EXHIBIT 10.1
_______________________________________________________________________________
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
Between
BIG ENTERTAINMENT, INC.
and
KA INVESTMENTS LDC
Dated as of September 30, 1998
_______________________________________________________________________________
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this "AGREEMENT"),
dated as of September 30, 1998, between Big Entertainment, Inc., a Florida
corporation (the "COMPANY"), and KA Investments LDC, a Cayman Islands
corporation (the "PURCHASER").
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchaser and the
Purchaser desires to purchase from the Company shares of the Company's Series D
Convertible Preferred Stock, par value $.01 per share (the "PREFERRED STOCK"),
which are convertible into shares of the Company's common stock, $.01 par value
per share (the "COMMON STOCK").
IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration the receipt and adequacy are
hereby acknowledged, the Company and Purchaser agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED STOCK
1.1 THE CLOSING.
(a) THE CLOSING. (i) Subject to the terms and conditions set forth
in this Agreement, the Company shall issue and sell to the Purchaser and the
Purchaser shall purchase 200 shares of Preferred Stock (the "SHARES") for an
aggregate purchase price of $2,000,000. The purchase price per Share shall be
$10,000. The closing of the purchase and sale of the Preferred Stock (the
"CLOSING") shall take place at the offices of Robinson Silverman Pearce Aronsohn
& Berman LLP ("ROBINSON SILVERMAN"), 1290 Avenue of the Americas, New York, New
York 10104, immediately following the execution hereof or such later date as the
parties shall agree. The date of the Closing is hereinafter referred to as the
"CLOSING DATE."
(ii) At the Closing, the parties shall deliver or shall cause
to be delivered to the following: (A) the Company shall deliver (1) stock
certificates representing the Shares, registered in the name of the Purchaser,
(2) a common stock purchase warrant, in the form of Exhibit D, registered in the
name of the Purchaser, pursuant to which the Purchaser shall have the right at
any time and from time to time thereafter through the fifth anniversary date of
the issuance thereof to acquire 165,517 shares of Common Stock at an exercise
price per share of $4.35, subject to adjustment (the "FIRST WARRANT"), (3) a
common stock purchase warrant, in the form of EXHIBIT D, registered in the name
of the Purchaser, pursuant to which the Purchaser shall have the right at any
time and from time to time thereafter through the fifth anniversary date of the
issuance thereof to acquire 110,345 shares of Common Stock at an exercise price
per share of $5.25625, subject to adjustment (the "SECOND WARRANT" and, together
with the First Warrant, the "WARRANTS"), (4) the legal opinion of Broad and
Cassel, outside counsel to the Company, substantially in the form of EXHIBIT C,
and (5) all other documents, instruments and writings required to have been
delivered at or prior to the Closing by the Company pursuant to this Agreement,
including an executed Registration Rights
Agreement, dated the date hereof, between the Company and the Purchaser, in the
form of EXHIBIT B (the "REGISTRATION RIGHTS AGREEMENT"), and the Irrevocable
Transfer Agent Instructions, in the form of EXHIBIT E, delivered
to and acknowledged by the Company's transfer agent (the "TRANSFER AGENT
INSTRUCTIONS"); and (B) the Purchaser shall deliver (1) $2,000,000 in United
States dollars in immediately available funds by wire transfer to an account
designated in writing by the Company for such purpose, and (2) all documents,
instruments and writings required to have been delivered at or prior to the
Closing by the Purchaser pursuant to this Agreement, including, without
limitation, an executed Registration Rights Agreement.
1.2 TERMS OF PREFERRED STOCK. The Preferred Stock shall have the
rights preferences and privileges set forth in EXHIBIT A, and shall be
incorporated into the Articles of Amendment ("ARTICLES OF AMENDMENT") which
shall be filed on or prior to the Closing Date by the Company with the
Department of State of Florida, in form and substance mutually agreed to by the
parties.
1.3 CERTAIN DEFINED TERMS. For purposes of this Agreement,
"CONVERSION PRICE," "INITIAL CONVERSION DATE," "ORIGINAL ISSUE DATE," "STATED
VALUE" AND "TRADING DAY" shall have the meanings set forth in Exhibit A;
"BUSINESS DAY" shall mean any day except Saturday, Sunday and any day which
shall be a federal legal holiday in the United States of America 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.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby makes the following representations and warranties to the Purchaser:
(a) ORGANIZATION AND QUALIFICATION. The Company is a
corporation, duly incorporated, validly existing and in good standing under the
laws of the State of Florida, with the requisite corporate power and authority
to own and use its properties and assets and to carry on its business as
currently conducted. The Company has no subsidiaries other than as set forth in
SCHEDULE 2.1(A) (collectively the "SUBSIDIARIES"). Each of the Subsidiaries is
an entity, duly incorporated or otherwise organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization (as applicable), with the full power and authority to own and use
its properties and assets and to carry on its business as currently conducted.
Each of the Company and the Subsidiaries is duly qualified to do business and is
in good standing as a foreign corporation or other entity in each jurisdiction
in which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not, individually or in the aggregate, (x)
adversely affect the legality, validity or enforceability of the Securities (as
defined below) or any of this Agreement, the Articles of Amendment, the
Registration Rights Agreement or the Warrants (collectively, the "TRANSACTION
DOCUMENTS"), (y) have or result in a material adverse effect on the
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results of operations, assets, prospects, or condition (financial or otherwise)
of the Company and the Subsidiaries, taken as a whole, or (z) adversely impair
the Company's ability to perform fully on a timely basis its obligations under
any of the Transaction Documents (any of (x), (y) or (z), a "MATERIAL ADVERSE
EFFECT").
(b) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents, and otherwise to carry out
its obligations thereunder. The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby have been duly authorized by all necessary
action on the part of the Company and no further action is required by the
Company, except for any of the Required Approvals (as hereinafter defined). Each
of the Transaction Documents has been duly executed by the Company and, when
delivered in accordance with the terms hereof, will constitute the valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms. Neither the Company nor any Subsidiary is in violation of any of
the provisions of its respective articles of incorporation, by-laws or other
charter documents.
(c) CAPITALIZATION. The number of authorized, issued and outstanding
capital stock of the Company is set forth in SCHEDULE 2.1(C). No shares of
Common Stock are entitled to preemptive or similar rights, nor is any holder of
the Common Stock entitled to statutory preemptive or similar rights arising out
of any agreement or understanding with the Company by virtue of any of the
Transaction Documents. Except as disclosed in SCHEDULE 2.1(C) or as a result of
the purchase and sale of the Shares and the Warrants and the issuance of
Adjustment Shares (as defined in Section 3.16), if any, there are no outstanding
options, warrants, script rights to subscribe to, calls or commitments of any
character whatsoever relating to securities, rights or obligations convertible
into or exchangeable for, or giving any Person any right to subscribe for or
acquire any shares of Common Stock, or contracts, commitments, understandings,
or arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock. To the knowledge of the Company,
except as specifically disclosed in the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1997, Quarterly Reports on Form 10-QSB for the
quarters ended March 31, 1998 and June 30, 1998 and Proxy Statement for the July
1998 Annual Meeting of Shareholders (collectively, the "Current SEC Reports") or
SCHEDULE 2.1(C), no Person or group of related Persons beneficially owns (as
determined pursuant to Rule 13d-3 promulgated under the Securities Exchange Act
of 1934, as amended (the "EXCHANGE ACT")) or has the right to acquire by
agreement with or by obligation binding upon the Company beneficial ownership of
in excess of 5% of the Common Stock. A "PERSON" means an individual or
corporation, partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
(d) ISSUANCE OF THE SHARES, THE WARRANTS AND THE ADJUSTMENT SHARES.
The Shares and the Warrants are duly authorized, and, when issued and paid for
in accordance with the terms hereof, shall have been duly and validly issued,
and, in the case of the Shares, fully paid and nonassessable, free and clear of
all liens, encumbrances and rights of first refusal of any kind
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(collectively, "LIENS"). The Company has on the date hereof an adequate reserve
of duly authorized shares of Common Stock, reserved for issuance to the
Purchaser and the holders of the Shares and the Warrants, to enable it to
perform its conversion, exercise and other obligations under this Agreement, the
Articles of Amendment and the Warrants. Such initial number of reserved and
available shares of Common Stock is not less than the sum of the number of
shares of Common Stock which would be issuable on the Closing Date (i) upon
conversion in full of the Shares and payment of dividends thereunder, assuming
the Shares are outstanding for three years, all dividends for such three year
period is paid in shares of Common Stock and that such conversion occurred at
the lowest possible Conversion Price pursuant to Section 5(c)(i) of the Articles
of Amendment, (ii) upon exercise of the Warrants, assuming the Warrants are
exercised at the lowest possible Exercise Price (as defined in the Warrants),
and (iii) as Adjustment Shares, assuming that the Adjustment Price (as defined
in Section 3.16) is equal to one half of the lowest possible Conversion Price
pursuant to Section 5(c)(i) of the Articles of Amendment (such number of shares
of Common Stock, the "INITIAL MINIMUM"). All such authorized shares of Common
Stock have been duly reserved for issuance to the Purchaser and the holders of
such Shares and Warrants. The Adjustment Shares and the shares of Common Stock
issuable upon conversion of the Shares, as payment of dividends thereon and upon
exercise of the Warrants are collectively referred to herein as the "UNDERLYING
SHARES." The Shares, the Warrants and the Underlying Shares are, collectively,
the "SECURITIES." When issued in accordance with this Agreement, the Articles of
Amendment and the Warrants, in accordance with their respective terms, the
Underlying Shares will be duly authorized, validly issued, fully paid and
nonassessable, free and clear of all Liens.
(e) NO CONFLICTS. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of its articles of incorporation, bylaws or other charter
documents (each as amended through the date hereof), or (ii) subject to
obtaining the Required Approvals (as defined below), conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice, lapse of time
or both) of, any agreement, credit facility, indenture or instrument (evidencing
a Company debt or otherwise) to which the Company or any Subsidiary is a party
or by which any property or asset of the Company or any Subsidiary is bound or
affected, or (iii) result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company is subject (including federal and state
securities laws and regulations), or by which any property or asset of the
Company is bound or affected, except in the case of each of clauses (ii) and
(iii), as could not, individually or in the aggregate, reasonably be expected to
have or result in a Material Adverse Effect. The business of the Company is not
being conducted in violation of any law, ordinance or regulation of any
governmental authority, except for violations which, individually or in the
aggregate, could reasonably be expected to not have or result in a Material
Adverse Effect.
(f) FILINGS, CONSENTS AND APPROVALS. Neither the Company nor any
Subsidiary is required to obtain any consent, waiver, authorization or order of,
give any notice to, or make any filing or registration with, any court or other
Federal, state, local or other governmental authority or
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other Person in connection with the execution, delivery and performance by the
Company of the Transaction Documents, other than (i) the filing of the Articles
of Amendment with the Secretary of State of Florida, (ii) the filings required
pursuant to Section 3.12, (iii) the filing of the Underlying Securities
Registration Statement with the Securities and Exchange Commission (the
"COMMISSION") meeting the requirements set forth in the Registration Rights
Agreement and covering the resale of the Underlying Shares by the Purchaser,
(iv) the application(s) to the Nasdaq Stock Market, Inc for the listing of the
Underlying Shares for trading on the Nasdaq SmallCap Market ("NASDAQ") (and
with any other national securities exchange or market on which the Common Stock
is then listed), (v) applicable Blue Sky filings as required by the Registration
Rights Agreement and, and (vi) in all other cases where the failure to obtain
such consent, waiver, authorization or order, or to give such notice or make
such filing or registration could not reasonably be expected to have or result
in, individually or in the aggregate, a Material Adverse Effect (the consents,
waivers, authorizations, orders, notices and filings referred to in (i)-(vi) of
this Section are collectively, the "REQUIRED APPROVALS").
(g) LITIGATION; PROCEEDINGS. Except as specifically disclosed in the
SEC Documents, there is no action, suit, notice of violation, proceeding or
investigation pending or, to the knowledge of the Company, threatened against or
affecting the Company or any of its Subsidiaries or any of their respective
properties before or by any court, governmental or administrative agency or
regulatory authority (federal, state, county, local or foreign) which (i)
adversely affects or challenges the legality, validity or enforceability of any
of the Transaction Documents or the Securities or (ii) could, individually or in
the aggregate, reasonably be expected to have or result in a Material Adverse
Effect.
(h) NO DEFAULT OR VIOLATION. Neither the Company nor any Subsidiary
(i) is in default under or in violation of (and no event has occurred which has
not been waived which, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the Company or any
Subsidiary received notice of a claim that it is in default under or that it is
in violation of, any indenture, loan or credit agreement or any other agreement
or instrument to which it is a party or by which it or any of its properties is
bound, (ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is in violation of any statute, rule or regulation
of any governmental authority, except as could not individually or in the
aggregate, have or result in a Material Adverse Effect.
(i) PRIVATE OFFERING. Assuming the accuracy of the representations
and warranties of the Purchaser set forth in Sections 2.2(b)-(g), the offer,
issuance and sale of the Securities to the Purchaser as contemplated hereby are
exempt from the registration requirements of the Securities Act of 1933, as
amended (the "SECURITIES ACT"). Neither the Company nor any Person acting on its
behalf has taken any action that could subject the offering, issuance or sale of
the Securities to the registration requirements of the Securities Act.
(j) SEC DOCUMENTS; FINANCIAL STATEMENTS. The Company has filed all
reports required to be filed by it under the Exchange Act, including pursuant to
Section 13(a) or 15(d) thereof, for the three years preceding the date hereof
(or such shorter period as the Company was
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required by law to file such material) (the foregoing materials being
collectively referred to herein as the "SEC DOCUMENTS" and, together with
the Schedules to this Agreement the "DISCLOSURE MATERIALS") on a timely basis or
has received a valid extension of such time of filing and has filed any such SEC
Documents prior to the expiration of any such extension. As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Documents, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. All material agreements to which the Company is a party or to which
the property or assets of the Company are subject and which were required to
have been filed as exhibits to the SEC Documents have been so filed. The
financial statements of the Company included in the SEC Documents comply in all
material respects with applicable accounting requirements and the rules and
regulations of the Commission with respect thereto as in effect at the time of
filing. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis ("GAAP")
during the periods involved, except as may be otherwise specified in such
financial statements or the notes thereto, and fairly present in all material
respects the financial position of the Company and its consolidated subsidiaries
as of and for the dates thereof and the results of operations and cash flows for
the periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments. Since December 31, 1997 except as
specifically disclosed in the Current SEC Reports or as set forth on Schedule
2.1(j), (a) there has been no event, occurrence or development that has had or
that could have or result in a Material Adverse Effect, (b) the Company has not
incurred any liabilities (contingent or otherwise) other than (x) liabilities
incurred in the ordinary course of business consistent with past practice and
(y) liabilities not required to be reflected in the Company's financial
statements pursuant to GAAP or required to be disclosed in filings made with the
Commission, (c) the Company has not altered its method of accounting or the
identity of its auditors and (d) the Company has not declared or made any
payment or distribution of cash or other property to its stockholders or
officers or directors (other than in compliance with existing Company stock
option plans or salary paid in accordance with existing employment agreements or
otherwise made in the ordinary course consistent with prior practice) with
respect to its capital stock, or purchased, redeemed (or made any agreements to
purchase or redeem) any shares of its capital stock. The Company last filed
audited financial statements with the Commission for the year ended December 31,
1997, and has not received any comments from the Commission in respect thereof.
(k) INVESTMENT COMPANY. The Company is not, and is not an Affiliate
(as defined in Rule 405 under the Securities Act) ) of, an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
(l) CERTAIN FEES. Except for certain fees payable by the Company to
the parties set forth on SCHEDULE 2.1(1), no fees or commissions will be payable
by the Company to any broker, financial advisor or consultant, finder, placement
agent, investment banker, or bank with respect to the transactions contemplated
by this Agreement. The Purchaser shall have no obligation with respect to any
fees or with respect to any claims made by or on behalf of other Persons for
fees of
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a type contemplated in this Section that may be due in connection with the
transactions contemplated by this Agreement. The Company shall indemnify and
hold harmless the Purchaser, its employees, officers, directors, agents, and
partners, and their respective Affiliates, from and against all claims, losses,
damages, costs (including the costs of preparation and attorney's fees) and
expenses suffered in respect of any such claimed or existing fees, as such fees
and expenses are incurred.
(m) SOLICITATION MATERIALS. Neither the Company nor any Person
acting on the Company's behalf has solicited any offer to buy or sell the
Securities by means of any form of general solicitation or advertising.
(n) FORM S-3 ELIGIBILITY. The Company is eligible to register
securities for resale with the Commission under Form S-3 promulgated under the
Securities Act.
(o) EXCLUSIVITY. The Company shall not issue and sell the Shares to
any Person other than the Purchaser other than with the specific prior written
consent of the Purchaser.
(p) SENIORITY. Except as set forth on Schedule 2.1(p), no
class of equity securities of the Company is senior to the Shares in right of
payment, whether upon liquidation, dissolution, or otherwise.
(q) LISTING AND MAINTENANCE REQUIREMENTS COMPLIANCE. The
Company has not, in the two years preceding the date hereof, received notice
(written or oral) from the NASDAQ or any other stock exchange, market or trading
facility on which the Common Stock is or has been listed (or on which it has
been quoted) to the effect that the Company is not in compliance with the
listing or maintenance requirements of such exchange or market. The Company is,
and has no reason to believe that it will not in the foreseeable future continue
to be, in compliance with all such maintenance requirements.
(r) Patents and Trademarks. The Company has, or has rights to use,
all patents, patent applications, trademarks, trademark applications, service
marks, trade names, copyrights, licenses and rights (collectively, the
"Intellectual Property Rights") which are necessary or material for use in
connection with its business, and which the failure to so have could reasonably
be expected to have a Material Adverse Effect. To the best knowledge of the
Company, all such Intellectual Property Rights are enforceable and there is no
existing infringement by another Person of any of the Intellectual Property
Rights.
(s) REGISTRATION RIGHTS; RIGHTS OF PARTICIPATION. Except as set
forth on SCHEDULE 6(B) to the Registration Rights Agreement, (i) the Company has
not granted or agreed to grant to any Person any rights (including "piggy-back"
registration rights) to have any securities of the Company registered with the
Commission or any other governmental authority which has not been satisfied and
(ii) no Person, has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents.
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(t) REGULATORY PERMITS. The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses as described in the SEC Documents, except where the failure to
possess such permits, individually or in the aggregate could reasonably be
expected to have or result in a Material Adverse Effect ("MATERIAL PERMITS"),
and neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any Material Permit.
(u) TITLE. Neither the Company nor any of its Subsidiaries own any
real property. The Company and the Subsidiaries have good and marketable title
to all personal property owned by them which is material to the business of the
Company and its Subsidiaries, in each case free and clear of all Liens, except
for liens, claims or encumbrances as do not materially affect the value of such
property and do not interfere with the use made and proposed to be made of such
property by the Company and its Subsidiaries. Any real property and facilities
held under lease by the Company and its Subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and buildings by the Company and its Subsidiaries.
(v) DISCLOSURE. The Company confirms that it has not provided the
Purchaser or its agents or counsel with any information that constitutes or
might constitute material non-public information. The Company understands and
confirms that the Purchaser shall be relying on the foregoing representations in
effecting transactions in securities of the Company. All disclosure provided to
the Purchaser regarding the Company, its business and the transactions
contemplated hereby, including the Schedules to this Agreement, furnished by or
on behalf of the Company are true and correct and do not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading.
2.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
hereby represents and warrants to the Company as follows:
(a) ORGANIZATION; AUTHORITY. The Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation with the requisite corporate power and
authority, to enter into and to consummate the transactions contemplated by the
Transaction Documents and otherwise to carry out its obligations thereunder. The
purchase by the Purchaser of the Securities hereunder has been duly authorized
by all necessary action on the part of the Purchaser. Each of this Agreement and
the Registration Rights Agreement has been duly executed and delivered by the
Purchaser and constitutes the valid and legally binding obligation of the
Purchaser, enforceable against it in accordance with its terms.
(b) INVESTMENT INTENT. The Purchaser is acquiring the Securities for
its own account for investment purposes only and not with a view to or for
distributing or reselling such Securities or any part thereof or interest
therein, without prejudice, however, to the Purchaser's right, subject to the
provisions of this Agreement and the Registration Rights Agreement, at all times
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to sell or otherwise dispose of all or any part of such Securities pursuant to
an effective registration statement under the Securities Act and in compliance
with applicable state securities laws or under an exemption from such
registration.
(c) PURCHASER STATUS. At the time the Purchaser was offered the
Shares, the Warrants and the Adjustment Shares, it was, and at the date hereof
it is, and at each exercise date under the Warrants, it will be, an "accredited
investor" as defined in Rule 501(a) under the Securities Act.
(d) EXPERIENCE OF THE PURCHASER. The Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment.
(e) ABILITY OF THE PURCHASER TO BEAR RISK OF INVESTMENT. The
Purchaser is able to bear the economic risk of an investment in the Securities
and, at the present time, is able to afford a complete loss of such investment.
(f) ACCESS TO INFORMATION. The Purchaser acknowledges receipt of the
Disclosure Materials and further acknowledges that it has reviewed the
Disclosure Materials and has been afforded (i) the opportunity to ask such
questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Company's
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment; and (iii) the
opportunity to obtain such additional information which the Company possesses or
can acquire without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the investment and to verify the
accuracy and completeness of the information contained in the Disclosure
Materials. Neither such inquiries nor any other investigation conducted by or on
behalf of such Purchaser or its representatives or counsel shall modify, amend
or affect such Purchaser's right to rely on the truth, accuracy and completeness
of the Disclosure Materials and the Company's representations and warranties
contained in the Transaction Documents.
(g) GENERAL SOLICITATION. The Purchaser is not purchasing the Shares
as a result of or subsequent to any advertisement, article, notice or other
communication regarding the Shares published in any newspaper, magazine or
similar media or broadcast over television or radio or presented at any seminar.
(h) RELIANCE. The Purchaser understands and acknowledges that (i)
the Securities are being offered and sold to it without registration under the
Securities Act in a private placement that is exempt from the registration
provisions of the Securities Act and (ii) the availability of such exemption,
depends in part on, and the Company will rely upon the accuracy and truthfulness
of, the foregoing representations and the Purchaser hereby consents to such
reliance.
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The Company acknowledges and agrees that the Purchaser makes no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 TRANSFER RESTRICTIONS. (a) Securities may only be disposed of
pursuant to an effective registration statement under the Securities Act, to the
Company or pursuant to an available exemption from or in a transaction not
subject to the registration requirements of the Securities Act. In connection
with any transfer of Securities other than pursuant to an effective registration
statement or to the Company, except as otherwise set forth herein, the Company
may require the transferor thereof to provide to the Company an opinion of
counsel selected by the transferor, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred securities under the
Securities Act. Notwithstanding the foregoing, the Company hereby consents to
and agrees to register on the books of the Company and with any transfer agent
for the securities of the Company any transfer of Securities by the Purchaser to
an Affiliate of the Purchaser or to a fund under common management with the
Purchaser, and any transfer among any such Affiliates or funds, provided that
transferee certifies to the Company that it is an "accredited investor" as
defined in Rule 501(a) under the Securities Act and that it is acquiring the
Securities solely for investment purposes. Any such transferee shall agree in
writing to be bound by the terms of this Agreement and shall have the rights of
the Purchaser under this Agreement and the Registration Rights Agreement.
(b) The Purchaser agrees to the imprinting, so long as is required
by this Section 3.1(b), of the following legend on the Securities:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
Underlying Shares shall not contain the legend set forth above nor
any other legend if the conversion of Shares, the payment of dividends thereon,
the exercise of Warrants, the issuance of Adjustment Shares or other issuances
of Underlying Shares as contemplated hereby, by the Articles of Amendment or the
Warrants occurs at any time while an Underlying Securities
-10-
Registration Statement is effective under the Securities Act or, in the event
there is not an effective Underlying Securities Registration Statement at such
time, if in the opinion of counsel to the Company such legend is not required
under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission). The
Company shall cause its counsel to issue the legal opinion included in the
Transfer Agent Instructions to the Company's transfer agent on the day that the
Underlying Securities Registration Statement is declared effective by the
Commission. The Company agrees that, in the event any Underlying Shares are
issued with a legend in accordance with this Section 3.1(b), it will provide the
Purchaser, upon request, with a certificate or certificates representing such
Underlying Shares, free from such legend at such time as such legend would not
have been required under this Section 3.1(b) had such issuance occurred on the
date of such request. The Company may not make any notation on its records or
give instructions to any transfer agent of the Company which enlarge the
restrictions of transfer set forth in this Section.
3.2 ACKNOWLEDGMENT OF DILUTION. The Company acknowledges that the
issuance of the Adjustment Shares and the Underlying Shares issuable upon
conversion of the Shares and payment of dividends thereon in accordance with the
terms of the Articles of Amendment, and upon exercise of the Warrants in
accordance with their terms, may result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market conditions.
The Company further acknowledges that its obligation to issue Underlying Shares
pursuant to Section 3.16 and upon (x) conversion of the Shares and payment of
dividends thereon in accordance with the terms of the Articles of Amendment, and
(y) exercise of the Warrants in accordance with their terms, is unconditional
and absolute, subject to the limitations set forth herein, in the Articles of
Amendment or pursuant to the Warrants, regardless of the effect of any such
dilution.
3.3 FURNISHING OF INFORMATION. As long as the Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to Section
13(a) or 15(d) of the Exchange Act. As long as the Purchaser owns Securities, if
the Company is not required to file reports pursuant to such sections, it will
prepare and furnish to the Purchaser and make publicly available in accordance
with Rule 144(c) promulgated under the Securities Act such information as is
required for the Purchaser to sell the Securities under Rule 144 promulgated
under the Securities Act. The Company further covenants that it will take such
further action as any holder of Securities may reasonably request, all to the
extent required from time to time to enable such Person to sell Underlying
Shares without registration under the Securities Act within the limitation of
the exemptions provided by Rule 144 promulgated under the Securities Act,
including the legal opinion referenced above in this Section. Upon the request
of any such Person, the Company shall deliver to such Person a written
certification of a duly authorized officer as to whether it has complied with
such requirements.
3.4 BLUE SKY LAWS. In accordance with the Registration Rights
Agreement, the Company shall qualify or exempt the issuance and sale of the
Underlying Shares under the securities or Blue Sky laws of such jurisdictions as
the Purchaser may reasonably request and shall continue such qualification or
exemption at all times until the Purchaser notifies the Company in writing that
-11-
it no longer owns Securities; PROVIDED, HOWEVER, that neither the Company nor
its Subsidiaries shall be required in connection therewith to qualify as a
foreign corporation where they are not now so qualified or to take any action
that would subject the Company to general service of process in any such
jurisdiction where it is not then subject.
3.5 INTEGRATION. The Company shall not, and shall use its best efforts
to ensure that, no Affiliate shall, 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 Purchaser.
3.6 INCREASE IN AUTHORIZED SHARES. If on any date the Company would be
precluded from issuing the full number of Underlying Shares as would then be
issuable (a) upon a conversion in full of the then outstanding Shares and as
payment of all accrued and then unpaid dividends thereon in shares of Common
Stock, (b) upon exercise in full of the then unexercised portion of the
Warrants, and (c) as Adjustment Shares, assuming that the applicable Adjustment
Price is one half of the lowest possible Conversion Price pursuant to Section
5(c)(i) of the Articles of Amendment (the "CURRENT REQUIRED MINIMUM"), due to
the unavailability of a sufficient number of authorized but unissued or reserved
shares of Common Stock, then the Board of Directors of the Company shall
promptly (and in any case, subject to clearance of the Company's proxy materials
by the Commission, within 30 Business Days from such date) prepare and mail to
the stockholders of the Company proxy materials requesting authorization to
amend the Company's Articles of Incorporation to increase the number of shares
of Common Stock which the Company is authorized to issue to at least such number
of shares as reasonably requested by the Purchaser in order to provide for such
number of authorized and unissued shares of Common Stock to enable the Company
to comply with its issuance, conversion, exercise and reservation of shares
obligations as set forth in this Agreement, the Articles of Amendment and the
Warrants (the sum of (x) the number of shares of Common Stock then authorized,
(y) the number of shares of Common Stock then outstanding plus all shares of
Common Stock issuable upon exercise of all outstanding options, warrants and
convertible instruments, and (z) the Current Required Minimum (provided that,
for purposes of such calculation, the number of Adjustment Shares to be issued
shall equal the greater of the number provided in clause (c) above in this
Section and the number of Adjustment Shares as would be issuable based upon the
formula set forth in Section 3.16 assuming that such issuance would occur on
each determination date), shall be a reasonable number). In connection
therewith, the Board of Directors shall (a) adopt proper resolutions authorizing
such increase, (b) recommend to and otherwise use its best efforts to promptly
and duly obtain stockholder approval to carry out such resolutions (and hold a
special meeting of the stockholders no later than the 60th day after mailing of
the proxy materials relating to such meeting) and (c) within five (5) Business
Days of obtaining such stockholder authorization, file an appropriate amendment
to the Company's Articles of Incorporation to evidence such increase.
3.7 LISTING AND RESERVATION OF UNDERLYING SHARES. (a) The Company shall
(i) not later than the fifth Business Day following the Original Issue Date
prepare and file with the NASDAQ (and such other national securities exchange or
market or trading or quotation facility on which the
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Common Stock is then listed) an additional shares listing application covering a
number of shares of Common Stock which is not less than the Initial Minimum,
(ii) take all steps necessary to cause such shares to be approved for listing in
the NASDAQ (as well as on any such other national securities exchange or market
or trading or quotation facility on which the Common Stock is then listed) as
soon as possible thereafter, and (iii) provide to the Purchaser evidence of such
listing, and the Company shall maintain the listing of its Common Stock thereon.
If the number of Adjustment Shares issuable pursuant to Section 3.16 and upon
conversion in full of the then outstanding Shares, as payment of dividends
thereon, and upon exercise of the then unexercised portion of the Warrants
exceeds 85% of the number of Underlying Shares previously listed on account
thereof with NASDAQ (and such other required exchanges), then the Company shall
take the necessary actions to immediately list a number of Underlying Shares as
equals no less than the Current Required Minimum (provided that, for purposes of
such calculation, the number of Adjustment Shares to be issued shall equal the
greater of the number provided in clause (c) of Section 3.6 and the number of
Adjustment Shares as would be issuable based upon the formula set forth in
Section 3.16 assuming that such issuance would occur on each determination
date), shall be a reasonable number).
(b) The Company shall maintain a reserve of Common Stock for
issuance pursuant to Section 3.16, and upon conversion of the Shares and for
payment of dividends thereupon in shares of Common Stock and upon exercise of
the Warrants in accordance with this Agreement, the Articles of Amendment and
the Warrants, respectively, in such amount as may be required to fulfill its
obligations in full under the Transaction Documents, which reserve shall equal
no less than the Current Required Minimum (provided that, for purposes of such
calculation, the number of Adjustment Shares to be issued shall equal the
greater of the number provided in clause (c) of Section 3.6 and the number of
Adjustment Shares as would be issuable based upon the formula set forth in
Section 3.16 assuming that such issuance would occur on each determination
date).
3.8 CONVERSION AND EXERCISE PROCEDURES. The Transfer Agent
Instructions, Conversion Notice (as defined in Exhibit A) and Notice of Exercise
under the Warrants set forth the totality of the procedures with respect to the
conversion of the Shares and exercise of the Warrants, including the form of
legal opinion, if necessary, that shall be rendered to the Company's transfer
agent and such other information and instructions as may be necessary to enable
the Purchaser to convert its Shares and exercise the Warrants as contemplated in
the Articles of Amendment and the Warrants (as applicable).
3.9 NOTICE OF BREACHES. (a) Each of the Company and the Purchaser shall
give prompt written notice to the other of any breach by it of any
representation, warranty or other agreement contained in any Transaction
Document, as well as any events or occurrences arising after the date hereof
which would reasonably be likely to cause any representation or warranty or
other agreement of such party, as the case may be, contained therein to be
incorrect or breached as of the Closing Date. However, no disclosure by either
party pursuant to this Section shall be deemed to cure any breach of any
representation, warranty or other agreement contained in any Transaction
Document.
(b) Notwithstanding the generality of Section 3.9(a), the Company
shall promptly notify the Purchaser of any notice or claim (written or oral)
that it receives from any lender of the
-13-
Company to the effect that the consummation of the transactions contemplated by
the Transaction Documents violates or would violate any written agreement or
understanding between such lender and the Company, and the Company shall
promptly furnish by facsimile to the holders of the Securities a copy of any
written statement in support of or relating to such claim or notice.
3.10 CONVERSION AND EXERCISE OBLIGATIONS OF THE COMPANY. The Company
shall honor conversions of the Shares and exercises of the Warrants and shall
deliver Underlying Shares in accordance with the respective terms, conditions
and time periods set forth in the Articles of Amendment and the Warrants,
respectively.
3.11 RIGHT OF FIRST REFUSAL; SUBSEQUENT REGISTRATIONS. (a) The Company
shall not, directly or indirectly, without the prior written consent of the
Purchaser, 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) any of its or its Affiliates' equity or equity-equivalent
securities or a transaction intended to be exempt or not subject to registration
under the Securities Act (a "SUBSEQUENT PLACEMENT") for a period of 180 days
after the Closing Date, except (i) the granting of options or warrants to
employees, officers and directors, and the issuance of shares upon exercise of
options granted, under any stock option plan heretofore or hereinafter duly
adopted by the Company, (ii) shares of Common Stock issued upon exercise of any
currently outstanding warrants and upon conversion of any currently outstanding
convertible securities of the Company, in each case disclosed in SCHEDULE
2.1(c), (iii) Underlying Shares issued pursuant to Section 3.16, upon conversion
of Shares, as payment of dividends thereon, and upon exercise of the Warrants in
accordance with the Articles of Amendment or the Warrants, respectively, or (iv)
any securities issued in connection with a strategic alliance or license
agreement or marketing or similar joint venture agreement, unless (A) the
Company delivers to the Purchaser a written notice (the "SUBSEQUENT PLACEMENT
NOTICE") of its intention to effect such Subsequent Placement, which Subsequent
Placement Notice shall describe in reasonable detail the proposed terms of such
Subsequent Placement, the amount of proceeds intended to be raised thereunder,
the Person with whom such Subsequent Placement shall be affected, and attached
to which shall be a term sheet or similar document relating thereto and (B) the
Purchaser shall not have notified the Company by 5:00 p.m. (New York City time)
on the tenth (10th) Trading Day after its receipt of the Subsequent Placement
Notice of its willingness to cause the Purchaser to provide (or to cause its
sole designee to provide), subject to completion of mutually acceptable
documentation, financing to the Company on substantially the terms set forth in
the Subsequent Placement Notice. If the Purchaser shall fail to notify the
Company of its intention to enter into such negotiations within such time
period, the Company may effect the Subsequent Placement substantially upon the
terms and to the Persons (or Affiliates of such Persons) set forth in the
Subsequent Placement Notice; PROVIDED, that the Company shall provide the
Purchaser with a second Subsequent Placement Notice, and the Purchaser shall
again have the right of first refusal set forth above in this paragraph (a), if
the Subsequent Placement subject to the initial Subsequent Placement Notice
shall not have been consummated for any reason on the terms set forth in such
Subsequent Placement Notice within thirty (30) Trading Days after the date of
the initial Subsequent Placement Notice with the Person (or an Affiliate of such
Person) identified in the Subsequent Placement Notice.
-14-
(b) Except for (x) Underlying Shares, (y) other "Registrable
Securities" (as such term is defined in the Registration Rights Agreement)
required pursuant to the Registration Rights Agreement to be registered, and
securities of the Company permitted pursuant to Schedule 6(b) of the
Registration's Rights Agreement to be registered in the Underlying Securities
Registration Statement, and (z) Common Stock permitted to be issued pursuant to
paragraph (a)(i), (ii) and (iv) of Section 3.11, the Company shall not, without
the prior written consent of the Purchaser (i) issue or sell any of its or any
of its Affiliates' equity or equity-equivalent securities pursuant to Regulation
S promulgated under the Securities Act, or (ii) register for resale any
securities of the Company for a period of not less than 90 Trading Days after
the date that the Underlying Securities Registration Statement is declared
effective by the Commission. Any days that a Purchaser is unable to sell
Underlying Shares under the Underlying Securities Registration Statement shall
be added to such 90 Trading Day period for the purposes of (i) and (ii) above.
3.12 [INTENTIONALLY OMITTED]
3.13 USE OF PROCEEDS. The Company shall use the net proceeds from the
sale of the Securities hereunder for working capital purposes. Pending
application of the proceeds of this placement in the manner permitted hereby,
the Company will invest such proceeds in interest-bearing accounts and/or
short-term, investment grade interest bearing securities.
3.14 TRANSFER OF INTELLECTUAL PROPERTY RIGHTS. The Company shall not
(i) transfer, sell or otherwise dispose of any Intellectual Property Rights to
an Affiliate, except in the proposed transaction with Huge Entertainment, Inc.
or any successor or except in an arms' length transaction on terms comparable to
or not less favorable than that available with an unaffiliated third party; (ii)
allow any Intellectual Property Rights to become subject to any Liens, except in
connection with institutional financing; or (iii) fail to renew any material
Intellectual Property Rights (if renewable and it would otherwise lapse if not
renewed), without the prior written consent of the Purchaser, which shall not be
unreasonably withheld.
3.15 REIMBURSEMENT. If the Purchaser, other than by reason of its gross
negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by or against any Person, including
stockholders of the Company, in connection with or as a result of the
consummation of the transactions contemplated by Transaction Documents, the
Company will reimburse the Purchaser for its reasonable legal and other expenses
(including the cost of any investigation and preparation) incurred in connection
therewith, as such expenses are incurred. In addition, other than with respect
to any matter in which the Purchaser is a named party, the Company will pay the
Purchaser the charges, as reasonably determined by the Purchaser, for the time
of any officers or employees of the Purchaser devoted to appearing and preparing
to appear as witnesses, assisting in preparation for hearings, trials or
pretrial matters, or otherwise with respect to inquiries, hearings, trials, and
other proceedings relating to the subject matter of this Agreement. The
reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Purchaser who are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Purchaser and any such Affiliate, and shall be binding upon and inure
to the benefit of any
-15-
successors, assigns, heirs and personal representatives of the Company, the
Purchaser and any such Affiliate and any such Person. The Company also agrees
that neither the Purchaser nor any such Affiliates, partners, directors, agents,
employees or controlling persons shall have any liability to the Company or any
person asserting claims on behalf of or in right of the Company in connection
with or as a result of the consummation of the Transaction Documents except to
the extent that any losses, claims, damages, liabilities or expenses incurred by
the Company result from the gross negligence or willful misconduct of the
Purchaser or entity in connection with the transactions contemplated by this
Agreement.
3.16 ISSUANCE OF ADJUSTMENT SHARES. (a) If the average Per Share Market
Value for the ten (10) Trading Days commencing the 150th day after the Closing
Date (the "FIRST ADJUSTMENT PRICE") is less than 116% of the Conversion Price
then in effect (the "FIRST ADJUSTED CONVERSION PRICE"), then the Company shall,
within thirteen (13) Trading Days following such 150th day, issue to the
Purchaser for no additional consideration such number of shares of Common Stock
(the "FIRST ADJUSTMENT SHARES") as equals the quotient obtained by dividing (i)
the product of (A) the First Adjusted Conversion Price, minus the First
Adjustment Price and (B) an amount equal to (x) the quotient obtained by
dividing (1) the lesser of (I) 1/3 of the number of Shares acquired by the
Purchaser on the Closing Date multiplied by the Stated Value or (II) the
aggregate number of Shares held by the Purchaser on the 150th day after the
Closing Date multiplied by the Stated Value (such lesser value shall be referred
to herein as the "FIRST REPRICED SHARE VALUE") by (2) the Conversion Price then
in effect, less (y) the number of shares of Common Stock held by the Purchaser
in a short position on the 150th day after the Closing Date and (ii) the First
Adjustment Price.
(b) If the average Per Share Market Value for the ten (10) Trading
Days commencing the 240th day after the Closing Date (the "SECOND ADJUSTMENT
PRICE") is less than 116% of the Conversion Price then in effect (the "SECOND
ADJUSTED CONVERSION PRICE"), then the Company shall, within thirteen (13)
Trading Days following such 240th day, issue to the Purchaser for no additional
consideration such number of shares of Common Stock (the "SECOND ADJUSTMENT
SHARES") as equals the quotient obtained by dividing (i) the product of (A) the
Second Adjusted Conversion Price, minus the Second Adjustment Price and (B) an
amount equal to (x) the quotient obtained by dividing (1) the lesser of (I) 1/3
of the number of Shares acquired by the Purchaser on the Closing Date multiplied
by the Stated Value or (II) the aggregate number of Shares held by the Purchaser
on the 150th day after the Closing Date multiplied by the Stated Value less the
First Repriced Share Value referred to in Section 3.16(a) above (such lesser
value shall be referred to herein as the "SECOND REPRICED SHARE VALUE"),
provided, however that in the event that the Second Repriced Share Value is
greater than the aggregate number of Shares held by the Purchaser on the 240th
day after the Closing Date multiplied by the Stated Value, the Second Repriced
Share Value shall equal the aggregate number of Shares held by the Purchaser on
the 240th day after the Closing Date multiplied by the Stated Value, by (2) the
Conversion Price then in effect, less (y) the number of shares of Common Stock
held by the Purchaser in a short position on the 240th day after the Closing
Date and (ii) the Second Adjustment Price.
(c) If the average Per Share Market Value for the ten (10) Trading
Days commencing the 365th day after the Closing Date (the "THIRD ADJUSTMENT
PRICE," and together with
-16-
the First Adjustment Price and the Second Adjustment Price, the "ADJUSTMENT
PRICE") is less than 116% of the Conversion Price then in effect (the "THIRD
ADJUSTED CONVERSION PRICE"), then the Company shall, within thirteen (13)
Trading Days following such 365th day, issue to the Purchaser for no additional
consideration such number of shares of Common Stock (the "THIRD ADJUSTMENT
SHARES," and together with the First Adjustment Shares and the Second Adjustment
Shares, the "ADJUSTMENT SHARES") as equals the quotient obtained by dividing (i)
the product of (A) the Third Adjusted Conversion Price, minus the Third
Adjustment Price and (B) an amount equal to (x) the quotient obtained by
dividing (1) the lesser of (I) 1/3 of the number of Shares acquired by the
Purchaser on the Closing Date multiplied by the Stated Value or (II) the
aggregate number of Shares held by the Purchaser on the 240th day after the
Closing Date multiplied by the Stated Value less the Second Repriced Share Value
referred to in Section 3.16(b) above (such lesser value shall be referred to
herein as the "THIRD REPRICED SHARE VALUE"), provided, however that in the event
that the Third Repriced Share Value is greater than the aggregate number of
Shares held by the Purchaser on the 365th day after the Closing Date multiplied
by the Stated Value, the Third Repriced Share Value shall equal the aggregate
number of Shares held by the Purchaser on the 365th day after the Closing Date
multiplied by the Stated Value, by (2) the Conversion Price then in effect, less
(y) the number of shares of Common Stock held by the Purchaser in a short
position on the 365th day after the Closing Date and (ii) the Third Adjustment
Price.
3.17 VOLUME AND TRADING RESTRICTIONS. (a) During the period from the
Original Issue Date until the Initial Conversion Date, the Purchaser shall not
sell, which shall include any short sale, a number of shares of Common Stock
equal to the greater of (i) 10% of the trading volume of the Common Stock on
such day or (ii) 10% of the average trading volume of the Common Stock for the
five Trading Days immediately preceding such day. This limitation shall only
apply to any sales of Common Stock at a price equal to or above $3.375 per
share, it being understood that the Purchaser shall not sell any shares of
Common Stock during the period from the Original Issue Date until the Initial
Conversion Date at a price less than $3.375 per share.
(b) The Purchaser shall not establish a short position in the Common
Stock and the Company shall not to purchase any shares of Common Stock during
the ten (10) Trading Days in which an Adjustment Price is determined pursuant to
with Section 3.16. Nothing herein shall preclude the Purchaser from maintaining
positions in the securities of the Company established prior to or after the
expiration of any such periods.
3.18 DRAW-DOWN OF EQUITY LINE OF CREDIT. As long as the Purchaser owns
Shares, the Company may not make draws against any equity line of credit
facility available to the Company at any time when the Per Share Market Value is
less than 210% of the Per Share Market Value for the five (5) Trading Days
immediately preceding the Closing Date.
-17-
ARTICLE IV
MISCELLANEOUS
4.1. FEES AND EXPENSES. At the Closing, the Company shall pay $20,000
to Robinson Silverman in connection with the preparation and negotiation of the
Transaction Documents. Other than the amount contemplated in the immediately
preceding sentence, and except as otherwise set forth in the Registration Rights
Agreement, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all stamp and other taxes
and duties levied in connection with the issuance of the Securities.
4.1. ENTIRE AGREEMENT; AMENDMENTS. The Transaction Documents together
with the Exhibits and Schedules thereto, and the Transfer Agent Instructions
contain the entire understanding of the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, oral or
written, with respect to such matters, which the parties acknowledge have been
merged into such documents, exhibits and schedules.
4.2. NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile with a receipt of
confirmation at the facsimile telephone number specified in this Section prior
to 8:00 p.m. (Minnetonka, Minnesota time) on a Business Day, (ii) the Business
Day after the date of transmission, if such notice or communication is delivered
via facsimile at the facsimile telephone number specified in this Agreement
later than 8:00 p.m. (Minnetonka, Minnesota time) on any date and earlier than
11:59 p.m. (Minnetonka, Minnesota time) on such date, (iii) the Business Day
following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is
required to be given. The address for such notices and communications shall be
as follows:
If to the Company: Big Entertainment, Inc.
2255 Glades Road, Suite 237 West
Boca Raton, Florida, 33431
Facsimile No.: (561) 998-2974
Attn: Chief Executive Officer
With copies to: Broad and Cassel
201 S. Biscayne Boulevard
Miami, Florida 33131
Facsimile No.: (305) 373-9493
Attn: Dale S. Bergman, Esq.
-18-
If to the Purchaser: KA Investments LDC
c/o Deephaven Capital Management LLC
1712 Hopkins Crossroads
Minnetonka, MN 55305
Facsimile No.: (612) 542-4244
Attn: Bruce Lieberman
With copies to: Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Kenneth L. Henderson, Esq.
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
4.3. AMENDMENTS; WAIVERS. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by both the Company and the Purchaser; or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
either party to exercise any right hereunder in any manner impair the exercise
of any such right accruing to it thereafter.
4.4. HEADINGS. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
4.5. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchaser. Except as set forth in
Section 3.1(a), the Purchaser may not assign this Agreement or any of the rights
or obligations hereunder (other than to an Affiliate of the Purchaser) without
the consent of the Company, except that the Purchaser may assign its rights
hereunder and under the Transaction Documents without the consent of the Company
as long as such assignee demonstrates to the reasonable satisfaction of the
Company its satisfaction of the representations and warranties set forth in
Section 2.2. This provision shall not limit the Purchaser's right to transfer
securities or transfer or assign rights hereunder or under the Registration
Rights Agreement.
4.6. NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
-19-
4.7. GOVERNING LAW. This Agreement 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 hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of the any of the Transaction Documents), 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 hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address 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 serve process in any manner permitted by law.
4.8. SURVIVAL. The representations, warranties, agreements and
covenants contained herein shall survive the Closing and the delivery and
conversion or exercise (as the case may be) of the Adjustment Shares, the Shares
and the Warrants.
4.9. EXECUTION. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
4.10. PUBLICITY. The Company and the Purchaser shall consult with each
other in issuing any press releases or otherwise making public statements or
filings and other communications with the Commission or any regulatory agency or
stock market or trading facility with respect to the transactions contemplated
hereby and neither party shall issue any such press release or otherwise make
any such public statement, filings or other communications without the prior
written consent of the other, which consent shall not be unreasonably withheld
or delayed, except that no prior consent shall be required if such disclosure is
required by law, in which such case the disclosing party shall provide the other
party with prior notice of such public statement, filing or other communication.
Notwithstanding the foregoing, the Company shall not publicly disclose or
include the name of the Purchaser in any filing with the Commission, or any
regulatory agency, trading facility or stock market without the prior written
consent of the Purchaser, except to the extent such disclosure (but not any
disclosure as to the controlling Persons thereof) is required by
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law, in which case the Company shall provide the Purchaser with prior notice of
such disclosure.
4.11. SEVERABILITY. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
4.12. REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Purchaser
will be entitled to specific performance of the obligations of the Company under
the Transaction Documents. Each of the Company and the Purchaser agree that
monetary damages may not be adequate compensation for any loss incurred by
reason of any breach of its obligations described in the foregoing sentence and
hereby agrees to waive in any action for specific performance of any such
obligation the defense that a remedy at law would be adequate.
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SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this Convertible
Preferred Stock Purchase Agreement to be duly executed by their respective
authorized signatories as of the date first indicated above.
BIG ENTERTAINMENT, INC.
By: /s/ MITCHELL RUBENSTEIN
--------------------------------
Name: Mitchell Rubenstein
Title:
KA INVESTMENTS LDC
By: /s/ GARY SOBCZAK
---------------------------------
Name: Gary Sobczak
Title: Secretary
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