Exhibit 10.1
SUBSCRIPTION AGREEMENT
This Subscription Agreement (this "AGREEMENT") is entered into as December
21, 2004 by and between Loudeye Corp., a Delaware corporation (the "ISSUER"),
and the investors identified on the signature pages and Annex I hereto (each an
"INVESTOR" and collectively, the "INVESTORS"). Capitalized terms used but not
otherwise defined herein shall have the meanings set forth in Section 9.1.
RECITALS
Subject to the terms and conditions of this Agreement, the Investors
desire to subscribe for and purchase, and the Issuer desires to issue and sell
to the Investors, certain shares of the Issuer's common stock, par value $.001
per share (the "COMMON STOCK") and certain Warrants to purchase shares of Common
Stock. The Issuer is offering an aggregate of 16,800,007 shares of Common Stock
(the "SHARES"), together with warrants in the form of Exhibit A hereto (each, a
"WARRANT") to purchase an aggregate of 5,040,002 shares of Common Stock (each
unit of one share of Common Stock and one Warrant to purchase three-tenths (.30)
of a share of Common Stock is referred to herein as a "UNIT") in a private
placement to the Investors, at a purchase price of $1.50 per Unit (the "PER UNIT
PURCHASE PRICE") and on the other terms and conditions contained in this
Agreement.
TERMS OF AGREEMENT
In consideration of the mutual representations and warranties, covenants
and agreements contained herein, the parties hereto agree as follows:
ARTICLE 1
SUBSCRIPTION AND ISSUANCE OF SECURITIES
1.1 SUBSCRIPTION AND ISSUANCE OF SECURITIES. Subject to the terms and
conditions of this Agreement, the Issuer will issue and sell to the Investors
and the Investors, severally and not jointly, subscribe for and will purchase
from the Issuer the number of Units set forth next to each Investor's name on
the signature pages hereof for the aggregate purchase price set forth next to
such Investor's name on the signature pages hereof (the "SUBSCRIPTION AMOUNT").
The purchase price for each Unit shall be the Per Unit Purchase Price.
1.2 TRANSFER RESTRICTIONS. The Securities may be disposed of only in
compliance with state and federal securities laws. In connection with any
transfer of Securities other than pursuant to an effective registration
statement, to the Issuer, or to an Affiliate of an Investor, the Issuer may
require the transferor thereof to provide to the Issuer an opinion of counsel
selected by the transferor, at the expense of the Investor transferring such
Securities or the transferee, the form and substance of which opinion shall be
reasonably satisfactory to the Issuer, to the effect that such transfer does not
require registration of such transferred Securities under the Securities
Act. As a condition of transfer, any such transferee shall agree in writing to
be bound by the terms of this Agreement and shall have the rights of an Investor
under this Agreement.
1.3 LEGEND. Any certificate or certificates representing the Securities
shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED, OR OTHERWISE DISPOSED OF BY THE HOLDER EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT FILED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED AND IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS OF ANY STATE
WITH RESPECT THERETO OR IN ACCORDANCE WITH AN OPINION OF COUNSEL IN FORM
AND SUBSTANCE REASONABLY SATISFACTORY TO THE ISSUER THAT AN EXEMPTION FROM
SUCH REGISTRATION IS AVAILABLE AND ALSO MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH ANY APPLICABLE RULES OF
THE SECURITIES AND EXCHANGE COMMISSION. NOTWITHSTANDING THE FOREGOING,
SUBJECT TO COMPLIANCE WITH APPLICABLE SECURITIES LAWS, THE SECURITIES MAY
BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
1.4 REMOVAL OF LEGENDS. During the period that a Registration Statement
(as defined below) covering the resale of the Shares and Warrant Shares is
effective under the Securities Act or if such Securities are being sold pursuant
to Rule 144(k) promulgated thereunder, upon the written request of an Investor
and following delivery to the Issuer of certificates evidencing the Shares
and/or Warrant Shares held by such Investor, the Issuer shall remove the legend
described in section 1.3 and issue a certificate evidencing the Shares and/or
Warrant Shares without such legend to such Investor; provided, however, that in
the case of a sale pursuant to Rule 144(k), such holder of Shares shall provide
such information as is reasonably requested by the Issuer to ensure that such
Securities may be sold in reliance on Rule 144(k); and provided, further, that
in order to receive shares without a legend, the holder of such Shares shall
submit to the company a representation letter stating that (and thereby agrees
that) (i) the holder will comply with the prospectus delivery requirements of
the Securities Act and (ii) the holder is aware that it must suspend sales of
the Securities covered by the Registration Statement during a Suspension Period
as provided in Section 6.5 and not recommence such sales until such time as is
provided for in Section 6.5(a).
1.5 LEGAL, TAX OR INVESTMENT ADVICE. Each Investor understands that
nothing in this Agreement or any other materials presented to such Investors in
connection with the purchase and sale of the Units constitutes legal, tax or
investment advice. Each Investor has consulted such legal, tax and investment
advisors as it, in its sole discretion, has deemed necessary or appropriate in
connection with its purchase of Units.
ARTICLE 2
CLOSING
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2.1 CLOSING. The closing of the transactions contemplated herein (the
"CLOSING") shall take place on a date designated by the Issuer, which date shall
be December 23, 2004 or such later Business Day designated by the Issuer that is
on or prior to December 31, 2004 (the "CLOSING DATE"). The Closing shall take
place at the offices of Thomas Weisel Partners LLC, One Montgomery Street, San
Francisco, California 94104, facsimile (415) 364-2944. At the Closing, unless
the Investors and the Issuer otherwise agree (i) each Investor shall pay such
Investor's Subscription Amount to the Issuer, by wire transfer of immediately
available funds to the account designated on Exhibit E; (ii) the Issuer shall
issue to each Investor a number of Shares equal to such Investor's Subscription
Amount divided by the Per Unit Purchase Price and a Warrant pursuant to which
such Investor shall have the right to acquire a number of shares of Common Stock
equal to 30% of the Shares purchased by such Investor, and the Issuer shall
deliver to each Investor certificates for the Shares and the Warrants purchased
by such Investor, duly registered in the name of such Investor, within five
Business Days, and (iii) all other agreements and other documents referred to in
this Agreement which are required for the Closing shall be executed and
delivered (if that is not done prior to the Closing).
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE ISSUER
As a material inducement to the Investors entering into this Agreement and
subscribing for the Units, the Issuer represents and warrants to the Investors
as follows as of the date hereof (except as set forth in the corresponding
section of the Schedule of Exceptions attached hereto):
3.1 CORPORATE STATUS. The Issuer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to own and lease its properties and
assets and to conduct its business as now conducted except where the failure to
do so would not have a Material Adverse Effect. Each Subsidiary as referred to
in the SEC Reports (as hereinafter defined) is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to own and
lease its properties and assets and to conduct its business as now conducted
except where the failure to do so would not have a Material Adverse Effect. The
Issuer and its Subsidiaries are each qualified to do business as a foreign
corporation and are in good standing in all states where the conduct of their
respective businesses or their ownership or leasing of property requires such
qualification, except where the failure to so qualify would not have a Material
Adverse Effect.
3.2 CORPORATE POWER AND AUTHORITY. The Issuer has the corporate power and
authority to execute and deliver this Agreement and the Warrants (collectively,
the "TRANSACTION DOCUMENTS") and to issue the Securities in accordance with the
terms hereof and thereof, and to perform its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and thereby.
At the time of the Closing, the Issuer will have taken all necessary corporate
action to authorize the execution, delivery and performance of the Transaction
Documents and the consummation of the transactions contemplated thereby.
3.3 ENFORCEABILITY. Each of the Transaction Documents has been duly
executed and delivered by the Issuer and (assuming it has been duly authorized,
executed and delivered by the
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Investors) constitutes a legal, valid and binding obligation of the Issuer,
enforceable against the Issuer in accordance with their respective terms, except
(i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of creditors' rights
generally, and (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies, and (iii) with
respect to the indemnification provisions set forth herein, as and to the extent
limited by public policy.
3.4 NO VIOLATION. The execution and delivery by the Issuer of the
Transaction Documents, the consummation of the transactions contemplated
thereby, and the compliance by the Issuer with the terms and provisions thereof
(including, without limitation, the Issuer's issuance to the Investors of the
Securities as contemplated by and in accordance with this Agreement), will not
result in a default under (or give any other party the right, with the giving of
notice or the passage of time (or both), to declare a default or accelerate any
obligation under) or violate any provision of the Certificate of Incorporation
or By-Laws of the Issuer or any material Contract to which the Issuer is a party
(except to the extent such a default, acceleration, or violation would not, in
the case of a Contract, have a Material Adverse Effect on the Issuer), or
violate any Requirement of Law applicable to the Issuer, or result in the
creation or imposition of any material Lien upon any of the capital stock,
properties or assets of the Issuer or any of its Subsidiaries (except where such
violations of any Requirement of Law or creations or impositions of any Liens
would not have a Material Adverse Effect on the Issuer).
3.5 CONSENTS/APPROVALS. Except for the filing of a registration statement
in accordance with Article 6 hereof, a filing of a Form D with the SEC, the
securities commissions of the states in which the Securities are to be issued,
and filing of listing applications with respect to the Registrable Securities
with The Nasdaq Stock Market, no consents, permits, filings, authorizations or
other actions of any Governmental Authority are required to be obtained or made
by the Issuer for the Issuer's execution, delivery and performance of this
Agreement which have not already been obtained or made. No consent, approval,
waiver or other action by any Person under any Contract to which the Issuer is a
party or by which the Issuer or any of its properties or assets are bound is
required or necessary for the execution, delivery or performance by the Issuer
of this Agreement and the consummation of the transactions contemplated hereby,
except where the failure to obtain such consents would not have a Material
Adverse Effect on the Issuer.
3.6 VALID ISSUANCE. Upon payment of the Subscription Amount applicable to
an Investor and delivery to such Investor of the certificates for the Shares and
the issuance of the Warrants, such Shares and Warrants will be validly issued,
fully paid and non-assessable, free from all Liens with respect to the issuance
of such Shares and Warrants and will not be subject to any preemptive or similar
rights.
3.7 SEC FILINGS, OTHER FILINGS AND NASDAQ COMPLIANCE. The Issuer has
delivered or made accessible to the Investors true, accurate and complete copies
of (i) Issuer's Annual Report on Form 10-K/A for the fiscal year ended December
31, 2003 (as amended); (ii) the Issuer's Quarterly Reports on Form 10-Q (or
10-Q/A) for the fiscal quarters ended March 31, 2004, June 30, 2004 (as amended)
and September 30, 2004 (as amended); (iii) the Issuer's definitive proxy
statement dated May 3, 2004 relating to its 2004 Annual Meeting of
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Stockholders; (iv) the Issuer's definitive proxy statement dated November 2,
2004 relating to its Special Meeting of Stockholders; and (v) the Issuer's
Current Reports on Form 8-K dated December 2, 2004 and December 14, 2004 (the
"SEC REPORTS"). Except to the extent set forth in a subsequent amendment
thereto, the SEC Reports, when filed, complied in all material respects with all
applicable requirements of the Exchange Act. None of the SEC Reports, at the
time of filing, 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 not misleading in the light of the circumstances in
which they were made. The Issuer is not eligible to register the resale of the
Shares in a secondary offering on a registration statement on Form S-3 under the
Securities Act. The Issuer hereby covenants and agrees to use commercially
reasonable best efforts to respond to any comments that the SEC may have with
respect to the Issuer's registration statement on Form S-1 filed with the SEC on
November 23, 2004 (Registration No. 333-120700) and to file any applicable
amendments thereto to cause the SEC to declare such registration statement
effective as soon as practicable. The Issuer has taken, or will have taken prior
to the Closing, all necessary actions to ensure its continued inclusion in, and
the continued eligibility of the Common Stock for trading on, The Nasdaq
SmallCap Stock Market (the "PRINCIPAL MARKET") under all currently effective
inclusion requirements. Each balance sheet included in the SEC Reports
(including any related notes and schedules) fairly presents in all material
respects the consolidated financial position of the Issuer as of its date, and
each of the other financial statements included in the SEC Reports (including
any related notes and Schedules) fairly presents in all material respects the
consolidated results of operations of the Issuer for the periods or as of the
dates therein set forth in accordance with GAAP consistently applied during the
periods involved (except that the interim reports are subject to adjustments
which might be required as a result of year end audit and except as otherwise
stated therein).
3.8 GENERAL SOLICITATION; COMMISSIONS. Neither the Issuer, nor any of its
affiliates, nor any Person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D) in connection with the offer or sale of the Securities. The Issuer
shall be responsible for the payment of any placement agent's fees, financial
advisory fees, or brokers' commissions (other than for persons engaged by any
Investor or its investment advisor) relating to or arising out of the
transactions contemplated hereby. The Issuer shall pay, and hold each Investor
harmless against, any liability, loss or expense (including, without limitation,
attorney's fees and out-of-pocket expenses) arising in connection with any such
claim. The Issuer acknowledges that it has engaged Thomas Weisel Partners LLC as
placement agent (the "PLACEMENT AGENT") in connection with the sale of the
Securities and will pay a commission of $1,410,000 to such Placement Agent;
provided, that twelve and one-half percent (12.5%) of such fee may be allocated
to Ferris Baker Watts Inc. Other than the Placement Agent Ferris Baker Watts
Inc., the Issuer has not engaged any placement agent or other agent in
connection with the sale of the Securities.
3.9 CAPITALIZATION. The authorized capital stock of the Issuer consists of
150,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock. All
issued and outstanding shares of capital stock of the Issuer have been, and as
of the Closing Date will be, duly authorized and validly issued and are fully
paid and non-assessable. As of December 20, 2004, the Issuer has issued and
outstanding 84,198,215 shares of Common Stock and no shares of Preferred Stock.
Except as described on Schedule 3.9 hereto, there are no outstanding
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options, warrants, rights (including conversion or preemptive rights and rights
of first refusal and similar rights) or agreements, orally or in writing, for
the purchase or acquisition from the Issuer of any shares of capital stock and
the Issuer is not a party to or subject to any agreement or understanding, and
there is no agreement or understanding between any person and/or entities, which
affects or relates to the voting or giving of written consents with respect to
any security or by a director of the Issuer. The Issuer has no obligation,
contingent or otherwise, to redeem or repurchase any equity security or any
security that is a combination of debt and equity. There are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Securities. There are no securities or
instruments or agreements subjecting any of the Issuer's capital to preemptive
rights or any other similar rights that will be triggered by the issuance of the
Securities.
3.10 MATERIAL CHANGES. Except as set forth in the SEC Reports or as
otherwise contemplated herein, since September 30, 2004, there has been no
Material Adverse Change in the Issuer and its Subsidiaries taken as a whole.
Except as set forth in the SEC Reports, since September 30, 2004, there has not
been (i) any direct or indirect redemption, purchase or other acquisition by the
Issuer of any shares of the Common Stock or (ii) declaration, setting aside or
payment of any dividend or other distribution by the Issuer with respect to the
Common Stock.
3.11 LITIGATION. There is no action, suit, proceeding or, to the Issuer's
knowledge, any investigation pending or currently threatened against the Issuer
or any of its Subsidiaries or their respective officers or directors that
questions the validity of this Agreement or the right of the Issuer to enter
into it, or to consummate the transactions contemplated hereby. Except as
disclosed on Schedule 3.11, there is no action, suit, proceeding or, to the
Issuer's knowledge, any investigation pending or currently threatened against
the Issuer or any of its Subsidiaries or their respective officers or directors
that could reasonably be expected to result, either individually or in the
aggregate, in a Material Adverse Effect on the Issuer or any change in the
current equity ownership of the Issuer. The foregoing sentence includes, without
limitation, actions pending or, to the Issuer's knowledge, threatened involving
the prior employment of any of the Issuer's employees or their use in connection
with the Issuer's business of any information or techniques allegedly
proprietary to any of their former employers. Neither the Issuer nor any of its
Subsidiaries is a party to or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no material action, suit, proceeding or investigation
by the Issuer or any of its Subsidiaries currently pending or which the Issuer
or any of its Subsidiaries currently intends to initiate.
3.12 RIGHTS OF REGISTRATION AND VOTING RIGHTS. Except as contemplated in
this Agreement and as disclosed on Schedule 3.12, the Issuer has not granted or
agreed to grant any registration rights, including piggyback rights, to any
person or entity, and, to the knowledge of the Issuer, no stockholder of the
Issuer has entered into any agreements with respect to the voting of capital
shares of the Issuer. No Person has any right, and the Issuer shall not permit,
any securities of any Person other than the Investors to be included in the
Registration Statement required to be filed pursuant to Section 6.2, except in
each case for such Persons and such securities as are identified on Schedule
3.12 (including any future securities that may be issued pursuant to the terms
of the Issuer's acquisition of On Demand Distribution Limited), which securities
may be included in such Registration Statement.
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3.13 OFFERINGS. Subject in part to the truth and accuracy of the
Investors' representations and warranties set forth in this Agreement, the
offer, sale and issuance of the Securities as contemplated by this Agreement are
exempt from the registration requirements of the Securities Act and any
applicable state securities laws, and neither the Issuer nor any authorized
agent acting on its behalf will take any action hereafter that would cause the
loss of such exemption.
3.14 COMPLIANCE WITH CERTIFICATE OF INCORPORATION AND BY-LAWS; COMPLIANCE
WITH LAWS. The Issuer is not in violation or default of any provisions of its
Certificate of Incorporation or Bylaws. The business and operations of the
Issuer have been conducted in accordance with all applicable laws, rules and
regulations of all governmental agencies, authorities and instrumentalities
(including, without limitation, under the federal and state securities laws,
Employee Retirement Income Security Act of 1974, as amended and all laws
relating to the employment of labor), except for such violations which would
not, individually or in the aggregate, have a Material Adverse Effect.
3.15 NASDAQ SMALLCAP MARKET. The Common Stock is listed on The Nasdaq
SmallCap Market and, to the knowledge of the Issuer, there are no proceedings to
revoke or suspend such listing. The issuance of the Securities will not
contravene any NASDAQ Marketplace Rule. The Common Stock is registered pursuant
to Section 12(g) of the Exchange Act. The Issuer has taken no action designed
to, or which to its knowledge is likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act, delisting the Common
Stock from The Nasdaq SmallCap Market. The Issuer has not received any
notification that, and has no knowledge that, the SEC or the NASD is
contemplating terminating such listing or registration. The issuance of the
Securities does not require stockholder approval, including, without limitation,
as may be required pursuant to the Nasdaq Marketplace Rules.
3.16 TAX MATTERS. The Issuer has filed all tax returns and reports as
required by federal, state, local, and foreign law and has paid all taxes shown
thereon that have become due and payable. Such returns and reports were
materially accurate and complete when filed and reflect all taxes and other
assessments due thereunder to be paid by the Issuer, except those contested by
it in good faith. The provision for taxes of the Issuer included in the
provision for accrued liabilities in the Issuer's Financial Statements is
adequate for taxes due or accrued as of the dates thereof. The Issuer has never
had any material tax deficiency proposed or assessed against it.
3.17 SARBANES-OXLEY. The Chief Executive Officer and the Chief Financial
Officer of the Issuer have signed, and the Issuer has furnished to the SEC, all
certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act of
2002, and neither the Issuer nor any of its officers has received notice from
any governmental entity questioning or challenging the accuracy, completeness,
form or manner of filing or submission of such certifications.
3.18 DISCLOSURE. The Issuer is aware of no facts which lead it to believe
that the Disclosure Documents, as of their respective dates, contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading.
3.19 CONFIDENTIAL INFORMATION. Other than this Agreement and the terms of
the
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transactions contemplated hereby, the Issuer has not provided any material
non-public information to the Investors in connection with this Agreement or the
transactions contemplated hereby.
3.20 PATENTS AND TRADEMARKS. To the knowledge of the Issuer and each of
its Subsidiaries, the Issuer and its Subsidiaries have, or have rights to use,
all patents, patent applications, trademarks, trademark applications, service
marks, trade names, copyrights, licenses and other similar rights that are
necessary or material for use in connection with their respective businesses as
described in the SEC Reports and which the failure to so have could have or
would reasonably be expected to result in a Material Adverse Effect
(collectively, the "INTELLECTUAL PROPERTY RIGHTS"). Except as described in the
SEC Reports or on Schedule 3.20, neither the Issuer nor any of its Subsidiaries
has received a written notice that the Intellectual Property Rights used by the
Issuer or any of its Subsidiaries violates or infringes upon the rights of any
Person. To the knowledge of the Issuer, all such Intellectual Property Rights
are enforceable in all material respects.
3.21 INSURANCE. The Issuer and its Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which the Issuer and
its Subsidiaries are engaged. Neither the Issuer nor any of its Subsidiaries has
any knowledge 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 without a significant
increase in cost.
3.22 TRANSACTIONS WITH AFFILIATES. Except as described in the SEC Reports
or on Schedule 3.22, none of the officers or directors of the Issuer is
presently a party to any transaction with the Issuer or any of its Subsidiaries
(other than for services as 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 or director or, to the knowledge of
the Issuer, any entity in which any officer or director has a substantial
interest or is an officer, director, trustee or partner, in each case in excess
of $60,000 other than (a) for payment of salary or consulting fees for services
rendered, (b) reimbursement for expenses incurred on behalf of the Issuer and
(c) for other employee benefits, including stock option agreements under any
stock option plan of the Issuer.
3.23 NO INTEGRATED OFFERING. Neither the Issuer, 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 cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Issuer for purposes of the Securities Act which would prevent the Issuer
from selling the Securities pursuant to Regulation D and Rule 506 thereof under
the Securities Act, or any applicable exchange-related stockholder approval
provisions, nor will the Issuer or any of its Affiliates or Subsidiaries take
any action or steps that would cause the offering of the Securities to be
integrated with other offerings if such other offering, if integrated, would
cause the offer and sale of the Securities not to be exempt from registration
pursuant to Regulation D and Rule 506 thereof under the Securities Act.
ARTICLE 4
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REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
As a material inducement to the Issuer entering into this Agreement and
issuing the Securities, each Investor, severally and not jointly, represents and
warrants to the Issuer as follows:
4.1 POWER AND AUTHORITY. Such Investor, if other than a natural person, is
an entity duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or formation. Such Investor has the
corporate, partnership or other power and authority under applicable law to
execute and deliver this Agreement and consummate the transactions contemplated
hereby, and has all necessary authority to execute, deliver and perform its
obligations under this Agreement and consummate the transactions contemplated
hereby. Such Investor has taken all necessary action to authorize the execution,
delivery and performance of this Agreement and the transactions contemplated
hereby and, when delivered, this Agreement will constitute the valid and legally
binding obligation of such Investor, enforceable against it in accordance with
its terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally, and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies, and (iii) with respect to the indemnification provisions set
forth herein, as and to the extent limited by public policy.
4.2 NO VIOLATION. The execution and delivery by such Investor of this
Agreement, the consummation of the transactions contemplated hereby, and the
compliance by such Investor with the terms and provisions hereof, will not
result in a default under (or give any other party the right, with the giving of
notice or the passage of time (or both), to declare a default or accelerate any
obligation under) or violate any charter or similar documents of such Investor,
if other than a natural person, or any Contract to which such Investor is a
party or by which it or its properties or assets are bound, or violate any
Requirement of Law applicable to such Investor, other than such violations or
defaults which, individually and in the aggregate, do not and will not have a
Material Adverse Effect on such Investor.
4.3 CONSENTS/APPROVALS. No consents, filings, authorizations or actions of
any Governmental Authority are required for such Investor's execution, delivery
and performance of this Agreement. No consent, approval, waiver or other actions
by any Person under any Contract to which such Investor is a party or by which
such Investor or any of its properties or assets are bound is required or
necessary for the execution, delivery and performance by such Investor of this
Agreement and the consummation of the transactions contemplated hereby.
4.4 INVESTMENT UNDERTAKING. Such Investor is acquiring the Securities
hereunder for its own account and with no present intention of distributing or
selling such Securities and further agrees not to transfer such Securities in
violation of the Securities Act or any applicable state securities law (it being
understood that this representation and warranty does not limit such Investor's
right to sell the Shares and Warrant Shares pursuant to the Registration
Statement or otherwise in compliance with applicable federal and state
securities laws), and no one other than such Investor has any beneficial
interest in the Securities (except for those individuals who hold dispositive or
voting power over the Securities purchased by such Investor). Such Investor
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agrees that it will not sell or otherwise dispose of any of the Securities
unless such sale or other disposition has been registered under the Securities
Act or, in the opinion of counsel reasonably acceptable to the Issuer, is exempt
from registration under the Securities Act and has been registered or qualified
or, in the opinion of such counsel reasonably acceptable to the Issuer, is
exempt from registration or qualification under applicable state securities
laws; provided, however, that by making the representations herein, such
Investor 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 Securities Act. Such Investor understands that the offer and sale by the
Issuer of the Securities being acquired by such Investor hereunder has not been
registered under the Securities Act by reason of their contemplated issuance in
transactions exempt from the registration and prospectus delivery requirements
of the Securities Act pursuant to Section 4(2) thereof, and that the reliance of
the Issuer on such exemption from registration is predicated in part on these
representations and warranties of such Investor. Such Investor acknowledges that
pursuant to Section 1.3 of this Agreement a restrictive legend consistent with
the foregoing has been or will be placed on the certificates for the Securities.
Such Investor is acquiring the Securities hereunder in the ordinary course of
its business. Such Investor does not have any agreement or understanding,
directly or indirectly, with any Person to distribute any of the Securities.
4.5 ACCREDITED INVESTOR. Such Investor is an "accredited investor" as such
term is defined in Rule 501(a) of Regulation D under the Securities Act (a copy
of which is attached hereto as Exhibit B), and has such knowledge and experience
in financial and business matters that it is capable of evaluating the merits
and risks of the investment to be made by it hereunder.
4.6 ADEQUATE INFORMATION. Such Investor has received from the Issuer, and
has reviewed, such information which such Investor considers necessary or
appropriate to evaluate the risks and merits of an investment in the Securities,
including without limitation, the documents listed on Exhibit C, which have been
made available to the Investors (the "DISCLOSURE DOCUMENTS"). Such Investor
acknowledges that each of the SEC Reports, including the risk factors contained
therein, are specifically incorporated herein by reference and form an integral
part of this Agreement. Such Investor also acknowledges that the additional risk
factors set forth on Exhibit C and contained in the Disclosure Documents are
specifically incorporated herein by reference and forms an integral part of this
Agreement.
4.7 OPPORTUNITY TO QUESTION. Such Investor has had the opportunity to
question, and has questioned, to the extent deemed necessary or appropriate,
representatives of the Issuer so as to receive answers and verify information
obtained in such Investor's examination of the Issuer, including the information
that such Investor has received and reviewed as referenced in Section 4.7 hereof
in relation to its investment in the Securities.
4.8 NO OTHER REPRESENTATIONS. No oral or written representations have been
made to such Investor in connection with such Investor's acquisition of the
Securities which were in any way inconsistent with the information reviewed by
such Investor. Such Investor acknowledges that no representations or warranties
of any type or description have been made to it by any Person with regard to the
Issuer, any of its Subsidiaries, any of their respective
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businesses, properties or prospects or the investment contemplated herein, other
than the representations and warranties set forth in Article 3 hereof.
4.9 KNOWLEDGE AND EXPERIENCE. Such Investor has such knowledge and
experience in financial, tax and business matters, including substantial
experience in evaluating and investing in common stock and other securities
(including the common stock and other securities of speculative companies), so
as to enable such Investor to utilize the information referred to in Section 4.6
hereof and any other information made available by the Issuer to such Investor
in order to evaluate the merits and risks of an investment in the Securities and
to make an informed investment decision with respect thereto. Such Investor is
able to bear the economic risk of an investment in the Securities and is able to
afford a complete loss of such investment.
4.10 INDEPENDENT DECISION. Such Investor is not relying on the Issuer, any
other potential investor, or on any legal or other opinion in the materials
reviewed by such Investor with respect to the financial or tax considerations of
such Investor relating to its investment in the Securities. Such Investor has
relied solely on the representations and warranties, covenants and agreements of
the Issuer in this Agreement (including the Exhibits hereto) and on its
examination and independent investigation in making its decision to acquire the
Securities.
4.11 GENERAL SOLICITATION. Such Investor is not purchasing the Units as a
result of any advertisement, article, notice or other communication regarding
the Securities published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar.
4.12 RESIDENCE. If such Investor is an individual, then such Investor
resides in the state or province identified in the address of such Investor set
forth on the signature page of such Investor hereto; if such Investor is a
partnership, corporation, limited liability company or other entity, then the
office or offices of such Investor in which its investment decision was made is
located at the address or addresses of such Investor set forth on the signature
page of such Investor hereto.
4.13 NO PRIOR SHORT SELLING. At no time during the 30 days prior to the
Closing has such Investor engaged in or effected, in any manner whatsoever,
directly or indirectly, in any "short sale" (as such term is defined in Rule
3b-3 of the Exchange Act) of the Common Stock (a "SHORT SALE").
4.14 BENEFICIAL OWNERSHIP. At the Closing, such Investor will not, after
giving effect to the Securities purchased hereunder, beneficially own in excess
of 19.99% of the number of shares of Common Stock of the Issuer then
outstanding, determined in accordance with Rule 13d-3 of the Exchange Act).
4.15 COMMISSIONS. Such Investor has not incurred any obligation for any
finder's or broker's or agent's fees or commissions in connection with the
transactions contemplated hereby.
4.16 NO BROKER -DEALER. Such Investor is not required to be registered as
a broker-dealer pursuant to Section 15 of the Exchange Act.
4.17 INDEPENDENT INVESTMENT. No Investor has agreed to act with any other
Investor for the purpose of acquiring, holding, voting or disposing of the
Securities purchased hereunder for purposes of Section 13(d) under the Exchange
Act, and each Investor is acting independently
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with respect to its investment in the Securities.
ARTICLE 5
COVENANTS
5.1 PUBLIC ANNOUNCEMENTS. Each party to this Agreement agrees that it
shall not issue or release any public announcement with respect to this
Agreement or the transactions provided for herein, which names the other party,
without the prior consent of the other party. Notwithstanding the foregoing,
nothing in this Section 5.1 shall prevent any party hereto from making such
public announcements or filings as it may consider necessary in order to satisfy
its legal obligations. Before 8:50 a.m. (New York Time) on the Business Day
following the date of this Agreement, the Issuer will issue a press release
describing the transactions contemplated by this Agreement, and promptly
thereafter file a Current Report on Form 8-K with the SEC, attaching such press
release.
5.2 FURTHER ASSURANCES. Each party shall execute and deliver such
additional instruments and other documents and shall take such further actions
as may be reasonably necessary or appropriate to effectuate, carry out and
comply with all of the terms of this Agreement and the transactions contemplated
hereby. Each Investor and the Issuer shall make on a prompt and timely basis all
governmental or regulatory notifications and filings required to be made by it
with or to any Governmental Authority in connection with the consummation of the
transactions contemplated hereby. The Issuer and each Investor agree to
cooperate with the other in the preparation and filing of all forms,
notifications, reports and information, if any, required or reasonably deemed
advisable pursuant to any Requirement of Law or the rules of Nasdaq Stock Market
in connection with the transactions contemplated by this Agreement and to use
their respective commercially reasonable efforts to agree jointly on a method to
overcome any objections by any Governmental Authority to any such transactions.
Except as may be specifically required hereunder, none of the parties hereto or
their respective Affiliates shall be required to agree to take any action that
in the reasonable opinion of such party would result in or produce a Material
Adverse Effect on such party.
5.3 NOTIFICATION OF CERTAIN MATTERS. Each party hereto shall give prompt
notice to the other party of the occurrence, or non-occurrence, of any event
which would be likely to cause any representation and warranty herein to be
untrue or inaccurate, or any covenant, condition or agreement herein not to be
complied with or satisfied.
5.4 CERTAIN TRADING RESTRICTIONS.
(a) Restrictions. From and after the Closing, for so long as an
Investor continues to hold any Securities acquired hereunder, such Investor will
not, nor will it knowingly through its Affiliates engage in any Short Sales,
except on those days (each a "PERMITTED DAY") on which the aggregate short
position with respect to the Common Stock of the Investor prior to giving effect
to any Short Sales by the Investor on such Permitted Day does not exceed such
Investor's Permitted Share Position (as defined below) on such Permitted Day;
provided, however, that such Investor will only be entitled to engage in
transactions that constitute Short Sales on a Permitted Day to the extent that
following such transaction, the aggregate short
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position with respect to the Common Stock of the Investor does not exceed such
Investor's Permitted Share Position. For purposes of Section 5.4, the Investor's
"PERMITTED SHARE POSITION" means, with respect to any date of determination, the
number of shares of Common Stock owned by the Investor (including Shares,
Warrant Shares, and any Warrant Shares underlying unexercised Warrants).
(b) Other Transactions Permitted. Subject to Section 5.4(a) and
applicable securities laws, the Issuer acknowledges and agrees that nothing in
Section 5.4 shall prohibit the Investors from, and the Investors are permitted
to, engage, directly or indirectly, in hedging transactions involving the
Securities and the Common Stock (including, without limitation, by way of short
sales, purchases and sales of options, swap transactions and synthetic
transactions) at any time.
5.5 FORM D FILING. The Issuer agrees that it shall file in a timely manner
a Form D relating to the sale of the Securities under this Agreement, pursuant
to Regulation D promulgated under the Securities Act.
5.6 INTEGRATION. The Issuer shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Investors or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of the Nasdaq SmallCap Market such that the transaction
contemplated hereby would violate any such rules or regulations.
5.7 USE OF PROCEEDS. The Issuer shall use the net proceeds from the sale
of the Units hereunder for working capital and any other general corporate
purposes.
5.8 DISCLOSURE OF MATERIAL INFORMATION. The Issuer covenants and agrees
that neither it nor, to its knowledge, any other Person acting on its behalf has
provided or will provide any Investor or its agents or counsel with any
information that the Issuer believes constitutes material non-public
information, unless prior thereto such Investor shall have executed a written
agreement regarding the confidentiality and use of such information. The Issuer
understands and confirms that each Investor shall be relying on the foregoing
representations in effecting transactions in securities of the Issuer.
Notwithstanding the foregoing, the Issuer's compliance with the terms of Section
5.11 (including the notice provisions thereof) shall not under any circumstances
constitute a breach of this Section 5.8.
5.9 LISTING. The Issuer shall promptly secure the listing of all of the
Registrable Securities upon each national securities exchange and automated
quotation system, if any, upon which the Common Stock is then listed (subject to
official notice of issuance) and shall maintain such listing of all Registrable
Securities from time to time issuable under the terms of the Transaction
Documents.
5.10 REPORTS UNDER THE EXCHANGE ACT. With a view to making available to
the Investors the benefits of Rule 144 promulgated under the Securities Act or
any other similar rule
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or regulation of the SEC that may at any time permit the Investors to sell
securities of the Issuer to the public without registration ("RULE 144"), the
Issuer agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Issuer under the Securities Act and the Exchange Act
so long as the Issuer remains subject to such requirements and the filing of
such reports and other documents is required for the applicable provisions of
Rule 144; and
(c) furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Issuer, if true, that it has complied with the reporting requirements of Rule
144, the Securities Act and the Exchange Act, (ii) a copy of the most recent
annual report of the Issuer and such other reports and documents so filed by the
Issuer, and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
5.11 ADDITIONAL ISSUANCES OF SECURITIES. The provisions of this Section
5.11 shall not be effective if it is determined under the rules of the Principal
Market (or any other national securities exchange (including the Nasdaq National
Market) on which the Issuer's shares of Common Stock may become listed) that
such provisions would result in the Issuer being required to obtain the approval
of its stockholders for the consummation of the transactions contemplated by
this Agreement.
(a) For purposes of this Section 5.11, the following
definitions shall apply:
(i) "APPROVED STOCK PLAN" means any plan which has been
approved by the board of directors of the Issuer, pursuant to which the Issuer's
securities may be issued to any consultant, employee, officer or director for
services provided to the Issuer.
(ii) "CONVERTIBLE SECURITIES" means any stock or securities
(other than Options) convertible into or exercisable or exchangeable for shares
of Common Stock.
(ii) "OPTIONS" means any rights, warrants or options to
subscribe for or purchase shares of Common Stock or Convertible Securities.
(ii) "COMMON STOCK EQUIVALENTS" means, collectively, Options
and Convertible Securities.
(b) From the date hereof until the one year anniversary of the
Closing Date (the "TRIGGER DATE"), except as provided in clauses (vii) and
(viii) of this Section 5.11(b), the Issuer will not, directly or indirectly,
offer, sell, grant any option to purchase, or otherwise dispose of (or announce
any offer, sale, grant or any option to purchase or other disposition of) any of
its equity or equity equivalent securities, including without limitation any
debt, preferred stock or other instrument or security that is, at any time
during its life and under any
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circumstances, convertible into or exchangeable or exercisable for shares of
Common Stock or Common Stock Equivalents (any such offer, sale, grant,
disposition or announcement being referred to as a "SUBSEQUENT PLACEMENT")
unless the Issuer shall have first complied with this Section 5.12(b).
(i) The Issuer shall deliver to each Investor an electronic
or written notice (the "OFFER NOTICE") of any proposed or intended issuance or
sale or exchange (the "OFFER") of the securities being offered (the "OFFERED
SECURITIES") in a Subsequent Placement, which Offer Notice shall (A) identify
and describe the Offered Securities, (B) describe the price (which may be
expressed as a percentage of the market price on the date definitive agreements
are to be executed) and other material terms upon which they are to be issued,
sold or exchanged, and the approximate number or amount of the Offered
Securities to be issued, sold or exchanged, (C) identify the persons or entities
(if known) to which or with which the Offered Securities are to be offered,
issued, sold or exchanged and (D) offer to issue and sell to or exchange with
such Investors a pro rata portion of 30% of the Offered Securities, allocated
among such Investors (x) based on such Investor's pro rata portion of the
aggregate number of Shares purchased hereunder (the "BASIC AMOUNT"), and (y)
with respect to each Investor that elects to purchase its Basic Amount, any
additional portion of the Offered Securities attributable to the Basic Amounts
of other Investors as such Investor shall indicate it will purchase or acquire
should the other Investors subscribe for less than their Basic Amounts (the
"UNDERSUBSCRIPTION AMOUNT"). In the event the material terms of the Subsequent
Placement change prior to execution of definitive agreements with respect
thereto, the Issuer shall notify the Investor of such modified terms and the
Offer Notice shall be deemed modified thereby (and, in the event an Investor has
elected to accept the Offer, such Investor may elect to revoke such acceptance
by notifying the Issuer in writing of such revocation within one day after the
Issuer delivers such notice).
(ii) To accept an Offer, in whole or in part, such Investor
must deliver a written notice to the Issuer prior to the end of the fifth (5th)
Business Day after such Investor's receipt of the Offer Notice or such shorter
period (which shall not be less than one Business Day) as the Issuer shall
specify in the Offer Notice (the "OFFER PERIOD"), setting forth the portion of
such Investor's Basic Amount that such Investor elects to purchase and, if such
Investor shall elect to purchase all of its Basic Amount, the Undersubscription
Amount, if any, that such Investor elects to purchase (in either case, the
"NOTICE OF Acceptance"). If the Basic Amounts subscribed for by all Investors
are less than the total of all of the Basic Amounts, then each Investor who has
set forth an Undersubscription Amount in its Notice of Acceptance shall be
entitled to purchase, in addition to the Basic Amounts subscribed for, the
Undersubscription Amount it has subscribed for; provided, however, that if the
Undersubscription Amounts subscribed for exceed the difference between the total
of all the Basic Amounts and the Basic Amounts subscribed for (the "AVAILABLE
UNDERSUBSCRIPTION AMOUNT"), each Investor who has subscribed for any
Undersubscription Amount shall be entitled to purchase only that portion of the
Available Undersubscription Amount as the Basic Amount of such Investor bears to
the total Basic Amounts of all Investors that have subscribed for
Undersubscription Amounts, subject to rounding by the Issuer to the extent its
deems reasonably necessary.
(iii) The Issuer shall have thirty (30) Business Days from
the expiration of the Offer Period above to offer, issue, sell or exchange all
or any part of such
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Offered Securities as to which a Notice of Acceptance has not been given by the
Investors (the "REFUSED SECURITIES") (it being understood that Refused
Securities include 70% of the Offered Securities not covered by the Offer Notice
and any remaining Offered Securities as to which a Notice of Acceptance has not
been given by the Investors), and only upon terms and conditions (including,
without limitation, unit prices and interest rates) that are not more favorable
to the acquiring person or persons or less favorable to the Issuer than those
set forth in the Offer Notice (as such notice may be modified pursuant to clause
(i) above).
(iv) In the event the Issuer shall propose to sell less than
all the Refused Securities (any such sale to be in the manner and on the terms
specified in Section 5.12(b)(iii) above), then each Investor may, at its sole
option and in its sole discretion, reduce the number or amount of the Offered
Securities specified in its Notice of Acceptance to an amount that shall be not
less than the number or amount of the Offered Securities that such Investor
elected to purchase pursuant to Section 5.12(b)(ii) above multiplied by a
fraction, (A) the numerator of which shall be the number or amount of Offered
Securities the Issuer actually proposes to issue, sell or exchange (including
Offered Securities to be issued or sold to Investors pursuant to Section
5.12(b)(iii) above prior to such reduction) and (B) the denominator of which
shall be the original amount of the Offered Securities. In the event that any
Investor so elects to reduce the number or amount of Offered Securities
specified in its Notice of Acceptance, the Issuer may not issue, sell or
exchange more than the reduced number or amount of the Offered Securities unless
and until such securities have again been offered to the Investors in accordance
with Section 5.12(b)(i) above.
(v) Upon the closing of the issuance, sale or exchange of
all or less than all of the Refused Securities, the Investors shall acquire from
the Issuer, and the Issuer shall issue to the Investors, the number or amount of
Offered Securities specified in the Notices of Acceptance, as reduced pursuant
to Section 5.12(b)(iii) above if the Investors have so elected, upon the terms
and conditions specified in the Offer. The purchase by the Investors of any
Offered Securities is subject in all cases to the preparation, execution and
delivery by the Issuer and the Investors of a purchase agreement relating to
such Offered Securities reasonably satisfactory in form and substance to the
Investors and their respective counsel. It is expressly agreed that the Issuer
shall not be required to issue, sell or exchange all or any portion of the
Refused Securities and if the Purchaser abandons any such issuance, sale or
exchange then Investors will not have the right to purchase any Offered
Securities hereunder notwithstanding the delivery of a Notice of Acceptance
hereunder.
(vi) Any Offered Securities not acquired by the Investors or
other persons in accordance with Section 5.12(b)(iii) above may not be issued,
sold or exchanged until they are again offered to the Investors under the
procedures specified in this Agreement.
(vii) The provisions of this Section 5.11 shall not apply in
connection with the issuance of any Common Stock or Common Stock Equivalents
issued or issuable: (A) in connection with any Approved Stock Plan; (B) to
officers, directors, employees or consultants, whether or not pursuant to an
Approved Stock Plan, primarily for compensatory purposes with respect to
services rendered or to be rendered or as an inducement grant to any such
individuals as permitted under applicable Nasdaq Stock Market Rules, (C) upon
exercise of the Warrants; (D) pursuant to any public offering of the Company's
equity or debt securities; (E)
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in connection with a change of control or acquisition transaction (including by
way of a merger, consolidation, tender offer, asset acquisition or otherwise)
approved by the Company's board of directors (including, without limitation, any
shares the Company may elect to issue to satisfy or discharge deferred and/or
contingent payment obligations to former equityholders of On Demand Distribution
Limited); (F) to customers, vendors, licensors or joint venture partners or in
connection with other strategic alliances, the primary purpose of which is not
to raise equity capital; (G) to any strategic investor (whether or not a primary
purpose of such issuance is to raise equity capital); (H) in connection with an
equipment lease financing transaction or a credit financing transaction, the
primary purpose of which is not to raise equity capital; (I) in connection with
a dividend, distribution or issuance of Convertible Securities pursuant to a
stockholder rights plan (poison pill) approved by the Company's board of
directors; (J) in any other transaction the primary purpose of which is not to
raise equity capital and (K) upon conversion of any Options or Convertible
Securities which are outstanding on the day immediately preceding the date
hereof or that may be issued pursuant to any of clauses (A) through (J) of this
clause (vii).
(viii) The provisions of this Section 5.11 shall not apply
in connection with the issuance of any Common Stock issued or issuable in
connection with any bona fide financing if the participation of Investors in
such financing (assuming Investors exercised their rights to so participate
pursuant to this Section 5.11) would cause the offering of the securities in
connection with such bona fide financing to be integrated with the issuance of
the Securities for purposes of any rules of the Principal Market (or any other
national securities exchange (including the Nasdaq National Market) on which the
Issuer's shares of Common Stock may become listed) or otherwise result in the
Issuer being required to obtain the approval of its stockholders for all or any
portion of such bona fide financing under the rules of the Principal Market (or
any other national securities exchange (including the Nasdaq National Market) on
which the Issuer's shares of Common Stock may become listed), in which case, the
Issuer shall notify the Investors of such potential integration and the basis
therefor; provided that at the request of one or more Investors that desire(s)
to exercise its rights under this Section 5.11 with respect to such financing,
the Issuer shall use commercially reasonable best efforts to cooperate with such
Investors to explore whether the transaction can be structured in a manner that
would not result in such integration or stockholder approval requirement,
including by participating in discussions with the staff of the Principal Market
(it being understood that the Issuer shall not be required to alter the
structure of such transaction in a manner that would be adverse to it in any
material respect).
ARTICLE 6
REGISTRATION RIGHTS
The Investors shall have the following registration rights with respect to
the Registrable Securities owned by it:
6.1 TRANSFER OF REGISTRATION RIGHTS. Subject to the provisions of this
Agreement, each Investor may assign the registration rights with respect to the
Registrable Securities to any party or parties to which it may from time to time
transfer the Registrable Securities, provided that the transferee agrees in
writing with the Issuer to be bound by the applicable provisions of
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this Agreement regarding such registration rights and indemnification relating
thereto. Upon assignment of any registration rights pursuant to this Section 6.1
by an Investor, such Investor shall deliver to the Issuer a notice of such
assignment which includes the identity and address of any assignee and such
other information reasonably requested by the Issuer in connection with
effecting any such registration (collectively, the Investor and each such
subsequent holder is referred to as a "HOLDER"). Notwithstanding anything to the
contrary herein, the rights of a Holder pursuant to Article 6 may be assigned
only to a transferee or assignee of any Registrable Securities if such
transferee or assignee acquires at least 100,000 shares of such Holder's
Registrable Securities (equitably adjusted for any stock splits, subdivisions,
stock dividends, changes, combinations or the like) or less if the shares being
transferred constitute all of such transferring Holder's Registrable Securities.
6.2 REQUIRED REGISTRATION.
(a) The Issuer shall use best efforts to file a Registration
Statement on Form S-1 (the "REGISTRATION STATEMENT") on or before the Filing
Date, pursuant to which the Registrable Securities shall be registered for
resale. The Issuer shall use commercially reasonable efforts to cause the SEC to
declare the Registration Statement effective as soon as practicable after filing
and to thereafter maintain the effectiveness of the Registration Statement until
the earlier of (i) the second anniversary of the Closing Date, or (ii) such time
as all Holders have sold all of their Registrable Securities (the "EFFECTIVENESS
PERIOD"). The Issuer covenants that it will provide written notice to the
Investors that the Issuer's registration statement on Form S-1 registering the
Registrable Securities has been declared effective by the SEC, which notice
shall be given promptly after the Issuer has received notice of such
effectiveness from the SEC. The Issuer covenants and agrees to undertake to
register the Registrable Securities on Form S-3 as soon as reasonably
practicable after the Issuer becomes eligible to use such form (but shall
maintain the effectiveness of the Form S-1 until such Form S-3 if effective).
(b) If: (i) the Registration Statement is not filed on or prior to
the Filing Date, or (ii) the Registration Statement is not declared effective by
the Commission on or prior to the required Effectiveness Date, or (iii) after
the Effectiveness Date, such Registration Statement ceases to be effective and
available to the Holders as to all Registrable Securities to which it is
required to cover at any time prior to the expiration of its Effectiveness
Period, (any such failure or breach being referred to as an "EVENT," and for
purposes of clauses (i), (ii) or (iii) the date on which such Event occurs,
being referred to as "EVENT DATE"), then, in addition to any other rights
available to the Holders, on each such Event Date and on each monthly
anniversary of each such Event Date (if the applicable Event shall not have been
cured by such date) until the applicable Event is cured, but subject to Section
6.5(b), the Issuer shall pay to each Holder, as a penalty, a cash payment equal
to 1% of the aggregate purchase price paid by such Investor to the Issuer with
respect to the Shares or Warrant Shares then held by such Holder. The penalty
pursuant to the terms hereof shall apply on a pro rata basis for any portion of
a month prior to the cure of an Event. The parties agree that such penalties
shall not be the exclusive damages under this Agreement with respect to the
occurrence of such Event.
6.3 REGISTRATION PROCEDURES.
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(a) In case of the Registration Statement effected by the Issuer
subject to this Article 6, the Issuer shall keep the Holders, advised in writing
as to the initiation of such registration, and as to the completion thereof. In
addition, subject to Section 6.2 above, the Issuer shall, to the extent
applicable to the Registration Statement:
(i) prepare and file with the SEC such amendments and
supplements to the Registration Statement as may be necessary to keep such
registration, effective and comply with provisions of the Securities Act with
respect to the disposition of all securities covered thereby during the period
referred to in Section 6.2(a);
(ii) update, correct, amend and supplement the Registration
Statement as necessary;
(iii) notify the Holders when the Registration Statement is
declared effective by the SEC, and furnish such number of prospectuses,
including preliminary prospectuses, and other documents incident thereto as the
Holders may reasonably request from time to time;
(iv) use its reasonable best efforts to register or qualify
such Registrable Securities under such other securities or blue sky laws of such
jurisdictions of the United States as the Holders may reasonably request where
an exemption is not available to enable it to consummate the disposition in such
jurisdiction of the Registrable Securities (provided that the Issuer will not be
required to (i) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this provision, or (ii)
consent to general service of process in any such jurisdiction, or (iii) subject
itself to taxation in any jurisdiction where it is not already subject to
taxation);
(v) notify the Holders at any time when a prospectus relating
to the Registrable Securities is required to be delivered under the Securities
Act, of the happening of any event as a result of which the prospectus included
in the Registration Statement contains an untrue statement of a material fact or
omits any fact necessary to make the statements therein not misleading, and the
Issuer will prepare a supplement or amendment to such prospectus, so that, as
thereafter delivered to purchasers of such shares, such prospectus will not
contain any untrue statements of a material fact or omit to state any fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading;
(vi) cause all such Registrable Securities to be listed on
each securities exchange on which similar securities issued by the Issuer are
then listed and obtain all necessary approvals from The Nasdaq SmallCap Stock
Market for trading thereon;
(vii) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of the Registration
Statement; and
(viii) upon the sale of any Registrable Securities pursuant to
the Registration Statement, direct the transfer agent to remove all restrictive
legends from all certificates or other instruments evidencing the Registrable
Securities.
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(b) Notwithstanding anything stated or implied to the contrary in
Section 6.3(a) above, the Issuer shall not be required to consent to any
underwritten offering of the Registrable Securities or to any specific
underwriter participating in any underwritten public offering of the Registrable
Securities.
(c) Each Holder agrees that upon receipt of any notice from the
Issuer of the happening of any event of the kind described in Section 6.3(a)(v),
such Holder will forthwith discontinue such Holder's disposition of Registrable
Securities pursuant to the registration statement relating to such Registrable
Securities until such Holder's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 6.3(a)(v) and, if so directed by the
Issuer, will deliver to the Issuer at the Issuer's expense all copies, other
than permanent file copies, then in such Holder's possession, of the prospectus
relating to such Registrable Securities current at the time of receipt of such
notice.
(d) Except as required by law, all expenses incurred by the Issuer
in complying with this Article 6, including but not limited to, all
registration, qualification and filing fees, printing expenses, fees and
disbursements of counsel and accountants for the Issuer, blue sky fees and
expenses (including fees and disbursements of counsel related to all blue sky
matters) ("REGISTRATION EXPENSES") incurred in connection with any registration,
qualification or compliance pursuant to this Article 6 shall be borne by the
Issuer. All underwriting discounts and selling commissions applicable to a sale
incurred in connection with any registration of Registrable Securities and the
legal fees and other expenses of a Holder shall be borne by such Holder.
6.4 FURTHER INFORMATION. If Registrable Securities owned by a Holder are
included in any registration, such Holder shall furnish the Issuer such
information regarding itself as the Issuer may reasonably request and as shall
be required in connection with any registration (or amendment or supplement
thereto), referred to in this Agreement, and Holder shall indemnify the Issuer
with respect thereto in accordance with Article 7 hereof. Each Investor hereby
represents and warrants to the Issuer, severally and not jointly, that it has
accurately and completely provided all material requested information and
answered the questions numbered (a) through (d) on the signature pages of this
Agreement, and such Investor agrees and acknowledges that the Issuer may rely on
such information as being materially true and correct for purposes of preparing
and filing the Registration Statement at the time of filing thereof and at the
time it is declared effective, unless such Investor has notified the Issuer in
writing to the contrary prior to such time.
6.5 RIGHT OF SUSPENSION
(a) Notwithstanding any other provision of this Agreement or any
related agreement to the contrary, if any, the Issuer shall have the right, at
any time, to suspend the effectiveness of the Registration Statement and offers
and sales of the Registrable Securities covered thereby whenever, in the good
faith judgment of the Issuer, (i) continuing such effectiveness or permitting
such offers and sales could reasonably be expected to have an adverse effect
upon a proposed sale of all or substantially all of the assets of the Issuer or
a merger, acquisition, reorganization, recapitalization or similar current
transaction materially affecting the
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capital structure or equity ownership of the Issuer, (ii) there exists a
material development or a potential material development with respect to or
involving the Issuer that the Issuer would be obligated to disclose in the
prospectus used in connection with the Registration Statement, which disclosure,
in the good faith judgment of the Issuer, after considering the advice of
counsel, would be premature or otherwise inadvisable at such time, or (iii) the
SEC has issued a stop order suspending the effectiveness of the Registration
Statement, an event occurs that makes the financial statements included in the
Registration Statement ineligible for inclusion therein or the Registration
Statement or related prospectus or any document incorporated or deemed to be
incorporated therein by reference contains an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances, not
misleading (a "SUSPENSION EVENT"). In the event that the Issuer shall determine
to so suspend the effectiveness of the Registration Statement and offers and
sales of the Registrable Securities covered thereby, the Issuer shall, in
addition to performing those acts required to be performed under the Securities
Act and/or the Exchange Act or deemed advisable by the Issuer, deliver to each
Holder written notice thereof, signed by the Chief Financial Officer or Chief
Executive Officer of the Issuer. Upon receipt of such notice, the Holders shall
discontinue disposition of the Registrable Securities covered by the
Registration Statement and prospectus until such Holders (x) are advised in
writing by the Issuer that the use of the Registration Statement and prospectus
(and offers and sales thereunder) may be resumed, (y) have received copies of a
supplemental or amended prospectus, if applicable, and (z) have received copies
of any additional or supplemental filings which are incorporated or deemed to be
incorporated by reference into such prospectus. The Issuer will exercise
commercially reasonable efforts to ensure that the use of the Registration
Statement and prospectus may be resumed as quickly as practicable, provided,
however, that in the event of a Suspension Event, the Issuer's obligation under
Section 6.2 to maintain the effectiveness of the Registration Statement until
the second anniversary of the date of this Agreement shall be extended on a
day-for-day basis equal to the amount of time that such Registration Statement
shall have been suspended.
(b) The Issuer's right to suspend the effectiveness of the
Registration Statement and the offers and sales of the Registrable Securities
covered thereby, as described above, shall be for a period of time (the
"SUSPENSION PERIOD") beginning on the date of the occurrence of the Suspension
Event and expiring on the earlier to occur of (i) the date on which the
Suspension Event ceases, or (ii) thirty (30) days after the occurrence of the
Suspension Event; provided, however, that in the event the Suspension Event
relates to a previously undisclosed proposed or pending material business
transaction, the disclosure of which the Issuer determines in good faith would
be reasonably likely to impede the Issuer's ability to consummate such
transaction, the Issuer may extend the Suspension Period from 30 days to 45
days; further provided, however, that any Suspension Periods shall not, in the
aggregate, exceed 60 days in any 12 month period. Notwithstanding the provisions
of Section 6.2(b) and except with respect to an extension of a Suspension Period
contemplated in the following sentence, the Issuer shall not be obligated to pay
penalties with respect to any Suspension Period in which the effectiveness of
the Registration Statement has been suspended in accordance with this Section
6.5 (subject to the time limitations in this Section 6.5(b)). In addition,
notwithstanding the foregoing, a Suspension Period may be extended beyond the
periods contemplated by this Section 6.5(b) if the Suspension Event is a
Suspension Event described in clause (iii) of Section
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6.5(a) (subject to the Issuer's obligation to pay penalties with respect to such
extension pursuant to Section 6.2(b)).
ARTICLE 7
INDEMNIFICATION
7.1 INDEMNIFICATION RELATING TO REGISTRATION RIGHTS.
(a) With respect to any registration, effected or to be effected
pursuant to Article 6 of this Agreement, the Issuer shall indemnify each Holder
of Registrable Securities whose securities are included in a registration
statement, each of such Holder's directors and officers, each underwriter (as
defined in the Securities Act) of the securities sold by such Holder (if any),
and each Person who controls (within the meaning of the Securities Act) any such
Holder or underwriter (a "CONTROLLING PERSON") from and against all losses,
damages, liabilities, claims, charges, actions, proceedings, demands, judgments,
settlement costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses) or deficiencies of any such Holder or any such
underwriter or Controlling Person if any of the foregoing arise out of:
(i) any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus or supplement or amendment thereto
(including any related registration statement) incident to any such
registration; or
(ii) any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statement
therein, in the light of the circumstances under which it was made, not
misleading,
in each case, relating to any action or inaction required of the Issuer in
connection with any such registration, and subject to Section 7.2 below will
reimburse as incurred each such Person entitled to indemnity under this Section
7.1 for all legal and other expenses reasonably incurred in connection with
investigating or defending any such loss, damage, liability, claim, charge,
action, proceeding, demand, judgment, settlement or deficiency; provided,
however, that, the foregoing indemnity and reimbursement obligation shall not be
applicable to the extent that any such matter arises out of or is based on (A)
any untrue statement (or alleged untrue statement) or omission (or alleged
omission) made in reliance upon and in conformity with written information
furnished to the Issuer by or on behalf of such Holder or by or on behalf of
such an underwriter specifically for use in such prospectus or supplement or
amendment thereto, or (B) the failure of the Holder to comply with its
obligations to discontinue disposition of Registrable Securities during the
suspension of a registration statement as set forth in Section 6.5(a) after due
notice thereof by the Issuer.
(b) With respect to any registration, qualification or compliance
effected or to be effected pursuant to this Agreement, each Holder of
Registrable Securities whose securities are included in a registration
statement, shall, severally and not jointly, indemnify the Issuer or any
Controlling Person, and the directors and officers of the Issuer or any
Controlling Person, from and against all losses, damages, liabilities, claims,
charges, actions, proceedings, demands, judgments, settlement costs and expenses
of any nature whatsoever (including, without
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limitation, reasonable attorneys' fees and expenses) or deficiencies of the
Issuer if any of the foregoing arise out of:
(i) any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus or supplement or amendment thereto
(including any related registration statement, notification or the like)
incident to any such registration, qualification or compliance; or
(ii) any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statement
therein, in the light of the circumstances under which it was made, not
misleading; or
in each case, relating to any action or inaction required of such Holder in
connection with any such registration, qualification or compliance, and subject
to Section 7.2 below will reimburse the Issuer for all legal and other expenses
reasonably incurred in connection with investigating or defending any such loss,
damage, liability, claim, charge, action, proceeding, demand, judgment,
settlement or deficiency; provided, however, that, the foregoing indemnity and
reimbursement obligation shall only be applicable to the extent that any such
matter arises out of or is based on any untrue statement (or alleged untrue
statement) or omission (or alleged omission) made in reliance upon and in
conformity with written information furnished to the Issuer by or on behalf of
the Holder specifically for use in such prospectus, offering circular or other
document; provided, however, that, the obligation of the Holder hereunder shall
be limited to an amount equal to the net proceeds to the Holder of Registrable
Securities sold as contemplated hereunder.
7.2 INDEMNIFICATION PROCEDURES. Each Person entitled to indemnification
under this Section (an "INDEMNIFIED PARTY") shall give notice as promptly as
reasonably practicable to each party required to provide indemnification under
this Section (an "Indemnifying Party") of any action commenced against or by it
in respect of which indemnity may be sought hereunder, but failure to so notify
an Indemnifying Party shall not relieve such Indemnifying Party from any
liability that it may have otherwise than on account of this indemnity agreement
so long as such failure shall not have materially prejudiced the position of the
Indemnifying Party. Upon such notification, the Indemnifying Party shall assume
the defense of such action if it is a claim brought by a third party, if and
after such assumption the Indemnified Party shall not be entitled to
reimbursement of any expenses incurred by it in connection with such action
except as described below. In any such action, any Indemnified Party shall have
the right to retain its own counsel, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless (i) the Indemnifying
Party and the Indemnified Party shall have mutually agreed to the contrary or
(ii) the named parties in any such action (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party and representation
of both parties by the same counsel would be inappropriate due to actual or
potential differing or conflicting interests between them. The Indemnifying
Party shall not be liable for any settlement of any proceeding effected without
its written consent (which shall not be unreasonably withheld or delayed by such
Indemnifying Party), but if settled with such consent or if there be final
judgment for the plaintiff, the Indemnifying Party shall indemnify the
Indemnified Party from and against any loss, damage or liability by reason of
such settlement or judgment.
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ARTICLE 8
CONDITIONS TO CLOSING
8.1 CONDITIONS TO THE OBLIGATIONS OF THE INVESTORS. The obligation of the
Investors to proceed with the Closing is subject to the following conditions any
and all of which may be waived, in whole or in part, to the extent permitted by
applicable law:
(a) Representations and Warranties. Each of the representations and
warranties of the Issuer contained in this Agreement shall be true and correct
in all material respects as of the Closing as though made on and as of the
Closing (except such representations and warranties qualified by materiality or
Material Adverse Effect which shall be true and correct in all respects), except
(i) for changes specifically permitted by this Agreement, and (ii) that those
representations and warranties which address matters only as of a particular
date shall remain true and correct in all material respects as of such date
(except such representations and warranties qualified by materiality or Material
Adverse Effect which shall be true and correct in all respects). Unless the
Investors receive written notice to the contrary at the Closing, the Investors
shall be entitled to assume that the preceding is accurate in all respects at
the Closing.
(b) Agreement and Covenants. The Issuer shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it on or prior to the
Closing. Unless the Investors receive written notice to the contrary at the
Closing, the Investors shall be entitled to assume that the preceding is
accurate in all respects at the Closing.
(c) No Order. No governmental authority or other agency or
commission or federal or state court of competent jurisdiction shall have
enacted, issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction, or other order (whether temporary,
preliminary or permanent) which is in effect and which materially restricts,
prevents or prohibits consummation of the Closing or any transaction
contemplated by this Agreement.
(d) Opinion of Issuer's Counsel. The Investors and the Placement
Agent shall have received an opinion of Issuer's counsel, dated the Closing
Date, with respect to legal matters customary for private offerings of this
type.
(e) Securities Exemptions. The offer and sale of the Securities
pursuant to this Agreement shall be exempt from the registration requirements of
the Securities Act and the registration and/or qualification requirements of all
applicable state securities laws.
(f) No Suspension of Trading or Listing of Common Stock. The Common
Stock of the Issuer (i) shall be designated for quotation or listed on The
Nasdaq SmallCap Market and (ii) shall not have been suspended from trading on
Nasdaq SmallCap Market.
(g) Officer's Certificate. The Issuer shall have delivered to the
Investors a certificate of the Issuer executed by an officer of the Issuer
attaching and certifying to the truth and correctness of (1) the Issuer's
Certificate of Incorporation; (2) the Issuer's By-laws; and (3)
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the resolutions adopted by the Issuer's Board of Directors in connection with
the transactions contemplated by this Agreement.
8.2 CONDITIONS TO THE OBLIGATIONS OF THE ISSUER. The obligation of the
Issuer to proceed with the Closing is subject to the following conditions any
and all of which may be waived, in whole or in part, to the extent permitted by
applicable law:
(a) Representations and Warranties. Each of the representations and
warranties of the Investors contained in this Agreement shall be true and
correct as of the Closing as though made on and as of the Closing, except (i)
for changes specifically permitted by this Agreement, and (ii) that those
representations and warranties which address matters only as of a particular
date shall remain true and correct as of such date. Unless the Issuer receives
written notification to the contrary at the Closing, the Issuer shall be
entitled to assume that the preceding is accurate in all respects at the
Closing.
(b) Agreement and Covenants. The Investors shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by them on or prior to the
Closing. Unless the Issuer receives written notification to the contrary at the
Closing, the Issuer shall be entitled to assume that the preceding is accurate
in all respects at the Closing.
(c) No Order. No governmental authority or other agency or
commission or federal or state court of competent jurisdiction shall have
enacted, issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction, or other order (whether temporary,
preliminary or permanent) which is in effect and which materially restricts,
prevents or prohibits consummation of the Closing or any transaction
contemplated by this Agreement.
(d) Securities Exemptions. The offer and sale of the Securities
pursuant to this Agreement shall be exempt from the registration requirements of
the Securities Act and the registration and/or qualification requirements of all
applicable state securities laws.
(e) No Suspension of Trading or Listing of Common Stock. The Common
Stock of the Issuer (i) shall be designated for quotation or listed on the
Nasdaq SmallCap Market and (ii) shall not have been suspended from trading on
the Nasdaq SmallCap Market.
ARTICLE 9
MISCELLANEOUS
9.1 DEFINED TERMS. As used herein the following terms shall have the
following meanings:
"AFFILIATE" shall have the meaning ascribed to it in Rule 12b-2 of
the General Rules and Regulations under the Exchange Act, as in effect on the
date hereof.
- 25 -
"BUSINESS DAY" means any day except Saturday, Sunday and any day
which shall be a federal legal holiday or a day on which banking institutions in
the State of New York are authorized or required by law or other governmental
action to close.
"CERTIFICATE OF INCORPORATION" means the Issuer's Certificate of
Incorporation, as the same may be supplemented, amended or restated from time to
time.
"CONTRACT" means any indenture, lease, sublease, loan agreement,
mortgage, note, restriction, commitment, obligation or other contract, agreement
or instrument.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"GAAP" means generally accepted accounting principles in effect in
the United States of America from time to time.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state
or other political subdivision thereof, and any entity or official exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"EFFECTIVENESS DATE" means the earliest to occur of (a) if there is
no review of the Registration Statement by the Commission, the 90th calendar day
following the Closing Date, provided that if such date is not a Business Day,
then the next subsequent Business Day after such 90th calendar day, (b) if the
Commission reviews the Registration Statement, the 120th calendar day following
the Closing Date, provided that if such date is not a Business Day, then the
next subsequent Business Day after such 120th calendar day or (c) the fifth
Business Day following the date on which the Issuer is notified by the
Commission that the Registration Statement will not be reviewed or is no longer
subject to further review and comments.
"FILING DATE" means the 45th calendar day following the Closing
Date, provided that if such date is not a Business Day, then the next subsequent
Business Day after such 45th calendar day.
"LIEN" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof, and the filing of or
agreement to give any financing statement under the Uniform Commercial Code or
comparable law or any jurisdiction in connection with such mortgage, pledge,
security interest, encumbrance, lien or charge).
"MATERIAL ADVERSE CHANGE (OR EFFECT)" means a material and adverse
change in (or effect on) the financial condition, properties, assets,
liabilities, rights, obligations, operations or business, of a Person and its
Subsidiaries taken as a whole. As used in this Agreement with reference to the
Issuer, "Material Adverse Change (or Effect)" shall not include any change,
event, violation, inaccuracy, circumstance or effect directly and primarily
resulting from (i) changes in general economic conditions or changes affecting
the industry generally in which the Issuer operates (provided that such changes
do not affect the Issuer in a substantially
- 26 -
disproportionate manner) or (ii) changes in the trading prices for the Issuer's
Common Stock which are unrelated to a breach by the Issuer of this Agreement.
"PERSON" means an individual, partnership, corporation, business
trust, joint stock company, estate, trust, unincorporated association, joint
venture, Governmental Authority or other entity, of whatever nature.
"REGISTER", "REGISTERED" and "REGISTRATION" refer to a registration
of the offering and sale or resale of Common Stock effected by preparing and
filing a registration statement in compliance with the Securities Act and the
declaration or ordering of the effectiveness of such registration statement.
"REGISTRABLE SECURITIES" means all Shares and Warrant Shares
acquired by the Investors and any other shares of Common Stock or other
securities issued in respect of such shares by way of a stock dividend or stock
split or in connection with a combination or subdivision of the Issuer's Common
Stock or by way of a recapitalization, merger or consolidation or reorganization
of the Issuer; provided, however, that, as to any particular securities, such
securities will cease to be Registrable Securities when they have been sold
pursuant to registration or in a transaction exempt from the registration and
prospectus delivery requirements of the Securities Act under Section 4(1)
thereof so that all transfer restrictions and restrictive legends with respect
thereto are removed upon the consummation of such sale.
"REQUIREMENTS OF LAW" means as to any Person, the certificate of
incorporation, bylaws or other organizational or governing documents of such
person, and any domestic or foreign and federal, state or local law, rule,
regulation, statute or ordinance or determination of any arbitrator or a court
or other Governmental Authority, in each case applicable to or binding upon such
Person or any of its properties or to which such Person or any of its property
is subject.
"SEC" means the Securities and Exchange Commission.
"SECURITIES" means the Shares, the Warrants and the Warrant Shares.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SUBSIDIARY" means as to any Person, a corporation or limited
partnership of which more than 50% of the outstanding capital stock or
partnership interests having full voting power is at the time directly or
indirectly owned or controlled by such Person.
"WARRANT SHARES" means the shares of Common Stock issuable upon
exercise of the Warrants.
- 27 -
9.2 OTHER DEFINITIONAL PROVISIONS.
(a) All terms defined in this Agreement shall have the defined
meanings when used in any certificates, reports or other documents made or
delivered pursuant hereto or thereto, unless the context otherwise requires.
(b) Terms defined in the singular shall have a comparable meaning
when used in the plural, and vice versa.
(c) All accounting terms shall have a meaning determined in
accordance with GAAP.
(d) As used herein, the neuter gender shall also denote the
masculine and feminine, and the masculine gender shall also denote the neuter
and feminine, where the context so permits.
(e) The words "hereof," "herein" and "hereunder," and words of
similar import, when used in this Agreement shall refer to this Agreement as a
whole (including any Exhibits hereto) and not to any particular provision of
this Agreement.
9.3 NOTICES. All notices, requests, demands, claims, and other
communications hereunder shall be in writing and shall be delivered by certified
or registered mail (first class postage pre-paid), guaranteed overnight
delivery, electronic mail transmission, or facsimile transmission, to the
following addresses, electronic mail addresses and Fax numbers (or to such other
addresses, electronic mail addresses or Fax numbers which such party shall
subsequently designate in writing to the other party):
(a) if to the Issuer to:
Loudeye Corp.
1130 Rainier Avenue South
Seattle, WA 98144
Attention: Jeffrey Cavins, President and Chief Executive Officer
Fax: (206) 830-5351
Email: jeff.cavins@loudeye.com
With copies to:
Lawrence J. Madden, Executive Vice President & Chief Financial
Officer
Fax: (206) 830-5351
Email: larry.madden@loudeye.com; and
Eric S. Carnell, Vice President, Legal & Business Affairs
Fax: (206) 832-4001
Email: eric.carnell@loudeye.com
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(b) if to an Investor, to the address (or Fax umber or electronic
mail address) set forth next to such Investor's name on such Investor's
signature page hereto.
with a copy (for informational purposes only) to:
Schulte Roth & Zabel LLP
919 Third Avenue
New York, New York 10022
Telephone: (212) 756-2000
Facsimile: (212) 593-5955
Attention: Eleazer N. Klein, Esq.
Each such notice or other communication shall for all purposes of this Agreement
be treated as effective or having been given when delivered if delivered by
hand, by messenger or by courier, or if sent by facsimile, upon confirmation of
receipt, or if sent by electronic mail, upon transmission by the sender. If the
address, electronic mail address or Fax number of any Investor listed on the
signature pages hereto is the same as the address of an Affiliate of such
Investor that is also an Investor under this Agreement, then notice to any such
Investor shall constitute valid notice with respect to such Investor and any and
all of such Investor's Affiliates.
9.4 STOCK SPLITS, DIVIDENDS AND OTHER SIMILAR EVENTS. The provisions of
this Agreement shall be appropriately adjusted to reflect any stock split, stock
dividend, reorganization or other similar event that may occur with respect to
the Issuer after the date hereof.
9.5 ENTIRE AGREEMENT. This Agreement (including the Exhibits attached
hereto) and other documents delivered at the Closing pursuant hereto, contain
the entire understanding of the parties in respect of its subject matter and
supersedes all prior agreements and understandings between or among the parties
with respect to such subject matter. The Exhibits constitute a part hereof as
though set forth in full above.
9.6 EXPENSES; TAXES. The Issuer shall pay the fees and expenses of legal
counsel to Portside Growth & Opportunity Fund (an Investor) incurred in
connection with the preparation and negotiation of the Transaction Documents;
provided that such fees and expenses shall not exceed $30,000. Except as
otherwise provided in this Agreement, the parties shall pay their own fees and
expenses, including their own counsel fees, incurred in connection with this
Agreement or any transaction contemplated hereby. Any sales tax, stamp duty,
deed transfer or other tax (except taxes based on the income of the Investor)
arising out of the initial issuance of the Securities (but not with respect to
subsequent transfers) by the Issuer to the Investor and consummation of the
transactions contemplated by this Agreement shall be paid by the Issuer.
9.7 AMENDMENT; WAIVER. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Issuer and Investors holding, or obligated to purchase, at least two thirds
of the Registrable Securities or, in the case of a waiver, by the party against
whom enforcement of any such waiver is sought. No failure to exercise, and no
delay in exercising, any right, power
- 29 -
or privilege under this Agreement shall operate as a waiver, nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
the exercise of any other right, power or privilege. No waiver of any breach of
any provision shall be deemed to be a waiver of any preceding or succeeding
breach of the same or any other provision, nor shall any waiver be implied from
any course of dealing between the parties. No extension of time for performance
of any obligations or other acts hereunder or under any other agreement shall be
deemed to be an extension of the time for performance of any other obligations
or any other acts. The rights and remedies of the parties under this Agreement
are in addition to all other rights and remedies, at law or equity, that they
may have against each other.
9.8 BINDING EFFECT; ASSIGNMENT. The rights and obligations of this
Agreement shall bind and inure to the benefit of the parties and their
respective successors and legal assigns. The rights and obligations of this
Agreement may not be assigned by any party without the prior written consent of
the other party.
9.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one and the same instrument.
9.10 SURVIVAL. The representations and warranties of the Issuer and the
Investors contained in Sections 3 and 4 and the agreements and covenants set
forth in Sections 5, 6, 7 and 9 shall survive the Closing. Each Investor shall
be responsible only for its own representations, warranties, agreements and
covenants hereunder.
9.11 HEADINGS. The headings contained in this Agreement are for
convenience of reference only and are not to be given any legal effect and shall
not affect the meaning or interpretation of this Agreement.
9.12 GOVERNING LAW; INTERPRETATION. All questions concerning the
construction, validity, enforcement and interpretation of this Agreement and the
Warrants shall be governed by and construed and enforced in accordance with the
internal laws of the State of New York, without regard to the principles of
conflicts of law thereof. Each party agrees that all legal proceedings
concerning the interpretations, enforcement and defense of the transactions
contemplated by this Agreement and the Warrants (whether brought against a party
hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York. Each party hereto hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
the City of New York, New York for the adjudication of any dispute hereunder or
in connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of this Agreement and the
Warrants), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is
improper. Each party hereto hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action or
proceeding by delivering a copy thereof via overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to
- 30 -
serve process in any manner permitted by law. Each party hereto (including its
affiliates, agents, officers, directors and employees) hereby irrevocably
waives, to the fullest extent permitted by applicable law, any and all right to
trial by jury in any legal proceeding arising out of or relating to this
Agreement or the transactions contemplated hereby. If either party shall
commence an action or proceeding to enforce any provisions of this Agreement or
the Warrants, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its attorneys fees and other costs and
expenses incurred with the investigation, preparation and prosecution of such
action or proceeding.
9.13 SEVERABILITY. The parties stipulate that the terms and provisions of
this Agreement are fair and reasonable as of the date of this Agreement.
However, any provision of this Agreement shall be determined by a court of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions, covenants and restrictions of this Agreement shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated. If, moreover, any of those provisions shall for any reason be
determined by a court of competent jurisdiction to be unenforceable because
excessively broad or vague as to duration, activity or subject, it shall be
construed by limiting, reducing or defining it, so as to be enforceable.
[SIGNATURES AND OTHER INVESTOR INFORMATION FOLLOW]
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IN WITNESS WHEREOF, the parties hereto have caused this Subscription
Agreement to be duly executed and delivered as of the date set forth below.
NAME OF INVESTOR: ADDRESS FOR NOTICES (Please Print):
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SIGNATURE:
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Attention:
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By: Fax:
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Name: E-mail:
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Title: Tax Identification #:
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Exact Name to appear on Stock Certificate and Warrant:
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Number of Units Subscribed For:
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Subscription Amount: $
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The Investor hereby provides the following additional information:
(a) Excluding the shares of Common Stock subscribed for above, set forth
below is the number of shares of Common Stock and options rights or warrants of
LOUDEYE CORP. ("OPTIONS" and together with the Common Stock, "SECURITIES") which
the Investor beneficially owns or of which the Investor is the record owner on
the date hereof. Please refer to the explanation of beneficial ownership on
Exhibit D attached hereto. If none, please so state.
Number of Shares: __________________ (excluding the Shares subscribed for above)
Number of Options: __________________
Please indicate by an asterisk (*) above if the Investor disclaims "beneficial
ownership" of any of the above listed Securities, and indicate in response to
question (b) below who has beneficial ownership.
(b) If the Investor disclaims "beneficial ownership" in question (a),
please furnish the following information with respect to the person(s) other
than the Investor who is the beneficial owner(s) of the Securities in question.
If not applicable, please check box: [ ]
Name of Beneficial Owner:
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Relationship to the Investor:
---------------------------------
Number of Securities Beneficially Owned:
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NAME OF INVESTOR:
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(c) As to the Securities indicated as being "beneficially owned" in
answers to question (a) and (b) does any person other than the person identified
as the "beneficial owner" have:
(i) the sole or shared power to vote or to direct the vote of any
such Securities?
Yes No
---- ----
or (ii) the sole or shared power to dispose or to direct the
disposition of any such Securities (referred to as "dispositive power")?
Yes No
---- ----
If the answer is "Yes" to either of the forgoing questions, the Investor should
set forth below the name and address of each person who has either such power or
with whom the indicated "beneficial owner" shares such power, together with such
number of shares to which such rights relates.
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IF THE INVESTOR IS AN ENTITY OR A TRUST:
The Investor must list the name of each natural person associated with the
Investor entity or trust who has or shares voting or dispositive power with
respect to the shares indicated as being "beneficially owned" in answers to
questions (a) or (c). For an investment or holding company, the investment
manager(s) would normally be the person(s) who hold(s) or share(s) voting and
dispositive power. For a trust, the natural person(s) holding or sharing voting
or dispositive power would normally be the trustee(s). For other types of
entities, the natural person(s) holding or sharing voting or dispositive power
would normally be the officer(s) empowered by the board of directors to make
such decisions, or if there is no such officer, each of the directors.
Disclosure is required for each natural person who in practice has voting or
dispositive power, regardless of that person's formal title or position within
the organization.
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NAME OF INVESTOR:
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TYPE OF POWER:
NAME OF NATURAL VOTING/DISPOSITIVE/
PERSON BOTH ADDRESS POSITION OR TITLE
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(d) In any pending legal proceeding, is the Investor or any of its
affiliates a party, or does the Investor or any such associate have an interest,
adverse to the Issuer or any affiliate of the Issuer?
Yes No
---- ----
If the answer is "Yes," please describe, and state the nature and amount of,
such interest.
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(e) Is there any family relationship (including relationships by blood,
marriage, and adoption, except those more remote than first cousin) between the
Investor or any of its affiliates and any director or officer of the Issuer, any
affiliate of the Issuer or any person who has been chosen to become a director
or officer of the Issuer?
Yes No
---- ----
If the answer is "Yes," please describe the relationship.
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NAME OF INVESTOR:
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(f) Are any of the Securities listed in response to question (a) the
subject of a voting agreement, contract or other arrangement whereby others have
voting control over, or any other interest in, any of the Investor's Securities?
[ ] Yes [ ] No
If the answer is "Yes", please give details:
.
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(g) Please describe each position, office or other material relationship
which the Investor has had with the Issuer or any of its affiliates, including
any Subsidiary of the Issuer, within the past three years. Please include a
description of any loans or other indebtedness, and any contracts or other
arrangements or transactions involving a material amount, payable by the
Investor to the Issuer or any of its affiliates, including its Subsidiaries, or
by the Issuer or any of its affiliates, including its Subsidiaries, to the
Investor. "Affiliates" of the Issuer include its directors and executive
officers, and any other person controlling or controlled by the Issuer. IF NONE,
PLEASE SO STATE.
Answer:
(h) Please provide the name and address of other person(s), if any, to
whom any proxy statements, registration statements (including notice of
effectiveness thereof), prospectuses or similar documents and information should
be delivered by the Issuer on behalf of the Investor in the future, with respect
to the Investor's shares:
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(i) Please advise of special stock certificate delivery requirements for
closing, if any:
(j) Please advise if a NASD member has placed with you the Securities
being purchased hereunder: (Name of Member:)
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(k) is the Investor (i) an NASD Member (see definition), (ii) a
Controlling (see definition) shareholder of an NASD Member, (iii) a Person
Associated with a Member of the NASD (see definition), (iv) an Underwriter or a
Related Person (see definition) with respect to the proposed offering or (v) an
Affiliate (see definition) of a Member of the NASD; or (b) does the Investor own
any shares or other securities of any NASD Member not purchased in the open
market; or (c) has the Investor or its affiliates made any subordinated loans to
any NASD Member?
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Answer: [ ] Yes [ ] No (If "yes," please describe below)
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(l) Does the Investor have any oral and/or written agreements with any
Member of the NASD or Person Associated With a Member of the NASD concerning the
disposition of your securities of the Issuer?
Answer: [ ] Yes [ ] No
If "yes," please briefly describe such agreement and attach copies
of written agreements or correspondence describing such arrangement.
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DEFINITIONS
Affiliate. An Affiliate of any person (for purposes hereof a "person"
includes a partnership, corporation or other legal entity such as a trust or
estate) is a person which controls, is controlled by or is under common control
with such person. For purposes of this definition:
(i) a person should be presumed to control a Member of the NASD if the
person beneficially owns 10% or more of the outstanding voting securities of a
Member of the NASD which is a corporation, or beneficially owns a partnership
interest in 10% or more of the distributable profits or losses of a Member of
the NASD which is partnership;
(ii) a Member of the NASD should be presumed to control a person if the
Member of the NASD and Persons Associated With the Member of the NASD
beneficially own 10% or more of the outstanding voting securities of a person
which is a corporation, or beneficially own a partnership interest in 10% or
more of the distributable profits or losses of a person which is a partnership;
and
(iii) a person should be presumed to be under common control with a Member
of the NASD if:
(1) the same person controls both the Member of the NASD and such
person by beneficially owning 10% or more of the outstanding voting securities
of the Member of the NASD and other such person which is a corporation, or by
beneficially owning a partnership interest in 10% or more of the distributable
profits or losses of the Member of the NASD and other such person which is a
partnership; or
(2) a person having the power to direct or cause the direction of
the management or policies of the Member of the NASD also has the power to
direct or cause the direction of the management or policies of the other entity
in question.
Control. The term "control" (including the terms "controlling,"
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power, either individually or with others, to direct or cause
the direction of the management and policies of a person, whether through the
ownership of voting securities, by contract, or otherwise. (Rule 405 under the
Securities Act)
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NASD Member. The term "NASD member" means any broker or dealer admitted to
membership in the National Association of Securities Dealers, Inc. ("NASD").
(NASD Manual, By-laws Article I, Definitions)
Person Associated with a member of the NASD. The term "person associated
with a member of the NASD" means (1) a natural person who is registered or has
applied for registration under the Rules of Association of the NASD; (2) a sole
proprietor, partner, officer, director, or branch manager of a member, or other
natural person occupying a similar status or performing similar functions, or a
natural person engaged in the investment banking or securities business who is
directly or indirectly controlling or controlled by a member, whether or not any
such person is registered or exempt from registration with the NASD under the
NASD By-laws or the Rules of Association of the NASD; and (3) for purposes of
NASD Rule 8210, any other person listed on Schedule A of Form BD of a member.
(NASD Manual, By-laws Article I, Definitions)
Underwriter or a Related Person. The term "underwriter or a related
person" for these purposes means, with respect to a proposed offering,
underwriters, underwriters' counsel, financial consultants and advisors,
finders, members of the selling or distribution group, and any and all other
persons associated with or related to any of such persons. (NASD Interpretation)
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ACCEPTED: LOUDEYE CORP.
By:
---------------------------------------
Name: Jeffrey M. Cavins
Title: President & Chief Executive Officer
Dated: December 21, 2004
- 39 -
ANNEX I
LIST OF INVESTORS
INVESTOR SUBSCRIPTION AMOUNT UNITS PURCHASED
- -------- ------------------- ---------------
Portside Growth and
Opportunity Fund $5,250,000.00 3,500,000.00
D.B. Zwirn Special Opportunities
Fund, Ltd. 3,815,007.00 2,543,338.00
D.B. Zwirn Special Opportunities
Fund, L.P. 1,090,002.00 726,668.00
D.B. Zwirn Special Opportunities
Fund (TE), L.P. 545,001.00 363,334.00
Smithfield Fiduciary LLC 5,449,995.00 3,633,330.00
Kings Road Investments Ltd. 5,449,995.00 3,633,330.00
Gruber & McBaine
Capital Management (and affiliated
entities) 2,000,010.00 1,333,340.00
Carnegie Technology Sub-Fund 600,000.00 400,000.00
Baron Opportunity Fund 1,000,000.50 666,667.00
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TOTAL $25,200,010.50 16,800,007.00
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