Execution Copy
THE SECURITIES DESCRIBED IN THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF
CERTAIN STATES, AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO (i) AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE LAWS, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER THE ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL TO THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER THE ACT AND APPLICABLE STATE LAW IS
AVAILABLE.
INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. IN MAKING AN
INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE
COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND THE RISKS
INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE
SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING
AUTHORITIES HAVE NOT CONFIRMED OR DETERMINED THE ACCURACY OR ADEQUACY OF THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
SUBSCRIPTION AGREEMENT
This Subscription Agreement (the "Agreement"), dated October 17, 1996, is
entered into by and between VideoLan Technologies, Inc., a Delaware corporation
(the "Company"), and (the "Buyer").
The Company has offered for sale pursuant to applicable provisions of Sections
4(2) and 4(6), and Regulation D under the United States Securities Act of 1933,
as amended (the "Act") up to 7,500 shares of Series 1996A Convertible Preferred
Stock (the "Preferred Stock" or "Securities"), convertible into common stock of
the Company ("Common Stock"). The Buyer has been offered 150 shares of the
Preferred Stock, at $1,000 per each share. The terms on which the Preferred
Stock may be converted into shares of Common Stock (such shares of Common Stock
underlying the Preferred Stock being referred to herein as "Shares")and the
other terms of the Preferred Stock are set forth in the Certificate of
Designation in the form attached hereto as Exhibit "A" (the "Certificate of
Designation"), the terms of which are hereby incorporated by reference.
Capitalized terms used herein and not defined herein shall have the meanings
given to them in Regulation D as the same may be amended from time to time.
The parties hereto agree as follows:
1. Purchase and Sale of Securities Upon the basis of the representations and
warranties, and subject to the terms and conditions, set forth in this
Agreement, the Company covenants and agrees to sell to the Buyer on the Closing
Date (as hereinafter defined) 150 shares of the Preferred Stock at a price of
$1,000 per share, and upon the basis of the representations and warranties, and
subject to the terms and conditions, set forth in this Agreement, the Buyer
covenants and agrees to purchase from the Company, on the Closing Date 150
shares of the Preferred Stock of the Company at $1,000 per share.
Closing Instructions to Escrow Agent
(a) The closing of the purchase and sale of the Preferred Stock pursuant
to Section 1 hereof shall take place on or before October 17, 1996 (the
"Closing Date") after the Company has delivered to the offices of First Bermuda
Securities Limited (the "Escrow Agent") located at Jardine House, 3rd Floor,
33/35 Reid Street, Hamilton, HM 12 Bermuda certificates representing 150 shares
of Preferred Stock registered in the names provided by the Buyer (representing
the number of shares of Preferred Stock to be purchased by the Buyer
hereunder).
(b) The Company and the Buyer agree that they shall instruct the
Escrow Agent as provided in Exhibit "B" and as follows:
(i) On the Closing Date, for each share of Preferred Stock
subscribed for and delivered to the Escrow Agent pursuant to paragraph 2(a)
above, the Escrow Agent shall, upon confirmation in the form of a Federal funds
wire number that First Bermuda Securities Limited ("First Bermuda") has wired
payment of the Purchase Price for the Preferred Stock (less any fees Company
has authorized Escrow Agent to deduct) in immediately available funds to the
Company's account as provided in the escrow instructions attached as Exhibit
"B", release the certificates of Preferred Stock described in paragraph 2(a)
above. The Escrow Agent shall return to the Company any shares of Preferred
Stock that the Buyer does not purchase on the Closing Date.
(ii) The Escrow Agent will make delivery of the number of
shares of Preferred Stock set forth in clause 2(a) above in accordance with the
instructions of the Buyer subject to customary settlement procedures upon
confirmation of the wiring of funds to the Company as described in clause
2(b)(i) above.
3. Representations and Warranties of the Buyer: The Buyer understands and
represents and warrants to, and agrees with the Company that:
(a) The Buyer understands that no federal or state agency has
passed on, or made any recommendation or endorsement of the Securities.
(b) The Buyer acknowledges that, in making the decision to
purchase the Securities, it has relied solely upon independent investigations
made by it and not upon any representations made by the Company with respect to
the Company or the Securities, except for the representations and warranties in
this Agreement, the Certificate of Designation, the Registration Rights
Agreement and the Officers Certificate, except that the Buyer has received,
reviewed and relied upon the Opinion of Counsel, the Company Memorandum dated
October 1, 1996 (the "Company Memorandum") and copies of the report on Form
10-QSB for the quarter ended June 30, 1996, the report Form 10-KSB for the year
ended December 31, 1995, filed by the Company pursuant to the Securities
Exchange Act of 1934, as amended, and all other filings, which together with
any filings by Company after the date hereof and prior the Closing, are defined
as "Exchange Act Reports".
(c) The Buyer understands that the Securities are being
offered and sold to it in reliance on specific exemptions from or
non-application of the registration requirements of Federal and state
securities laws and that the Company is relying upon the truth and accuracy of
the representations, warranties, agreements, acknowledgments and understandings
of the Buyer set forth herein in order to determine the applicability of such
exemptions and the suitability of the Buyer to acquire the Securities.
(d) The Buyer is aware that the Securities and the Shares
issuable upon exercise of conversion rights have not been and will not be
registered under the Act (except as may be required under the Registration
Rights Agreement) and may only be offered or sold pursuant to registration
under the Act or an available exemption therefrom.
The Buyer has the full right, power and authority to enter
into this Agreement and to carry out and consummate the transactions
contemplated herein. This Agreement constitutes the legal, valid and binding
obligation of the Buyer.
The Buyer is an "Accredited Investor" as that term is defined
in Section 501(a) of Regulation D promulgated under the Act, because the
undersigned meets one or more of the following requirements: PLEASE CHECK AS
MANY BOXES THAT APPLY:
_ He or she is a natural person whose individual net worth, or joint
net worth with such investor's spouse, exceeds $1,000,000;
_ He or she is a natural person who had individual income in excess of
$200,000 in each of the two most recent years, or (except in California) joint
income with such investor's spouse in excess of $300,000 in each of those years
and reasonably expects to reach the same income level in the current year;
_ It is an organization described in ss. 501(c)(3) of the Internal
Revenue Code of 1986 as amended, (i.e., tax exempt entities), corporation,
Massachusetts or similar business trust, or partnership, not formed for the
specific purpose of acquiring the proposed investment, with total assets in
excess of $5,000,000;
_ It is a trust, with total assets in excess of $5,000,000, not formed
for the specific purpose of acquiring the proposed investment, whose purchases
are directed by a sophisticated person as described;
_ It is a bank as defined in ss. 3(a)(2) of the Act, or a savings and
loan association or other institution as defined in ss. 3(a)(5)(A) of the Act
whether acting in its individual or fiduciary capacity;
_ It is a broker registered pursuant toss. 15 of the Securities
Exchange Act of 1934 (the Exchange Act");
_ It is an insurance company as defined in ss. 2(13) of the Act;
_ It is an investment company registered under the Investment Company
Act of 1940 or a business development company as defined in ss. 2(a)(48) of
that Act;
_ It is a Small Business Investment Company licensed by the U.S. Small
Business Administration under ss. 301 (c) or (d) of the Small Business
Investment Act of 1958;
_ It is a private business development company as defined in ss.
202(a)(22) of the Investment Advisers Act of 1940;
_ It is an employee benefit plan within the meaning of Title I of the
Employee Retirement Income Security Act of 1974, if the investment decision is
made by a plan fiduciary, as defined in ss. 3(21) of such Act, which is either
a bank, savings and loan association, insurance company, or registered
investment adviser, or if the employee benefit plan has total assets in excess
of $5,000,000 or, if a self-directed plan, with investment decisions made
solely by persons that are Accredited Investors as described above;
_ He or she is a director or executive officer of the Company;
_ It is an entity in which all the equity owners are Accredited
Investors since they are all described above.
(g) The Buyer has reviewed this Agreement and each Exhibit
hereto.
(h) The Buyer has the financial ability to bear the economic
risk of the Buyer's investment, can afford to sustain a complete loss of such
investment, has adequate means of providing for the Buyer's current needs and
personal contingencies and has no need for liquidity in the Buyer's investment
in the Company.
(i) The Buyer will acquire the Securities for its own account
(or for the joint account of the Buyer and the Buyer's spouse either in joint
tenancy, tenancy by the entirety or tenancy in common) for investment and not
with a view to the sale or distribution thereof or the granting of any
participation therein, and the Buyer has no present intention of distributing
or selling to others any of such interest or granting any participation
therein, other than pursuant to an effective registration statement under the
Act.
(j) The Buyer has read the Company Memorandum and the
Exchange Act Reports, has been given the opportunity to ask questions of and to
receive answers from persons acting on the Company's behalf concerning the
terms and conditions of this transaction and also has been given the
opportunity to obtain any additional information which the Company possesses or
can acquire without unreasonable effort or expense. As a result, the Buyer is
cognizant of the financial condition, capitalization, use of proceeds from this
transaction and the operations and financial condition of the Company, has
available full information concerning its affairs and has been able to evaluate
the merits and risks of the investment in the Securities.
(k) The Buyer represents that an investment in the Securities
is a suitable investment for the Buyer, taking into consideration the
restrictions on transferability affecting the Securities.
(l) The Buyer understands and agrees that the Preferred Stock
as well as the Shares issuable upon conversion of Preferred Stock have not been
registered under the Act or any state or foreign securities laws and are
restricted securities within the meaning of Rule 144 of the General Rules and
Regulations under the Act and under applicable state statutes.
(m) The Buyer is not an associated person or affiliate of any
member firm of the National Association of Securities Dealers, Inc.
(n) In making the purchase of the Securities, Buyer
understands that the information set forth in the Company Memorandum and the
Exchange Act Reports and this Agreement was accurate as of its date with
respect to the Company.
(o) Without the prior written consent of the Company, the
Buyer and any subsequent transferee shall not sell the Securities or the Shares
in a transaction that is exempt from the registration requirements of the Act
pursuant to Regulation S thereunder.
4. Registration Rights On or prior to the Closing Date, the Company and the
Buyer agree to execute a Registration Rights Agreement in the form
substantially set out in Exhibit "C" attached hereto (the "Registration Rights
Agreement"), the terms of which are herein incorporated by reference.
5. Conversion of Preferred Stock The holders of Preferred Stock shall be
entitled to convert the Preferred Stock into Shares in accordance with the
terms set forth in the Certificate of Designation.
6. Representations and Warranties of the Company The Company represents and
warrants to, and agrees with, the Buyer that:
(a) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of Delaware.
(b) This Agreement has been duly authorized, executed and
delivered by the Company and is a valid and binding agreement enforceable in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights generally and to general principles
of equity; and the Company has full corporate power and authority necessary to
enter into this Agreement and to perform its obligations thereunder.
(c) No consent, approval, authorization or order of any
court, governmental agency or body or arbitrator having jurisdiction over the
Company or any of its affiliates is required for execution of this Agreement,
including, without limitation, the issuance and sale of the Securities, or the
performance of its obligations hereunder.
(d) Except as disclosed to the Buyer or its representatives
in writing, neither the sale of Securities pursuant to, nor the performance of
its obligations under this Agreement by the Company will (i) violate or
conflict with, result in a breach of, or constitute a default (or an event
which with the giving of notice or the lapse of time or both would be
reasonably likely to constitute a default) under (A) the Certificate of
Incorporation (the "Certificate of Incorporation") or By-laws (the "By-laws")
of the Company or any of its affiliates, (B) any decree, judgment, order, law,
treaty, rule, regulation or determination applicable to the Company or any of
its affiliates of any court, governmental agency or body, or arbitrator having
jurisdiction over the Company or any of its affiliates or over the properties
or assets of the Company or any of its affiliates, (C) the terms of any bond,
debenture, note or any other evidence of indebtedness, or any material
agreement, stock option or other similar plan, indenture, lease, mortgage, deed
of trust or other material instrument to which the Company or any of its
affiliates is a party, by which the Company or any of its affiliates is bound,
or to which any of the properties of the Company or any of its affiliates is
subject, or (D) the terms of any "lock-up" or similar provision of any
underwriting or similar agreement to which the Company or any of its affiliates
is a party to; or (ii) result in the creation or imposition of any lien, charge
or encumbrance upon the Securities or any of the assets of the Company or any
of its affiliates.
(e) The Company has an authorized capitalization consisting
of 80,000,000 shares of Common Stock, par value $.01 per share, and 5,000,000
shares of Preferred Stock, par value $.01 per share ("Preferred Stock"). The
Company has issued and outstanding 14,026,398 shares of Common Stock and no
shares of Preferred Stock on the date hereof. All of the issued shares of
capital stock of the Company have been duly and validly authorized and issued,
are fully paid and non-assessable; prior to the Closing Date, the authorized
capitalization shall include the Shares to be issued upon conversion of the
Securities. The Shares issuable upon conversion of the Securities, when issued
and delivered in accordance with the terms of the Securities, will be duly and
validly issued, fully paid and nonassessable. The issuance of the Shares will
not be in violation of any preemptive or similar rights of the holders of any
securities of the Company. The Securities (i) are free and clear of any
security interests, liens, claims or other encumbrances, (ii) have been duly
and validly authorized and on the Closing Date will be duly and validly issued,
fully paid and non assessable, (iii) will not have been, individually and
collectively, issued or sold in violation of any preemptive or other similar
rights of the holders of any securities of the Company, (iv) will not subject
the holders thereof to personal liability by reason of being such holders, and
(v) the Shares underlying the Securities are quoted on, and will be, following
the registration of the Shares as set forth in the Registration Rights
Agreement be eligible for trading on, the National Association of Securities
Dealers Inc. SmallCap Market ("Nasdaq").
(f) The Company complies with the eligibility requirements
for use of Form S-3, as set forth in the Act. The Company's stock is listed on
Nasdaq and the Company has received no notice, oral or written, with respect to
its continued eligibility for such listing. The Company hereby agrees, promptly
following the closing of the transactions contemplated by this Agreement, to
take such action as is necessary to cause the Shares issued upon exercise of
conversion rights under the Preferred Stock to be listed on Nasdaq upon such
conversion following the effective date of the registration statement, as
provided in the Registration Rights Agreement (subject, if required, to notice
to Nasdaq of the actual number of shares issued). The Company further agrees,
if the Company applies to have the Common Stock traded on any other principal
stock exchange or market, it will include in such application the Shares and
will take such other action as is necessary or desirable to cause the Shares to
be listed on such other exchange or market upon effective date of the
registration statement.
(g) The Exchange Act Reports are the only filings made by the
Company since December 31, 1995 pursuant to Sections 13(a), 13(c), 14 and 15(d)
of the Exchange Act, and the Company will cause its Common Stock to continue to
be registered under Section 12(g) or 12(b) of the Securities Exchange Act of
1934, will comply in all respects with its reporting and filing obligations
under said Act, and will not take any action or file any document (whether or
not permitted by said Act or the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under the Exchange Act. The Company will take all action necessary to continue
the listing and trading of its Common Stock on Nasdaq and will comply in all
respects with the Company's reporting, filing and other obligations under the
by-laws or rules of the NASD and Nasdaq.
(h) The Company has the requisite corporate power to own its
properties and to carry on its business as now being conducted. The Company
does not have any subsidiaries. The Company is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary other than those in which the failure so to qualify
would not have a Material Adverse Effect. "Material Adverse Effect" means any
adverse effect on the business, operations, properties, prospects, or financial
condition of the entity with respect to which such term is used and which is
material to such entity.
(i) The Company has furnished or made available to the Buyer
true and correct copies of the Company's Certificate of Incorporation as in
effect on the date hereof, and the Company's By-laws, as in effect on the date
hereof.
(j) The Company has delivered or made available to the Buyer
true and complete copies of the Exchange Act Reports (including, without
limitation, proxy information and solicitation materials excluding any
preliminary proxy not distributed). The Company has not provided to the Buyer
any information which, according to applicable law, rule or regulation, should
have been disclosed publicly by the Company but which has not been so
disclosed. As of their respective dates, the Exchange Act Reports complied in
all material respects with the requirements of the Exchange Act and the rules
and regulations of the SEC promulgated thereunder and other federal, state and
local laws, rules and regulations applicable to such Exchange Act Reports, and
none of the Exchange Act Reports 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. The financial
statements of the Company included in the Exchange Act Reports comply as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC or other applicable rules and
regulations with respect thereto. Such financial statements have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis 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 not include 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 operations and cash flows for the periods then ended (subject, in
the case of unaudited statements, to normal year-end audit adjustments).
(k) Except as set forth in the financial statements and other
documents filed by the Company under the Exchange Act, the Company has no
liabilities, contingent or otherwise, other than (i) liabilities incurred in
the ordinary course of business subsequent to December 31, 1995 and (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in such financial statements, which individually or in the aggregate,
are not material to the financial condition or operating results of the
Company. The Company has not provided to the Buyer any information which,
according to applicable law, rule or regulation, should have been disclosed
publicly by the Company but which has not been so disclosed.
(l) Since December 31, 1995 there has been no material
adverse change and no material adverse development in the business, properties,
operations, financial condition, results of operations or prospects of the
Company, except as disclosed in accordance with the Exchange Act Reports or the
Company Memorandum and except that the Company continues to incur losses.
(m) There is no material action, suit, proceeding, inquiry or
to the knowledge of the Company or any of its subsidiaries, investigation
before or by any court, public board, government agency, self-regulatory
organization or body pending, or to the knowledge of the Company or any of its
subsidiaries, threatened against or affecting the Company or any of its
subsidiaries, except as disclosed in the Exchange Act Reports or the Company
Memorandum.
(n) Neither the Company, nor any or 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 the Securities under the
Act.
(o) The Company has taken no action which would give rise to
any claim by any person for brokerage commissions, finder's fees or similar
payments by the Buyer relating to this Agreement of the transactions
contemplated hereby, except for dealings with First Bermuda Securities Limited,
whose commissions and fees will be paid for by the Company.
(p) As of the date hereof, the Company has reserved and the
Company shall continue to reserve and keep available at all times, free of
preemptive rights, shares of Common Stock for the purpose of enabling the
Company to satisfy any obligation to issue shares of its Common Stock upon
conversion of the Securities; provided, however, that the number of shares so
reserved shall at all times be at least 3,000,000. The number of shares so
reserved may be reduced by the number of shares actually delivered pursuant to
the conversion of the Securities (provided that in no event shall the number of
shares so reserved be less than the number required to satisfy the remaining
conversion rights on the unconverted Securities) and the number of shares so
reserved shall be increased to reflect stock splits and stock dividends and
distributions.
(q) The Preferred Stock and the Shares have not been
registered under the Securities Act of 1933, as amended (the "Act"). Each of
the Securities shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR THE SECURITIES LAWS OF CERTAIN STATES, AND MAY NOT BE OFFERED,
SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT AND ANY APPLICABLE STATE LAWS, (ii) TO THE EXTENT APPLICABLE, RULE
144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER THE ACT RELATING TO THE
DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH
OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL TO THE ISSUER,
THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT (OTHER THAN PURSUANT
TO REGULATION S) AND APPLICABLE STATE LAW IS AVAILABLE.
Certain registration rights with respect to the Securities
are set forth in the Registration Rights Agreement. This offering is not a
public offering and is intended to be made pursuant to Section 4(2) and 4(6) of
the Act and Regulation D as promulgated by the Securities and Exchange
Commission ("SEC") under the Act. This offering is also intended to be exempt
from the registration requirements of various state securities laws. A
substantial number of state securities commissions and securities industry
associations have established investor suitability standards for marketing
private offerings of securities within their respective jurisdictions. Some
have also established minimum dollar levels for purchases in their states. The
Company shall comply with these restrictions to the extent applicable.
(r) With a view to making available the benefits of certain
rules and regulations of the SEC that may permit the sale of certain of the
Securities, to the public without registration, the Company shall use its best
efforts to:
(i) make and keep public information regarding the Company
available, as those terms are understood and defined in Rule 144 under the Act,
at all times following the Closing Date (as hereinafter defined);
(ii) file with the SEC in a timely manner all reports and
other documents required of the Company under the Act and the Exchange Act;
(iii) so long as the Buyer owns any Securities, furnish to
the Buyer forthwith upon written request a written statement by the Company as
to its compliance with the reporting requirements of Rule 144, and of the Act
and the Exchange Act, a copy of the most recent annual or quarterly report of
the Company and such other reports and documents so filed as the Buyer may
reasonably request in availing itself of any rule or regulation of the SEC
allowing the Buyer to sell any such securities without registration.
(iv) make all necessary filings in connection with this
offering as required by the laws and regulations of all appropriate
jurisdictions and securities exchanges in the United States of America.
(s) Each party shall indemnify the other against any loss,
cost or damages (including reasonable attorney's fees and expenses) incurred as
a result of such parties' breach of any representation, warranty, covenant or
agreement in this Agreement.
7. Offering Materials. All offering materials and documents used in connection
with offers and sales of the Securities prior to the registration of the
Securities as provided in the Registration Rights Agreement shall include
statements to the effect that the Securities and the Shares issuable upon the
exercise of conversion rights have not been registered under the Act and that
the Buyer, may not sell the Securities or Shares unless the Securities or
Shares are registered under the Act, or to the extent applicable under Rule
144, or an exemption from the registration requirements of the Act is
available. Such statements shall appear (1) on the cover of any prospectus or
offering circular used in connection with the offer or sale of the Securities
and (2) in the underwriting section of any prospectus or offering circular used
in connection with the offer or sale of the Securities. The Company represents
that all offering materials and documents used in connection with the offers
and sales of the Securities prior to the Closing of the transactions
contemplated herein have complied with the foregoing.
8. Covenants of the Company. (a) The Company agrees that during the period
beginning on the date hereof and ending 90 days following the Closing Date, the
Company will not, without the prior written consent of a "majority-in-interest"
of the Buyers, negotiate or contract with any party to obtain additional equity
financing (including debt financing with an equity component) in any form
pursuant to an exemption from the Act under Regulation D or Regulation S of the
Act (the "Future Offerings"). In addition, the Company will not conduct any
Future Offerings during the period beginning on the 90th day following the date
hereof and ending 180 days following the Closing Date unless it shall have
first delivered to the Buyer at least ten (10) business days prior to the
closing of such Future Offering, written notice describing the proposed Future
Offering, including the terms and conditions thereof, and providing the Buyer
an option during such ten (10) day period to purchase all or any portion of its
"pro-rata" share of the securities being offered in the Future Offerings on the
same terms as contemplated by such Future Offering (the limitations referred to
in this and the immediately preceding sentence are collectively referred to as
the "Capital Raising Limitation"). The Capital Raising Limitation shall not
apply to any transaction involving the Company's commercial banking
arrangements or issuances of securities in connection with a merger,
consolidation or sale of assets, or in connection with any strategic
partnership or joint venture (the primary purpose of which is not to raise
equity capital), or in connection with the disposition or acquisition of a
business, product or license by the Company (so long as the securities so
issued are "restricted securities" within the meaning of Rule 144 under the
1933 Act and do not carry registration or piggyback rights for at least 360
days from the date of this Agreement), the issuance of securities to settle
securities litigation, or exercise of options by or the grant of performance
shares to employees, consultants or directors. The terms (i)
"majority-in-interest" means holders of Preferred Stock holding more than 50%
of the Common Stock underlying the Securities (treating the Securities on an as
converted basis) and (ii) "pro-rata share" means the number of the Securities
initially purchased divided by the aggregate number of all Securities sold
hereunder.
(b) The parties shall use their best efforts timely to satisfy each of
the conditions described in Section 9 of this Agreement.
(c) So long as the Buyer beneficially owns any of the Securities, the
Company shall timely file all reports required to be filed with the SEC
pursuant to the Exchange Act, and the Company shall satisfy the conditions
described in Section 6(r).
(d) The Company agrees to send the following reports to Buyer until
Buyer transfers, assigns, or sells all of the Securities: (i) within ten (10)
days after the filing with the SEC, a copy of its Annual Report on Form 10-KSB,
its Quarterly Reports on Form 10-QSB and any Current Reports on Form 8-K; and
(ii) within two (2) business days after release, copies of all press releases
issued by the Company or any of its subsidiaries.
(e) The Company shall at all times have authorized, and reserved for
the purpose of issuance, a sufficient number of shares of Common Stock to
provide for the full conversion of the outstanding Securities and issuance of
the Shares in connection therewith (based on the Conversion Price of the
Securities in effect from time to time). In that regard, on the Closing Date,
the Company shall have at least 3,000,000 shares reserved for issuance upon
conversion of the Securities (subject to adjustment in order to comply with the
immediately preceding sentence); provided that the Company shall not reduce the
number of shares of Common Stock reserved for issuance upon conversion of the
Securities without the consent of a majority-in-interest of the Buyers, which
consent will not be unreasonably withheld.
(f) So long as the Buyer beneficially owns any Securities, the Company
shall maintain its corporate existence, except in the event of a merger,
consolidation or sale of all or substantially all of the Company's assets, as
long as the surviving or successor entity in such transaction (i) assumes the
Company's obligations hereunder and under the agreements and instruments
entered into in connection herewith and (ii) is a publicly traded corporation
whose Common Stock is listed for trading on the AMEX, the NYSE or the Nasdaq.
The Company and the Buyer agree that the Closing Date, when certified
by Escrow Agent as the Closing shall be deemed to be a conclusion of the
offering of the Securities contemplated hereby.
(h) The Shares and the certificates evidencing the same shall at all
times be free of legends (except as provided in Section 10 below), "stock
transfer restrictions," or other restrictions, except for covenants of the
Buyer expressly set forth in this Agreement.
9. Conditions Precedent to the Buyer's Obligation. The obligations of the Buyer
hereunder are subject to the performance by the Company of its obligations
hereunder and to the satisfaction of the following additional conditions
precedent:
(a) The Buyer shall receive, on the Closing Date, an opinion
of independent counsel to the Company, dated the Closing Date, as to the
representations made by the Company in Sections 6(a) through and including 6(f)
hereof, and in Sections 6(m) and 6(n) hereof, and such other matters as Buyer
reasonably requests. The form of such opinion shall be as set forth in Exhibit
1 hereof.
(b) Delivery of the certificates representing the Preferred
Stock with restrictive legends to the Escrow Agent as set forth herein.
(c) The Company shall have delivered to the Buyer a
certificate in form and substance reasonably satisfactory to the Buyer,
executed by an executive officer of the Company, to the effect that all the
conditions to the Closing shall have been satisfied and the representations and
warranties of the Company herein are true and correct as of the date when made
and as of the Closing Date, and certifying as to the Company's Certificate of
Incorporation, By-laws, resolutions authorizing transaction, and incumbency of
Company officers.
(d) The Company and the Buyer shall have entered into the
Registration Rights Agreement contemplated by Section 4.
10. Legends (a) The certificates representing the Securities and the Shares
issued prior to the effective date of the registration statement or
availability of an exemption from registration, shall bear the legend set forth
in Section 6(q) herein (the "Legend").
(b) Following the effective date of the registration
statement or availability of an exemption from registration requirements under
Rule 144 of the Act, the Company will remove or will promptly instruct its
transfer agent (the "Transfer Agent") to remove the Legend from the Securities
and, if applicable, from the Shares issued prior to the effective date of the
registration statement (and will instruct the Transfer Agent to issue without
the Legend, the Shares issuable upon any conversion).
(c) Upon the submission, at any time after the effective date
of the registration statement or applicability of an exemption from the
registration requirements, under Rule 144 of the Act by the Buyer of a written
request for legend removal for the purpose of a bona fide pledge or deposit of
the Securities with a margin account, together with the certificates for which
the legend removal is being requested, the Company will reissue or will
promptly instruct the Transfer Agent to reissue the certificates representing
the Securities to be so pledged or deposited without the Legend.
11. Transfer Agent Instructions The Transfer Agent will be instructed to
reserve for issuance such number of shares of the Company's Common Stock as
would be issuable if the Preferred Stock were converted on the Closing Date and
such additional number of shares as, from time to time, shall be necessary to
provide for the issuance of Shares upon the conversion of the Preferred Stock.
Additionally, the Company shall deliver to the Transfer Agent at closing
irrevocable instructions substantially in the form set forth in Exhibit "D"
attached hereto, pursuant to which the Transfer Agent shall be instructed to
issue upon conversion the number of shares provided for in the Preferred Stock
being converted on the terms provided for therein without restrictive legend,
registered in the names provided by the Holders. The Company warrants and
covenants that no instructions restricting the transferability of the
Securities and the Shares other than the instructions in the immediately
preceding sentence and instructions for a "stop transfer" instruction until the
effective date of the registration statement have been given, or shall be
given, to the Transfer Agent, and that the Securities and the Shares shall
otherwise be freely transferable on the books and records of the Company.
Nothing in this section, however, shall affect in any way the obligations and
agreement of the Buyer to comply with all applicable federal, state and foreign
securities laws upon resale of the Securities.
12. Miscellaneous. (a) This Agreement may be executed in one or more
counterparts and it is not necessary that signatures of all parties appear on
the same counterpart, but such counterparts together shall constitute but one
and the same agreement.
(b) This Agreement shall be governed by and constructed in
accordance with the laws of the State of Delaware.
(c) This Agreement shall inure to the benefit of and be
binding upon the parties hereto, their respective successors, and no other
person shall have any right or obligation hereunder. This Agreement shall not
be assignable by either party without the prior written consent of the other,
and any assignment in violation hereof shall be void. Notwithstanding the
foregoing, the Buyer may assign its rights in this Agreement to, and the
provisions of this Agreement shall inure to the benefit of, and be enforceable
by, any transferee of any of the Securities or Shares.
(d) This Agreement together with the Certificate of
Designation and the Registration Rights Agreement constitutes the entire
agreement of the parties with respect to the subject matter hereof and
supersede all prior oral or written proposals or agreements related thereto.
This Agreement may not be amended or any provision hereof waived, in whole or
in part, except by a written amendment signed by both of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement, all as of the day and year above written.
BY: VIDEOLAN TECHNOLOGIES, INC.
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Name: Jack Shirman
Title: Chief Executive Officer
or
Name: Steven B. Rothenberg
Title: Vice President Finance, Treasurer and Secretary
BY: (The Buyer)
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Name:
Title: