SECURITIES PURCHASE
AGREEMENT
Dated as of May 16, 2005
among
BROADCAST INTERNATIONAL, INC.
and
THE PURCHASERS LISTED ON EXHIBIT A
ARTICLE I Purchase and Sale of Notes, Warrants and AIRs......................1
Section 1.1 Purchase and Sale of Notes, Warrants and
Additional Investment Rights..............................1
Section 1.2 Purchase Price and Closing................................1
Section 1.3 Warrants..................................................2
Section 1.5 Conversion Shares, Warrant Shares and AIR Shares..........2
ARTICLE II Representations and Warranties....................................2
Section 2.1 Representations and Warranties of the Company.............2
Section 2.2 Representations and Warranties of the Purchasers.........13
ARTICLE III Covenants......................................................15
Section 3.1 Securities Compliance....................................15
Section 3.2 Registration and Listing.................................15
Section 3.3 Inspection Rights........................................16
Section 3.4 Compliance with Laws.....................................16
Section 3.5 Keeping of Records and Books of Account..................16
Section 3.6 Reporting Requirements...................................16
Section 3.7 Other Agreements.........................................17
Section 3.8 Reservation of Shares....................................17
Section 3.9 Disclosure of Transactions and Other Material
Information..............................................17
Section 3.10 Delivery of Securities...................................18
Section 3.12 Subsequent Financings....................................18
Section 3.13 Beneficial Ownership Restrictions........................20
Section 3.15 Negative Covenants.......................................21
Section 3.16 Exchange Right...........................................22
ARTICLE IV Conditions......................................................25
Section 4.1 Conditions Precedent to the Obligation of the
Company to Close and to Sell the Notes,
Warrants and AIRs........................................25
Section 4.2 Conditions Precedent to the Obligation of the
Purchasers to Close and to Purchase the Notes,
the Warrants and the AIRs ...............................26
ARTICLE V Transfer Restrictions and Legends................................28
ARTICLE VI Termination......................................................30
Section 6.1 Termination by Mutual Consent............................30
Section 6.2 Effect of Termination....................................30
ARTICLE VII Indemnification.................................................30
Section 7.1 General Indemnity........................................30
Section 7.2 Indemnification Procedure................................31
ARTICLE VIII Miscellaneous..................................................32
Section 8.1 Fees and Expenses........................................32
Section 8.2 Specific Enforcement; Consent to Jurisdiction............32
Section 8.3 Entire Agreement; Amendment..............................33
Section 8.4 Notices..................................................33
Section 8.5 Waivers..................................................34
Section 8.6 Headings.................................................34
Section 8.7 Successors and Assigns...................................34
Section 8.8 No Third Party Beneficiaries.............................34
Section 8.9 Governing Law............................................34
Section 8.10 Survival.................................................35
Section 8.11 Counterparts.............................................35
Section 8.12 Publicity................................................35
Section 8.13 Severability.............................................35
Section 8.14 Further Assurances.......................................35
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of May
16, 2005, by and among Broadcast International, Inc., a Utah corporation (the
"Company"), and the entities listed on Exhibit A hereto (each, a "Purchaser"
and collectively, the "Purchasers"), for the purchase by the Purchasers of the
Company's 6% Senior Secured Convertible Notes Due 2008 (the "Notes"), warrants
to purchase shares of the Company's Common Stock, par value $0.05 per share
(the "Common Stock"), and additional investment rights to purchase additional
Notes and warrants to purchase Common Stock.
The parties hereto agree as follows:
ARTICLE I
Purchase and Sale of Notes, Warrants and AIRs
Section 1.1 Purchase and Sale of Notes, Warrants and Additional
Investment Rights. Upon the following terms and conditions, the Company shall
issue and sell to the Purchasers, and each Purchaser shall, severally but not
jointly, purchase from the Company (i) a Note in substantially the form
attached hereto as Exhibit B, (ii) warrants to purchase shares of Common
Stock, in substantially the form attached hereto as Exhibits C-1 and C-2 (the
"Warrants"), and (iii) additional investment rights, in substantially the form
attached hereto as Exhibit D (the "AIRs"), pursuant to which each Purchaser
may have the right, but not the obligation, to purchase, and upon exercise of
the Purchasers' right the Company shall be required to sell, additional Notes
and Warrants, in each case as set forth opposite each such Purchaser's name on
Exhibit A hereto, for an aggregate purchase price to the Company from all
Purchasers of $3,000,000 (the "Purchase Price"). The Company and the
Purchasers are executing and delivering this Agreement in accordance with and
in reliance upon the exemption from securities registration afforded by
Section 4(2) of the U.S. Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder (the "Securities Act"), including
Regulation D ("Regulation D"), and/or upon such other exemption from the
registration requirements of the Securities Act as may be available with
respect to any or all of the investments to be made hereunder.
Section 1.2 Purchase Price and Closing. The Company agrees to issue
and sell to the Purchasers and, in consideration of and in express reliance
upon the representations, warranties, covenants, terms and conditions of this
Agreement, the Purchasers, severally but not jointly, agree to purchase the
Notes, Warrants and AIRs, in the amounts as set forth opposite their
respective names on Exhibit A. The closing of the purchase and sale of the
Notes, Warrants and AIRs to be acquired by the Purchasers from the Company
under this Agreement shall take place at the offices of Warren W. Garden,
P.C., 100 Crescent Court, Suite 490, Dallas, Texas 75201 (the "Closing") at
3:00 p.m., Central Time (i) on or before May 16, 2005, provided, that all of
the conditions set forth in Article IV hereof and applicable to the Closing
shall have been fulfilled or waived in accordance herewith, or (ii) at such
other time and place or on such date as the Purchasers and the Company may
agree upon (the "Closing Date"). The entire Purchase Price shall be paid by
the Purchasers in cash, by wire transfer or in readily available funds.
Section 1.3 Warrants. At the Closing, the Company shall issue to each
Purchaser such number of Series A Warrants and Series B Warrants to purchase
shares of Common Stock as is set forth opposite such Purchaser's name on
Exhibit A hereto. The Series A Warrants and the Series B Warrants are
collectively referred to herein as the "Warrants". The Series A Warrants shall
be exercisable for five (5) years from the date of issuance and shall have an
initial exercise price equal to $2.50. The Series B Warrants shall be
exercisable for five (5) years from the date of issuance and shall have an
initial exercise price equal to $4.00.
Section 1.4 AIRs. At the Closing, the Company shall issue to each
Purchaser such number of AIRs to purchase additional Notes and Warrants as is
set forth opposite such Purchaser's name on Exhibit A hereto. Each AIR shall
be exercisable at any time on or after the date of the issuance of the AIR and
on or prior to the 90th day following the date that the Registration Statement
is declared effective by the Commission (as such terms are defined in the
Registration Rights Agreement to be entered into at the Closing among the
Company and the Purchasers).
Section 1.5 Conversion Shares, Warrant Shares and AIR Shares. The
Company has authorized and has reserved and covenants to continue to reserve,
free of preemptive rights and other similar contractual rights of
stockholders, a number of its authorized but unissued shares of Common Stock
equal to the aggregate number of shares of Common Stock necessary to effect
the conversion of the Notes and the exercise of the Warrants and the AIRs. Any
shares of Common Stock issuable upon conversion of the Notes (and such shares
when issued) are herein referred to as the "Conversion Shares". Any shares of
Common Stock issuable upon exercise of the Warrants (and such shares when
issued) are herein referred to as the "Warrant Shares". Any shares of Common
Stock issuable upon exercise of the AIRs (and such shares when issued) are
herein referred to as the "AIR Shares". The Notes, the Warrants, the AIRs, the
Conversion Shares, the Warrant Shares, the AIR Shares and the PIK Interest
Shares (as defined in the Notes) are sometimes collectively referred to herein
as the "Securities".
ARTICLE II
Representations and Warranties
Section 2.1 Representations and Warranties of the Company. In order to
induce the Purchasers to enter into this Agreement and to purchase the Notes,
the Warrants and the AIRs, the Company hereby makes the following
representations and warranties to the Purchasers:
(a) Organization, Good Standing and Power. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Utah and has the requisite corporate power to own, lease
and operate its properties and assets and to conduct its business as it is now
being conducted. The Company does not have any Subsidiaries (as defined in
Section 2.1(g)) or own securities of any kind in any other entity, except as
disclosed in the Commission Documents (as defined in Section 2.1(f)) or as set
forth on Schedule 2.1(g) hereto. The Company and each such Subsidiary is duly
qualified as a foreign entity to do business and is in good standing in every
jurisdiction in which the nature of the business conducted or property owned
by it makes such qualification necessary, except for any jurisdiction(s)
(alone or in the aggregate) in which the failure to be so qualified will not
have a Material Adverse Effect. For the purposes of this Agreement, "Material
Adverse Effect" means any adverse effect on the business, operations,
properties, prospects or financial condition of the Company or its
Subsidiaries and which is material to such entity or other entities
controlling or controlled by such entity or which is likely to materially
hinder the performance by the Company of its material obligations hereunder
and under the other Transaction Documents (as defined in Section 2.1(b)
hereof).
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and perform this Agreement, the
Registration Rights Agreement, each Lock-up Agreement, the Security Agreement,
the Notes, the Warrants, the AIRs, and the other agreements and documents
contemplated hereby and thereby and executed by the Company or to which the
Company is party (collectively, the "Transaction Documents"), and to issue and
sell the Notes, the Warrants and the AIRs in accordance with the terms hereof.
The execution, delivery and performance of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated thereby
have been duly and validly authorized by all necessary corporate action, and,
except as set forth in Schedule 2.1(b), no further consent or authorization of
the Company, its Board of Directors or its stockholders is required. This
Agreement has been duly executed and delivered by the Company. The other
Transaction Documents will have been duly executed and delivered by the
Company at the Closing. Each of the Transaction Documents constitutes, or
shall constitute when executed and delivered, a valid and binding obligation
of the Company enforceable against the Company in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of,
creditor's rights and remedies or by other equitable principles of general
application.
(c) Capitalization. The authorized capital stock of the Company and
the shares thereof currently issued and outstanding as of May 16, 2005, are
set forth on Schedule 2.1(c) hereto. All of the outstanding shares of the
Company's Common Stock and any other security of the Company have been duly
and validly authorized. Except as disclosed in the Commission Documents or as
set forth on Schedule 2.1(c) hereto, no shares of Common Stock or any other
security of the Company are entitled to preemptive rights or registration
rights and there are no outstanding options, warrants, scrip, rights to
subscribe to, call or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company. Furthermore, except as disclosed in the Commission Documents or as
set forth on Schedule 2.1(c) hereto, there are no contracts, commitments,
understandings, or arrangements by which the Company is or may become bound to
issue additional shares of the capital stock of the Company or options,
securities or rights convertible into shares of capital stock of the Company.
Except for customary transfer restrictions contained in agreements entered
into by the Company in order to sell restricted securities or as provided on
Schedule 2.1(c) hereto, the Company is not a party to or bound by any
agreement or understanding granting registration or anti-dilution rights to
any individual, corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or political subdivision thereof) or
other entity of any kind (a "Person") with respect to any of its equity or
debt securities. Except as set forth on Schedule 2.1(c), the Company is not a
party to, and it has no knowledge of, any agreement or understanding
restricting the voting or transfer of any shares of the capital stock of the
Company. Except as set forth on Schedule 2.1(c) hereto, the offer and sale of
all capital stock, convertible securities, rights, warrants, or options of the
Company issued prior to the Closing complied with all applicable federal and
state securities laws, and no holder of such securities has a right of
rescission or claim for damages with respect thereto which could have a
Material Adverse Effect. The Company has furnished or made available to the
Purchasers true and correct copies of the Company's Articles of Incorporation
as in effect on the date hereof (the "Articles"), and the Company's Bylaws as
in effect on the date hereof (the "Bylaws").
(d) Issuance of Securities. The Notes, the Warrants and the AIRs to be
issued at the Closing have been duly authorized by all necessary corporate
action and, when paid for or issued in accordance with the terms hereof, the
Notes shall be validly issued and outstanding, fully paid and nonassessable
and free and clear of all liens, encumbrances and rights of refusal of any
kind. When the Conversion Shares are issued and paid for in accordance with
the terms of this Agreement and as set forth in the Notes, such shares will be
duly authorized by all necessary corporate action and validly issued and
outstanding, fully paid and nonassessable, free and clear of all liens,
encumbrances and rights of refusal of any kind and the holders shall be
entitled to all rights accorded to a holder of Common Stock. When the Warrant
Shares are issued and paid for in accordance with the terms of this Agreement
and as set forth in the Warrants, such shares will be duly authorized by all
necessary corporate action and validly issued and outstanding, fully paid and
nonassessable, free and clear of all liens, encumbrances and rights of refusal
of any kind and the holders shall be entitled to all rights accorded to a
holder of Common Stock. When the AIR Shares are issued and paid for in
accordance with the terms of the AIRs, such shares will be duly authorized by
all necessary corporate action and validly issued and outstanding, fully paid
and nonassessable, free and clear of all liens, encumbrances and rights of
refusal of any kind and the holders shall be entitled to all rights accorded
to a holder of Common Stock. When the PIK Interest Shares are issued and paid
for in accordance with the terms of the Notes, such shares will be duly
authorized by all necessary corporate action and validly issued and
outstanding, fully paid and nonassessable, free and clear of all liens,
encumbrances and rights of refusal of any kind and the holders shall be
entitled to all rights accorded to a holder of Common Stock.
(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 hereby and thereby do not and will not (i)
violate any provision of the Articles or Bylaws or any Subsidiary's comparable
charter documents, (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, mortgage, deed of trust, indenture, note,
bond, license, lease agreement, instrument or obligation to which the Company
or any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries' respective properties or assets are bound, (iii) create or
impose a lien, mortgage, security interest, charge or encumbrance of any
nature on any property or asset of the Company or any of its Subsidiaries
under any agreement or any commitment to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound or by which any of their respective properties or assets are bound, or
(iv) result in a violation of any federal, state, local or foreign statute,
rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations) applicable to the Company or any of its
Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected, except, in all cases other than violations
pursuant to clauses (ii), (iii) or (iv) (with respect to federal and state
securities laws) or clause (i) above, for such conflicts, defaults,
terminations, amendments, acceleration, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect. The
business of the Company and its Subsidiaries is not being conducted in
violation of any laws, ordinances or regulations of any governmental entity,
except for possible violations which singularly or in the aggregate do not and
will not have a Material Adverse Effect. Neither the Company nor any of its
Subsidiaries is required under federal, state, foreign or local law, rule or
regulation to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency in order for it
to execute, deliver or perform any of its obligations under the Transaction
Documents or issue and sell the Securities in accordance with the terms hereof
or thereof (other than any filings which may be required to be made by the
Company with the Securities and Exchange Commission (the "Commission") prior
to or subsequent to the Closing, or state securities administrators prior to
or subsequent to the Closing, or any registration statement which may be filed
pursuant hereto or thereto).
(f) Commission Documents; Financial Statements. The Common Stock is
registered pursuant to Section 12(b) or 12(g) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and, except as disclosed on Schedule
2.1(f) hereto, the Company has timely filed all reports, schedules, forms,
statements and other documents required to be filed by it with the Commission
pursuant to the reporting requirements of the Exchange Act, including material
filed pursuant to Section 13(a) or 15(d) of the Exchange Act (all of the
foregoing, including filings incorporated by reference therein, being referred
to herein as the "Commission Documents"). The Company has delivered or made
available (through the SEC EDGAR website) to the Purchasers true and complete
copies of the Commission Documents filed with the Commission since December
31, 2000. The Company has not provided to the Purchasers any material
non-public information or other information which, according to applicable
law, rule or regulation, should have been disclosed publicly by the Company
but which has not been so disclosed, other than with respect to the
transactions contemplated by this Agreement. At the time of its filing, the
Company's Quarterly Report on Form 10-QSB for the fiscal quarter ended
September 30, 2004 (the "Form 10-Q") complied in all material respects with
the requirements of the Exchange Act and the rules and regulations of the
Commission promulgated thereunder and other federal, state and local laws,
rules and regulations applicable to such documents, and the Form 10-Q did not
contain 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. At the time of its filing, the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 2004 (the "Form 10-K") complied
in all material respects with the requirements of the Exchange Act and the
rules and regulations of the Commission promulgated thereunder and other
federal, state and local laws, rules and regulations applicable to such
documents, and, at the time of its filing, the Form 10-K did not contain any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. As of their respective dates, the financial statements of the
Company included in the Commission Documents complied as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the Commission or other applicable rules and
regulations with respect thereto. Such financial statements have been prepared
in accordance with generally accepted accounting principles ("GAAP") applied
on a consistent basis during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto or (ii)
in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements), and fairly
present in all material respects the financial position of the Company and its
Subsidiaries as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments).
(g) Subsidiaries. Schedule 2.1(g) hereto sets forth each Subsidiary
of the Company, showing the jurisdiction of its incorporation or organization
and showing the percentage of each Person's ownership of the outstanding stock
or other interests of such Subsidiary. For the purposes of this Agreement,
"Subsidiary" shall mean any Person of which at least a majority of the
securities or other ownership interest having ordinary voting power
(absolutely or contingently) for the election of directors or other Persons
performing similar functions are at the time owned directly or indirectly by
the Company and/or any of its other Subsidiaries. All of the outstanding
shares of capital stock of each Subsidiary have been duly authorized and
validly issued, and are fully paid and nonassessable. There are no outstanding
preemptive, conversion or other rights, options, warrants or agreements
granted or issued by or binding upon any Subsidiary for the purchase or
acquisition of any shares of capital stock of any Subsidiary or any other
securities convertible into, exchangeable for or evidencing the rights to
subscribe for any shares of such capital stock. Neither the Company nor any
Subsidiary is subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of the capital stock of
any Subsidiary or any convertible securities, rights, warrants or options of
the type described in the preceding sentence except as set forth on Schedule
2.1(g) hereto. Neither the Company nor any Subsidiary is party to, nor has any
knowledge of, any agreement restricting the voting or transfer of any shares
of the capital stock of any Subsidiary.
(h) No Material Adverse Change. Since December 31, 2004, the Company
has not experienced or suffered any Material Adverse Effect, except for
operating losses incurred in the ordinary course of business.
(i) No Undisclosed Liabilities. Except as disclosed on Schedule
2.1(i) hereto, neither the Company nor any of its Subsidiaries has any
liabilities, obligations, claims or losses (whether liquidated or
unliquidated, secured or unsecured, absolute, accrued, contingent or
otherwise) other than those set forth on the balance sheet included in the
Form 10-K or incurred in the ordinary course of the Company's or its
Subsidiaries respective businesses since December 31, 2004, and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect on the Company or its Subsidiaries.
(j) No Undisclosed Events or Circumstances. Since December 31, 2004,
except as disclosed on Schedule 2.1(j) hereto or in the Commission Documents,
no event or circumstance has occurred or exists with respect to the Company or
its Subsidiaries or their respective businesses, properties, prospects,
operations or financial condition, which, under applicable law, rule or
regulation, requires public disclosure or announcement by the Company but
which has not been so publicly announced or disclosed.
(k) Indebtedness. Schedule 2.1(k) hereto sets forth as of the date
hereof all outstanding secured and unsecured Indebtedness of the Company or
any Subsidiary, or for which the Company or any Subsidiary has commitments.
For purposes of this Agreement: (x) "Indebtedness" of any Person means,
without duplication (A) any indebtedness for borrowed money in excess of
$100,000, (B) any obligations issued, undertaken or assumed as the deferred
purchase price of property or services (other than trade payables entered into
in the ordinary course of business) in excess of $100,000, (C) all
reimbursement or payment obligations with respect to letters of credit, surety
bonds and other similar instruments, (D) any obligations evidenced by notes,
bonds, debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of property, assets or businesses,
(E) any indebtedness in excess of $100,000 created or arising under any
conditional sale or other title retention agreement, or incurred as financing,
in either case with respect to any property or assets acquired with the
proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (F) all monetary obligations under any
leasing or similar arrangement which, in connection with GAAP, consistently
applied for the periods covered thereby, is classified as a capital lease with
a present value in excess of $100,000, (G) all indebtedness referred to in
clauses (A) through (F) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any mortgage, lien, pledge, charge, security interest or other encumbrance
upon or in any property or assets (including accounts and contract rights)
owned by any Person, even though the Person which owns such assets or property
has not assumed or become liable for the payment of such indebtedness, and (H)
all Contingent Obligations in respect of indebtedness or obligations of others
of the kinds referred to in clauses (A) through (G) above; and (y) "Contingent
Obligation" means, as to any Person, any direct or indirect liability,
contingent or otherwise, of that Person with respect to any indebtedness,
lease, dividend or other obligation of another Person if the primary purpose
or intent of the Person incurring such liability, or the primary effect
thereof, is to provide assurance to the obligee of such liability that such
liability will be paid or discharged, or that any agreements relating thereto
will be complied with, or that the holders of such liability will be protected
(in whole or in part) against loss with respect thereto in excess of $100,000
due under leases required to be capitalized in accordance with GAAP. Except as
disclosed on Schedule 2.1(k), neither the Company nor any Subsidiary is in
default with respect to any Indebtedness.
(l) Title to Assets. Each of the Company and the Subsidiaries has
good and marketable title to all of its real and personal property, free and
clear of any mortgages, pledges, charges, liens, security interests or other
encumbrances of any nature whatsoever, except as disclosed in the Commission
Documents, for those indicated on Schedule 2.1(l) hereto or such that,
individually or in the aggregate, do not have a Material Adverse Effect. All
leases to real and personal property of the Company and each of its
Subsidiaries are valid and subsisting and in full force and effect.
(m) Actions Pending. There is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or other proceeding
pending or, to the knowledge of the Company, threatened against the Company or
any Subsidiary which questions the validity of this Agreement or any of the
other Transaction Documents or any of the transactions contemplated hereby or
thereby or any action taken or to be taken pursuant hereto or thereto. Except
as set forth on Schedule 2.1(m) hereto, there is no action, suit, claim,
investigation, arbitration, alternate dispute resolution proceeding or other
proceeding pending or, to the knowledge of the Company, threatened against or
involving the Company, any Subsidiary or any of their respective properties or
assets, which individually or in the aggregate, would have a Material Adverse
Effect. There are no outstanding orders, judgments, injunctions, awards or
decrees of any court, arbitrator or governmental or regulatory body against
the Company or any Subsidiary or any officers or directors of the Company or
any Subsidiary in their capacities as such, which individually, or in the
aggregate, would have a Material Adverse Effect.
(n) Compliance with Law. The business of the Company and the
Subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except as set forth in the Commission Documents or on Schedule
2.1(n) hereto or such that, individually or in the aggregate, the
noncompliance therewith would not have a Material Adverse Effect. The Company
and each of its Subsidiaries have all franchises, permits, licenses, consents
and other governmental or regulatory authorizations and approvals necessary
for the conduct of its business as now being conducted by it unless the
failure to possess such franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals, individually or in
the aggregate, could not reasonably be expected to have a Material Adverse
Effect.
(o) Taxes. Except as set forth on Schedule 2.1(o) hereto, the Company
and each of the Subsidiaries has accurately prepared and filed all federal,
state and other tax returns required by law to be filed by it, has paid or
made provisions for the payment of all taxes shown to be due and all
additional assessments, and adequate provisions have been and are reflected in
the financial statements of the Company and the Subsidiaries for all current
taxes and other charges to which the Company or any Subsidiary is subject and
which are not currently due and payable. Except as disclosed on Schedule
2.1(o) hereto, none of the federal income tax returns of the Company or any
Subsidiary have been audited by the Internal Revenue Service. The Company has
no knowledge of any additional assessments, adjustments or contingent tax
liability (whether federal or state) of any nature whatsoever, whether pending
or threatened against the Company or any Subsidiary for any period, nor of any
basis for any such assessment, adjustment or contingency.
(p) Certain Fees. Except as set forth on Schedule 2.1(p) hereto, the
Company has not employed any broker or finder or incurred any liability for
any brokerage or investment banking fees, commissions, finders' structuring
fees, financial advisory fees or other similar fees in connection with the
Transaction Documents.
(q) Disclosure. To the best of the Company's knowledge, neither this
Agreement or the Schedules hereto nor any other documents, certificates or
instruments furnished to the Purchasers by or on behalf of the Company or any
Subsidiary in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements made herein or therein, in the
light of the circumstances under which they were made herein or therein, not
misleading.
(r) Intellectual Property. Except as set forth on Schedule 2.1(r),
the Company and each of the Subsidiaries owns or possesses all the Proprietary
Rights owned by it and have no knowledge that such rights are in conflict with
the rights of others. As of the date of this Agreement, neither the Company
nor any of its Subsidiaries has received any written notice that any
Proprietary Rights have been declared unenforceable or otherwise invalid by
any court or governmental agency. As of the date of this Agreement, there is,
to the knowledge of the Company, no material existing infringement, misuse or
misappropriation of any Proprietary Rights by others. From December 31, 2004
to the date of this Agreement, neither the Company nor any of its Subsidiaries
has received any written notice alleging that the operation of the business of
the Company or any of its Subsidiaries infringes in any material respect upon
the intellectual property rights of others. "Proprietary Rights" shall mean
patents, trademarks, domain names (whether or not registered) and any
patentable improvements or copyrightable derivative works thereof, websites
and intellectual property rights relating thereto, service marks, trade names,
copyrights, licenses and authorizations, and all rights with respect to the
foregoing.
(s) Environmental Compliance. Except as disclosed on Schedule 2.1(s)
hereto, the Company and each of its Subsidiaries have obtained all approvals,
authorization, certificates, consents, licenses, orders and permits or other
similar authorizations of all governmental authorities, or from any other
Person, that are required under any Environmental Laws, the absence of which
would have a Material Adverse Effect. "Environmental Laws" shall mean all
applicable laws relating to the protection of the environment including,
without limitation, all requirements pertaining to reporting, licensing,
permitting, controlling, investigating or remediating emissions, discharges,
releases or threatened releases of hazardous substances, chemical substances,
pollutants, contaminants or toxic substances, materials or wastes, whether
solid, liquid or gaseous in nature, into the air, surface water, groundwater
or land, or relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of hazardous substances,
chemical substances, pollutants, contaminants or toxic substances, material or
wastes, whether solid, liquid or gaseous in nature. Except as set forth on
Schedule 2.1(s) hereto, the Company has all necessary governmental approvals
required under all Environmental Laws and used in its business or in the
business of any of its Subsidiaries, except for such instances as would not
individually or in the aggregate have a Material Adverse Effect. The Company
and each of its Subsidiaries are also in compliance with all other
limitations, restrictions, conditions, standards, requirements, schedules and
timetables required or imposed under all Environmental Laws. Except for such
instances as would not individually or in the aggregate have a Material
Adverse Effect, there are no past or present events, conditions,
circumstances, incidents, actions or omissions relating to or in any way
affecting the Company or its Subsidiaries that violate or may violate any
Environmental Law after the Closing or that may give rise to any Environmental
Liabilities, or otherwise form the basis of any claim, action, demand, suit,
proceeding, hearing, study or investigation (i) under any Environmental Law,
or (ii) based on or related to the manufacture, processing, distribution, use,
treatment, storage (including, without limitation, underground storage tanks),
disposal, transport or handling, or the emission, discharge, release or
threatened release of any hazardous substance. "Environmental Liabilities"
means all liabilities of a Person (whether such liabilities are owed by such
Person to governmental authorities, third parties or otherwise) whether
currently in existence or arising hereafter which arise under or relate to any
Environmental Law.
(t) Books and Records; Internal Accounting Controls. The books,
records and documents of the Company and its Subsidiaries accurately reflect
in all material respects the information relating to the business of the
Company and the Subsidiaries, the location and collection of their assets, and
the nature of all transactions giving rise to the obligations or accounts
receivable of the Company or any Subsidiary. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as
necessary to permit preparation of financial statements in conformity with
GAAP and to maintain asset accountability, (iii) access to assets is permitted
only in accordance with management's general or specific authorization, and
(iv) the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate actions are taken with respect
to any differences.
(u) Material Agreements. Except for the Transaction Documents or as
set forth on Schedule 2.1(u) hereto, or those that are included as exhibits to
the Commission Documents, neither the Company nor any Subsidiary is a party to
any written or oral contract, instrument, agreement, commitment, obligation,
plan or arrangement, a copy of which would be required to be filed with the
Commission (collectively, "Material Agreements") if the Company or any
Subsidiary were registering securities under the Securities Act. The Company
and each of its Subsidiaries has in all material respects performed all the
obligations required to be performed by them to date under the foregoing
agreements, have received no notice of default and, to the best of the
Company's knowledge, are not in default under any Material Agreement now in
effect, the result of which could cause a Material Adverse Effect. No written
or oral contract, instrument, agreement, commitment, obligation, plan or
arrangement of the Company or of any Subsidiary limits or shall limit the
payment of dividends on its Common Stock, except as set forth on Schedule
2.1(u) hereto.
(v) Transactions with Affiliates. Except as disclosed in the
Commission Documents or as set forth on Schedule 2.1(v) hereto, there are no
loans, leases, agreements, contracts, royalty agreements, management contracts
or arrangements or other continuing transactions between (a) the Company, any
Subsidiary or any of their respective customers or suppliers, on the one hand,
and (b) on the other hand, any officer, employee, consultant or director of
the Company, or any of its Subsidiaries, or any Person owning 5% or more of
the capital stock of the Company or any Subsidiary or any member of the
immediate family of such Person, officer, employee, consultant, director or 5%
or greater stockholder or any corporation or other entity controlled by such
officer, employee, consultant, director or stockholder.
(w) Securities Act of 1933. The Company has complied and will comply
with all applicable federal and state securities laws in connection with the
offer, issuance and sale of the Securities hereunder. Neither the Company nor
anyone acting on its behalf, directly or indirectly, has or will sell, offer
to sell or solicit offers to buy any of the Securities, or similar securities
to, or solicit offers with respect thereto from, or enter into any preliminary
conversations or negotiations relating thereto with, any Person, or has taken
or will take any action so as to bring the issuance and sale of any of the
Securities under the registration provisions of the Securities Act and
applicable state securities laws. Neither the Company nor any of its
affiliates, nor any Person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
any of the Securities.
(x) Governmental Approvals. Except as set forth on Schedule 2.1(x)
hereto, and except for the filing of any notice prior or subsequent to the
Closing that may be required under applicable state and/or federal securities
laws (which if required, shall be filed on a timely basis), no authorization,
consent, approval, license, exemption of, filing or registration with any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be necessary for, or in
connection with, the execution or delivery of the Notes, the Warrants and the
AIRs, or for the performance by the Company of its obligations under the
Transaction Documents.
(y) Employees. Neither the Company nor any Subsidiary has any
collective bargaining arrangements or agreements covering any of its
employees. Except as set forth in the Commission Documents or on Schedule
2.1(y) hereto, neither the Company nor any Subsidiary has any employment
contract, agreement regarding proprietary information, non-competition
agreement, non-solicitation agreement, confidentiality agreement, or any other
similar contract or restrictive covenant, relating to the right of any
officer, employee or consultant to be employed or engaged by the Company or
such Subsidiary, which contract or agreement is required to be disclosed in
the Commission Documents but which is not so disclosed. Since December 31,
2004, no officer, consultant or key employee of the Company or any Subsidiary
whose termination, either individually or in the aggregate, could have a
Material Adverse Effect, has terminated or, to the knowledge of the Company,
has any present intention of terminating his or her employment or engagement
with the Company or any Subsidiary.
(z) Absence of Certain Developments. Except as set forth in the
Commission Documents or on Schedule 2.1(z) hereto, since December 31, 2004,
neither the Company nor any Subsidiary has:
(i) issued any stock, bonds or other corporate securities or any
rights, options or warrants with respect thereto other than under the
Company's stock option plans;
(ii) borrowed any amount or incurred or become subject to any
liabilities (absolute or contingent) except current liabilities incurred in
the ordinary course of business which are comparable in nature and amount to
the current liabilities incurred in the ordinary course of business during the
comparable portion of its prior fiscal year, as adjusted to reflect the
current nature and volume of the Company's or such Subsidiary's business;
(iii) discharged or satisfied any lien or encumbrance or paid
any obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business;
(iv) declared or made any payment or distribution of cash or
other property to stockholders with respect to its stock, or purchased or
redeemed, or made any agreements so to purchase or redeem, any shares of its
capital stock;
(v) sold, assigned or transferred any other tangible assets, or
canceled any debts or claims, except in the ordinary course of business;
(vi) sold, assigned or transferred any patent rights,
trademarks, trade names, copyrights, trade secrets or other intangible assets
or intellectual property rights, or disclosed any proprietary confidential
information to any Person except in the ordinary course of business or to the
Purchasers or their representatives;
(vii) suffered any substantial losses or waived any rights of
material value, whether or not in the ordinary course of business, or suffered
the loss of any material amount of prospective business;
(viii) made any changes in employee compensation except in the
ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that
aggregate in excess of $25,000;
(x) entered into any other transaction other than in the
ordinary course of business, or entered into any other material transaction,
whether or not in the ordinary course of business;
(xi) made charitable contributions or pledges in excess of
$25,000;
(xii) suffered any material damage, destruction or casualty
loss, whether or not covered by insurance;
(xiii) experienced any material problems with labor or
management in connection with the terms and conditions of their employment;
(xiv) effected any two or more events of the foregoing kind
which in the aggregate would cause a Material Adverse Effect; or
(xv) entered into an agreement, written or otherwise, to take
any of the foregoing actions.
(aa) Use of Proceeds. The proceeds from the sale of the Notes, the
Warrants and the AIRs will be used by the Company solely for working capital
purposes, and shall not be used (i) to repay any outstanding Indebtedness or
any loans to any officer, director, affiliate or insider of the Company;
provided, however, that the Company may repay the Indebtedness listed on
Schedule 2.1(k) attached hereto, but only as and when such Indebtedness
becomes due per the terms of such Indebtedness as in effect on the date of
this Agreement, or (ii) for dividends or other distributions on any class of
its capital stock or to repurchase any capital stock (or any options, rights,
warrants or securities exchangeable or convertible into its capital stock).
The Company shall promptly engage the services of a reputable investor
relations firm, which selection shall be subject to the reasonable approval of
the holders of at least 85% in principal amount of the then-outstanding Notes,
and shall continue to use the services of such firm (or another firm selected
through a similar process) for a period of at least two years from the Closing
Date, unless all of the Notes are repaid or converted to Common Stock prior to
two years from the Closing Date.
(bb) Public Utility Holding Company Act and Investment Company Act
Status. The Company is not a "holding company" or a "public utility company"
as such terms are defined in the Public Utility Holding Company Act of 1935,
as amended. The Company is not, and as a result of and immediately upon
Closing will not be, an "investment company" or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of
1940, as amended.
(cc) ERISA. No liability to the Pension Benefit Guaranty Corporation
has been incurred with respect to any Plan by the Company or any of its
Subsidiaries which is or would cause a Material Adverse Effect. The execution
and delivery of this Agreement and the issue and sale of the Notes, the
Warrants and the AIRs will not involve any transaction which is subject to the
prohibitions of Section 406 of ERISA or in connection with which a tax could
be imposed pursuant to Section 4975 of the Internal Revenue Code of 1986, as
amended (the "Code"); provided that, if any Purchaser, or any Person that owns
a beneficial interest in any Purchaser, is an "employee pension benefit plan"
(within the meaning of Section 3(2) of ERISA) with respect to which the
Company is a "party in interest" (within the meaning of Section 3(14) of
ERISA), the requirements of Sections 407(d)(5) and 408(e) of ERISA, if
applicable, are met. As used in this Section 2.1(cc), the term "Plan" shall
mean an "employee pension benefit plan" (as defined in Section 3 of ERISA)
which is or has been established or maintained, or to which contributions are
or have been made, by the Company or any Subsidiary or by any trade or
business, whether or not incorporated, which, together with the Company or any
Subsidiary, is under common control, as described in Section 414(b) or (c) of
the Code.
(dd) Delisting Notification. The Company has not received a delisting
notification from the OTC Bulletin Board that has not been rescinded, and, to
its knowledge, there are no existing facts or circumstances that could give
rise to the delisting of the Common Stock from the OTC Bulletin Board.
(ee) Sarbanes-Oxley Act. The Company is in compliance with any and all
applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective
as of the date hereof, and any and all applicable rules and regulations
promulgated by the Commission thereunder that are effective as of the date
hereof, except where such noncompliance would not have, individually or in the
aggregate, a Material Adverse Effect.
Section 2.2 Representations and Warranties of the Purchasers. Each of
the Purchasers hereby makes the following representations and warranties to
the Company with respect solely to itself and not with respect to any other
Purchaser:
(a) Organization and Standing of the Purchasers. If such Purchaser is
an entity, such Purchaser is a corporation, limited liability company or
partnership duly incorporated or organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization.
(b) Authorization and Power. Such Purchaser has the requisite power
and authority to enter into and perform the Transaction Documents and to
purchase the Notes, the Warrants and the AIRs being sold to it hereunder. The
execution, delivery and performance of the Transaction Documents by such
Purchaser and the consummation by it of the transactions contemplated hereby
have been duly authorized by all necessary corporate or partnership action,
and no further consent or authorization of such Purchaser or its Board of
Directors, stockholders, or partners, as the case may be, is required. This
Agreement has been duly authorized, executed and delivered by such Purchaser.
The other Transaction Documents constitute, or shall constitute when executed
and delivered, valid and binding obligations of such Purchaser enforceable
against such Purchaser in accordance with their terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of,
creditor's rights and remedies or by other equitable principles of general
application.
(c) Acquisition for Investment. Such Purchaser is purchasing the Notes
and acquiring the Warrants and the AIRs solely for its own account and not
with a view to or for sale in connection with the distribution thereof. Such
Purchaser does not have a present intention to sell any of the Securities, nor
a present arrangement (whether or not legally binding) or intention to effect
any distribution of any of the Securities to or through any Person; provided,
however, that by making the representations herein and subject to Section
2.2(e) below, such Purchaser does not agree to hold any of the Securities for
any minimum or other specific term and reserves the right to pledge any of the
Securities for margin purposes and/or to dispose of any of the Securities at
any time in accordance with federal and state securities laws applicable to
such disposition. Such Purchaser acknowledges that it (i) has such knowledge
and experience in financial and business matters such that such Purchaser is
capable of evaluating the merits and risks of its investment in the Company,
(ii) is able to bear the financial risks associated with an investment in the
Securities, and (iii) has been given full access to such records of the
Company and the Subsidiaries and to the officers of the Company and the
Subsidiaries as it has deemed necessary or appropriate to conduct its due
diligence investigation.
(d) Rule 144. Such Purchaser understands that the Securities must be
held indefinitely unless such Securities are registered under the Securities
Act or an exemption from registration is available. Such Purchaser
acknowledges that it is familiar with Rule 144 of the rules and regulations of
the Commission, as amended, promulgated pursuant to the Securities Act ("Rule
144"), and that such Purchaser has been advised that Rule 144 permits resales
only under certain circumstances. Such Purchaser understands that to the
extent that Rule 144 is not available, such Purchaser will be unable to sell
any Securities without either registration under the Securities Act or the
existence of another exemption from such registration requirement.
(e) General. Such Purchaser understands that the Securities are being
offered and sold in reliance on a transactional exemption from the
registration requirements of federal and state securities laws and the Company
is relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of such Purchaser set forth
herein in order to determine the applicability of such exemptions and the
suitability of such Purchaser to acquire the Securities. Such Purchaser
understands that no United States federal or state agency or any government or
governmental agency has passed upon or made any recommendation or endorsement
of the Securities.
(f) Opportunities for Additional Information. Such Purchaser
acknowledges that such Purchaser has had the opportunity to ask questions of
and receive answers from, or obtain additional information from, the executive
officers of the Company concerning the financial and other affairs of the
Company, and to the extent deemed necessary in light of such Purchaser's
personal knowledge of the Company's affairs, such Purchaser has asked such
questions and received answers to the full satisfaction of such Purchaser, and
such Purchaser desires to invest in the Company.
(g) No General Solicitation. Such Purchaser acknowledges that the
Securities were not offered to such Purchaser by means of any form of general
or public solicitation or general advertising, or publicly disseminated
advertisements or sales literature, including (i) any advertisement, article,
notice or other communication published in any newspaper, magazine, or similar
media, or broadcast over television or radio, or (ii) any seminar or meeting
to which such Purchaser was invited by any of the foregoing means of
communications.
(h) Accredited Investor. Such Purchaser is an accredited investor (as
defined in Rule 501 of Regulation D), and such Purchaser has such experience
in business and financial matters that it is capable of evaluating the merits
and risks of an investment in the Securities. Such Purchaser acknowledges
that an investment in the Securities is speculative and involves a high degree
of risk.
(i) Certain Trading Activity. Notwithstanding the foregoing, no
Purchaser makes any representation, warranty or covenant hereby that it will
not engage in Short Sales (as defined in Regulation SHO under the federal
securities laws) in the securities of the Company after the time that the
transactions contemplated by this Agreement are first publicly announced. In
addition, it is understood and agreed by the Company (i) that none of the
Purchasers has been asked to agree, nor has any Purchaser agreed, to desist
from purchasing or selling, long and/or short, securities of the Company, or
"derivative" securities based on securities issued by the Company or to hold
the Securities for any specified term, (ii) that past or future open market or
other transactions by any Purchaser, including Short Sales, and specifically
including, without limitation, Short Sales or derivative transactions, before
or after the closing of this or future private placement transactions, may
negatively impact the market price of the Company's publicly-traded
securities, (iii) that any Purchaser, and counter-parties in "derivative"
transactions to which any such Purchaser is a party, directly or indirectly,
presently may have a "short" position in the Common Stock, and (iv) that each
Purchaser shall not be deemed to have any affiliation with or control over any
arm's length counter-party in any "derivative" transaction.
ARTICLE III
Covenants
The Company covenants with each Purchaser as follows, which covenants
are for the benefit of each Purchaser and their respective permitted
assignees.
Section 3.1 Securities Compliance. The Company shall notify the
Commission, in accordance with its rules and regulations, of the transactions
contemplated by any of the Transaction Documents, and shall take all other
necessary action and proceedings as may be required and permitted by
applicable law, rule and regulation, for the legal and valid issuance of the
Securities to the Purchasers, or their respective subsequent holders.
Section 3.2 Registration and Listing. The Company will cause its
Common Stock to continue to be registered under Section 12(b) or 12(g) of the
Exchange Act, will comply in all respects with its reporting and filing
obligations under the Exchange Act, will comply with all requirements related
to any registration statement filed pursuant to this Agreement, and will not
take any action or file any document (whether or not permitted by the
Securities Act or the rules promulgated thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under the Exchange Act or Securities Act, except as permitted
herein. The Company will promptly file the "Listing Application" for, or in
connection with, the issuance and delivery of the Securities.
Section 3.3 Inspection Rights. In the event the Registration Statement
(as defined in the Registration Rights Agreement) is not effective or has been
suspended, and subject to the Purchaser signing a mutually agreeable
Non-Disclosure Agreement and agreeing not to sell (and not to permit any
Person over which it has direct control to sell) any of its securities if it
obtains material non-public information, the Company shall, subject to Section
3.9, permit, during normal business hours and upon reasonable request and
reasonable notice, a Purchaser or any employees, agents or representatives
thereof, so long as the Purchaser shall be obligated hereunder to purchase the
Notes or shall beneficially own Notes aggregating $1,000,000 or more in
principal amount, or shall own Securities which, in the aggregate, represent
(or would be convertible into or exchangeable for securities which represent)
more than two percent (2%) of the total combined voting power of all voting
securities then outstanding, to examine (but not to make copies of) the
records and books of account of, and visit and inspect, during the term of the
Warrants, the properties, assets, operations and business of the Company and
any Subsidiary, and to discuss the affairs, finances and accounts of the
Company and any Subsidiary with any of its officers, consultants, directors,
and key employees.
Section 3.4 Compliance with Laws. The Company shall comply, and cause
each Subsidiary to comply, with all applicable laws, rules, regulations and
orders, the noncompliance with which could have a Material Adverse Effect.
Section 3.5 Keeping of Records and Books of Account. The Company shall
keep and cause each Subsidiary to keep adequate records and books of account,
in which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
Subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and
other purposes in connection with its business shall be made.
Section 3.6 Reporting Requirements. The Company, only to the extent
not included in a Commission Document publicly filed and available for public
access, shall furnish two (2) copies of the following to each Purchaser in a
timely manner so long as that Purchaser shall be obligated hereunder to
purchase the Notes or shall beneficially own the Notes, or shall own
Securities which, in the aggregate, represent (or are convertible into or
exchangeable for securities which represent) more than one percent (1%) of the
total combined voting power of all voting securities then outstanding:
(a) whether or not then required to file the same with the Commission,
all of the information required for Quarterly Reports filed with the
Commission on Form 10-Q as soon as available, and in any event within
forty-five (45) days after the end of each of the first three (3) fiscal
quarters of the Company, but in no event prior to the time that such Reports
are publicly filed with the Commission or otherwise made publicly available;
(b) whether or not then required to file the same with the Commission,
all of the information required for Annual Reports filed with the Commission
on Form 10-K as soon as available, and in any event within ninety (90) days
after the end of each fiscal year of the Company, but in no event prior to the
time that such Reports are publicly filed with the Commission or otherwise
made publicly available; and
(c) Copies of all notices and information, including without
limitation notices and proxy statements in connection with any meetings, that
are provided to holders of shares of Common Stock, contemporaneously with the
delivery of such notices or information to such holders of Common Stock.
Section 3.7 Other Agreements. The Company shall not enter into any
agreement in which the terms of such agreement would restrict or impair the
right or ability of the Company or any Subsidiary to perform under any
Transaction Document.
Section 3.8 Reservation of Shares. So long as the Notes, the Warrants
and/or the AIRs remain outstanding, the Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, the maximum number of shares of Common Stock to effect the
conversion or exercise of the Notes, the Warrants and the AIRs.
Section 3.9 Disclosure of Transactions and Other Material Information.
On or before 8:30 a.m., New York City time, on the second Business Day
immediately following the Closing Date, the Company shall file a Current
Report on Form 8-K with the Commission describing the terms of the
transactions contemplated by the Transaction Documents and including as
exhibits to such Current Report on Form 8-K this Agreement, forms of the Note,
the Warrant, the AIR, the Registration Rights Agreement, the Lock-up Agreement
and the Security Agreement, and the schedules hereto and thereto in the form
required by the Exchange Act and to which Current Report the Purchasers shall
reasonably approve (including all attachments, the "8-K Filing"). For purposes
of this Agreement, a "Business Day" means any day except Saturday, Sunday and
any day which is a legal holiday or a day on which banking institutions in the
State of Utah generally are authorized or required by law or other government
actions to close. As of the time of the filing of the 8-K Filing with the
Commission, no Purchaser shall be in possession of any material, nonpublic
information received from the Company, any of its Subsidiaries or any of their
respective officers, directors, employees or agents, that is not disclosed in
the 8-K Filing. The Company shall not, and shall cause each of its
Subsidiaries and its and each of their respective officers, directors,
employees and agents not to, provide any Purchaser with any material,
nonpublic information regarding the Company or any of its Subsidiaries from
and after the filing of the 8-K Filing with the Company without the express
written consent of such Purchaser. Subject to the foregoing, neither the
Company nor any Purchaser shall issue any press releases or any other public
statements with respect to the transactions contemplated hereby; provided,
however, that the Company shall be entitled, without the prior approval of any
Purchaser, to make any press release or other public disclosure with respect
to such transactions (i) in substantial conformity with the 8-K Filing and
contemporaneously therewith, and (ii) as is required by applicable law and
regulations (provided that in the case of clause (i) above, each Purchaser
shall be notified by the Company (although the consent of such Purchaser shall
not be required) in connection with any such press release or other public
disclosure prior to its release).
Section 3.10 Delivery of Securities. At Closing or as soon thereafter
as reasonably possible (but in any event no later than three Business Days
immediately following the Closing Date), the Company shall deliver to each
Purchaser the original Notes, Warrants and AIRs acquired by such Purchaser at
the Closing.
Section 3.11 No Shorting of Stock. Each Purchaser represents and
warrants to the Company that, during the period beginning on the date such
Purchaser was initially contacted by the Company or an agent thereof with
respect to a prospective investment in the Company and ending on the date
hereof, such Purchaser has not engaged in any Short Sales of shares of the
Common Stock. Each Purchaser, severally and not jointly with the other
Purchasers, understands and acknowledges that the Commission currently takes
the position that coverage of Short Sales of shares of the Common Stock
"against the box" with the Securities purchased hereunder prior to the
effective date of the Registration Statement is a violation of Section 5 of
the Securities Act, as set forth in Item 65, Section 5 under Section A, of the
Manual of Publicly Available Telephone Interpretations, dated June 1997,
compiled by the Office of Chief Counsel, Division of Corporate Finance.
Accordingly, each Purchaser hereby agrees (on behalf of itself or any Person
over which it has direct control) not to use any of the Securities to cover
any Short Sales made prior to the effective date of the Registration
Statement. Additionally, in event that the Registration Statement is declared
effective by the Commission prior to the nine-month anniversary of the Closing
Date, each Purchaser agrees not to engage in Short Sales of the shares of the
Common Stock during the 30 days immediately preceding the Reset Date (as
defined in the Notes). Additionally, each Purchaser, severally and not jointly
with the other Purchasers, agrees (a) to comply with Regulation M under the
federal securities laws, and (b) not to engage in Short Sales of the shares of
Common Stock in contravention of state and federal securities laws.
Section 3.12 Subsequent Financings.
(a) Until the first anniversary of the Closing Date, the Company
hereby grants to each Purchaser that (A) owns Notes, Conversion Shares,
Warrant Shares or AIR Shares immediately prior to the issuance of the "New
Securities" (as defined in Section 3.12(b)), and (B) was not an officer or
director of the Company as of the Closing Date (any such Purchaser, for such
purpose, an "Eligible Purchaser"), a right (the "Preemptive Right") to
purchase all or any part of such Eligible Purchaser's pro rata share of any
New Securities that the Company may, from time to time, propose to sell and
issue. The pro rata share for each Eligible Purchaser, for purposes of the
Preemptive Right, is the ratio of (x) the number of shares of Common Stock
then held or deemed to be held by such Eligible Purchaser immediately prior to
the issuance of the New Securities (assuming the full conversion of the Notes
and the full exercise of the Warrants and the AIRs), to (y) the total number
of shares of Common Stock of the Company outstanding immediately prior to the
issuance of the New Securities (after giving effect to the full conversion of
the Notes and the full exercise of the Warrants and the AIRs).
(b) For purposes of this Section 3.12, "New Securities" shall mean any
Common Stock, whether or not authorized on the date hereof, and rights,
options or warrants to purchase Common Stock and securities of any type
whatsoever that are, or may become, convertible into Common Stock; provided,
however, that "New Securities" does not include the following:
(i) shares of capital stock of the Company issuable upon
conversion or exercise of any currently outstanding securities or any Notes,
AIRs, Warrants or New Securities issued in accordance with this Agreement
(including the Conversion Shares, the Warrant Shares, the AIR Shares and the
PIK Interest Shares);
(ii) shares or options or warrants for Common Stock granted to
officers, directors and employees of, and consultants to, the Company pursuant
to stock option or purchase plans or other compensatory agreements approved by
the Compensation Committee of the Board of Directors;
(iii) shares of Common Stock issued in connection with any pro
rata stock split or stock dividend in respect of any series or class of
capital stock of the Company or recapitalization by the Company;
(iv) shares of capital stock, or options or warrants to purchase
capital stock, issued to a strategic investor in connection with a strategic
commercial agreement or pursuant to joint ventures, partnerships, licensing
agreements or other similar arrangements, as approved by the Board of
Directors;
(v) shares of capital stock, or options or warrants to purchase
capital stock, issued pursuant to a commercial borrowing, secured lending or
lease financing transaction approved by the Board of Directors;
(vi) shares of capital stock, or options or warrants to purchase
capital stock, issued pursuant to the acquisition of another corporation or
entity by the Company by consolidation, merger, purchase of all or
substantially all of the assets, or other reorganization in which the Company
acquires, in a single transaction or series of related transactions, all or
substantially all of the assets of such other corporation or entity or fifty
percent (50%) or more of the voting power of such other corporation or entity
or fifty percent (50%) or more of the equity ownership of such other
corporation or entity;
(vii) shares of capital stock issued in a public securities
offering pursuant to a registration statement filed under the Securities Act
or in a private offering pursuant to Rule 144A promulgated under the
Securities Act;
(viii) shares of capital stock, or options or warrants to
purchase capital stock, issued to current or prospective customers or
suppliers of the Company or to its employees, officers or directors, approved
by the Board of Directors as compensation or accommodation in lieu of other
payment, compensation or accommodation to such customer, supplier, employee,
officer or director;
(ix) shares of capital stock, or warrants to purchase capital
stock, issued to any Person that provides services to the Company as
compensation therefor pursuant to an agreement approved by the Board of
Directors;
(x) shares of capital stock, or options or warrants to purchase
capital stock, offered in a transaction where purchase of such securities by
any Purchaser would cause such transaction to fail to comply with applicable
federal or state securities laws or would cause an applicable registration or
qualification exemption to fail to be available to the Company; provided,
however, that this clause (x) shall apply only to the Purchaser or Purchasers
who would cause any such failure, and not to any of the other Purchasers; and
(xi) securities issuable upon conversion or exercise of the
securities set forth in paragraphs (i)(x) above.
In the event that the Company proposes to undertake an issuance of New
Securities, it shall give each Eligible Purchaser written notice (the
"Notice") of its intention, describing the type of New Securities, the price,
and the general terms upon which the Company proposes to issue the same. Each
Eligible Purchaser shall have twenty (20) Business Days after receipt of such
notice to agree to purchase all or any portion of its pro rata share of such
New Securities at the price and upon the terms specified in the notice by
giving written notice to the Company and stating therein the quantity of New
Securities to be purchased. In the event that any New Securities subject to
the Preemptive Right are not purchased by the Eligible Purchaser within the
twenty (20) Business Day period specified above, the Company shall have ninety
(90) days thereafter to sell (or enter into an agreement pursuant to which the
sale of New Securities that had been subject to the Preemptive Right shall be
closed, if at all, within sixty (60) days from the date of said agreement) the
New Securities with respect to which the rights of the Purchaser were not
exercised at a price and upon terms, including manner of payment, no more
favorable to the purchasers thereof than specified in the Notice. In the event
the Company has not sold all offered New Securities within such ninety (90)
day period (or sold and issued New Securities in accordance with the foregoing
within sixty (60) days from the date of such agreement), the Company shall not
thereafter issue or sell any New Securities, without first complying again
with the procedures set forth in this Section 3.12.
Section 3.13 Beneficial Ownership Restrictions.
(a) Notwithstanding anything to the contrary set forth in this
Agreement or any other Transaction Document (including, without limitation,
the Notes, the Warrants and the AIRs), at no time may a Purchaser convert or
exercise a Security if the number of shares of Common Stock to be issued
pursuant to such conversion or exercise, when aggregated with all other shares
of Common Stock owned by such Purchaser at such time, would result in such
Purchaser beneficially owning (as determined in accordance with Section 13(d)
of the Exchange Act, and the rules thereunder) in excess of 4.99% of the then
issued and outstanding shares of Common Stock outstanding at such time;
provided, however, that upon a Purchaser providing the Company with sixty-one
(61) days notice (the "Waiver Notice") that such Purchaser would like to waive
this Section 3.13(a) with regard to any or all shares of Common Stock issuable
upon conversion or exercise of any Security, this Section 3.13(a) shall be of
no force or effect with regard to those Securities referenced in the Waiver
Notice; provided, further, that any Purchaser may waive this Section 3.13(a)
by so indicating on the signature page to this Agreement, any such waiver to
be effective on and as of the date of this Agreement.
(b) Notwithstanding anything to the contrary set forth in this
Agreement or any other Transaction Document (including, without limitation,
the Notes, the Warrants and the AIRs), at no time may a Purchaser convert or
exercise a Security if the number of shares of Common Stock to be issued
pursuant to such conversion or exercise, when aggregated with all other shares
of Common Stock owned by such Purchaser at such time, would result in such
Purchaser beneficially owning (as determined in accordance with Section 13(d)
of the Exchange Act, and the rules thereunder) in excess of 9.99% of the then
issued and outstanding shares of Common Stock outstanding at such time;
provided, however, that upon a Purchaser providing the Company with a Waiver
Notice that such Purchaser would like to waive this Section 3.13(b) with
regard to any or all shares of Common Stock issuable upon conversion or
exercise of a Security, this Section 3.13(b) shall be of no force or effect
with regard to those Securities referenced in the Waiver Notice.
Section 3.14 S-3 Eligibility. The Company shall use its commercially
reasonable best efforts to become eligible (and then upon becoming eligible,
to remain eligible) to use a Form S-3 registration statement.
Section 3.15 Negative Covenants. So long as any Purchaser shall be
obligated hereunder to purchase the Notes, or so long as any Notes are
outstanding, the Company shall not, nor shall it permit any of its
Subsidiaries to, do any of the following without the prior written consent of
the holders of at least 85% in principal amount of the then-outstanding Notes:
(a) issue debt securities or incur, assume, suffer to exist, guarantee,
or otherwise become or remain, directly or indirectly, liable with respect to
any Indebtedness, other than Indebtedness (i) evidenced by this Agreement and
the other Transaction Documents, (ii) to a strategic investor in connection
with a strategic commercial agreement or transaction as determined in good
faith by the Company's Board of Directors, (iii) pursuant to an unsecured
commercial borrowing, lending or lease financing transaction approved in good
faith by the Company's Board of Directors, or (iv) pursuant to the acquisition
by the Company of another corporation or entity by consolidation, merger,
purchase of all or substantially all of the assets of such corporation or
entity, or other reorganization;
(b) except for those created under the Security Agreement, create,
incur, assume, or suffer to exist, directly or indirectly, any liens,
restrictions, security interests, claims, rights of another or other
encumbrances on or with respect to any of its assets, of any kind, whether now
owned or hereafter acquired, or any income or profits therefrom;
(c) complete a private equity or equity-linked financing prior to the
first anniversary of the Closing Date;
(d) liquidate, wind up, or dissolve (or suffer any liquidation or
dissolution);
(e) convey, sell, lease, license, assign, transfer, or otherwise
dispose of all or any substantial portion of its properties or assets, other
than transactions in the ordinary course of business consistent with past
practices, and transactions by non-material Subsidiaries;
(f) cause, permit, or suffer, directly or indirectly, any Change in
Control Transaction (as defined in the Notes);
(g) directly or indirectly enter into or permit to exist any
transaction with any "affiliate" (as defined in Rule 144 promulgated under the
Securities Act) of the Company or any of its Subsidiaries, except for
transactions that are in the ordinary course of its business, upon fair and
reasonable terms, that are fully approved by its Board of Directors, and that
are no less favorable to it than would be obtained in an arm's length
transaction with a non-affiliate;
(h) declare or pay a dividend or return any equity capital to any
holder of any of its equity interests or authorize or make any other
distribution to any holder of its equity interests in its capacity as such, or
redeem, retire, purchase or otherwise acquire, directly or indirectly, for
consideration any of its equity interests outstanding (or any options or
warrants issued to acquire any of its equity interests); provided that the
foregoing shall not prohibit (i) the performance by the Company of its
obligations under the Warrants or the Registration Rights Agreement, or (ii)
the Company and any Subsidiary thereof from paying dividends in common stock
issued by the Company or such Subsidiary that is neither puttable by any
holder thereof nor redeemable, so long as, in the case of any such common
stock dividend made by any such Subsidiary, the percentage ownership (direct
or indirect) of the Company in such Subsidiary is not reduced as a result
thereof; or
(i) directly or indirectly, lend money or credit (by way of guarantee
or otherwise) or make advances to any person, or purchase or acquire any
stock, bonds, notes, debentures or other obligations or securities of, or any
other interest in, or make any capital contribution to, any other Person, or
purchase or own a futures contract or otherwise become liable for the purchase
or sale of currency or other commodities at a future date in the nature of a
futures contract (all of the foregoing, collectively, "Investments"); provided
that the following shall be permitted: (i) Investments outstanding on the
Closing Date and identified on Schedule 3.15(i) attached hereto, (ii)
Investments in accounts receivable owing to the Company or any of its
Subsidiaries obtained in the ordinary course of business, (iii) Investments in
cash and cash equivalents, (iv) making lease, utility and other similar
deposits in the ordinary course of business, (v) hedges or swaps in the
ordinary course of business to protect against price or interest rate
fluctuations that are not for speculative purposes, and (vi) Investments in
securities of trade creditors or customers in the ordinary course of business
received upon foreclosure or pursuant to any plan of reorganization or
liquidation or similar arrangement upon the bankruptcy or insolvency of such
trade creditors or customers.
Section 3.16 Exchange Right.
(a) (i) The term "Lower Price Transaction" means a New Transaction
offered or consummated during the period (the "New Transaction Period") from
the Closing Date and continuing through and including the 36-month anniversary
of the Closing Date, without the prior written consent of the holders of at
least 85% in principal amount of the then-outstanding Notes in each instance
(which consent is in the sole discretion of such holders and may be withheld
for any reason or for no reason whatsoever), where either (A) the New
Transaction Price (as defined below) is below the then effective Conversion
Price of the Notes, or (B) the New Transaction Exercise Price of any New
Transaction Warrants (as those terms are defined below) is lower than the then
effective Exercise Price of the Warrants (the "Exercise Threshold Price").
(ii) The Company covenants and agrees that, if there is a Lower
Price Transaction during the New Transaction Period, then, in addition to any
other rights provided to the Purchasers in the Transaction Documents,
(A) the then applicable Conversion Price for any
outstanding Note shall be adjusted to an amount (the "Adjusted Conversion
Price") equal to the New Transaction Price; but in no event shall the Adjusted
Conversion Price be higher than the Conversion Price in effect immediately
before the relevant New Transaction; and
(B) if the New Transaction Exercise Price is lower than
the Exercise Threshold Price, then the Exercise Price of the then outstanding
Warrants shall be adjusted to equal the New Transaction Exercise Price; but in
no event shall the Exercise Price of any Warrant be adjusted to an Exercise
Price higher than the Exercise Price for such Warrant in effect immediately
before the relevant New Transaction.
(iii) For purposes of this Section 3.16, the following terms
shall have the meanings indicated:
(A) "New Transaction" means, unless consented to by the
holders of at least 85% in principal amount of the then-outstanding Notes in
each instance, the sale of New Securities by or on behalf of the Company to a
third party investor or purchaser in a transaction offered or consummated
after the date of this Agreement.
(B) "New Transaction Price" means the Basic New
Transaction Price (as defined below) except that if the New Transaction
Exercise Price is lower than the Basic New Transaction Price, it means the New
Transaction Exercise Price.
(C) "Basic New Transaction Price" means, as may be
applicable, on a per share basis, the lower of (1) the lowest fixed purchase
price of any shares of the New Securities contemplated in the New Transaction,
or (2) the lowest conversion price or put or call price which would be
applicable under the terms of the New Transaction; in each such case, whether
such purchase or conversion price or put or call price is stated or could
result from adjustments or revisions contemplated in the relevant agreements
for the New Transaction and whenever such adjustment or revision would be
applicable (and if no minimum purchase price, conversion price or put or call
price, as the case may be, is set, it shall be assumed that such minimum
purchase price or conversion price is $.01); and provided, further, that, if
the securities issued in the New Transaction are issued at a Face Value
Discount (as defined below), the New Transaction Price shall be adjusted to
reflect such discount. By way of illustration, if convertible preferred shares
having a stated value of $1 million and a fixed conversion price of $0.05 were
sold for a purchase price of $800,000, the effective New Transaction Price
would be $0.04.
(D) "New Transaction Exercise Price" means the lowest
exercise price per share applicable to the warrants, options or similar
instruments (howsoever denominated; collectively, "New Transaction Warrants")
included in such New Transaction, whether such exercise price is stated or
could result from adjustments or revisions contemplated in the relevant
agreements for the New Transaction and whenever such exercise price would be
applicable (and, if no minimum exercise price is set, it shall be assumed that
such minimum exercise price is $.01).
(E) "Alternative Warrant Percentage" means (x) the number
of shares which are eligible to be purchased under the New Transaction
Warrants issued in the New Transaction, divided by (y) the aggregate number of
shares of New Securities issued or issuable in the New Transaction (excluding
the shares issuable upon exercise of the New Transaction Warrants).
(F) "Outstanding Warrant Shares" means, for each class of
Warrants or for any previously issued Additional Warrants (as defined below),
the then outstanding number of Warrant Shares which would then be issuable
upon the exercise in full of such class of Warrants (without regard to any
limitations which may then restrict the holder's full exercise of such Warrant
at any time) or such Additional Warrants, if any, as in effect immediately
prior to the relevant New Transaction.
(G) "Original Warrant Shares" means, for each class of
Warrants or for any previously issued Additional Warrants, the original number
of Warrant Shares issuable on exercise of such class of Warrants on the
Closing Date or as Additional Warrants, as the case may be (in each cause
without regard to any limitations which may then restrict the holder's full
exercise of such Warrant at any time).
(H) "Face Value Discount" means consideration less than,
as the case may be, (x) the number of shares being issued multiplied by the
stated purchase price, (y) the stated principal amount of a debenture, note or
similar instrument, or (z) the stated value of the shares of convertible
stock.
(b) Anything in the foregoing provisions of this Section 3.16 to the
contrary notwithstanding, if, without the prior written consent of the holders
of at least 85% in principal amount of the then-outstanding Notes in each
instance (which consent is in the sole discretion of such holders and may be
withheld for any reason or for no reason whatsoever), during the New
Transaction Period, the Company enters into a New Transaction, the following
provisions shall apply whether or not such New Transaction is a Lower Price
Transaction:
(i) if the provisions applicable to the convertible preferred
stock, convertible note or debenture or similar instrument (howsoever
denominated), if any, of the New Transaction are more beneficial to the holder
of such instrument, then the corresponding terms applicable in or to the Notes
or in or to the Warrants, as the case may be, or if the terms which are
beneficial to the Company in the relevant Transaction Documents are not
included in the corresponding instrument in the New Transaction, then, unless
waived by the holders of at least 85% in principal amount of the
then-outstanding Notes, the terms of the Transaction Documents applying to the
then outstanding Notes or the Warrants, as the case may be, shall be modified
to reflect similar terms (based on the original issue date of the Notes or the
Warrants, as the case may be); provided, however, that nothing in this
provision shall be read to mean that the Securities shall be changed to any
other form of security; and
(ii) if the Alternative Warrant Percentage is greater than fifty
percent (50%), the Company shall issue to each Purchaser additional warrants
("Additional Warrants") for the purchase of the number of shares equal to the
excess, if any, of
(A) (x) the Alternative Warrant Percentage, multiplied by
(y) (I) the total purchase price paid by such Purchaser hereunder for its
Notes, Warrants and AIRs, divided by (II) the lower of the Conversion Price of
the Notes or the Adjusted Conversion Price, if any, multiplied by (y) a
fraction, of which the numerator is the Outstanding Warrant Shares for all
classes of Warrants (including previously issued Additional Warrants) and the
denominator is Original Warrant Shares for all relevant classes of Warrants
(including previously issued Additional Warrants); over
(B) the aggregate Outstanding Warrant Shares for all
classes of Warrants (including previously issued Additional Warrants).
and the terms of such Additional Warrants (including, without limitation, the
term of exercisability, exercise price, manner and limitations, if any, on
exercise, and registration rights) shall be the same as the applicable New
Transaction Warrants issued in such New Transaction.
(c) Nothing in the foregoing provisions reflects either an obligation
on the part of any Purchaser to participate in any New Transaction or a
limitation on any Purchaser from participating in any New Transaction.
(d) Any of the foregoing provisions of this Section 3.16 or any other
provisions of this Agreement or any of the other Transaction Documents to the
contrary notwithstanding, the Company shall not engage in any offers, sales or
other transactions of its securities which would adversely affect the
exemption from registration available for the transactions contemplated by the
Transaction Documents.
ARTICLE IV
Conditions
Section 4.1 Conditions Precedent to the Obligation of the Company to
Close and to Sell the Notes, Warrants and AIRs. The obligation hereunder of
the Company to close and issue and sell the Notes, the Warrants and the AIRs
to the Purchasers on the Closing Date is subject to the satisfaction or
waiver, at or before the Closing, of the conditions set forth below. These
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion.
(a) Accuracy of the Purchasers' Representations and Warranties. The
representations and warranties of each Purchaser shall be true and correct in
all material respects as of the date when made and as of the Closing Date as
though made at that time, except for representations and warranties that are
expressly made as of a particular date, which shall be true and correct in all
material respects as of such date.
(b) Performance by the Purchasers. Each Purchaser shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Purchasers at or prior to the Closing Date.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction
which prohibits the consummation of any of the transactions contemplated by
this Agreement.
(d) Delivery of Purchase Price. The Purchase Price for the Notes, the
Warrants and the AIRs shall have been delivered to the Company at the Closing.
(e) Delivery of Transaction Documents. The Transaction Documents to
which the Purchasers are party shall have been duly executed and delivered by
the Purchasers to the Company.
Section 4.2 Conditions Precedent to the Obligation of the Purchasers
to Close and to Purchase the Notes, the Warrants and the AIRs. The obligation
hereunder of the Purchasers to purchase the Notes, the Warrants and the AIRs
and consummate the transactions contemplated by this Agreement is subject to
the satisfaction or waiver, at or before the Closing, of each of the
conditions set forth below. These conditions are for each Purchaser's sole
benefit and may be waived by such Purchaser at any time in its sole
discretion.
(a) Accuracy of the Company's Representations and Warranties. Each of
the representations and warranties of the Company in this Agreement and in
each of the other Transaction Documents shall be true and correct in all
material respects as of the Closing Date, except for representations and
warranties that speak as of a particular date, which shall be true and correct
in all material respects as of such date.
(b) Performance by the Company. The Company shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing Date.
(c) No Suspension, Etc. Trading in the Common Stock shall not have
been suspended by the Commission (except for any suspension of trading of
limited duration agreed to by the Company, which suspension shall be
terminated prior to the Closing), and, at any time prior to the Closing Date,
trading in securities generally as reported by Bloomberg Financial Markets
("Bloomberg") shall not have been suspended or limited, or minimum prices
shall not have been established on securities whose trades are reported by
Bloomberg, nor shall a banking moratorium have been declared either by the
United States or Florida State authorities, nor shall there have occurred any
national or international calamity or crisis of such magnitude in its effect
on any financial market which, in each case, in the reasonable judgment of the
Purchasers, makes it impracticable or inadvisable to purchase the Notes, the
Warrants and the AIRs.
(d) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction
which prohibits the consummation of any of the transactions contemplated by
this Agreement.
(e) No Proceedings or Litigation. No action, suit or proceeding before
any arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been threatened,
against the Company or any Subsidiary, or any of the officers, directors or
affiliates of the Company or any Subsidiary, seeking to restrain, prevent or
change the transactions contemplated by this Agreement, or seeking damages in
connection with such transactions.
(f) Opinion of Counsel, Etc. The Purchasers shall have received an
opinion of counsel to the Company, dated the Closing Date, in the form of
Exhibit E hereto, and such other certificates and documents as the Purchasers
or their counsel shall reasonably require incident to the Closing.
(g) Notes, Warrants and AIRs. The Company shall have delivered to the
Purchasers the originally executed Notes, Warrants and AIRs (in such
denominations as each Purchaser may request) being acquired by the Purchasers
in accordance with Section 3.10.
(h) Resolutions. The Board of Directors of the Company shall have
adopted resolutions consistent with Section 2.1(b) hereof in a form reasonably
acceptable to the Purchasers (the "Resolutions").
(i) Reservation of Shares. As of the Closing Date, the Company shall
have reserved out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Notes and the exercise of the
Warrants and the AIRs, a number of shares of Common Stock equal to (A) the
number of Conversion Shares issuable upon conversion of the Notes, assuming
the Notes were issued on the Closing Date (after giving effect to the Notes to
be issued on the Closing Date and assuming the Notes were fully convertible on
such date regardless of any limitation on the timing or amount of such
conversion), plus (B) the number of Warrant Shares issuable upon exercise of
the Warrants, assuming the Warrants were issued on the Closing Date (after
giving effect to the Warrants to be issued on the Closing Date and assuming
the Warrants were fully exercisable on such date regardless of any limitation
on the timing or amount of such exercises), plus (C) the number of AIR Shares
issuable upon exercise of the AIRs, assuming the AIRs were issued on the
Closing Date (after giving effect to the AIRs to be issued on the Closing Date
and assuming the AIRs were fully exercisable on such date regardless of any
limitation on the timing or amount of such exercises).
(j) Secretary's Certificate. The Company shall have delivered to the
Purchasers a secretary's certificate, dated as of the Closing Date, as to (i)
the Resolutions, (ii) the Articles and the Bylaws, each as in effect at the
Closing, and (iii) the authority and incumbency of the officers of the Company
executing the Transaction Documents and any other documents required to be
executed or delivered in connection therewith.
(k) Officer's Certificate. On the Closing Date, the Company shall have
delivered to the Purchasers a certificate of an executive officer of the
Company, dated as of the Closing Date, confirming the accuracy of the
Company's representations, warranties and covenants as of the Closing Date and
confirming the compliance by the Company with the conditions precedent set
forth in this Section 4.2 as of the Closing Date.
(l) Fees and Expenses. As of the Closing Date, all fees and expenses
required to be paid by the Company shall have been or authorized to be paid by
the Company as of the Closing Date.
(m) Registration Rights Agreement. As of the Closing Date, the Company
shall have entered into the Registration Rights Agreement in the Form of
Exhibit F attached hereto.
(n) Lock-Up Agreements. Each officer, director and holder of 10% or
more of the Common Stock shall have executed and delivered to the Purchasers a
Lock-Up Agreement in the form attached hereto as Exhibit G.
(o) Security Agreement. As of the Closing Date, the relevant parties
shall have entered into the Security Agreement in the Form of Exhibit H
attached hereto.
(p) Material Adverse Effect. No Material Adverse Effect shall have
occurred.
ARTICLE V
Transfer Restrictions and Legends
Section 5.1 (a) The Securities may only be disposed of 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
Company, to an Affiliate of a Purchaser or in connection with a pledge
permitted by Section 5.1(b), the Company may require the transferor thereof to
provide to the Company an opinion of counsel selected by the transferor, 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 a Purchaser under this Agreement and
the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is required by
this Section 5.1(b), of a legend on any of the Securities in the following
form:
THESE SECURITIES HAVE NOT 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 AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT. THESE SECURITIES MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN
WITH A FINANCIAL INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN
RULE 501(a) UNDER THE SECURITIES ACT.
The Company acknowledges and agrees that a Purchaser may from time to
time pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the Securities to
a financial institution that is an "accredited investor" as defined in Rule
501(a) under the Securities Act and who agrees to be bound by the provisions
of this Agreement and the Registration Rights Agreement and, if required under
the terms of such arrangement, such Purchaser may transfer pledged or secured
Securities to the pledgees or secured parties. Such a pledge or transfer would
not be subject to approval of the Company and no legal opinion of legal
counsel of the pledgee, secured party or pledgor shall be required in
connection therewith. Further, no notice shall be required of such pledge. At
the appropriate Purchaser's expense, the Company will execute and deliver such
reasonable documentation as a pledgee or secured party of Securities may
reasonably request in connection with a pledge or transfer of the Securities,
including, if the Securities are subject to registration pursuant to the
Registration Rights Agreement, the preparation and filing of any required
prospectus supplement under Rule 424(b)(3) under the Securities Act or other
applicable provision of the Securities Act to appropriately amend the list of
Selling Stockholders thereunder, if required.
(c) Certificates evidencing the Conversion Shares, the Warrant Shares
and AIR Shares shall not contain any legend (including the legend set forth in
Section 5.1(b)), (i) while a registration statement (including the
Registration Statement) covering the resale of such security is effective
under the Securities Act, or (ii) following any sale of such Conversion
Shares, Warrant Shares or AIR Shares pursuant to Rule 144, or (iii) if such
Conversion Shares, Warrant Shares or AIR Shares are eligible for sale under
Rule 144(k), or (iv) if 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 a legal opinion to the Company's transfer agent promptly
after the Effectiveness Date (as defined in the Registration Rights Agreement)
if required by the Company's transfer agent to effect the removal of the
legend hereunder. If all or any portion of a Note, Warrant or AIR is converted
or exercised at a time when there is an effective registration statement to
cover the resale of the Conversion Shares, Warrant Shares or the AIR Shares,
such Conversion Shares, Warrant Shares or AIR Shares shall be issued free of
all legends. The Company agrees that following the Effectiveness Date or at
such time as such legend is no longer required under this Section 5.1(c), it
will, no later than three (3) Business Days following the delivery by a
Purchaser to the Company or the Company's transfer agent of a certificate
representing Conversion Shares, Warrant Shares or AIR Shares, as the case may
be, issued with a restrictive legend (such date, the "Legend Removal Date"),
deliver or cause to be delivered to such Purchaser a certificate representing
such Securities that is free from all restrictive and other legends. The
Company may not make any notation on its records or give instructions to any
transfer agent of the Company that enlarge the restrictions on transfer set
forth in this Section 5.1.
(d) In addition to such Purchaser's other available remedies, the
Company shall pay to a Purchaser, in cash, as liquidated damages and not as a
penalty, for each $1,000 of Conversion Shares, Warrant Shares and/or AIR
Shares (based on the closing price of the Common Stock on the date such
Securities are submitted to the Company's transfer agent) subject to Section
5.1(c), $10 per Business Day (increasing to $20 per Business Day five (5)
Business Days after such damages have begun to accrue) for each Business Day
commencing two (2) Business Days after the Legend Removal Date until such
certificate is delivered in proper form. Nothing herein shall limit such
Purchaser's right to pursue actual damages for the Company's failure to
deliver certificates representing any Securities as required by the
Transaction Documents, and such Purchaser shall have the right to pursue all
remedies available to it at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief.
(e) Each Purchaser, severally and not jointly with the other
Purchasers, agrees that the removal of the restrictive legend from
certificates representing Securities as set forth in this Section 5.1 is
predicated upon the Company's reliance that the Purchaser will sell any
Securities pursuant to either the registration requirements of the Securities
Act, including any applicable prospectus delivery requirements, or an
exemption therefrom.
ARTICLE VI
Termination
Section 6.1 Termination by Mutual Consent. This Agreement may be
terminated at any time prior to the Closing Date by the mutual written consent
of the Company and the Purchasers.
Section 6.2 Effect of Termination. In the event of termination by the
Company or the Purchasers, written notice thereof shall forthwith be given to
the other party and the transactions contemplated by this Agreement shall be
terminated without further action by any party. If this Agreement is
terminated as provided in Section 6.1 herein, this Agreement shall become void
and of no further force and effect, except for Sections 8.1 and 8.2, and
Article VII herein. Nothing in this Section 6.2 shall be deemed to release
the Company or any Purchaser from any liability for any breach under this
Agreement, or to impair the rights of the Company or such Purchaser to compel
specific performance by the other party of its obligations under this
Agreement.
ARTICLE VII
Indemnification
Section 7.1 General Indemnity. The Company agrees to indemnify and
hold harmless each Purchaser (and its respective directors, officers,
employees, affiliates, agents, successors and assigns) from and against any
and all losses, liabilities, deficiencies, costs, damages and expenses
(including, without limitation, reasonable attorneys' fees, charges and
disbursements) incurred by each Purchaser or any such Person as a result of
any inaccuracy in or breach of the representations, warranties or covenants
made by the Company herein. Each Purchaser, severally but not jointly with any
other Purchaser, agrees to indemnify and hold harmless the Company (and its
directors, officers, employees, affiliates, agents, successors and assigns)
from and against any and all losses, liabilities, deficiencies, costs, damages
and expenses (including, without limitation, reasonable attorneys' fees,
charges and disbursements) incurred by the Company or any such Person as
result of any inaccuracy in or breach of the representations or warranties
made by such Purchaser in Section 2.2 hereof (for the avoidance of doubt, no
Purchaser shall (i) be liable to, indemnify or hold harmless any other
Purchaser, or (ii) be liable to, indemnify or hold harmless the Company (or
any of its directors, officers, employees, affiliates, agents, successors and
assigns) for any loss, liability, deficiency, cost, damage or expense
(including, without limitation, any attorneys' fee, charge or disbursement)
arising from the acts, omissions, representations or warranties of any other
Purchaser).
Section 7.2 Indemnification Procedure. Any party entitled to
indemnification under this Article VII (an "indemnified party") will give
written notice to the indemnifying party of any matters giving rise to a claim
for indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VII except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party may exist with respect to such action, proceeding
or claim, to assume the defense thereof with counsel reasonably satisfactory
to the indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such Person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then
the indemnified party may, at its option, defend, settle or otherwise
compromise or pay such action or claim. In any event, unless and until the
indemnifying party elects in writing to assume and does so assume the defense
of any such claim, proceeding or action, the indemnified party's costs and
expenses arising out of the defense, settlement or compromise of any such
action, claim or proceeding shall be losses subject to indemnification
hereunder. The indemnified party shall cooperate fully with the indemnifying
party in connection with any negotiation or defense of any such action or
claim by the indemnifying party and shall furnish to the indemnifying party
all information reasonably available to the indemnified party which relates to
such action or claim. The indemnifying party shall keep the indemnified party
fully apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. If the indemnifying party elects to defend
any such action or claim, then the indemnified party shall be entitled to
participate in such defense with counsel of its choice at its sole cost and
expense. The indemnifying party shall not be liable for any settlement of any
action, claim or proceeding effected without its prior written consent.
Notwithstanding anything in this Article VII to the contrary, the indemnifying
party shall not, without the indemnified party's prior written consent, settle
or compromise any claim or consent to entry of any judgment in respect thereof
which imposes any future obligation on the indemnified party or which does not
include, as an unconditional term thereof, the giving by the claimant or the
plaintiff to the indemnified party of a release from all liability in respect
of such claim. The indemnification required by this Article VII shall be made
by periodic payments of the amount thereof during the course of investigation
or defense, as and when bills are received or expense, loss, damage or
liability is incurred, so long as the indemnified party irrevocably agrees to
refund such moneys if it is ultimately determined by a court of competent
jurisdiction that such party was not entitled to indemnification. The
indemnity agreements contained herein shall be in addition to (a) any cause of
action or similar rights of the indemnified party against the indemnifying
party or others, and (b) any liabilities the indemnifying party may be subject
to pursuant to the law.
ARTICLE VIII
Miscellaneous
Section 8.1 Fees and Expenses. Each party shall pay the fees and
expenses of its advisors, 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; provided,
however, that the Company shall pay a flat $40,000 to Gryphon Master Fund,
L.P. ("Gryphon"), the lead Purchaser, to reimburse Gryphon for the fees and
expenses (including attorneys' fees and expenses) incurred by it in connection
with its due diligence review of the Company and the preparation, negotiation,
execution, delivery and performance of this Agreement and the other
Transaction Documents and the transactions contemplated thereunder (including
Gryphon's counsel's review of the Registration Statement (as contemplated by
the Registration Rights Agreement) as special counsel to Purchasers), $20,000
of which has already been paid and is non-refundable, and the remaining
$20,000 of which shall be due and payable in cash at Closing (and only if the
Closing occurs). If the Closing occurs, the Company hereby authorizes and
directs Gryphon to deduct $20,000 from the Purchase Price to be paid by
Gryphon at Closing in payment and satisfaction of such remaining $20,000 due
and payable by the Company at Closing. In addition, the Company shall pay all
fees and expenses incurred by the Purchasers in connection with any
amendments, modifications or waivers of this Agreement or any of the other
Transaction Documents or incurred in connection with the enforcement of this
Agreement and any of the other Transaction Documents, following a breach by
the Company of this Agreement or any of the other Transaction Documents,
including, without limitation, all attorneys' fees, disbursements and
expenses.
Section 8.2 Specific Enforcement; Consent to Jurisdiction.
(a) The Company and the Purchasers acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement or the other Transaction Documents were not performed in accordance
with their specific terms or were otherwise breached. It is accordingly
agreed that the parties shall be entitled to an injunction or injunctions to
prevent or cure breaches of the provisions of this Agreement or the other
Transaction Documents and to enforce specifically the terms and provisions
hereof or thereof, this being in addition to any other remedy to which any of
them may be entitled by law or equity.
(b) The Company and each Purchaser (i) hereby irrevocably submit to
the exclusive jurisdiction of the United States District Court sitting in the
Northern District of Texas and the courts of the State of Texas located in
Dallas, Texas, for the purposes of any suit, action or proceeding arising out
of or relating to this Agreement or any of the other Transaction Documents or
the transactions contemplated hereby or thereby, (ii) hereby waive, and agree
not to assert in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper, and (iii) hereby waive any and all rights
they may have to a trial by jury with respect to any suit, action or
proceeding based on, or arising out of, under, or in connection with, this
Agreement. The Company and each Purchaser consent 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 in this Section 8.2 shall affect or limit any right to
serve process in any other manner permitted by law. The Company and the
Purchasers hereby agree that the prevailing party in any suit, action or
proceeding arising out of or relating to the Notes, the Warrants, the AIRs or
any Transaction Document shall be entitled to reimbursement for reasonable
legal fees from the non-prevailing party.
Section 8.3 Entire Agreement; Amendment. This Agreement and the
Transaction Documents contain the entire understanding and agreement of the
parties with respect to the matters covered hereby and, except as specifically
set forth herein or in the other Transaction Documents, neither the Company
nor any Purchaser make any representation, warranty, covenant or undertaking
with respect to such matters, and they supersede all prior understandings and
agreements with respect to said subject matter, all of which are merged
herein. No provision of this Agreement may be waived or amended other than by
a written instrument signed by the Company and the holders of at least 85% in
principal amount of the then-outstanding Notes, and no provision hereof may be
waived other than by a written instrument signed by the party against whom
enforcement of any such amendment or waiver is sought. No such amendment
shall be effective to the extent that it applies to less than all of the
holders of the Notes then outstanding. No consideration shall be offered or
paid to any Person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents or holders of
Notes, as the case may be. Notwithstanding the foregoing or any other
provision of this Agreement to the contrary, in no event may Section 3.13
hereof be amended under any circumstances whatsoever.
Section 8.4 Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telecopy or facsimile at the
address or number designated below (if delivered on a Business Day during
normal business hours where such notice is to be received), or the first
Business Day following such delivery (if delivered other than on a Business
Day during normal business hours where such notice is to be received), or (b)
on the second Business Day following the date of mailing by express courier
service, fully prepaid, addressed to such address, or upon actual receipt of
such mailing, whichever shall first occur. The addresses for such
communications shall be:
If to the Company: Broadcast International, Inc.
7050 Union Park Avenue, Suite 600
Salt Lake City, Utah 84047
Attention: Rodney M. Tiede, President & CEO
Telecopier: (801) 562-1773
with copies (which copies
shall not constitute notice
to the Company) to: Broadcast International, Inc.
7050 Union Park Avenue, Suite 600
Salt Lake City, Utah 84047
Attention: Reed Benson, Esq.
Telecopier: (801) 562-1773
If to any Purchaser: At the address of such Purchaser set forth on
Exhibit A to this Agreement.
Any party hereto may from time to time change its address for notices by
giving at least ten (10) days written notice of such changed address to the
other party hereto.
Section 8.5 Waivers. No waiver by any party 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
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.
Section 8.6 Headings. The article, section and subsection headings in
this Agreement are for convenience only and shall not constitute a part of
this Agreement for any other purpose and shall not be deemed to limit or
affect any of the provisions hereof.
Section 8.7 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
After the Closing, the assignment by a party to this Agreement of any rights
hereunder shall not affect the obligations of such party under this Agreement.
After the Closing, the Purchasers, in compliance with all applicable
securities laws, may assign the Notes, the Warrants, the AIRs and their rights
under this Agreement and the other Transaction Documents and any other rights
hereto and thereto without the consent of the Company, and any such assignee
shall be deemed to be a "Purchaser" under this Agreement.
Section 8.8 No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted
successors and assigns and is not for the benefit of, nor may any provision
hereof be enforced by, any other Person (other than indemnified parties, as
contemplated by Article VII).
Section 8.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Texas, without
giving effect to the choice of law provisions. This Agreement shall not be
interpreted or construed with any presumption against the party causing this
Agreement to be drafted.
Section 8.10 Survival. The representations and warranties of the
Company and the Purchasers contained in Sections 2.1(o) and 2.1(s) shall
survive indefinitely and those contained in Article II, with the exception of
Sections 2.1(o) and 2.1(s), shall survive the execution and delivery hereof
and the Closing until the date two (2) years from the Closing Date, and the
agreements and covenants set forth in Articles I, III, V, VII and VIII of this
Agreement shall survive the execution and delivery hereof and the Closing
hereunder.
Section 8.11 Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and
the same instrument and shall become effective when counterparts have been
signed by each party and delivered to the other parties hereto, it being
understood that all parties need not sign the same counterpart.
Section 8.12 Publicity. The Company agrees that it will not disclose,
and will not include in any public announcement, the names of the Purchasers
without the consent of the Purchasers in accordance with Section 8.3, which
consent shall not be unreasonably withheld or delayed, or unless and until
such disclosure is required by law, rule or applicable regulation, and then
only to the extent of such requirement.
Section 8.13 Severability. The provisions of this Agreement are
severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision
of this Agreement and this Agreement shall be reformed and construed as if
such invalid or illegal or unenforceable provision, or part of such provision,
had never been contained herein, so that such provisions would be valid, legal
and enforceable to the maximum extent possible.
Section 8.14 Further Assurances. From and after the date of this
Agreement, upon the request of the Purchasers or the Company, the Company and
each Purchaser shall execute and deliver such instruments, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement and the
other Transaction Documents.
Section 8.15 Independent Nature of Purchasers' Obligations and Rights.
The obligations of each Purchaser under any Transaction Document are several
and not joint with the obligations of any other Purchaser, and no Purchaser
shall be responsible in any way for the performance of the obligations of any
other Purchaser under any Purchaser Transaction Document. Nothing contained
herein or in any other Purchaser Transaction Document, and no action taken by
any Purchaser pursuant hereto or thereto, shall be deemed to constitute the
Purchasers as a partnership, an association, a joint venture or any other kind
of entity, or create a presumption that the Purchasers are in any way acting
in concert or as a group with respect to such obligations or the transactions
contemplated by the Transaction Documents. Each Purchaser confirms that it has
independently participated in the negotiation of the transactions contemplated
hereby with the advice of its own counsel and advisors. Each Purchaser shall
be entitled to independently protect and enforce its rights, including,
without limitation, the rights arising out of this Agreement or out of any
other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose. Each Purchaser (other than Gryphon and GSSF Master Fund, LP ("GSSF"))
hereby agrees and acknowledges that (a) Warren W. Garden, P.C. was retained
solely by Gryphon and GSSF in connection with their due diligence review of
the Company and the preparation, negotiation, execution, delivery and
performance of this Agreement and the other Transaction Documents and the
transactions contemplated thereunder, and in such capacity has provided legal
services solely to Gryphon and GSSF, (b) Warren W. Garden, P.C. has not
represented, nor will it represent, any Purchaser (other than Gryphon and
GSSF) in connection with the preparation, negotiation, execution, delivery and
performance of this Agreement or the other Transaction Documents or the
transactions contemplated thereunder, and (c) each Purchaser (other than
Gryphon and GSSF) should, if it wishes counsel with respect to the
preparation, negotiation, execution, delivery and performance of this
Agreement or the other Transaction Documents or the transactions contemplated
thereunder, retain its own independent counsel with respect thereto.
[Remainder of page intentionally left blank. Signature pages to follow.]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the date first above
written.
BROADCAST INTERNATIONAL, INC.
/s/ Rodney M. Tiede
By:_____________________________________
Name: Rodney M. Tiede
Title: President & CEO
[Signatures of Purchasers to follow on next pages.]
PURCHASERS:
GRYPHON MASTER FUND, L.P.
By: Gryphon Partners, L.P., its General Partner
By: Gryphon Management Partners, L.P., its General Partner
By: Gryphon Advisors, L.L.C., its General Partner
By: __________________________________________
E.B. Lyon, IV, Authorized Agent
[ ] Check box and initial if the foregoing Purchaser wishes to
waive the provisions of Section 3.13(a). ______ (initial
here)
GSSF MASTER FUND, LP
By: Gryphon Special Situations Fund, LP, its General Partner
By: GSSF Management Partners, LP, its General Partner
By: GSSF, LLC, its General Partner
By: ___________________________________________
E.B. Lyon, IV, Authorized Agent
[ ] Check box and initial if the foregoing Purchaser wishes to
waive the provisions of Section 3.13(a). ______ (initial
here)
[insert other Purchasers]
EXHIBIT A
LIST OF PURCHASERS
- ----------------------------------------------------------------------------------------------------------
Principal
Amount
of Notes Dollar
Number of Number of Representing Amount of
Names and Addresses Principal Amount Series A Warrants Series B Warrants AIR's Initial
of Purchasers of Notes Purchased Purchased Purchased Purchased Investment
- ---------------------- ------------------ ------------------ ------------------ ------------- -----------
Gryphon Master Fund, $ 1,000,000 200,000 200,000 $ 1,000,000 $ 1,000,000
L.P.
100 Crescent Court
Suite 490
Dallas, Texas 75201
Fax No.:(214)871-6711
Attn: Ryan R. Wolters
With a copy to:
Warren W. Garden, P.C.
100 Crescent Court,
Suite 490
Dallas, Texas 75201
Fax No.:(214)871-6711
Attn: Warren W. Garden, Esq.
- ----------------------------------------------------------------------------------------------------------
GSSF Master Fund, LP $ 500,000 100,000 100,000 $ 500,000 $ 500,000
100 Crescent Court
Suite 475
Dallas, Texas 75201
Fax No.: (214) 871-6711
Attn: Timothy M. Stobaugh
With a copy to:
Warren W. Garden, P.C.
100 Crescent Court,
Suite 490
Dallas, Texas 75201
Fax No.:(214)871-6711
Attn: Warren W. Garden, Esq.
- ----------------------------------------------------------------------------------------------------------
Bushido Capital Master $ 750,000 150,000 150,000 $ 750,000 $ 750,000
Fund, LP
275 Seventh Avenue,
Suite 2000
New York, New York 10001
Fax:(646)486-6885
Attn.: Christopher
Rossman
With a copy to:
Feldman Weinstein LLP
420 Lexington Avenue,
Suite 2620
New York, New York 10170
Fax No.:(212)997-4242
Attn: Joseph A. Smith, Esq.
- ----------------------------------------------------------------------------------------------------------
Gamma Opportunity
Capital Partners LP $ 750,000 150,000 150,000 $ 750,000 $ 750,000
Partners, LP
605 Crescent Executive
Court, Suite 416
Lake Mary, Florida 32746
Fax: (407) 771-4419
Attn.: Jonathan P. Knight, PhD
With a copy to:
Feldman Weinstein LLP
420 Lexington Avenue,
Suite 2620
New York, New York
10170
Fax No.: (212) 997-4242
Attn: Joseph A. Smith, Esq.
- ----------------------------------------------------------------------------------------------------------
Totals $ 3,000,000 600,000 600,000 $ 3,000,000 $ 3,000,000
- ---------------------------------------------------------------------------------------------------------
A-1
EXHIBIT B
FORM OF NOTE
B-1
EXHIBIT C-1
FORM OF SERIES A WARRANT
C-1
EXHIBIT C-2
FORM OF SERIES B WARRANT
C-2
EXHIBIT D
FORM OF AIR
D-1
EXHIBIT E
FORM OF OPINION
1. The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Utah and has the requisite
corporate power to own, lease and operate its properties and assets, and to
carry on its business as presently conducted. The Company is duly qualified
as a foreign corporation to do business and is in good standing in every
jurisdiction in which the failure to so qualify would have a Material Adverse
Effect.
2. The Company has the requisite corporate power and authority to enter
into and perform its obligations under the Transaction Documents and to issue
the Notes, the Warrants, the AIRs, the Conversion Shares, the Warrant Shares
and the AIR Shares. The execution, delivery and performance of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby have been duly and validly authorized by all
necessary corporate action and no further consent or authorization of the
Company or its Board of Directors is required. Each of the Transaction
Documents have been duly executed and delivered, and the Notes, the Warrants
and the AIRs have been duly executed, issued and delivered by the Company and
each of the Transaction Documents constitutes a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with
its respective terms. The issuance of the Conversion Shares, the Warrant
Shares and the AIR Shares will not trigger any preemptive rights under the
Articles or the Bylaws.
3. The Notes, Warrants and AIRs have been duly authorized and, when
delivered against payment in full as provided in the Purchase Agreement, will
be validly issued, fully paid and nonassessable. The Conversion Shares have
been duly authorized and reserved for issuance, and, when delivered upon
conversion or against payment in full as provided in the Notes, will be
validly issued, fully paid and nonassessable. The Warrant Shares have been
duly authorized and reserved for issuance, and, when delivered upon exercise
or against payment in full as provided in the Warrants, will be validly
issued, fully paid and nonassessable. The AIR Shares have been duly authorized
and reserved for issuance, and, when delivered upon exercise or against
payment in full as provided in the AIRs, will be validly issued, fully paid
and nonassessable.
4. The execution, delivery and performance of and compliance with the
terms of the Transaction Documents and the issuance of the Notes, the
Warrants, the AIRs, the Conversion Shares, the Warrant Shares and the AIR
Shares do not (a) violate any provision of the Articles or Bylaws, (b)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material
agreement, mortgage, deed of trust, indenture, note, bond, license, lease
agreement, instrument or obligation to which the Company is a party and which
is known to us, (c) create or impose a lien, charge or encumbrance on any
property of the Company under any agreement or any commitment known to us to
which the Company is a party or by which the Company is bound or by which any
of its respective properties or assets are bound, or (d) result in a violation
of any Federal, state, local or foreign statute, rule, regulation, order,
judgment, injunction or decree (including Federal and state securities laws
and regulations) applicable to the Company or by which any property or asset
of the Company is bound or affected, except, in all cases other than
violations pursuant to clauses (a) and (d) above, for such conflicts, default,
terminations, amendments, acceleration, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect.
5. No consent, approval or authorization of or designation, declaration
or filing with any governmental authority on the part of the Company is
required under Federal, state or local law, rule or regulation in connection
with the valid execution, delivery and performance of the Transaction
Documents, or the offer, sale or issuance of the Notes, the Warrants, the
AIRs, the Conversion Shares, the Warrant Shares and the AIR Shares, other than
filings as may be required by applicable Federal and state securities laws and
regulations, or the NASD rules and regulations.
6. To our knowledge, there is no action, suit, claim, investigation or
proceeding pending or threatened against the Company which questions the
validity of the Agreement or the transactions contemplated thereby or any
action taken or to be taken pursuant thereto. To our knowledge, other than as
set forth in the Schedules or the Commission Documents, there is no action,
suit, claim, investigation or proceeding pending, or threatened, against or
involving the Company or any of its properties or assets and which, if
adversely determined, is reasonably likely to result in a Material Adverse
Effect. To our knowledge, there are no outstanding orders, judgments,
injunctions, awards or decrees of any court, arbitrator or governmental or
regulatory body against the Company or any officers or directors of the
Company in their capacities as such.
7. Provided that the representations of the Purchasers under the
Transaction Documents are complete and correct, the offer, issuance and sale
of the Notes, the Warrants and the AIRs to the Purchasers, and the offer,
issuance and sale of the Conversion Shares to the Purchasers pursuant to the
Notes, the Warrant Shares to the Purchasers pursuant to the Warrants and the
AIR Shares to the Purchasers pursuant to the AIRs, are exempt from the
registration requirements of the Securities Act of 1933, as amended.
EXHIBIT F
FORM OF REGISTRATION RIGHTS AGREEMENT
F-1
EXHIBIT G
FORM OF LOCK-UP AGREEMENT
LOCK-UP AGREEMENT
Lock-Up Agreement (this "Agreement") is entered into as of May 16, 2005,
by and between Broadcast International, Inc., a Utah corporation (the
"Company"), and the shareholder of the Company named on the signature page
hereof (the "Shareholder").
RECITALS:
A. The Company and certain purchasers (the "Purchasers"), have entered
into a Securities Purchase Agreement dated as of May 16, 2005 (the "Purchase
Agreement"), pursuant to which the Purchasers have agreed to purchase, and the
Company has agreed to sell, the Company's 6% Senior Secured Convertible Notes
Due 2008 (the "Notes"), warrants to purchase shares of the Company's Common
Stock, par value $0.05 per share (the "Common Stock"), and additional
investment rights to purchase additional Notes and warrants to purchase Common
Stock.
B. Shareholder is a shareholder of the Company and owns and/or controls
shares of Common Stock (the "Shares").
C. As a condition to the Purchasers entering into the Purchase
Agreement, Shareholder has agreed to the lock-up set forth in Section 1
hereof.
D. Capitalized terms used in this Agreement but not otherwise defined
herein shall have the meanings ascribed to such terms in the Purchase
Agreement.
AGREEMENTS:
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. Lock-Up. Shareholder hereby agrees that, except as set forth in
Section 2 below, from the date hereof until the 90th day following the date
that the Registration Statement is declared effective by the Commission (the
"Lock-up Period"), without the prior written consent of the Company and the
Purchasers, he will not offer, pledge, sell, contract to sell, grant any
options for the sale of or otherwise transfer, distribute or dispose of,
directly or indirectly (collectively "Dispose of"), any Shares (the
"Lock-up"). On and after the 1st day following the last day of the Lock-up
Period, no Shares shall be subject to the Lock-up.
2. Permitted Dispositions. The following dispositions of Shares shall
not be subject to the Lock-up set forth in Section 1:
(a) Shareholder may Dispose of Shares to his spouse, siblings,
parents or any natural or adopted children or other descendants or to any
personal trust in which any such family member or Shareholder retains the
entire beneficial interest;
(b) Shareholder may Dispose of Shares on his death to Shareholder's
estate, executor, administrator or personal representative or to Shareholder's
beneficiaries pursuant to a devise or bequest or by laws of descent and
distribution;
(c) Shareholder may Dispose of Shares as a gift or other transfer
without consideration;
(d) Shareholder may make a bona fide pledge of Shares to a lender;
and
(e) Shareholder may Dispose of Shares in one or more private sales
not made pursuant to Rule 144 promulgated under the Securities Act of 1933, as
amended.
provided, however, that in the case of any transfer of Shares pursuant to this
Section 2 the transferor shall, at the request of the Company, provide
evidence (which may include, without limitation, an opinion of counsel
satisfactory in form, scope and substance to the Company in its sole
discretion as the issuer thereof) satisfactory to the Company that the
transfer is exempt from the registration requirements of the Securities Act of
1933, as amended.
In the event Shareholder Disposes of Shares described in this Section 2,
such Shares shall remain subject to this Agreement and, as a condition of the
validity of such disposition, the transferee shall be required to execute and
deliver a counterpart of this Agreement. Thereafter, such transferee shall be
deemed to be the Shareholder for purposes of this Agreement.
3. Miscellaneous.
(a) Amendments and Waivers. The provisions of this Agreement may
not be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given other than as initially
agreed upon in writing by the Company, Shareholder and the Purchasers.
(b) Successors and Assigns. Shareholder shall not assign any rights
or benefits under this Agreement without the prior written consent of the
Company and the Purchasers.
(c) Counterparts. This Agreement may be executed in a number of
identical counterparts and it shall not be necessary for the Company and
Shareholder to execute each of such counterparts, but when each has executed
and delivered one or more of such counterparts, the several parts, when taken
together, shall be deemed to constitute one and the same instrument,
enforceable against each in accordance with its terms. In making proof of this
Agreement, it shall not be necessary to produce or account for more than one
such counterpart executed by the party against whom enforcement of this
Agreement is sought.
(d) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(e) Governing Law; Venue. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OR CHOICE OF LAW. The Company and Shareholder (i)
hereby irrevocably submit to the non-exclusive jurisdiction of the United
States District Court sitting in the Northern District of Texas and the courts
of the State of Texas located in Dallas County for the purposes of any suit,
action or proceeding arising out of or relating to this Agreement, (ii) hereby
waive, and agree not to assert in any such suit, action or proceeding, any
claim that he or it is not personally subject to the jurisdiction of such
court, that the suit, action or proceeding is brought in an inconvenient forum
or that the venue of the suit, action or proceeding is improper, and (iii)
hereby waive any and all rights they may have to a trial by jury with respect
to any suit, action or proceeding based on, or arising out of, under, or in
connection with, this Agreement.
(f) Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective
during the term of this Agreement, such provision shall be fully severable;
this Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part of this Agreement; and the
remaining provisions of this Agreement shall remain in full force and effect
and shall not be affected by the illegal, invalid or unenforceable provision
or by its severance from this Agreement. Furthermore, in lieu of each such
illegal, invalid or unenforceable provision, there shall be added
automatically as a part of this Agreement a provision as similar in terms to
such illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable.
(g) Entire Agreement. This Agreement is intended by the Company and
the Shareholder as a final expression of their agreement and is intended to be
a complete and exclusive statement of their agreement and understanding in
respect of the subject matter contained herein. This Agreement supersedes all
prior agreements and understandings between the Company and the Shareholder
with respect to such subject matter.
(h) Third Party Beneficiaries. This Agreement is intended for the
benefit of the Company, Shareholder and the Purchasers 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 or entity. The Company and
Shareholder each specifically acknowledge and agree that each Purchaser is a
third party beneficiary of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
BROADCAST INTERNATIONAL, INC.
By: ______________________________________
Rodney M. Tiede, President & CEO
"SHAREHOLDER":
Name: _____________________________________
By: _______________________________________
(signature)
Title of signatory: _______________________
(if not an individual)
EXHIBIT H
FORM OF SECURITY AGREEMENT
H-1