyers thereto.
4.2 Form of Warrant issued to holders of the Series D Convertible
Preferred Stock.
4.3 Registration Rights Agreement, dated as of March 30, 1999, by and
among the Registrant and the holders of the Series D Convertible
Preferred Stock.
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Exhibit 3.1
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES D 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 at a meeting 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 Two Thousand (2,000) shares of Series D
Convertible Preferred Stock of the Company, as follows:
RESOLVED, that the Company is authorized to issue 2,000 shares of
Series D 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 5.0% of the Stated Value (as defined below) per annum, which shall
be cumulative and accrue daily from the Issuance Date (as defined below).
Dividends shall be payable in cash on the last day of each Calendar Quarter (as
defined below) beginning on the last day of the Calender Quarter on June 30,
1999 (each a "DIVIDEND DATE"), provided that the Company provides written notice
("DIVIDEND ELECTION NOTICE") to each holder of Preferred Shares at least 30
calendar days prior to the Dividend Date. If the Company timely gives a Dividend
Election Notice, then all accrued and unpaid Dividends shall be payable on the
applicable 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 which are not paid on a
Dividend Date shall be payable upon the earlier of conversion or redemption by
the inclusion thereof in the Additional Amount (as defined below). Any accrued
and unpaid dividends with respect to which a Dividend Election Notice was given
and which are not paid within five (5) Business Days of such accrued and unpaid
Dividends' Dividend Date 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").
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(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,
including any related purchase rights (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, 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 number of whole
shares 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 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) 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. For the purposes of this Section 2(a), in
determining the number of outstanding shares of Common Stock a holder may rely
on the number of outstanding shares of Common Stock as reflected in (1) the
Company's most recent Form 10-Q or Form 10-K, as the case may be, (2) a more
recent public announcement by the Company or (3) any other notice by the Company
or its transfer agent setting forth the number of shares of Common Stock
outstanding. For any reason at any time, upon the written or oral request of any
holder, the Company shall within one (1) Business Day confirm orally and in
writing to any such holder the number of shares of Common Stock outstanding as
of the date of such request. In any case, the number of outstanding shares of
Common Stock shall be determined after giving effect to conversions of Preferred
Shares by such holder since the date as of which such number of outstanding
shares of Common Stock was reported.
(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) and Section 5 shall be determined according
to the following formula (the "CONVERSION RATE"):
Conversion Amount [divided by]
Conversion Price
For purposes of this Certificate of Designations, the following terms
shall have the following meanings:
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(i) "CALENDAR QUARTER" means each of the period
beginning on and including January 1 and ending on and including March 31, the
period beginning on and 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;
(ii) "CONVERSION PRICE" means, (A) as of any Conversion
Date (as defined below) or other date of determination (other than the Maturity
Date (as defined in Section 2(g)), the Fixed Conversion Price, subject to
adjustment as provided herein (including, without limitation, pursuant to
Section 2(c)) and (B) on the Maturity Date, the Closing Bid Price as of such
date;
(iii) "FIXED CONVERSION PRICE" means the product of (A)
the Conversion Percentage and (B) (I) on any Conversion Date prior to the date
immediately following the ten (10) consecutive trading days immediately
following the Fixed Conversion Price Trigger Date (the "ADJUSTMENT DATE"), 120%
of the Closing Bid Price of the Common Stock on the Issuance Date and (II) on
any Conversion Date on or after the Adjustment Date, 110% of the average of the
Closing Bid Prices of the Common Stock on the ten (10) consecutive trading days
immediately following the Fixed Conversion Price Trigger Date, subject in each
case to adjustment as provided herein (including, without limitation, pursuant
to Section 2(c));
(iv) "CONVERSION PERCENTAGE" means 100%, subject to
adjustment as provided herein;
(v) "CONVERSION AMOUNT" means the sum of (A) the
Additional Amount and (B) $10,000;
(vi) "ADDITIONAL AMOUNT" means, on a per share basis, the
sum of (A) unpaid Default Interest through the date of determination plus (B)
the result of the following formula: (.050)(N/365)($10,000);
(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 as reported by Bloomberg Financial Markets ("BLOOMBERG"), or, if The
Nasdaq National Market is not the principal trading market for such security,
the last closing bid price of such security on the principal securities exchange
or trading market where such security is listed or traded as reported by
Bloomberg, or if the foregoing do not apply, the last closing bid price of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no closing bid price is reported
for such security by Bloomberg, the last closing trade price 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
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Preferred Shares with respect to which the Closing Bid Price is being
determined). If the Company and the holders of Preferred Shares are unable to
agree upon the fair market value of the Common Stock, then such dispute shall be
resolved pursuant to Section 2(f)(iii). All such determinations shall 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 last Dividend Date with respect to which dividends, along with any Default
Interest, has been paid by the Company on the applicable Preferred Share through
and including the Conversion Date or the Maturity Date for the Preferred Shares
for which conversion and/or redemption is being elected, as the case may be;
(ix) "ISSUANCE DATE" means, with respect to each Preferred
Share, the date of issuance of the Preferred Shares;
(x) "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;
(xi) "FIXED CONVERSION PRICE TRIGGER DATE" means the
earlier of (A) the date which is 90 days after the Issuance Date and (B) if, and
only if, the Company so elects, either the date which is 30 days after the
Issuance Date or the date which is 60 days after the Issuance Date, provided
that the Company delivers written notice to each holder of Preferred Shares of
its election at least one day prior to such date which the Company has elected;
(xii) "RESET DATE" means, each of (A) December 31, 1999,
(B) June 30, 2000, and (C) during the period beginning on the Issuance Date and
ending on the Maturity Date, each of the last day of September and the last day
of March.
(xiii) "SECURITIES PURCHASE AGREEMENT" means that certain
securities purchase agreement between the Company and the initial holders of the
Preferred Shares;
(xiv) "STATED VALUE" means $10,000;
(xv) "REGISTRATION RIGHTS AGREEMENT" means that certain
registration rights agreement between the Company and the initial holders of the
Preferred Shares;
(xvi) "CONVERSION SHARES" means shares of Common Stock
issuable upon conversion of Preferred Shares and any shares of Common Stock
issuable as payment of Dividends or Registration Delay Payments (as defined in
the Registration Rights Agreement).
(c) Adjustment to Fixed Conversion Price -- Market Price of
Common Stock. In addition to any other adjustment to the Fixed Conversion Price
provided for in this Certificate of Designations, in the event that 110% of the
average of the Closing Bid Prices of the Common Stock on the ten (10)
consecutive trading days immediately following a Reset Date (a "PRICING
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PERIOD") is less than the Fixed Conversion Price in effect immediately prior to
such 10th trading day following such Reset Date, then after such 10th trading
day following such Reset Date the Fixed Conversion Price shall be equal to 110%
of the average of the Closing Bid Prices of the Common Stock on each trading day
during such Pricing Period; subject to further adjustment as provided in this
Section 2(c) and elsewhere in this Certificate of Designations.
(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).
(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, the Warrant Shares (as defined in the Securities
Purchase Agreement), the Discretionary Shares (as defined below) and shares of
Common Stock deemed to have been issued by the Company in connection with (1) an
Approved Stock Plan (as defined below) or (2) options, warrants or convertible
securities outstanding as of the Issuance Date, except to the extent that the
terms of such instruments are amended or changed on or after the Issuance Date,
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, if
any, then in effect shall be reduced to an amount (A) in the event such issue or
sale occurs on or prior to the date (the "RATCHET DATE") which is the earlier of
(I) the date on which an aggregate of at least 1,200 Preferred Shares have been
converted pursuant to Section 2 and (II) the date which is one year after the
date the Registration Statement (as defined in the Securities Purchase
Agreement) 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 Ratchet Date, 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:
(A) Issuance of Options. If on or after the
Issuance Date 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
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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
further 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.
(B) Issuance of Convertible Securities. If
on or after the Issuance Date 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 of such Convertible
Securities 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 further
adjustment of the Fixed Conversion Price shall be made upon the actual
issuance of such Common Stock upon
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conversion or exchange of such Convertible Securities, and if any such
issuance 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 Conversion Price shall be made by reason of
such issuance 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 issuance, conversion
or exchange of any Convertible Securities, or the rate at which any
Convertible Securities are convertible into or exchangeable for Common
Stock changes at any time, the 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 Conversion Price then in effect.
(D) Certain Definitions. For purposes of
determining the adjusted 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 (a) the Company's securities
may be issued to any employee, officer, director, consultant or other
service provider, or (b) Purchase Rights (as defined below) are or may
be issued.
(II) "DISCRETIONARY SHARES" means
shares of Common Stock (A) which have been issued or sold, or deemed to
have been issued or sold, by the Company (i) in connection with a
merger or consolidation, (ii) in connection with any strategic
partnership or joint venture (the primary purpose of which is not to
raise equity capital) or (iii) in connection with the acquisition of a
business, product, license or other assets by the Company, for a
consideration per share (based on the Closing Bid Price of such Common
Stock on the date of the issuance or sale, or deemed issuance or sale)
less than the Applicable Price (as defined above) ("ACQUISITION
SHARES") and (B) the issuance or sale, or deemed issuance or sale, of
which was not in violation of the applicable Discretionary Share Cap
(as defined below). For the purposes hereof, "DISCRETIONARY SHARE CAP"
shall mean that amount with respect to a Discretionary Share
Measurement Period (as defined below)
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as calculated from time to time as of the date ("MEASUREMENT DATE") of a
given issuance or sale, or deemed issuance or sale, of Acquisition
Shares which is equal to (A) the product of (x) the number of shares of
Common Stock actually outstanding on the last day of the Discretionary
Share Measurement Period, multiplied by the Closing Bid Price of the
Common Stock on the Measurement Date and (y) .05, less (B) the number of
Acquisition Shares issued or sold, or deemed to have been issued or
sold, by the Company during the Discretionary Share Measurement Period,
multiplied by the Closing Bid Price of the Common Stock on each
applicable Measurement Date with respect to such Acquisition Shares. A
given issuance or sale, or deemed issuance or sale, of Acquisition
Shares shall be deemed to violate the Discretionary Share Cap if the
product of (x) the number of such Acquisition Shares, multiplied by (y)
the Closing Bid Price of the Common Stock on the Measurement Date
exceeds the Discretionary Share Cap. The "DISCRETIONARY SHARE
MEASUREMENT PERIOD" shall mean with respect to a given issuance or sale,
or deemed issuance or sale, of Acquisition Shares, that 364-day period
ending on and including the date immediately prior to the date of the
issuance or sale, or deemed issuance or sale, of such Acquisition
Shares.
(III) "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.
(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
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<PAGE> 9
outstanding. If such parties are unable to reach agreement within ten
(10) days after the occurrence of an event requiring valuation (the
"VALUATION Event"), the fair value of such consideration will be
determined within five (5) Business Days of the tenth (10th) 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.
(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) Holder's Right of Alternative Floating Conversion
Price Following Issuance of Convertible Securities. If on or after the Issuance
Date the Company in any manner issues or sells Convertible Securities (other
than the Preferred Shares) that are convertible into or exchangeable for Common
Stock at a price which may vary (including by way of periodic adjustments to a
fixed conversion price) 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 any adjustment to the Fixed 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
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<PAGE> 10
Shares ("VARIABLE NOTICE") on the date of issuance of such Convertible
Securities. From and after the date the Company issues any such Convertible
Securities with a Variable Price, a holder of Preferred Shares shall have the
right, but not the obligation, in its sole discretion to substitute the Variable
Price for the Conversion Price upon conversion of any Preferred Shares by
designating in the Conversion Notice delivered upon conversion of such Preferred
Shares that solely for purposes of such conversion the holder is relying on the
Variable Price rather than the Conversion Price then in effect. A holder's
election to rely on a Variable Price for a particular conversion of Preferred
Shares shall not obligate the holder to rely on a Variable Price for any future
conversions of Preferred Shares.
(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 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).
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<PAGE> 11
(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 ten (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 ten (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 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.
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<PAGE> 12
(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, subject to Section 2(f)(iii) below, on the next Business Day
following the date of receipt of such Preferred Stock Certificate(s), (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, subject to Section
2(f)(iii) below, as soon as practicable and in no event later than two (2)
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 fair market value of the Common Stock (pursuant to
Section 2(b)(vii)) or the arithmetic calculation of the Conversion Rate, 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 (1) Business Day of receipt
of such holder's Conversion Notice. If such holder and the Company are unable to
agree upon the determination of the fair market value of the Common Stock
(pursuant to Section 2(b)(vii)) or arithmetic calculation of the Conversion Rate
within one (1) Business Day of such disputed determination or arithmetic
calculation being submitted to the holder, then the Company shall within one (1)
Business Day submit via facsimile (A) the disputed determination of the fair
market value of the Common Stock 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
two (2) Business Days 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
(5) Business Days after the Company's or the Transfer Agent's receipt of the
Preferred Stock Certificate(s) 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
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<PAGE> 13
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, pursuant to Section 2(f)(ii), 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 average of the Closing Bid Prices of the Common Stock for
the three (3) consecutive trading days immediately preceding 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).
(g) Mandatory Conversion or Redemption at Maturity. If any
Preferred Shares remain outstanding on the Maturity Date (as defined below),
then all such Preferred Shares, at the Company's option, either (i) 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 (a
"MATURITY DATE MANDATORY CONVERSION") or (ii) shall be redeemed as of such date
for an amount in cash per Preferred Share (the "MATURITY DATE REDEMPTION PRICE")
equal to the product of (A) the Conversion Rate on the Maturity Date and (B) the
Closing Bid Price of the Common Stock on the date immediately preceding the
Maturity Date (a "MATURITY DATE MANDATORY REDEMPTION"); provided, however, that
if the Company has elected a Maturity Date Mandatory Conversion and a Triggering
Event (other than a Triggering Event resulting from Section 3(d)(vii) due to the
Company' breach of a representation) has occurred and is continuing on the
Maturity Date, then the Company shall, within five (5) 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 Maturity Date Redemption Price. The Company shall be deemed
to have elected a Maturity Date Mandatory Conversion unless it delivers written
notice to each holder of Preferred Shares at least fifteen (15) Business Days
prior to the Maturity Date of its election to effect a Maturity Date Mandatory
Redemption. If the Company elects a Maturity Date Mandatory Redemption, then on
the Maturity Date the Company shall pay to each holder of Preferred Shares
outstanding on the Maturity Date, by wire transfer of immediately available
funds, an amount per Preferred Share equal to the Maturity Date Redemption
Price. 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(g). Notwithstanding the foregoing, if on the Maturity Date
the Common Stock is not designated for quotation on The Nasdaq National Market
or listed on The American Stock Exchange, Inc. or The New York Stock Exchange,
Inc. then the Company shall be deemed to have elected a
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<PAGE> 14
Maturity Date Mandatory Redemption, then the Maturity Date shall be extended
until the Common Stock is so designated or listed. "MATURITY DATE" means the
date which is three (3) years after the Issuance Date, subject to extension
pursuant to Section 3(f) of the Registration Rights Agreement, which extension
shall be equal to one and one-half (1 1/2) days for each number of days in
excess of the Allowable Grace Period (as defined in Section 3(f) of 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 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 any Preferred Shares prior to
the earlier of (i) the Adjustment Date (as defined in Section 2(b)(iii)) or (ii)
the first date on which there shall have occurred an event constituting a Major
Transaction (as defined in Section 3(c)) or the announcement of a pending or
proposed Major Transaction.
(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 the greater of (i) 125% of the
Liquidation Value (as defined in Section 11); and (ii) the product of (A) the
Conversion Rate at such time, and (B) the Closing Bid Price on the date of the
public announcement of such Major Transaction or the next date on which the
exchange or market on which the Common Stock is traded is open if such public
announcement is made (X) after 12:00 p.m. Eastern Time, on such date or (Y) on a
date on which the exchange or market on which the Common Stock is traded is
closed (the "MAJOR TRANSACTION REDEMPTION PRICE"). Notwithstanding anything to
the contrary contained herein, none of the holders of Preferred Shares shall
have the right to require the Company to redeem any Preferred Shares with
respect to any particular Major Transaction if: (i) the Company shall have
delivered a Notice of Redemption of Company's Election (as defined below), with
respect to such Major Transaction; and (ii) the Company has satisfied the
Conditions to Redemption at the Company's Election, with respect to such Major
Transaction.
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<PAGE> 15
(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), (iv) or (v) 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 (x) the Closing Bid Price on the trading day immediately preceding
such Triggering Event or (y) 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 (vi) or (vii) 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". Subject to the Excluded Redemption
Events (as defined below) pursuant to Section 3(h), 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) (a "CHANGE OF
CONTROL TRANSACTION");
(ii) the sale or transfer of all or substantially all of
the Company's assets; or
(iii) a purchase, tender or exchange offer made to and
accepted by the holders of more than 50% of the outstanding shares of Common
Stock.
(d) "Triggering Event". Subject to the Excluded Redemption Events
(as defined below) pursuant to Section 3(h), 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
filed by the Company pursuant to the Registration Rights Agreement on or before
the date which is 30 days after the Issuance Date or the failure of the
Registration Statement to be declared effective by the SEC on or prior to the
date that is 180 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
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<PAGE> 16
Statement lapses for any reason (including, without limitation, the
issuance of a stop order) or is unavailable (other than on days during an
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 (5) 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);
(iii) suspension from listing or delisting of the Common
Stock from The Nasdaq National Market, 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 (other than clause (y) of Section 4(a)), or, subject to Section
2(f)(iii), the Company's failure to deliver Conversion Shares within five (5)
days of the Conversion Date;
(v) the Company shall have failed to make any Excluded
Redemption Event Daily Payment (as defined below) in a timely manner in
accordance with Section 3(i) or the Company shall have failed to give an
Excluded Redemption Option Election Notice (as defined below) within one (1) day
of receipt of the Holders' Excluded Redemption Event Notice (as defined below);
(vi) on or before the Stockholder Meeting Deadline (as
defined in Section 4(l) of the Securities Purchase Agreement), the Company fails
to obtain the shareholder approval described in Section 4(l) of the Securities
Purchase Agreement; or
(vii) any representation or warranty by the Company
contained in the Securities Purchase Agreement 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 would not have a Material Adverse Effect (as defined
in Section 3(a) of the Securities Purchase Agreement), (ii) in the case of a
breach of a covenant which is curable, such breach continues for a period of
less than ten days, and (iii) any breach regarding any action or inaction
described in Section 3(d)(i)-(vi) above.
(e) Mechanics of Redemption at Option of Buyer 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
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<PAGE> 17
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 BUYER 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 (1) 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 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 (5) 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
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<PAGE> 18
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 14), 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 "fair market value" and the term
"Redemption Price" being substituted for the term "Conversion Rate". A holder's
delivery of a Void Optional Redemption Notice and exercise of its rights
following such notice shall not affect the Company's obligations to make any
payments (other than payments of the Redemption Price with respect to such
redemption) 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.
(h) Events Excluded from Redemption Provisions. Notwithstanding
anything to the contrary set forth in Section 3 or Section 4(a), the following
events shall be excluded from the definitions of Major Transaction and
Triggering Event (individually, an "EXCLUDED REDEMPTION EVENT" and,
collectively, the "EXCLUDED REDEMPTION EVENTS"):
(i) the failure of the Registration Statement to be
declared effective by the SEC on or prior to the date that is 180 days after the
Issuance Date, provided that the Company has used its reasonable best efforts to
have such Registration Statement declared effective by the SEC;
(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 days during an Allowable Grace Period) to the holder of the
Preferred Shares for sale of the Registrable Securities in accordance with the
terms of the Registration Rights Agreement, and such lapse or unavailability
continues for a period of at least five (5) consecutive
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<PAGE> 19
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, provided that the Company has used its best efforts to maintain the
effectiveness of such Registration Statement and has not taken voluntary action
or voluntarily failed to take any action which has directly or indirectly caused
the Registration Statement to lapse or become unavailable for the sale of all
the Registrable Securities pursuant to the terms of the Registration Rights
Agreement;
(iii) suspension from listing or delisting of the Common
Stock from The Nasdaq National Market, 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, provided that the Company
(A) has used its reasonable best efforts to maintain the listing of the Common
Stock on such exchange and has not taken any voluntary action or has voluntarily
failed to take any action which the Company knew or should have known would
result in the delisting of the Common Stock or the suspension of the Common
Stock from trading or (B) has voluntarily delisted or suspended trading of the
Common Stock because either (I) the holders of the Preferred Shares have
exercised their rights under Section 4(e) to have the Common Stock delisted or
(II) the Company is not permitted to issue shares of Common Stock to a holder of
Preferred Shares upon conversion of such Preferred Shares due to the Exchange
Cap and the Company delists the Common Stock so that the Exchange Cap
limitations no longer apply;
(iv) the failure to obtain the shareholder approval
described in Section 4(1) of the Securities Purchase Agreement, provided that
the Company has complied with its obligations set forth in Section 4(l) of the
Securities Purchase Agreement; and
(v) a purchase, tender or exchange offer made to and
accepted by the holders of more than 50% of the outstanding shares of Common
Stock which is not approved or recommended by the Company's Board of Directors.
As soon as practicable but in no event later than one (1) day after the
occurrence of an Excluded Redemption Event, the Company shall deliver written
notice thereof via facsimile and overnight courier (a "COMPANY'S EXCLUDED
REDEMPTION EVENT NOTICE") to each holder of Preferred Shares. At any time during
the period beginning after the earlier of the holders' receipt of a Company's
Excluded Redemption Event Notice and such holders becoming aware of an Excluded
Redemption Event and ending on the date which is thirty (30) days after the
holders' receipt of a Company's Excluded Redemption Event Notice, the holders of
at least two-thirds (2/3) of the Preferred Shares then outstanding may require
the Company to satisfy its obligations under Section 3(i) by delivering written
notice thereof via facsimile and overnight courier (a "HOLDERS' EXCLUDED
REDEMPTION EVENT NOTICE") to the Company, which notice shall specify the option
which such holders have elected pursuant to and in accordance with Section 3(i),
if applicable. The Company shall within one (1) day of its receipt of the
Holders' Excluded Redemption Event Notice provide each holder with written
notice via facsimile and overnight courier (a "EXCLUDED REDEMPTION OPTION
ELECTION NOTICE") which notice shall specify the option which the Company has
elected to exercise pursuant to and in accordance with Section 3(i).
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<PAGE> 20
(i) Rights of the Holders of the Preferred Shares upon the
Occurrence of an Excluded Redemption Event. In addition to any other remedies
the holders of the Preferred Shares may have at law or in equity, if an Excluded
Redemption Event occurs and the holders of the Preferred Shares have provided
the Company with a Holders' Excluded Redemption Event Notice, then the Company,
at its option, shall either (A) pay to each holder of Preferred Shares the
Redemption Price for each outstanding share of Preferred Stock held by such
holder pursuant to and in accordance with Section 3(g) or (B) if:
(i) the Excluded Redemption Event is pursuant to Section
3(h)(i), then immediately upon the occurrence of such an Excluded Redemption
Event (and from time to time as applicable), the Fixed Conversion Price of the
Preferred Shares shall be adjusted to either, at the option of the holders' of
at least two-thirds (2/3) of the Preferred Shares then outstanding, as set forth
in the Holders' Excluded Redemption Event Notice, (I) the lowest Closing Bid
Price on any trading day during the period beginning on and including the date
which is ten (10) trading days prior to the Issuance Date and ending on and
including the earlier of (A) the date the Registration Statement is declared
effective by the SEC and (B) the Conversion Date with respect to the Preferred
Share for which this determination is being made, or (II) the Conversion
Percentage in effect immediately prior to such Excluded Redemption Event shall
be reduced by 25 percentage points;
(ii) the Excluded Redemption Event is pursuant to Section
3(h)(ii), then at the option of the holders' of at least two-thirds (2/3) of the
Preferred Shares then outstanding, as set forth in the Holders' Excluded
Redemption Event Notice, either (A) the Company shall pay to each holder of
Preferred Shares in redemption for such Preferred Shares an amount equal to the
Liquidation Value within five (5) Business Days of the Company' receipt of the
Holders' Excluded Redemption Event Notice, or (B) immediately upon the
occurrence of such an Excluded Redemption Event (and from time to time as
applicable), the Fixed Conversion Price of the Preferred Shares shall be
adjusted to either, at the option of the holders as set forth in the Holders'
Excluded Redemption Event Notice, (I) the lowest Closing Bid Price on any
trading day during the period in excess of five (5) trading days (excluding any
days during an Allowable Grace Period) that the Registration Statement lapses or
is unavailable for sale of all Registrable Securities, or (II) the Conversion
Percentage in effect immediately prior to such Excluded Redemption Event shall
be reduced by 25 percentage points; or
(iii) the Excluded Redemption Event is other than pursuant to
Section 3(h)(i) or 3(h)(ii), then at the option of the holders' of at least
two-thirds (2/3) of the Preferred Shares then outstanding, as set forth in the
Holders' Excluded Redemption Event Notice, either (A) the Company shall pay to
each holder of Preferred Shares in redemption for such Preferred Shares an
amount equal to the Liquidation Value within five (5) Business Days of the
Company' receipt of the Holders' Excluded Redemption Event Notice, or (B)
beginning on and including the first day following the receipt by the Company of
a Holders' Excluded Redemption Event Notice, (I) the Company shall pay to each
holder of Preferred Shares an Excluded Redemption Event Daily Payment (as
defined below) on each day that such Excluded Redemption Event continues,
provided, however, that the Company shall not be obligated to make an Excluded
Redemption Event Daily Payment for more than 20 consecutive days with respect to
a single Excluded Redemption Event,
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<PAGE> 21
and (II) Conversion Percentage in effect immediately prior to such Excluded
Redemption Event shall be reduced by 25 percentage points.
For purposes of Section 3(i)(iii) above, "EXCLUDED REDEMPTION EVENT DAILY
PAYMENT" shall mean the payment to each holder of Preferred Shares, by the
Company, of an amount in cash per Preferred Share equal to one percent (1%) of
the Liquidation Value.
(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
can not 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) 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); or
(ii) 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
(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, and
(ii) the number of Preferred Shares which cannot be converted. Such holder shall
notify the Company of its election pursuant to Section 4(a) above by delivering
written notice via facsimile to the Company.
(c) Pro Rata Conversion and Redemption. In the event the Company
receives a Conversion Notice, Notice of
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<PAGE> 22
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 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) Conversion at the Company's Election. At any time or times during
the period beginning on the Issuance Date and ending on and including the date
which is two (2) years after the Issuance Date, the Company shall have the
right, in its sole discretion, to require that any or all of such outstanding
Preferred Shares be converted ("CONVERSION AT COMPANY'S ELECTION") at the
Conversion Rate; provided that the Conditions to Conversion at the Company's
Election (as set forth below) are satisfied. The Company shall exercise its
right to Conversion at Company's Election by providing each holder of Preferred
Shares written notice (by facsimile and overnight courier) ("NOTICE OF
CONVERSION AT COMPANY'S ELECTION") at least ten trading days prior to the date
selected by the Company for conversion ("COMPANY'S ELECTION CONVERSION DATE").
If the Company elects to require conversion of some, but not all, of such
Preferred Shares, the Company shall convert an amount from each holder of
Preferred Shares equal to such holder's pro rata amount (based on the number of
such Preferred Shares held by such holder relative to the number of such
Preferred Shares outstanding on the date of the Company's delivery of the Notice
of Conversion at Company's Election) of all Preferred Shares the Company is
requiring to be converted. The Notice of Conversion at Company's Election shall
indicate (x) the number of Preferred Shares the Company has selected for
conversion, (y) the Company's Election Conversion Date, which date shall be not
less than ten or more than 30 trading days after each holder's receipt of such
notice, and (z) each holder's pro rata share of outstanding Preferred Shares
which the Company is requiring to be converted. All Preferred Shares selected
for conversion in accordance with the provision of this Section 5 shall be
converted as of the Company's Election Conversion Date in accordance with
Section 2 as if the holders of such Preferred Shares selected by the Company to
be converted had given the Conversion Notice on the Company's Election
Conversion Date. All holders of Preferred Shares shall thereupon and within two
(2) Business Days after the Company's Election Conversion Date surrender all
Preferred Stock Certificates selected for conversion, duly endorsed for
cancellation, to the Company. "CONDITIONS TO CONVERSION AT THE COMPANY'S
ELECTION" means the following conditions: (i) on each day during the period
beginning 60 trading days prior to the Company's Election Conversion Date and
ending on and including the Company's Election Conversion Date, no Grace Period
(as defined in Section 3(f) of the Registration Rights Agreement) shall be in
effect and the Registration Statement shall have been effective and available
for the sale of no less than 125% of the sum of (A) the number of Conversion
Shares then issuable upon the conversion of all outstanding Preferred Shares
(without regard to any limitations on conversion herein or elsewhere), (B) the
number of Warrant Shares then issuable upon exercise of all outstanding Warrants
(without regard to any limitations on exercises), plus (C) the number of
Conversion Shares and Warrant Shares that are then held by the holders of the
Preferred Shares; (ii) on each day during the period beginning 60 trading days
prior to the date of the Company's Election Conversion Date and ending on and
including the Company's Election Conversion Date,
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<PAGE> 23
the Common Stock is designated for quotation on The Nasdaq National Market or
listed on The New York Stock Exchange, Inc. and is not suspended from trading;
(iii) on each day during the 20 consecutive trading days immediately preceding
the Company's Election Conversion Date, the Closing Bid Price of the Common
Stock is at least 150% of the Fixed Conversion Price as of the date which is
eleven (11) trading days after the Fixed Conversion Price Trigger Date; (iv)
during the period beginning on the Issuance Date of any Preferred Shares and
ending on and including the Company's Election Conversion Date, the Company
shall have delivered Conversion Shares upon conversion of the Preferred Shares
to the Buyers on a timely basis as set forth in Section 2(e)(ii) of this
Certificate of Designations; and (v) the Company otherwise has satisfied its
obligations and is not in default under this Certificate of Designations, the
Securities Purchase Agreement and the Registration Rights Agreement.
Notwithstanding the above, any holder of Preferred Shares may convert such
shares (including Preferred Shares selected for conversion) into Common Stock
pursuant to Section 2(a) on or prior to the date immediately preceding the
Company's Election Conversion Date.
(6) Redemption at the Company's Election Upon Change of Control. At any
time or times on or after the date the Company publicly discloses a Change of
Control Transaction, the Company shall have the right, in its sole discretion,
to require that all of the outstanding Preferred Shares be redeemed ("REDEMPTION
AT COMPANY'S ELECTION") at a price per Preferred Share equal to (1) 115% of the
Liquidation Value (as defined in Section 11), provided that the Registration
Statement shall have been effective and available for sale of all the
Registrable Securities at all times during the 60 consecutive trading days
immediately preceding the Company's Election Redemption Date (as defined below),
or (2) if the Registration Statement is not effective and available for sale of
all the Registrable Securities at all times during the 60 consecutive trading
days immediately preceding the Company's Election Redemption Date, then the
greater of (a) 115% of the Liquidation Value and (b) the product of (I) the
Conversion Rate at such time, and (II) the Closing Bid Price on the date of the
public announcement of such Change of Control Transaction or the next date on
which the exchange or market on which the Common Stock is traded is open if such
public announcement is made (x) after 12:00 p.m. Eastern Time, on such date or
(y) on a date on which the exchange or market on which the Common Stock is
traded is closed (the "CHANGE OF CONTROL REDEMPTION PRICE"); provided that the
Conditions to Redemption at the Company's Election (as set forth below) are
satisfied. The Company shall exercise its right to Redemption at Company's
Election by providing each holder of Preferred Shares written notice ("NOTICE OF
REDEMPTION AT COMPANY'S ELECTION") after the public disclosure of a Change of
Control Transaction and at least 10 trading days ("REDEMPTION AT COMPANY'S
ELECTION NOTICE PERIOD") prior to the date of consummation of the Change of
Control Transaction ("COMPANY'S ELECTION REDEMPTION DATE"). The Notice of
Redemption at Company's Election shall indicate the anticipated Company's
Election Redemption Date. If the Company has exercised its right of Redemption
at Company's Election and the conditions to such Redemption at Company's
Election have been satisfied, then all Preferred Shares outstanding at the time
of the consummation of the Change of Control Transaction shall be redeemed as of
the Company's Election Redemption Date by payment by the Company to each holder
of Preferred Shares of the Change of Control Redemption Price concurrent with
the closing of the Change of Control Transaction. All holders of Preferred
Shares shall thereupon and within two (2) Business Days after the Company's
Election Redemption Date, or such earlier date as the Company and each holder of
Preferred Shares mutually agree, surrender all outstanding Preferred
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<PAGE> 24
Stock Certificates, duly endorsed for cancellation, to the Company. If the
Company fails to pay the full Change of Control Redemption Price with respect to
any Preferred Shares concurrently with the closing of the Change of Control
Transaction, then the Redemption at Company's Election shall be null and void
with respect to such Preferred Shares and the holder of such Preferred Shares
shall be entitled to all the rights of a holder of outstanding Preferred Shares
set forth in this Certificate of Designations. "CONDITIONS TO REDEMPTION AT THE
COMPANY'S ELECTION" means the following conditions: (i) on each day during the
period beginning 60 trading days prior to the date of the Company's Election
Redemption Date and ending on and including the Company's Election Redemption
Date, the Common Stock is designated for quotation on The Nasdaq National Market
or listed on The New York Stock Exchange, Inc. and is not suspended from
trading; (ii) during the period beginning on the Issuance Date and ending on and
including the Company's Election Redemption Date, the Company shall have
delivered Conversion Shares upon conversion of the Preferred Shares to the
Buyers on a timely basis as set forth in Section 2(e)(ii) of this Certificate of
Designations; and (iii) the Company otherwise has satisfied its obligations and
is not in default under this Certificate of Designations, the Securities
Purchase Agreement and the Registration Rights Agreement. Notwithstanding the
above, any holder of Preferred Shares may convert such shares (including
Preferred Shares selected for redemption) into Common Stock pursuant to Section
2(a) on or prior to the date immediately preceding the Company's Election
Redemption Date.
(7) Redemption at the Company's Election Upon Decrease in Stock Price.
In the event that at any time the Fixed Conversion Price immediately following a
Pricing Period is less than 50% of the Fixed Conversion Price on the date
immediately following the Adjustment Date (as defined in Section 2(b)(iii))
(subject to adjustment for stock splits, stock dividends, stock combinations and
other similar transactions) the Company shall have the right, in its sole
discretion, to require that all, but not less than all, of the outstanding
Preferred Shares be redeemed ("COMPANY'S RESET REDEMPTION ELECTION") at the
Liquidation Value ("COMPANY'S RESET REDEMPTION PRICE"); provided that the
Conditions to the Company's Reset Redemption Election (as set forth below) are
satisfied. The Company shall exercise the Company's Reset Redemption Election by
providing each holder of Preferred Shares written notice ("NOTICE OF COMPANY'S
RESET REDEMPTION ELECTION") on any date during the period beginning on and
including the last day of a Pricing Period and ending on and including the date
which is 20 days after the last day of such Pricing Period. The Notice of
Company's Reset Redemption Election shall set forth the date on which the
Company's Reset Redemption Election shall be consummated, which date shall be
not less than 20 trading days and not more than 30 trading days after the date
each holder of Preferred Shares receives the Company's Notice of Company's Reset
Redemption Election (the "COMPANY'S RESET REDEMPTION DATE"). If the Company has
exercised the Company's Reset Redemption Election and the Conditions to
Redemption at the Company's Reset Redemption Election have been satisfied, then
all Preferred Shares outstanding at the time of the Company's Reset Redemption
Election shall be redeemed as of the Company's Reset Redemption Election Date by
payment by the Company to each holder of Preferred Shares of the Company's Reset
Redemption Price. All holders of Preferred Shares shall thereupon and within two
(2) Business Days after the Company's Reset Redemption Election Date, or such
earlier date as the Company and each holder of Preferred Shares mutually agree,
surrender all outstanding Preferred Stock Certificates, duly endorsed for
cancellation, to the Company. If the Company fails to pay the full Company's
Reset Redemption Price with respect to any Preferred Shares, then the Company's
Reset Redemption Election shall be null and void with respect to such
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<PAGE> 25
Preferred Shares and the holder of such Preferred Shares shall be entitled to
all the rights of a holder of outstanding Preferred Shares set forth in this
Certificate of Designations. "CONDITIONS TO REDEMPTION AT THE COMPANY'S RESET
REDEMPTION ELECTION" means the following conditions: (i) on each day during the
period beginning 20 trading days prior to the Company's Election Redemption Date
and ending on and including the Company's Election Redemption Date, no Grace
Period (as defined in Section 3(f) of the Registration Rights Agreement) shall
be in effect and the Registration Statement shall have been effective and
available for the sale of no less than 125% of the sum of (A) the number of
Conversion Shares then issuable upon the conversion of all outstanding Preferred
Shares (without regard to any limitations on conversion herein or elsewhere),
(B) the number of Warrant Shares then issuable upon exercise of all outstanding
Warrants (without regard to any limitations on exercises), plus (C) the number
of Conversion Shares and Warrant Shares that are then held by the holders of the
Preferred Shares; (ii) on each day during the period beginning 20 trading days
prior to the date of the Company's Election Redemption Date and ending on and
including the Company's Election Redemption Date, the Common Stock is designated
for quotation on The Nasdaq National Market or listed on The New York Stock
Exchange, Inc. and is not suspended from trading; (iii) during the period
beginning on the first Issuance Date of any Preferred Shares and ending on and
including the Company's Election Redemption Date, the Company shall have
delivered Conversion Shares upon conversion of the Preferred Shares to the
Buyers on a timely basis as set forth in Section 2(f)(ii) of this Certificate of
Designations; (iv) the Company otherwise has satisfied its obligations and is
not in default under this Certificate of Designations, the Securities Purchase
Agreement and the Registration Rights Agreement; and (vi) during the period
beginning on the Issuance Date and ending on and including the Company Election
Redemption Date, there shall not have occurred a Major Transaction or the
announcement of a pending or proposed Major Transaction. Notwithstanding the
above, any holder of Preferred Shares may convert such shares (including
Preferred Shares selected for conversion) into Common Stock pursuant to Section
2(a) on or prior to the date immediately preceding the Company's Election
Redemption Date.
(8) 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.
(9) 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 conversion 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
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<PAGE> 26
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 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.
(10) 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.
(11) Liquidation, Dissolution, Winding-Up. In the event of any voluntary
or involuntary liquidation, dissolution or winding up of the Company, the
holders of the Preferred Shares shall be entitled to receive in cash out of the
assets of the Company, whether from capital or from earnings available for
distribution to its stockholders (the "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) the Additional Amount (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.
(12) 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 senior to the Preferred Shares in respect of the
preferences as to distributions and payments upon the liquidation, dissolution
and winding up of the Company. Without the prior express written consent of the
holders of not less than two-thirds (2/3) of the then outstanding Preferred
Shares, the Company shall not hereafter
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<PAGE> 27
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 that 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.
(13) 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.
(14) Limitation on Number of Conversion Shares. 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 The Nasdaq Stock Market, Inc., except that such limitation shall not apply in
the event that the Company (a) obtains the approval of its stockholders as
required by applicable rules and regulations of The Nasdaq Stock Market for
issuances of Common Stock in excess of such amount 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 (i) the
Exchange Cap amount multiplied by (ii) a fraction, the numerator of which is the
number of Preferred Shares issued to such Purchaser pursuant to the Securities
Purchase Agreement and the denominator of which is the aggregate amount of all
the Preferred Shares issued to the Purchasers pursuant to the Securities
Purchase Agreement (the "CAP ALLOCATION AMOUNT"). In the event that any
Purchaser shall sell or otherwise transfer any of such Purchaser's Preferred
Shares, the transferee shall be allocated a pro rata portion of such Purchaser's
Cap Allocation Amount. In the event that any holder of Preferred Shares shall
convert all of such holder's Preferred Shares into a number of shares of Common
Stock which, in the 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
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<PAGE> 28
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.
(15) 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
that 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.
(16) 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.
(17) 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.
(18) 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.
(19) 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
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<PAGE> 29
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.
(20) 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> 30
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designations to be signed by Steven Markman, its President and Chief Executive
Officer, as of March 30, 1999.
GENERAL MAGIC, INC.
By: /s/ STEVEN MARKMAN
--------------------------------------
Name: Steven Markman
Its: President and Chief Executive Officer
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<PAGE> 31
EXHIBIT I
GENERAL MAGIC, INC.
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and Rights of
Series D 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 D 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: ______________________________________
Is the alternative Conversion Price being relied on pursuant to Section
2(d)(iii) of the Certificate of Designations? (check one) YES _____ NO
_____
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to: ___________________________________
___________________________________
___________________________________
Facsimile Number: ___________________________________
Authorization: ___________________________________
By: _______________________________
Title: ____________________________
Dated: __________________________________
Account Number:
(if electronic book entry transfer): ________________________________
Transaction Code Number
(if electronic book entry transfer): ________________________________
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 March 30,
1999, 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 D
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
Series D Convertible Preferred Stock, 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 (i) an aggregate of 2,000 of the Preferred Shares in the
respective amounts set forth opposite each Buyer's name on the Schedule of
Buyers and (ii) warrants in the form attached hereto as Exhibit E (the
"WARRANTS"), to acquire 75 shares of Common Stock for each Preferred Share
purchased (as exercised, collectively, 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 2,000 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, (iii) upon exercise of the
Warrants, will acquire the Warrant Shares then issuable, and (iv) under certain
circumstances, will acquire Registration Delay Payment Shares, in each case 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 obligation to
register such Securities under the 1933 Act or any state securities laws or to
comply with the
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<PAGE> 4
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 or other instrument 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) or other instruments 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. Notwithstanding anything to the contrary
contained herein, if the legend is removed from any certificate representing any
of the Securities due to the availability of an effective registration statement
relating to the resale thereof, and such registration statement is no longer
effective, upon the reasonable request of the Company, each Buyer who is a
holder of such Securities agrees to return certificates representing the
affected Securities, provided such Securities have
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<PAGE> 5
not been sold pursuant to such registration statement, to the Company's transfer
agent in order that the legend set forth above may be re-imposed on such
Securities.
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 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 50% of the outstanding
capital stock or holds an equity or similar interest representing at least 50%
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.
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<PAGE> 6
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
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) 100,000,000 shares of Common Stock, of
which as of the date hereof, 35,453,728 shares were issued and outstanding,
9,599,715 shares are issuable and reserved for issuance pursuant to the
Company's stock option and purchase plans and 630,000 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, (A) 50,000 shares were designated as Series A Preferred Stock and
50,000 shares of Series A Preferred Stock were issued and outstanding, (B)
12,000 shares were designated as Series B Preferred Stock and 3,500 shares of
Series B Preferred Stock were issued and outstanding, and (C) 3,000 shares were
designated as Series C Preferred Stock and 1,152 shares of Series C Preferred
Stock were issued and outstanding. All of such outstanding shares have been, or
upon issuance will be, validly issued and 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
-6-
<PAGE> 7
become bound to issue additional shares of capital stock of the Company or any
of its Subsidiaries or options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries; (iv) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
their securities under the 1933 Act (except the Registration Rights Agreement);
(v) there are no outstanding securities of the Company or any of its
Subsidiaries which contain any redemption or similar provisions, and there are
no contracts, commitments, understandings or arrangements by which the Company
or any of its Subsidiaries is or may become bound to redeem a security of the
Company or any of its Subsidiaries; (vi) there are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance of the Securities as described in this Agreement; and (vii) the Company
does not have any stock appreciation rights or "phantom stock" plans or
agreements or any similar plan or agreement. The Company has furnished to the
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 Stock required to be reserved
by the Company pursuant to Section 4(f) 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"). Based in part upon the representations
of Buyers in Section 2 hereof, 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
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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 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, 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 the draft, dated March 30, 1999,
of the Company's Form 10-K for the year ended December 31, 1998 which has been
provided to each of the Buyers (the "DRAFT 1998 10-K") 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
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<PAGE> 9
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). 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 except as may be disclosed in the Draft
1998 10-K.
g. Absence of Certain Changes. Except as disclosed in Schedule 3(g)
or the SEC Documents filed on EDGAR at least five (5) 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
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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 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 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, governmental authorizations, trade secrets or other intellectual
property rights have expired or terminated, or are expected to expire or
terminate within two (2) 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.
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<PAGE> 11
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 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.
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<PAGE> 12
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 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 Company is not aware of any 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 (5) 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,
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agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other 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. Application of Takeover Protections. The Company and its board of
directors have taken all necessary action, if any, in order to render
inapplicable Section 203 of the Delaware General Corporation Law, or any other
similar anti-takeover provision under applicable California law, contained in
the Company's Certificate of Incorporation, or otherwise which is or could
become applicable to the Buyers as a result of the transactions contemplated by
this Agreement, including, without limitation, the Company's issuance of the
Securities and the Buyer's ownership of the Securities.
y. 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.
z. Rights Plan. Neither the Company nor any of its Subsidiaries has
adopted a shareholder rights plan or similar arrangement relating to
accumulations of beneficial ownership of Common Stock or a change in control of
the Company.
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
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<PAGE> 14
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
(1) 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 "REPORTING 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.
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 Reporting Period: (i) within two (2) business days after the filing
thereof with the SEC, a copy of its Annual Reports on Form 10-K, its Quarterly
Reports on Form 10-Q, any Current Reports on Form 8-K and any registration
statements or amendments (other than on Form S-8) filed pursuant to the 1933
Act; (ii) using the Company's reasonable best efforts, 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 date which is one year after the Closing Date, 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 or may vary with or as a
result of (other than upon stock splits, stock dividends and the like) (i) the
market price of the underlying security at or during some period of time prior
to such conversion or (ii) the price at
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<PAGE> 15
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 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 use its best efforts to 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
would reasonably be expected to 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 $25,000.
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, persons who
were officers or directors at any time during the previous two (2) 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,
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<PAGE> 16
(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.
l. Proxy Statement. 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 July 15, 1999 (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 (5)
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 (i) convertible securities (other than the Preferred Shares) that are
convertible into or exchangeable for Common Stock at a price which may vary
(including by way of periodic adjustments to a fixed conversion price) with the
market price of the Common Stock (the formulation for such variable price being
herein referred to as, the "VARIABLE PRICE"), (ii) shares of Common Stock issued
at a price which is less than 93% of the Closing Bid Price on the issuance date
of such shares, or (iii) convertible securities (other than the Preferred
Shares) that are convertible into or exchangeable for Common Stock at a price
which is less than 93% of the Closing Bid Price on the issuance date ("FUTURE
OFFERINGS") during the period (the "RIGHT OF FIRST REFUSAL PERIOD") beginning on
the Closing Date and ending on and including the date which is 365 days after
the date the Registration Statement (as defined in the Registration Rights
Agreement) 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
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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 the Future Offering (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 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 Future Offering,
and that number of securities it is willing to purchase in excess of its
Aggregate Percentage of the Future Offering. In the event that one or more
Buyers fail to elect to purchase up to each such Buyer's Aggregate Percentage of
the Future Offering, then each Buyer which has indicated that it is willing to
purchase a number of securities in excess of its Aggregate Percentage of the
Future Offering 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 during the Right of First Refusal Period 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.
-17-
<PAGE> 18
n. 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.
o. Filing of Form 10-K. On or before March 31, 1999, the Company
shall file an annual report on Form 10-K with the SEC for the year ending
December 31, 1998, substantially in the form of the Draft 1998 10-K which shall
have been provided to the Buyers pursuant to Section 3(f) hereof.
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
-18-
<PAGE> 19
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.
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.
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.
-19-
<PAGE> 20
(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 Cooley Godward
LLP, 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.
(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
-20-
<PAGE> 21
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 (5) days of the Closing Date.
(n) 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 foregoing 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 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 (i) the execution, delivery, performance, breach by the Company
or enforcement of the Transaction Documents or the Certificate of Designations,
or any other certificate, instrument or document contemplated hereby or thereby,
(ii) any transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, excluding
losses resulting solely from a decline in the market value of the Company's
securities, or (iii) the status of such Buyer or holder of the Securities as an
investor in the Company.
-21-
<PAGE> 22
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; Jurisdiction; Jury Trial. 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. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT
OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
b. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
c. Headings. The headings of this Agreement are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Agreement.
-22-
<PAGE> 23
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.
f. Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) 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
-23-
<PAGE> 24
With a copy to:
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, California 94306
Telephone: (650)843-5000
Facsimile: (650)857-0663
Attention: Timothy J. Moore, Esq.
If to the Transfer Agent:
Boston EquiServe LP
150 Royall Street
Canton, Massachusetts 06321
Telephone: (781) 575-0044
Facsimile: (781) 575-2549
Attention: Paul Lyons
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 (5) days' prior written notice to the
other party of any change in address or facsimile number. Written confirmation
of receipt (A) given by the recipient of such notice, consent, waiver or other
communication, (B) mechanically or electronically generated by the sender's
facsimile machine containing the time, date, recipient facsimile number and an
image of such transmission or (C) provided by a courier or overnight courier
service shall be rebuttable evidence of personal service, overnight or courier
delivery or transmission by facsimile in accordance with clause (i), (ii) or
(iii) above, respectively.
g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Preferred Shares. The Company shall not assign
this Agreement or any rights or obligations 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(n)
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.
-24-
<PAGE> 25
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 (3) 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 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 Altair 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
Altair's fees or 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 Altair. 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
-25-
<PAGE> 26
agent's fees or brokers commissions (other than those of Altair in connection
with the Buyers' engagement of Altair 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 force
and effect as if such payment had not been made or such enforcement or setoff
had not occurred.
* * * * * *
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<PAGE> 27
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. HFTP INVESTMENT LLC
By: Promethean Investment Group L.L.C.
Its: Investment Manager
By: /s/ STEVEN MARKMAN
------------------------------
Name: Steven Markman
Its: President and By: James F. O'Brien
Chief Executive Officer -------------------------------------
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/ Steve Katznelson
---------------------------------
Name: Wayne Bloch
Its: Managing Director
HALIFAX FUND, L.P.
By: The Palladin Group, L.P.
Its: Attorney-in-Fact
By: /s/ Robert Chender
---------------------------------
Name: Robert Chender
Title: Managing Director
<PAGE> 28
PALLADIN PARTNERS I, L.P.
By: Palladin Asset Management, L.L.C.
Its: General Partner
By: /s/ Robert Chender
---------------------------------
Name: Robert Chender
Title: Managing Director
PALLADIN OVERSEAS FUND LIMITED
By: The Palladin Group L.P.
Its: Attorney-in-Fact
By: /s/ Robert Chender
---------------------------------
Name: Robert Chender
Title: Managing Director
THE GLENEAGLES FUND COMPANY
By: The Palladin Group L.P
Its: Attorney-in-Fact
By: /s/ Robert Chender
---------------------------------
Name: Robert Chender
Title: Managing Director
PALLADIN SECURITIES, LLC
By: /s/ Robert Chender
---------------------------------
Name: Robert Chender
Title: Principal
<PAGE> 29
COLONIAL PENN LIFE INSURANCE COMPANY
By: The Palladin Group L.P.
Its: Attorney-in-Fact
By: /s/ Robert Chender
---------------------------------
Name: Robert Chender
Title: Managing Director
<PAGE> 30
FISHER CAPITAL LTD.
By: /s/ Kenneth Simpler
---------------------------------
Name: Kenneth Simpler
Title: Vice President
WINGATE CAPITAL LTD.
By: /s/ Kenneth Simpler
---------------------------------
Name: Kenneth Simpler
Title: Vice President
<PAGE> 31
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
NUMBER
OF INVESTOR'S
INVESTOR ADDRESS PREFERRED REPRESENTATIVES' ADDRESS
INVESTOR NAME AND FACSIMILE NUMBER SHARES AND FACSIMILE NUMBER
------------- -------------------- ------ --------------------
<S> <C> <C> <C>
HFTP Investment LLC Promethean Investment Group, L.L.C. 700 Katten Muchin & Zavis
750 Lexington Avenue, 22nd Floor 525 West Monroe, Suite 1600
New York, New York 10022 Chicago, Illinois 60661-3693
Attn: James F. O'Brien, Jr. Attn: Robert J. Brantman, Esq.
Facsimile: 212-758-9334 Facsimile: 312-902-1061
Telephone: 212-702-5200 Telephone: 312-902-5200
Residence: New York
RGC International c/o Rose Glen Capital Management, L.P. 250 Rose Glen Capital Management,
Investors, LDC 3 Bala Plaza East, Suite 200 L.P.
Bala Cynwyd, Pennsylvania 3 Bala Plaza East, Suite 200
Attn: Gary Kaminsky Bala Cynwyd, Pennsylvania
Facsimile: 610-617-0570 Attn: Gary Kaminsky
Telephone: ____________________ Facsimile: 610-617-0570
Telephone:
Residence: Pennsylvania _____________________
Palladin Partners I, L.P. c/o The Palladin Group L.P. 75 The Palladin Group 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
Telephone: _____________________ Facsimile: 212-698-0563
Telephone:
Residence: New York _____________________
Halifax Fund, L.P. c/o Citco Fund Services (Cayman 525 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
Telephone: _____________________ Facsimile: 212-698-0563
Telephone:
Residence: Cayman Islands _____________________
The Gleneagles Fund c/o Citco Fund Services (Cayman 37.5 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
Telephone: ______________________ Facsimile: 212-698-0563
Telephone:
Residence: Cayman Islands _____________________
Palladin Overseas Fund c/o Citco Fund Services (Cayman 37.5 The Palladin Group L.P.
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
Telephone: _______________________ Facsimile: 212-698-0563
Telephone:
Residence: Cayman Islands _____________________
Company Colonial Penn Life Insurance Company 37.5 The Palladin Group L.P.
Colonial Penn Life
Insurance
</TABLE>
<PAGE> 32
<TABLE>
<CAPTION>
NUMBER
OF INVESTOR'S
INVESTOR ADDRESS PREFERRED REPRESENTATIVES' ADDRESS
INVESTOR NAME AND FACSIMILE NUMBER SHARES AND FACSIMILE NUMBER
------------- -------------------- ------ --------------------
<S> <C> <C> <C>
1818 Market Street As Investment Advisor
Philadelphia, PA 19181 40 West 57th Street
Facsimile: ________________________ 15th Floor
Telephone: _______________________ New York, NY 10019
Attn: Kevin Gerlitz
Residence: Pennsylvania Facsimile: 212-698-0563
Telephone:
---------------------
Palladin Securities, LLC c/o The Palladin Group L.P. 37.5 The Palladin Group 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
Telephone: ______________________ Facsimile: 212-698-0563
Telephone:
Residence: New York _____________________
Fisher Capital Ltd. 180
Wingate Capital Ltd. 120
</TABLE>
<PAGE> 33
<TABLE>
<CAPTION>
LIST OF SCHEDULES
- -----------------
<S> <C>
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 Series D Preferred Stock
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
</TABLE>
<PAGE> 1
Exhibit 4.2
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: March ___, 1999
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 75 SHARES 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 number of
shares of Common Stock issuable upon
<PAGE> 2
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
preferred stock) subject to a limitation on conversion or exercise analogous to
the limitation contained herein beneficially. Except as set forth in the
preceding sentence, for purposes of this paragraph, beneficial ownership shall
be calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended. For purposes of this paragraph, in determining the number of
outstanding shares Common Stock a holder may rely on the number of outstanding
shares of Common Stock as reflected in (1) the Company's most recent Form 10-Q
or Form 10-K, as the case may be, (2) a more recent public announcement by the
Company or (3) any other notice by the Company or its transfer agent setting
forth the number of shares of Common Stock outstanding. For any reason at any
time, upon the written or oral request of any a holder, the Company shall within
one (1) Business Day confirm orally and in writing to any such holder the number
of shares Common Stock outstanding as of the date of such request. In any case,
the number of outstanding shares Common Stock shall be determined after giving
effect to exercises of Warrants and conversions of Notes (as defined below) by
such holder since the date as of which such number of outstanding shares of
Common Stock was reported.
Section 1.
(a) Securities Purchase Agreement. This Warrant is one of the
warrants (the "PREFERRED SHARE WARRANTS") issued pursuant to Section 1 of that
certain Securities Purchase Agreement dated as of March 30, 1999, 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:
"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).
"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,
-2-
<PAGE> 3
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
substituted for the term "Market Price." All such determinations shall be
appropriately adjusted for any stock dividend, stock split or other similar
transaction during such period.
"COMMON STOCK" means (i) the Company's common stock, par value
$.001 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.
"EXPIRATION DATE" means the date three (3) 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.
"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.
"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 D
Convertible Preferred Stock issued pursuant to the Purchase Agreement.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement dated March 30, 1999 among the Company and the Buyers named therein
entered into in connection with the Purchase Agreement.
-3-
<PAGE> 4
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"WARRANT" means this Warrant and all Warrants issued in
exchange, transfer or replacement of any thereof.
"WARRANT EXERCISE PRICE" shall be $5.078, subject to
adjustment as hereinafter provided.
(c) Other Definitional Provisions.
(i) Except as otherwise specified herein, all references
herein (A) to the Company shall be deemed to include the Company's successors
and (B) to any applicable law defined or referred to herein, shall be deemed
references to such applicable law as the same may have been or may be amended or
supplemented from time to time.
(ii) When used in this Warrant, the words "HEREIN," "HEREOF,"
and "HEREUNDER," and words of similar import, shall refer to this Warrant as a
whole and not to any provision of this Warrant, and the words "SECTION,"
"SCHEDULE," and "EXHIBIT" shall refer to Sections of, and Schedules and Exhibits
to, this Warrant unless otherwise specified.
(iii) Whenever the context so requires, the neuter gender
includes the masculine or feminine, and the singular number includes the plural,
and vice versa.
Section 2. Exercise of Warrant.
(a) Subject to the terms and conditions hereof, this Warrant may be
exercised by the holder hereof then registered on the books of the Company, in
whole or in part, at any time 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 (the "SUBSCRIPTION
NOTICE"), 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, the Company shall
-4-
<PAGE> 5
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 (1) 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 (1) 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 two (2)
Business Days from the time it receives the disputed determinations or
calculations. Such investment banking firm's or accountant's determination or
calculation, as the case may be, shall be deemed conclusive absent manifest
error.
(b) Unless the rights represented by this Warrant shall have expired
or shall have been fully exercised, the Company shall, as soon as practicable
and in no event later than five (5) business days after any exercise and at its
own expense, issue a new Warrant identical in all respects to 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 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 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 exercised,
as the case may be, and (B) the average of the Closing Bid Prices for the three
(3) consecutive trading days
-5-
<PAGE> 6
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.
Section 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 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
-6-
<PAGE> 7
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.
Section 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.
Section 5. Warrant Holder Not Deemed a Stockholder. Except as otherwise
specifically provided herein, no holder, as such, of this Warrant shall be
entitled to vote or receive dividends or be deemed the holder of shares of the
Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings, receive dividends or subscription rights, or otherwise, prior to the
issuance to the holder of this Warrant of the Warrant Shares which he or she is
then entitled to receive upon the due exercise of this Warrant. In addition,
nothing contained in this Warrant shall be construed as imposing any liabilities
on such holder to purchase any securities 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
-7-
<PAGE> 8
copies of the same notices and other information given to the stockholders of
the Company generally, contemporaneously with the giving thereof to the
stockholders.
Section 6. Representations of Holder. The holder of this Warrant, by the
acceptance hereof, represents that it is acquiring this Warrant and the Warrant
Shares for its own account for investment 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.
Section 7. Ownership and Transfer.
(a) The Company shall maintain at its principal executive offices
(or such other office or agency of the Company as it may designate by notice to
the holder hereof), a register for this Warrant, in which the Company shall
record the name and address of the person in whose name this Warrant has been
issued, as well as the name and address of each transferee. The Company may
treat the person in whose name any Warrant is registered on the register as the
owner and holder thereof for all purposes, notwithstanding any notice to the
contrary, but in all events recognizing any transfers made in accordance with
the terms of this Warrant.
(b) This Warrant and the rights granted to the holder hereof are
transferable to other holders of Preferred Stock Warrants or 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, and such transferee
shall confirm in writing the representations set forth in Section 6 and shall
agree to be bound by the terms of this Warrant.
-8-
<PAGE> 9
(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.
Section 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 the 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 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.
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<PAGE> 10
(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
further adjustment of the Warrant Exercise Price shall be made upon the actual
issuance of such Common Stock or of such Convertible Securities upon the
exercise of such Options or upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities. Upon the expiration of
any such Options which shall not have been exercised, the Warrant Exercise 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 of
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.
(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
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<PAGE> 11
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 further adjustment of the
Warrant Exercise Price shall be made upon the actual issuance of such Common
Stock upon conversion or exchange of such Convertible Securities, and if any
such issue or sale of such Convertible Securities is made upon exercise of any
Options for which adjustment of the Warrant Exercise Price had been or are to be
made pursuant to other provisions of this Section 8(b), no further adjustment of
the Warrant Exercise Price shall be made by reason of such issuance 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.
(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 issuance, 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
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<PAGE> 12
Securities are issued to the owners of the non-surviving entity in connection
with any merger in which the Company is the surviving entity the amount of
consideration therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is attributable to
such Common Stock, Options or Convertible Securities, as the case may be. The
fair value of any consideration other than cash or securities will be determined
jointly by the Company and the holders of 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 five (5) Business
Days 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.
(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
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<PAGE> 13
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
8 and Section 9 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 8 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's Board of Directors will make an appropriate adjustment in the Warrant
Exercise Price and the number of shares of Common Stock obtainable upon exercise
of this Warrant so as to protect the rights of the holders of the Preferred
Share Warrants; provided that no such adjustment will increase the Warrant
Exercise Price or decrease the number of shares of Common Stock obtainable as
otherwise determined pursuant to this Section 8.
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<PAGE> 14
(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.
Section 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.
Section 10. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant
is lost, stolen, mutilated or destroyed, the Company shall, on receipt of an
indemnification undertaking, issue a new Warrant of like denomination and tenor
as the Warrant so lost, stolen, mutilated or destroyed.
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<PAGE> 15
Section 11. Notice. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Warrant must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) 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:
Cooley, Godward LLP
Five Palo Alto Square
Palo Alto, California 94306
Telephone: (650) 843-5000
Facsimile: (650) 857-0663
Attention: Timothy J. Moore, 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.
Section 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
Section 13. Date. The date of this Warrant is March ___, 1999. This
Warrant, in all events, shall be wholly void and of no effect after the close of
business on the Expiration Date,
* * * *
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<PAGE> 16
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: _________, _____
---------------------------------
By:
------------------------------
Its:
-----------------------------
<PAGE> 1
Exhibit 4.3
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of March 30,
1999, 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 D 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 D 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. Such Registration Statement shall initially register 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.
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<PAGE> 3
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 (in
accordance with 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
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.
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<PAGE> 4
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 and warrants
that on the date hereof it currently meets 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 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. The Company covenants that on and after the date hereof it will
use its best efforts to meet the requirements for the use of Form S-3 for
registration of the sale by the Investors of the Registrable Securities and
shall file all reports required to be filed by the Company with the SEC in a
timely manner so as to 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. Intentionally omitted.
h. Effect of Failure to Obtain and Maintain Effectiveness of
Registration Statement. If (i) the Registration Statement is not declared
effective by the SEC on or before 90 days after the Issuance Date (as defined in
the Certificate of Designations) of the Preferred Shares (the "SCHEDULED
EFFECTIVE DATE"); or (ii) 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
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of (A) .00033, for each day, up to and including the 30th day, that the
Registration Statement is not declared effective by the SEC after the Scheduled
Effective Date, plus, (B) beginning on and including the 31st day after the
Scheduled Effective Date, .0005, for each day that the Registration Statement is
not declared effective by the SEC after the 30th day after the Scheduled
Effective Date, plus (C) the product of (I) .0005 multiplied by (II) the number
of days after the date 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 (5) business days of the
earlier of (A) the first day of the month following the occurrence of the 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
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<PAGE> 6
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 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. In the event the number of shares available under all
Registration Statements filed pursuant to this Agreement is insufficient to
cover all of the Registrable Securities, the Company shall amend the appropriate
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 all Registration Statements 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 Statements 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
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<PAGE> 7
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 (other than unredacted versions of
supplemental correspondence for which confidential treatment has been requested)
and any correspondence from the SEC or the staff of the SEC to the Company or
its 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, to the extent required under applicable law, 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
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<PAGE> 8
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 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 which is the later of the date
specified in the notice or the date the holders receive the notice referred to
in clause (I) and shall end on and include the date which is the later of the
date specified in the notice or the date the holders receive the notice referred
to in clause (II). The provisions of Section 2(h) of this Agreement shall not be
applicable during the period of any Allowable 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
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<PAGE> 9
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 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 of which the Company has knowledge. The Company agrees that it shall,
upon learning that disclosure of such information concerning an Investor is
sought in
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<PAGE> 10
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.
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 during the Registration Period.
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 reasonably 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.
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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 governmental agencies or authorities
as may be necessary to consummate the disposition of such Registrable Securities
during the Registration Period.
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.
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.
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
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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.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
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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 prospectus, shall not inure
to the benefit of any Indemnified Person or 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 fact contained in the prospectus was
corrected in a subsequent prospectus that was delivered to the Indemnified
Person prior to the pertinent sale or sales by the Indemnified
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Person, 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 prospectus shall not inure to
the benefit of any Indemnified Party if the untrue statement or omission of
material fact contained in the prospectus was corrected in a subsequent
prospectus that was delivered to the purchaser or purchasers prior to the
pertinent sale or sales by such Investors.
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.
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
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<PAGE> 15
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 nonprivileged
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 (as the case may be), 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.
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.
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<PAGE> 16
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 pursuant to
the Registration Statement.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of
Rule 144 promulgated under the 1933 Act or any other similar rule or regulation
of the SEC that may at any time permit the Investors to sell securities of the
Company to the public without registration ("RULE 144"), the Company agrees to:
a. make and keep public information available, as those terms
are understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically
assignable by the 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 promptly after such assignment; (ii) the Company is
promptly furnished with written notice of (a) the name, address and fax number
of such transferee or assignee, and (b) the securities
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<PAGE> 17
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 (2/3) of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon each Investor and the Company. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the Registrable
Securities. No consideration shall be offered or paid to any person to amend or
consent to a waiver or modification of any provision of 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
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
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<PAGE> 18
With a copy to:
Cooley, Godward LLP
Five Palo Alto Square
Palo Alto, California 94306
Telephone: (650) 843-5000
Facsimile: (650) 857-0663
Attention: Timothy J. Moore, Esq.
If to a Buyer, to its address and facsimile number on the Schedule of
Buyers attached hereto, with copies to such Buyer's representatives as set forth
on the Schedule of Buyers. Each party shall provide five (5) days' prior written
notice to the other party of any change in address or facsimile number. If to
another Investor, to its address and facsimile number set forth on the Notice of
Transfer. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of such transmission or (C)
provided by a courier or overnight courier service shall be rebuttable evidence
of personal service, overnight or courier delivery or transmission by facsimile
in accordance with clause (i), (ii) or (iii) above, respectively.
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 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
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<PAGE> 19
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, the Securities Purchase Agreement, the
Certificate of Designations and the Warrants constitute the entire agreement
among the parties hereto with respect to the subject matter hereof and thereof.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein and therein. This Agreement, the
Securities Purchase Agreement, the Certificate of Designations and the Warrants
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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<PAGE> 20
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY: BUYERS:
GENERAL MAGIC, INC. HFTP INVESTMENT LLC
By: Promethean Investment Group L.L.C.
Its: Investment Manager
By: /s/ Steven Markman By: /s/ James F. O'Brien
-------------------------------- -------------------------------------
Name: Steven Markman Name: James F. O'Brien, Jr.
Its: President and Chief Its: President
Executive Officer
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P.
Its: Investment Advisor
By: RGC General Partner Corp.
Its: General Partner
By: /s/ Steve Katznelson
------------------------------------
Name: Steve Katznelson
Its: Managing Director
HALIFAX FUND, L.P.
By: The Palladin Group, L.P.
Its: Attorney-in-Fact
By: /s/ Robert Chender
------------------------------------
Name: Robert Chender
Title: Managing Director
<PAGE> 21
PALLADIN PARTNERS I, L.P.
By: Palladin Asset Management,
L.L.C.
Its: General Partner
By: /s/ Robert Chender
------------------------------------
Name: Robert Chender
Title: Managing Director
PALLADIN OVERSEAS FUND LIMITED
By: The Palladin Group, L.P.
Its: Attorney-in-Fact
By: /s/ Robert Chender
------------------------------------
Name: Robert Chender
Title: Managing Director
THE GLENEAGLES FUND COMPANY
By: The Palladin Group, L.P.
Its: Attorney-in-Fact
By: /s/ Robert Chender
------------------------------------
Name: Robert Chender
Title: Managing Director
PALLADIN SECURITIES, LLC
By: /s/ Robert Chender
------------------------------------
Name: Robert Chender
Title: Managing Director
<PAGE> 22
COLONIAL PENN LIFE INSURANCE COMPANY
By: The Palladin Group, L.P.
Its: Attorney-in-Fact
By: /s/ Robert Chender
------------------------------------
Name: Robert Chender
Title: Managing Director
FISHER CAPITAL LTD.
By: /s/ Kenneth Simpler
------------------------------------
Name: Kenneth Simpler
Title: Vice President
WINGATE CAPITAL LTD.
By: /s/ Kenneth Simpler
------------------------------------
Name: Kenneth Simpler
Title: Vice President
<PAGE> 23
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
NUMBER
OF INVESTOR'S
INVESTOR ADDRESS REFERRED REPRESENTATIVES' ADDRESS
INVESTOR NAME AND FACSIMILE NUMBER SHARES AND FACSIMILE NUMBER
------------- -------------------- ------- ------------------------
<S> <C> <C> <C>
HFTP Investment LLC Promethean Investment Group, L.L.C. 700 Katten Muchin & Zavis
750 Lexington Avenue, 22nd Floor 525 West Monroe, Suite 1600
New York, New York 10022 Chicago, Illinois 60661-3693
Attn: James F. O'Brien, Jr. Attn: Robert J. Brantman, Esq.
Facsimile: 212-758-9334 Facsimile: 312-902-1061
Facsimile: 212-702-5200 Telephone: 312-902-5200
Residence: New York
RGC International c/o Rose Glen Capital Management, L.P. 250 Rose Glen Capital Management, L.P.
Investors, LDC 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
Telephone: _______________ Telephone: ____________________
Residence: Pennsylvania
Palladin Partners I, L.P. c/o The Palladin Group L.P. 75 The Palladin Group 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
Telephone: _________________ Facsimile: 212-698-0563
Telephone: _____________________
Residence: New York
Halifax Fund, L.P. c/o Citco Fund Services (Cayman Islands) Ltd. 525 The Palladin Group L.P.
Corporate Centre, West Bay Road As Investment Advisor
P.O. Box 31106 SMB 40 West 57th Street
Grand Cayman, Cayman Islands 15th Floor
Facsimile: 345-949-3877 New York, NY 10019
Telephone: _____________________ Attn: Kevin Gerlitz
Facsimile: 212-698-0563
Residence: Cayman Islands Telephone: ____________________
The Gleneagles c/o Citco Fund Services (Cayman Islands) Ltd. 37.5 The Palladin Group L.P.
Fund Company Corporate Centre, West Bay Road As Investment Advisor
P.O. Box 31106 SMB 40 West 57th Street
Grand Cayman, Cayman Islands 15th Floor
Facsimile: 345-949-3877 New York, NY 10019
Telephone: __________________ Attn: Kevin Gerlitz
Facsimile: 212-698-0563
Residence: Cayman Islands Telephone: ___________________
Palladin Overseas c/o Citco Fund Services (Cayman Islands) Ltd. 37.5 The Palladin Group L.P.
Fund Limited Corporate Centre, West Bay Road As Investment Advisor
P.O. Box 31106 SMB 40 West 57th Street
Grand Cayman, Cayman Islands 15th Floor
Facsimile: 345-949-3877 New York, NY 10019
Telephone: ___________________ Attn: Kevin Gerlitz
Facsimile: 212-698-0563
Residence: Cayman Islands Telephone:___________________
Colonial Penn Life Colonial Penn Life Insurance Company 37.5 The Palladin Group L.P.
Insurance Company 1818 Market Street As Investment Advisor
Philadelphia, PA 19181 40 West 57th Street
Facsimile: ______________________ 15th Floor
</TABLE>
<PAGE> 24
<TABLE>
<CAPTION>
NUMBER
OF INVESTOR'S
INVESTOR ADDRESS REFERRED REPRESENTATIVES' ADDRESS
INVESTOR NAME AND FACSIMILE NUMBER SHARES AND FACSIMILE NUMBER
------------- -------------------- ------- ------------------------
<S> <C> <C> <C>
Telephone: _____________________ New York, NY 10019
Attn: Kevin Gerlitz
Residence: Pennsylvania Facsimile: 212-698-0563
Telephone: __________________
Palladin Securities, LLC c/o The Palladin Group L.P. 37.5 The Palladin Group 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
Telephone: ____________________ Facsimile: 212-698-0563
Telephone: _________________
Residence: New York
Fisher Capital Ltd. 180
Wingate Capital Ltd. 120
</TABLE>
<PAGE> 25
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 D
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 $.001 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 ____________ ___, 1999, 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.
Very truly yours,
[COMPANY COUNSEL]
By:
-------------------------------------
cc: [LIST NAMES OF HOLDERS]
