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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): MARCH 29, 2000
GENERAL MAGIC, INC.
(Exact Name of Registrant as Specified in its Charter)
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DELAWARE 000-25374 77-0250147
(State or Other Jurisdiction of (Commission File Number) (IRS Employer Identification No.)
Incorporation)
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420 NORTH MARY AVENUE 94086
SUNNYVALE, CALIFORNIA (Zip Code)
(Address of Principal Executive Offices)
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Registrant's telephone number, including area code: (408) 774-4000
NONE
(Former Name or Former Address, if Changed Since Last Report)
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ITEM 5. OTHER EVENTS.
On March 29, 2000, General Magic, Inc. (the "Company") entered into a
Securities Purchase Agreement (the "Securities Purchase Agreement") providing
for the issuance and sale to existing stockholders of the Company a total of
2,200 shares of its Series H Convertible Preferred Stock (the "Series H
Shares"), together with warrants to purchase a number of warrant shares for each
of the Series H Shares for an aggregate purchase price of $22,000,000 (the
"Series H Financing").
The Company is today filing a copy of the Securities Purchase Agreement
together with certain other agreements and instruments executed in connection
therewith.
The foregoing description of the Series H Financing is qualified in its
entirety by the Securities Purchase Agreement, dated as of March 29, 2000, 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.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
The following exhibit is filed with this report on Form 8-K:
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Exhibit No. Description
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4.1 Securities Purchase Agreement, dated as of March 29,
2000, by and among General Magic, Inc., a Delaware
corporation, and the investors listed on the Schedule of
Buyers attached thereto
4.2 Conversion Agreement, dated as of March 29, 2000, by and
among General Magic, Inc., a Delaware Corporation, and the
investors that are signatories thereto.
4.3 Certificate of Designations, Preferences and Rights of
Series H Convertible preferred Stock of General Magic,
Inc.
4.4 Registration Rights Agreement, dated as of March 29,
2000, by and among General Magic, Inc., a Delaware
corporation, and the investors that are signatories
thereto
4.5 Form of Warrant to Purchase Common Stock of General
Magic, Inc.
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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.
Dated: March 31, 2000 By: /s/ Mary Doyle
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Mary E. Doyle
General Counsel and Secretary
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EXHIBIT INDEX
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Exhibit No. Description
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4.1 Securities Purchase Agreement, dated as of March 29,
2000, by and among General Magic, Inc., a Delaware
corporation, and the investors listed on the Schedule of
Buyers attached thereto
4.2 Conversion Agreement, dated as of March 29, 2000, by and
among General Magic, Inc., a Delaware Corporation, and the
investors that are signatories thereto.
4.3 Certificate of Designations, Preferences and Rights of
Series H Convertible preferred Stock of General Magic,
Inc.
4.4 Registration Rights Agreement, dated as of March 29,
2000, by and among General Magic, Inc., a Delaware
corporation, and the investors that are signatories
thereto
4.5 Form of Warrant to Purchase Common Stock of General
Magic, Inc.
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EXHIBIT 4.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of March 29,
2000, 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 Company's Series H Convertible Preferred
Stock (the "PREFERRED STOCK"), 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 H
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, an aggregate of 2,200 shares of the Preferred Stock (the
"PREFERRED SHARES") in the respective amounts set forth opposite each Buyer's
name on the Schedule of Buyers and warrants, substantially in the form attached
hereto as Exhibit B (the "WARRANTS") to acquire shares of Common Stock for each
Preferred Share equal to 50% of the result of (i) $10,000 divided by (ii) the
Warrant Exercise Price (as defined in the Warrants) on the date which is 11
trading days after the Company files a Form 8-K with the Securities and Exchange
Commission pursuant to Section 4(i) (as exercised, collectively, the "WARRANT
SHARES"); (the Preferred Shares, the Warrants, the Conversion Shares, 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 C (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.
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NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS.
a. Purchase of Preferred Shares and Warrants. 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 2,200 Preferred Shares in the
respective amounts set forth opposite each Buyer's name on the Schedule of
Buyers along with the Warrants to purchase a number of Warrant Shares for each
Preferred Share equal to 50% of the result of (i) $10,000 divided by (ii) the
Warrant Exercise Price on the date which is 11 trading days after the Company
files a Form 8-K with the Securities and Exchange Commission pursuant to Section
4(i) (the "CLOSING"). The aggregate purchase price (the "PURCHASE PRICE") of
each Preferred Share and the related Warrants at each 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 which is the 11th trading day after the filing of the Form
8-K pursuant to Section 4(i) 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 by facsimile, except that the certificates representing the
Preferred Shares and Warrants shall have been delivered to counsel for the
Buyers. In the event any party sends the other parties written notice that a
physical closing is desired, at least two (2) Business Days prior to the Closing
Date, then the Closing shall occur on the Closing Date at the offices of Gibson,
Dunn & Crutcher LLP, 2029 Century Park East, 40th Floor, Los Angeles, California
90067 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 such Buyer 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 along with the related Warrants, 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 issuable upon exercise thereof, and
(iv) under certain circumstances, will acquire Registration
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Delay Payment Shares, in each case for its own account 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
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.
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
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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 terms and conditions of any
exemption thereunder. Notwithstanding the foregoing, the Securities may be
pledged in connection with a bona fide margin account or other loan secured by
the securities.
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 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
OR OTHER LOAN SECURED BY THE SECURITIES.
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
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(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 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
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as a whole, or on the transactions contemplated hereby or by the agreements and
instruments to be entered into in connection herewith, or on the authority or
ability of the Company to perform its obligations under the Transaction
Documents (as defined below) or the Certificate of Designations.
b. Authorization; Enforcement; Compliance with Other
Instruments. (i) The Company has the requisite corporate power and authority to
enter into and perform its obligations under this Agreement, the Registration
Rights Agreement, the Warrants 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 Warrants and the reservation for issuance and the issuance of the Conversion
Shares issuable upon conversion of the Preferred Shares and the Warrant Shares
issuable upon exercise of the Warrants) 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; (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, 51,291,300 shares were issued and outstanding,
8,521,938 shares are issuable and reserved for issuance pursuant to the
Company's stock option and purchase plans and 852,470 shares are issuable and
reserved for issuance pursuant to securities (other than the Preferred Shares)
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 no shares of Series B Preferred Stock
were issued and outstanding, (C) 3,000 shares were designated as Series C
Preferred Stock and no shares of Series C Preferred Stock were issued and
outstanding, (D) 2,000 shares were designated as the Series D Preferred Stock
and 399 shares of Series D Preferred Stock were issued and outstanding, (E) 699
shares were designated as the Series E Preferred Stock and 350 shares of Series
E Preferred Stock were issued and outstanding, (F) 1,000 shares were designated
as the Series F Preferred Stock and 525 shares of Series F Preferred Stock were
issued and outstanding, and (G) 2,000 shares were designated as the Series G
Preferred Stock and 1,500 shares of Series G Preferred Stock were
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issued and outstanding and 500 shares of Series G Preferred Stock were issuable
and reserved for issuance pursuant to securities exercisable for shares of
Series G Preferred Stock. 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 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 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. 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.
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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 consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the reservation
for issuance and issuance of the Conversion Shares) will not (i) result in a
violation of the Certificate of Incorporation, any Certificate of Designations,
Preferences and Rights of any outstanding series of Preferred Stock of the
Company or the By-laws; (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, indenture or instrument to which the
Company or any of its Subsidiaries is a party; or (iii) result in a violation of
any law, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations and the rules and regulations of the
principal market or exchange on which the Common Stock is traded or listed)
applicable to the Company or any of its Subsidiaries or by which any property or
asset of the Company or any of its Subsidiaries is bound or affected. Except as
disclosed in Schedule 3(e), neither the Company nor its Subsidiaries is in
violation of any term of or in default under (x) its Certificate of
Incorporation, any Certificate of 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 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
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representatives true and complete copies of the SEC Documents. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other written
information provided by or on behalf of the Company to the Buyers which is not
included in the SEC Documents, including, without limitation, the information
referred to in Section 2(d) of this Agreement, contains any untrue statement of
a material fact or omits to state any material fact necessary in order to make
the statements therein, in the light of the circumstance under which they are or
were made, not misleading. Neither the Company nor any of its Subsidiaries or
any of their officers, directors, agents or employees have provided the Buyers
with any material, nonpublic information.
g. Absence of Certain Changes. Except as disclosed in Schedule
3(g) or the SEC Documents filed on EDGAR at least five (5) business days prior
to the date hereof, since December 31, 1998, 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
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contemplated thereby. The Company further acknowledges that each Buyer is not
acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to the Transaction Documents and the Certificate of
Designations and the transactions contemplated thereby, and any advice given by
any of the Buyers or any of their respective representatives or agents in
connection with the Transaction Documents and the Certificate of Designations
and the transactions contemplated thereby is merely incidental to such Buyer's
purchase of the Securities. The Company further represents to each Buyer that
the Company's decision to enter into the Transaction Documents has been based
solely on the independent evaluation by the Company and its representatives.
j. No Undisclosed Events, Liabilities, Developments or
Circumstances. No event, liability, development or circumstance has occurred or
exists with respect to the Company or its Subsidiaries or their respective
business, properties, prospects, operations or financial condition, that would
be required to be disclosed by the Company under applicable securities 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
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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. 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
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<PAGE> 12
the Company nor any such Subsidiary has any reason to believe that it will not
be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business at a cost that would not materially and adversely
affect the condition, financial or otherwise, or the earnings, business or
operations of the Company and its Subsidiaries, taken as a whole.
r. Regulatory Permits. The Company and its Subsidiaries possess
all material certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company 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.
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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, 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 and the Warrant Shares issuable upon exercise of the Warrants 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 and its
obligation to issue the Warrant Shares upon exercise of the Warrants in
accordance with this Agreement and the Warrants, is, in each case, 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 the conditions to be satisfied by it as provided in Sections 6 and 7 of
this Agreement.
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b. Form D. The Company agrees to file a Form D with respect to
the Securities as required under Regulation D and to provide a copy thereof to
each Buyer promptly after such filing. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary to qualify the Securities for, or obtain exemption for the Securities
for, sale to the Buyers at the Closing pursuant to this Agreement under
applicable securities or "Blue Sky" laws of the states of the United States, and
shall provide evidence of any such action so taken to the Buyers on or prior to
the Closing Date. The Company shall make all filings and reports relating to the
offer and sale of the Securities required under applicable securities or "Blue
Sky" laws of the states of the United States following the Closing Date.
c. Reporting Status. Until the earlier of (i) the date which is
one (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
below) (provided that the Company has complied with Sections 2(c)(ii) of the
Certificate of Designations, Section 7(e) of the Warrants and Section 4(m) of
this Agreement), 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.
A "MAJOR TRANSACTION" shall be deemed to have occurred at such time as
any of the following events occurs:
(i) the consolidation, merger or other business combination of the
Company with or into another Person (other than (A) a consolidation,
merger or other business combination in which holders of the Company's
voting power immediately prior to the transaction continue after the
transaction to hold, directly or indirectly, the voting power of the
surviving entity or entities necessary to elect a majority of the
members of the board of directors (or their equivalent if other than a
corporation) of such entity or entities, or (B) pursuant to a migratory
merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Company);
(ii) the sale or transfer of all or substantially all of the Company's
assets; or
(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. Use of Proceeds. The Company will use the proceeds from the
sale of the Preferred Shares and Warrants for general corporate purposes.
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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 the number of shares of Common Stock needed to provide
for the issuance of the Conversion Shares (without regard to any limitations on
conversions) issuable upon conversion of all the Preferred Shares then
outstanding at the Conversion Price then in effect as specified in Section 2(b)
of the Certificate of Designations and the number of shares of Common Stock
needed to provide for the issuance of the shares of Common Stock upon exercise
of all outstanding Warrants (without regard to any limitations on exercises) at
the Exercise Price (as defined in the Warrants) then in effect.
g. 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 offer to 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(g).
h. Transactions With Affiliates. So long as any Preferred Shares
or Warrants 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
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Common Stock, or affiliates or with any individual related by blood, marriage or
adoption to any such individual or with any entity in which any such entity or
individual owns a 5% or more beneficial interest (each a "RELATED PARTY"),
except for (a) customary employment arrangements and benefit programs on
reasonable terms, (b) any agreement, transaction, commitment or arrangement on
an arms-length basis on terms no less favorable than terms which would have been
obtainable from a person other than such Related Party, or (c) any agreement,
transaction, commitment or arrangement which is approved by a majority of the
disinterested directors of the Company. For purposes hereof, any director who is
also an officer of the Company or any Subsidiary of the Company shall not be a
disinterested director with respect to any such agreement, transaction,
commitment or arrangement. "AFFILIATE" for purposes hereof means, with respect
to any person or entity, another person or entity that, directly or indirectly,
(i) has a 5% or more equity interest in that person or entity, (ii) has 5% or
more common ownership with that person or entity, (iii) controls that person or
entity, or (iv) shares common control with that person or entity. "CONTROL" or
"CONTROLS" for purposes hereof means that a person or entity has the power,
direct or indirect, to conduct or govern the policies of another person or
entity.
i. Filing of Form 8-K. On or before the second (2nd) business
day following the date of this Agreement, the Company shall file a Form 8-K with
the SEC describing the terms of the transactions contemplated by the Transaction
Documents and including as exhibits to such 8-K this Agreement, the Certificate
of Designation, the Registration Rights Agreement and the form of Warrant, in
the form required by the 1934 Act.
j. Intentionally omitted.
k. Right of Participation. 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 pursuant to this
Agreement) that are convertible into or exchangeable for Common Stock at a price
which may vary (including by way of one or more periodic adjustments to a fixed
conversion price) with the market price of the Common Stock or shares of Common
Stock with an effective ultimate purchase price which may vary with the market
price of the Common Stock after the issuance date of such shares of 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 the Fixed Conversion Price (as defined in the Certificate of Designations)
on the date immediately preceding the issuance date of such shares, or (iii)
convertible securities (other than the Preferred Shares pursuant to this
Agreement) that are convertible into or exchangeable for Common Stock at a price
which is less than the Fixed Conversion Price on the date immediately preceding
the issuance date of such convertible securities ("FUTURE OFFERINGS") during the
period (the "RIGHT OF PARTICIPATION PERIOD") beginning on the date which is 184
days after the Closing Date and ending on and including December 31, 2000,
unless it shall have first delivered to each Buyer or a designee appointed by
such Buyer written notice (the "PARTICIPATION OFFERING NOTICE") describing the
proposed Future Offering, including the terms and conditions thereof, and
providing each Buyer an option to purchase up to its Aggregate Participation
Percentage (as defined below), as of the date of delivery of the Participation
Offering Notice, of the Future
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Offering (the limitations referred to in this sentence are collectively referred
to as the "PARTICIPATION OFFERING LIMITATION"). For purposes of this Section
4(k), "AGGREGATE PARTICIPATION PERCENTAGE" at any time with respect to any Buyer
shall mean the percentage obtained by multiplying (I) 50% by (II) the quotient
of (i) the aggregate number of Preferred Shares purchased by such Buyer at the
Closing, divided 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 pursuant to this Section 4(k) by delivering written notice
thereof to participate to the Company within 10 business days of receipt of a
Participation 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 Participation Percentage of the Future Offering, and that
number of securities it is willing to purchase in excess of its Aggregate
Participation 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 Participation
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
Participation 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 pursuant to this Section 4(k) within
the periods described in this Section 4(k), 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 Participation
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 Participation Period without
first offering such securities to the Buyers in the manner provided in this
Section 4(k). The Participation Offering 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, (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 $50,000,000 and
which does not provide for any demand or piggyback registration rights for at
least one (1) year from the date of the offering or (vii) issuances of Common
Stock under that certain Common Stock Investment Agreement, dated as
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of July 30, 1999 and as amended on March 21, 2000, between the Company and
Cripple Creek Securities, LLC (the "INVESTMENT AGREEMENT"), provided there are
no amendments or waivers of provisions thereof (A) relating to (I) the aggregate
dollar amount of the shares of Common Stock issuable under the Investment
Agreement, (II) the per share purchase price or the $2.00 per share minimum
purchase price or (III) additional consideration to be received or costs or
expenses recoverable by the Investor thereunder or (B) which would result in a
larger number of shares of Common Stock being issued or available for issuance
under the Investment Agreement than was contemplated on March 21, 2000 by the
Investment Agreement. The Buyers shall not be required to participate or
exercise their right of participation with respect to a particular Future
Offering in order to exercise their right of participation with respect to later
Future Offerings.
l. Waiver of Certain Other Rights of First Refusal. Each Buyer
agrees that beginning on and including the date which is 184 days after the
Closing Date the right of participation contained in Section 4(k) above shall
supersede all other prior oral or written agreements for rights of first refusal
or participation between such Buyer and the Company (including, without
limitation, the rights set forth in Section 4(m) of the Securities Purchase
Agreement between the Company and holders of the Series D Preferred Stock dated
March 30,1999 (the "SERIES D PURCHASE AGREEMENT") and in Section 4(e) of the
Exchange Agreement between the Company and holders of the Series F Preferred
Stock dated September 9, 1999 (the "SERIES F EXCHANGE AGREEMENT")) for the
period beginning on and including the date which is 184 days after the Closing
Date and ending on and including December 31, 2000, and beginning on and
including the date which is 184 days after the Closing Date such Buyer waives
and relinquishes all such other rights of first refusal and participation and
agrees that such rights shall no longer be of any force or effect for the period
beginning on and including the date which is 184 days after the Closing Date and
ending on and including December 31, 2000. Nothing in this Section 4(l) shall in
any way effect such Buyer's rights of first refusal under Section 4(m) of the
Series D Purchase Agreement and Section 4(e) of the Series F Exchange Agreement
prior to the date which is 184 days after the Closing Date.
m. 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 (and, if an entity
different than such surviving or successor entity, the entity whose securities
the holders of Common Stock of the Company immediately prior to such merger,
consolidation or sale of assets will receive in such transaction) 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.
n. Consent to Issuance of Preferred Shares. Each Buyer consents,
under Section 4(g) of the Series D Purchase Agreement and Section 4(f) of the
Series F Exchange Agreement, to the issuance of the Preferred Shares and the
Warrants pursuant to this Agreement.
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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 and 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 resale 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 and
the Warrant Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by such Buyer
and without any restrictive legends. The Company acknowledges that a breach by
it of its obligations hereunder will cause irreparable harm to the Buyers by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Section 5 will be inadequate and agrees, in the event of
a breach or threatened breach by the Company of the provisions of this Section
5, that the Buyers shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach and requiring immediate
issuance and transfer, without the necessity of showing economic loss and
without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of the
Company to issue and sell the Preferred Shares and the Warrants to a 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:
(i) Such Buyer shall have executed each of the Transaction
Documents to which it is a party and delivered the same to the Company.
(ii) The Certificate of Designations shall have been filed with
the Secretary of State of the State of Delaware.
19
<PAGE> 20
(iii) Such Buyer shall have delivered to the Company the
Purchase Price for the Preferred Shares and the Warrants being purchased
by such Buyer at the Closing by wire transfer of immediately available
funds pursuant to the wire instructions provided by the Company.
(iv) The representations and warranties of such 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 Warrants from the
Company 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 by providing the Company with prior written notice thereof:
(i) The Company shall have executed each of the Transaction
Documents to which it is a party, and delivered the same to such Buyer.
(ii) 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.
(iii) 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 and exercise of
the Warrants 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 the Warrant Shares
issuable upon conversion or exercise of the Preferred Shares and the
related Warrants, as the case may be, to be sold at the Closing shall be
listed upon the Nasdaq National Market, AMEX or NYSE.
(iv) 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
20
<PAGE> 21
limitation, an update as of the Closing Date regarding the
representation contained in Section 3(c) above.
(v) Such Buyer shall have received the opinion of Gibson, Dunn &
Crutcher 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.
(vi) The Company shall have executed and delivered to such Buyer
the Stock Certificates and the Warrants (in such denominations as such
Buyer shall request) for the Preferred Shares and the Warrants being
purchased by such Buyer at the Closing.
(vii) 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").
(viii) 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 the 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).
(ix) 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.
(x) The Company shall have delivered to such Buyer a certificate
evidencing the incorporation and good standing of the Company and each
Subsidiary in such corporation's state of incorporation issued by the
Secretary of State of such state of incorporation as of a date within
ten days of the Closing Date.
(xi) 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.
(xii) 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.
(xiii) 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.
(xiv) 92% of the average of the Closing Bid Prices of the Common
Stock for the ten (10) consecutive trading days beginning on and
including the first trading day after the date on which the Company
files a Form 8-K with the Securities and Exchange
21
<PAGE> 22
Commission describing the terms of the offering of Preferred Shares
pursuant to Section 4(i) hereof on the Closing Date shall not be less
than $5.00.
(xv) 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) solely the status of such Buyer or holder of the Securities
as an investor in the Company. Notwithstanding the foregoing, Indemnified
Liabilities shall not include any liability of any Indemnitee arising solely out
of such Indemnitee's willful misconduct or fraudulent action(s). To the extent
that the foregoing undertaking by the Company may be unenforceable for any
reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law. Except as otherwise set forth herein, the mechanics and
procedures with respect to the rights and obligations under this Section 8 shall
be the same as those set forth in Sections 6(a) and (d) of the Registration
Rights Agreement, including, without limitation, those procedures with respect
to the settlement of claims and Company's right to assume the defense of claims.
9. GOVERNING LAW; MISCELLANEOUS.
22
<PAGE> 23
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.
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
23
<PAGE> 24
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
With a copy to:
Gibson, Dunn & Crutcher LLP
2029 Century Park East
40th Floor
Los Angeles, California 90067
Telephone: (310) 557-8041
Facsimile: (310) 552-7018
Attention: Russell C. Hansen, Esq.
24
<PAGE> 25
If to the Transfer Agent:
EquiServe LP
150 Royall Street
Canton, Massachusetts 06321
Telephone: (781) 575-0044
Facsimile: (781) 575-2549
Attention: Sandra Burgess
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 Sections
2(c)(ii) of the Certificate of Designations, Section 4(m) of the Securities
Purchase Agreement and Section 8(e) of the Warrants. 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 or other loan secured by such Securities.
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.
25
<PAGE> 26
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(a) and 7(a) 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.
m. Placement Agent. The Company acknowledges that it has engaged
Promethean Capital Group, LLC as placement agent in connection with the sale of
the Preferred Shares and the Warrants. The Company shall be responsible for the
payment of any placement agent's fees or brokers' commissions 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, attorney's 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 Securities 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 Warrants, the
Registration Rights
26
<PAGE> 27
Agreement or 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.
* * * * * *
27
<PAGE> 28
IN WITNESS WHEREOF, the Buyers and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
COMPANY: BUYERS:
GENERAL MAGIC, INC. HFTP INVESTMENT L.L.C.
By: Promethean Asset Management
L.L.C.
Its: Investment Manager
By:
---------------------------------
Name:
Its: By:
------------------------------
Name: James F. O'Brien, Jr.
Its: Managing Member
HALIFAX FUND, L.P.
By: The Palladin Group, L.P.
Its: Attorney-in-Fact
By:
------------------------------
Name: Robert Chender
Title: Managing Director
<PAGE> 29
[PAGE 2 OF 3 OF THE SECURITIES PURCHASE AGREEMENT SIGNATURE PAGES]
PALLADIN PARTNERS I, L.P.
By: Palladin Asset Management,
L.L.C.
Its: General Partner
By:
------------------------------
Name: Robert Chender
Title: Managing Director
PALLADIN OVERSEAS FUND LIMITED
By: The Palladin Group L.P.
Its: Attorney-in-Fact
By:
------------------------------
Name: Robert Chender
Title: Managing Director
THE GLENEAGLES FUND COMPANY
By: The Palladin Group L.P.
Its: Attorney-in-Fact
By:
------------------------------
Name: Robert Chender
Title: Managing Director
LANCER SECURITIES LTD.
By: The Palladin Group L.P.
Its: Attorney-in-Fact
By:
------------------------------
Name: Robert Chender
Title: Managing Director
<PAGE> 30
[PAGE 3 OF 3 OF THE SECURITIES PURCHASE AGREEMENT SIGNATURE PAGES]
FISHER CAPITAL LTD.
By:
------------------------------
Name: Daniel Hopkins
Its: Authorized Signatory
WINGATE CAPITAL LTD.
By:
------------------------------
Name: Daniel Hopkins
Its: Authorized Signatory
<PAGE> 31
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
NUMBER OF INVESTOR'S REPRESENTATIVES'
INVESTOR ADDRESS PREFERRED ADDRESS
INVESTOR NAME AND FACSIMILE NUMBER SHARES AND FACSIMILE NUMBER
------------- -------------------- ------ --------------------
<S> <C> <C> <C>
HFTP Investment L.L.C. Promethean Asset 725 Katten Muchin & Zavis
Management, L.L.C. 525 West Monroe, Suite 1600
750 Lexington Avenue, 22nd Chicago, Illinois 60661-3693
Floor Attn: Robert J. Brantman, Esq.
New York, New York 10022 Facsimile: 312-902-1061
Attn: James F. O'Brien, Jr. Telephone: 312-902-5200
Facsimile: 212-758-9334
Telephone: 212-702-5200
Palladin Partners I, Residence: New York 35 The Palladin Group L.P.
L.P. c/o The Palladin Group L.P. As Investment Advisor
195 Maplewood Avenue 195 Maplewood Avenue
Maplewood, New Jersey 07040 Maplewood, New Jersey 07040
Attn: Kevin Gerlitz Attn: Kevin Gerlitz
Facsimile: 973-313-6490 Facsimile: 973-313-6490
Telephone: 973-313-6420 Telephone: 973-313-6420
Halifax Fund, L.P. Residence: New York 615 The Palladin Group L.P.
c/o Citco Fund Services As Investment Advisor
(Cayman Islands) Ltd. 195 Maplewood Avenue
Corporate Centre, West Bay Maplewood, New Jersey 07040
Road Attn: Kevin Gerlitz
P.O. Box 31106 SMB Facsimile: 973-313-6490
Grand Cayman, Cayman Islands Telephone: 973-313-6420
Facsimile: 345-949-3877
Telephone: 345-949-3977
The Gleneagles Fund Residence: Cayman Islands 60 The Palladin Group L.P.
Company c/o Citco Fund Services As Investment Advisor
(Cayman Islands) Ltd. 195 Maplewood Avenue
Corporate Centre, West Bay Maplewood, New Jersey 07040
Road Attn: Kevin Gerlitz
P.O. Box 31106 SMB Facsimile: 973-313-6490
Grand Cayman, Cayman Islands Telephone: 973-313-6420
Facsimile: 345-949-3877
Telephone: 345-949-3977
Palladin Overseas Residence: Cayman Islands 20 The Palladin Group L.P.
Fund Limited c/o Citco Fund Services As Investment Advisor
(Cayman Islands) Ltd. 195 Maplewood Avenue
Corporate Centre, West Bay Maplewood, New Jersey 07040
Road Attn: Kevin Gerlitz
P.O. Box 31106 SMB Facsimile: 973-313-6490
Grand Cayman, Cayman Islands Telephone: 973-313-6420
Facsimile: 345-949-3877
Telephone: 345-949-3977
Residence: Cayman Islands
</TABLE>
<PAGE> 32
<TABLE>
<S> <C> <C> <C>
Lancer Securities c/o The Palladin Group L.P. 20 The Palladin Group L.P.
Ltd. 195 Maplewood Avenue As Investment Advisor
Maplewood, New Jersey 07040 195 Maplewood Avenue
Attn: Kevin Gerlitz Maplewood, New Jersey 07040
Facsimile: 973-313-6490 Attn: Kevin Gerlitz
Telephone: 973-313-6420 Facsimile: 973-313-6490
Telephone: 973-313-6420
Fisher Capital Ltd. Residence: New York 471 Katten Muchin & Zavis
Citadel Investment Group, 525 W. Monroe Street
L.L.C. Chicago, Illinois 60661-3693
225 West Washington Street Attention: Robert J. Brantman,
Chicago, Illinois 60606 Esq.
Attention: Daniel Hopkins Facsimile: (312) 902-1061
Kenneth A. Simpler Telephone: (312) 902-5200
Facsimile: (312) 338-0780
Telephone: (312) 696-2100
Wingate Capital Ltd. Residence: Illinois 254 Katten Muchin & Zavis
Citadel Investment Group, 525 W. Monroe Street
L.L.C. Chicago, Illinois 60661-3693
225 West Washington Street Attention: Robert J. Brantman,
Chicago, Illinois 60606 Esq.
Attention: Daniel Hopkins Facsimile: (312) 902-1061
Kenneth A. Simpler Telephone: (312) 902-5200
Facsimile: (312) 338-0780
Telephone: (312) 696-2100
Residence: Illinois
</TABLE>
<PAGE> 33
LIST OF SCHEDULES
SCHEDULE 3(a) Subsidiaries
SCHEDULE 3(c) Capitalization
SCHEDULE 3(e) Conflicts
SCHEDULE 3(g) Material Changes
SCHEDULE 3(h) Litigation
SCHEDULE 3(n) Intellectual Property
SCHEDULE 3(p) Liens
SCHEDULE 3(u) Tax Status
SCHEDULE 3(v) Certain Transactions
LIST OF EXHIBITS
EXHIBIT A Form of Certificate of Designations, Preferences and Rights of the
Series H Preferred Stock
EXHIBIT B Form of Registration Rights Agreement
EXHIBIT C Form of Company Counsel Opinion
EXHIBIT D Form of Irrevocable Transfer Agent Instructions
<PAGE> 1
EXHIBIT 4.2
CONVERSION AGREEMENT
THIS CONVERSION AGREEMENT, dated as of March 29, 2000 (this
"AGREEMENT"), by and among General Magic, Inc., a Delaware corporation (the
"COMPANY"), and the undersigned holders of the Company's Series D Preferred
Stock and Series F Preferred Stock (each individually an "INVESTOR" and
collectively the "INVESTORS").
WITNESSETH:
WHEREAS, the Company and each Investor are parties to a Securities
Purchase Agreement, dated as of March 30, 1999 (the "SERIES D PURCHASE
AGREEMENT"), pursuant to which the Company issued to the respective Investor the
Company's Series D Preferred Stock (the "SERIES D PREFERRED SHARES"), and an
Exchange Agreement, dated as of September 9, 1999 (the "EXCHANGE AGREEMENT")
pursuant to which the Company issued to the respective Investor the Company's
Series F Preferred Stock (the "SERIES F PREFERRED SHARES");
WHEREAS, in connection with the Securities Purchase Agreement by and
among the Company and the Investors of even date herewith (the "SERIES H
PURCHASE AGREEMENT"), the Company has agreed, upon the terms and subject to the
conditions of the Series H Purchase Agreement, to issue and sell to the
Investors 2,200 shares of the Company's Series H Convertible Preferred Stock,
which will be convertible into shares of the Company's common stock (the "COMMON
STOCK") and warrants to purchase Common Stock;
WHEREAS, to induce the Company to execute and deliver the Series H
Purchase Agreement, Each Investor has agreed to convert the Preferred Shares as
provided herein;
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 each
Investor hereby agree as follows:
1. Provided that the Closing (as defined in the Series H Purchase
Agreement) shall have occurred, each of the Investors agrees that on or prior to
the date which is 186 days after the Closing Date (as defined in the Series H
Purchase Agreement) (the "REQUIRED CONVERSION DATE"), such Investor shall have
delivered one or more conversion notices for the conversion of all of the Series
D Preferred Shares and Series F Preferred Shares held by such Investor as of the
date hereof, provided that: (a) each time that the Company delivers a Put Notice
during such 186 day period pursuant to the Common Stock Investment Agreement
dated as of July 30, 1999, as amended, between the Company and Cripple Creek
Securities, LLC, such date shall be extended for Halifax Fund, L.P., Palladin
Partners I., L.P., Palladin Overseas Fund, Limited, The Gleneagles Fund Company
and Lancer Securities, Ltd., as may be reasonably requested by Halifax Fund,
L.P. so that compliance with this conversion obligation will not force the
undersigned to become the beneficial owner of more than 4.99% of Company common
stock in the aggregate; and (b) such Investor shall not be required to deliver
any further conversion notices if at any time during such period the closing bid
price for Company Common Stock is less than $4.00.
2. Except as provided in the Series H Purchase Agreement, the
Series D Purchase Agreement and the Exchange Agreement shall remain in full
force and effect in accordance with their respective terms.
3. Miscellaneous.
(a) 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.
(b) 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.
(c) 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
<PAGE> 2
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.
(d) 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.
(e) 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
2
<PAGE> 3
IN WITNESS WHEREOF, the parties have caused this Conversion Agreement to
be duly executed as of day and year first above written.
COMPANY: BUYERS:
GENERAL MAGIC, INC. HFTP INVESTMENT L.L.C.
By: Promethean Asset Management
L.L.C.
Its: Investment Manager
By: _______________________
Name:
Its: By:
-------------------------------
Name: James F. O'Brien, Jr.
Its: Managing Member
RGC INTERNATIONAL INVESTORS,
LDC
By: Rose Glen Capital
Management, L.P.
Its: Investment Manager
By: RGC General Partner Corp.
Its: General Partner
By:
-------------------------------
Name: Wayne Bloch
Its: Managing Director
HALIFAX FUND, L.P.
By: The Palladin Group, L.P.
Its: Attorney-in-Fact
By:
-------------------------------
Name: Robert Chender
Title: Managing Director
<PAGE> 4
[PAGE 2 OF 3 OF THE CONVERSION AGREEMENT SIGNATURE PAGES]
PALLADIN PARTNERS I, L.P.
By: Palladin Asset Management, L.L.C.
Its: General Partner
By:
-------------------------------
Name: Robert Chender
Title: Managing Director
PALLADIN OVERSEAS FUND
LIMITED
By: The Palladin Group L.P.
Its: Attorney-in-Fact
By:
-------------------------------
Name: Robert Chender
Title: Managing Director
THE GLENEAGLES FUND COMPANY
By: The Palladin Group L.P
Its: Attorney-in-Fact
By:
-------------------------------
Name: Robert Chender
Title: Managing Director
LANCER SECURITIES LTD.
By: The Palladin Group L.P
Its: Attorney-in-Fact
By:
-------------------------------
Name: Robert Chender
Title: Managing Director
<PAGE> 5
[PAGE 3 OF 3 OF THE CONVERSION AGREEMENT SIGNATURE PAGES]
FISHER CAPITAL LTD.
By:
-------------------------------
Name: Daniel Hopkins
Its: Authorized Signatory
WINGATE CAPITAL LTD.
By:
-------------------------------
Name: Daniel Hopkins
Its: Authorized Signatory
CONSECO DIRECT LIFE
By:
-------------------------------
Name:
Its:
<PAGE> 1
EXHIBIT 4.3
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES H 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 Two Hundred (2,200) shares
of Series H Convertible Preferred Stock of the Company, as follows:
RESOLVED, that the Company is authorized to issue 2,200 shares of
Series H 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 not bear any dividends.
(2)
(3) 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:
(4)
(a) Conversion Right. 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(g)) 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
<PAGE> 2
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.
(a) 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(f) and Section 5 shall be determined
according to the following formula (the "CONVERSION RATE"):
Conversion Amount
-----------------
Conversion Price
For purposes of this Certificate of Designations, the following terms
shall have the following meanings:
(i) "ADDITIONAL AMOUNT" means, on a per share basis, the
result of the following formula: (0.02)(N/365)($10,000);
(ii) "CONVERSION PRICE" means, as of any Conversion Date
(as defined below) or other date of determination, the Fixed Conversion Price,
subject to adjustment as provided herein;
(iii) "FIXED CONVERSION PRICE" means the greater of (I)
92% of the average of the Closing Bid Prices of the Common Stock for the 10
consecutive trading days beginning on and including the first trading day after
the date on which the Company files a Form 8-K with the Securities and Exchange
Commission (the "SEC") describing the terms of the offering of Preferred Shares
pursuant to Section 4(i) of the Securities Purchase Agreement
<PAGE> 3
(as defined below) or (II) $5.00 (subject to adjustment for stock splits, stock
dividends, stock combinations and other similar transactions), subject in each
case to adjustment as provided herein;
(iv) "CONVERSION AMOUNT" means the sum of (i) the
Additional Amount and (ii) $10,000;
(v) "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 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(e)(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.
(vi) "ISSUANCE DATE" means, with respect to each Preferred
Share, the date of issuance of the Preferred Shares;
(vii) "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;
(viii) "SECURITIES PURCHASE AGREEMENT" means that certain
securities purchase agreement between the Company and the initial holders of the
Preferred Shares;
(ix) "STATED VALUE" means $10,000;
(x) "REGISTRATION RIGHTS AGREEMENT" means that certain
registration rights agreement between the Company and the initial holders of the
Preferred Shares;
<PAGE> 4
(xi) "CONVERSION SHARES" means shares of Common Stock
issuable upon conversion of Preferred Shares and any shares of Common Stock
issuable as payment of Registration Delay Payments (as defined in the
Registration Rights Agreement); and
(xii) "N" means the number of days from, but excluding,
the Issuance Date through and including the Conversion Date, the Maturity Date
(as defined in Section 2(f)) or other date of determination for such Preferred
Share, for which such determination is being made.
(a) 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(c).
(b)
(i) 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.
(ii) Reorganization, Reclassification, Consolidation,
Merger or Sale. Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's
assets to another Person (as defined below) or other transaction which
is effected in such a way that holders of Common Stock are entitled to
receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is
referred to herein as "ORGANIC CHANGE." Prior to the consummation of any
Organic Change, the Company will make appropriate provision (in form and
substance reasonably satisfactory to the holders of 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 all of the
provisions of this Certificate of Designations, including the
<PAGE> 5
provisions of this Section 2(c) and Section 2(d), 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 and, if an
entity different from the successor entity, the entity whose capital
stock or assets the holders of the Common Stock are entitled to receive
as a result of such Organic Change, assumes, by written instrument (in
form and substance reasonably satisfactory to the holders of a majority
of the Preferred Shares then outstanding), all of the obligations of the
Company under this Certificate of Designations including the obligations
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.
(iii) Certain Events. If any event occurs of the type
contemplated by the provisions of this Section 2(c) but not expressly
provided for by such provisions, 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(c).
(iv) Notices.
(A) Immediately upon any adjustment of the
Conversion Price but in no event later than two (2) Business Days after
the date of such adjustment, 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.
<PAGE> 6
(a) Purchase Rights. In addition to any adjustments of the Conversion
Price pursuant to Section 2(c), if at any time after the applicable
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.
(a) 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 5:00 p.m. Pacific 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.
(i) 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(e)(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
<PAGE> 7
Preferred Shares being converted, then the Company or Transfer Agent, as
the case may be, shall, subject to Section 2(e)(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.
(i) 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)(v)) 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)(v)) 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.
(i) 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.
(i) 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 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(e)(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(e)(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
<PAGE> 8
sum of the number of shares of Common Stock not issued to the holder on
a timely basis pursuant to Section 2(e)(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(e)(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(e)(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(e)(ii).
(a) Mandatory Conversion or Redemption at Maturity at Company's Option.
If any Preferred Shares remain outstanding on the Maturity Date for such
Preferred Shares, then all such Preferred Shares, at the Company's
option, either (i) shall be converted at the Conversion Price for such
Preferred Shares as of such date without the holders of such Preferred
Shares being required to give a 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 Conversion Amount on the Maturity
Date (a "MATURITY DATE MANDATORY REDEMPTION"). 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 25
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
for such Preferred Shares, by wire transfer of immediately available
funds, an amount per Preferred Share equal to the Maturity Date
Redemption Price. If the Company elects a Maturity Date Mandatory
Redemption and fails to redeem all of the Preferred Shares outstanding
on the Maturity Date by payment of the Maturity Date Redemption Price,
then 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, (X) the applicable
Maturity Date Redemption Price payable in respect of such unredeemed
Preferred Shares shall bear interest at the rate of 2.0% per month,
prorated for partial months, until paid in full, and (Y) any holder of
Preferred Shares shall have the option to require the Company to convert
any or all of such holder's Preferred Shares that the Company elected to
redeem under this Section 2(f) and for which the Maturity Date
Redemption Price (together with any interest thereon) has not been paid
into the number of shares of Common Stock such holder would have
received if such holder had converted such Preferred Shares at a
conversion price equal to the Fixed Conversion Price on the Maturity
Date. Promptly following the Maturity Date, all holders of Preferred
Shares shall surrender all Preferred Stock Certificates, duly endorsed
for cancellation, to the Company or the Transfer Agent. Notwithstanding
anything to the contrary in this Section 2(f), the Company shall not be
entitled to elect a Maturity Date Mandatory Conversion and shall be
deemed to have
<PAGE> 9
elected a Maturity Date Mandatory Redemption with respect to those
Preferred Shares which, if converted, would exceed the number of shares
of Common Stock which the Company is permitted and authorized to issue
upon conversion of such Preferred Shares. "MATURITY DATE" means, with
respect to any Preferred Share, the date which is two (2) years after
the Issuance Date of such Preferred Share, provided that if the Company
has elected a Maturity Date Mandatory Conversion, has failed to give
notice to elect a Maturity Date Mandatory Redemption at least 25
Business Days prior to the Maturity Date or has failed to pay the
Maturity Date Redemption Price in a timely manner as described above,
then, at the option of at least two-thirds (2/3) of the Preferred Shares
then outstanding, the Maturity Date shall be extended for any Preferred
Shares for as long as (A) a Triggering Event shall have occurred and be
continuing, or (B) an event shall have occurred and be continuing which
with the passage of time and the failure to cure would result in a
Triggering Event.
(a) 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.
(a) 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.
(1) Redemption at Option of Holders.
(a) Intentionally Omitted.
(a) 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 the
greater of (i) 130% of the Conversion Amount; 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
<PAGE> 10
the exchange or market on which the Common Stock is traded is open (the
"TRIGGERING EVENT REDEMPTION PRICE").
(a) Intentionally Omitted.
(a) "Triggering Event". A "TRIGGERING EVENT" shall be deemed to have
occurred at such time as 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(e)(iii), the Company's failure
to deliver Conversion Shares within five (5) days of the Conversion
Date.
(a) Intentionally Omitted.
(a) 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; provided that such Notice
of Redemption at Option of Holder upon Triggering Event may only be sent
during the period beginning on and including the date of the occurrence
of the Triggering Event and ending on and including the later of the
date which is (a) 30 days after the date on which such holder of the
Preferred Shares receives a Notice of Triggering Event from the Company
with respect to such Triggering Event and (b) the date on which such
Triggering Event is cured and such holder receives written notice from
the Company confirming such Triggering Event has been cured, 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).
(a) Payment of Redemption Price. Upon the Company's receipt of a
Notice(s) of Redemption at Option of Holder Upon Triggering Event 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
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
<PAGE> 11
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; provided that such 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 Triggering Event Redemption Price
payable in respect of such unredeemed Preferred Shares shall bear
interest at the rate of 1.5% per month (pro rated for partial months)
until paid in full. Until the Company pays such unpaid applicable
Triggering Event 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 Triggering Event 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 Triggering Event Redemption Price to such holder,
(i) the Notice(s) of Redemption at Option of Holder Upon Triggering
Event shall be null and void with respect to those Preferred Shares
submitted for redemption and for which the applicable Triggering Event
Redemption Price has not been paid and (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 Triggering Event Redemption Price has not been paid.
Notwithstanding the foregoing, in the event of a dispute as to the
determination of the Closing Bid Price or the arithmetic calculation of
the Triggering Event Redemption Price, such dispute shall be resolved
pursuant to Section 2(e)(iii) above with the term "Closing Bid Price"
being substituted for the term "fair market value" and the term
"Triggering Event 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 Triggering Event Redemption Price with respect to such redemption)
which have accrued prior to the date of such notice.
(a) Intentionally Omitted.
(b)
(c) Intentionally Omitted.
<PAGE> 12
(1) 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 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(e) 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(e); or
(i) 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).
(a) 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 within 10
Business Days after such holder's receipt of such Inability to Fully
Convert Notice.
(a) Pro Rata Conversion and Redemption. In the event the Company
receives a Conversion Notice or Notice of Redemption at Option of Buyer
Upon Triggering Event from more than one holder of Preferred Shares on
the same day and
<PAGE> 13
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.
(1) Conversion at the Company's Election. At any time after the date which is
the later of (a) the date which is one (1) year after the applicable Issuance
Date and (b) the date on which the Registration Statement is declared effective,
the Company shall have the right, in its sole discretion, to require that all,
but not less than all, of such outstanding Preferred Shares be converted
("CONVERSION AT COMPANY'S ELECTION") at the Conversion Price then in effect;
provided that the Condition to Conversion at the Company's Election (as set
forth below) is 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"). The Notice of Conversion
at Company's Election shall indicate 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. All Preferred Shares converted 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 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, duly endorsed for cancellation, to the Company.
"CONDITION TO CONVERSION AT THE COMPANY'S ELECTION" means the following
condition: on each day during the period beginning 20 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 all of the Registrable
Securities. Notwithstanding the above, any holder of Preferred Shares may
convert such shares into Common Stock pursuant to Section 2(a) on or prior to
the date immediately preceding the Company's Election Conversion Date.
(2)
(3) 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 (as defined below), 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 ("REDEMPTION AT COMPANY'S ELECTION") at a price per
Preferred Share equal to 115% of Conversion Amount (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 proposed, pending or intended Change of Control
Transaction and at least ten (10) trading days prior to the date of consummation
of the Change of Control Transaction ("COMPANY'S
<PAGE> 14
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 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 on the date the Company delivers its Notice of
Redemption at Company's Election to each holder of the Preferred Shares 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 all of the Registrable Securities; and (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 in all material respects its obligations and is
not in default in any material respect under this Certificate of Designations,
the Securities Purchase Agreement, the Warrants 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. For purposes of this Section 6, "CHANGE OF
CONTROL TRANSACTION" means 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).
(4)
(5) 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.
<PAGE> 15
(6)
(7) Reservation of Shares. The Company shall, so long as any of the Preferred
Shares are outstanding, reserve and keep available out of its authorized and
unissued Common Stock, solely for the purpose of effecting the conversion of the
Preferred Shares, such number of shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all of the Preferred Shares then
outstanding (without regard to any limitations on conversions) and any
additional Preferred Shares which persons have the right to acquire under the
Securities Purchase Agreement (as if such additional Preferred Shares were
issued and outstanding); provided that the number of shares of Common Stock so
reserved shall at no time be less than 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 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.
(8)
(9) 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.
(10)
(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 Conversion Amount; 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
<PAGE> 16
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)
(13) Preferred Rank; Participation.
(14)
(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. The shares
of the Series A Convertible Preferred Stock, the Series D Convertible
Preferred Stock, the Series E Preferred Stock and the Series F Preferred
Stock shall rank pari passu with 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 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.
(1) 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,
<PAGE> 17
preferences and rights of the Preferred Shares, or (b) any issuance of Preferred
Shares other than pursuant to the Securities Purchase Agreement.
(2)
(3) 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.
(4)
(5) 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.
(6)
(7) 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.
(8)
(9) Failure or Indulgence Not Waiver. No failure or delay on the part of a
holder of Preferred Shares in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof (except to the extent that such
power, right or privilege must, in accordance with the terms of this Certificate
of Designations, be exercised within a specified period of time and such period
of time has lapsed without such power, right or privilege being
<PAGE> 18
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.
(10)
(11) 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.
(12)
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designations to be signed by ___________________, its President, as of March __,
2000.
GENERAL MAGIC, INC.
By:
Name:
Its: President
<PAGE> 19
EXHIBIT I
GENERAL MAGIC, INC.
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and Rights of
Series H 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 H Convertible Preferred
Stock, par value $.001 per share (the "PREFERRED SHARES"), of General Magic,
Inc., a Delaware corporation (the "COMPANY"), indicated below into shares of
Common Stock, par value $.001 per share (the "COMMON STOCK"), of the Company, by
tendering the stock certificate(s) representing the Preferred Shares specified
below as of the date specified below.
Date of Conversion:
Number of Preferred Shares to be converted:
Stock certificate no(s). of Preferred Shares to be converted:
Please confirm the following information:
Conversion Price:
Number of shares of Common Stock to be issued:
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to:
Facsimile Number:
Authorization:
By:
Title:
Dated:
Account Number:
(if electronic book entry transfer):
Transaction Code Number
(if electronic book entry transfer):
THIS NOTICE MUST BE DELIVERED TO COMPANY AND TRANSFER AGENT.
<PAGE> 1
EXHIBIT 4.4
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of March 29,
2000, 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) 2,200 shares of the
Company's Series H Convertible Preferred Stock (the "PREFERRED SHARES"), which
will be convertible into shares (as converted, the "CONVERSION SHARES") of the
Company's Common Stock, par value $.001 per share (the "COMMON STOCK"), in
accordance with the terms of the Company's Certificate of Designations,
Preferences and Rights of Series H Convertible Preferred Stock (the "CERTIFICATE
OF DESIGNATIONS"), and (ii) warrants to purchase shares of Common Stock (the
"WARRANTS" and as exercised, the "WARRANT SHARES");
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.
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.
<PAGE> 2
c. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) 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 issued
or issuable upon conversion of the Preferred Shares, the Warrant Shares issued
or issuable upon exercise of the Warrants, 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 Warrant Shares, the Preferred 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 exercises of
Warrants.
e. "REGISTRATION STATEMENT" means a registration statement or
registration statements of the Company filed under the 1933 Act covering
Registrable Securities.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and, as
soon as practicable, file with the SEC a Registration Statement or Registration
Statements (as necessary) on Form S-3 covering the resale of all of the
Registrable Securities relating to the Preferred Shares and the Warrants. In the
event that Form S-3 is unavailable for such a registration, the Company shall
use such other form as is available for such a registration, subject to the
provisions of Section 2(f). Any initial Registration Statement prepared pursuant
hereto shall register for resale at least that number of shares of Common Stock
equal to 100% of the sum of (I) number of Conversion Shares issuable upon
conversion of the Preferred Shares and (II) the number of Warrant Shares
issuable upon exercise of the Warrants (without regard to any limitations on
conversions or exercises) as of the date immediately preceding the date the
Registration Statement is initially filed with the SEC, subject to adjustment as
provided in Section 3(b). The Company shall use its best efforts to cause such
Registration Statement to be declared effective by the SEC as soon as
practicable, but in no event later than 75 days after the Closing Date (the
"SCHEDULED EFFECTIVE DATE").
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
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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 then outstanding were converted into
Registrable Securities, without regard to any limitations on conversions.
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 twenty (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.
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
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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), which
consent will not be unreasonably withheld, 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. 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 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 relating to such
Registration Statement an amount in cash per Preferred Share held equal to the
product of (i) $10,000 multiplied by (ii) the sum of (A) .00067, for each day
that the Registration Statement is not declared effective by the SEC after the
Scheduled Effective Date plus (B) the product of (I) .00067 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(g) 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
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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 applicable Registrable Securities (as
soon as practicable) and use its best efforts to cause such Registration
Statement to become effective as soon as possible after such filing (but in no
event later than the applicable Scheduled Effective Date), and keep such
Registration Statement effective pursuant to Rule 415 at all times until the
earlier of (i) the date as of which the Investors may sell all of the
Registrable Securities without restriction pursuant to Rule 144(k) promulgated
under the 1933 Act (or successor thereto), or (ii) the date on which (A) the
Investors shall have sold all the Registrable Securities and (B) none of the
Preferred Shares or Warrants is outstanding (the "REGISTRATION PERIOD"), which
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading. The Company shall 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.
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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 at least 100% of 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 therefor
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 or issuable upon conversion of the Preferred
Shares and exercise of the Warrants is greater than the number of shares of
Common Stock available for resale under such Registration Statements. For
purposes of the calculation set forth in the foregoing sentence, any
restrictions on conversion of the Preferred Shares or exercise of the Warrants
shall be disregarded and such calculation shall assume that the Preferred Shares
are then convertible into shares of Common Stock at the then prevailing
Conversion Rate (as defined in the Certificate of Designations) and the Warrants
are then exercisable into shares of Common Stock at the then prevailing Exercise
Price (as defined in the Warrants).
c. The Company shall furnish to each Investor whose Registrable
Securities are included in any Registration Statement and its legal counsel
without charge (i) promptly after the same is prepared and filed with the SEC at
least one copy of such Registration Statement and any amendment(s) thereto,
including financial statements and schedules, all documents incorporated therein
by reference and all exhibits, the prospectus included in such Registration
Statement (including each preliminary prospectus) and, with regards to such
Registration Statement(s), any correspondence by or on behalf of the Company to
the SEC or the staff of the SEC (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
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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. As promptly as practicable after becoming aware of such
event, the Company shall notify each Investor in writing of the happening of any
event as a result of which the prospectus included in a Registration Statement,
as then in effect, includes an untrue statement of a material fact or omission
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and promptly prepare a supplement or amendment to such
Registration Statement to correct such untrue statement or omission, and deliver
ten copies of such supplement or amendment to each Investor (or such other
number of copies as such Investor may reasonably request). The Company shall
also promptly notify each Investor in writing (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and when a
Registration Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to each Investor by
facsimile on the same day of such effectiveness and by overnight mail), (ii) of
any request by the SEC for amendments or supplements to a Registration Statement
or related prospectus or related information, and (iii) of the Company's
reasonable determination that a post-effective amendment to a Registration
Statement would be appropriate. Notwithstanding anything to the contrary in this
Section 3(e), 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
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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(g) 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(e) with respect to the information giving rise thereto.
f. 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.
g. The Company shall permit each Investor and a single counsel,
initially Katten Muchin & Zavis or such other counsel as thereafter designated
as selling stockholders' counsel by the Investors who hold a majority of the
Registrable Securities being sold, to review and comment upon a Registration
Statement and all amendments and supplements thereto at least five business days
prior to their filing with the SEC, and shall not file any document in a form to
which such counsel reasonably objects. The Company shall not submit a request
for acceleration of the effectiveness of a Registration Statement or any
amendment or supplement thereto without the prior approval of such counsel,
which consent shall not be unreasonably withheld.
h. 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, if any, and the Investors, and (ii) an opinion, dated as of such
date, of outside 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, if any, and the
Investors.
i. 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
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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.
j. 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 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.
k. 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(k).
l. 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
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<PAGE> 10
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.
m. 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.
n. The Company shall provide a transfer agent and registrar for
all such Registrable Securities not later than the effective date of such
Registration Statement.
o. 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.
p. 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.
q. 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.
r. 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.
s. 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.
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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 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(f)
or the first sentence of Section 3(e), 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(f) or the first sentence of Section 3(e), or until, in the case of a Grace
Period, after the date on which the Allowable Grace Period ended.
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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.
12
<PAGE> 13
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
13
<PAGE> 14
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
14
<PAGE> 15
Indemnified Person prior to the pertinent sale or sales by the Indemnified
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.
15
<PAGE> 16
d. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action or proceeding (including any governmental action or proceeding) involving
a Claim, such Indemnified Person or Indemnified Party shall, if a claim in
respect thereof is to be made against any indemnifying party under this Section
6, deliver to the indemnifying party a written notice of the commencement
thereof, and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the defense thereof
with counsel selected by the indemnifying party and approved by the Indemnified
Person or the Indemnified Party, as the case may be, which approval shall not be
unreasonably withheld; provided, however, that an Indemnified Person or
Indemnified Party shall have the right to retain its own counsel with the fees
and expenses to be paid by the indemnifying party, if, in the reasonable opinion
of counsel retained by the indemnifying party, the representation by such
counsel of the Indemnified Person or Indemnified Party and the indemnifying
party would be inappropriate due to actual or potential differing interests
between such Indemnified Person or Indemnified Party and any other party
represented by such counsel in such proceeding. The indemnifying party shall pay
for only one separate legal counsel for the Indemnified Persons or the
Indemnified Parties, as applicable, and such counsel shall be selected by
Investors holding a majority-in-interest of the Registrable Securities included
in the Registration Statement to which the Claim relates, if the Investors are
entitled to indemnification hereunder, or the Company, if the Company is
entitled to indemnification hereunder, as applicable. The Indemnified Party or
Indemnified Person shall cooperate fully with the indemnifying party in
connection with any negotiation or defense of any such action or claim by the
indemnifying party and shall furnish to the indemnifying party all 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
16
<PAGE> 17
indemnifying party or others, and (ii) any liabilities the indemnifying party
may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6; (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of fraudulent misrepresentation; and (iii) contribution by any seller of
Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities 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.
17
<PAGE> 18
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 issued or issuable into at least 50,000 shares of Common
Stock (subject to adjustment for stock splits, stock dividends, stock
combinations or other similar transactions) 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 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 (b) 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.
18
<PAGE> 19
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
With a copy to:
Gibson, Dunn & Crutcher LLP
2029 Century Park East
40th Floor
Los Angeles, California 90067
Telephone: (310) 557-8041
Facsimile: (310) 552-7018
Attention: Russell C. Hansen, 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
19
<PAGE> 20
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 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
Warrant and the Certificate of Designations 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 Warrant and the Certificate of Designations
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.
20
<PAGE> 21
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 the Warrants then
outstanding have been converted into or exercised for Registrable Securities
(without regard to any limitations on conversions of 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.
l. 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.
<PAGE> 22
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 L.L.C.
By: Promethean Asset Management,
L.L.C.
By: Its: Investment Manager
---------------------------------
Name:
Its:
By:
------------------------------
Name: James F. O'Brien, Jr.
Its: Managing Member
HALIFAX FUND, L.P.
By: The Palladin Group, L.P.
Its: Attorney-in-Fact
By:
------------------------------
Name: Robert Chender
Title: Managing Director
<PAGE> 23
[PAGE 2 OF 3 OF THE REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGES]
PALLADIN PARTNERS I, L.P.
By: Palladin Asset Management,
L.L.C.
Its: General Partner
By:
------------------------------
Name: Robert Chender
Title: Managing Director
PALLADIN OVERSEAS FUND LIMITED
By: The Palladin Group L.P.
Its: Attorney-in-Fact
By:
------------------------------
Name: Robert Chender
Title: Managing Director
THE GLENEAGLES FUND COMPANY
By: The Palladin Group L.P
Its: Attorney-in-Fact
By:
------------------------------
Name: Robert Chender
Title: Managing Director
LANCER SECURITIES LTD.
By: The Palladin Group L.P
Its: Attorney-in-Fact
By:
------------------------------
Name: Robert Chender
Title: Managing Director
<PAGE> 24
[PAGE 3 OF 3 OF THE REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGES]
FISHER CAPITAL LTD.
By:
------------------------------
Name: Daniel Hopkins
Its: Authorized Signatory
WINGATE CAPITAL LTD.
By:
------------------------------
Name: Daniel Hopkins
Its: Authorized Signatory
<PAGE> 25
<TABLE>
<CAPTION>
SCHEDULE OF BUYERS INVESTOR'S REPRESENTATIVES'
INVESTOR ADDRESS ADDRESS
INVESTOR NAME AND FACSIMILE NUMBER AND FACSIMILE NUMBER
------------- -------------------- --------------------
<S> <C> <C>
HFTP Investment LLC Promethean Asset Management, Katten Muchin Zavis
L.L.C. 525 West Monroe, Suite 1600
750 Lexington Avenue, 22nd Floor Chicago, Illinois 60661-3693
New York, New York 10022 Attn: Robert J. Brantman, Esq.
Attn: James F. O'Brien, Jr. Facsimile: 312-902-1061
Facsimile: 212-758-9334 Telephone: 312-902-5200
Facsimile: 212-702-5200
Palladin Partners I, L.P. c/o The Palladin Group L.P. The Palladin Group L.P.
195 Maplewood Avenue As Investment Advisor
Maplewood, New Jersey 07040 195 Maplewood Avenue
Attn: Kevin Gerlitz Maplewood, New Jersey 07040
Facsimile: 973-313-6490 Attn: Kevin Gerlitz
Telephone: 973-313-6420 Facsimile: 973-313-6490
Telephone: 973-313-6420
Halifax Fund, L.P. c/o Citco Fund Services (Cayman The Palladin Group L.P.
Islands) Ltd. As Investment Advisor
Corporate Centre, West Bay Road 195 Maplewood Avenue
P.O. Box 31106 SMB Maplewood, New Jersey 07040
Grand Cayman, Cayman Islands Attn: Kevin Gerlitz
Facsimile: 345-949-3877 Facsimile: 973-313-6490
Telephone: 345-949-3977 Telephone: 973-313-6420
The Gleneagles Fund Company c/o Citco Fund Services (Cayman The Palladin Group L.P.
Islands) Ltd. As Investment Advisor
Corporate Centre, West Bay Road 195 Maplewood Avenue
P.O. Box 31106 SMB Maplewood, New Jersey 07040
Grand Cayman, Cayman Islands Attn: Kevin Gerlitz
Facsimile: 345-949-3877 Facsimile: 973-313-6490
Telephone: 345-949-3977 Telephone: 973-313-6420
Palladin Overseas Fund Limited c/o Citco Fund Services (Cayman The Palladin Group L.P.
Islands) Ltd. As Investment Advisor
Corporate Centre, West Bay Road 195 Maplewood Avenue
P.O. Box 31106 SMB Maplewood, New Jersey 07040
Grand Cayman, Cayman Islands Attn: Kevin Gerlitz
Facsimile: 345-949-3877 Facsimile: 973-313-6490
Telephone: 345-949-3977 Telephone: 973-313-6420
Lancer Securities Ltd. c/o The Palladin Group L.P. The Palladin Group L.P.
195 Maplewood Avenue As Investment Advisor
Maplewood, New Jersey 07040 195 Maplewood Avenue
Attn: Kevin Gerlitz Maplewood, New Jersey 07040
Facsimile: 973-313-6490 Attn: Kevin Gerlitz
Telephone: 973-313-6420 Facsimile: 973-313-6490
Telephone: 973-313-6420
Fisher Capital Ltd. Citadel Investment Group, L.L.C. Katten Muchin & Zavis
225 West Washington Street 525 W. Monroe Street
Chicago, Illinois 60606 Chicago, Illinois 60661-3693
Attention: Daniel Hopkins Attention: Robert J. Brantman,
Kenneth A. Simpler Esq.
Facsimile: (312) 338-0780 Facsimile: (312) 902-1061
Telephone: (312) 696-2100 Telephone: (312) 902-5200
Wingate Capital Ltd. Citadel Investment Group, L.L.C. Katten Muchin & Zavis
225 West Washington Street 525 W. Monroe Street
Chicago, Illinois 60606 Chicago, Illinois 60661-3693
Attention: Daniel Hopkins Attention: Robert J. Brantman,
Kenneth A. Simpler Esq.
Facsimile: (312) 338-0780 Facsimile: (312) 902-1061
Telephone: (312) 696-2100 Telephone: (312) 902-5200
</TABLE>
<PAGE> 26
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 "SECURITIES PURCHASE AGREEMENT") entered into
by and among the Company and the Buyers named therein (collectively, the
"BUYERS") pursuant to which the Company issued to the Buyers shares of its
Series H Convertible Preferred Stock, par value $.001 per share (the "PREFERRED
SHARES") convertible into shares of the Company's common stock, par value $.001
per share (the "COMMON STOCK") and warrants to purchase Common Stock. Pursuant
to the Securities Purchase Agreement, the Company also has entered into a
Registration Rights Agreement with the Buyers (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 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 Buyers 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,
<PAGE> 27
[COMPANY COUNSEL]
By:
cc: [LIST NAMES OF BUYERS]
<PAGE> 1
EXHIBIT 4.5
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 ___, 2000
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) a number of fully paid nonassessable shares
of Common Stock (as defined in Section 1(b)) of the Company equal to the product
of (i) 0.50, multiplied by (ii) the number of Preferred Shares purchased by the
initial holder of this Warrant on the Closing Date (as defined in the Securities
Purchase Agreement (as defined below)), multiplied by (iii) the quotient of (A)
$10,000 divided by (B) the Warrant Exercise Price (as defined in Section 1(b)
below) in effect on the date which is 11 trading days after the date the Company
files a Form 8-K pursuant to Section 4(i) of the Purchase Agreement (as defined
below) (the "WARRANT SHARES") at a purchase price per share equal to the Warrant
Exercise Price then in effect;
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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
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 of Common Stock shall be determined after
giving effect to conversions of Preferred Stock and exercises of Warrants (as
defined below) by such holder since the date as of which such number of
outstanding shares of Common Stock was reported.
1. Section
2.
(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 29, 2000, among the Company and
the Buyers referred to therein (the "PURCHASE AGREEMENT").
(b)
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(c) Definitions. The following words and terms as used in this Warrant shall
have the following meanings:
(d)
(e) "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.
(f)
(g) "CERTIFICATE OF DESIGNATIONS" means the Certificate of Designations,
Preferences and Rights of the Preferred Shares.
(h)
(i) "CLOSING BID PRICE" means, for any security as of any date, the last closing
bid price for such security on the Nasdaq National Market ("NASDAQ") as reported
by Bloomberg Financial Markets ("BLOOMBERG"), or, if NASDAQ is not the principal
trading market for such security, the last closing bid price of such security on
the principal securities exchange or trading market where such security is
listed or traded as reported by Bloomberg, or if the foregoing do not apply, the
last closing bid price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
closing bid price is reported for such security by Bloomberg, the last closing
trade price for such security as reported by Bloomberg, or, if no last closing
trade price is reported for such security by Bloomberg, the average of the bid
prices of any market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be
calculated for such security on such date on any of the foregoing bases, the
Closing Bid Price of such security on such date shall be the fair market value
as mutually determined by the Company and the holders of the Preferred Shares.
If the Company and the holders of the Preferred Shares are unable to agree upon
the fair market value of the Common Stock, then such dispute shall be resolved
pursuant to Section 2(a) of this Warrant with the term "Closing Bid Price" being
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.
(j)
(k) "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.
(l)
(m) "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.
(n)
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(o) "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.
(p)
(q) "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.
(r)
(s) "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.
(t)
(u) "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.
(v) "PREFERRED SHARES" means the shares of the Company's Series H Convertible
Preferred Stock issued pursuant to the Purchase Agreement.
(w)
(x) "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement
dated March 29, 2000 among the Company and the Buyers named therein entered into
in connection with the Purchase Agreement.
(y)
"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 equal to the greater of
(i) 90% of the average of the Closing Bid Prices of the Common Stock for the ten
(10) consecutive trading days beginning on and including the date on which the
Company files a Form 8-K with the Securities and Exchange Commission pursuant to
Section 4(i) of the Purchase Agreement and (ii) $5.00 (subject to adjustment for
stock splits, stock dividends, stock combinations and other similar
transactions), subject in each case to adjustment as hereinafter provided.
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(a) Other Definitional Provisions.
(b)
(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.
(i) 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.
(ii)
(iii) Whenever the context so requires, the neuter gender includes the masculine
or feminine, and the singular number includes the plural, and vice versa.
(iv)
2. Section Exercise of Warrant.
3.
(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 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
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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)
(c) 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.
(d)
(e) 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.
(f) 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
Purchase Agreement or otherwise available to such holder, including any
indemnification under Section 8 of the 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
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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 immediately preceding the last possible date which the
Company could have issued such Common Stock to the holder without violating this
Section 2.
(g)
(h) (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:
(i)
(j) Net Number = (A x B) - (A x C)
-----------------
(k) B
(l)
(m) For purposes of the foregoing formula:
(n)
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.
1. Section Covenants as to Common Stock. The Company hereby covenants and agrees
as follows:
2.
(a) This Warrant is, and any 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)
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(d) 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.
(e)
(f) The Company shall promptly secure the listing of the shares of Common Stock
issuable upon exercise of this Warrant upon each national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance upon exercise of this Warrant)
and shall maintain, so long as any other shares of Common Stock shall be so
listed, such listing of all shares of Common Stock from time to time issuable
upon the exercise of this Warrant; and the Company shall so list on each
national securities exchange or automated quotation system, as the case may be,
and shall maintain such listing of, any other shares of capital stock of the
Company issuable upon the exercise of this Warrant if and so long as any shares
of the same class shall be listed on such national securities exchange or
automated quotation system.
(g)
(h) 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.
(i)
(j) 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.
(k)
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3. Section 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.
4.
5. Section 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 copies of the same notices and other information given to the
stockholders of the Company generally, contemporaneously with the giving thereof
to the stockholders.
6.
7. Section 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 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
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issuance of its securities upon exercise of the Warrant shall not violate any
United States or state securities laws.
1. Section Ownership and Transfer.
2.
(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.
(a) 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.
(b)
(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)
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(e) 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.
(f)
2. Section 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.
(b)
(c) 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:
(d)
(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
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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)
(iii) Issuance of Convertible Securities. If the Company in any manner issues or
sells any Convertible Securities and the price per share for which Common Stock
is issuable upon such conversion or exchange is less than the Applicable Price,
then the maximum number of shares of Common Stock issuable upon conversion or
exchange of such Convertible Securities shall be deemed to be outstanding and to
have been issued and sold by the Company for such price per share. For the
purposes of this Section 8(b)(ii), the "price per share for
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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 is 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 Warrant Exercise 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.
(iv)
(v) 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.
(vi)
(e) 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:
(f)
(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
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<PAGE> 14
therefor. In case any Common Stock, Options or Convertible Securities are issued
or sold for a consideration other than cash, the amount of the consideration
other than cash received by the Company will be the fair value of such
consideration, except where such consideration consists of securities, in which
case the amount of consideration received by the Company will be the Market
Price of such securities on the date of receipt. In case any Common Stock,
Options or Convertible Securities are issued to the owners of the non-surviving
entity in 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)
(iii) 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.
(iv)
(v) 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.
(vi)
(vii) 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 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.
(viii)
(g) 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
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<PAGE> 15
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.
(h)
(i) Reorganization, Reclassification, Consolidation, Merger or Sale. Any
recapitalization, reorganization, reclassification, consolidation, merger, sale
of all or substantially all of the Company's assets to another Person (as
defined below) or other transaction which is effected in such a way that holders
of Common Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in exchange for
Common Stock is referred to herein as "ORGANIC CHANGE." Prior to the
consummation of any Organic Change, the Company will make appropriate provision
(in form and substance reasonably satisfactory to the holders of the Preferred
Share Warrants representing a majority of the shares of Common Stock issuable
upon exercise of such Preferred Share Warrants then outstanding) to insure that
each of the holders of the Preferred Share Warrants will thereafter have the
right to acquire and receive in lieu of or in addition to (as the case may be)
the shares of Common Stock immediately theretofore acquirable and receivable
upon the exercise of such holder's Preferred Share Warrants, such shares of
stock, securities or assets as may be issued or payable in the Organic Change
with respect to or in exchange for the number of shares of Common Stock
immediately theretofore acquirable and receivable upon the exercise of such
holder's Preferred Share Warrants had such Organic Change not taken place
(without taking into account any limitations or restrictions on exercise). In
any such case, the Company will make appropriate provision (in form and
substance 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) 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 and, if an
entity different from the successor entity, the entity whose capital stock or
assets the holders of Common Stock are entitled to receive as a result of such
Organic Change, assumes, by written instrument (in form and substance reasonably
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
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<PAGE> 16
shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to acquire.
(j)
(k) 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.
(l)
(m) Adjustment of Warrant Exercise Price for Registration Statement Failures. If
(i) any Registration Statement (as defined in the Registration Rights Agreement)
covering the resale of the shares of Common Stock issuable upon exercise of the
Warrant required to be declared effective by the SEC on or before the Scheduled
Effective Date (as defined in the Registration Rights Agreement) is not declared
effective by 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 the
Registration Rights Agreement)) 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) (such number of days being collectively referred to as the
"REGISTRATION STATEMENT DEFAULT DAYS"), then, as partial relief for the damages
to the holder by reason of any of the foregoing events (which remedy shall not
be exclusive of any other remedies available at law or in equity), the Warrant
Exercise Price in effect at such time shall be reduced by an amount equal to the
product of (a) the Warrant Exercise Price in effect as of the Issuance Date and
as adjusted subsequent to the Issuance Date in accordance with this Warrant and
(b) 0.00067 and (c) the sum of the Registration Statement Default Days.
(n)
(o) 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
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<PAGE> 17
decrease the number of shares of Common Stock obtainable as otherwise determined
pursuant to this Section 8.
(p)
(q) Notices.
(r)
(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.
(i) 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.
(ii)
(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.
(iv)
2. Section 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.
3.
4. Section 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.
5.
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<PAGE> 18
6. Section 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:
7.
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:
Gibson, Dunn & Crutcher LLP
2029 Century Park East
40th Floor
Los Angeles, California 90067
Telephone: (310) 557-8041
Facsimile: (310) 552-7018
Attention: Russell C. Hansen, 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.
1. Section Miscellaneous. Except as otherwise provided herein, 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
2.
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<PAGE> 19
3. Section Date. The date of this Warrant is March ___, 2000. This Warrant, in
all events, shall be wholly void and of no effect after the close of business on
the Expiration Date,
4.
* * * *
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<PAGE> 20
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:
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<PAGE> 21
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
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<PAGE> 22
By:____________________________
Name:
Title:
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<PAGE> 23
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: _____________________________
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