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DEBENTURE PUT RIGHT AGREEMENT MADE AND ENTERED INTO IN XXX XXXX XXX XXXXXXXX XX
XXXXXXXX, XX THE 14 DAY OF JULY, 1999
BY AND AMONG: SOFINOV SOCIETE FINANCIERE
D'INNOVATION INC., a body politic,
duly incorporated according to the
Companies Act (Quebec), having its
head office and principal place of
business in the City of Montreal,
Province of Quebec,
(hereinafter referred to as
"Sofinov")
PARTY OF THE FIRST PART
AND: SOCIETE INNOVATECH DU GRAND
MONTREAL, a body politic duly
constituted according to An Act
respecting Societe Innovatech du
Grand Montreal, R.S.Q., ch. S-17.2,
having its head office and
principal place of business in the
City of Montreal, Province of
Quebec,
(hereinafter referred to as
"Innovatech")
PARTY OF THE SECOND PART
AND: TOUCHTUNES MUSIC CORPORATION, a
body politic and corporate, duly
incorporated according to the laws
of the State of Nevada, having its
head office and principal place of
business in the City of Las Vegas,
State of Nevada,
(hereinafter referred to as the
"Company")
PARTY OF THE THIRD PART
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1. PREAMBLE
1.1 WHEREAS on the date hereof, Sofinov and Innovatech have
subscribed for debentures from Touchtunes Digital Jukebox Inc.
("Canco");
1.2 WHEREAS the Company has agreed to grant to each of Innovatech and
Sofinov the right to oblige the Company to purchase their debentures in
consideration for shares in the capital stock of the Company, on the
terms and conditions set out in this Agreement.
NOW, THEREFORE, THIS AGREEMENT WITNESSETH:
2. DEFINITIONS
2.1 Definitions.. In this Agreement:
2.1.1 "1998 Debentures" has the meaning ascribed to "Debentures" in the 1998
Subscription Agreement;
2.1.2 "1998 Subscription Agreement" means the subscription agreement dated
February 11, 1998 among the Purchasers and Canco setting forth the
rights and obligations of each of the Purchasers with respect to its
subscription for its respective 1998 Debentures;
2.1.3 "1998 Put Right" has the meaning ascribed to "Put Right" in subsection
3.2 of the 1998 Put Right Agreement;
2.1.4 "1998 Put Right Agreement" means the debenture put right agreement
dated February 11, 1998 among the Purchasers and the Company;
2.1.5 "Additional Securities" has the meaning ascribed thereto in paragraph
5.2.9;
2.1.6 "Agreement" means this Agreement and all instruments supplemental
hereto or in amendment or confirmation hereof; "herein", "hereof",
"hereto", "hereunder" and similar expressions mean and refer to this
Agreement and not to any particular Section, subsection or other
subdivision; "Section", "subsection" or other subdivision of this
Agreement means and refers to the specified Section, subsection or
other subdivision of this Agreement;
2.1.7 "Applicable Law" means any domestic or foreign federal, state,
provincial, county, local, municipal and regional statute, law,
ordinance, rule, regulation, restriction, regulatory policy or
guideline, by-law (zoning or otherwise), principles of common law,
civil law or equity, as well as Permits, Orders, decrees and rules
(having the force of law); and any judgments or injunctions issued,
prolongated, approved or entered thereunder;
2.1.8 "April 1999 Debenture" has the meaning ascribed to "Debenture" in the
April 1999 Subscription Agreement;
2.1.9 "April 1999 Subscription Agreement" means the subscription agreement
dated April 8, 1999 between Sofinov and Canco setting forth the rights
and obligations of Sofinov with respect to its subscription for its
respective April 1999 Debenture;
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2.1.10 "April 1999 Put Right" has the meaning ascribed to "Put Right" in
subsection 3.2 of the April 1999 Put Right Agreement;
2.1.11 "April 1999 Put Right Agreement" means the debentures put right
agreement dated April 8, 1999 between Sofinov and the Company ;
2.1.12 "Articles of Incorporation" means the Amended and Restated Articles of
Incorporation of the Company filed on March 19, 1997 as further amended
by certificate of amendment filed December 4, 1998;
2.1.13 "Assets" means all of the assets, rights and properties of the Company,
of whatsoever nature, kind or description, including movable or
immovable, real or personal, tangible or intangible;
2.1.14 "Balance Sheet Date" means March 31, 1999;
2.1.15 "Benefit Plans" means all pension, retirement, profit sharing, bonus,
savings, compensation, incentive, severance, stock option, stock
purchase, stock appreciation, group insurance, medical, dental,
hospitalization, disability, death and other fringe benefit plans,
programs, arrangements or practices covering any or all past or present
employees, shareholders, directors or officers of the Company;
2.1.16 "Books and Records" means all books of account, accounting records,
files, data and writings and other financial information; lists and
files of past, present and prospective clients and contacts, purchasing
and marketing records, personnel and payroll records; and all data
stored on computer support devices relating to any of the
aforementioned materials;
2.1.17 "Business Day" means any day, other than a Saturday or Sunday or a day
on which the principal commercial banks in the State of New York or the
Province of Quebec are not open for business during normal banking
hours;
2.1.18 "Canco" has the meaning ascribed thereto in subsection 1.1;
2.1.19 "Canco Shares" means the shares of Canco currently held by the
Purchasers;
2.1.20 "Charges" means any security interest, hypothec, prior claim, lien,
charge, pledge, encumbrance, mortgage, adverse claim or title retention
agreement of any nature or kind whatsoever;
2.1.21 "Closing" means the closing of any purchase of a Debenture in
consideration for the issuance of Preferred Shares pursuant to any
exercise of the Put Right;
2.1.22 "Closing Date" means the date of each Closing;
2.1.23 "Common Shares" means shares of the Company's Class A voting common
stock having the rights, privileges and preferences as set forth in the
Articles of Incorporation;
2.1.24 "Company SEC Documents" has the meaning ascribed thereto in paragraph
5.1.1;
2.1.25 "Contracts" means all agreements, obligations and undertakings of
whatsoever nature, kind or description;
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2.1.26 "Debentures" has the meaning ascribed thereto in the Debenture
Subscription Agreement;
2.1.27 "Debenture Subscription Agreement" means the subscription agreement
dated the date hereof among the Purchasers and Canco setting forth the
rights and obligations of each of the Purchasers with respect to its
subscription for its respective Debentures;
2.1.28 "dollar", "dollars" and the sign "$" , unless otherwise indicated, each
mean lawful money of the United States of America;
2.1.29 "Encumbrance" means any encumbrance of any nature, kind or description
whatever and includes a security interest, mortgage, lien,
hypothecation, pledge, prior claim, assignment, charge, trust or deemed
trust (whether contractual, statutory or howsoever otherwise arising),
voting trust or pooling agreement with respect to securities, right of
first refusal, easement, servitude, restrictive covenant, encroachment
or other survey or title defect, any adverse claim or any other right,
option or claim of any Person of any nature, kind or description
whatever, or any covenant or other agreement, restriction or limitation
on transferability;
2.1.30 "Environment" means surface waters, ground water, drinking water
supply, land-surface, subsurface strata, air, both inside and outside
of buildings and structures, and plant and animal life;
2.1.31 "Environmental Law" means any Applicable Law relating to the pollution
or protection of the Environment;
2.1.32 "Equipment" means all furnishings, fixtures, machinery, equipment,
tooling, spare parts, leasehold improvements, supplies, computer
hardware, telephone systems, signs and all other tangible property,
together with all related accessories and maintenance equipment;
2.1.33 "Exchange Act" means the Securities Exchange Act of 1934 (United
States), as amended from time to time;
2.1.34 "Financial Statements" has the meaning ascribed thereto in paragraph
5.1.2 hereof;
2.1.35 "Future Debentures" has the meaning ascribed thereto in paragraph
5.2.10;
2.1.36 "Generally Accepted Accounting Principles" means generally accepted
accounting principles in the United States of America applicable as at
the date on which any calculation or determination is required to be
made in accordance with generally accepted accounting principles,
consistently applied since the incorporation of the Company, including
those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public
Accountants, or any successor institute, and statements and
pronouncements of the Financial Accounting Standards Board or in such
other statements by such other entity as is approved by a significant
segment of the accounting profession in the United States of America;
2.1.37 "Governmental Body" means (i) any domestic or foreign national,
federal, provincial, state, county, local, municipal or other
government or body, (ii) any multinational, multilateral or
international body, (iii) any subdivision, agent, commission, board,
instrumentality or authority of any of the foregoing governments or
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bodies, (iv) any quasi-governmental or private body exercising any
regulatory, expropriation or taxing authority under or for the account
of any of the foregoing governments or bodies, or (v) any domestic,
foreign, international, multilateral or multinational judicial, quasi-
judicial, arbitration or administrative court, tribunal, commission,
board or panel;
2.1.38 "Intellectual Property Rights" means, collectively:
2.1.38.1 all intellectual property rights of whatsoever nature, kind
or description including:
2.1.38.1.1 all trade marks, service marks, trade xxxx and service
xxxx registrations, trade xxxx and service xxxx applications, rights
under registered user agreements, trade names and other trade xxxx and
service xxxx rights,
2.1.38.1.2 all copyrights, industrial designs and registrations
thereof and applications therefor,
2.1.38.1.3 all inventions, patents, patent applications and patent
rights (including any patents issuing on such applications or rights),
2.1.38.1.4 all licenses, sub-licenses and franchises,
2.1.38.1.5 all trade secrets and proprietary and confidential
information,
2.1.38.1.6 all computer software and rights related thereto,
2.1.38.1.7 all renewals, modifications, developments and extensions
of any of the items listed in subsections 2.1.38.1.1 through 2.1.38.1.6
(inclusively) hereof; and
2.1.38.2 all patterns, plans, designs, research data, other
proprietary know-how, processes, drawings, technology, inventions,
formulae, specifications, performance data, quality control
information, unpatented blue prints, flow sheets, equipment and parts
lists, instructions, manuals, records and procedures, and all licenses,
agreements and other contracts and commitments relating to any of the
foregoing;
2.1.39 "Knowledge" - an individual will be deemed to have "Knowledge" of a
particular fact or other matter if:
2.1.39.1 such individual is actually aware of such fact or other
matter, or
2.1.39.2 a prudent individual could be expected to discover or
otherwise become aware of such fact or other matter in the course of
conducting a reasonably comprehensive investigation concerning the
existence of such fact or other matter.
A Person (other than an individual) will be deemed to have "Knowledge"
of a particular fact or other matter if any individual who is serving,
or who has at any time served, as a director, officer, partner,
executor, or trustee of such Person (or in any similar capacity) has,
or at any time had, Knowledge of such fact or other matter;
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2.1.40 "March 1999 Debentures" has the meaning ascribed to "Debentures" in the
March 1999 Subscription Agreement;
2.1.41 "March 1999 Subscription Agreement" means the subscription agreement
dated March 22, 1999 among Innovatech, Sofinov and Canco setting forth
the rights and obligations of each of Innovatech and Sofinov with
respect to its subscription for its respective March 1999 Debentures;
2.1.42 "March 1999 Put Right" has the meaning ascribed to "Put Right" in
subsection 3.2 of the March 1999 Put Right Agreement;
2.1.43 "March 1999 Put Right Agreement" means the debenture put right
agreement dated March 22, 1999 among Innovatech, Sofinov, and the
Company;
2.1.44 "Millennium Compliant" means that each item of hardware and software
used by the Company in the conduct of its business (the "Hardware and
Software") shall have the ability to accurately process date data
(including, calculating, comparing and sequencing) from, into and
between the twentieth and twenty-first centuries, including leap year
calculations, when used in accordance with the documentation furnished
by the supplier in connection with each such item of Hardware and
Software. Without limiting the generality of the foregoing, the
software forming part of the Hardware and Software is designed to be
used prior to, during and after calendar year 2000 AD, and will operate
during each such time period without error relating to date data
(including any error relating to, or the product of, date data which
represents or references different centuries or more than one century),
and including, that such software:
2.1.44.1 will not abnormally end or provide invalid or incorrect
results as a result of date data, including date data which represents
or references different centuries or more than one century;
2.1.44.2 has been designed to ensure year 2000 compatibility,
including date data century recognition, calculations which accommodate
same century and multi-century formulas and date values, and date data
interface values that reflect the century;
2.1.44.3 includes "year 2000 capabilities", meaning that such
software: (a) will manage and manipulate data involving dates,
including single century formulas and multi-century formulas, and will
not cause an abnormally ending scenario within the application or
generate incorrect values or invalid results involving such dates; and
(b) provides that all date-related user interface functionalities and
data fields include the indication of century; and (c) provides that
all date-related data interface functionalities include the indication
of century;
2.1.45 "Notice of Exercise" has the meaning ascribed thereto in subsection
4.1;
2.1.46 "Order" means any order (draft or otherwise), judgment, injunction,
decree, award or writ of any Governmental Body;
2.1.47 "ordinary course of business" means an action taken by a Person that
is:
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2.1.47.1 consistent with the past practices of such Person and is
taken in the ordinary course of the normal day-to-day operations of
such Person,
2.1.47.2 not required to be authorized by the board of directors of
such Person (or by any Person or group of Persons exercising similar
authority) and is not required to be specifically authorized by the
parent company (if any) of such Person, and
2.1.47.3 similar in nature and magnitude to actions customarily
taken, without any authorization by the board of directors (or by any
Person or group of Persons exercising similar authority), in the
ordinary course of the normal day-to-day operations of other Persons
that are in the same line of business as such Person;
2.1.48 "Permit" means any license, permit, certificate, authorization,
approval, right, privilege, consent, concession or franchise issued,
granted, conferred or otherwise created by a Governmental Body;
2.1.49 "Person" is to be broadly interpreted and includes an individual, body
corporate, legal person, moral person, partnership, joint venture,
trust, association, incorporated organization, governmental authority
or any other entity recognized by law;
2.1.50 "Preferred Shares" means the shares of Series A Preferred Stock as
described in the Articles of Incorporation;
2.1.51 "Premises" means the real property, together with all buildings,
structures, fixtures and improvements thereon, covered by the Real
Property Leases;
2.1.52 "Proportionate Share" means, the amount of the Additional Securities
determined by multiplying the number of Common Shares offered by a
fraction, the numerator of which is the number of Common Shares held by
the particular Purchaser to whom reference is made and the denominator
of which is the total number of Common Shares held by both Purchasers,
it being understood that for the purposes hereof, each Purchaser shall
be deemed to hold that number of Common Shares as would be issuable to
such Purchaser upon the conversion into Common Shares of (i) all
Preferred Shares held by such Purchaser and (ii) all Preferred Shares
issuable to such Purchaser upon the full exercise of (a) all of such
Purchaser's exchange rights under the Stock Exchange Agreement, (b) all
of such Purchaser's 1998 Put Rights, (c) all of such Purchaser's March
1999 Put Rights, (d) all of such Purchaser's April 1999 Put Rights (if
any) and (e) all of such Purchaser's Put Rights;
2.1.53 "Purchasers" means, collectively, Innovatech and Sofinov and all
transferees of Canco Shares held by Innovatech and Sofinov (other than
the Company) in accordance with the shareholders agreement entered into
on March 24, 1997 among Canco and the shareholders of Canco, as
amended, and "Purchaser" shall mean either of them;
2.1.54 "Put Rate" means, at any time, the number of Preferred Shares that each
Purchaser shall be entitled to receive for its respective Debentures
from time to time pursuant to subsection 3.3;
2.1.55 "Put Right" has the meaning ascribed thereto in subsection 3.2;
2.1.56 "Real Property Leases" means (i) the existing tenancy agreement between
the Company, as tenant, and Nevada Corporate Services, as landlord,
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(ii) the existing month-to-month tenancy agreement in respect of the
premises located in Willow Grove, Pennsylvania and (iii) the existing
tenancy agreement in respect of the premises located in Buffalo Grove,
Illinois, covering, collectively, the Premises, a copy of each of which
is annexed as Schedule 2.1.42 of the 1998 Put Right Agreement;
2.1.57 "Registrable Shares" means all shares of the Company's Class A voting
common stock issuable to the Purchasers upon the conversion of (i) any
Preferred Shares currently held by the Purchasers; (ii) any Preferred
Shares issuable to the Purchasers pursuant to the exercise of their
exchange rights under the Stock Exchange Agreement; (iii) any Preferred
Shares issuable to the Purchasers pursuant to the exercise of their
1998 Put Rights; (iv) any Preferred Shares issuable to the Purchasers
pursuant to the exercise of their March 1999 Put Rights; (v) any
Preferred Shares issuable to Sofinov pursuant to the exercise of its
April 1999 Put Rights, and (vi) any Preferred Shares issuable to the
Purchasers pursuant to the exercise of their Put Rights;
2.1.58 "Registration Statement" means the registration statement required to
be filed pursuant to paragraph 5.2.8 hereinbelow, and includes any
preliminary prospectus, final prospectus, exhibit, supplement or
amendment included in or relating to such registration statement;
2.1.59 "SEC" means the United States Securities and Exchange Commission;
2.1.60 "SEC Documents" means the documents filed by the Company with the SEC
at any time;
2.1.61 "Securities Act" means the Securities Act of 1933 (United States), as
amended from time to time;
2.1.62 "Shareholders Agreement" means the amended and restated shareholders
agreement entered into on February 11, 1998 among the parties hereto
and Techno Expres S.A., as amended, setting forth the terms and
conditions which will govern the relationship of the shareholders of
the Company;
2.1.63 "Stock Exchange Agreement" means the stock exchange agreement dated
March 21, 1997 among the Purchasers and the Company, providing inter
alia for the exchange by the Purchasers of the Canco Shares held by
them for Preferred Shares;
2.1.64 "Strike Price" has the meaning ascribed thereto in paragraph 5.2.10;
2.1.65 "Tax Returns" means all reports, returns or other information, or any
amendment thereof, required to be filed in connection with any Taxes;
2.1.66 "Taxes" means all taxes, foreign or domestic, whether federal, state,
provincial, county, local, municipal or otherwise (including income,
profit, corporation, business, excise,sales, goods and services, value-
added, franchise, withholding, capital, transfer, stamp, unemployment
compensation, payroll, property, and duties), whether or not measured
in whole or in part by net income, and including interest and penalties
with respect thereto; and
2.1.67 "Third-Party Offer" has the meaning ascribed thereto in paragraph
5.2.10.
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3. AUTHORIZATION AND PUT RIGHT
3.1 Authorization. Prior to the date hereof, the Company has
authorized the issuance, in accordance with the terms hereof, of up to
3,500,000 Preferred Shares issuable upon the exercise of the Put Rights
and 3,500,000 Common Shares issuable upon the conversion of such
Preferred Shares.
3.2 Put Right. Subject to the terms and conditions hereof, each
Purchaser shall have the right (the "Put Right") to oblige the Company
to purchase, at any time and from time to time, all or a portion of the
principal amount then outstanding under any of its respective
Debentures in consideration for Preferred Shares at the Put Rate.
3.3 Put Rate. Subject to the provisions of paragraph 5.2.10 below,
the Company shall issue to each Purchaser upon delivery by such
Purchaser of any of its Debentures, in consideration therefor, that
number of Preferred Shares as is equal to the number of shares obtained
when dividing (i) the principal amount then outstanding under such
Debenture(s) by (ii) $2.00.
3.4 Deemed Issuance Date of Preferred Shares. Upon the conversion
into Common Shares, in accordance with the Articles of Incorporation,
of any Preferred Shares issued upon the exercise of the Put Right
pursuant to subsection 3.2, the number of Common Shares to be issued
upon the conversion of such Preferred Shares shall be adjusted to take
into account changes to and dilutive events in respect of the Common
Shares as contemplated in the Articles of Incorporation occurring from
the date hereof until the date such Preferred Shares were issued.
4. EXERCISE OF PUT RIGHT
4.1 Closing. Each Closing shall be held at the offices of Canco in
Montreal, at 10:00 a.m., local time, ten (10) Business Days after
receipt by the Company of a properly completed and executed notice of
exercise in the form attached hereto as Schedule 4.1 (the "Notice of
Exercise") on behalf of either Purchaser or at such other time and
place upon which the Company and such Purchaser shall mutually agree.
4.2 Delivery. At each Closing, each Purchaser who has given a Notice
of Exercise shall surrender its Debenture(s) contemplated therein duly
endorsed. Thereupon, the Company shall issue and deliver at such office
to such Purchaser a certificate or certificates for the number of
Preferred Shares to which such Purchaser is entitled pursuant to
subsection3.3. Such exercise of the Put Right shall be deemed to have
been made at the close of business on the date of receipt by the
Company of the Notice of Exercise and the Purchaser entitled to receive
Preferred Shares issuable upon such exercise of the Put Right shall be
treated for all purposes as the record-holder of such Preferred Shares
on the date of receipt by the Company of the Notice of Exercise.
4.3 Covenants of the Company upon Closing. The Company hereby
covenants and agrees to cause all of the conditions hereinbelow set
forth to be satisfied as of the Closing Date, all of which conditions
are agreed to be material and are inserted for the exclusive benefit of
each Purchaser, and may be waived in whole or in part by such
Purchaser, provided that any waiver to be effective must be in writing:
4.3.1 the representations and warranties of the Company contained in the 1998
Put Right Agreement, the March 1999 Put Right Agreement, the April 1999
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Put Right Agreement and this Agreement shall be true and correct in all
respects as if made at and as of the date of such Closing;
4.3.2 the Company shall have complied with all its covenants, obligations and
agreements contained in the 1998 Put Right Agreement, the March 1999
Put Right Agreement, the April 1999 Put Right Agreement and this
Agreement;
4.3.3 the Company shall have furnished to such Purchaser an opinion addressed
to it and dated the date of such Closing from United States counsel to
the Company, covering substantially the same matters as were covered in
the opinion furnished by such counsel to the Purchasers on the date
hereof;
4.3.4 the Company shall have furnished to such Purchaser an officer's
certificate certifying that the representations and warranties of the
Company contained in the 1998 Put Right Agreement, the March 1999 Put
Right Agreement, the April 1999 Put Right Agreement and this Agreement
are true and correct in all respects as if made at and as of the date
of such Closing and confirming that the Company has complied with all
its covenants, obligations and agreements contained in such agreements;
and
4.3.5 the Company shall have delivered to such Purchaser all consents and
approvals of all Persons required in order to consummate the
transactions contemplated by the exercise of the Put Right set forth in
subsection3.2.
4.4 Failure to Satisfy Conditions Precedent to Closing. In the event
that any of the conditions precedent set forth in subsection 4.3 hereof
shall not have been fulfilled and/or performed as of the Closing Date,
each Purchaser may, at its option, either (i) advise the Company that
it shall not proceed with the exercise of its Put Right as contemplated
in the Notice of Exercise; or (ii) proceed with the exercise of its Put
Right, in either case without prejudice to such Purchaser's rights,
recourses and remedies.
5. REPRESENTATIONS, WARRANTIES AND ACKNOWLEDGEMENTS AND COVENANTS OF THE
COMPANY
5.1 Representations and Warranties. The Company hereby represents
and warrants to each of the Purchasers, as of the date hereof, the
following:
5.1.1 Public Filings. The Company has delivered to the Purchasers accurate
and complete copies (excluding copies of exhibits) of each report,
registration statement (on a form other than Form S-8) and definitive
proxy statement filed by the Company with the SEC prior to the date
hereof (the "Company SEC Documents"). As of the time it was filed with
the SEC (or, if amended or superseded by a filing prior to the date of
this Agreement, then on the date of such filing): (i) each of the
Company SEC Documents complied in all material respects with the
applicable requirements of the Securities Act or the Exchange Act, as
the case may be; and (ii) none of the Company SEC Documents contained
any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading.
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5.1.2 Financial Statements. The financial statements contained in the
Company SEC Documents (the "Financial Statements"): (i) complied as to
form in all material respects with the published rules and regulations
of the SEC applicable thereto; (ii) were prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods covered, except as may be indicated in the notes
to such financial statements and (in the case of unaudited statements)
as permitted by Form 10-Q of the SEC, and except that unaudited
financial statements may not contain footnotes and are subject to
normal and recurring year-end audit adjustments (which will not,
individually or in the aggregate, be material in magnitude); and (iii)
fairly present the financial position of the Company as of the
respective dates thereof and the results of operations of the Company
for the periods covered thereby.
5.1.3 Undisclosed Liabilities of the Company. The Company has no liabilities
(whether accrued, absolute, contingent or otherwise) of any kind except
(i) liabilities disclosed or provided for in the Financial Statements,
(ii) liabilities disclosed in the minutes of the meetings of the board
of directors of the Company held since February 11, 1998, which minutes
are annexed to the due diligence report dated October 28 1998 addressed
by the Company to the Purchasers, copies of which have been received by
the Purchaser, and (iii) liabilities incurred in the ordinary course of
business since the Balance Sheet Date which are not, in the aggregate,
material and adverse to its business, or to its financial condition or
results of operations and do not constitute a violation, contravention
or breach of any covenant, agreement or obligation contained in this
Agreement or constitute a breach of any representation or warranty made
in or pursuant to this Agreement;
5.1.4 Subsequent Activities of the Company. Except as disclosed in Schedule
5.1.4 annexed hereto, since the Balance Sheet Date there has not
occurred any change in the condition, financial or otherwise, or
prospects of the Company other than changes occurring in the ordinary
course of business which changes, individually or in the aggregate,
have not materially adversely affected its business, financial
condition, results of operations or prospects; without limiting the
generality of the foregoing, since the Balance Sheet Date, the Company
has not, directly or indirectly:
5.1.4.1 declared or paid any dividend on its capital stock or
redeemed, purchased or otherwise acquired any shares of its capital
stock, or otherwise reduced its paid up capital or altered its capital
stock,
5.1.4.2 entered into any Contract outside the ordinary course of
business, other than the April 1999 Put Right Agreement and as
disclosed in Schedule 5.1.4.2 annexed hereto,
5.1.4.3 increased the salary, benefits, bonuses or other
compensation of its officers, directors or employees or adopted any
Benefit Plan,
5.1.4.4 sold, leased, mortgaged, hypothecated, pledged or otherwise
subjected any of its Assets to any Encumbrance, except as for security
interest granted in favour of the National Bank of Canada in the amount
of $US 10,400,000,
5.1.4.5 settled any liability, claim, dispute, proceedings, suit or
appeal pending against it or any of its Assets,
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5.1.4.6 except as disclosed in the Financial Statements, suffered
any extraordinary loss, or loss from operations, and the loss from
operations for the second quarter ending June 30, 1999 is estimated at
$US 2,000,000,
5.1.4.7 purchased or leased, or made any commitment to purchase or
lease, any Assets, except for purchases of Equipment and supplies in
the ordinary course of business,
5.1.4.8 made any change in personnel practices, except in the
ordinary course of business,
5.1.4.9 cancelled or released any debts or claims,
5.1.4.10 made any change in its accounting principles, policies or
practices as heretofore applied, including the basis upon which its
assets and liabilities are recorded on its books, its earnings are
ascertained or the methods or rates of depreciation or amortization
employed,
5.1.4.11 violated any provision of any Contract to which it is a
party or by which it or any of its Assets may be bound, or
5.1.4.12 agreed to do any of the things described in subsections
5.1.4.1 through 5.1.4.11, inclusively, hereof;
5.1.5 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing, and in good standing
under the laws of the State of Nevada. The Company has full power and
authority to own and operate its properties and assets, and to carry on
its business as presently conducted and as presently proposed to be
conducted.
5.1.6 Corporate Power. The Company has all requisite legal and corporate
power and authority to execute and deliver this Agreement and to carry
out and perform its obligations under the terms of this Agreement.
Without limiting the generality of the foregoing, all corporate action
on the part of the Company, its directors and shareholders necessary
(i) for the authorization, execution, delivery and performance of this
Agreement by the Company and (ii) for the authorization, issuance and
delivery of the Preferred Shares pursuant to this Agreement and the
Common Shares issuable upon the conversion of such Preferred Shares.
5.1.7 Offering Valid. Assuming the accuracy of the representations and
warranties of the Purchasers contained in Section 6 hereof, the offer,
sale and issuance of the Preferred Shares pursuant to this Agreement
and the Common Shares issuable upon the conversion of such Preferred
Shares is or will be exempt from the registration requirements of the
Securities Act and all state "blue sky" laws or has been or will have
been registered or qualified under the registration, permit or
qualification requirements of all applicable federal and state
securities laws.
5.1.8 Binding Agreement. This Agreement, when executed and delivered by the
Company, shall constitute a valid and binding obligation of the
Company, enforceable in accordance with its terms.
5.1.9 Issuance of Preferred Shares and Common Shares. The issuance of
Preferred Shares pursuant to this Agreement and the issuance of Common
Shares issuable upon the conversion of such Preferred Shares is and
13
will not be subject to any preemptive rights or rights of first
refusal. When issued in compliance with the provisions of this
Agreement and the Articles of Incorporation, as amended, the Preferred
Shares and Common Shares issuable upon the conversion of such Preferred
Shares will be validly issued, fully paid and non-assessable, and will
be free of all Charges and restrictions on transfer other than
restrictions on transfer under state and/or federal securities laws at
the time a transfer by a Purchaser is proposed.
5.1.10 Consents. No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body or
any Person is required for the consummation by the Company of the
transactions contemplated by this Agreement, except such consents,
approvals, authorizations, orders, registrations or qualifications
which have been obtained by the Company prior to the date hereof;
5.1.11 Compliance with Laws. The Company is not in violation of any law,
ordinance, administrative or governmental rule or regulation or court
decree applicable to it, and is not in violation with any term or
condition of, and has not failed to obtain, any license, permit,
franchise or other administrative or governmental authorization
necessary to the ownership of its property or to the conduct of its
business, which violation, non-compliance or failure to obtain,
individually or in the aggregate, would adversely affect the
consummation by the Company of the transactions contemplated by this
Agreement;
5.1.12 Compliance with Other Instruments. The execution and delivery of this
Agreement and the fulfilment of the terms hereof do not result in a
breach of, do not conflict with, and do not constitute a default under,
whether after notice or lapse of time, (i) any statute, rule or
regulation applicable to the Company; (ii) any court judgment, decree
or order binding the Company; or (iii) the constating documents and by-
laws of the Company.
5.1.13 Reservation of Stock. The Company has reserved up to 3,500,000
Preferred Shares and 3,500,000 Common Shares issuable upon the
conversion of the Preferred Shares for issuance hereunder. The number
of Preferred Shares and Common Shares to be reserved for issuance shall
be adjusted in accordance with the Articles of Incorporation.
5.1.14 Brokers or Finders. The Purchasers have not incurred and will not
incur, directly or indirectly, as a result of any action taken by the
Company any liability for any brokerage fees, finder's fees, or agents'
commissions or other similar charges in connection with this Agreement.
5.1.15 Constating and Corporate Documents. Schedule 5.1.15 annexed to the
March 1999 Put Right Agreement contains a true and complete copy of the
constituant documents of the Company including the authorized capital
stock of the Company, which have not been amended other than as
reflected in said Schedule, and there is no application pending for the
amendment of any of same. The minute books and corporate records of the
Company, which have been made available to the Purchasers' solicitors
for review prior to the date hereof, have been maintained in accordance
with the Applicable Law and contain true and complete records of all
the by-laws of the Company and all meetings and consents in lieu of
meetings of the board of directors of the Company and its shareholders,
and accurately and completely reflect all matters referred to in such
minutes and consents. All resolutions contained in such records have
been duly passed and all such meetings have been duly called and held.
14
The share certificate books and the registers of shareholders,
directors and transfers of the Company are complete and accurate;
5.1.16 Issued Shares. The only issued and outstanding shares in the capital
stock of the Company (and rights, options and warrants to acquire same)
are as set out in Schedule 5.1.16 annexed to the March 1999 Put Right
Agreement. All such shares are validly issued, fully paid and non-
assessable, there are no other outstanding shares, warrants, rights,
options, securities convertible into shares of the capital stock of the
Company or any other agreements or rights to purchase or subscribe for
any shares of the capital stock of the Company or convert any
obligation or shares into any shares of the capital stock of the
Company and the Company has not agreed to issue or sell any shares of
its capital stock or any securities of any kind except as set out in
this Agreement, the Debenture Subscription Agreement, the April 1999
Put Right Agreement, the April 1999 Subscription Agreement, the March
1999 Put Right Agreement, the March 1999 Subscription Agreement, the
1998 Put Right Agreement, the 1998 Subscription Agreement and the Stock
Exchange Agreement;
5.1.17 Subsidiaries. Except for its 50% equity interest in Canco, the Company
has no subsidiary nor owns any equity or other interest in any
corporation, partnership, joint venture or other entity;
5.1.18 Title to Assets. The Company is the legal and beneficial owner of, has
good and marketable title to and possesses all its Assets free and
clear of any Encumbrances;
5.1.19 Equipment. The Company owns or leases all Equipment necessary to
conduct its business as presently conducted;
5.1.20 Assets and Condition of Assets. All the Assets owned or used by the
Company are located at the Premises and at 0 Xxxxx xx Xxxxxxxx, 0xx
Xxxxx, Xxx'x Xxxxxx, Xxxxxx. All of the Assets of the Company (i) are
in good working order and operating condition and have been regularly
serviced and properly maintained and (ii) are adequate and sufficient
for the continuing conduct of the business of the Company as now
conducted. There are no outstanding work orders relating to any of the
Assets of the Company which have been received from or required by any
Governmental Body;
5.1.21 Litigation. Except as set out in Schedule 5.1.21 annexed to the March
1999 Put Right Agreement, there is no existing or threatened claim,
demand, suit, action, cause of action, dispute, proceeding, litigation,
investigation, grievance, arbitration, governmental proceeding or other
proceeding, including appeals and applications for review, in progress
against, by, affecting or relating to the Company and/or any of its
Assets. There is no state of facts which could provide a valid basis
for any of the foregoing. There is not at present outstanding against,
affecting or relating to the Company and/or its Assets any Order which
adversely affects the Company in any way or that in any way relates to
this Agreement or the transactions contemplated hereby;
5.1.22 Insurance. Schedules "E", "F", "G" and "H" annexed to the due
diligence report dated October 28, 1998 addressed by the Company to the
Investors contain cover notes of each insurance policy currently
maintained by the Company. All such policies are in full force and
effect and are not void or voidable and nothing has been done or
omitted to be done by the Company that would make any such policy void
or voidable. All liability policies maintained by the Company provide
15
coverage on an occurrence basis, and not on a claims basis. The Company
has not failed to give any notice or present any claim under any
insurance policy when due or in a timely fashion. No claim presented by
the Company has been or continues to be disputed or is under
negotiation, nor does any amount recoverable from any insurer in
respect of any such claim remain unpaid. The insurance coverage
maintained by the Company is in such amounts and against such losses as
are reasonable based on the Company's claims history;
5.1.23 Real Property Lease and Premises. The Real Property Lease, is the only
lease, offer to lease, sublease, license or other agreement under which
the Company uses or occupies or has the right to use or occupy, now or
in the future, any immovable or real property or any buildings,
structures, fixtures or improvements thereon;
5.1.24 Place of Business. The Company carries on business at the Premises and
at the residence of Xx. Xxx XxXxxxxxxx, regional sales manager of the
Company, in Lawrenceville, Georgia, and has no other place of business;
5.1.25 Environmental Matters. Without limiting the generality of subsection
5.1.21 or 5.1.32 hereof:
5.1.25.1 the operations of, and the use of the Premises and Equipment
by the Company are now and have been in compliance, in all material
respects, with Environmental Law, and the operations of and use of the
Premises by any predecessor in interest of the Company have, to the
Knowledge of the Company, been in compliance, in all material respects,
with Environmental Law, and
5.1.25.2 the Company does not require any Permits under Environmental
Law for the conduct of its operations. The Company has not received any
notice requiring the issuance of any Permits;
5.1.26 Books and Records. The Books and Records of the Company are true and
complete in all material respects;
5.1.27 Employees and Labour Relations.
5.1.27.1 Schedule 5.1.27.1 annexed hereto contains a true and
complete list of the employees of the Company detailing dates of hire,
total remuneration and position held. Each of the employees listed on
such Schedule 5.1.27.1 received compensation from the Company solely in
consideration of services performed on its behalf. The compensation of
all officers and employees of the Company was paid entirely by the
Company,
5.1.27.2 to the Knowledge of the Company, none of the officers,
directors or other key employees of the Company has any present
intention to terminate its relationship with the Company,
5.1.27.3 without limiting the generality of paragraph 5.1.32 hereof,
the Company is in compliance with Applicable Law respecting employment
and employment practices, terms and conditions of employment, wages,
hours of work and human and civil rights,
5.1.27.4 without limiting the generality of paragraph 5.1.29 hereof,
the Company is not bound by or subject to any collective bargaining
agreement or collective bargaining obligation (or any ongoing
organizing activity),
16
5.1.27.5 without limiting the generality of paragraph 5.1.21 hereof,
there are no labour disruptions pending or threatened against the
Company and the Company is not involved in any controversy with any of
its employees except in the ordinary course of business, and
5.1.27.6 except as set forth in Schedule 5.1.27.6 annexed to the
March 1999 Put Right Agreement, no employment agreement to which the
Company is a party provides for a specified notice of termination or
fixed term of employment. There is no director, officer or employee of
the Company who cannot be dismissed upon such notice as is required by
Applicable Law;
5.1.28 Benefit Plans. The Company does not maintain or contribute to any
Benefit Plans other than the Benefit Plan adopted at the Board of
Directors meetings dated August 31, 1998 and October 16, 1998 and the
Benefit Plans annexed as Schedule 4.2.19 to the 1998 Subscription
Agreement;
5.1.29 Contracts. Schedule 5.1.4.2 and the schedules to the due diligence
reports dated August 5, 1998 and October 28, 1998 addressed by the
Company to the Investors contain a true and complete list of all
Contracts entered into since February 11, 1998 to which the Company is
a party or by which it or its Assets may be bound, such Contracts
together with the Contracts listed on Schedule 4.2.22 of the
Subscription Agreement dated March 21, 1997 among the parties hereto
and the Contracts listed on Schedule 5.1.29 of the 1998 Put Right
Agreement constitute a true and complete list of all Contracts to which
the Company is a party or by which it or its Assets may be bound, and
none of them will be affected by the transactions contemplated hereby.
The Company has delivered to the Purchasers a true and complete copy of
each of the Contracts. The Company is not in violation of or in default
with respect to and no event has occurred which, with lapse of time or
action by a third party, or both, could result in violation of or a
default with respect to any of the aforesaid Contracts. Each of the
aforesaid Contracts is in full force and effect and valid, binding and
enforceable in accordance with its terms and, to the Knowledge of the
Company, all parties to the such Contracts (other than the Company) are
in compliance with their obligations thereunder. Neither of the Company
and, to the Knowledge of the Company, none of the parties to the
aforesaid Contracts (other than the Company) intends to terminate its
obligations under any of such Contracts;
5.1.30 Intellectual Property.
5.1.30.1 Schedule 5.1.30 annexed to the March 1999 Put Right
Agreement, as updated by Schedule 5.1.30 annexed hereto, contains a
true and complete list of all Intellectual Property Rights used by the
Company in the conduct of its business, none of which has been opposed
or held unenforceable and each of which is in full force and effect.
Except as set forth in such Schedule, the Company is the absolute owner
and has the sole and exclusive right to use the Intellectual Property
Rights listed beside its name on such Schedule, without making any
payment to any Person or granting rights to any Person in exchange.
Unless otherwise indicated in such Schedule, the Company owns the
entire right, title and interest in and to the Intellectual Property
Rights (including, without limitation, the right to use and license the
same) which are necessary for the research, development, manufacture,
use, sale, lease, license and service of products of the Company's
business and the equipment used to manufacture the Company's products.
The Company's patents and trademarks, as listed and explained in
17
Schedule 5.1.30 annexed to the March 1999 Put Right Agreement, have
been duly registered with, filed in or issued by, as the case may be,
such Governmental Body as is indicated in such Schedule and, except as
otherwise set forth on such Schedule, such registrations, filing and
issuances remain in full force and effect and such patents and
trademarks cover the technology and equipment used to manufacture the
Products. The Intellectual Property Rights of the Company are
sufficient for the lawful conduct, ownership and operation of the
Company's business and enable the manufacturing of its products and
there are no Intellectual Property Rights of any Person which impair or
prevent the development, manufacture, use, sale, lease, license and
service of products, now existing or under development by the Company.
The Company has the unabridged right to bring actions for the
infringement of all of its Intellectual Property Rights,
5.1.30.2 the execution, delivery and performance of the Agreement and
the consummation of the transactions contemplated thereby will not
breach, violate or conflict with any instrument or agreement governing
any of the Company's Intellectual Property Rights, and will not cause
the forfeiture or termination or give rise to a right of forfeiture or
termination of the Company's Intellectual Property Rights or in any way
impair the right of the Company to use, sell, license or dispose of or
to bring any action for the infringement of any of the Company's
Intellectual Property Rights or portion thereof,
5.1.30.3 none of the Intellectual Property Rights have been derived,
in part or in whole, from the Intellectual Property Rights of any other
Person. All employees of, and consultants to, the Company have entered
into agreements with the Company pursuant to which all Intellectual
Property Rights developed by them in the course of their relationship
with the Company belong solely, without any restrictions or obligations
whatsoever, to the Company, and all such agreements are included in the
Contracts. The Company has taken all reasonable and practical steps
(including, without limitation, entering into confidentiality and non-
disclosure agreements with all employees of the Company or consultants,
third party developers or any other Persons with access to or knowledge
of the Company's Intellectual Property Rights) sufficient to safeguard
and maintain the secrecy and confidentiality of, and its proprietary
rights in, all of the Company's Intellectual Property Rights,
5.1.30.4 none of the development, manufacture, marketing, license,
sale or use of any product or service currently licensed or sold by the
Company or currently under development or proposed to be developed by
the Company violates or will violate any Contract with any Person or
infringe or will infringe any Intellectual Property Rights of any
Person. There are no pending or threatened proceedings, litigation or
other adverse claims affecting, or with respect to, any part of the
Intellectual Property Rights of the Company and, except as set forth in
Schedule 5.1.30 annexed to the March 1999 Put Right Agreement, to the
Knowledge of the Company, no Person is infringing any Intellectual
Property Right of the Company,
5.1.30.5 except for the license granted to Canco pursuant to that
certain Research License Agreement dated March 18, 1997 between the
Company and Canco, no license or sub-license has been granted or other
Contract has been entered into with respect to any of the Intellectual
Property Rights of the Company. The Company has not conducted business
under any name other than its current corporate name;
18
5.1.31 Related Transactions. Except as set forth in Schedule 5.1.31 annexed
to the 1998 Put Right Agreement and except for current unpaid salaries,
the Company has no indebtedness to any of its shareholders, directors,
officers or employees, past or present, or to any Person not dealing at
arm's-length with any of such Persons; and no shareholder, director,
officer or employee, past or present, of the Company or any Person not
dealing at arm's-length with any of such Persons has any indebtedness
to the Company;
5.1.32 Compliance with Applicable Law. The Company has conducted and is
conducting its business in compliance with Applicable Law, and the
Company is not in breach of Applicable Law, including any securities
law;
5.1.33 Qualifications. The Company has not been required to suspend
operations of its business or been liable for a fine or penalty as a
result of the operation of its business. The Company has all Permits
necessary for the conduct of its business and such Permits are validly
issued, in full force and effect and the Company is in compliance
therewith, and none of such Permits will be affected by the
transactions contemplated hereby;
5.1.34 Absence of Guarantees. Without limiting the generality of subsection
5.1.29 hereof and except for commitments disclosed in the Financial
Statements, the Company is not a party to or bound by any comfort
letter, understanding or agreement of guarantee, indemnification,
assumption or endorsement or any like commitment with respect to the
liabilities (whether accrued, absolute, contingent or otherwise) or
obligations of any Person;
5.1.35 Tax Matters.
5.1.35.1 Tax Returns required by Applicable Law to be filed by, or
with respect to the activities of the Company with applicable
Governmental Bodies have been properly and timely filed with the
appropriate Governmental Bodies and all such Tax Returns are true and
complete and all Taxes shown to be due on such Tax Returns have been
paid,
5.1.35.2 with respect to the Company: i) there are no unpaid Taxes
now due and no deficiency for Taxes has been assessed by any applicable
Governmental Body, ii) no audit of any Tax Return is in progress or
pending or threatened, and iii) no waiver of any statute of limitations
has been given or is in effect with respect to the assessment of any
Taxes,
5.1.35.3 all Taxes shown on all Tax Returns for which the Company is
liable have been paid or accrued and adequately reserved on its Books
and Records and financial statements (including the Financial
Statements) of the Company. The Company is not taxed as an "S
corporation" (within the meaning of Section 1361(a) of the United
States Internal Revenue Code of 1986, as amended),
5.1.35.4 none of the Tax Returns of the Company have ever been
examined or audited by any taxing Governmental Body at any time,
5.1.35.5 the Company has never entered into any closing or similar
agreement with any taxing Governmental Body,
19
5.1.35.6 in each jurisdiction in which the Company is paying or has
paid sales tax, sales tax audits have been conducted and completed
through the years shown on Schedule 5.1.35.6 annexed to the March 1999
Put Right Agreement,
5.1.35.7 copies of all Tax Returns, deficiencies, assessments and
notices from all taxing Governmental Bodies have been delivered to the
Purchasers,
5.1.35.8 the Company was not a member of an entity required to file a
federal partnership Tax Return that is expected to have taxable income
for any taxable period beginning prior to the date hereof that is in
excess of cash distributions of such income to be made after the date
hereof,
5.1.35.9 the Company has not adopted a plan of complete liquidation
and no consent has been filed on behalf of any of them pursuant to
Section 341(f) of the United States Internal Revenue Code of 1986, as
amended, or any predecessor provision,
5.1.35.10 the Company has not taken any action not in the ordinary
course of business that would have the effect of deferring any Tax
liability from any taxable period ending prior to the date hereof,
5.1.35.11 without limiting the generality of the foregoing, the
Company has collected all sales, goods and services and use taxes
required to be collected and has remitted same on a timely basis to the
appropriate Governmental Body, or has been furnished properly completed
exemption certificates for all exempt transactions. The Company has in
its possession all Books and Records, including supporting documents,
required by Applicable Law regarding the collection and payment of all
sales, goods and services and use taxes required to be collected and
paid over and regarding all exempt transactions for all periods open
under the applicable statutes of limitations as of the date hereof, and
the Company has maintained all such Books and Records, including
supporting documents, in the manner required by applicable sales, goods
and services and use tax statutes and regulations,
5.1.35.12 the Company has withheld from each payment made to each of
its past and present shareholders, agents, employees, officers and
directors all deductions required to be made therefrom and has paid
same to the proper Governmental Body;
5.1.36 Accounts Receivable and Payable. Schedule 5.1.36 annexed hereto sets
forth a true and complete (i) trade accounts receivable listing of the
Company as of July 13, 1999 and (ii) accounts payable listing of the
Company as of July 13, 1999. The accounts receivable of the Company
reflected on the Financial Statements and those created after the
Balance Sheet Date, are genuine and bona fide receivables which arose
in the ordinary course of business, and net of reserves (which reserves
are adequate and determined in accordance with Generally Accepted
Accounting Principles, consistently applied) are collectible in full
when due without any discount, set-off or counterclaim;
5.1.37 Accounts Receivable of the Company. There exist no accounts receivable
in respect of any fees described by Rule 12b-1 promulgated under the
United States Investment Company Act of 1940, as amended;
5.1.38 No Broker. Without limiting the generality of subsection 5.1.29
hereof, none of the directors of the Company or the Company has
20
employed, nor is any of them subject to any claim of, any broker,
finder, consultant or other intermediary in connection with any of the
transactions contemplated by this Agreement;
5.1.39 Year 2000 Compliance. The Company is taking all necessary actions,
which are described in Schedule 4.2.31 annexed to the March 1999
Subscription Agreement, to ensure that it is Millennium Compliant, as
said actions are updated as appears in Schedule 4.2.31 to the Debenture
Subscription Agreement;
5.1.40 Accuracy of Information.
5.1.40.1 The Company has made or caused to be made reasonable inquiry
with respect to each covenant, agreement, obligation, representation
and warranty of the Company contained in this Agreement and any other
document or certificate referred to herein or furnished by the Company
to the Purchasers pursuant thereto, and none of the aforesaid
covenants, agreements, obligations, representations, warranties or
documents or certificates contains any untrue statement of a material
fact or omits to state a material fact necessary to make such covenant,
agreement, obligation, representation, warranty or other document or
certificate not misleading, and
5.1.40.2 to its Knowledge, there is no fact, condition or
circumstance, including without limitation, in connection with the
Company's Intellectual Property Rights and the equipment and the
products developed and/or manufactured by the Company, which (i)
materially adversely or in the future may (so far as the Company can
now reasonably foresee) materially adversely affect the business,
operations, properties, prospects, or condition of the Company or the
ability of the Company to perform its covenants, agreements and
obligations under this Agreement or (ii) relates to the business of the
Company and might reasonably be expected to deter a Purchaser from
entering into this Agreement or any other agreements entered into
between the Purchasers and the Company on the date hereof, save as
disclosed in the documents annexed to the March 1999 Subscription
Agreement as Schedule 2.1.9.
5.2 Covenants of the Company. The Company hereby covenants as
follows:
5.2.1 SEC Documents. As soon as practicable after the filing of any SEC
Documents, and in any event within twenty (20) days thereafter, the
Company will furnish each of the Purchasers with such SEC Documents;
5.2.2 Reservation of Stock. So long as any amount of principal remains
outstanding under any of the Debentures, the Company will at all times
reserve and keep available, solely for issuance and delivery upon the
exercise of the Put Right, all Preferred Shares issuable from time to
time upon such exercise and all Common Shares issuable upon the
conversion of such Preferred Shares;
5.2.3 Listing of Shares. Promptly after the issuance of the Common Shares
issuable upon the conversion of any of the Preferred Shares issuable to
any of the Purchasers pursuant to this Agreement, if the Company's
securities are publicly traded, the Company shall take all necessary
action to list such Common Shares, to the extent not already listed, on
the securities exchange or over-the-counter market where the Company's
securities are listed;
21
5.2.4 Regulation S. At the request of either of the Purchasers, the Company
shall use its best efforts to ensure the application of Regulation S
under the Securities Act to the issuance of the Common Shares issuable
upon the conversion of the Preferred Shares issued to such Purchaser
pursuant to this Agreement;
5.2.5 Notice and Information Rights. The Company shall from the date hereof
deliver to each Purchaser such information and notices as the Company
is required to deliver to the holders of Common Shares of the Company
pursuant to the Articles of Incorporation or otherwise;
5.2.6 Declaration of Dividends. The Company shall, at least ninety (90) days
prior to the declaration of any dividend (other than a stock dividend),
advise each Purchaser of same in writing;
5.2.7 Conditions Precedent. Without limiting the provisions of this
Agreement, the Company shall use its best efforts to fulfil the
conditions precedent set forth in subsection 4.3 prior to any Closing.
5.2.8 Registration Statement. The Company hereby covenants and agrees to:
5.2.8.1 file, as soon as practicable after the written request of
either of the Purchasers, which request may be exercised at any time at
the Purchaser's entire discretion, a Registration Statement with the
SEC under the Securities Act on a form which is appropriate to register
the sale or the resale of the Registrable Shares;
5.2.8.2 use its best efforts, subject to receipt of necessary
information from the Purchasers owning such Registrable Shares, to
cause such Registration Statement to become effective, as that term is
used in the Securities Act, within 120 days of the Company's receipt of
the written request referred to in paragraph 5.2.8.1;
5.2.8.3 prepare and file with the SEC such amendments and
supplements to such Registration Statement and the prospectus used in
connection therewith as may be necessary to keep such Registration
Statement effective until the earlier to occur of (i) such time as all
the Registrable Shares have been sold pursuant thereto or otherwise, or
(ii) the date on which Purchasers who are not deemed to be "affiliates"
of the Company as defined in Rule 144 under the Securities Act are
permitted to publicly sell or resell such Registrable Shares under Rule
144(k) under the Securities Act, as the same may be amended from time
to time, or any successor regulation;
5.2.8.4 furnish to the Purchasers with respect to the Registrable
Shares registered on the Registration Statement (and to each
underwriter, if any, of such Registrable Shares) such number of copies
of prospectuses in conformity with the requirements of the Securities
Act as the Purchasers may reasonably request, in order to facilitate
the public sale or other disposition of all or any of the Registrable
Shares by the Purchasers; provided, however, that the obligation of the
Company to deliver copies of prospectuses to the Purchasers shall be
subject to the receipt by the Company of reasonable assurances from the
Purchasers that the Purchasers will comply with the applicable
provisions of the Securities Act and of such other securities laws as
may be applicable in connection with any use of such prospectus;
5.2.8.5 file such documents as may be required of the Company for
normal securities law clearance for the sale or the resale of
Registrable Shares in such states of the United States as may be
22
reasonably requested by the Purchasers; provided, however, that the
Company shall not be required in connection with this paragraph 5.2.8.5
to qualify as a foreign corporation or execute a general consent to
service of process in any jurisdiction; and
5.2.8.6 bear all expenses in connection with the procedures set
forth in paragraphs 5.2.8.1 through 5.2.8.5, but excluding underwriting
discounts, selling commissions and any expenses required by law to be
borne by the Purchasers.
5.2.9 Pre-Emptive Right. The Company hereby covenants and agrees that in the
event that any third party or group of third parties offers to invest
at least US $5,000,000 in the Company by way of subscription of Common
Shares or other securities convertible into or exchangeable for Common
Shares or Canco Shares which are ultimately convertible into or
exchangeable for Common Shares (the "Additional Securities"), by way of
one transaction or a series of related transactions, then each
Purchaser shall have preemptive rights with respect to the issue of
such Additional Securities, such that the Company shall not issue any
Additional Securities without: (i) in the event that the price per
Common Share of such Additional Securities (or the price per Common
Share into which such Additional Securities are convertible into or
exchangeable for Common Shares) is no greater than $2.00, offering to
each Purchaser the right to subscribe for its Proportionate Share of
the Additional Shares to be issued by the Company, or (ii) in the event
that the price per Common Share of such Additional Securities (or the
price per Common Share into which such Additional Securities are
convertible into or exchangeable for Common Shares) is greater than
$2.00, offering to each Purchaser the right to subscribe for its
Proportionate Share of 50% of the aggregate amount of Additional Shares
to be issued by the Company. The provisions of Section 5 of the
Shareholders Agreement shall apply, mutatis mutandis, to the issuance
of Additional Securities pursuant to this paragraph 5.2.9.
5.2.10 Adjustment to Put Rate. In the event of any issuance, or the
acceptance by the Company of any offer (a "Third-Party Offer") from any
third party or group of third parties in connection with any issuance
of Additional Securities at any price (the "Strike Price") per Common
Share (or, in the event that such Additional Securities are convertible
into or exchangeable for Common Shares, at a price per Common Share
into which such Additional Securities are convertible into or
exchangeable for Common Shares), then the Put Rate in respect of any
Debentures shall be automatically adjusted to provide that the Company
shall issue to each Purchaser exercising its Put Right, upon delivery
by such Purchaser of any of its Debentures, in consideration therefor,
that number of Preferred Shares as is equal to the number of shares
obtained when dividing (i) the principal amount then outstanding under
such Debenture(s) by (ii) the product obtained by multiplying the
Strike Price by 0.93. Notwithstanding the foregoing, in the event that
the transactions contemplated by the Third-Party Offer are not
consummated, then the Put Rate in respect of the Debentures shall be
automatically re-adjusted to the Put Rate provided in subsection 3.3.
6. REPRESENTATIONS, WARRANTIES AND ACKNOWLEDGEMENTS OF THE PURCHASERS
6.1 Representation and Warranties. Each Purchaser hereby, severally
and not jointly and severally, represents and warrants to the Company
as follows:
23
6.1.1 Investment. It is acquiring the right to acquire the Preferred Shares
as provided in this Agreement and the Common Shares issuable upon the
conversion of such Preferred Shares for investment for its own account
or for the account of the other Purchaser, and not with the view to, or
for resale in connection with, any distribution thereof other than to
the other Purchaser.
6.1.2 Title to Debentures. It is upon the date hereof the owner of record of
its Debenture(s) and shall be upon each Closing Date the owner (both
beneficially and of record) of its Debenture(s). It will have upon each
Closing Date good and marketable title to its Debenture(s) and the
absolute right, power and capacity to transfer and deliver its
Debenture(s) to the Company pursuant to this Agreement, free and clear
of all Charges.
6.1.3 Brokers or Finders. The Company has not incurred and will not incur,
directly or indirectly, as a result of any action taken by it any
brokerage fees, finder's fees, agents' commissions or other similar
charges in connection with this Agreement, other than the commitment
fees payable to each of the Purchasers.
6.2 Acknowledgements. Each Purchaser hereby makes the following
acknowledgements:
6.2.1 Registration. It understands that the right to acquire the Preferred
Shares as provided in this Agreement and the Common Shares issuable
upon the conversion of such Preferred Shares has not been, and will not
be, registered under the Securities Act or applicable state securities
laws, and is being extended to the Purchasers pursuant to a specific
exemption from the registration provisions of the Securities Act and
such laws, the availability of which depends upon, among other things,
the bona fide nature of the investment intent and the accuracy of its
representations as expressed in paragraph 6.1.1.
6.2.2 Non-transferability. Subject to the Company's undertakings pursuant to
paragraph 5.2.8 hereof, it acknowledges that any resale of any of the
Preferred Shares and the Common Shares issuable upon the conversion of
such Preferred Shares may be subject to restrictions under applicable
securities laws unless a subsequent disposition thereof is registered
under the Securities Act or exempt from such registration.
6.2.3 Accredited Investor. It is an "accredited investor" within the meaning
of Rule 501 under the Securities Act.
7. GENERAL PROVISIONS
7.1 Governing Law. This Agreement shall be governed in all respects
by the laws of the State of New York as they are applied to agreements
entered into in the State of New York between New York residents and
performed entirely within New York.
7.2 Survival. Notwithstanding any investigation conducted prior or
subsequent to the date hereof, the parties shall be entitled to rely
upon the representations and warranties set forth herein and all
representations and warranties made by, and all covenants, obligations
and agreements of, the parties, under or pursuant to this Agreement or
any other document or certificate delivered in connection therewith
shall survive the date hereof.
24
7.3 Further Assurances. Each party upon the request of the others,
shall do, execute, acknowledge and deliver or cause to be done,
executed, acknowledged or delivered all such further acts, deeds,
documents, assignments, transfers, conveyances, powers of attorney and
assurances as may be reasonably necessary or desirable to effect
complete consummation of the transactions contemplated by this
Agreement.
7.4 Successors and Assigns. The provisions hereof shall enure to the
benefit of and be binding upon the parties hereto and their respective
successors, assigns, heirs, executors and administrators.
Notwithstanding the foregoing, the Company shall not be entitled to
assign its rights hereunder. The parties hereto hereby confirm that
each transferee of Debentures shall benefit from the Put Rights
contemplated in this Agreement provided that the transfer of such
Debenture(s) was made in conformity with the terms thereof.
7.5 Arbitration. All disputes or controversies between the parties
in respect of the validity, interpretation or performance of the
provisions of this Agreement shall be definitively dealt with using the
rules of conciliation and arbitration of the International Chamber of
Commerce, by one or more arbitrators appointed in accordance with said
rules, and to the exclusion of any courts, except for any provisional
remedy, including injunctive relief and seizure before judgment, which
may be obtained from any court or tribunal. Any arbitration proceeding
required pursuant to the terms hereof shall take place in Montreal,
Quebec and shall be conducted in both the English and French language.
7.6 Notices. All offers, acceptances, rejections, notices, requests,
authorizations, permissions, directions, demands and other
communications hereunder shall be given in writing and shall be given
by telecopier, or delivered by hand, to the other parties at the
following addresses:
if to Sofinov: SOFINOV SOCIETE FINANCIERE
D'INNOVATION INC.
0000 XxXxxx Xxxxxxx Xxxxxx, 0xx
Xxxxx
Xxxxxxxx, Xxxxxx
X0X 0X0
Attention: Sophie Forest and Me
Xxxxxx Xxxx
Telecopier: (000) 000-0000
if to Innovatech: SOCIETE INNOVATECH DU GRAND
MONTREAL
0000 Xxxxxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxxxx, Xxxxxx
X0X 0X0
Attention: Xxxxxx Xxxxxxx
Telecopier: (000) 000-0000
25
if to the Company: TOUCHTUNES MUSIC CORPORATION
0000 Xxxx Xxxxxx
Xxxxx 000
Xxx Xxxxx, Xxxxxx
00000, X.X.X.
Attention: The President
Telecopier: (000) 000-0000
with a copy in all cases to: XXXXXXXX XXXXXXXXXX
0000 Xxxx-Xxxxxxxx Blvd. West
Suite 1400
Xxxxxxxx, Xxxxxx
X0X 0X0
Attention: Xxxxxx Xxxxxxxx
Telecopier: (000) 000-0000
with a copy in all cases to: XXXX & XXXXXXX
Attorneys At Law
000 Xxxxx Xxxxxx
Xxx Xxxx, X.X.
00000, X.X.X.
Attention: Xxxxx Xxxx
Telecopier: (000) 000-0000
with a copy XX XXXXXXXX XXXXX
in all cases to: 1000 de la Gauchetiere Xxxx
00xx xxxxx
Xxxxxxxx, Xxxxxx
X0X 0X0
Attention: Xxxxxxx Xxxxxxx
Telecopier: (000) 000-0000
or at such other address as the parties may have previously indicated to the
other parties in writing in conformity with the foregoing. Any such notice,
request, demand or other communication shall be deemed to have been received on
the date of delivery if delivered by hand, or the next Business Day immediately
following the date of transmission if sent by telecopier. The original copy of
any notice sent by telecopier shall be forwarded to the other parties by
registered mail, receipt return requested.
7.7 Time of the Essence. Time shall be of the essence in this Agreement.
7.8 Delays. When calculating the period of time within which or following
which any act is to be done or step taken pursuant to this Agreement, the day
which is the reference day in calculating such period shall be excluded. If the
day on which such delay expires is not a Business Day, then the delay shall be
extended to the next succeeding Business Day.
7.9 Entire Agreement; Amendment. This Agreement and the Shareholders
Agreement and the other documents delivered pursuant hereto constitute the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and thereof, and no party shall be liable or bound to any other
26
party in any manner by any warranties, representations or covenants except as
specifically set forth herein or therein. In the event that any provision of
this Agreement conflicts with any provision of the Shareholders Agreement, the
former provision shall prevail. Except as expressly provided herein, neither
this Agreement nor any term hereof may be amended, other than by a written
instrument signed by all the parties hereto.
7.10 Gender. Any reference in this Agreement to any gender shall include both
genders and the neutral, and words used herein importing the singular number
only shall include the plural and vice versa.
7.11 Headings. The division of this Agreement into Sections, subsections and
other subdivisions, and the insertion of headings are for convenience of
reference only and shall not affect or be utilized in the construction or
interpretation of this Agreement.
7.12 Waiver. Any waiver, permit, consent or approval of any kind or character
on the part of any party of any breach or default under this Agreement, or any
waiver on the part of any party of any provisions or conditions of this
Agreement, must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement or by law or otherwise afforded to any party, shall be cumulative and
not alternative.
7.13 Preamble. The preamble hereof shall form an integral part of this
Agreement.
7.14 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same document.
7.15 Severability. In the event that any provision of this Agreement becomes
or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision.
7.16 Survival. This Agreement shall terminate with respect to each Purchaser
upon the exercise by such Purchaser of its Put Right.
7.17 Language. The parties hereto state their express wish that this
Agreement as well as all documentation contemplated hereby or pertaining hereto
or to be executed in connection herewith be drawn up in English; les parties
expriment leur xxxxx explicite a l'effet que cette convention de meme que tous
documents envisages par les presentes ou y ayant trait ou qui seront signes
relativement aux presentes soient rediges en anglais.
IN WITNESS WHEREOF, the parties have signed at the place and on the date
first hereinabove mentioned.
27
SOFINOV SOCIETE FINANCIERE
D'INNOVATION INC.
Per
: /s/Xxxxx Xxxxxx
-----------------------
Xxxxx Xxxxxx
Per
: /s/Sophie Forest
-----------------------
Sophie Forest
SOCIETE INNOVATECH DU GRAND
MONTREAL
Per
: /s/Xxxxxx Xxxxxxx
-----------------------
Xxxxxx Xxxxxxx
TOUCHTUNES MUSIC CORPORATION
Per
: /s/Xxxx Xxxxxxxxxxx
------------------------
Xxxx Xxxxxxxxxxx
1
INTERVENTION
THE UNDERSIGNED INTERVENES TO THESE PRESENTS and agrees to be bound by
the provisions of paragraph 5.2.9 of this Agreement such that in the event that
any Additional Securities are comprised of Canco Shares or securities which are
convertible into or exchangeable for Canco Shares, the undersigned hereby
agrees that the provisions of the said paragraph 5.2.9 shall apply to it,
mutatis mutandis, with respect to such Additional Securities.
Montreal, this 14th day of July, 1999
TOUCHTUNES MUSIC CORPORATION
Per
: /s/Xxxx Xxxxxxxxxxx
-----------------------
Xxxx Xxxxxxxxxxx
1
SCHEDULE 4.1
NOTICE OF EXERCISE
In accordance with the terms of that certain Debenture Put Right
Agreement, dated July 14, 1999, by and among TouchTunes Music Corporation (the
"Company") and the Purchasers (as defined therein) (the "July 1999 Put Right
Agreement"), notice is hereby given pursuant to subsection 4.1 of the July 1999
Put Right Agreement that the undersigned Purchaser elects to exchange, on the
date hereof, US$ of the outstanding capital of its
Debentures (as defined in the July 1999 Put Right Agreement) issued on
, for the number of Preferred Shares (as defined in
the July 1999 Put Right Agreement) calculated pursuant to the relevant
provisions of the July 1999 Put Right Agreement.
Date:
PURCHASER
Per:
--------------------
Print Name:
--------------------
Title:
--------------------
1
SCHEDULE 5.1.4
SUBSEQUENT ACTIVITIES
1
SCHEDULE 5.1.4.2
CONTRACTS
1
SCHEDULE 5.1.27.1
LIST OF EMPLOYEES
1
SCHEDULE 5.1.30
INTELLECTUAL PROPERTY
1
SCHEDULE 5.1.36
ACCOUNTS RECEIVABLE AND PAYABLE
