EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of October 28,
1998, by and among GoodNoise Corporation, a Florida corporation, with
headquarters located at 000 Xxxxxxxx Xxxxxx, Xxxx Xxxx, Xxxxxxxxxx 00000 (the
"COMPANY"), and the investors listed on the Schedule of Buyers attached hereto
(individually, a "BUYER" and collectively, the "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Rule 506
of Regulation D ("REGULATION D") as promulgated by the United States Securities
and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "1933 ACT");
B. The Company has authorized the following new series of its Preferred
Stock, par value $.001 per share: the Company's Series A Convertible Preferred
Stock (the "PREFERRED STOCK"), which shall be convertible into shares of the
Company's Common Stock, par value $0.01 per share (the "COMMON STOCK") (as
converted, the "CONVERSION SHARES"), in accordance with the terms of the
Company's Articles of Amendment setting forth the Designation, Preferences and
Rights of the Preferred Stock, substantially in the form attached hereto as
Exhibit A (the "ARTICLES OF AMENDMENT");
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C. The Buyers wish to purchase, upon the terms and conditions stated in
this Agreement, initially an aggregate of 500 shares of Preferred Stock (the
"INITIAL PREFERRED SHARES") in the respective amounts set forth opposite each
Buyer's name on the Schedule of Buyers and warrants, in substantially the form
attached hereto as Exhibit E (the "INITIAL WARRANTS"), to acquire up to 200
shares of Common Stock for each Initial Preferred Share at the Warrant Exercise
Price (as defined in the Warrant) (as exercised, collectively, the "INITIAL
WARRANTS SHARES");
D. Subject to the terms and conditions set forth in this Agreement, each
Buyer shall have the obligation to purchase an aggregate of 500 shares of
Preferred Stock (pro rata based on the number of Initial Preferred Shares each
Buyer purchased in relation to the total number of Initial Preferred Shares)
(the "MANDATORY PREFERRED SHARES") along with Warrants, in substantially the
form attached hereto as Exhibit E (the "MANDATORY WARRANTS"), to acquire up to
200 shares of Common Stock for each Mandatory Preferred Share at the Warrant
Exercise Price (as exercised, collectively, the "MANDATORY WARRANT SHARES");
E. Subject to the terms and conditions set forth in this Agreement, each
Buyer may have the right to purchase, at its sole option, an aggregate of 1,000
shares of Preferred Stock (pro rata based on the number of Initial Preferred
Shares each Buyer purchased in relation to the total number of Initial Preferred
Shares) (the "ADDITIONAL PREFERRED SHARES") (the Initial Preferred
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Shares, the Mandatory Preferred Shares and the Additional Preferred Shares
collectively are referred to in this Agreement as the "PREFERRED SHARES") along
with warrants, in substantially the form attached hereto as Exhibit E (the
"ADDITIONAL WARRANTS") (the Initial Warrants, the Mandatory Warrants and the
Additional Warrants, collectively are referred to in this Agreement as the
"WARRANTS"), to acquire up to 200 shares of Common Stock for each Additional
Preferred Share at the Warrant Exercise Price (as exercised, collectively the
"ADDITIONAL WARRANT SHARES") (the Initial Warrant Shares, the Mandatory Warrant
Shares and the Additional Warrant Shares collectively are referred to in this
Agreement as the "WARRANT SHARES"); and
F. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto as Exhibit B (the "REGISTRATION RIGHTS
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AGREEMENT") pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES.
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a. Purchase of Preferred Shares. Subject to satisfaction (or waiver)
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of the conditions set forth in Sections 6(a) and 7(a) below, the Company shall
issue and sell to the Buyers and the Buyers severally shall purchase from the
Company an aggregate of 500 Initial Preferred Shares, in the respective amounts
set forth opposite each Buyer's name on the Schedule of Buyers along with the
related Initial Warrants (the "Initial Closing"). Subject to the satisfaction
(or waiver) of the conditions set forth in Sections 1(c), 6(b) and 7(b) below,
the Company shall issue and sell to each Buyer and each Buyer shall purchase
from the Company that number of Mandatory Preferred Shares equal to the number
of Initial Preferred Shares each Buyer purchased along with the related
Mandatory Warrants (the "Mandatory Closing"). Subject to the satisfaction (or
waiver) of the conditions set forth in Sections 1(d), 6(c) and 7(c) below, at
the option of each Buyer, the Company shall issue and sell to each such Buyer
and each such Buyer may purchase from the Company an aggregate of up to that
number of Additional Preferred Shares equal to twice the number of Initial
Preferred Shares each Buyer purchased along with the related Additional Warrants
(the "Additional Closing") (the Initial Closing, the Mandatory Closing and the
Additional Closing collectively are referred to in this Agreement as the
"Closings"). The purchase price (the "Purchase Price") of each Preferred Share
at each of the Closings shall be $1,000.
b. The Initial Closing Date. The date and time of the Initial
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Closing (the "INITIAL CLOSING DATE") shall be 10:00 a.m. Central Time, within
three (3) business days following the date hereof, subject to satisfaction (or
waiver) of the conditions to the Initial Closing set forth in Sections 6(a) and
7(a) below (or such later date as is mutually agreed to by the Company and the
Buyers). The Initial Closing shall occur on the Initial
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Closing Date at the offices of Xxxxxx Xxxxxx & Xxxxx, 000 Xxxx Xxxxxx Xxxxxx,
Xxxxx 0000, Xxxxxxx, Xxxxxxxx 00000-0000.
c. The Mandatory Closing Date. The date and time of the Mandatory
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Closing (the "MANDATORY CLOSING DATE") shall be 10:00 a.m. Central Time, on the
fifth business day after the Buyers have received written notice from the
Company that the Initial Registration Statement (as defined in the Registration
Rights Agreement) covering 200% of the Conversion Shares issuable upon
conversion of the Initial Preferred Shares and Mandatory Preferred Shares and
100% of the Initial Warrant Shares and Mandatory Warrant Shares upon exercise of
the Additional Warrants and Mandatory Warrants, as the case may be, has been
declared effective by the SEC and subject to satisfaction (or waiver) of the
conditions to the Mandatory Closing set forth in Sections 6(b) and 7(b) and the
conditions set forth in this paragraph (or such other date as is mutually agreed
to by the Company and the Buyers). The Mandatory Closing shall occur on the
Mandatory Closing Date at the offices of Xxxxxx Xxxxxx & Xxxxx, 000 Xxxx Xxxxxx
Xxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxxx 00000-0000.
d. The Additional Closing Date. The date and time of the Additional
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Closing (the "ADDITIONAL CLOSING DATE") shall be 10:00 a.m. Central Time, on the
fifth business day after the Buyers have received written notice from the
Company that the Registration Statement (as defined in the Registration Rights
Agreement) covering 200% of the Conversion Shares issuable upon conversion of
the Additional Preferred Shares and Additional Warrant Shares upon exercise of
the Additional Warrant to be issued at such Additional Closing has been declared
effective by the SEC and subject to satisfaction (or waiver) of the conditions
to the Additional Closing set forth in Sections 6(c) and 7(c) and the conditions
set forth in this paragraph (or such other date as is mutually agreed to by the
Company and the Buyers). At any time beginning on the Initial Closing Date and
ending on the earlier of (i) the date which is 365 days after the date that the
Registration Statement covering the Conversion Shares issuable upon conversion
of the Initial Preferred Shares has been declared effective by the SEC and (ii)
the date which is on the second anniversary of the Initial Closing Date (the
"ADDITIONAL NOTICE PERIOD"), but subject to the requirements of Sections 6(c)
and 7(c), the Buyers may purchase Additional Preferred Shares by delivering
written notice to the Company (the "ADDITIONAL SHARE NOTICE") on any date during
the Additional Notice Period (an "ADDITIONAL SHARE NOTICE DATE"). The Additional
Share Notice shall set forth (i) the number of Additional Preferred Shares to be
purchased by each Buyer at the Additional Closing and (ii) the aggregate
Purchase Price for such Buyer's Additional Preferred Shares. The Company shall
file the Registration Statement referred to in the first sentence of this
Section 1(d) within 20 days after the Additional Share Notice Date and shall
notify each Buyer in writing on the same day that such Registration Statement is
declared effective by the SEC. Notwithstanding the foregoing, no Buyer shall be
entitled to deliver an Additional Share Notice if any Buyer shall have
previously consummated an Additional Share Closing. The Additional Closing shall
occur on the Additional Closing Date at the offices of Xxxxxx Xxxxxx & Xxxxx,
000 Xxxx Xxxxxx Xxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxxx 00000-0000.
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e. Form of Payment. On each of the Closing Dates, (i) each Buyer
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shall pay the Purchase Price to the Company for the Preferred Shares and
Warrants to be issued and sold to such Buyer at the respective Closing, by wire
transfer of immediately available funds in accordance with the Company's written
wire instructions, and (ii) the Company shall deliver to each Buyer, stock
certificates (in the denominations as such Buyer shall request) (the "STOCK
CERTIFICATES") representing such number of the Preferred Shares which such Buyer
is then purchasing (as indicated opposite such Buyer's name on the Schedule of
Buyers) along with the Warrants such Buyer is purchasing (as indicated opposite
such Buyer's name on the Schedule of Buyers), duly executed on behalf of the
Company and registered in the name of such Buyer or its designee.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
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Each Buyer represents and warrants with respect to only itself that:
a. Investment Purpose. Such Buyer (i) is acquiring the Preferred
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Shares and the Warrants, (ii) upon conversion of the Preferred Shares, will
acquire the Conversion Shares then issuable and (iii) upon exercise of the
Warrants, will acquire the Warrant Shares issuable upon exercise thereof (the
Preferred Shares, the Conversion Shares, the Warrants and the Warrant Shares
collectively are referred to herein as the "SECURITIES"), for its own account
for investment only and not with a view towards, or for resale in connection
with, the public sale or distribution thereof, except pursuant to sales
registered or exempted under the 1933 Act; provided, however, that by making the
representations herein, such Buyer does not agree to hold any of the Securities
for any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act.
b. Accredited Investor Status. Such Buyer is an "accredited
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investor" as that term is defined in Rule 501(a) of Regulation D.
c. Reliance on Exemptions. Such Buyer understands that the
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Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.
d. Information. Such Buyer and its advisors, if any, have been
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furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's
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representations and warranties contained in Sections 3 and 9(m) below. Such
Buyer understands that its investment in the Securities involves a high degree
of risk. Such Buyer has sought such accounting, legal and tax advice as it has
considered necessary to make an informed investment decision with respect to its
acquisition of the Securities.
e. No Governmental Review. Such Buyer understands that no United
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States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
f. Transfer or Resale. Such Buyer understands that except as
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provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in a generally acceptable form, to the effect
that the Securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, or (C) such Buyer
provides the Company with reasonable assurance that such Securities can be sold,
assigned or transferred pursuant to Rule 144 promulgated under the 1933 Act (or
a successor rule thereto) ("RULE 144"); (ii) any sale of the Securities made in
reliance on Rule 144 may be made only in accordance with the terms of Rule 144
and further, if Rule 144 is not applicable, any resale of the Securities under
circumstances in which the seller (or the person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the 0000 Xxx) may
require compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such Securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder. Notwithstanding the foregoing, the Securities may be
pledged in connection with a bona fide margin account.
g. Legends. Such Buyer understands that the certificates or other
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instruments representing the Preferred Shares and the Warrants and, until such
time as the sale of the Conversion Shares and the Warrant Shares have been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement, the stock certificates representing the Conversion Shares and the
Warrant Shares, except as set forth below, shall bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT
AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION
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STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL,
IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO
RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for sale under the 1933 Act, (ii) in connection with a
sale transaction, such holder provides the Company with an opinion of counsel,
in a generally acceptable form, to the effect that a public sale, assignment or
transfer of such Securities may be made without registration under the 1933 Act,
or (iii) such holder provides the Company with reasonable assurances that such
Securities can be sold without restriction pursuant to Rule 144(k). Each Buyer
acknowledges, covenants and agrees to sell the Securities represented by a
certificate(s) from which the legend has been removed, only pursuant to (i) a
registration statement effective under the 1933 Act, or (ii) advice of counsel
that such sale is exempt from registration required by Section 5 of the 1933
Act.
h. Authorization; Enforcement. This Agreement and the Registration
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Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of such Buyer and constitute valid and binding agreements of such
Buyer enforceable in accordance with their terms, subject as to enforceability
to general principles of equity and to applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors' rights and
remedies.
i. Residency. Such Buyer is a resident of that country or
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jurisdiction specified in the Schedule of Buyers.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that:
a. Organization and Qualification. The Company and its
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"SUBSIDIARIES" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns capital stock or holds an equity or
similar interest) (a complete list of which is set forth in Schedule 3(a)) are
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corporations duly organized and validly existing in good standing under the laws
of the jurisdiction in which they are incorporated, and have the requisite
corporate power and authorization to own their properties and to carry on their
business as now being conducted. Each of the Company and its Subsidiaries is
duly qualified as a foreign corporation to do business and is in
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good standing in every jurisdiction in which its ownership of property or the
nature of the business conducted by it makes such qualification necessary,
except to the extent that the failure to be so qualified or be in good standing
would not have a Material Adverse Effect. As used in this Agreement, "MATERIAL
ADVERSE EFFECT" means any material adverse effect on the business, properties,
assets, operations, results of operations, financial condition or prospects of
the Company and its Subsidiaries, if any, taken as a whole, or on the
transactions contemplated hereby or by the agreements and instruments to be
entered into in connection herewith, or on the authority or ability of the
Company to perform its obligations under the Transaction Documents (as defined
below) or the Articles of Amendment.
b. Authorization; Enforcement; Compliance with Other Instruments.
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(i) The Company has the requisite corporate power and authority to enter into
and perform its obligations under this Agreement, the Registration Rights
Agreement, the Irrevocable Transfer Agent Instructions (as defined in Section
5), the Warrants and each of the other agreements entered into by the parties
hereto in connection with the transactions contemplated by this Agreement
(collectively, the "TRANSACTION DOCUMENTS"), and to issue the Securities in
accordance with the terms hereof and thereof; (ii) the execution and delivery of
the Transaction Documents and the Articles of Amendment by the Company and the
consummation by it of the transactions contemplated hereby and thereby
(including without limitation the issuance of the Preferred Shares and the
Warrants and the reservation for issuance and the issuance of the Conversion
Shares and the Warrant Shares issuable upon conversion or exercise thereof),
have been duly authorized by the Company's Board of Directors and no further
consent or authorization is required by the Company, its Board of Directors or
its stockholders, except for, if required by the Principal Market (as defined
below), approval by its stockholders prior to the issuance of a number of shares
of Common Stock equal to or in excess of 20% of the number of shares of Common
Stock outstanding immediately prior to the Initial Closing Date; (iii) the
Transaction Documents have been duly executed and delivered by the Company; (iv)
the Transaction Documents constitute the valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies; and (v) prior to each of the Closing Dates, the Articles of
Amendment have been filed with the Secretary of State of the State of Florida
and will be in full force and effect, enforceable against the Company in
accordance with its terms. The "PRINCIPAL MARKET" shall mean the securities or
trading market upon which the Common Stock is listed or quoted provided that
such market is one of the following: the over-the-counter market on the
electronic bulletin board (the "OTC"), The Nasdaq SmallCap Market, The Nasdaq
National Market, The American Stock Exchange, Inc. or The New York Stock
Exchange, Inc.
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c. Capitalization. As of October 13, 1998, the authorized capital
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stock of the Company consists of (i) 200,000,000 shares of Common Stock, of
which, 11,015,300 shares were issued and outstanding, 3,000,000 shares are
reserved and available for issuance pursuant to the Company's stock option and
purchase plans, and (ii) 500,000 shares of Preferred Stock of which, as of the
date hereof, no shares were issued and outstanding. All of such outstanding
shares have been, or upon issuance will be, validly issued and are fully paid
and nonassessable. Except as disclosed in Schedule 3(c), (i) no shares of the
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Company's capital stock are subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the Company, (ii)
there are no outstanding options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its Subsidiaries, (iii) there
are no outstanding debt securities, (iv) there are no agreements or arrangements
under which the Company or any of its Subsidiaries is obligated to register the
sale of any of their securities under the 1933 Act (except the Registration
Rights Agreement), (v) there are no outstanding securities of the Company or any
of its Subsidiaries which contain any redemption or similar provisions, and
there are no contracts, commitments, understandings or arrangements by which the
Company or any of its Subsidiaries is or may become bound to redeem a security
of the Company or any of its Subsidiaries, (vi) there are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Securities as described in this Agreement; and
(vii) the Company does not have any stock appreciation rights or "phantom stock"
plans or agreements or any similar plan or agreement. The Company has furnished
to the Buyers true and correct copies of the Company's Articles of
Incorporation, as amended and as in effect on the date hereof (the "ARTICLES OF
INCORPORATION"), and the Company's By-laws, as in effect on the date hereof (the
"BY-LAWS"), and the terms of all securities convertible into or exercisable for
Common Stock and the material rights of the holders thereof in respect thereto.
d. Issuance of Securities. The Preferred Shares are duly authorized
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and, upon issuance in accordance with the terms hereof, shall be (i) validly
issued, fully paid and non-assessable, (ii) free from all taxes, liens and
charges with respect to the issue thereof and (iii) entitled to the rights and
preferences set forth in the Articles of Amendment. 1,000,000 shares of Common
Stock (subject to adjustment pursuant to the Company's covenant set forth in
Section 4(f) below) have been duly authorized and reserved for issuance upon
conversion of the Preferred Shares and upon exercise of the Warrants. Upon
conversion or exercise in accordance with the Articles of Amendment or the
Warrants, as the case may be, the Conversion Shares and the Warrant Shares will
be validly issued, fully paid and nonassessable and free from all taxes, liens
and charges with respect to the issue thereof, with the holders being entitled
to all rights accorded to a
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holder of Common Stock. The issuance by the Company of the Securities is exempt
from registration under the 1933 Act.
e. No Conflicts. Except as disclosed in Schedule 3(e), the
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execution, delivery and performance of the Transaction Documents by the Company,
the performance by the Company of its obligations under the Articles of
Amendment and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the reservation for issuance
and issuance of the Conversion Shares and the Warrant Shares) will not (i)
result in a violation of the Articles of Incorporation, any Articles of
Amendment of any outstanding series of Preferred Stock of the Company or the By-
laws, (ii) conflict with, or constitute a default (or an event which with notice
or lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and the rules and regulations of the principal market or
exchange on which the Common Stock is traded or listed) applicable to the
Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected. Except as disclosed in
Schedule 3(e), neither the Company nor its Subsidiaries is in violation of any
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term of or in default under (x) the Articles of Incorporation, any Articles of
Amendment of any outstanding series of Preferred Stock or the By-laws or their
organizational charter or by-laws, respectively, or (y) any contract, agreement,
mortgage, indebtedness, indenture, instrument, judgment, decree or order or any
statute, rule or regulation applicable to the Company or its Subsidiaries. The
business of the Company and its Subsidiaries is not being conducted, and shall
not be conducted, in violation of any law, ordinance, regulation of any
governmental entity, except for any violations which individually or in the
aggregate do not and will not have a Material Adverse Effect. Except as
specifically contemplated by this Agreement and as required under the 1933 Act,
the Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency or any
regulatory or self-regulatory agency in order for it to execute, deliver or
perform any of its obligations under or contemplated by the Transaction
Documents or the Articles of Amendment in accordance with the terms hereof or
thereof. Except as disclosed in Schedule 3(e), all consents, authorizations,
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orders, filings and registrations which the Company is required to obtain
pursuant to the preceding sentence have been obtained or effected on or prior to
the date hereof. The Company and its Subsidiaries have no knowledge of any facts
or circumstances which might give rise to any of the foregoing. The Company
complies with and is not in violation of the listing requirements or shall
maintain the requirements to be accepted for trading on, as the case may be, the
Principal Market as in effect on the date hereof and on each of the Closing
Dates and is not aware of any facts which would reasonably lead to delisting,
suspension or the rejection for trading of the Common Stock by the Principal
Market in the foreseeable future.
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f. SEC Documents; Financial Statements. The Company has filed all
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reports, schedules, forms, statements and other documents required to be filed
by it with the SEC pursuant to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "1934 ACT") (all of the foregoing filed
prior to the date hereof and all exhibits included therein and financial
statements and schedules thereto and documents incorporated by reference therein
being hereinafter referred to as the "SEC DOCUMENTS"). The Company has delivered
to each Buyer or its respective representatives true and complete copies of the
SEC Documents. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Buyers which is not included in the SEC Documents, including, without
limitation, information referred to in Section 2(d) of this Agreement, contains
any untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements therein, in the light of the
circumstance under which they are or were made, not misleading. Neither the
Company nor any of its Subsidiaries or any of their officers, directors,
employees or agents have provided the Buyers with any material, nonpublic
information.
g. Absence of Certain Changes. Except as disclosed in Schedule 3(g)
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or the SEC Documents filed on XXXXX at least five business days prior to the
date hereof, since the end of the last fiscal year there has been no material
adverse change and no material adverse development in the business, properties,
operations, financial condition, liabilities, results of operations or prospects
of the Company or its Subsidiaries. The Company has not taken any steps, and
does not currently expect to take any steps, to seek protection pursuant to any
bankruptcy law nor does the Company or any of its Subsidiaries have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings.
h. Absence of Litigation. There is no action, suit, proceeding,
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inquiry or investigation before or by any court, public board, government
agency, self-regulatory
10
organization or body pending or, to the knowledge of the Company or any of its
Subsidiaries, threatened against or affecting the Company, the Common Stock or
any of the Company's Subsidiaries or any of the Company's or the Company's
Subsidiaries' officers or directors in their capacities as such, except as
expressly set forth in Schedule 3(h).
-------------
i. Acknowledgment Regarding Buyers' Purchase of Preferred Shares.
-------------------------------------------------------------
The Company acknowledges and agrees that each of the Buyers is acting solely in
the capacity of arm's length purchaser with respect to the Transaction
Documents, the Articles of Amendment and the transactions contemplated thereby.
The Company further acknowledges that each Buyer is not acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with respect to
the Transaction Documents, the Articles of Amendment and the transactions
contemplated thereby and any advice given by any of the Buyers or any of their
respective representatives or agents in connection with the Transaction
Documents, the Articles of Amendment and the transactions contemplated thereby
is merely incidental to such Buyer's purchase of the Securities. The Company
further represents to each Buyer that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.
j. No Undisclosed Events, Liabilities, Developments or
---------------------------------------------------
Circumstances. No event, liability, development or circumstance has occurred or
-------------
exists, or is contemplated to occur, with respect to the Company or its
Subsidiaries or their respective business, properties, prospects, operations or
financial condition, that would be required to be disclosed by the Company under
applicable securities laws on a registration statement (including by way of
incorporation by reference) filed with the SEC relating to an issuance and sale
by the Company of its Common Stock and which has not been publicly disclosed.
k. No General Solicitation. Neither the Company, nor any of its
-----------------------
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 0000 Xxx) in connection with the offer or sale of the
Securities.
l. No Integrated Offering. Neither the Company, nor any of its
----------------------
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering of Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of the Principal Market, nor will the Company or
any of its Subsidiaries take any action or steps that would require registration
of the Securities under the 1933 Act or cause the offering of the Securities to
be integrated with other offerings.
11
m. Employee Relations. Neither the Company nor any of its
------------------
Subsidiaries is involved in any union labor dispute nor, to the knowledge of the
Company or any of its Subsidiaries, is any such dispute threatened. Neither the
Company nor any of its Subsidiaries is a party to a collective bargaining
agreement, and the Company and its Subsidiaries believe that relations with
their employees are good. No executive officer (as defined in Rule 501(f) of the
0000 Xxx) has notified the Company that such officer intends to leave the
Company or otherwise terminate such officer's employment with the Company.
n. Intellectual Property Rights. The Company and its Subsidiaries
----------------------------
own or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service xxxx registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights needed to conduct their respective
businesses as now conducted. Except as set forth on Schedule 3(n), none of the
-------------
Company's trademarks, trade names, service marks, service xxxx registrations,
service names, patents, patent rights, copyrights, inventions, licenses,
approvals, government authorizations, trade secrets or other intellectual
property rights have expired or terminated, or are expected to expire or
terminate within two years from the date of this Agreement, where the result of
such expiration or termination would have, individually or in the aggregate, a
Material Adverse Effect. The Company and its Subsidiaries do not have any
knowledge of any infringement by the Company or its Subsidiaries of trademark,
trade name rights, patents, patent rights, copyrights, inventions, licenses,
service names, service marks, service xxxx registrations, trade secrets or other
similar rights of others, or of any such development of similar or identical
trade secrets or technical information by others and, except as set forth on
Schedule 3(n), there is no claim, action or proceeding being made or brought
-------------
against, or to the Company's knowledge, being threatened against, the Company or
its Subsidiaries regarding trademarks, trade names, patents, patent rights,
inventions, copyrights, licenses, service names, service marks, service xxxx
registrations, trade secret or other infringement; and the Company and its
Subsidiaries have no knowledge of any facts or circumstances which might give
rise to any of the foregoing. The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of all of their intellectual properties.
o. Environmental Laws. The Company and its Subsidiaries (i) are in
------------------
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS", (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval except where the lack of such
compliance or receipt would not have a Material Adverse Effect.
12
p. Title. The Company and its Subsidiaries have good and marketable
-----
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its Subsidiaries, except to the extent that the failure to have good and
marketable title would not have a Material Adverse Effect, in each case free and
clear of all liens, encumbrances and defects except such as are described in
Schedule 3(p) or such as do not materially affect the value of such property and
-------------
do not interfere with the use made and proposed to be made of such property by
the Company or any of its Subsidiaries. Any real property and facilities held
under lease by the Company or any of its Subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and buildings by the Company and its Subsidiaries.
q. Insurance. The Company and each of its Subsidiaries are insured
---------
by insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such subsidiary has been refused any
insurance coverage bought or applied for and neither the Company nor any such
Subsidiaries has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company
and its Subsidiaries, taken as a whole.
r. Regulatory Permits. The Company and its Subsidiaries possess all
------------------
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses and neither the Company nor any such subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit.
s. Internal Accounting Controls. The Company and each of its
----------------------------
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
t. No Materially Adverse Contracts, Etc. Neither the Company nor any
-------------------------------------
of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect. Neither the
13
Company nor any of its Subsidiaries is party to any contract or agreement which
in the judgment of the Company's officers has or is reasonably expected to have
a Material Adverse Effect.
u. Tax Status. Except as set forth on Schedule 3(u), the Company and
---------- -------------
each of its Subsidiaries has made or filed all federal and state income and all
other tax returns, reports and declarations required by any jurisdiction to
which it is subject (unless and only to the extent that the Company and each of
its Subsidiaries has set aside on its books provisions reasonably adequate for
the payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any such
claim.
v. Dilutive Effect. The Company understands and acknowledges that
---------------
the number of Conversion Shares issuable upon conversion of the Preferred Shares
and the Warrant Shares issuable upon exercise of the Warrants will increase in
certain circumstances. The Company further acknowledges that its obligation to
issue Conversion Shares upon conversion of the Preferred Shares and Warrant
Shares issuable upon exercise of the Warrants in accordance with this Agreement,
the Warrant and the Articles of Amendment is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other stockholders of the Company.
w. No Other Agreements. The Company has not, directly or indirectly,
-------------------
made any agreements with any Buyers relating to the terms or conditions of the
transactions contemplated by the Transaction Documents except as set forth in
the Transaction Documents.
x. Certain Transactions. Except as set forth on Schedule 3(x) and
-------------------- -------------
except for arm's length transactions pursuant to which the Company makes
payments in the ordinary course of business upon terms no less favorable than
the Company could obtain from third parties and other than the grant of stock
options disclosed on Schedule 3(c), none of the officers, directors, or
-------------
employees of the Company is presently a party to any transaction with the
Company or any of its Subsidiaries (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director,
trustee or partner.
14
4. COVENANTS.
---------
a. Best Efforts. Each party shall use its best efforts timely to
------------
satisfy each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.
b. Form D. The Company agrees to file a Form D with respect to the
------
Securities as required under Regulation D and to provide a copy thereof to each
Buyer promptly after such filing. The Company shall, on or before each of the
Closing Dates, take such action as the Company shall reasonably determine is
necessary to qualify the Securities for, or obtain exemption for the Securities
for, sale to the Buyers at each of the Closings pursuant to this Agreement under
applicable securities or "Blue Sky" laws of the states of the United States, and
shall provide evidence of any such action so taken to the Buyers on or prior to
such Closing Dates. The Company shall make all filings and reports relating to
the offer and sale of the Securities to the Buyers required under applicable
securities or "Blue Sky" laws of the states of the United States following the
Initial Closing Date.
c. Reporting Status. Until the earlier of (i) the date which is one
----------------
year after the date as of which the Investors (as that term is defined in the
Registration Rights Agreement) may sell all of the Conversion Shares and the
Warrant Shares without restriction pursuant to Rule 144(k) promulgated under the
1933 Act (or successor thereto), or (ii) the date on which (A) the Investors
shall have sold all the Conversion Shares and Warrant Shares and (B) none of the
Preferred Shares or Warrants is outstanding (the "REGISTRATION PERIOD"), the
Company shall file all reports required to be filed with the SEC pursuant to the
1934 Act, and the Company shall not terminate its status as an issuer required
to file reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would otherwise permit such termination.
d. Use of Proceeds. The Company will use the proceeds from the sale
---------------
of the Preferred Shares for substantially the same purposes and in substantially
the same amounts as indicated in Schedule 4(d).
-------------
e. Financial Information. The Company agrees to send the following
---------------------
to each Investor during the Registration Period: (i) within two (2) days after
the filing with the SEC, a copy of its Annual Reports on Form 10-K (or its
equivalent), its Quarterly Reports on Form 10-Q (or its equivalent), any
registration statements or amendments (other than on Form S-8) filed pursuant to
the 1933 Act and any Current Reports on Form 8-K (or its equivalent); (ii) on
the same day as the release thereof, facsimile copies of all press releases
issued by the Company or any of its Subsidiaries; and (iii) copies of any
notices and other information made available or given to the stockholders of the
Company generally, contemporaneously with the making available or giving thereof
to the stockholders.
f. Reservation of Shares. The Company shall take all action
---------------------
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less
15
than 200% of the number of shares of Common Stock needed to provide for the
issuance of the Conversion Shares (without regard to any limitations on
conversions) and 100% of the number of shares of Common Stock needed to provide
for the issuance of the Warrant Shares.
g. Right of First Refusal. Subject to the exceptions described
----------------------
below, the Company and its Subsidiaries shall not negotiate or contract with any
party for any equity financing (including any debt financing with an equity
component) or issue any equity securities of the Company or any Subsidiary or
securities convertible or exchangeable into or for equity securities of the
Company or any Subsidiary (including debt securities with an equity component)
in any form ("FUTURE OFFERINGS") during the period beginning on the Initial
Closing Date and ending on and including the date which is 365 days after the
Initial Closing Date, unless it shall have first delivered to each Buyer or a
designee appointed by such Buyer written notice (the "FUTURE OFFERING NOTICE")
describing the proposed Future Offering, including the terms and conditions
thereof, and providing each Buyer an option to purchase up to its Aggregate
Percentage (as defined below), as of the date of delivery of the Future Offering
Notice on the same terms and conditions set forth in the Future Offering Notice
(the limitations referred to in this sentence are collectively referred to as
the "CAPITAL RAISING LIMITATION"). For purposes of this Section 4(g), "AGGREGATE
PERCENTAGE" at any time with respect to any Buyer shall mean the percentage
obtained by dividing (i) the number of Preferred Shares purchased by such Buyer
at the Initial Closing by (ii) the aggregate number of Preferred Shares
purchased by all the Buyers at the Initial Closing. A Buyer can exercise its
option to participate in a Future Offering by delivering written notice thereof
to participate to the Company within ten (10) business days of receipt of a
Future Offering Notice, which notice shall state the quantity of securities
being offered in the Future Offering that such Buyer will purchase, up to its
Aggregate Percentage, and that number of securities it is willing to purchase in
excess of its Aggregate Percentage. In the event that one or more Buyers fail to
elect to purchase up to each such Buyer's Aggregate Percentage then each Buyer
which has indicated that it is willing to purchase a number of securities in
excess of its Aggregate Percentage shall be entitled to purchase its pro rata
portion (determined in the same manner as described in the preceding sentence)
of the securities in the Future Offering which one or more Buyers have not
elected to purchase. In the event the Buyers fail to elect to fully participate
in the Future Offering within the periods described in this Section 4(g), the
Company shall have 30 days thereafter to sell the securities of the Future
Offering for which such Buyer's rights were not exercised, upon terms and
conditions (including the amount thereof), no more favorable to the purchasers
thereof than specified in the Future Offering Notice. In the event the Company
has not sold such securities of the Future Offering within such 30 day period,
the Company shall not thereafter issue or sell such securities without first
offering such securities to the Buyers in the manner provided in this Section
4(g). The Capital Raising Limitation shall not apply to (i) a loan from a
commercial bank which does not have any equity feature, (ii) any transaction
involving the Company's issuances of securities (A) as consideration in a merger
or consolidation, (B) in connection with any strategic partnership or joint
venture (the primary purpose of which is not to raise equity capital), or (C) as
consideration for the
16
acquisition of a business, product or license by the Company, (iii) the issuance
of Common Stock in a firm commitment underwritten public offering, (iv) the
issuance of securities upon exercise or conversion of the Company's options,
warrants or other convertible securities outstanding as of the date hereof, (v)
the grant of additional options or warrants, or the issuance of additional
securities, under any Company stock option or restricted stock plan for the
benefit of the Company's employees, directors or consultants, (vi) on or prior
to the 90th day after the Initial Closing Date, the issuance of New Equity
Securities (as defined in Section 4(n) hereof), provided that the Company fully
complies with its obligations under Section 4(n) hereof. The Buyers shall not be
required to participate or exercise their right of first refusal with respect to
a particular Future Offering in order to exercise their right of first refusal
with respect to later Future Offerings or (vii) the sale of the Company's equity
securities pursuant to that certain Agreement and Plan of Reorganization by and
among the Company, Creative Fulfillment, Inc. and certain other parties dated as
of October 8, 1998 as attached as Exhibit F and that certain Agreement and Plan
of Reorganization by and among the Company and Nordic Entertainment Worldwide,
Inc. and certain other parties dated as of October 8, 1998 as attached as
Exhibit G, in each case, without regard to any amendments or supplements
thereto.
h. Listing. The Company shall promptly secure the listing or
-------
quotation of all of the Registrable Securities upon each national securities
exchange and automated quotation system (including the OTC, the Nasdaq SmallCap
Market and the Nasdaq National Market), upon which shares of Common Stock are
then listed or quoted (subject to official notice of issuance) and shall
maintain, so long as any other shares of Common Stock shall be so listed or
quoted, such listing or quotation of all Registrable Securities from time to
time issuable under the terms of the Transaction Documents and the Articles of
Amendment. The Company shall maintain the Common Stock's authorization for
listing or quotation on the Principal Market. Neither the Company nor any of its
Subsidiaries shall take any action which may result in the delisting or
suspension of the Common Stock from the Principal Market (other than to switch
listings from the OTC to the Nasdaq SmallCap Market, the nasdaq National Market,
AMEX or NYSE). The Company shall promptly provide to each Buyer copies of any
notices it receives from the Principal Market regarding the continued
eligibility of the Common Stock for listing or quotation on such trading market
or securities exchange. The Company shall pay all fees and expenses in
connection with satisfying its obligations under this Section 4(h).
i. Expenses. Subject to Section 9(l) below, following the Initial
--------
Closing, the Company shall reimburse the Buyers for the Buyers' expenses
(including attorneys' fees and expenses) in connection with negotiating and
preparing the Transaction Documents and consummating the transactions
contemplated thereby up to an aggregate of $35,000.
j. Filing of Form 8-K. On or before the second (2nd) business day
------------------
following each of the Closing Dates and the Additional Share Notice Date, the
Company
17
shall file a Form 8-K with the SEC describing the terms of the transaction
contemplated by the Transaction Documents and attaching each of the Transaction
Documents as exhibits thereto and consummated at such Closing in each case, in
the form required by the 1934 Act.
k. Shareholder Approval/Proxy Statement. If the Principal Market
------------------------------------
upon which the Registrable Securities are traded requires that the Company
receive the approval of its shareholders prior to issuing shares of Common
Stock, upon conversion of the Preferred Shares or exercise of the Warrants,
equal to or greater than 20% of the number of shares of Common Stock outstanding
immediately prior to the issuance of such Preferred Shares and Warrants, then
the Company shall provide each stockholder entitled to vote at the next meeting
of stockholders of the Company, which meeting shall not be later than 60 days
after any date after the Initial Closing Date on which the sum of (A) the number
of Conversion Shares and Warrant Shares issued and (B) the number of Conversion
Shares and Warrant Shares issuable as of such date pursuant to the conversion of
all outstanding Preferred Shares and exercise of Warrants, as the case may be
(without regard to any limitations on conversions or exercise), exceeds 15% of
the number of shares of Common Stock outstanding immediately prior to the
Initial Closing (the "STOCKHOLDER MEETING DEADLINE"), a proxy statement, which
has been previously reviewed by the Buyers and a counsel of their choice,
soliciting each such stockholder's affirmative vote at such stockholder meeting
for approval of the Company's issuance of all of the Securities as described in
this Agreement, and the Company shall use its best efforts to solicit its
stockholders' approval of such issuance of the Securities and cause the Board of
Directors of the Company to recommend to the stockholders that they approve such
proposal. Such proxy statement shall not seek approval of any matters other than
(i) the approval described in the preceding sentence and (ii) the election of
directors, (iii) the ratification of certified public accountants. If the
Company fails to hold a meeting of its stockholders by the Stockholder Meeting
Deadline, then, as partial relief (which remedy shall not be exclusive of any
other remedies available at law or in equity), the Company shall pay to each
holder of Preferred Shares an amount in cash per Preferred Share equal to the
product of (i) $1,000; multiplied by (ii) .025; multiplied by (iii) the quotient
of (x) the number of days after the Stockholder Meeting Deadline that a meeting
of the Company's stockholders is not held, divided by (y) 30. The Company shall
make the payments referred to in the immediately preceding sentence within five
days of the earlier of (I) the holding of the meeting of the Company's
stockholders, the failure of which resulted in the requirement to make such
payments, and (II) the last day of each 30-day period beginning on the
Stockholder Meeting Deadline. In the event the Company fails to make such
payments in a timely manner, such payments shall bear interest at the rate of
2.5% per month (pro rated for partial months) until paid in full.
l. Transactions With Affiliates. So long as any Preferred Shares or
----------------------------
Warrants are outstanding the Company shall not, and shall cause each of its
Subsidiaries not to, enter into, amend, modify or supplement, or permit any
subsidiary to enter into, amend, modify or supplement, any agreement,
transaction, commitment or arrangement with any of its or any subsidiary's
officers, directors, person who were officers or
18
directors at any time during the previous two years, stockholders who
beneficially own 5% or more of the Common Stock, or affiliates or with any
individual related by blood, marriage or adoption to any such individual or with
any entity in which any such entity or individual owns a 5% or more beneficial
interest (each a "RELATED PARTY"), except for (a) customary employment
arrangements and benefit programs on reasonable terms, (b) any agreement,
transaction, commitment or arrangement on an arms-length basis on terms no less
favorable than terms which would have been obtainable from a person other than
such Related Party, or (c) any agreement, transaction, commitment or arrangement
which is approved by a majority of the disinterested directors of the Company.
For purposes hereof, any director who is also an officer of the Company or any
subsidiary of the Company shall not be a disinterested director with respect to
any such agreement, transaction, commitment or arrangement. "AFFILIATE" for
purposes hereof means, with respect to any person or entity, another person or
entity that, directly or indirectly, (i) has a 5% or more equity interest in
that person or entity, (ii) has 5% or more common ownership with that person or
entity, (iii) controls that person or entity, or (iv) shares common control with
that person or entity. "CONTROL" or "CONTROLS" for purposes hereof means that a
person or entity has the power, direct or indirect, to conduct or govern the
policies of another person or entity.
m. Corporate Existence. So long as a Buyer beneficially owns any
-------------------
Preferred Shares or Warrants, the Company shall maintain its corporate existence
and shall not sell all or substantially all of the Company's assets, except (a)
in the event of a merger or consolidation or sale of all or substantially all of
the Company's assets, where the surviving or successor entity in such
transaction (i) assumes the Company's obligations hereunder and under the
agreements and instruments entered into in connection herewith, (ii) is a
publicly traded corporation whose common stock is listed for trading or quoted
on the Principal Market and (iii) has complied with and has required the Company
to comply with (to the extent the Company is different from the surviving or
successor entity) the terms and conditions contained in Section 2(d)(iv) of the
Articles of Amendment and (b) the Company is in compliance with and shall have
satisfied its obligations under Section 3 of the Articles of Amendment
including, but not limited to, the payment of the redemption price contained in
such section.
n. Right to Exchange Preferred Shares. If on or prior to the 90th
----------------------------------
day after the Initial Closing Date the Company issues or agrees to issue any
equity securities or any instrument convertible into or exercisable or
exchangeable for equity securities of the Company ("NEW EQUITY SECURITIES"), the
Company shall provide written notice thereof via facsimile and overnight courier
to each holder of Preferred Shares ("NEW FINANCING NOTICE") on any date that the
Company enters into any agreement with respect to any New Equity Securities or
issues any New Equity Securities. Within two business days after each issuance
of New Equity Securities, the Company shall make an irrevocable exchange offer
to each holder of Preferred Shares on such terms and conditions as each such
holder shall reasonably require to exchange any or all of such holder's
Preferred Shares for a like amount (based on the following formula to value each
Preferred Share: (.06) (N/365) (1,000) + (1,000)) of the New Equity Securities.
If the
19
New Financing Notice is received prior to the Mandatory Closing, the Buyers
shall have the option to subscribe for an additional$500,000 principal amount of
New Equity Securities on th esame terms and conditions as provided to all other
investors in the New Equity Securities. Each such exchange offer shall remain
open for at least 15 business days or until such time as all of the holders of
Preferred Shares accept or reject, in writing, such exchange offer (the
"EXCHANGE OFFER NOTICE PERIOD"). "N" means the number of days from, but
excluding, the Issuance Date (as defined in the Articles of Amendment) through
and including the Conversion Date (as defined in the Articles of Amendment) for
the Preferred Shares for which conversion is being elected. In the event that
the Preferred Shares are exchanged as provided for in this Section 4(n) or
redeemed in accordance with the terms of the Articles of Amendment, the
following rights and obligations of the parties shall terminate upon the
completion of such exchange or redemption: (i) rights and obligations with
respect to the issuance of the Mandatory Preferred Shares and the Mandatory
Warrants (if not already issued) and the Additional Preferred Shares and
Additional Warrants (if not already issued) and (ii) the rights of first refusal
set forth in Section 4(g) hereof.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its transfer
agent, and any subsequent transfer agent, to issue certificates, registered in
the name of each Buyer or its respective nominee(s), for the Conversion Shares
and the Warrant Shares in such amounts as specified from time to time by each
Buyer to the Company upon conversion of the Preferred Shares or exercise of the
Warrants (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). Prior to registration
of the Conversion Shares and the Warrant Shares under the 1933 Act, all such
certificates shall bear the restrictive legend specified in Section 2(g) of this
Agreement. The Company warrants that no instruction other than the Irrevocable
Transfer Agent Instructions, and stop transfer instructions permitted by the
Irrevocable Transfer Agent Instructions to give effect to Section 2(f) hereof
(in the case of the Conversion Shares and Warrant Shares, prior to registration
of the Conversion Shares and Warrant Shares under the 0000 Xxx) will be given by
the Company to its transfer agent and that the Securities shall otherwise be
freely transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights Agreement. Nothing in
this Section 5 shall affect in any way each Buyer's obligations and agreements
set forth in Section 2(g) to comply with all applicable prospectus delivery
requirements, if any, upon resale of the Securities. If a Buyer provides the
Company with an opinion of counsel, in a generally acceptable form, that
registration of a resale by such Buyer of any of such Securities is not required
under the 1933 Act, the Company shall permit the transfer, and, in the case of
the Conversion Shares and Warrant Shares, promptly instruct its transfer agent
to issue one or more certificates in such name and in such denominations as
specified by such Buyer and without any restrictive legends. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Buyers by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5
20
will be inadequate and agrees, in the event of a breach or threatened breach by
the Company of the provisions of this Section 5, that the Buyers shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
a. Initial Closing Date. The obligation of the Company hereunder to
--------------------
issue and sell the Initial Preferred Shares and the related Initial Warrants to
each Buyer at the Initial Closing is subject to the satisfaction, at or before
the Initial Closing Date, of each of the following conditions, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion by providing each Buyer with prior
written notice thereof:
(i) Such Buyer shall have executed each of this Agreement and
the Registration Rights Agreement and delivered the same to the Company.
(ii) The Articles of Amendment shall have been filed with the
Secretary of State of the State of Florida.
(iii) Such Buyer shall have delivered to the Company the Purchase
Price for the Preferred Shares and the related Initial Warrants being purchased
by such Buyer at the Initial Closing by wire transfer of immediately available
funds pursuant to the wire instructions provided by the Company.
(iv) The representations and warranties of such Buyer shall be
true and correct as of the date when made and as of the Initial Closing Date as
though made at that time (except for representations and warranties that speak
as of a specific date), and such Buyer shall have performed, satisfied and
complied with the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by such Buyer
at or prior to the Initial Closing Date.
b. Mandatory Closing Date. The obligation of the Company hereunder
----------------------
to issue and sell the Mandatory Preferred Shares and the related Mandatory
Warrants to each Buyer at the Mandatory Closings is subject to the satisfaction,
at or before the respective Mandatory Closing Date, of each of the following
conditions, provided that these conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion by providing
each Buyer with prior written notice thereof:
(i) Such Buyer shall have delivered to the Company the Purchase
Price for the Mandatory Preferred Shares and the related Mandatory Warrants
being purchased by such Buyer at the Mandatory Closing by wire transfer of
immediately available funds pursuant to the wire instructions provided by the
Company.
21
(ii) The representations and warranties of such Buyer shall be
true and correct in all material respects as of the date when made and as of the
Mandatory Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date), and such Buyer shall have
performed, satisfied and complied with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by such Buyer at or prior to the Mandatory Closing Date.
c. Additional Closing Date. The obligation of the Company hereunder
-----------------------
to issue and sell the Additional Preferred Shares and the related Additional
Warrants to each Buyer at the Additional Closing is subject to the satisfaction,
at or before the Additional Closing Date, of each of the following conditions,
provided that these conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion by providing each Buyer
with prior written notice thereof:
(i) Such Buyer shall have complied with the requirements of
Section 1(d).
(ii) Such Buyer shall have delivered to the Company the Purchase
Price for the Additional Preferred Shares and the related Additional Warrants
being purchased by such Buyer at the Additional Closing by wire transfer of
immediately available funds pursuant to the wire instructions provided by the
Company.
(iii) The representations and warranties of such Buyer shall be
true and correct in all material respects as of the date when made and as of the
Additional Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date), and such Buyer shall have
performed, satisfied and complied with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by such Buyer at or prior to the Additional Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
-------------------------------------------------
a. Initial Closing Date. The obligation of each Buyer hereunder to
--------------------
purchase the Initial Preferred Shares and the related Initial Warrants at the
Initial Closing is subject to the satisfaction, at or before the Initial Closing
Date, of each of the following conditions, provided that these conditions are
for each Buyer's sole benefit and may be waived by such Buyer at any time in its
sole discretion:
(i) The Company shall have executed each of the Transaction
Documents, and delivered the same to such Buyer.
(ii) The Articles of Amendment shall have been filed with the
Secretary of State of the State of Florida, and a copy thereof certified by such
Secretary of State shall have been delivered to counsel for such Buyer.
22
(iii) The Common Stock shall be authorized for quotation,
listing or trading on the Principal Market, trading in the Common Stock issuable
upon conversion of the Initial Preferred Shares to be traded on the Principal
Market shall not have been suspended by the SEC or the Principal Market and all
of the Conversion Shares and Warrant Shares issuable upon conversion of the
Initial Preferred Shares or exercise of the Initial Warrants, as the case may
be, to be sold at the Initial Closing shall be listed or quoted upon the
Principal Market.
(iv) The representations and warranties of the Company shall be
true and correct as of the date when made and as of the Initial Closing Date as
though made at that time (except for representations and warranties that speak
as of a specific date) and the Company shall have performed, satisfied and
complied with the covenants, agreements and conditions required by the
Transaction Documents or the Articles of Amendment to be performed, satisfied or
complied with by the Company at or prior to the Initial Closing Date. Such Buyer
shall have received a certificate, executed by the Chairman (so long as the
Chairman is an executive officer of the Company) or the Chief Executive Officer
of the Company, dated as of the Initial Closing Date, to the foregoing effect
and as to such other matters as may be reasonably requested by such Buyer
including, without limitation, an update as of the Initial Closing Date
regarding the representation contained in Section 3(c) above.
(v) Such Buyer shall have received the opinion of the
Company's outside counsel dated as of the Initial Closing Date, in form, scope
and substance reasonably satisfactory to such Buyer and in substantially the
form of Exhibit C attached hereto.
---------
(vi) The Company shall have executed and delivered to such
Buyer the Initial Warrants and the Stock Certificates (in such denominations as
such Buyer shall request) for the Initial Preferred Shares being purchased by
such Buyer at the Initial Closing.
(vii) The Board of Directors of the Company shall have adopted
resolutions consistent with Section 3(b)(ii) above and in a form reasonably
acceptable to such Buyer (the "RESOLUTIONS").
(viii) As of the Initial Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for the purpose
of effecting the conversion of the Preferred Shares and the exercise of the
Initial Warrants, at least 1,000,000 shares of Common Stock.
(ix) The Irrevocable Transfer Agent Instructions, in the form
of Exhibit D attached hereto, shall have been delivered to and acknowledged in
---------
writing by the Company's transfer agent with a copy forwarded to the Buyers.
(x) The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the Company and
each
23
subsidiary in such corporation's state of incorporation issued by the Secretary
of State of such state of incorporation as of a date within ten days of the
Initial Closing Date.
(xi) The Company shall have delivered to such Buyer a
secretary's certificate certifying as to (a) the Resolutions, (b) the Articles
of Incorporation and (c) Bylaws, each as in effect at the Initial Closing.
(xii) The Company shall have delivered to such Buyer a certified
copy of its Articles of Incorporation as certified by the Secretary of State of
the State of Florida within ten days of the Initial Closing Date.
(xiii) The Company shall have delivered to such Buyer a letter
from the Company's transfer agent certifying the number of shares of Common
Stock outstanding as of a date within five days of the Initial Closing Date.
(xiv) The Company shall have delivered to such Buyer such other
documents relating to the transactions contemplated by the Transaction Documents
as such Buyer or its counsel may reasonably request.
b. Mandatory Closing Dates. The obligation of each Buyer hereunder
-----------------------
to purchase the Mandatory Preferred Shares and the related Mandatory Warrants at
the Mandatory Closing is subject to the satisfaction, at or before the Mandatory
Closing Date, of each of the following conditions, provided that these
conditions are for each Buyer's sole benefit and may be waived by such Buyer at
any time in its sole discretion:
(i) The Articles of Amendment shall be in full force and
effect and shall not have been amended since the Initial Closing Date, and a
copy thereof certified by the Secretary of State of the State of Florida shall
have been delivered to such Buyer.
(ii) The Common Stock shall be authorized for quotation,
listing or trading on the Principal Market, trading in the Common Stock issuable
upon conversion of the Mandatory Preferred Shares to be traded on the Principal
Market shall not have been suspended by the SEC or the Principal Market at any
time afer the Initial Closing Date and all of the Conversion Shares and Warrant
Shares issuable upon conversion of the Mandatory Preferred Shares or exercise of
the Mandatory Warrants, as the case may be, to be sold at the Mandatory Closing
shall be listed or quoted upon the Principal Market.
(iii) The representations and warranties of the Company shall be
true and correct as of the date when made and as of the Mandatory Closing Date
as though made at that time (except for representations and warranties that
speak as of a specific date) and the Company shall have performed, satisfied and
complied with the covenants, agreements and conditions required by the
Transaction Documents or the Articles of Amendment to be performed, satisfied or
complied with by the Company at or prior to the Mandatory Closing Date. Such
Buyer shall have received a certificate,
24
executed by the Chairman ( so long as the Chairman is an executive officer of
the Company) or the Chief Executive Officer of the Company, dated as of the
Mandatory Closing Date, to the foregoing effect and as to such other matters as
may be reasonably requested by such Buyer including, without limitation, an
update as of the Mandatory Closing Date regarding the representation contained
in Section 3(c) above.
(iv) Such Buyer shall have received the opinion of the
Company's outside counsel dated as of the Mandatory Closing Date, in scope and
substance substantially in the form of Exhibit C attached hereto.
---------
(v) The Company shall have executed and delivered to such
Buyer the Mandatory Warrants and the Stock Certificates (in such denominations
as such Buyer shall request) for the Mandatory Preferred Shares being purchased
by such Buyer at the Mandatory Closing.
(vi) The Board of Directors of the Company shall have adopted,
and shall not have amended, the Resolutions.
(vii) As of the Mandatory Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for the purpose
of effecting the conversion of the Preferred Shares and the exercise of the
Mandatory Warrants, a number of shares of Common Stock equal to at least (A)
200% of the number of shares of Common Stock which would be issuable upon
conversion in full of the then outstanding Preferred Shares and (B) 100% of the
number of shares of Common Stock which would be issuable upon exercise in full
of the then outstanding Warrants, including for such purposes any Preferred
Shares and Warrants to be issued at the Mandatory Closing.
(viii) The Irrevocable Transfer Agent Instructions, in the form
of Exhibit D attached hereto, shall have been delivered to and acknowledged in
---------
writing by the Company's transfer agent and shall be in effect as of the
Mandatory Closing Date.
(ix) The Company shall have delivered to such Buyer a
certificate evidencing the incorporation and good standing of the Company and
each subsidiary in such corporation's state of incorporation issued by the
Secretary of State of Florida as of a date within ten days of the Mandatory
Closing Date.
(x) The Company shall have delivered to such Buyer a
secretary's certificate certifying as to (a) the Resolutions, (b) the Articles
of Incorporation and (c) Bylaws, each as in effect at the Mandatory Closing.
(xi) During the period beginning on the Initial Closing Date
and ending on and including the Mandatory Closing Date, the Company shall have
delivered Conversion Shares upon conversion of the Preferred Shares on a timely
basis as set forth in Section 2(f)(ii) of the Articles of Amendment.
25
(xii) The Company shall have delivered to such Buyer a certified
copy of its Articles of Incorporation as certified by the Secretary of State of
the State of Florida within ten days of the Mandatory Closing Date.
(xiii) The Company shall have delivered to such Buyer a letter
from the Company's transfer agent certifying the number of shares of Common
Stock outstanding as of a date within five days of the Mandatory Closing Date.
(xiv) The Registration Statement covering the Conversion Shares
issuable upon conversion of the Mandatory Preferred Shares to be issued at the
Mandatory Closing has been declared effective by the SEC within 90 days of the
Initial Closing, shall be available for resales of the Conversion Shares and
Warrant Shares on the Mandatory Closing Date and shall cover at least (A) 200%
of the number of shares of Common Stock which would be issuable upon conversion
in full of the then outstanding Preferred Shares and (B) 100% of the number of
shares of Common Stock which would be issuable upon exercise in full of the then
outstanding Warrants, including for such purposes any Preferred Shares and
Warrants to be issued at the Mandatory Closing.
(xv) The Company shall have delivered to such Buyer such other
documents relating to the transactions contemplated by this Agreement as such
Buyer or its counsel may reasonably request.
c. Additional Closing Date. The obligation of each Buyer hereunder
-----------------------
to purchase the Additional Preferred Shares and the related Additional Warrants
at the Additional Closing is subject to the satisfaction, at or before the
Additional Closing Date, of each of the following conditions, provided that
these conditions are for each Buyer's sole benefit and may be waived by such
Buyer at any time in its sole discretion:
(i) The Articles of Amendment shall be in full force and effect and
shall not have been amended since the Initial Closing Date, and a copy
thereof certified by the Secretary of State of the State of Florida shall
have been delivered to such Buyer.
(ii) The Common Stock shall be authorized for quotation, listing or
trading on the Principal Market, trading in the Common Stock issuable upon
conversion of the Additional Preferred Shares to be traded on the Principal
Market shall not have been suspended by the SEC or the Principal Market at
any time after the Initial Closing Date and all of the Conversion Shares
and Warrant Shares issuable upon conversion of the Additional Preferred
Shares or exercise of the Additional Warrants, as the case may be, to be
sold at the Additional Closing shall be listed or quoted upon the Principal
Market.
(iii) The representations and warranties of the Company shall be true
and correct as of the date when made and as of the Additional Closing Date
as though made at that time (except for representations and warranties that
speak as of a specific date) and the Company shall have performed,
satisfied and
26
complied with the covenants, agreements and conditions required by the
Transaction Documents or the Articles of Amendment to be performed,
satisfied or complied with by the Company at or prior to the respective
Additional Closing Date. Such Buyer shall have received a certificate,
executed by the Chairman ( so long as the Chairman is an executive officer)
or the Chief Executive Officer of the Company, dated as of the Additional
Closing Date, to the foregoing effect and as to such other matters as may
be reasonably requested by such Buyer including, without limitation, an
update as of the Additional Closing Date regarding the representation
contained in Section 3(c) above.
(iv) Such Buyer shall have received the opinion of the Company's
outside counsel dated as of such Additional Closing Date, in scope and
substance substantially in the form of Exhibit C attached hereto.
---------
(v) The Company shall have executed and delivered to such Buyer the
Additional Warrants and the Stock Certificates (in such denominations as
such Buyer shall request) for the Additional Preferred Shares being
purchased by such Buyer at the Additional Closing.
(vi) The Board of Directors of the Company shall have adopted, and
shall not have amended, the Resolutions.
(vii) As of the Additional Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Preferred Shares and the
exercise of the Additional Warrants, a number of shares of Common Stock
equal to at least (A) 200% of the number of shares of Common Stock which
would be issuable upon conversion in full of the then outstanding Preferred
Shares and (B) 100% of the number of shares of Common Stock which would be
issuable upon exercise in full of the then outstanding Warrants, including
for such purposes any Preferred Shares and Warrants to be issued at the
Additional Closing.
(viii) The Irrevocable Transfer Agent Instructions, in the form of
Exhibit D attached hereto, shall have been delivered to and acknowledged in
---------
writing by the Company's transfer agent and shall be in effect as of the
Additional Closing Date.
(ix) The Company shall have delivered to such Buyer a certificate
evidencing the incorporation and good standing of the Company and each
subsidiary in such corporation's state of incorporation issued by the
Secretary of State of Florida as of a date within ten days of the
Additional Closing Date.
27
(x) The Company shall have delivered to such Buyer a secretary's
certificate certifying as to (a) the Resolutions, (b) the Articles of
Incorporation and (c) Bylaws, each as in effect at the Additional Closing.
(xi) During the period beginning on the Additional Share Notice Date
and ending on and including the respective Additional Closing Date, the
Company shall have delivered Conversion Shares upon conversion of the
Preferred Shares on a timely basis as set forth in Section 2(f)(ii) of the
Articles of Amendment.
(xii) The Company shall have delivered to such Buyer a certified copy
of its Articles of Incorporation as certified by the Secretary of State of
the State of Florida within ten days of the Additional Closing Date.
(xiii) The Company shall have delivered to such Buyer a letter from
the Company's transfer agent certifying the number of shares of Common
Stock outstanding as of a date within five days of the Additional Closing
Date.
(xiv) The Company shall have complied with the conditions of Section
1(d).
(xv) The Registration Statement covering the Conversion Shares
issuable upon conversion of the Additional Preferred Shares to be issued at
the Additional Closing shall have been declared effective by the SEC within
90 days of the Company's receipt of the Additional Share Notice, shall be
available for resale of the Conversion Shares and Warrant Shares on the
Additional Closing Date and shall cover at least (A) 200% of the number of
shares of Common Stock which would be issuable upon conversion in full of
the then outstanding Preferred Shares and (B) 100% of the number of shares
of Common Stock which would be issuable upon exercise in full of the then
outstanding Warrants, including for such purposes any Preferred Shares and
Warrants to be issued at the Additional Closing.
(xvi) The Company shall have delivered to such Buyer such other
documents relating to the transactions contemplated by this Agreement as
such Buyer or its counsel may reasonably request.
8. INDEMNIFICATION. In consideration of each Buyer's execution and
---------------
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents and the Articles of Amendment, the Company shall defend, protect,
indemnify and hold harmless each Buyer and each other holder of the Securities
and all of their stockholders, officers, directors, employees and direct or
indirect investors and any of the foregoing person's agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"INDEMNITEES") from and against any and all actions, causes of
28
action, suits, claims, losses, costs, penalties, fees, liabilities and damages,
and expenses in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys' fees and disbursements (the
"INDEMNIFIED LIABILITIES"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents, the
Articles of Amendment or any other certificate, instrument or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in the Transaction Documents, the Articles
of Amendment or any other certificate, instrument or document contemplated
hereby or thereby, or (c) any cause of action, suit or claim brought or made
against such Indemnitee and arising out of or resulting from the execution,
delivery, performance or enforcement of the Transaction Documents or the
Articles of Amendment, (d) any transaction financed or to be financed in whole
or in part, directly or indirectly, with the proceeds of the issuance of the
Securities or (e) the status of such Buyer or holder of the Securities as an
investor in the Company. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.
9. GOVERNING LAW; MISCELLANEOUS.
----------------------------
a. Governing Law; Jurisdiction; Jury Trial. The corporate laws of
---------------------------------------
the State of Florida shall govern all issues concerning the relative rights of
the Company and its stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York. Each party hereby
irrevocably submits to the non-exclusive jurisdiction of the state and federal
courts sitting the City of New York, borough of Manhattan, for the adjudication
of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or proceeding is brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. EACH
29
PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.
b. Counterparts. This Agreement may be executed in two or more
------------
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
c. Headings. The headings of this Agreement are for convenience of
--------
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be invalid
------------
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement in
that jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement supersedes all other
----------------------------
prior oral or written agreements between the Buyers, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the holders of at least two-thirds (2/3) of the Preferred Shares
then outstanding, and no provision hereof may be waived other than by an
instrument in writing signed by the party against whom enforcement is sought.
No such amendment shall be effective to the extent that it applies to less than
all of the holders of the Preferred Shares then outstanding. No consideration
shall be offered or paid to any person to amend or consent to a waiver or
modification of any provision of any of the Transaction Documents or the
Articles of Amendment unless the same
30
consideration also is offered to all of the parties to the Transaction Documents
or holders of Preferred Shares, as the case may be.
f. Notices. Any notices, consents, waivers or other communications
-------
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); (iii) one business day after deposit with a
nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
GoodNoise
Corporation
000 Xxxxxxxx Xxxxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxx Xxxxxxx
With a copy to:
Xxxx Xxxx Xxxx & Freidenrich LLP
000 Xxxxxxxx Xxxxxx
Xxxx Xxxx, Xxxxxxxxxx 00000-0000
Telephone: 000-000-0000
------------
Facsimile: 000-000-0000
Attention: Xxxxx X. Xxxxx, Esq.
If to the Transfer Agent:
Interwest Transfer Co., Inc.
1981 East, 0000 Xxxxx
Xxxxx 000
Xxxx Xxxx Xxxx, Xxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Ms. Mershi Siquere
31
If to a Buyer, to its address and facsimile number on the Schedule of
Buyers, with copies to such Buyer's representatives as set forth on the Schedule
of Buyers.
Each party shall provide five (5) days' prior written notice to the other
party of any change in address or facsimile number.
g. Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Preferred Shares. The Company shall not assign
this Agreement or any rights or obligations hereunder without the prior written
consent of the holders of two-thirds (2/3) of the Preferred Shares then
outstanding including by merger or consolidation except pursuant to a Major
Transaction (as defined in the Articles of Amendment) with respect to which the
Company is in compliance with Sections 2(d)(iv) and 3 of the Articles of
Amendment. A Buyer may assign some or all of its rights hereunder without the
consent of the Company; provided, however, that any such assignment shall not
release such Buyer from its obligations hereunder unless such obligations are
assumed by such assignee and the Company has consented to such assignment and
assumption. Notwithstanding anything to the contrary contained in the
Transaction Documents, each Buyer shall be entitled to pledge the securities in
connection with a bona fide margin account.
h. No Third Party Beneficiaries. This Agreement is intended for the
----------------------------
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. Survival. Unless this Agreement is terminated under Section 9(l),
--------
the representations and warranties of the Company and the Buyers contained in
Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and 9,
and the indemnification provisions set forth in Section 8, shall survive each of
the Closings. Each Buyer shall be responsible only for its own representations,
warranties, agreements and covenants hereunder.
j. Publicity. The Company and each Buyer shall have the right to
---------
approve before issuance any press releases or any other public statements with
respect to the transactions contemplated hereby; provided, however, that the
Company shall be
32
entitled, without the prior approval of any Buyer, to make any press release or
other public disclosure with respect to such transactions as is required by
applicable law and regulations (although each Buyer shall be consulted by the
Company in connection with any such press release or other public disclosure
prior to its release and shall be provided with a copy thereof).
k. Further Assurances. Each party shall do and perform, or cause to
------------------
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. Termination. In the event that the Initial Closing shall not have
-----------
occurred with respect to a Buyer on or before three (3) business days from the
date hereof due to the Company's or such Buyer's failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the nonbreaching party's
failure to waive such unsatisfied condition(s)), the nonbreaching party shall
have the option to terminate this Agreement with respect to such breaching party
at the close of business on such date without liability of any party to any
other party; provided, however, that if this Agreement is terminated pursuant to
this Section 9(l), the Company shall remain obligated to reimburse the non-
breaching Buyers for the expenses described in Section 4(i) above.
m. Placement Agent. The Company acknowledges that it has not engaged
---------------
any placement agent in connection with the sale of the Preferred Shares and the
related Warrants. The Company shall be responsible for the payment of any
placement agent's fees or broker's commissions relating to or arising out of the
transactions contemplated hereby. The Company shall pay, and hold each Buyer
harmless against, any liability, loss or expense (including, without limitation,
attorneys' fees and out of pocket expenses) arising in connection with any such
claim.
n. No Strict Construction. The language used in this Agreement will
----------------------
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
33
o. Remedies. Each Buyer and each holder of Preferred Shares or
--------
Conversion Shares shall have all rights and remedies set forth in the
Transaction Documents and the Articles of Amendment and all rights and remedies
which such holders have been granted at any time under any other agreement or
contract relating to the subject matter hereof and all of the rights which such
holders have under any law. Any person having any rights under any provision of
this Agreement shall be entitled to enforce such rights specifically (without
posting a bond or other security), to recover damages by reason of any breach of
any provision of this Agreement and to exercise all other rights granted by law.
p. Payment Set Aside. To the extent that the Company makes a payment
-----------------
or payments to the Buyers hereunder or pursuant to the Articles of Amendment or
Warrants or the Buyers enforce or exercise their rights hereunder or thereunder,
and such payment or payments or the proceeds of such enforcement or exercise or
any part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside, recovered from, disgorged by or are required to be
refunded, repaid or otherwise restored to the Company, a trustee, receiver or
any other Person under any law (including, without limitation, any bankruptcy
law, state or federal law, common law or equitable cause of action), then to the
extent of any such restoration the obligation or part thereof originally
intended to be satisfied shall be revived and continued in full force and effect
as if such payment had not been made or such enforcement or setoff had not
occurred.
34
IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.
COMPANY: BUYERS:
GOODNOISE CORPORATION HFTP INVESTMENT LLC
By: Promethean Investment
Group L.L.C.
Its: Investment Manager
By: /s/ By: /s/
Name: Xxxx Xxxxxxx Name: Xxxxx X. X'Xxxxx, Xx.
Its: President Its: President
35
SCHEDULE OF BUYERS
Number of
Initial
Investor Address Preferred Investor's Representatives' Address
Investor Name and Facsimile Number Shares and Facsimile Number
---------------------- --------------------------------------- -------------------------------------------------------
HFTP Investment LLC Promethean Investment Group, L.L.C. 500 Promethean Investment Group, L.L.C.
00 Xxxx 00xx Xxxxxx, Xxxxx 0000 00 Xxxx 00xx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 10019 Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxx X. X'Xxxxx, Xx. Attn: Xxxxx X. X'Xxxxx, Xx.
Facsimile: 000-000-0000 Facsimile: 000-000-0000
Residence: New York Xxxxxx Xxxxxx & Zavis
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000-0000
Attn: Xxxxxx X. Xxxxxxxx, Esq.
Facsimile: 000-000-0000
36
