EXHIBIT 99.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of April
28, 2000, by and among GlobalMedia.com, a Nevada corporation, with
headquarters located at 400 Robson Street, Vancouver, British Columbia V6B
2B4, Canada ("COMPANY"), and each of the purchasers set forth on the
signature pages hereto (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 under 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 two new series of preferred stock, the
first designated as Series B Convertible Preferred Stock (the "SERIES B
PREFERRED STOCK"), having the rights, preferences and privileges set forth in
the Certificate of Designations, Rights and Preferences attached hereto as
EXHIBIT "A-1" (the "SERIES B CERTIFICATE OF DESIGNATION") and the second
designated as Series C Convertible Preferred Stock (the "SERIES C PREFERRED
STOCK"), having the rights, preferences and privileges set forth in the
Certificate of Designations, Rights and Preferences attached hereto as
EXHIBIT "A-2" (the "SERIES C CERTIFICATE OF DESIGNATION" and, collectively
with the Series B Certificate of Designation, the "CERTIFICATES OF
DESIGNATION") ;
C. The Preferred Shares (as defined below) are convertible into
shares of common stock, $0.001 par value per share, of the Company (the
"COMMON STOCK"), upon the terms and subject to the limitations and conditions
set forth in the Certificates of Designation;
D. The Company has (i) authorized the issuance to the Buyers of
warrants, in the form attached hereto as EXHIBIT "B-1", to purchase an
aggregate of Three Hundred Eighty-Eight Thousand, Five Hundred (388,500)
shares of Common Stock, upon the terms and conditions and subject to the
limitations and conditions set forth in the Warrants dated April 28, 2000,
issuable in connection with the Series B Preferred Stock (the "SERIES B
WARRANTS") and (ii) authorized the issuance to the Buyers of warrants, in the
form attached hereto as "EXHIBIT B-2," to acquire a number of shares of
Common Stock equal to 50% multiplied by the quotient equal to $5,000,000
divided by the average of the Closing Bid Prices (as defined in the
Certificates of Designation) for the five (5) consecutive Trading Days (as
defined in the Certificates of Designation) ending one (1) Trading prior to
the Closing Date (as defined below) with respect to the Second Closing (as
defined below) (the "SERIES C WARRANTS" and, together with the Series B
Warrants, the "WARRANTS"). The shares of Common Stock issuable upon exercise
of or otherwise pursuant to the Warrants are referred to herein collectively
as the "WARRANT SHARES."
E. The Buyers desire to purchase and the Company desires to issue
and sell, upon the terms and conditions set forth in this Agreement, (i) an
aggregate of Five Thousand (5,000) shares of Series B Preferred Stock
(together with any shares of Series B Preferred Stock issued in replacement
thereof or as a dividend thereon or otherwise with respect thereto in
accordance with the terms thereof, the "SERIES B PREFERRED SHARES") and an
aggregate of Five Thousand (5,000)
shares of Series C Preferred Stock (together with any shares of Series C
Preferred Stock issued in replacement thereof or as a dividend thereon or
otherwise with respect thereto in accordance with the terms thereof, the
"SERIES C PREFERRED SHARES" and, collectively with the Series B Preferred
Shares, the "PREFERRED SHARES"), and (ii) Series B Warrants to purchase Three
Hundred Eighty-Eight Thousand, Five Hundred (388,500) shares of Conversion
Stock and Series C Warrants to purchase a number of shares of Common Stock as
determined above, for an aggregate purchase price of Ten Million Dollars
($10,000,000);
F. Each Buyer wishes to purchase, upon the terms and conditions
stated in this Agreement, the number of Preferred Shares and Warrants as is
set forth immediately below its name on the signature pages hereto;
G. Contemporaneous with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration
Rights Agreement, in the form attached hereto as EXHIBIT "C" (the
"REGISTRATION RIGHTS AGREEMENT"), pursuant to which the Company has agreed to
provide certain registration rights under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws; and
NOW THEREFORE, the Company and each of the Buyers severally
(and not jointly) hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES
AND WARRANTS.
a. PURCHASE OF PREFERRED SHARES AND WARRANTS. On each
Closing Date (as defined below), the Company shall issue and sell to each
Buyer and each Buyer severally agrees to purchase from the Company such
number of Preferred Shares and Warrants for the aggregate purchase price with
respect to such applicable Closing (as defined below) as is set forth
immediately below such Buyer's name on the signature pages hereto. The
issuance, sale and purchase of the Preferred Shares and Warrants shall take
place at two (2) closings (each a "CLOSING"), the first of which is
hereinafter referred to as the "FIRST CLOSING" and the second of which is
referred to as the "SECOND CLOSING." The aggregate number of Series B
Preferred Shares to be issued at the First Closing is Five Thousand (5,000)
and the aggregate number of Series B Warrants to be issued at the First
Closing is 388,500, for an aggregate purchase price of Five Million Dollars
($5,000,000) (the "FIRST CLOSING PURCHASE PRICE") and the aggregate number of
Series C Preferred Shares to be issued at the Second Closing is Five Thousand
(5,000) and the aggregate number of Series C Warrants to be issued at the
Second Closing shall be determined by multiplying 50% by the quotient of
$5,000,000 divided by the average of the Closing Bid Prices for the five (5)
consecutive Trading Days ending one (1) Trading Day prior to the Closing Date
(as defined below) with respect to the Second Closing, for an aggregate
purchase price of Five Million Dollars ($5,000,000) (the "SECOND CLOSING
PURCHASE PRICE" and, collectively with the First Closing Purchase Price, the
"PURCHASE PRICE"). Subject to the satisfaction (or waiver) of the conditions
thereto set forth in Section 6 and Section 7 below, (i) at the First Closing,
the Company shall issue and sell to each Buyer and each Buyer shall purchase
from the Company the number of Series B Preferred Shares and Series B
Warrants which such Buyer is purchasing hereunder and as set forth below such
Buyer's name on the signature pages hereto and (ii) at the Second Closing,
the Company shall issue and sell to each Buyer and each
Buyer shall purchase from the Company the number of Series C Preferred Shares
and Series C Warrants as is set forth below such Buyer's name on the
signature pages hereto.
b. FORM OF PAYMENT. On each Closing Date (as defined
below), (i) each Buyer shall pay the applicable Purchase Price for the
Preferred Shares and Warrants to be issued and sold to it at the applicable
Closing by wire transfer of immediately available funds to the Company, in
accordance with the Company's written wiring instructions, against delivery
of duly executed certificates representing such number of Preferred Shares
and Warrants which such Buyer is purchasing and (ii) the Company shall
deliver such certificates duly executed on behalf of the Company, to the
Buyer, against delivery of such applicable Purchase Price.
c. CLOSING DATE. Subject to the satisfaction (or
waiver) of the conditions thereto set forth in Section 6 and Section 7 below,
the date and time of the issuance and sale of the Preferred Shares pursuant
to this Agreement (the "CLOSING DATE") shall be (i) in the case of the First
Closing, 12:00 noon Eastern Standard Time on April 28, 2000 and (ii) in the
case of Second Closing, as soon as practicable (but no later than 12:00 noon
Eastern Standard Time on the fifth (5th) business day) following the
satisfaction (or waiver) of the conditions to the Second Closing set forth in
Sections 6 and 7 below (but in no event later than the fifth (5th) business
day following the satisfaction of the condition set forth in Section
7(b)(ii)) or, in each case, such other mutually agreed upon time. Each
closing shall occur on the applicable Closing Date at the offices of Ballard
Spahr Andrews & Ingersoll, LLP, 1735 Market Street, Philadelphia,
Pennsylvania 19103, or at such other location as may be agreed to by the
parties.
2. BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer
severally (and not jointly) represents and warrants to the Company solely as
to such Buyer that:
a. INVESTMENT PURPOSE. As of the date hereof, the
Buyer is purchasing the Preferred Shares and the shares of Common Stock
issuable upon conversion of or otherwise pursuant to the Preferred Shares
(including, without limitation, (i) such additional shares of Common Stock as
are issuable as a result of the events described in Articles V, VI.D(b) or
VI.E of the Certificates of Designation and Section 2(c) of the Registration
Rights Agreement and (ii) the shares of Common Stock issuable pursuant to the
investment options described in Article VI.G of the Certificates of
Designation (the "INVESTMENT OPTIONS")) (such shares of Common Stock being
collectively referred to herein as the "CONVERSION SHARES") and the Warrants
and the shares of Common Stock issuable upon exercise of or otherwise
pursuant to the Warrants (the "WARRANT SHARES" and, collectively with the
Preferred Shares, Warrants, Investment Options and Conversion Shares, the
"SECURITIES") for its own account and not with a present view towards the
public sale or distribution thereof, except pursuant to sales registered or
exempted from registration under the 1933 Act; PROVIDED, HOWEVER, that by
making the representations herein, the 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. The Buyer is an
"accredited investor" as that term is defined in Rule 501(a) of Regulation D
(an "ACCREDITED INVESTOR").
c. RELIANCE ON EXEMPTIONS. The Buyer understands that
the Securities are being offered and sold to it in reliance upon specific
exemptions from the
registration requirements of United States federal and state securities laws
and that the Company is relying upon the truth and accuracy of, and the
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the
Buyer to acquire the Securities.
d. INFORMATION. The Buyer and its advisors, if any,
have been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Securities which have been requested by the Buyer or its advisors. The 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
investigation conducted by Buyer or any of its advisors or representatives
shall modify, amend or affect Buyer's right to rely on the Company's
representations and warranties contained in Section 3 below. The Buyer
understands that its investment in the Securities involves a significant
degree of risk.
e. GOVERNMENTAL REVIEW. The Buyer understands that no
United States federal or state agency or any other government or governmental
agency has passed upon or made any recommendation or endorsement of the
Securities.
f. TRANSFER OR RE-SALE. The Buyer understands that (i)
except as provided in the Registration Rights Agreement, the sale or re-sale
of the Securities has not been and is not being registered under the 1933 Act
or any applicable state securities laws, and the Securities may not be
transferred unless (a) the Securities are sold pursuant to an effective
registration statement under the 1933 Act, (b) the Buyer shall have delivered
to the Company an opinion of counsel (which opinion shall be in form,
substance and scope customary for opinions of counsel in comparable
transactions) to the effect that the Securities to be sold or transferred may
be sold or transferred pursuant to an exemption from such registration, (c)
the Securities are sold or transferred to an "affiliate" (as defined in Rule
144 promulgated under the 1933 Act (or a successor rule) ("RULE 144")) of the
Buyer who agrees to sell or otherwise transfer the Securities only in
accordance with this Section 2(f) and who is an Accredited Investor or (d)
the Securities are sold pursuant to Rule 144; (ii) any sale of such
Securities made in reliance on Rule 144 may be made only in accordance with
the terms of said Rule and further, if said Rule is not applicable, any
re-sale of such Securities under circumstances in which the seller (or the
person through whom the sale is made) may be deemed to be an underwriter (as
that term is defined in the 1933 Act) may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the SEC
thereunder; and (iii) neither the Company nor any other person is under any
obligation to register such Securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder (in each case, other than pursuant to the Registration Rights
Agreement). Notwithstanding the foregoing or anything else contained herein
to the contrary, the Securities may be pledged as collateral in connection
with a BONA FIDE margin account or other lending arrangement.
g. LEGENDS. The Buyer understands that the Preferred
Shares and the Warrants and, until such time as the Conversion Shares and
Warrant Shares have been registered under the 1933 Act as contemplated by the
Registration Rights Agreement or otherwise may be sold pursuant to Rule 144
without any restriction as to the number of securities as of a particular
date that can then be immediately sold, the Conversion Shares and Warrant
Shares, may bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of the certificates for such Securities):
"The securities represented by this certificate
have not been registered under the Securities Act
of 1933, as amended or any state securities laws.
The securities may not be sold, transferred or
assigned in the absence of an effective
registration statement for the securities under
said Act and applicable state securities laws, or
an opinion of counsel, in form, substance and
scope customary for opinions of counsel in
comparable transactions, that registration is not
required under said Act or unless sold pursuant
to and in compliance with Rule 144 under said
Act."
The legend set forth above shall be removed and the Company
shall issue a certificate without such legend to the holder of any Security
upon which it is stamped, if, unless otherwise required by applicable state
securities laws, (a) such Security is registered for sale under an effective
registration statement filed under the 1933 Act or otherwise may be sold
pursuant to Rule 144 without any restriction as to the number of securities
as of a particular date that can then be immediately sold, or (b) such holder
provides the Company with an opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable transactions, to the effect
that a public sale or transfer of such Security may be made without
registration under the 1933 Act and such sale or transfer is effected or (c)
such holder provides the Company with reasonable assurances that such
Security can be sold pursuant to Rule 144 (which shall consist of the
documentation customarily executed by a seller and its broker, if any, in
connection with a proposed sale under Rule 144). The Buyer agrees to sell all
Securities, including those represented by a certificate(s) from which the
legend has been removed, in compliance with applicable federal and state
securities law requirements, including prospectus delivery requirements, if
any.
h. AUTHORIZATION; ENFORCEMENT. This Agreement and the
Registration Rights Agreement have been duly and validly authorized. This
Agreement has been duly executed and delivered on behalf of the Buyer, and
this Agreement constitutes, and upon execution and delivery by the Buyer of
the Registration Rights Agreement, such agreement will constitute, valid and
binding agreements of the Buyer enforceable in accordance with their terms.
i. RESIDENCY. The Buyer is a resident of the
jurisdiction set forth immediately below such Buyer's name on the signature
pages hereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company represents and warrants to each Buyer that:
a. ORGANIZATION AND QUALIFICATION. The Company and
each of its Subsidiaries (as defined below), if any, is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated, with full power and authority
(corporate and other) to own, lease, use and operate its properties and to
carry on its business as and where now owned, leased, used, operated and
conducted. SCHEDULE 3(a) sets forth a list of all of the Subsidiaries of the
Company and the jurisdiction in which each is
incorporated. The Company and each of its Subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every
jurisdiction in which its ownership or use of property or the nature of the
business conducted by it makes such qualification necessary except where the
failure to be so qualified or in good standing would not have a Material
Adverse Effect. "MATERIAL ADVERSE EFFECT" means any material adverse effect
on (i) the Securities, (ii) the business, operations, assets, financial
condition or prospects of the Company and its Subsidiaries, if any, taken as
a whole, or (iii) on the transactions contemplated hereby or by the
agreements or instruments to be entered into in connection herewith.
"Subsidiaries" means any corporation or other organization, whether
incorporated or unincorporated, in which the Company owns, directly or
indirectly, any equity or other ownership interest.
b. AUTHORIZATION; ENFORCEMENT. (i) The Company has all
requisite corporate power and authority to enter into and perform this
Agreement, the Registration Rights Agreement and the Warrants and to file and
perform its obligations under the Certificates of Designation, consummate the
transactions contemplated hereby and thereby and to issue the Securities, in
accordance with the terms hereof and thereof, (ii) the execution and delivery
of this Agreement, the Registration Rights Agreement and the Warrants by the
Company, the filing of the Certificates of Designation 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
issuance and reservation for issuance of the Conversion Shares issuable upon
conversion of or otherwise pursuant to the Preferred Shares (including upon
exercise of the Investment Options contained therein) and the Warrant Shares
issuable upon exercise of or otherwise pursuant to the Warrants) have been
duly authorized by the Company's Board of Directors and no further consent or
authorization of the Company, its Board of Directors, or its stockholders is
required, (iii) this Agreement has been duly executed and delivered by the
Company, and (iv) this Agreement constitutes, and upon execution and delivery
by the Company of the Registration Rights Agreement and the Warrants and upon
the execution and filing of the Certificates of Designation, each of such
agreements and instruments will constitute, a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with
its terms.
c. CAPITALIZATION. As of the date hereof, the
authorized capital stock of the Company consists of (i) 200,000,000 shares of
Common Stock of which 23,553,486 shares are issued and outstanding, 7,897,975
shares are reserved for issuance pursuant to the Company's stock option
plans, 5,580,892 shares are reserved for issuance pursuant to securities
(other than Preferred Shares and the Warrants) exercisable for, or
convertible into or exchangeable for shares of Common Stock and 9,264,843 (2x
currently required) shares are reserved for issuance upon conversion of or
otherwise pursuant to the Preferred Shares (including upon exercise of the
Investment Options) and exercise of or otherwise pursuant to the Warrants
(subject to adjustment pursuant to the Company's covenant set forth in
Section 4(h) below); and (ii) 100,000,000 shares of preferred stock, 8,500 of
which are designated as Series A Convertible Preferred Stock, 4,175 of which
are issued and outstanding. All of such outstanding shares of capital stock
are, or upon issuance will be, duly authorized, validly issued, fully paid
and nonassessable. No shares of capital stock of the Company are subject to
preemptive rights or any other similar rights of the stockholders of the
Company or any liens or encumbrances imposed through the actions or failure
to act of the Company. Except as disclosed in SCHEDULE 3(c), as of the
effective date of this Agreement, (i) there are no outstanding options,
warrants, scrip, rights to subscribe for, puts, calls, rights of first
refusal, agreements, understandings,
claims or other commitments or rights of any character whatsoever relating
to, or securities or rights convertible into or exchangeable for any shares
of capital stock of the Company or any of its Subsidiaries, 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, (ii) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any
of its or their securities under the 1933 Act (except the Registration Rights
Agreement) and (iii) there are no anti-dilution or price adjustment
provisions contained in any security issued by the Company (or in any
agreement providing rights to security holders) that will be triggered by the
issuance of the Preferred Shares, the Warrants, the Conversion Shares or
Warrant Shares. The Company has furnished to the Buyer true and correct
copies of the Company's Articles of Incorporation as in effect on the date
hereof ("ARTICLES OF INCORPORATION"), 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 of the Company and the material rights
of the holders thereof in respect thereto. The Company shall provide the
Buyer with a written update of this representation signed by the Company's
Chief Executive or Chief Financial Officer on behalf of the Company as of the
Closing Date.
d. ISSUANCE OF SHARES. Upon the filing of the
Certificates of Designation, the Preferred Shares will be duly authorized,
and upon issuance in accordance with the terms of this Agreement, will be
validly issued, fully paid and non-assessable, and free from all taxes,
liens, claims and encumbrances with respect to the issue thereof and shall
not be subject to preemptive rights or other similar rights of stockholders
of the Company and will not impose personal liability upon the holder
thereof. The Conversion Shares and Warrant Shares are duly authorized and
reserved for issuance, and, upon conversion of or otherwise pursuant to the
Preferred Shares and exercise of or otherwise pursuant to the Warrants in
accordance with the terms thereof and exercise of the Investment Options in
accordance with Article VI.G of the Certificates of Designation, will be
validly issued, fully paid and non-assessable, and free from all taxes,
liens, claims and encumbrances and will not be subject to preemptive rights
or other similar rights of stockholders of the Company and will not impose
personal liability upon the holder thereof.
e. ACKNOWLEDGMENT OF DILUTION. The Company understands
and acknowledges the potentially dilutive effect to the Common Stock upon the
issuance of the Conversion Shares upon conversion of or otherwise pursuant to
the Preferred Shares (including upon exercise of the Investment Options
contained in the Certificates of Designation) and upon issuance of the
Warrant Shares upon exercise of or otherwise pursuant to the Warrants. The
Company's directors and executive officers have studied and fully understand
the nature of the Securities being sold hereunder. The Company further
acknowledges that its obligation to issue Conversion Shares and Warrant
Shares upon conversion of or otherwise pursuant to the Preferred Shares
(including upon exercise of the Investment Options) or exercise of or
otherwise pursuant to the Warrants in accordance with this Agreement, the
Certificates of Designation and the Warrants is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the
ownership interests of other stockholders of the Company. Taking the
foregoing into account, the Company's Board of Directors has determined, in
its good faith business judgment, that the issuance of the Securities
hereunder and under the Certificates of Designation and the Warrants and the
consummation of the transactions contemplated hereby and thereby are in the
best interest of the Company and its stockholders.
f. SERIES OF PREFERRED STOCK. The terms, designations,
powers, preferences and relative participating and optional or special
rights, and the qualifications, limitations and restrictions of each series
of preferred stock of the Company (other than the Preferred Shares) are as
stated in the Articles of Incorporation, filed on or prior to the date
hereof, and the Bylaws. The terms, designations, powers, preferences and
relative, participating and optional or special rights, and the
qualifications, limitations and restrictions of the Preferred Shares will be
as stated in the Certificates of Designation.
g. NO CONFLICTS. The execution, delivery and
performance of this Agreement, the Registration Rights Agreement and the
Warrants by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation,
the filing of the Certificates of Designation and the issuance and
reservation for issuance, as applicable, of the Preferred Shares, Conversion
Shares (including those issuable upon exercise of the Investment Options) and
Warrant Shares) will not (i) conflict with or result in a violation of any
provision of the Articles of Incorporation or By-laws or (ii) violate or
conflict with, or result in a breach of any provision of, or constitute a
default (or an event which with notice or lapse of time or both could become
a default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture, patent, patent
license 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 regulations of any self-regulatory organizations to which the
Company or its securities are subject) 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 for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as
would not, individually or in the aggregate, have a Material Adverse Effect).
Neither the Company nor any of its Subsidiaries is in violation of its
Articles of Incorporation, By-laws or other organizational documents and
neither the Company nor any of its Subsidiaries is in default (and no event
has occurred which with notice or lapse of time or both could put the Company
or any of its Subsidiaries in default) under, and neither the Company nor any
of its Subsidiaries has taken any action or failed to take any action that
would 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 by which any property or assets of
the Company or any of its Subsidiaries is bound or affected, except for
possible defaults as would not, individually or in the aggregate, have a
Material Adverse Effect. The businesses of the Company and its Subsidiaries,
if any, are not being conducted, and shall not be conducted so long as a
Buyer owns any of the Securities, in violation of any law, ordinance or
regulation of any governmental entity except where such violation would not
have a Material Adverse Effect. Except as specifically contemplated by this
Agreement and as required under the 1933 Act and any applicable state
securities laws, the Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any
court, governmental agency, regulatory agency, self regulatory organization
or stock market or any third party in order for it to execute, deliver or
perform any of its obligations under this Agreement, the Registration Rights
Agreement or the Warrants in accordance with the terms hereof or thereof or
to issue and sell the Preferred Shares and Warrants in accordance with the
terms hereof and to issue the Conversion Shares upon conversion of or
otherwise pursuant to the Preferred Shares (including upon exercise of the
Investment Options) and the Warrant Shares upon exercise of or otherwise
pursuant to the Warrants. Except as disclosed in SCHEDULE 3(g),
all consents, authorizations, orders, filings and registrations which the
Company is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof. The Company is not in
violation of the listing requirements of the Nasdaq National Market
("NASDAQ"), and does not reasonably anticipate that the Common Stock will be
delisted by Nasdaq in the foreseeable future. The Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise
to any of the foregoing.
h. SEC DOCUMENTS; FINANCIAL STATEMENTS. Except as
disclosed in SCHEDULE 3(h), since July 31, 1999, the Company has timely filed
all reports, schedules, forms, statements and other documents required to be
filed by it with the SEC pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "1934 ACT") (all of the
foregoing filed prior to the date hereof and all exhibits included therein
and financial statements and schedules thereto and documents (other than
exhibits to such documents) incorporated by reference therein, being
hereinafter referred to herein as the "SEC DOCUMENTS"). The Company has
delivered to each Buyer true and complete copies of the SEC Documents, except
for such exhibits and incorporated 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. None of the
statements made in any such SEC Documents is, or has been, required to be
amended or updated under applicable law (except for such statements as have
been amended or updated in subsequent filings prior to the date hereof). 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 United States 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 not
include footnotes or may be condensed or summary statements) and fairly
present in all material respects the consolidated financial position of the
Company and its consolidated Subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). Except as set forth in the financial statements of the Company
included in the SEC Documents, the Company has no liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to July 31, 1999 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.
i. ABSENCE OF CERTAIN CHANGES. Since July 31, 1999,
there has been no material adverse change and no material adverse development
in the assets, liabilities, business, properties, operations, financial
condition, results of operations or prospects of the Company or any of its
Subsidiaries.
j. ABSENCE OF LITIGATION. There is no action, suit,
claim, proceeding, inquiry or investigation before or by any court, public
board, government agency, self-regulatory organization or body pending or, to
the knowledge of the Company or any of its Subsidiaries, threatened against
or affecting the Company or any of its Subsidiaries, or their officers or
directors in their capacity as such, that could have a Material Adverse
Effect. SCHEDULE 3(j) contains a complete list and summary description of any
pending or threatened proceeding against or affecting the Company or any of
its Subsidiaries, without regard to whether it would have a Material Adverse
Effect. The Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
k. PATENTS, COPYRIGHTS, ETC.
(i) The Company and each of its Subsidiaries
owns or possesses the requisite licenses or rights to use all patents, patent
applications, patent rights, inventions, know-how, trade secrets, trademarks,
trademark applications, service marks, service names, trade names and
copyrights ("INTELLECTUAL PROPERTY") necessary to enable it to conduct its
business as now operated (and, except as set forth in SCHEDULE 3(k) hereof,
to the best of the Company's knowledge, as presently contemplated to be
operated in the future); there is no claim or action by any person pertaining
to, or proceeding pending, or to the Company's knowledge threatened, which
challenges the right of the Company or of a Subsidiary with respect to any
Intellectual Property necessary to enable it to conduct its business as now
operated (and, except as set forth in SCHEDULE 3(k) hereof, to the best of
the Company's knowledge, as presently contemplated to be operated in the
future); to the best of the Company's knowledge, the Company's or its
Subsidiaries' current and intended products, services and processes do not
infringe on any Intellectual Property or other rights held by any person; and
the Company is unaware of any facts or circumstances which might give rise to
any of the foregoing. The Company and each of its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and
value of their Intellectual Property.
(ii) All of the Company's computer software and
computer hardware, and other similar or related items of automated,
computerized or software systems that are used or relied on by the Company in
the conduct of its business or that were, or currently are being, sold or
licensed by the Company to customers (collectively, "INFORMATION
TECHNOLOGY"), are Year 2000 Complaint. For purposes of this Agreement, the
term "YEAR 2000 COMPLIANT" means, with respect to the Company's Information
Technology, that the Information Technology is designed to be used prior to,
during and after the calendar Year 2000 A.D., and the Information Technology
used during each such time period will accurately receive, provide and
process date and time data (including, but not limited to, calculating,
comparing and sequencing) from, into and between the 20th and 21st centuries,
including the years 1999 and 2000, and leap-year calculations, and will not
malfunction, cease to function, or provide invalid or incorrect results as a
result of the date or time data, to the extent that other information
technology, used in combination with the Information Technology, properly
exchanges date and time data with it.
l. 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 Company nor any of
its Subsidiaries is a party to any contract or agreement which in the
judgment of the Company's officers has or is expected to have a Material
Adverse Effect.
m. TAX STATUS. Except as set forth on SCHEDULE 3(m),
the Company and each of its Subsidiaries has made or filed all federal, state
and foreign 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 provisions 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. The Company has not executed a waiver with respect to the statute of
limitations relating to the assessment or collection of any foreign, federal,
state or local tax. Except as set forth on SCHEDULE 3(m), none of the
Company's tax returns is presently being audited by any taxing authority.
n. CERTAIN TRANSACTIONS. Except as set forth on
SCHEDULE 3(n) and except for arm's length transactions pursuant to which the
Company or any of its Subsidiaries makes payments in the ordinary course of
business upon terms no less favorable than the Company or any of its
Subsidiaries 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.
o. DISCLOSURE. All information relating to or
concerning the Company or any of its Subsidiaries set forth in this Agreement
and provided to the Buyers pursuant to Section 2(d) hereof and otherwise in
connection with the transactions contemplated hereby is true and correct in
all material respects and the Company has not omitted to state any material
fact necessary in order to make the statements made herein or therein, in
light of the circumstances under which they were made, not misleading. No
event or circumstance has occurred or exists with respect to the Company or
any of its Subsidiaries or its or their business, properties, prospects,
operations or financial conditions, which, under applicable law, rule or
regulation, requires public disclosure or announcement by the Company but
which has not been so publicly announced or disclosed (assuming for this
purpose that the Company's reports filed under the 1934 Act are being
incorporated into an effective registration statement filed by the Company
under the 1933 Act).
p. ACKNOWLEDGMENT REGARDING BUYERS' PURCHASE OF
SECURITIES. The Company acknowledges and agrees that the Buyers are acting
solely in the capacity of arm's length purchasers with respect to this
Agreement and the transactions contemplated hereby. The
Company further acknowledges that no Buyer is acting as a financial advisor
or fiduciary of the Company (or in any similar capacity) with respect to this
Agreement and the transactions contemplated hereby and that any statement
made by any Buyer or any of their respective representatives or agents in
connection with this Agreement and the transactions contemplated hereby is
not advice or a recommendation and is merely incidental to the Buyers'
purchase of the Securities and has not been relied upon by the Company, its
officers or its directors in any way. The Company further represents to each
Buyer that the Company's decision to enter into this Agreement has been based
solely on the independent evaluation by the Company and its representatives.
q. 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 under the 1933 Act of the issuance of the Securities to the
Buyers. The issuance of the Securities to the Buyers will not be integrated
with any other issuance of the Company's securities (past, current or future)
(including the Company's Series A Convertible Preferred Stock and Warrants
issued in connection therewith) for purposes of any stockholder approval
provisions applicable to the Company or its securities.
r. NO BROKERS. 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 relating to this Agreement or the
transactions contemplated hereby, except for dealings with Broadmark Capital
Corporation, whose commissions and fees will be paid for by the Company.
s. PERMITS; COMPLIANCE. The Company and each of its
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and
to carry on its business as it is now being conducted (collectively, the
"COMPANY PERMITS") except for any Company Permits the failure of which to
possess would not have a Material Adverse Effect, and there is no action
pending or, to the knowledge of the Company, threatened regarding suspension
or cancellation of any of the Company Permits. Neither the Company nor any of
its Subsidiaries is in conflict with, or in default or violation of, any of
the Company Permits, except for any such conflicts, defaults or violations
which, individually or in the aggregate, would not reasonably be expected to
have a Material Adverse Effect. Since July 31, 1999, neither the Company nor
any of its Subsidiaries has received any notification from any governmental
agency or authority with respect to possible conflicts, defaults or
violations of applicable laws, except for notices relating to possible
conflicts, defaults or violations, which conflicts, defaults or violations
would not have a Material Adverse Effect.
t. ENVIRONMENTAL MATTERS.
(i) Except as set forth in SCHEDULE 3(t), there
are, to the Company's knowledge, with respect to the Company or any of its
Subsidiaries or any predecessor of the Company, no past or present violations
of Environmental Laws (as defined below), releases of any material into the
environment, actions, activities, circumstances, conditions, events,
incidents, or contractual obligations which may give rise to any common law
environmental liability or any liability under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 or similar
federal, state, local or foreign laws and
neither the Company nor any of its Subsidiaries has received any notice with
respect to any of the foregoing, nor is any action pending or, to the
Company's knowledge, threatened in connection with any of the foregoing. The
term "ENVIRONMENTAL LAWS" means all federal, state, local or foreign laws
relating to pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata), including, without limitation, laws relating
to emissions, discharges, releases or threatened releases of chemicals,
pollutants contaminants, or toxic or hazardous substances or wastes
(collectively, "HAZARDOUS MATERIALS") into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials, as well as
all authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
(ii) Other than those that are or were stored,
used or disposed of in compliance with applicable law, no Hazardous Materials
are contained on or about any real property currently owned, leased or used
by the Company or any of its Subsidiaries, and no Hazardous Materials were
released on or about any real property previously owned, leased or used by
the Company or any of its Subsidiaries during the period the property was
owned, leased or used by the Company or any of its Subsidiaries, except in
the normal course of the Company's or any of its Subsidiaries' business.
(iii) Except as set forth in SCHEDULE 3(t), there
are no underground storage tanks on or under any real property owned, leased
or used by the Company or any of its Subsidiaries that are not in compliance
with applicable law.
u. TITLE TO PROPERTY. The Company and its Subsidiaries
have good and marketable title in fee simple to all real property and good
and marketable title to all personal property owned by them which is material
to the business of the Company and its Subsidiaries, in each case free and
clear of all liens, encumbrances and defects except such as are described in
SCHEDULE 3(u) or such as would not have a Material Adverse Effect. Any real
property and facilities held under lease by the Company and its Subsidiaries
are held by them under valid, subsisting and enforceable leases with such
exceptions as would not have a Material Adverse Effect.
v. 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 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 have a Material Adverse Effect.
w. INTERNAL ACCOUNTING CONTROLS. The Company and each
of its Subsidiaries maintain a system of internal accounting controls
sufficient, in the judgment of the Company's board of directors, 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.
x. FOREIGN CORRUPT PRACTICES. Neither the Company, nor
any of its Subsidiaries, nor any director, officer, agent, employee or other
person acting on behalf of the Company or any Subsidiary has, in the course
of his actions for, or on behalf of, the Company, used any corporate funds
for any unlawful contribution, gift, entertainment or other unlawful expenses
relating to political activity; made any direct or indirect unlawful payment
to any foreign or domestic government official or employee from corporate
funds; violated or is in violation of any provision of the U.S. Foreign
Corrupt Practices Act of 1977; or made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
y. SOLVENCY. The Company (both before and after giving
effect to the transactions contemplated by this Agreement) is solvent (I.E.,
its assets have a fair market value in excess of the amount required to pay
its probable liabilities on its existing debts as they become absolute and
matured) and currently the Company has no information that would lead it to
reasonably conclude that the Company would not have the ability to, nor does
it intend to take any action that would impair its ability to, pay its debts
from time to time incurred in connection therewith as such debts mature. The
Company did not receive a qualified opinion from its auditors with respect to
its most recent fiscal year end and does not anticipate or know of any basis
upon which its auditors might issue a qualified opinion in respect of its
current fiscal year.
z. NO INVESTMENT COMPANY. The Company is not, and upon
the issuance and sale of the Securities as contemplated by this Agreement,
the Warrants and the Certificates of Designation will not be, an "investment
company" required to be registered under the Investment Company Act of 1940
(an "INVESTMENT COMPANY"). The Company is not controlled by an Investment
Company.
aa. FORM SB-2 OR FORM S-1 ELIGIBILITY. The Company is
currently eligible to register the resale of its Common Stock on a
registration statement on Form SB-2 or Form S-1 under the 1933 Act. There
exist no facts or circumstances of which the Company is aware that would
prohibit or delay the preparation and filing of a registration statement on
either Form SB-2 or Form S-1 with respect to the Registrable Securities (as
defined in the Registration Rights Agreement) within the time periods
referred to therein.
bb. NO GENERAL SOLICITATION. Neither the Company nor
any distributor participating on the Company's behalf in the transactions
contemplated hereby, if any, nor any person acting for the Company, or any
such distributor, has conducted any "general solicitation," as such term is
defined in Regulation D, with respect to any of the Securities being offered
hereby.
4. COVENANTS.
cc. BEST EFFORTS. The parties shall use their best
efforts to satisfy timely each of the conditions described in Section 6 and 7
of this Agreement.
dd. FORM D; BLUE SKY LAWS. The Company agrees to file
a Form D with respect to the Securities as required under Regulation D and to
provide a copy thereof to each Buyer promptly after such filing. The Company
shall, on or before the Closing Date, take such action as the Company shall
reasonably determine is necessary to qualify the Securities for sale to the
Buyers at the Closing pursuant to this Agreement under applicable securities
or "blue sky" laws of the states of the United States (or to obtain an
exemption from such qualification), and shall provide evidence of any such
action so taken to each Buyer on or prior to the Closing Date.
ee. REPORTING STATUS; ELIGIBILITY TO USE FORM SB-2 OR
FORM S-1. The Company represents and warrants that it meets the requirements
for use of Form SB-2 or Form S-1 for registration of the sale by the Buyers
of the Registrable Securities (as defined in the Registration Rights
Agreement). The Company's Common Stock is registered under Section 12(g) of
the 1934 Act. So long as any Buyer beneficially owns any of the Securities,
the Company shall timely 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 permit such termination. The
Company further agrees to take all necessary action to meet the "registrant
eligibility" requirements set forth in the general instructions to Form S-3
as soon as practicable after the date hereof and thereafter to take all
necessary actions to maintain such eligibility.
ff. USE OF PROCEEDS. The Company shall use the
proceeds from the sale of the Preferred Shares and the Warrants and from the
exercise of the Warrants in the manner set forth in SCHEDULE 4(d) attached
hereto and made a part hereof and shall not, directly or indirectly, use such
proceeds for any loan to or investment in any other corporation, partnership,
enterprise or other person (except in connection with its currently existing
direct or indirect Subsidiaries).
gg. ADDITIONAL EQUITY CAPITAL; RIGHT OF FIRST REFUSAL.
Subject to the exceptions described below, the Company will not, without the
prior written consent of Rose Glen Capital Management, L.P. ("ROSE GLEN"),
negotiate or contract with any party to obtain additional equity financing
(including debt financing with an equity component) during the period (the
"LOCK-UP PERIOD") beginning on the Closing Date and ending one hundred twenty
(120) days from the date the Registration Statement (as defined in the
Registration Rights Agreement) required pursuant to Section 2(a) of the
Registration Rights Agreement is declared effective (the "EFFECTIVE DATE")
(plus any days following the Effective Date in which sales cannot be made
thereunder); PROVIDED, that in the event that the Second Closing does not
occur within thirty (30) days of the Effective Date, the Lock-up Period will
end ninety (90) days from the Effective Date; and PROVIDED, FURTHER, that
Rose Glen will not withhold its consent with respect to a transaction by the
Company which involves the issuance of up to $15,000,000 of Common Stock at a
price per share equal to not less than 80% of the average of the Closing Bid
Prices (as defined in the Certificates of Designation) of the Common Stock
for the five (5) consecutive Trading Days (as defined in the Certificate of
Designation) preceding the Closing
Date with respect to the First Closing (but in no event less than $6.10),
with warrants to purchase a number of shares of Common Stock not to exceed
20% multiplied by the quotient equal to the aggregate purchase price paid for
such Common Stock purchased divided by such five-day average Closing Bid
Price, with such warrants having an exercise price of not less than 125% of
such five-day average Closing Bid Price (but in no event less than $8.00). In
addition, subject to the exceptions described below, the Company will not
conduct any equity financing (including debt with an equity component)
("FUTURE OFFERINGS") during the period beginning on the Closing Date and
ending two hundred forty (240) days after the end of the Lock-up Period,
unless it shall have first delivered to Rose Glen, at least fifteen (15)
business days prior to the closing of such Future Offering, written notice
describing the proposed Future Offering, and attaching to such notice a
binding term sheet or letter of intent (each, a "TERM SHEET") (which term
sheet may be subject to customary conditions to closing, including
satisfactory due diligence and agreement on definitive documentation)
executed by the Company and the other party to such proposed Future Offering
(which Term Sheet shall contain reasonably sufficient information regarding
the terms and conditions of such proposed Future Offering such that Rose Glen
is able to make an informed decision as to whether it will exercise its right
of first refusal hereunder), and providing Rose Glen an option during the ten
(10) day period following delivery of such notice to purchase its pro rata
share (based on the ratio that the number of Preferred Shares purchased by it
(or its affiliate) hereunder bears to the aggregate number of Preferred
Shares purchased hereunder) of the securities being offered in the Future
Offering on the same terms as contemplated by such Future Offering (the
limitations referred to in this sentence and the preceding sentence are
collectively referred to as the "CAPITAL RAISING LIMITATIONS"). In the event
the terms and conditions of a proposed Future Offering are amended in any
respect after delivery of the notice to Rose Glen concerning the proposed
Future Offering, the Company shall deliver a new notice to Rose Glen
describing the amended terms and conditions of the proposed Future Offering
and Rose Glen thereafter shall have an option during the ten (10) day period
following delivery of such new notice to purchase its pro rata share of the
securities being offered on the same terms as contemplated by such proposed
Future Offering, as amended. The foregoing sentence shall apply to successive
amendments to the terms and conditions of any proposed Future Offering. The
Capital Raising Limitations shall not apply to any transaction involving (i)
issuances of securities in a firm commitment underwritten public offering
(excluding a continuous offering pursuant to Rule 415 under the 1933 Act) or
(ii) issuances of securities as consideration for a merger, consolidation or
purchase of assets, or in connection with any strategic partnership, joint
venture, alliance or similar strategic transaction (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. The Capital
Raising Limitations also shall not apply to the issuance of securities upon
exercise or conversion of the Company's options, warrants or other
convertible securities outstanding as of the date hereof or to the grant of
additional options or warrants, or the issuance of additional securities,
under any Company stock option or restricted stock plan approved by the
stockholders of the Company.
hh. EXPENSES. The Company shall pay to Rose Glen at
the Closing a non-accountable expense allowance equal to Twenty-Five Thousand
Dollars ($25,000) (Five Thousand Dollars ($5,000) of which has been
previously paid by the Company) for all expenses incurred by it in connection
with the negotiation, preparation, execution, delivery and performance of
this Agreement and the other agreements to be executed in connection
herewith, including, without limitation, attorneys' and consultants' fees and
expenses and travel expenses.
ii. FINANCIAL INFORMATION. The Company agrees to send
the following reports to each Buyer until such 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-K (or Form 10-KSB), its
Quarterly Reports on Form 10-Q (or Form 10-QSB) and any Current Reports on
Form 8-K; (ii) within one (1) day after release, copies of all press releases
issued by the Company or any of its Subsidiaries; and (iii) contemporaneously
with the making available or giving to the stockholders of the Company,
copies of any notices or other information the Company makes available or
gives to such stockholders.
jj. RESERVATION OF SHARES. 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 the
outstanding Preferred Shares and issuance of the Conversion Shares in
connection with the Preferred Shares (based on the lesser of the Variable
Conversion Price in effect from time to time and the Fixed Conversion Price
in effect from time to time (each as defined in the Certificates of
Designation)) and as otherwise required by the Certificates of Designation
(including sufficient shares to provide for the full exercise of the
Investment Options) and the full exercise of the Warrants and issuance of the
Warrant Shares in connection therewith (based on the Exercise Price (as
defined in the Warrants) of the Warrants in effect from time to time). The
Company shall not reduce the number of shares of Common Stock reserved for
issuance upon conversion of or otherwise pursuant to the Preferred Shares
(including upon exercise of the Investment Options) and upon exercise of or
otherwise pursuant to the Warrants without the consent of each Buyer. The
Company shall use its best efforts at all times to maintain the number of
shares of Common Stock so reserved for issuance at no less than two (2) times
the number that is then actually issuable upon full conversion of the
Preferred Shares and exercise of the Investment Options thereunder (based on
the lesser of the Variable Conversion Price in effect from time to time and
the Fixed Conversion Price in effect from time to time (each as defined in
the Certificates of Designation)) and full exercise of the Warrants (based on
the Exercise Price (as defined in the Warrants) of the Warrants in effect
from time to time). If at any time the number of shares of Common Stock
authorized and reserved for issuance is below the number of Conversion Shares
issued and issuable upon conversion of or otherwise pursuant to the Preferred
Shares (based on the lesser of the Variable Conversion Price in effect from
time to time and the Fixed Conversion Price in effect from time to time (each
as defined in the Certificates of Designation) and assuming the full exercise
of the Investment Options thereunder) and the aggregate number of Warrant
Shares issued and issuable upon exercise of the Warrants (based on the
Exercise Price (as defined in the Warrants) of the Warrants in effect from
time to time), the Company will promptly take all corporate action necessary
to authorize and reserve a sufficient number of shares, including, without
limitation, calling a special meeting of stockholders to authorize additional
shares to meet the Company's obligations under this Section 4(h), in the case
of an insufficient number of authorized shares, and using its best efforts to
obtain stockholder approval of an increase in such authorized number of
shares.
kk. LISTING. The Company shall promptly secure the
listing of the Conversion Shares and Warrant Shares upon each national
securities exchange or automated quotation system, if any, upon which shares
of Common Stock are then listed (subject to official notice of issuance) and,
so long as any Buyer owns any of the Securities, shall maintain, so long as
any other shares of Common Stock shall be so listed, such listing of all
Conversion Shares and Warrant Shares from time to time issuable upon
conversion of or otherwise pursuant to the
Preferred Shares (including upon exercise of the Investment Options under the
Preferred Shares) and all of the Warrant Shares from time to time issuable
upon exercise of or otherwise pursuant to the Warrants. The Company will
obtain and, so long as any Buyer owns any of the Securities, maintain the
listing and trading of its Common Stock on the Nasdaq, the Nasdaq SmallCap
Market ("NASDAQ SMALLCAP"), the New York Stock Exchange ("NYSE") or the
American Stock Exchange ("AMEX"), and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules
of the National Association of Securities Dealers ("NASD") and such
exchanges, as applicable. The Company shall promptly provide to each Buyer
copies of any notices it receives from Nasdaq and any other exchanges or
quotation systems on which the Common Stock is then listed regarding the
continued eligibility of the Common Stock for listing on such exchanges and
quotation systems.
ll. CORPORATE EXISTENCE. So long as a Buyer
beneficially owns any Preferred Shares or Warrants, the Company shall
maintain its corporate existence and shall not merge, consolidate or sell all
or substantially all of the Company's assets, except in the event of a merger
or consolidation or sale of all or substantially all of the Company's assets,
where (i) the successor or acquiring entity and, if an entity different from
the successor or acquiring entity, the entity whose securities into which the
Preferred Shares shall become convertible pursuant to Section VI.C(b) of the
Certificates of Designation in such transaction assumes the Company's
obligations hereunder and under the agreements and instruments entered into
in connection herewith and (ii) the entity whose securities into which the
Preferred Shares shall become convertible pursuant to Section VI.C(b) of the
Certificates of Designation is a publicly traded corporation whose Common
Stock is listed for trading on Nasdaq, Nasdaq SmallCap, NYSE or AMEX.
mm. NO INTEGRATION. The Company shall not make any
offers or sales of any security (other than the Securities) under
circumstances that would require registration of the Securities being offered
or sold hereunder under the 1933 Act or cause the offering of Securities to
be integrated with any other offering of securities by the Company for the
purpose of any stockholder approval provision applicable to the Company or
its securities
5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue
irrevocable instructions to its transfer agent to issue certificates,
registered in the name of each Buyer or its nominee, for the Conversion
Shares and Warrant Shares in such amounts as specified from time to time by
each Buyer to the Company upon conversion of or otherwise pursuant to the
Preferred Shares (including upon exercise of the Investment Options) or
exercise of or otherwise pursuant to the Warrants in accordance with the
terms thereof (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). Prior to
registration of the Conversion Shares and Warrant Shares under the 1933 Act
or the date on which the Conversion Shares or Warrant Shares may be sold
pursuant to Rule 144 without any restriction as to the number of securities
as of a particular date that can then be immediately sold, 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 referred to in this Section 5, and
stop transfer 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 1933 Act or the date on which
the Conversion Shares or Warrant Shares may be sold pursuant to Rule 144
without any restriction as to the number of securities as of a particular
date that can then be immediately sold), 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 shall affect in any
way the Buyer's obligations and agreement set forth in Section 2(g) hereof to
comply with all applicable federal and state securities laws, including
prospectus delivery requirements, if any, upon re-sale of the Securities. If
a Buyer provides the Company with (i) an opinion of counsel, in form,
substance and scope customary for opinions in comparable transactions, to the
effect that a public sale or transfer of such Securities may be made without
registration under the 1933 Act and such sale or transfer is effected or (ii)
the Buyer provides reasonable assurances that the Securities can be sold
pursuant to Rule 144 (which shall consist of the documentation customarily
executed by a seller and its broker, if any, in connection with a proposed
sale under Rule 144), 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, free from any restrictive legend, in
such name and in such denominations as specified by such Buyer.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The
obligation of the Company hereunder to issue and sell the Preferred Shares
and Warrants to a Buyer at each of the First Closing and the Second Closing
is subject to the satisfaction, at or before the Closing Date in respect of
such applicable Closing, of each of the following conditions thereto,
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:
a. With respect to the First Closing and the Second
Closing:
(i) The applicable Buyer shall have executed
this Agreement and the Registration Rights Agreement and delivered the same
to the Company.
(ii) The applicable Buyer shall have delivered
the applicable Purchase Price in accordance with Section 1(b) above.
(iii) The Series B Certificate of Designation
shall have been accepted for filing with the Secretary of State of the State
of Nevada.
(iv) The representations and warranties of the
applicable Buyer shall be true and correct in all material respects as of the
date when made and as of the applicable Closing Date as though made at that
time (except for representations and warranties that speak as of a specific
date, which representations and warranties shall be true and correct as of
such date), and the applicable Buyer shall have performed, satisfied and
complied in all material respects with the covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the applicable Buyer at or prior to the applicable Closing Date.
(v) No litigation, statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted,
entered, promulgated or endorsed by or in any court or governmental authority
of competent jurisdiction or any self-regulatory organization having
authority over the matters contemplated hereby which prohibits the
consummation of any of the transactions contemplated by this Agreement.
b. With respect to the Second Closing:
(i) The Series C Certificate of Designation
shall have been accepted for filing with the Secretary of State of the State
of Nevada.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The
obligation of each Buyer hereunder to purchase the Preferred Shares and the
Warrants at each of the First Closing and the Second Closing is subject to
the satisfaction, at or before the Closing Date in respect of such applicable
Closing, of each of the following conditions, provided that these conditions
are for such Buyer's sole benefit and may be waived by such Buyer at any time
in its sole discretion:
a. With respect to the First Closing and the Second
Closing:
(i) The Company shall have executed this
Agreement and the Registration Rights Agreement and delivered the same to the
Buyer.
(ii) The Company shall have delivered to such
Buyer duly executed certificates (in such denominations as the Buyer shall
request) representing the Preferred Shares and duly executed Warrants
purchased at such Closing in accordance with Section 1(b) above.
(iii) The Series B Certificate of Designation
shall have been accepted for filing with the Secretary of State of the State
of Nevada, and a copy thereof certified by such Secretary of State shall have
been delivered to such Buyer.
(iv) The Irrevocable Transfer Agent
Instructions, in form and substance satisfactory to a majority-in-interest of
the Buyers, shall have been delivered to and acknowledged in writing by the
Company's Transfer Agent.
(v) The representations and warranties of the
Company shall be true and correct in all material respects as of the date
when made and as of the applicable Closing Date as though made at such time
(except for representations and warranties that speak as of a specific date,
which representations and warranties shall be true and correct as of such
date) and the Company shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by the Company at
or prior to the applicable Closing Date. The Buyer shall have received a
certificate or certificates, executed by the chairman of the board, chief
executive officer, president or chief financial officer of the Company, dated
as of the applicable Closing Date, to the foregoing effect and as to such
other matters as may be reasonably requested by such Buyer including, but not
limited to certificates with respect to the Company's Certificate of
Incorporation, By-laws and Board of Directors' resolutions relating to the
transactions contemplated hereby.
(vi) No litigation, statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted,
entered, promulgated or endorsed by or in any court or governmental authority
of competent jurisdiction or any self-regulatory organization
having authority over the matters contemplated hereby which prohibits the
consummation of any of the transactions contemplated by this Agreement.
(vii) The Conversion Shares and the Warrant
Shares shall have been authorized for quotation on Nasdaq and trading in the
Common Stock on Nasdaq shall not have been suspended by the SEC or Nasdaq.
(viii) The Buyer shall have received opinions of
the Company's counsel, dated as of the applicable Closing Date, in form,
scope and substance reasonably satisfactory to the Buyer and in substantially
the same form as EXHIBIT "D-1" and "EXHIBIT D-2" attached hereto.
(ix) The Buyer shall have received an officer's
certificate described in Section 3(c) above, dated as of the applicable
Closing Date.
(x) No material adverse change or development
in the business, operations, properties, prospects, financial condition or
operations of the Company shall have occurred since the date hereof.
b. With respect to the Second Closing:
(i) The Series C Certificate of Designation
shall have been accepted for filing with the Secretary of State of the State
of Nevada.
(ii) The Registration Statement (as defined in
the Registration Rights Agreement) shall have been declared effective and no
stop order shall have issued in respect thereof.
(iii) The number of shares of Common Stock issued
or issuable upon conversion of the Preferred Shares (including upon exercise
of the Investment Options and including the Preferred Shares (and Investment
Options) issuable at the Second Closing) shall not exceed 50% of the Maximum
Share Amount (as defined in the Certificates of Designation); PROVIDED,
HOWEVER, that this condition to the Second Closing shall not be applicable in
the event that the Stockholder Approval (as defined in Article VI. A(b) of
the Certificates of Designation) has been obtained by the Company prior to
the date of the Second Closing; PROVIDED, FURTHER, HOWEVER, that in no event
(irrespective of whether the Stockholder Approval has been obtained) shall
the number of shares issued or issuable upon conversion of the Preferred
Shares (including upon exercise of the Investment Options and including the
Preferred Shares (and Investment Options) issuable at the Second Closing)
exceed 80% of the Maximum Share Amount.
(iv) All of the conditions to the Second Closing
shall have been satisfied within five (5) business days of the satisfaction
of the condition set forth in Section 7(b)(ii) above.
8. GOVERNING LAW; MISCELLANEOUS.
a. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware applicable
to agreements made
and to be performed in the State of Delaware (without regard to principles of
conflict of laws). Both parties irrevocably consent to the exclusive
jurisdiction of the United States federal courts and the state courts located
in Delaware with respect to any suit or proceeding based on or arising under
this Agreement, the agreements entered into in connection herewith or the
transactions contemplated hereby or thereby and irrevocably agree that all
claims in respect of such suit or proceeding may be determined in such
courts. Both parties irrevocably waive the defense of an inconvenient forum
to the maintenance of such suit or proceeding. Both parties further agree
that service of process upon a party mailed by first class mail shall be
deemed in every respect effective service of process upon the party in any
such suit or proceeding. Nothing herein shall affect either party's right to
serve process in any other manner permitted by law. Both parties agree that a
final non-appealable judgment in any such suit or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on such
judgment or in any other lawful manner.
b. COUNTERPARTS; SIGNATURES BY FACSIMILE. This
Agreement may be executed in one or more 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.
This Agreement, once executed by a party, may be delivered to the other party
hereto by facsimile transmission of a copy of this Agreement bearing the
signature of the party so delivering this Agreement.
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 or the validity or enforceability of this
Agreement in any other jurisdiction.
e. ENTIRE AGREEMENT; AMENDMENTS. 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 the Buyer
makes any representation, warranty, covenant or undertaking with respect to
such matters. No provision of this Agreement may be waived or amended other
than by an instrument in writing signed by the party to be charged with
enforcement.
f. NOTICES. Any notices required or permitted to be
given under the terms of this Agreement shall be sent by certified or
registered mail (return receipt requested) or delivered personally or by
courier (including a recognized overnight delivery service) or by facsimile
and shall be effective five days after being placed in the mail, if mailed by
regular United States mail, or upon receipt, if delivered personally or by
courier (including a recognized overnight delivery service) or by facsimile,
in each case addressed to a party. The addresses for such communications
shall be:
If to the Company:
GlobalMedia.com
400 Robson Street
Vancouver, British Columbia V6B 2B4
Attention: Chief Financial Officer
Facsimile: (604) 688-2987
With copy to:
Davis Wright Tremaine LLP
2600 Century Square
1501 Fourth Avenue
Seattle, Washington 98101
Attention: Eric A. DeJong
Facsimile: (206) 628-7699
If to a Buyer: To the address set forth immediately below such
Buyer's name on the signature pages hereto.
With copy to:
Ballard Spahr Andrews & Ingersoll LLP
1735 Market Street
Philadelphia, Pennsylvania 19103
Attention: Gerald J. Guarcini
Facsimile: (215) 864-8625
Each party shall provide notice to the other party of any change in
address.
g. SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
assigns. Neither the Company nor any Buyer shall assign this Agreement or any
rights or obligations hereunder without the prior written consent of the
other. Notwithstanding the foregoing, subject to Section 2(f), any Buyer may
assign its rights hereunder to any person that purchases Securities in a
private transaction from a Buyer or to any of its "affiliates," as that term
is defined under the 1934 Act, without the consent of the Company.
h. 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. The representations and warranties of
the Company and the agreements and covenants set forth in Sections 3, 4, 5
and 8 shall survive the closing hereunder notwithstanding any due diligence
investigation conducted by or on behalf of the Buyers. The Company agrees to
indemnify and hold harmless each of the Buyers and all their officers,
directors, employees and agents for loss or damage arising as a result of or
related to any breach or alleged breach by the Company of any of its
representations, warranties and
covenants set forth in Sections 3 and 4 hereof or any of its covenants and
obligations under this Agreement or the Registration Rights Agreement,
including advancement of expenses as they are incurred.
(i) PUBLICITY. The Company and each of the Buyers
shall have the right to review a reasonable period of time before issuance of
any press releases, filings with the SEC, the NASD or any stock exchange or
interdealer quotation system, or any other public statements with respect to
the transactions contemplated hereby; PROVIDED, HOWEVER, that the Company
shall be entitled, without the prior approval of each of the Buyers, to make
any press release or public filings with respect to such transactions as is
required by applicable law and regulations (although each of the Buyers shall
be consulted by the Company in connection with any such press release prior
to its release and shall be provided with a copy thereof and be given an
opportunity to comment thereon).
(ii) 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.
(iii) 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.
(iv) REMEDIES. The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to each Buyer
by vitiating the intent and purpose of the transactions contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of
its obligations under this Agreement will be inadequate and agrees, in the
event of a breach or threatened breach by the Company of the provisions of
this Agreement, that each Buyer shall be entitled, in addition to all other
available remedies in law or in equity, to an injunction or injunctions to
prevent or cure any breaches of the provisions of this Agreement and to
enforce specifically the terms and provisions of this Agreement, without the
necessity of showing economic loss and without any bond or other security
being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the undersigned Buyers and the Company have
caused this Agreement to be duly executed as of the date first above written.
GLOBALMEDIA.COM
By: /s/ Robert Fuller
-------------------------------------
Robert Fuller
Chief Executive Officer
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P., Investment Manager
By: RGC General Partner Corp., as General Partner
By: /s/ Wayne D. Bloch
-------------------------------------
Wayne D. Bloch
Managing Director
RESIDENCE: Cayman Islands
ADDRESS:
c/o Rose Glen Capital Management, L.P.
3 Bala Plaza East, Suite 200
251 St. Asaphs Road
Bala Cynwyd, PA 19004
Facsimile: (610) 617-0570
Telephone: (610) 617-5900
AGGREGATE SUBSCRIPTION AMOUNT:
First Closing:
--------------
Number of Preferred Shares: 5,000
Number of Warrants: 388,500
Aggregate Purchase Price: $5,000,000
Second Closing:
---------------
Number of Preferred Shares: 5,000
Number of Warrants: As determined in accordance with this Agreement
Aggregate Purchase Price: $5,000,000