-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NkVofcPVmAFimgGdpdavg5/QqYsgE1uYJAoGX108vDPJm0k8mvGuhzBrrUu2G+cP X5eaaIajgVfxQkxpYqujIg== 0001010192-00-000007.txt : 20000202 0001010192-00-000007.hdr.sgml : 20000202 ACCESSION NUMBER: 0001010192-00-000007 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20000118 GROUP MEMBERS: INSIGHT COMMUNICATIONS COMPANY GROUP MEMBERS: INSIGHT INTERACTIVE SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: SOURCE MEDIA INC CENTRAL INDEX KEY: 0000900029 STANDARD INDUSTRIAL CLASSIFICATION: TELEGRAPH & OTHER MESSAGE COMMUNICATIONS [4822] IRS NUMBER: 133700438 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: SEC FILE NUMBER: 005-46351 FILM NUMBER: 508651 BUSINESS ADDRESS: STREET 1: 5400 LBJ FREEWAY STE 680 CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 9727015400 MAIL ADDRESS: STREET 1: 5400 LBJ FREEWAY STE 680 CITY: DALLAS STATE: TX ZIP: 75240 FORMER COMPANY: FORMER CONFORMED NAME: HB COMMUNICATIONS ACQUISITION CORP DATE OF NAME CHANGE: 19950703 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: INSIGHT INTERACTIVE CENTRAL INDEX KEY: 0001100944 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 522200721 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 126 EAST 56TH ST. CITY: NEW YORK STATE: NY ZIP: 10022 MAIL ADDRESS: STREET 1: 126 EAST 56TH ST CITY: NEW YORK STATE: NY ZIP: 10022 SC 13D 1 SC 13D UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D Under the Securities Exchange Act of 1934 SOURCE MEDIA, INC. (Name of Issuer) COMMON STOCK, $.001 PAR VALUE ------------------------------- (Title of Class of Securities) 836153-30-40 -------------- (CUSIP Number) Michael S. Willner Insight Communications Company, Inc. 126 East 56th Street New York, NY 10022 212-371-2266 ------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) November 17, 1999 ------------------------------------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box{ } . The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act. SCHEDULE 13D ----------------------------------- ----------- -------------------------- CUSIP No. 836153-30-40 Page 2 of 12 ----------------------------------- ----------- -------------------------- - ------- ------------------------------------------------------------------------ 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF Insight Interactive, LLC ABOVE PERSON - ------- ------------------------------------------------------------------------ - ------- ------------------------------------------------------------------------ 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) { } (b){ } Not Applicable - ------- ------------------------------------------------------------------------ - ------- ------------------------------------------------------------------------ 3 SEC USE ONLY - ------- ------------------------------------------------------------------------ - ------- ------------------------------------------------------------------------ 4 SOURCE OF FUNDS AF - ------- ------------------------------------------------------------------------ - ------- ------------------------------------------------------------------------ 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) { } - ------- ------------------------------------------------------------------------ - ------- ------------------------------------------------------------------------ 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - ------- ------------------------------------------------------------------------ - ------- -------- --------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES 5,438,891 shares of BENEFICIALLY Common Stock; OWNED BY See Item 1, 3-5. EACH REPORTING PERSON WITH - ---------------------------- -------- ------------------------------------------ - ---------------------------- -------- ------------------------------------------ 8 SHARED VOTING POWER 0 - ---------------------------- -------- ------------------------------------------ - ---------------------------- -------- ------------------------------------------ 9 SOLE DISPOSITIVE POWER 5,438,891 shares of Common Stock; See Item 1, 3-5. - ---------------------------- -------- ------------------------------------------ - ---------------------------- -------- ------------------------------------------ 10 SHARED DISPOSITIVE POWER 0 - -------------------- ---------------------------------------------------------- - -------------------- ---------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 5,438,891 shares consisting of (i) 842,105 shares of Common Stock, and (ii) a presently exercisable Warrant to purchase an additional 4,596,786 shares of Common Stock. See Items 1, 3-5. - -------------------- ----------------------------------------------------------- - -------------------- ----------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES { } Not Applicable - -------------------------------------------------------------------------------- 2 - -------------------- ----------------------------------------------------------- - -------------------- ----------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 28.5% The shares of Common Stock held by the Reporting Person represent approximately 28.5% of the outstanding Common Stock of the Company, calculated in accordance with Rule 13d-3 (which requires the Reporting Person (i) to assume the exercise and conversion of the Warrant held by Reporting Person and (ii) to disregard all outstanding shares of Common Stock represented by Warrants held by third parties). See Items 1-5. - -------------------- ----------------------------------------------------------- - -------------------- ----------------------------------------------------------- 14 TYPE OF REPORTING PERSON OO - -------------------- ----------------------------------------------------------- 3 ------------------------------ ----------- -------------------------- CUSIP No. 836153-30-40 Page 4 of 12 ------------------------------ ----------- -------------------------- - ------- ------------------------------------------------------------------------ 1 NAME OF REPORTING PERSON S.S. O S.S OR I.R.S. IDENTIFICATION NO. OF Insight Communications ABOVE PERSON Company, Inc. - ------- ------------------------------------------------------------------------ - ------- ------------------------------------------------------------------------ 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) { } (b){ } Not applicable - ------- ------------------------------------------------------------------------ - ------- ------------------------------------------------------------------------ 3 SEC USE ONLY - ------- ------------------------------------------------------------------------ - ------- ------------------------------------------------------------------------ 4 SOURCE OF FUNDS WC - ------- ------------------------------------------------------------------------ - ------- ------------------------------------------------------------------------ 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) r - ------- ------------------------------------------------------------------------ - ------- ------------------------------------------------------------------------ 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - ------- ------------------------------------------------------------------------ - ------- -------- --------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES 5,438,891 shares of Common Stock; See Item BENEFICIALLY 1, 3-5.0 OWNED BY EACH REPORTING PERSON WITH - ---------------------------- -------- ------------------------------------------ - ---------------------------- -------- ------------------------------------------ 8 SHARED VOTING POWER 0 - ---------------------------- -------- ------------------------------------------ - ---------------------------- -------- ------------------------------------------ 9 SOLE DISPOSITIVE POWER 5,438,891 shares of Common Stock; See Item 1, 3-5. - ---------------------------- -------- ------------------------------------------ - ---------------------------- -------- ------------------------------------------ 10 SHARED DISPOSITIVE POWER 0 - ---------------------------- -------- ------------------------------------------ - -------------------- ----------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 5,438,891 shares consisting of (i) 842,105 shares Common Stock, and (ii) a presently exercisable Warrant to purchase an additional 4,596,786 shares of Common Stock. See Items 1, 3-5 - -------------------- ----------------------------------------------------------- - -------------------- ----------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES { } Not Applicable 4 - -------------------- ----------------------------------------------------------- - -------------------- ----------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 28.5% The shares of Common Stock held by the Reporting Person represents approximately 28.5% of the outstanding Common Stock of the Company, calculated in accordance with Rule 13d-3 (which requires the Reporting Person (i) to assume the exercise and conversion of the Warrant held by Reporting Person and (ii) to disregard all outstanding shares of Common Stock represented by Warrants held by third parties). See Items 1-5. - -------------------- ----------------------------------------------------------- - -------------------- ----------------------------------------------------------- 14 TYPE OF REPORTING PERSON CO - -------------------- ----------------------------------------------------------- INTRODUCTION This report on Schedule 13D (this "Report") is being jointly filed by Insight Interactive, LLC, a Delaware limited liability company ("Interactive"), and Insight Communications Company, Inc., a Delaware corporation ("Communications," and with Interactive, the "Reporting Persons"). ITEM 1. Security and Issuer. This Report relates to the Common Stock, $.001 par value ("Common Stock"), of Source Media, Inc., a Delaware corporation (the "Issuer," the "Company", or "Source"). The principal executive offices of the Company are located at 5400 LBJ Freeway, Suite 680, Dallas, Texas 75240. Pursuant to Rule 13d-3 promulgated under the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), this Report relates to the shares of Common Stock issued by Source, which are (i) held by Interactive and (ii) issuable upon exercise of a Warrant held by Interactive (all such securities are collectively referred to in this Report as the "Securities"). The Securities beneficially owned by the Reporting Persons were acquired pursuant to the Common Stock and Warrants Purchase Agreement, dated as of July 29, 1999, by and between Source and Interactive (the "Purchase Agreement"), incorporated by reference as Exhibit 10.1, and pursuant the Stock Purchase Warrant, dated as of November 17, 1999 (the "Warrant"), attached hereto as Exhibit 10.2. The Warrant is presently exercisable for 4,596,786 shares of Common Stock and the exercisable price per share is $20; provided, however, that until (a) April 1, 2004, Interactive may exercise only such portion of the Warrant that would entitle Interactive to own up to forty-five percent (45%) of the Common Stock of Source, on a fully diluted basis and (b) June 24, 2000, Interactive may exercise only such portion of the Warrant that would entitle Interactive to own up to 24.99% of the outstanding Common Stock of Source. The Warrant also contains antidilution provisions designed to insure appropriate adjustment to the exercisable price and/or the number of Warrant shares to be acquired in the event of future issuances of capital stock or securities into which the Warrant may ultimately be converted. The summary descriptions contained in this Report of certain agreements and documents are qualified in their entirety by reference to the complete texts of such agreements and documents filed as Exhibits hereto. ITEM 2. Identity and Background. This Report is being filed jointly by the Reporting Persons. Interactive is a Delaware limited liability company. Communications is a Delaware corporation. The principal business 6 of Interactive is to serve as a holding company for the Securities. The principal business of Communications is operating and managing cable television systems serving approximately one million customers in Indiana, Kentucky, Ohio, Illinois, California and Georgia. Communications operates a clustered set of cable systems that allow it to offer its customers an array of entertainment, information and telecommunication services on a bundled basis. The principal office and business address of the Reporting Persons is 126 East 56th Street, New York, NY 10022. The following information concerning the directors and executive officers of the Reporting Persons is set forth on Exhibit 99.1 attached hereto: (i) name; (ii) residence or business address; and (iii) present principal occupation or employment and the name, principal business and address of any corporation or other organization in which such employment is conducted. During the last five years, to the best knowledge of the persons filing this Report, none of the Reporting Person or any of their respective executive officers or directors has been convicted in any criminal proceedings (excluding traffic violations and similar misdemeanors). During the last five years, to the best knowledge of the persons filing this Report, none of the Reporting Persons or any of their respective executive officers or directors has been a party to any civil proceeding of a judicial or administrative body of competent jurisdiction as the result of which it, he or she was or is subject to any judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. To the best knowledge of the persons filing this Report, all of the individuals listed on Exhibit 99.1 are citizens of the United States of America. The filing of this Report shall not constitute an admission by any of the Reporting Persons that such parties are the beneficial owners of the Securities or that the Reporting Persons are acting as or otherwise constitute a "group" for purposes of Rule 13d-5. ITEM 3. Source and Amount of Funds or Other Consideration. The consideration paid by Interactive for the 842,105 shares of Common Stock was $12,000,000 and the consideration paid by Interactive for the Warrant to purchase 4,596,786 shares of Common Stock was $10.00 and other good and valuable consideration. Communications contributed this capital to Interactive. The source of these funds was Communications' working capital. 7 ITEM 4. Purpose of Transaction. The purpose of the acquisition of the Common Stock was to facilitate a joint venture ("NewCo, LLC") between the Reporting Persons and Source. Interactive, a wholly-owned subsidiary of Communications, entered into a Contribution Agreement, by and among Interactive, Source, and NewCo, LLC, dated as of July 29, 1999 (the "Contribution Agreement"), incorporated by reference as Exhibit 10.3, providing for the creation of NewCo, LLC. Pursuant to the terms of the Contribution Agreement, Source contributed its virtual Modem 28 software, the Interactive Channel's grid-less, server-based navigator, SourceGroup, local Source television content and will manage the operations of NewCo, LLC. The Reporting Persons provided $13 million in equity financing to NewCo, LLC. Source and Interactive each own 50% of NewCo, LLC. The summary descriptions of Contribution Agreement described herein do not purport to be complete and are qualified by their entirety by reference to the text of the document which has been attached as an Exhibit to this Report. Pursuant to the Purchase Agreement, Source amended its Bylaws on November 17, 1999, and created through a Certificate of Designations for Non-Participating Preferred Stock, attached hereto as Exhibit 10.4, a new class of stock, consisting of one share of Non-Participating Preferred Stock, par value $0.001 per share ("Preferred Stock"). The Preferred Stock was issued to Interactive for no additional consideration. As the holder of the Preferred Stock, Interactive has no voting rights but is entitled to designate a number of voting members of the Board of Directors ("Board") of Source in accordance with the following schedule: Number of Board Seats Number of Board Seats Percentage of Voting Stock Owned by Interactive Appointed by Interactive on 7 Appointed by Interactive on 10 on a Fully Diluted Basis Person Board Person Board 3 4 15% or greater 2 3 7.5% or more but less than 15% 1 2 5% more or but less than 7.5% 1 1 2.5% or more but less than 5% 0 0 less than 2.5% Source's Board shall be comprised of seven (7) members or ten (10) members and Interactive is entitled to appoint the number of members set forth above based upon Interactive's stock ownership. Source may only change the number of Board members to a number other than seven (7) or ten (10) with the written consent of the Reporting Persons. The Reporting Persons currently seat three directors on the Board of Source. At any time that Interactive is entitled to at least one Board representative, Interactive is entitled to have at least one voting representative on each committee of the Board, including but 8 not limited to the executive committee, audit committee and compensation committee. Interactive also has the preemptive right to purchase up to its proportionate share of any new securities which Source may, from time to time, propose to sell or issue. Interactive acquired the Warrant for its own account, for investment purposes only, and not with a view to, or for a sale in connection with, a distribution, as that term is used in Section 2(11) of the 1933 Act, in a manner which would require registration under the 1933 Act or any state securities laws. The Reporting Persons intend to continuously review their investment in the Company, and may in the future determine to (i) acquire additional securities of the Company, through open market purchases or private agreements, (ii) dispose of all or a portion of the Securities they beneficially own, or (iii) take any other available course of action, which could involve one or more of the types of transactions or have one or more of the results described in the last paragraph of Item 4 of Schedule 13D. Notwithstanding anything contained herein, the Reporting Persons reserve the right to change their intentions with respect to any or all of such matters. In reaching any decision as to their course of action (as well as to the specific elements thereof), the Reporting Persons currently expect that they would take into consideration a variety of factors, including, but not limited to, the Company's business and prospects, other developments concerning the Company, the cable industry generally, other business opportunities available to the Reporting Persons, other developments with respect to the businesses of the Reporting Persons, general economic conditions and money and stock market conditions, including the market price of the Common Stock. The summary descriptions of certain provisions described herein do not purport to be complete and are qualified by their entirety by reference to the text of such documents which have been filed by Reference as Exhibits to this Report. ITEM 5. Interests in Securities of the Issuer. Interactive currently holds 842,105 shares of Common Stock and a presently exercisable Warrant, entitling it to purchase 4,596,786 shares of Common Stock; provided, however, that until (a) April 1, 2004, Interactive may exercise only such portion of the Warrant that would entitle Interactive to own up to forty-five percent (45%) of the Common Stock of Source, on a fully diluted basis and (b) June 24, 2000, Interactive may exercise only such portion of the Warrant that would entitle Interactive to own up to 24.99% of the outstanding Common Stock of Source. As a result, Interactive may be deemed to beneficially own up to 5,438,891 shares of Common Stock. As the sole member of Interactive, Communications may be deemed to beneficially own all of the Common Stock that Interactive is deemed to beneficially own. Such shares represent approximately 28.5% of the outstanding Common Stock, calculated in accordance with Rule 13d-3 (which requires the Reporting Person to (i) assume the exercise and conversion of the Warrant held by Reporting Person and (ii) to disregard all outstanding shares of 9 Common Stock represented by Warrants held by third parties). Since each share of Common Stock is entitled to one vote, such shares represent approximately 28.5% of the voting power in Source. As described in Item 4, the Reporting Persons own 1 share of Preferred Stock. The Preferred Stock is non-convertible and does not include voting rights. In accordance with 13d-1(i), this share is not included in the calculation of the Reporting Persons ownership because it is not an equity security for the purpose of Schedule 13D. The foregoing amounts exclude shares of Common Stock held by executive officers and directors of the Reporting Persons, if any. The Reporting Persons disclaim beneficial ownership of any such shares held by such officers and directors. ITEM 6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer. The information set forth in Items 1 and 4 of the Report is hereby incorporated by reference herein. The summary descriptions of certain provisions described herein do not purport to be complete and are qualified by their entirety by reference to the text of such documents which have been filed by Reference as Exhibits to this Report. ITEM 7. Material to be filed as Exhibits. Exhibit 10.1: Common Stock and Warrants Purchase Agreement, dated as of July 29, 1999, by and between the Company and Interactive (incorporated by reference to Exhibit 2.2 of the Company's 10Q/A, dated August 26, 1999). Exhibit 10.2: Stock Purchase Warrant, dated as of November 17, 1999. Exhibit 10.3: Contribution Agreement, dated as of July 29, 1999, by and among Interactive, the Company, and NewCo, LLC (incorporated by reference to Exhibit 2.1 of the Company's 10Q/A, dated August 26, 1999). Exhibit 10.4: Certificate of Designations for Non-Participating Preferred Stock Exhibit 10.5: Joint Filing Agreement, dated as of January 12, 2000, by and among Interactive and Communications. Exhibit 99.1: Executive Officers and Directors of Interactive and Communications. 10 SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Insight Interactive, LLC By: Insight Communications Company, Inc., its sole member January 12, 2000 - ---------------- By: /s/Kim D. Kelly Date ------------------------------------------ Executive Vice President, Chief Operating and Financial Officer and Secretary 11 SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Insight Communications Company, Inc. By:/s/Kim D. Kelly - --------------- ----------------------------------------- Date Kim D. Kelly Executive Vice President, Chief Operating and Financial Officer and Secretary 12
EX-10.2 2 WARRANT Exhibit 10.2 ------------ Warrant NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. STOCK PURCHASE WARRANT THIS STOCK PURCHASE WARRANT CERTIFIES THAT, for the agreed upon value of $10.00 and for other good and valuable consideration, INSIGHT INTERACTIVE, LLC or its registered successors and assigns (collectively, the "Holder"), is entitled to purchase fully paid and nonassessable shares of the $.001 par value per share common stock (the "Common Stock") of SOURCE MEDIA, INC., a Delaware corporation (the "Company") at $20.00 per share (the "Exercise Price") all as set forth herein and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions and upon the terms and conditions set forth in this Warrant. This Warrant allows the Holder to purchase 4,596,786 shares of Common Stock, subject to adjustment as provided herein, and the shares so subject to purchase hereunder shall be referred to herein as the "Warrant Shares". This Warrant is issued pursuant to the terms of the Common Stock and Warrants Purchase Agreement, dated as of July 29, 1999 (the "Purchase Agreement") between the Company and the Holder, as well as pursuant to the terms of the Contribution Agreement dated as of July 29, 1999 ("Contribution Agreement") among the Holder, the Company and SourceSuite LLC ("SourceSuite") and the Limited Liability Company Agreement of SourceSuite LLC ("Operating Agreement") which will be executed and delivered at the Closing of the Contribution Agreement and which was made and entered into by and between the Company and the Holder, pursuant to which the Company and the Holder have agreed to form, capitalize and thereafter manage SourceSuite to conduct certain specified businesses previously conducted separately. Capitalized terms used herein but not otherwise defined herein shall have the meanings set forth for such terms in the Purchase Agreement. The amount and kind of securities receivable pursuant to the rights granted hereunder are subject to adjustment pursuant to the provisions contained in this Warrant. This Warrant is subject to the following provisions: ARTICLE 1 EXERCISE 1.1 Method of Exercise. The Holder may exercise this Warrant in whole or in part at any time and from time to time after the date of issuance up to and including the fifth anniversary of the date of issuance (the "Expiration Date"); provided, however, that until (a) April 1, 2004, the Holder may exercise only such portion of this Warrant that would entitle the Holder to own up to forty-five percent (45%) of the Common Stock of the Company, on a Fully Diluted basis and (b) June 24, 2000 the Holder may exercise only such portion of this Warrant that would entitle the Holder to own up to 24.99% of the outstanding Common Stock of the Company. Deferral of the exercise of a portion of this Warrant shall not affect or limit in any manner the anti-dilution provisions of Article 2, which shall apply as if this Warrant were exercisable at any time. Between April 1, 2004 and the Expiration Date, the Holder may exercise this Warrant in whole or in part without restriction. The Holder may exercise this Warrant by delivering a duly executed Notice of Exercise in substantially the form attached as Appendix 1, to the principal office of the Company. The Holder shall also deliver to the Company a check for the aggregate Exercise Price for the Warrant Shares being purchased. 1.2 [Intentionally Omitted] 1.3 Share Coverage. The number of Warrant Shares for which this Warrant may be exercised shall be 4,596,786 shares of Common Stock, subject to adjustment as provided herein. 1.4 Fair Market Value. The fair market value of the Warrant Shares for purposes of Section 2.1.1(a) below shall be the higher of (i) the average closing price of the Warrant Shares reported for the five (5) Trading Days immediately before the Holder delivers its Notice of Exercise to the Company, or the date of the issuance of additional shares under Section 2.1.1(a) below, as applicable; or (ii) the average closing price of the Warrant Shares reported for the thirty (30) Trading Days immediately before the Holder delivers its Notice of Exercise, or the date of the issuance of additional shares under Section 2.1.1(a) below, as applicable. The reported closing price for each day shall be the reported closing price (and if no sales take place on any day, such day shall not be a Trading Day), as reported in the principal consolidated or composite transaction reporting system on the principal national securities exchange on which such security is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, on the Nasdaq National Market or, if such security is not quoted on the Nasdaq National Market, the average of the closing bid and asked prices on such day in the over-the-counter market as reported by Nasdaq. As used herein, the term "Trading Day" means a day on which the New York Stock Exchange, each national securities exchange on which the Warrant Shares is listed and the Nasdaq National Market are open for business. If the Warrant Shares are not then traded in a public market, the Board of Directors of the Company shall propose the fair market value in its reasonable good faith judgment. The foregoing notwithstanding, if the Holder advises the Board of Directors in writing that the Holder disagrees with such proposed fair market value, then each of the Company and the Holder shall select a reputable investment banking firm, and the two firms so selected shall promptly agree upon a third reputable investment banking firm, and the three firms shall undertake such valuation. If the valuation of such investment banking firms is greater than that determined by the Board of Directors, then all fees and expenses of such investment banking firms shall be paid by the Company. In all other circumstances, such fees and expenses shall be paid by the Holder. 1.5 Delivery of Certificate and New Warrant. In the event of any exercise of this Warrant, in whole or in part, certificates for the Warrant Shares so purchased representing the aggregate number of shares specified in the Notice of Exercise, shall be delivered to the Holder within a reasonable time, not exceeding seven business days, after this Warrant shall have been so exercised. If this Warrant shall have been exercised only in part, then, unless this Warrant has expired, the Company shall, at its expense, at the time of delivery of said certificates representing the Warrant Shares, deliver to the Holder a new Warrant representing the Warrant Shares not so exercised. The Company will pay all taxes and other expenses in connection with the preparation, execution and delivery of the certificates except that, in the case such certificates are to be registered in a name or names other than the Holder, the Holder will pay any and all stock transfer taxes associated with such transfer. 1.6 Replacement of Warrants. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company at its expense shall execute and deliver in lieu of this Warrant, a new warrant of like tenor. ARTICLE 2 ADJUSTMENT TO THE WARRANT SHARES 2.1 Antidilution Provisions. The intent of this Article 2 is to insure appropriate adjustment to the Exercise Price and/or number of Warrant Shares to be acquired in the event of the exercise of this Warrant, in the event of future issuances of capital stock or securities into which this Warrant may ultimately be convertible in the instances described below, to the end that the provisions set forth herein (including adjustments to the Exercise Price) shall be made to provide the Holder the right to receive essentially the same proportion of shares of capital stock (in relation to all shares of capital stock outstanding) on the date of conversion, redemption or other exchange as the Holder would have been entitled to had it initially been issued shares of Common Stock on the date hereof. Simultaneously with each adjustment to the Exercise Price set forth in this Article 2, an appropriate adjustment in the number of Warrant Shares obtainable upon the exercise of this Warrant shall be made so that the holder of this Warrant shall receive the same number and kind of securities and other property such holder would have been entitled to receive had this Warrant been exercised and converted into Warrant Shares immediately prior to the event or occurrence giving rise to the adjustment to the Exercise Price. 2.1.1 Adjustments for Diluting Issuances. (a) In the event the Company shall issue additional shares of capital stock without consideration or for a consideration per share which is less than both the Exercise Price for the Warrant Shares and the fair market value for the Warrant Shares as determined pursuant to Section 1.4 above, then and in each such event, the Exercise Price shall be reduced, concurrently with such issue of shares, to an amount equal to the quotient of: (a) the sum of (i) the number of shares of Common Stock outstanding (on a Fully Diluted basis) immediately prior to such issuance multiplied by the Exercise Price plus (ii) the aggregate consideration received by the Company upon such issuance, divided by (b) the number of shares of Common Stock outstanding (on a Fully Diluted basis) immediately after such issuance. For purposes of this Section 2.1, the consideration received by the Company for the issue of any additional shares of capital stock shall be computed as follows: (i) insofar as such consideration consists of cash, such consideration shall consist of the aggregate amount of cash received by the Company excluding amounts paid or payable for accrued interest or accrued dividends, and without deduction of any expenses incurred or underwriting commissions or concessions paid or allowed by the Company;(ii) insofar as such consideration consists of property other than cash,such consideration shall be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors of the Company, except where such consideration consists of securities, in which case the amount of consideration received by the Company shall be the fair market value thereof (determined as provided in Section 1.4 hereof) as of the date of receipt, but in each such case without deduction therefrom of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Company in connection therewith. In computing the market price of a note or other obligation that is not listed or admitted to trading on any securities exchange or quoted in the Nasdaq Stock Market or reported by the National Quotation Bureau, Inc., or a similar reporting organization, the total consideration to be received by the Company thereunder (including interest) shall be discounted to present value at the prime rate announced or published in The Wall Street Journal under the caption "Money Rate" in effect at the time the note or obligation is deemed to have been issued; and (iii) in the event additional Shares of capital stock are issued together with other securities or other assets of the Company for consideration which covers both, such consideration shall be the proportion of such consideration so received, computed as determined in good faith by the Board of Directors of the Company. (b) Treatment of Options and Convertible Securities. (i) In the event the Company should ever grant rights to subscribe for or purchase, or any options for the purchase of any shares of its capital stock or securities convertible into or exchangeable for capital stock (such rights and options herein referred to as "Options", and such convertible or exchangeable securities herein referred to as "Convertible Securities"), whether or not such Options or rights to convert or exchange any such Convertible Securities are immediately exercisable, and the price per share for which capital stock is issuable upon the exercise of such Option or upon the conversion or exchange of such Convertible Securities shall be less than the Exercise Price in effect immediately prior to the time of the granting of such Options, then the total maximum number of shares of capital stock issuable upon the exercise of such Options or upon the conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such Options shall (as of the date of granting of such Options) be deemed to be outstanding and to have been issued and sold for such price per share and the Exercise Price shall be reduced to the extent required by Section 2.1.1(a). For purposes of this Section 2.1.1(b)(i), the price per share for which such capital stock is issuable shall be determined by dividing (x) the total amount, if any, received or receivable by the Company as consideration for the granting of such Options, plus the minimum aggregate amount of additional consideration payable to the Company upon the exercise of such Options, plus, in the case of any such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, other than such Convertible Securities, payable to the Company upon the conversion or exchange of such Convertible Securities, by (y) the total maximum number of shares of capital stock issuable upon the exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options. No further adjustments of the Exercise Price shall be made upon the actual issue of such capital stock or of such Convertible Securities upon the exercise of such Options or upon the actual issue of such capital stock upon the conversion or exchange of such Convertible Securities. (ii) If at any time the Company shall issue or sell Convertible Securities, whether or not the rights to convert or exchange such Convertible Securities are immediately exercisable, and the price per share for which capital stock is issuable upon the conversion or exchange of such Convertible Securities shall be less than the Exercise Price in effect immediately prior to the time of the issue or sale of such Convertible Securities, then the total maximum number of shares of capital stock issuable upon the conversion or exchange of all such Convertible Securities shall (as of the date of the issue or sale of such Convertible Securities) be deemed to be outstanding and to have been issued and sold for such price per share and the Exercise Price shall be reduced to the extent required by Section 2.1.1(a), provided that (a) except as provided in Section 2.1.1(b)(vi) hereof, no further adjustments of the Exercise Price shall be made upon the actual issue of such capital stock upon the conversion or exchange of such Convertible Securities and (b) if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustments of the Exercise Price have been or are to be made pursuant to other provisions of this Section 2.1.1, no further adjustment of the Exercise Price shall be made by reason of such issue or sale. For purposes of this Section 2.1.1(b)(ii), the price per share for which capital stock is issuable shall be determined by dividing (x) the total amount received or receivable by the Company as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, other than such Convertible Securities, payable to the Company upon the conversion or exchange thereof, by (y) the total maximum number of shares of capital stock issuable upon the conversion or exchange of all such Convertible Securities. (iii) If at any time the Company shall pay a dividend or make any other distribution upon the capital stock payable in capital stock or Convertible Securities, any capital stock or Convertible Securities, as the case may be, issuable in payment of such dividend or distribution shall be deemed to have been issued without consideration, and the Exercise Price shall be reduced as if the Company had subdivided the outstanding shares of capital stock into a greater number of shares as provided in Section 2.2 hereof. (iv) In case at any time the Company shall take a record of the holders of capital stock for the purpose of entitling them (a) to receive a dividend or other distribution payable in capital stock or Convertible Securities, or (b) to subscribe for or purchase capital stock or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of such capital stock or Convertible Securities. (v) If the purchase price provided for in any Option referred to in Section 2.1.1(b)(i) hereof, or the price at which any Convertible Securities referred to in Sections 2.1.1(b)(i) or (iii) hereof are convertible into or exchangeable for capital stock, shall change at any time (whether by reason of provisions designed to protect against dilution or otherwise), the Exercise Price then in effect hereunder shall forthwith be increased or decreased to such Exercise Price as would have obtained had the adjustments made upon the issuance of such Options or Convertible Securities been made upon the basis of (a) the issuance of the number of shares of capital stock theretofore actually delivered upon the exercise of such Options or upon the conversion or exchange of such Convertible Securities, and the total consideration received therefor, and (b) the number of shares of capital stock to be issued for the consideration, if any, received by the Company therefor and to be received on the basis of such changed price. (vi) If any adjustment has been made in the Exercise Price because of the issuance of Options or Convertible Securities and if any of such Options or rights to convert or exchange such Convertible Securities expire or otherwise terminate, then the Exercise Price shall be readjusted to eliminate the adjustments previously made in connection with the Options or rights to convert or exchange Convertible Securities which have expired or terminated. (vii) The number of shares of capital stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such treasury shares shall be considered an issue or sale of capital stock. (viii) Anything in Section 2.1.1 hereof to the contrary notwithstanding, the Company shall not be required to make any adjustment of the Exercise Price in the case of (A) the issuance of the Warrants or any other warrant issued to the Holder, (B) the issuance of shares of Common Stock upon exercise of the Warrants or any other warrant issued to the Holder, (C) the granting of stock options by the Company or any of its subsidiaries pursuant to the option plans identified on Schedule 4.3 to the Purchase Agreement, provided that the exercise price of such stock options is at least equal to the fair market value of such shares of capital stock (as determined by the appropriate plan) on the date such stock options are granted, (D) the issuance of shares of capital stock upon the exercise of the stock options referred to in clause (C) above, and (E) the issuance of shares of capital stock upon the exercise, conversion, or exchange of the securities which are set forth on Schedule 4.3 of the Purchase Agreement, all of which were issued prior to or simultaneously with the date of the original issue of this Warrant. 2.2. Adjustment for Subdivisions and Combinations. In the event at any time the Company shall, by subdivision, stock split, reverse stock split, dividend, combination or reclassification of any shares of its capital stock or otherwise change any of the securities then issuable upon the exercise of this Warrant into the same or a different number of securities of any class or classes, this Warrant shall thereafter be exercisable, for the same period as the remaining duration of the period during which this Warrant is exercisable, for the same number and kind of securities which the holder hereof would have received had this Warrant been exercised and converted into Warrant Shares immediately prior to such change, whether by subdivision, stock split, reverse stock split, dividend, combination or reclassification of any shares of its capital stock or otherwise. In the event at any time the Company shall, by subdivision, dividend, stock split, reclassification or otherwise, change the outstanding shares of capital stock into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of capital stock shall be combined into a smaller number of shares, by reverse stock split, combination, reclassification or otherwise, the Exercise Price in effect immediately prior to such combination shall be proportionately increased. An adjustment made pursuant to this Section 2.2 shall become effective immediately after the effective date of such subdivision or combination. 2.3. Adjustment for Dividends and Distributions. If at any time the Company shall pay a dividend or make a distribution to all holders of capital stock, as such, which dividend or distribution is payable otherwise than in cash out of earnings or earned surplus and otherwise than in capital stock, Convertible Securities, or Options, then thereafter the Holder of this Warrant, upon the exercise of this Warrant, shall be entitled to receive the number of shares of Common Stock being purchased upon such exercise and, in addition thereto and without further payment, the stock and other securities and property (including cash) which such Holder would have received by way of dividends or distributions (otherwise than in cash out of earnings or earned surplus or in capital stock, Convertible Securities, or Options) as if continuously, since the date of the original issue of this Warrant, such Holder (a) had been the record holder of the number of shares of Common Stock then being purchased, and (b) had retained all dividends and distributions in stock or other securities (other than capital stock, Convertible Securities, or Options) which would have been paid in respect of such Common Stock or in respect of any stock or other securities which would have been paid as dividends or distributions on such Common Stock. 2.4 Repurchase on Sale, Merger, or Consolidation of the Company. 2.4.1 Acquisition. For the purpose of this Warrant, "Acquisition" means any sale, license, or other disposition of all or substantially all of the assets of the Company, or any reorganization, consolidation, or merger of the Company where the holders of the Company's securities before the transaction beneficially own less than fifty percent (50%) of the outstanding voting securities of the surviving entity after the transaction. 2.4.2 Assumption of Warrant. If such Acquisition shall be effected in such a way that the holders of Common Stock (or any other securities of the Company then issuable upon the exercise of this Warrant) shall be entitled to receive stock or other securities or property (including cash) with respect to or in exchange for Common Stock (or such other securities), then lawful and adequate provision shall be made whereby the Holder of this Warrant shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions specified in this Warrant, and in lieu of the shares of Common Stock (or such other securities) immediately theretofore purchasable and receivable upon the exercise hereof, such stock or other securities or property (including cash) as may be issuable or payable with respect to or in exchange for a number of outstanding shares of Common Stock (or such other securities) equal to the number of shares of Common Stock (or such other securities) immediately theretofore purchasable and receivable upon the exercise of this Warrant, had such Acquisition not taken place. In any such case appropriate provision shall be made with respect to the rights and interests of the Holder to the end that the provisions hereof (including, without limitation, the provisions for adjustments of the Exercise Price and of the number of Warrant Shares purchasable upon exercise hereof) shall thereafter be applicable, as nearly as reasonably may be, in relation to the stock or other securities or property thereafter deliverable upon the exercise hereof. In the event of a consolidation or merger of the Company with or into another corporation or entity as a result of which a greater or lesser number of shares of common stock of the surviving corporation or entity are issuable to holders of capital stock in respect of the number of shares of capital stock outstanding immediately prior to such consolidation or merger, then the Exercise Price in effect immediately prior to such consolidation or merger shall be adjusted in the same manner as though there were a subdivision or combination of the outstanding shares of capital stock. 2.5 Reclassification, Exchange or Substitution. Upon any reclassification, exchange, substitution, or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant, the Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that the Holder would have received for the Warrant Shares if this Warrant had been exercised immediately before such reclassification, exchange, substitution, or other event. Such an event shall include any automatic conversion of the outstanding or issuable securities of the Company of the same class or series as the Warrant Shares to Common Stock pursuant to the terms of the Company's Certificate of Incorporation upon the closing of a new registered public offering of the Company's Common Stock. The Company or its successor shall promptly issue to the Holder a new Warrant for such new securities or other property. The new Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 2 including, without limitation, adjustments to the Exercise Price and to the number of securities or property issuable upon exercise of the new Warrant. The provisions of this Section 2.5 shall similarly apply to successive reclassifications, exchanges, substitutions, or other events. 2.6 Record Date Adjustments. In any case in which this Article 2 requires that a downward adjustment of the Exercise Price shall become effective immediately after a record date for an event, the Company may defer until the occurrence of such event (a) issuing to the Holder of this Warrant (exercised after such record date and before the occurrence of such event) the additional Warrant Shares issuable upon such exercise by reason of the adjustment required by such event over and above the Warrant Shares issuable upon such exercise before giving effect to such adjustment and (b) paying to such Holder any amount in cash in lieu of a fractional share pursuant to Section 2.8 hereof. 2.7 Minimum Adjustment of Exercise Price. No adjustment of the Exercise Price shall be made in an amount less than $.05 per share in effect at the time such adjustment is otherwise required to be made, but any such lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which, together with any adjustments so carried forward, shall amount to not less than $.05 per share. In case at any time the Company shall issue capital stock by way of dividend on capital stock or subdivide or combine the outstanding shares of capital stock, said amount of $.05 per share (as theretofore increased or decreased, if the said amount shall have been adjusted in accordance with the provisions of this Section 2.7) shall forthwith be proportionately increased in the case of such a combination or decreased in the case of such a subdivision or stock dividend so as appropriately to reflect the same. 2.8 Fractional Shares. No fractional Shares shall be issuable upon exercise or conversion of the Warrant and the number of Warrant Shares to be issued shall be rounded down to the nearest whole Share. If a fractional share interest arises upon any exercise or conversion of the Warrant, the Company shall eliminate such fractional share interest by paying the Holder an amount computed by multiplying the fractional interest by the last reported sale price of the Common Stock on the trading day immediately preceding the date of exercise. 2.9 Certificate as to Adjustments. Upon each adjustment of the Exercise Price, the Company, at its expense, shall promptly compute such adjustment, and furnish the Holder with a certificate of its Chief Financial Officer setting forth such adjustment, and the corresponding adjustment in the number of Warrant shares obtainable upon the exercise of this Warrant, and the facts upon which such adjustments are based. The Company shall, upon written request, furnish the Holder a certificate setting forth the Exercise Price in effect upon the date thereof and the series of adjustments leading to such Exercise Price. 2.10 Certain Events. If any event occurs of the type contemplated by the provisions of this Article 2 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's Board of Directors shall make an appropriate adjustment in the number of Warrant Shares obtainable upon exercise of this Warrant and in the Exercise Price so as to protect the rights of the Holder of this Warrant; provided that no such adjustment shall decrease the number of Warrant Shares obtainable as otherwise determined pursuant to this Article 2. 2.11 Purchase Rights. If at any time the Company grants, issues or sells any rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of stock (the "Purchase Rights") then the Holder of this Warrant shall be entitled to obtain, upon the same terms on which the holders of Common Stock are to receive such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of Warrant Shares acquirable upon complete exercise of this Warrant immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. ARTICLE 3 REPRESENTATIONS AND COVENANTS OF THE COMPANY The Company hereby represents and warrants to the Holder as follows: 3.1 Title to Warrant Shares. All Warrant Shares which may be issued upon the exercise of the rights represented by this Warrant, and all securities, if any, issuable upon conversion of the Warrant Shares, shall, upon issuance be duly authorized, validly issued, fully paid and nonassessable, and free of any liens and encumbrances. 3.2 Reservation of Shares. During the period which this Warrant may be exercised, the Company will at all times have authorized and reserved for issuance a sufficient number of shares of Common Stock to cover such exercise. 3.3 No Impairment. The Company shall not, by amendment of its Certificate of Incorporation or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out all the provisions of this Warrant and in taking all such action as may be necessary or appropriate to protect the Holder's rights under this Warrant against impairment. If the Company takes any action affecting the Shares or its Common Stock other than as provided for above that adversely affects the Holder's rights under this Warrant, then the Company shall make appropriate adjustment to the Exercise Price and/or the number of Warrant Shares to carry out the intent of Article 2 as set forth in Section 2.1. 3.4 Notice of Certain Events. If the Company proposes at any time to (a) declare any dividend or distribution upon its Common Stock, whether in cash, property, stock or other securities and whether or not a regular cash dividend; (b) offer for subscription pro rata to the holders of any class or series of stock any additional shares of stock of any class or series or other rights; (c) effect any reclassification or recapitalization of Common Stock; or (d) merge or consolidate with or into any other corporation, or sell, lease, license, or convey all or substantially all of its assets, or to liquidate, dissolve or wind up, then, in connection with each such event, the Company shall give the Holder: (1) at least twenty (20) days prior written notice of the date on which a record will be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of Common Stock will be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in (c) and (d) above; and (2) in the case of the matters referred to in (c) and (d) above at least twenty (20) days prior written notice of the date when the same will take place (and specifying the date on which the holders of Common Stock will be entitled to exchange their Common Stock for securities or other property deliverable upon the occurrence of such event). 3.5 Registration under the Securities Act of 1933. 3.5.1 Piggyback Rights. In the event that the Company files a registration statement under the Securities Act of 1933, as amended (the "Act") which relates to an offering of securities of the Company by the Company or any holder of securities (except in connection with an offering to or by employees), such registration statement and the prospectus included therein shall also, at the written request to the Company by the Holder, include and relate to, and meet the requirements of the Act with respect to, the public offering of such Warrant Shares as the Holder indicates it intends to exercise and offer under the registration statement for sale and sell, so as to permit the public sale thereof in compliance with the Act, and any related qualifications under blue sky laws or other compliance or any underwriting involved therein shall also relate thereto. The Company shall use its best efforts to effect such registration, any such qualification, any such compliance and any such underwriting as soon as practicable. The Company shall give prompt written notice to the Holder of its intention to file a registration statement under the Act relating to an offering of the aforesaid securities of the Company, but in no event less than twenty-five (25) days prior to the filing of such registration statement, and the written request provided for in the first sentence of this Section shall be made by the Holder ten (10) or more days prior to the date specified in the notice as the date on which it is intended to file such registration statement. Neither the delivery of such notice by the Company nor of such request pursuant to this Section 3.5.1 by the Holder shall in any way obligate the Company to file any such registration statement and, notwithstanding the filing of such registration statement, the Company may, at any time prior to the effective date thereof, determine not to offer the securities to which such registration statement relates, without liability to the Holder, except that the Company shall pay such expenses as are contemplated to be paid by it under Section 3.5.3 and by the Holder pursuant to Section 3.5.3(d). Provided, that, anything above in this Section 3.5.1 to the contrary notwithstanding, the inclusion of Warrant Shares in any such registration will require the approval of the underwriters, if any, but which approval shall not be unreasonably withheld, and such inclusion shall be conditioned upon the provision by the Holder to the Company of all information regarding the Holder reasonably required to be included in the registration statement under applicable law and the rules and regulations promulgated by the Securities and Exchange Commission (the "SEC") pursuant to the Act. The "piggy-back" registration rights granted hereunder shall terminate five (5) years from the date hereof. 3.5.2 Demand Registration Rights. (a) In addition, upon written notice at any time after the second anniversary of the date of this Warrant, and on or before the Expiration Date, upon written request from a holder or holders of fifty percent (50%) or more of the securities issued or issuable upon exercise of this Warrant, the Company, as promptly as possible after the receipt of such notice, shall file a new registration statement under the Act with respect to the Warrant Shares covered by such notice and use its best efforts to effect such registration, all qualifications under blue sky laws and all other compliance as soon as practicable. Within ten (10) days after receiving any such notice, the Company shall give notice to any other Holders of the Warrant Shares issued or issuable pursuant to this Warrant, advising that the Company is proceeding with such registration statement to include therein Warrant Shares of such Holders. The Company shall not be obligated to any such other Holder unless such other Holder shall accept such offer by notice in writing to the Company within ten (10) days thereafter. The Company shall be required to effect two (2) registrations of Warrant Shares pursuant to this Section 3.5.2. The Holder agrees to become subject to a customary lock-up agreement, for a reasonable period of time, if required by the underwriter of a public offering by the Company during the period in which the Holder is entitled to registration of the Warrant Shares under this Section 3.5.2; provided, however, that the Expiration Date shall be extended by the effective period of any such lock-up agreement. The Company may postpone, one time, for up to ninety (90) days the registration of Warrant Shares pursuant to this Section 3.5.2 if its Board of Directors determines in good faith that such registration would have a material adverse effect on a significant transaction proposed by the Company; provided, however, that the Expiration Date shall be extended by the period of any such postponement. The distribution of Warrant Shares covered by the request of a Holder pursuant to this Section 3.5.2 shall be effected by means of the method of distribution selected by such Holder. If such distribution is effected by means of an underwriting, the Company shall enter into an underwriting agreement in customary form with a managing underwriter of nationally recognized standing selected for such underwriting by the Holder and approved by the Company, which approval shall not be unreasonably withheld. Notwithstanding any other provision of this Section 3.5.2, if the managing underwriter advises the Holder in writing that marketing factors require limitation of the number of shares to be underwritten, then the underwriters may exclude shares requested to be included in such registration. The number of shares to be included in the registration and underwriting shall be allocated first among the Holders who requested registration pursuant to this Section 3.5.2 and then among other Holders who have requested registration of securities in such registration and underwriting in proportion as nearly as practicable to the respective amounts of securities of the Company held by such Holders at the time of filing the registration statement. No securities excluded from the underwriting by reason of the managing underwriter's marketing limitation shall be included in such registration. If any Holder disapproves of the terms of the underwriting, such Holder may elect to withdraw therefrom by written notice to the Company, the managing underwriter and the Holder requesting such registration pursuant to this Section 3.5.2 and the securities so withdrawn shall also be withdrawn from registration. If the distribution of the Warrant Shares is being effected by means of an underwriting and if the managing underwriter has not limited the number of securities to be underwritten, the Company may include securities for its own account in such registration if the managing underwriter so agrees and may include securities for the account of holders of securities other than Holders of the Warrant Shares issued or issuable upon exercise of this Warrant. The inclusion of such securities by the Company or such other holders shall be on the same terms as the registration of Warrant Shares held by the Holders requesting registration pursuant to this Section 3.5.2. In the event that the underwriters exclude some of the securities to be registered, the securities to be sold for the account of the Company and any other holders shall be excluded in their entirety prior to the exclusion of any Warrant Shares issued or issuable pursuant to this Warrant. (b) If the Company is a registrant for purposes of the Act which is entitled to use Form S-3 (or any successor form to Form S-3) to register securities for any registration requested pursuant to Section 3.5.2, at the request of a holder pursuant to Section 3.5.2, the Company shall use its best efforts to cause the shares to be registered on Form S-3. (c) A holder requesting registration pursuant to Section 3.5.2 shall have the right to cancel a proposed registration pursuant to Section 3.5.2 when, in its discretion, market conditions are so unfavorable as to be seriously detrimental to an offering pursuant to such registration. For the avoidance of doubt, such cancellation of a registration shall not be counted as one of the two (2) registrations pursuant to Section 3.5.2, subject to the condition that the canceling Holder shall promptly reimburse the Company for its expenses reasonably incurred in connection with the cancelled registration, unless such registration was cancelled after having been deferred, postponed or interrupted by the Company pursuant to Section 3.5.2, in which case, such expense reimbursement shall not be required. 3.5.3 Agreements Related to Registrations. In each instance in which pursuant to Sections 3.5.1 and 3.5.2 of this Section, the Company shall take any action to permit a public offering or sale or other distribution of the Warrant Shares, the Company shall: (a) Supply to the Holders of Warrant Shares intending to make a public distribution of their Warrant Shares a reasonable number of copies of the preliminary, final and other prospectus in conformity with requirements of the Act and the rules and regulations promulgated thereunder and such other documents as the Holders shall reasonably request. (b) In regard to a registration under Section 3.5.2 only, cooperate in taking such action as may be necessary to register or qualify the Warrant Shares under such other securities acts or blue sky laws of such jurisdictions as the Holders shall reasonably request and to do any and all other acts and things which may be necessary or advisable to enable the Holders of such Warrant Shares to consummate such proposed sale or other disposition of the Warrant Shares in any such jurisdiction. (c) Keep effective all such registrations under the Act and cooperate in taking such action as may be necessary to facilitate a public sale or other disposition of such Warrant Shares by such Holders. (d) Pay all expenses of any registration under Section 3.5.2. Each registration under Section 3.5.1 shall be at the Company's expense, except for the direct, incremental costs attributable to the "piggy-backed" Warrant Shares, which shall be paid by the Holders thereof. The Company shall not be required to pay any underwriting discount or commission or applicable transfer taxes relating to the disposition of the Warrant Shares. (e) Indemnify and hold harmless each Holder with respect to which registration, qualification or compliance has been effected pursuant to this Agreement and any underwriter, within the meaning of the Act who may purchase from or sell for any Holder any Warrant Shares, and each of their respective officers, directors, partners and such Holder's legal counsel and independent accountants, if any, and such person controlling such persons, within the meaning of the Act, from and against any and all losses, claims, damages, expenses and liabilities (including, but not limited to, legal fees and expenses and any and all expenses whatsoever reasonably incurred in investigating, preparing, defending or settling any claim (including, but not limited to, legal fees and expenses)) arising from or based on (i) any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement furnished pursuant to clause (a) of this Section, or any prospectus included therein or any amendment or supplement thereto, (ii) any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading (unless such untrue statement (or alleged untrue statement) or omission (or alleged omission) was based upon and in conformity with information furnished in writing, or required to be furnished, to the Company by the Holder or underwriter expressly for use therein), or (iii) any violation by the Company of any rule or regulation promulgated under the Act or any state securities law applicable to the Company and relating to action or inaction by the Company in connection with any such registration, qualification or compliance. (f) Each Holder which has securities included in any registration pursuant to this Agreement shall indemnify and hold harmless the Company and any underwriter, within the meaning of the Act, and each of their respective officers, directors, partners, legal counsel and independent accountants, and each person controlling such persons within the meaning of the Act, from and against any and all losses, claims, damages, expenses and liabilities (including, but not limited to, legal fees and expenses and any and all expenses whatsoever reasonably incurred in investigating, preparing, defending or settling any claim (including, but not limited to, legal fees and expenses)) arising from or based on (i) any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement furnished pursuant to clause (a) of this Section or any prospectus included therein or any amendment or supplement thereto, or (ii) any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided, that the indemnity by such Holder shall be limited to liability based upon information furnished in writing, or required to be furnished, to the Company by such Holder expressly for use therein. The indemnity agreement of the Company herein shall not inure to the benefit of any such underwriter (or to the benefit of any person who controls such underwriter) on account of any losses, claims, damages, liabilities (or actions or proceedings in respect thereof) arising from the sale of any of such Warrant Shares by such underwriter to any person if such underwriter failed to send or give a copy of the prospectus furnished pursuant to clause (a) of this Section, to such person with or prior to the written confirmation of the sale involved. The obligation of any Holder pursuant to this Section 3.5.3(f) shall be limited to an amount equal to the net proceeds to such Holder from securities sold in such registration pursuant to this Agreement. (g) Each party entitled to indemnification hereunder (the "Indemnifying Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld). The Indemnified Party may participate in such defense at such party's expense; provided, however, that the Indemnifying Party shall bear the expense of such defense of the Indemnified Party if representation of both parties by the same counsel would be inappropriate due to actual or potential conflicts of interest. The failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Agreement, unless and to the extent such failure is prejudicial to the ability of the Indemnifying Party to defend the action. No Indemnifying Party, in the defense of any such claim or litigation shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect of such claim or litigation. (h) If the indemnification provided for in paragraphs (e) and (f) above is unavailable or insufficient to hold harmless an Indemnified Party, then each Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party as a result of the expenses, claims, losses, damages or liabilities (or actions or proceedings in respect thereof) referred to in such paragraphs in such proportion as is appropriate to reflect the relative fault of the Company, on the one hand, and the holders of securities registered pursuant hereto, on the other hand, in connection with the statement or omissions which resulted in such losses, claims, damages, expenses and liabilities, as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or any such holder and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The Company and the Holder agree that it would not be just and equitable if contributions pursuant to this paragraph (h) were to be determined by pro rata allocation or by any other method of allocation which does not take account of the equitable consideration referred to in this paragraph. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (i) In addition, in connection with any registration requested pursuant hereto, the Company shall: (1) prepare and file with the SEC pursuant to the Act such amendments and supplements to such registration statement and prospectus included therein as may be necessary to effect and maintain the effectiveness of such registration statement for a period of 180 days or such longer period as may be required in order to complete the distribution of the securities covered thereby and furnish to the Holders of such securities copies of any such supplement or amendment prior to it being used and/or filed with the SEC and comply with the provisions of the Act with respect to the disposition of all securities to be included in such registration statement. (2) provide the Holders, any underwriters in connection therewith, one counsel for such underwriters and one counsel for the Holders the opportunity to participate in the preparation of such registration statement and each amendment and supplement thereto. (3) for a reasonable period prior to the filing of the registration statement and throughout the period specified in paragraph (1) above, make available for inspection by the parties specified in paragraph (2) above such financial and other information and books and records of the Company, and cause the officers, directors, employees and representatives of the Company to respond to such inquiries as shall be reasonably necessary to conduct a reasonable investigation of the Company within the meaning of the Act. (4) promptly notify the holders of securities included in such registration statement and the managing underwriter in connection therewith (and confirm such advice in writing) (A) when such registration statement or the prospectus included therein or any prospectus amendment or supplement or post-effective amendment has been filed, and, with respect to such registration statement or any post-effective amendment, when the same has become effective, (B) of any comments by the SEC and by the blue sky or securities commissioner or regulator of any state with respect thereto or any request by the SEC for amendments or supplements to such registration statement or the prospectus or for additional information, (C) of the issuance by the SEC of any stop order suspending the effectiveness of such registration statement or the initiation of any proceedings for that purpose, (D) of the receipt by the Company of any notification with respect to the suspension of the qualification of the securities for sale in any jurisdiction or the initiation of any proceeding for such purpose, or (E) if it shall be the case, at any time when a prospectus is required to be delivered under the Act, that such registration statement, prospectus, or any document incorporated by reference, in any of the foregoing contains an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, in which case such Holders of securities covered by such registration statement shall suspend sales of such securities until they have been advised by the Company that an appropriate prospectus amendment or supplement or post-effective amendment has been filed; provided, however, that in such instance the Company shall use its best efforts to promptly file such prospectus amendment or supplement or post-effective amendment and the period during which such holders shall be so required to suspend sales hereunder shall not exceed 30 days. (5) use its best efforts to obtain the withdrawal of any order suspending the effectiveness of such registration statement or any post-effective amendment thereto at the earliest practicable date. (6) enter into one or more underwriting agreements, engagement letters, agency agreements, "best efforts" underwriting agreements, lock-up agreements or similar agreements, as appropriate, and take such other actions in connection therewith as the Holders of securities registered pursuant hereto shall reasonably request in order to expedite or facilitate the disposition of such securities. (7) whether or not an agreement of the type referred to in the preceding paragraph is entered into and whether or not any portion of the offering contemplated by such registration statement is an underwritten offering, (A) make such representations and warranties to the Holders of securities registered pursuant hereto and any underwriters thereof, in form, substance and scope as are customarily made in connection with any offering of equity securities pursuant to any appropriate agreement and/or to a registration statement filed on the form applicable to such registration statement, (B) obtain an opinion of counsel to the Company in customary form and covering such matters of the type customarily covered by such an opinion as the managing underwriters and Holders of securities registered pursuant hereto may reasonably request, (C) obtain a "cold" comfort letter or letters from the independent certified public accountants of the Company addressed to the Holders and the underwriters, if any, dated the effective date of such registration statement , the effective date of any prospectus supplement to the prospectus included in such registration statement or post-effective amendment to such registration statement and the date of any consummation of the sale of securities pursuant hereto, such letter or letters to be in customary form and covering such matters of the type customarily covered by letters of such type, (D) deliver such documents and certificates as may reasonably be requested by the holders of securities covered by such registration statement and the managing underwriter, if any, and (E) undertake such obligations relating to expense reimbursement, indemnification and contribution as are provided herein. (8) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC and otherwise take all actions as may reasonably be necessary to accomplish the intentions and purposes of this Section 3.5. 3.6 Additional Covenants. The Company and Holder understand that the possibility exists that in connection with the exercise (including certain partial exercises) of this Warrant, each of the Company and Holder may be required to make certain filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR"). The Company covenants that it shall file with the Federal Trade Commission and the Department of Justice the notification form, together with all necessary materials and information, to attempt to secure the expiration or termination of all applicable waiting period(s) relating to any or all exercises of the Warrant hereunder as required on its part under HSR (each an "HSR Warrant Consent"), in the event the Company is notified by the Holder that the Holder has been advised by its counsel of the necessity of making such filings. This covenant is in addition to any covenants to obtain the HSR Consent under the Purchase Agreement. The Company agrees and covenants that it shall use good faith commercially reasonable efforts to obtain the HSR Warrant Consent to allow the Holder to exercise the Warrant, and shall inform the Holder of all material developments in the Company's efforts to obtain the HSR Warrant Consent, and that simultaneously with the transmittal to third parties or to governmental agencies, it shall provide the Holder with copies of all correspondence, filings or other written documentation related to efforts to obtain the HSR Warrant Consent. If, notwithstanding the Company's satisfaction of its obligations above, the Company fails to obtain the HSR Warrant Consent, then the Company shall issue Warrant Shares in the maximum number of shares permissible without obtaining HSR consent and in lieu of issuing the remaining Warrant Shares in Common Stock (meaning those that cannot be issued without HSR Consent), the Company shall issue an equivalent number of shares of a new class of non-voting common stock of the Company ("Non-Voting Stock") which shall be identical in all respects to the Common Stock, except that shares of Non-Voting Stock shall not have the right to vote on any matters presented to the Company's stockholders, unless otherwise required by law; and by their terms the Non-Voting Stock shall automatically, without notice or any other further action on the part of either the Company or the Holder, be converted into shares of Common Stock if they are transferred by the Holder. Thus, if HSR Warrant Consent shall not have been obtained, the Holder shall continue to have the right to exercise this Warrant, as otherwise allowed in accordance with the terms hereof; provided, that upon such exercise, in lieu of receiving Warrant Shares, the Holder shall receive an equal number of shares of Non-Voting Stock, to the extent of the affected Warrant Shares (i.e., if a portion of the Warrant Shares can then be issued without HSR Warrant Consent, the Non-Voting Stock shall be issued only with respect to the remainder of the Warrant Shares then exercised as evidenced by this Warrant). The Amendment of the Restated Certificate of Incorporation of the Company adopted pursuant to Section 3.4 of the Purchase Agreement and which is attached thereto as Exhibit B-1 authorized a number of shares of Non-Voting Stock equal to or greater than the number of Warrant Shares. The intent of this Section 3.6 is to place the Holder in the position most nearly identical to the position that the Holder would have been in upon such exercise if either the HSR Warrant Consent was not necessary or had been obtained. The Company covenants that, at the cost and expense of the Holder, it will use commercially reasonable efforts and continue to take all reasonable steps to attempt to secure for the Holder the Warrant Shares or equivalents which deliver to the Holder the voting rights and economic benefits bargained for under the Purchase Agreement, which efforts shall include, but not be limited to, appealing any decision of the Federal Trade Commission and/or Justice Department which denies consent to the exercise in question if, in the opinion of counsel to the Holder, there is a reasonable basis for such appeal. In the event the Company is unable to issue the Non-Voting Stock as contemplated herein, the Company covenants that it will use commercially reasonable efforts to secure for the Holder the benefits set forth herein. ARTICLE 4 MISCELLANEOUS 4.1 Term. This Warrant is exercisable, in whole or in part, at any time and from time to time on or before the Expiration Date set forth above. 4.2 Legends. This Warrant shall be imprinted with a legend in substantially the following form: NEITHER THIS SECURITY NOR THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. 4.3 Compliance with Securities Laws on Transfer. This Warrant may not be transferred or assigned by the Company. This Warrant may not be transferred or assigned by the Holder in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, as reasonably requested by the Company). The Company shall not require the Holder to provide an opinion of counsel if the transfer is to (a) an Affiliate of the Holder; (b) the respective successors of the Holder in a merger or consolidation; (c) the purchaser of all or substantially all of the assets of Holder; (d) the shareholders of the Holder in the event the Holder is liquidated or dissolved; or (e) any other person or entity with respect to whom such transfer has been approved by the Company. If requested by the Company, and if the transfer is other than a circumstance described above, the Holder shall provide a reasonable opinion of counsel in connection with the transfer of the Warrant Shares pursuant to Rule 144. 4.4 Transfer Procedure. Subject to the provisions of Section 4.3, the Holder may transfer all or part of this Warrant or the Warrant Shares issuable upon exercise of this Warrant (or the securities issuable, directly or indirectly, upon conversion of the Warrant Shares, if any). 4.5 Notices. All notices and other communications from the Company to the Holder, or vice versa, shall be deemed delivered and effective when given personally or mailed by first-class registered or certified mail, postage prepaid, at such address set forth in the Purchase Agreement or as may have been thereafter furnished to the Company or the Holder, as the case may be, in writing by the Company or such the Holder from time to time. 4.6 Waiver. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. 4.7 Attorneys Fees. In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorney's fees. 4.8 Governing Law; Jurisdiction and Venue. This Warrant shall be governed by, construed and enforced in accordance with the internal laws of the State of Delaware, excluding the conflict of laws provisions thereof that would otherwise require the application of the law of any other jurisdiction. The Company acknowledges and agrees that the state and federal courts sitting in the State of Delaware shall have jurisdiction in any matter arising out of this Warrant, and the Company hereby consents to such jurisdiction and agrees that the venue of any such matter shall also be proper in such state and federal courts sitting in the State of Delaware. Dated November 17, 1999. SOURCE MEDIA, INC. By:/s/Stephen W. Palley ------------------------------------ Stephen W. Palley President and Chief Executive Officer APPENDIX 1 NOTICE OF EXERCISE 1. The undersigned hereby elects to purchase shares of the Common Stock of Source Media, Inc., pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full. 2. Please issue a certificate or certificates representing said shares in the name of the undersigned or in such other name as is specified below: (Name) (Address) 3. The undersigned represents it is acquiring the shares solely for its own account and not as a nominee for any other party and not with a view toward the resale or distribution thereof except in compliance with applicable securities laws. (Signature) Title (Date) EX-10.4 3 CERTIFICATE OF DESIGNATIONS Exhibit 10.4 ------------ Certificate of Designations CERTIFICATE OF DESIGNATIONS FOR NON-PARTICIPATING PREFERRED STOCK Pursuant to Section 151 of the General Corporation Law of the State of Delaware Source Media, Inc. (the "Corporation"), a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby certify that, pursuant to authority conferred upon the board of directors of the Corporation (the "Board") by its Certificate of Incorporation, as amended (the "Certificate of Incorporation"), and pursuant to the provisions of Section 151 of the General Corporation Law of the State of Delaware, on August 25, 1999, the Board duly approved and adopted the following resolution: RESOLVED, that, pursuant to the authority vested in the Board by the Certificate of Incorporation, the Board does hereby create, authorize and provide for the issuance of a class of Non-Participating Preferred Stock, par value $0.001 per share, such class consisting of one (1) share, having the designations and rights that are set forth in the Certificate of Incorporation and in this Resolution as follows: 1. Designation. There is hereby created out of the authorized and unissued shares of Preferred Stock of the Corporation a class of Preferred Stock designated as the "Non-Participating Preferred Stock." The number of shares constituting such class shall be one (1). The holder (the "Holder") of the share of Non-Participating Preferred Stock shall not be entitled to receive dividends or have any other special rights except as provided herein. 2. Rank. The Non-Participating Preferred Stock shall, with respect to distributions upon liquidation, winding-up and dissolution of the Corporation, rank senior to all classes of Common Stock of the Corporation, junior to the Corporation's 13 1/2% Senior Payment-In-Kind Preferred Stock and, with respect to any other class or series of preferred stock, as shall be provided in the resolutions of the Board creating such other classes or series. 3. Liquidation Preference. (a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the Holder shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders an amount in cash equal to the liquidation preference as set forth in paragraph (c) below. Except as provided in the preceding sentence, the Holder shall not be entitled to any distribution in the event of any liquidation, dissolution or winding up of the affairs of the Corporation. (b) For the purposes of this Section 3, neither the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Corporation nor the consolidation or merger of the Corporation with or into one or more entities shall be deemed to be a liquidation, dissolution or winding up of the affairs of the Corporation. (c) The liquidation preference of the Non-Participating Preferred Stock shall be $100.00 per share. 4. Voting Rights. (a) Except as otherwise required under Delaware law or as set forth in this Section 4, the Holder shall not be entitled or permitted to vote on any matter required or permitted to be voted upon by the stockholders of the Corporation. (b) At all such times as the Board shall consist of seven or ten members, the Holder shall have the exclusive right, voting separately as a single class, to elect the number of members of the Board in accordance with the following schedule: Number of Board Seats Member of Board Seats Percentage of Voting Stock Owned by the Holder Appointed by the Holder on 7 Appointed by the Holder on 10 ---------------------------------------------- ----------------------------- ------------------------------ on a Fully Voting Diluted Basis Person Board Person Board ---------------------------------- ------------ ------------ 3 4 15% or greater 2 3 7.5% or more but less than 15% 1 2 5% of more but less than 7.5% 1 1 2.5% or more but less than 5% 0 0 less than 2.5% (c) The written consent of the Holder will be required in the event the Board is ever to be comprised of a number of members other than seven or ten. The Holder may protect its proportionate representation in giving or not giving its consent in its sole discretion. (d) At any time that the Holder is entitled to elect at least one Board representative, the Holder will be entitled to elect one voting representative to each committee of the Board. (e) The foregoing rights of the Holder to take any actions as provided in this Section 4 may be exercised at any annual meeting of stockholders or any special meeting of stockholders or the Holder held for such purposes as provided herein or at any adjournment thereof, or by the written consent of the Holder delivered to the Secretary of the Corporation. (f) So long as such right to vote continues (and unless such right has been exercised by written consent of the Holder), the Chairman of the Board of the Corporation may call, and upon the written request of the Holder delivered to the Secretary of the Corporation shall call, a special meeting of the Holder. Such meeting shall be held within 10 days after delivery of such request to the Secretary, at the place and upon the notice provided by law and in the By-laws of the Corporation for the holding of meetings of stockholders. (g) The failure of the Holder to elect members of the Board shall not prevent the election of directors other than those to be elected by the Holder, and the absence of a quorum of the holders of shares of any other class or series of capital stock shall not prevent the election of directors to be elected by the Holder or the taking of any action as provided in this Section 4. (h) Each director elected by the Holder, as provided in this Section 4 shall, unless such director's term shall expire earlier or be terminated in accordance with this Section 4, hold office until the annual meeting of stockholders next succeeding his election or until his successor, if any, is elected and qualified. (i) In case any vacancy shall occur among the directors elected by the Holder, such vacancy may be filled for the unexpired portion of the term by vote of the remaining director or directors theretofore elected by the Holder (if there is a remaining director or directors). If any such vacancy is not so filled within 10 days after the creation thereof or if any or all of the directors so elected by the Holder shall cease to serve as directors before their terms shall expire, the Holder, by written consent as herein provided, or at a special meeting of the Holder called as provided herein, may elect a successor or successors to hold office for the unexpired terms of the directors whose places shall be vacant. (j) Any director elected by the Holder may be removed from office with or without cause by the vote or written consent of the Holder. A special meeting of the Holder may be called in accordance with the procedures set forth in paragraph 4(f) above to effect such removal. (k) The Non-Participating Preferred Stock shall be subject to mandatory redemption at a redemption price equal to the liquidation preference set forth in paragraph 3(c) above in the event the Holder owns less than two and a half percent (2.5%) of the Voting Stock of the Corporation on a Fully Diluted Basis. Such redemption shall be automatic and shall not require any notice or other action on the part of the Corporation. Upon such redemption, the Holder shall surrender the certificate representing the share of Non-Participating Preferred Stock to the Corporation, duly endorsed (or otherwise in proper form for transfer, as determined by the Corporation), in such manner and at such place as may be designated by the Corporation. 12. Preemptive Rights. (a) The Holder shall have the preemptive right to purchase up to its Proportionate Share of any New Securities which the Corporation may, from time to time, propose to sell or issue. (b) In the event the Corporation proposes to undertake an issuance or sale of New Securities, the Corporation will give the Holder thirty (30) days prior written notice of its intention, describing the type of New Securities and the price and the specific terms upon which the Corporation proposes to issue or sell the same. Thereafter, the Holder will have thirty (30) days from the date of such notice to give the Corporation written notice of its intention to purchase up to its Proportionate Share of such New Securities, for the same price and upon the terms pursuant to which the New Securities will be offered, as specified in the Corporation's notice, and stating therein the quantity of such New Securities the Holder intends to purchase. If the consideration for the New Securities is in a form other than cash, the Holder shall pay equivalent value on a per share basis in cash. The Holder shall further have a forty-five (45) day period from the date of the original notice from the Corporation in which to commit funding to the purchase of any New Securities and close the acquisition thereof. Failure by the Holder to give notice within the thirty (30) day period shall be deemed a waiver by the Holder of the preemptive right with respect to such New Securities, provided the Corporation consummates the issuance of New Securities within ninety (90) days after the expiration of such thirty (30) day period in the amount, at substantially the same price and on substantially the same terms specified in the notice given by the Corporation under this paragraph 5(b). In the event the New Securities are to be issued pursuant to an underwritten public offering or under similar circumstances so that the final price or other material terms of the New Securities are not established by the Corporation at the time the thirty day notice is provided to the Holder, the Corporation's notice to the Holder will provide its anticipated price of, and general terms pursuant to which it intends to issue such New Securities. Notwithstanding the fact that the Holder may notify the Corporation within such thirty day period that it intends to purchase up to its Proportionate Share of such New Securities, the Holder will not be bound by such election until the final price and terms of such offering are established by the Corporation. Upon the final price and terms being established, the Corporation shall provide the Holder immediate notice thereof prior to the Corporation's proposed sale and issuance. If such final price is not greater than one hundred ten percent (110%) of the price stated in the original notice, the Holder will be bound by its notice to exercise its preemptive rights; if such final price is greater than one hundred ten percent (110%) of the price stated in the original notice, the Holder shall not be bound by its original election, but shall have the right for a period not to exceed two (2) hours after receiving notice of the final price to elect to purchase in accordance with the terms of this Section 5. In order to both minimize the potential disruption to the Corporation's ability to offer such New Securities in an underwritten public offering and to afford the Holder with as much notice and information as possible regarding the terms and pricing thereof, the Corporation will keep the Holder reasonably informed of the status of the on-going negotiations with the managing underwriter with respect to such terms and anticipated pricing, and further will afford the Holder, if the Holder so requests, the right to have a representative present to observe the negotiation of the final pricing terms immediately prior to the execution of the applicable underwriting agreement. (c) The right of the Holder to purchase New Securities pursuant to this Section 5 may be exercised, in whole or in part, by any of the Holder's Affiliates, if the Holder expressly grants such right of exercise to such Affiliates, subject to compliance with applicable federal and state securities laws. (d) The right of the Holder to elect members to the Board (and committees thereof) in accordance with the provisions of Sections 4(b) and 4(d), and the preemptive rights granted to the Holder as set forth in Section 5, shall lapse in the event the Holder owns less than five percent (5%) of the Voting Stock of the Company on a Fully Diluted basis. 13. Transfer Restrictions. Except as specifically permitted under this Section 6, the Holder may not without the prior written consent of the Corporation sell, assign, transfer or otherwise dispose of the Non-Participating Preferred Stock, or any attribute, component or right in respect thereof, except to an Affiliate of the Holder. Any purported disposition in violation of this Section 6 shall be void and of no force or effect. "Affiliate" as used herein shall mean any person or entity that directly or indirectly or through one or more intermediaries Controls, is Controlled by or is under common Control with, the Holder, with "Control" meaning the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of the person or entity Controlled (whether through ownership of securities, partnership interests or other ownership interests, by contract or otherwise). 14. Certain Definitions. As used in this Certificate of Designations, the following terms have the meanings set forth below. Other terms that are defined elsewhere in this Certificate of Designations shall have the meaning as therein set forth. "Fully Diluted" shall mean, as of any date of determination, that for purposes of calculating the relevant percentage there shall be deemed outstanding at the time of calculation all shares of Voting Stock issuable, whether at such time or upon the passage of time or the occurrence of future events, upon the exercise, conversion or exchange of any warrant, option or other right to subscribe for, purchase or otherwise acquire directly or indirectly, any such shares of Voting Stock. "New Securities" shall mean any equity securities of the Corporation, whether now or hereafter authorized and including Common Stock and preferred stock, and all rights, options or warrants to purchase any such securities of the Corporation, and securities and indebtedness of any type whatsoever that are, or may become convertible into or exchangeable for capital stock of the Corporation, in each case to the extent issued after the date of filing of this Certificate of Designation, other than (i) up to a maximum of 8,147,139 shares of Common Stock which may hereafter be issued in accordance with the exercise of warrants, stock options or put rights identified on Schedule 4.3 to the Common Stock and Warrants Purchase Agreement by and between the Corporation and Insight Interactive, LLC dated as of July 29, 1999 (the "Purchase Agreement"), (ii) the stock, options and warrants (and the stock issued upon exercise of such options and warrants) set forth in Notes A, B and C on Schedule 4.3 to the Purchase Agreement, (iii) the grant of employee stock options, stock appreciation rights or other awards pursuant to any stock option plan adopted by the Board of Directors of the Corporation, (iv) the issuance of Common Stock upon the exercise of any of the employee stock options, stock appreciation rights or other awards specified in clause (iii) above, (v) the issuance of any Common Stock, preferred stock or Rights in order to effect any merger, consolidation or other acquisition of any Person, business, division or assets outside the ordinary course of business, and (vi) the issuance of any capital stock or Rights by the Corporation for sale pursuant to a registration statement filed with the Securities and Exchange Commission. "Person" shall mean a domestic or foreign natural person, general or limited partnership, limited liability partnership, limited liability company, trust, estate, association or corporation. "Proportionate Share" shall mean a fraction, the numerator of which is the total number of shares of Common Stock of the Corporation owned by a Person and the denominator of which is the total number of shares of Common Stock of the Corporation issued and outstanding. "Rights" shall mean any option, warrant, security, rights or other instrument convertible into or exchangeable or exercisable for, or otherwise giving the holder thereof the right to acquire, directly or indirectly, any Common Stock of the Corporation or any other such option, warrant, security, right or instrument, including without limitation, any instrument the value of which is measured by reference to the value of the Common Stock of the Corporation. "Voting Stock" shall mean equity interests with voting power under ordinary circumstances entitling the holders thereof to elect the board of directors or other governing body. IN WITNESS WHEREOF, Source Media, Inc. has caused this Certificate of Designations to be signed by Stephen W. Palley, its President and Chief Executive Officer, this 17th day of November, 1999. SOURCE MEDIA, INC. By:/s/Stephen W. Palley ------------------------------------- Stephen W. Palley President and Chief Executive Officer
EX-10.5 4 JOINT FILING AGREEMENT Exhibit 10.5 ------------ JOINT FILING AGREEMENT In accordance with Rule 13d-1(k) under the Securities Exchange Act of 1934, as amended, the undersigned hereby agree to the joint filing on behalf of each of them of a statement on Schedule 13D (including amendments thereto) or any subsequent filings on Schedule 13G (including amendments thereto) with respect to the Common Stock, $.001 par value ("Common Stock"), of Source Media, Inc., a Delaware corporation, and that this Joint Filing Agreement (this "Agreement") be included as an Exhibit to such joint filing. IN WITNESS WHEREOF, the undersigned hereby execute this Agreement as of this __th day of January, 2000. Insight Interactive, LLC BY: Insight communications company, inc., its sole member By: /s/Kim D. Kelly ------------------------------ Kim D. Kelly Executive Vice President, Chief Operating and Financial Officer and Secretary INSIGHT COMMUNICATIONS COMPANY, INC. By: /s/Kim D. Kelly ------------------------------- Kim D. Kelly Executive Vice President, Chief Operating and Financial Officer and Secretary EX-99.1 5 EX-99.1 Exhibit 99.1 ------------ Insight Communications Company, Inc. Executive Officers and Directors - ------------------------- --------------------------- ---------------------------- ------------------------------ Name Position Principal Occupation Business Address - ------------------------- --------------------------- ---------------------------- ------------------------------ - ------------------------- --------------------------- ---------------------------- ------------------------------ Michael S. Willner* President and Chief President and Chief Insight Communications Executive Officer Executive Officer Company, Inc. 126 East 56th Street New York, NY 10022 - ------------------------- --------------------------- ---------------------------- ------------------------------ - ------------------------- --------------------------- ---------------------------- ------------------------------ Sidney R. Knafel* Chairman of the Board Chairman of the Board Insight Communications Company, Inc. 126 East 56th Street New York, NY 10022 - ------------------------- --------------------------- ---------------------------- ------------------------------ - ------------------------- --------------------------- ---------------------------- ------------------------------ Kim D. Kelly* Executive Vice President, Executive Vice President, Insight Communications Chief Operating and Chief Operating and Company, Inc. Financial Officer and Financial Officer and 126 East 56th Street Secretary Secretary New York, NY 10022 - ------------------------- --------------------------- ---------------------------- ------------------------------ - ------------------------- --------------------------- ---------------------------- ------------------------------ Steven E. Sklar Senior Vice President of Senior Vice President of Insight Communications Finance and Business Finance and Business Company, Inc. Development Development 126 East 56th Street New York, NY 10022 - ------------------------- --------------------------- ---------------------------- ------------------------------ - ------------------------- --------------------------- ---------------------------- ------------------------------ James A. Stewart Senior Vice President of Senior Vice President of Insight Communications Operations Operations Company, Inc. 126 East 56th Street New York, NY 10022 - ------------------------- --------------------------- ---------------------------- ------------------------------ - ------------------------- --------------------------- ---------------------------- ------------------------------ E. Scott Cooley Senior Vice President, Senior Vice President, Insight Communications Insight Communications of Insight Communications of Company, Inc. Indiana, LLC Indiana, LLC 8440 Woodfield Crossing, Suite 320 Indianapolis, Indiana 46240 - ------------------------- --------------------------- ---------------------------- ------------------------------ - ------------------------- --------------------------- ---------------------------- ------------------------------ Pamela Euler Halling Senior Vice President of Senior Vice President of Insight Communications Marketing and Programming Marketing and Programming Company, Inc. 126 East 56th Street New York, NY 10022 - ------------------------- --------------------------- ---------------------------- ------------------------------ - ------------------------- --------------------------- ---------------------------- ------------------------------ Charles E. Dietz Senior Vice President of Senior Vice President of Insight Communications Engineering Engineering Company, Inc. 126 East 56th Street New York, NY 10022 - ------------------------- --------------------------- ---------------------------- ------------------------------ - ------------------------- --------------------------- ---------------------------- ------------------------------ Daniel Mannino Senior Vice President and Senior Vice President and Insight Communications Controller Controller Company, Inc. 126 East 56th Street New York, NY 10022 - ------------------------- --------------------------- ---------------------------- ------------------------------ - ------------------------- --------------------------- ---------------------------- ------------------------------ Gregory B. Graff Senior Vice President and Senior Vice President and Insight Communications General Manager of General Manager of Insight Company, Inc. Insight Communications of Communications of Central 3770 East Livingston Avenue Central Ohio, LLC Ohio, LLC Columbus, Ohio 43227 - ------------------------- --------------------------- ---------------------------- ------------------------------ - ------------------------- --------------------------- ---------------------------- ------------------------------ Colleen Quinn Senior Vice President of Senior Vice President of Insight Communications Corporate Relations Corporate Relations Company, Inc. 126 East 56th Street New York, NY 10022 - ------------------------- --------------------------- ---------------------------- ------------------------------ - ------------------------- --------------------------- ---------------------------- ------------------------------ William Gilbert Vice President of Vice President of Insight Communications Advertising Sales Advertising Sales Company, Inc. 126 East 56th Street New York, NY 10022 - ------------------------- --------------------------- ---------------------------- ------------------------------ - ------------------------- --------------------------- ---------------------------- ------------------------------ Susane Newell Vice President of Vice President of Insight Communications Programming Programming Company, Inc. 126 East 56th Street New York, NY 10022 - ------------------------- --------------------------- ---------------------------- ------------------------------ - ------------------------- --------------------------- ---------------------------- ------------------------------ Elizabeth Grier Vice President of Vice President of Insight Communications Administration Administration Company, Inc. 126 East 56th Street New York, NY 10022 - ------------------------- --------------------------- ---------------------------- ------------------------------ - ------------------------- --------------------------- ---------------------------- ------------------------------ Judy Poole Vice President of Human Vice President of Human Insight Communications Resources Resources Company, Inc. 126 East 56th Street New York, NY 10022 - ------------------------- --------------------------- ---------------------------- ------------------------------ - ------------------------- --------------------------- ---------------------------- ------------------------------ Mary Rhodes Vice President of Vice President of Customer Insight Communications Customer Service Service Administration Company, Inc. Administration 126 East 56th Street New York, NY 10022 - ------------------------- --------------------------- ---------------------------- ------------------------------ - ------------------------- --------------------------- ---------------------------- ------------------------------ Heather Wright Vice President of Vice President of Insight Communications Strategic Marketing Strategic Marketing Company, Inc. 126 East 56th Street New York, NY 10022 - ------------------------- --------------------------- ---------------------------- ------------------------------ - ------------------------- --------------------------- ---------------------------- ------------------------------ Lori Urias Gehris Vice President of Training Vice President of Training Insight Communications Company, Inc. 126 East 56th Street New York, NY 10022 - ------------------------- --------------------------- ---------------------------- ------------------------------ - ------------------------- --------------------------- ---------------------------- ------------------------------ Thomas L. Kempner Director Chairman and Chief Loeb Partners Corporation Executive Officer of Loeb 61 Broadway, 24th Floor Partners Corporation New York, NY 10006 - ------------------------- --------------------------- ---------------------------- ------------------------------ - ------------------------- --------------------------- ---------------------------- ------------------------------ James S. Marcus Director President, Metropolitan 720 Park Avenue Opera New York, NY 10021 - ------------------------- --------------------------- ---------------------------- ------------------------------ - ------------------------- --------------------------- ---------------------------- ------------------------------ Prakash A. Melwani Director Managing Director of Vestar Capital Partners Vestar Capital Partners 245 Park Avenue, 41st Floor New York, NY 10167 - ------------------------- --------------------------- ---------------------------- ------------------------------ - ------------------------- --------------------------- ---------------------------- ------------------------------ Daniel S. O'Connell Director Chief Executive Officer of Vestar Capital Partners Vestar Capital Partners 245 Park Avenue, 41stFloor New York, NY 10167 - ------------------------- --------------------------- ---------------------------- ------------------------------ * Also a Director. Insight Interactive, LLC Executive Officers and Directors - -------------------------------------- ------------------- ------------------------- ---------------------------------- Name Position Principal Occupation Business Address - -------------------------------------- ------------------- ------------------------- ---------------------------------- - -------------------------------------- ------------------- ------------------------- ---------------------------------- Michael S. Willner Chief Executive President and Chief Insight Communications Company, Officer Executive Officer Inc. 126 East 56th Street New York, NY 10022 - -------------------------------------- ------------------- ------------------------- ---------------------------------- - -------------------------------------- ------------------- ------------------------- ---------------------------------- Sidney R. Knafel Chairman of the Chairman of the Board Insight Communications Company, Board Inc. 126 East 56th Street New York, NY 10022 - -------------------------------------- ------------------- ------------------------- ---------------------------------- - -------------------------------------- ------------------- ------------------------- ---------------------------------- Kim D. Kelly Executive Vice Executive Vice Insight Communications Company, President, Chief President, Chief Inc. Operating and Operating and Financial 126 East 56th Street Financial Officer Officer New York, NY 10022 - -------------------------------------- ------------------- ------------------------- ---------------------------------- - -------------------------------------- ------------------- ------------------------- ---------------------------------- Elizabeth Grier Secretary Secretary Insight Communications Company, Inc. 126 East 56th Street New York, NY 10022 - -------------------------------------- ------------------- ------------------------- ---------------------------------- - -------------------------------------- ------------------- ------------------------- ---------------------------------- Daniel Mannino Treasurer Treasurer Insight Communications Company, Inc. 126 East 56th Street New York, NY 10022 - -------------------------------------- ------------------- ------------------------- ----------------------------------
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