SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT ("Agreement") dated as of April __, 2000
between GenesisIntermedia.com, Inc., a Delaware corporation (the "Company"), and
Elliott Associates, L.P., a Delaware limited partnership, and Westgate
International, L.P., a Cayman Islands limited partnership (individually and
collectively, the "Investor").
W I T N E S S E T H:
Whereas, the Company desires to sell and issue to the Investor, and the
Investor wishes to purchase from the Company, an aggregate of 4,000 shares of
the Company's Series B Cumulative Convertible Preferred Stock, liquidation
preference $1,000 per share (all of such shares being the "Preferred Shares"),
having the rights, designations and preferences set forth in the Certificate of
Designations (the "Certificate") in the form of Exhibit A attached hereto, and
Warrants (the "Warrants"), in the form of Exhibit B to attached hereto, to
purchase Common Shares (as defined below), on the terms and conditions set forth
herein; and
Whereas, the Preferred Shares will be convertible into shares ("Common
Shares") of common stock, par value $0.001, of the Company ("Common Stock"),
pursuant to the terms of the Certificate, and the Investor will have
registration rights with respect to the Common Shares issuable upon conversion
of the Preferred Shares and exercise of the Warrants, pursuant to the terms of
that certain Registration Rights Agreement to be entered into between the
Company and the Investor substantially in the form of Exhibit C hereto
("Registration Rights Agreement");
Now, Therefore, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
Article I
Purchase and Sale of Preferred Shares
Section 1.1 Issuance of Preferred Shares and Warrants. Upon the following
terms and conditions, the Company shall issue and sell to the Investor, and the
Investor shall purchase from the Company, the number of Preferred Shares and
Warrants indicated next to the Investor's name on Schedule I attached hereto.
Section 1.2 Purchase Price. The purchase price for the Preferred Shares and
Warrants to be acquired by the Investor (the "Purchase Price") shall be the
Purchase Price set forth next to the Investor's name on Schedule I.
Section 1.3 The Closing.
(a) Timing. Subject to the fulfillment or waiver of the conditions set
forth in Article V hereof, the purchase and sale of the Preferred Shares and
Warrants shall take place at a closing (the "Closing"), on or about April
______, 2000 or such other date as the Investor and the Company may agree upon
(the "Closing Date").
(b) Form of Payment. Each Investor shall pay their respective purchase
price for the Preferred Shares and Warrants by wire transfer to the account or
accounts designated by the Company upon delivery by the Company to the
Investors' counsel of the applicable Preferred Shares and Warrants and upon
satisfaction of the other conditions to the Closing. In addition, each party
shall deliver all documents, instruments and writings required to be delivered
by such party pursuant to this Agreement at or prior to the Closing.
Article II
Representations and Warranties
Section 2.1 Representations and Warranties of the Company. The Company
hereby makes the following representations and warranties to the Investor as of
the date hereof and the Closing Date:
(a) Organization and Qualification; Material Adverse Effect. The Company is
a corporation duly incorporated and existing in good standing under the laws of
the State of Delaware and has the requisite corporate power to own its
properties and to carry on its business as now being conducted. The Company does
not have any subsidiaries other than the subsidiaries listed on Schedule 2.1(a)
attached hereto ("Subsidiaries"). Except where specifically indicated to the
contrary, all references in this Agreement to subsidiaries shall be deemed to
refer to all direct and indirect subsidiaries of the Company. The Company is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary other than those in which the
failure so to qualify would not have a Material Adverse Effect. "Material
Adverse Effect" means any adverse effect on the business, operations,
properties, prospects or financial condition of the Company and its
subsidiaries, if any, and which is (either alone or together with all other
adverse effects) material to the Company and its Subsidiaries, if any, taken as
a whole, and any material adverse effect on the transactions contemplated under
this Agreement, the Certificate and the Registration Rights Agreement, or any
other agreement or document contemplated hereby or thereby.
(b) Authorization; Enforcement. (i) The Company has all requisite corporate
power and authority to enter into and perform this Agreement, the Certificate,
the Registration Rights Agreement, the Warrants and the Escrow Agreement
("Transaction Documents") and to issue the Preferred Shares and the Warrants in
accordance with the terms hereof, (ii) the execution and delivery of this
Agreement, the Registration Rights Agreement, the Warrants and the Escrow
Agreement by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including the issuance of the Preferred Shares
and Warrants and the resolutions contained in the Certificate, have been duly
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authorized by all necessary corporate action, and no further consent or
authorization of the Company or its Board of Directors (or any committee or
subcommittee thereof) or stockholders is required, (iii) this Agreement, the
Registration Rights Agreement, the Warrants and the Escrow Agreement have been
duly executed and delivered by the Company, (iv) this Agreement, the
Certificate, the Registration Rights Agreement, the Warrants and the Escrow
Agreement constitute valid and binding obligations of the Company enforceable
against the Company in accordance with their terms, except (A) as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of creditors' rights and remedies or by
other equitable principles of general application, and (B) to the extent the
indemnification provisions contained in this Agreement and the Registration
Rights Agreement may be limited by applicable federal or state securities laws
and (v) the Preferred Shares, the Warrants and the Common Shares issuable upon
the conversion and/or exercise thereof have been duly authorized and, upon
issuance thereof and payment therefor in accordance with the terms of this
Agreement, the Preferred Shares, the Warrants and the Common Shares issuable
upon the conversion and/or exercise thereof will be validly issued, fully paid
and non-assessable, free and clear of any and all liens, claims and
encumbrances.
(c) Capitalization. As of the date hereof, the authorized capital stock of
the Company consists of (i) 25,000,000 shares of Common Stock, of which as of
the date hereof, [5,299,600] shares are issued and outstanding, _________ shares
are issuable and reserved for issuance pursuant to the Company's stock option
and purchase plans and _________ shares are issuable and reserved for issuance
pursuant to securities exercisable or exchangeable for, or convertible into,
shares of Common Stock, and (ii) 5,000,000 shares of preferred stock, of which
as of the date hereof no shares designated as Series A Convertible Preferred
Stock are issued and outstanding and 4,000 preferred shares have been designated
as Series B Cumulative Convertible Preferred Stock. All of such outstanding
shares have been, or upon issuance will be, validly issued, fully paid and
nonassessable. As of the date hereof, except as disclosed in Schedule 2.1(c),
(i) no shares of the Company's capital stock are subject to preemptive rights or
any other similar rights or any liens or encumbrances suffered or permitted by
the Company, (ii) there are no outstanding debt securities, (iii) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its Subsidiaries, (iv) there
are no agreements or arrangements under which the Company or any of its
Subsidiaries is obligated to register the sale of any of their securities under
the Securities Act of 1933, as amended ("Securities Act" or "1933 Act") (except
the Registration Rights Agreement, (v) there are no outstanding securities of
the Company or any of its Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to redeem a security of the Company or any of its Subsidiaries, (vi) there
are no securities or instruments containing anti-dilution or similar provisions
that will be triggered by the issuance of the Preferred Shares or the Warrants
as described in this Agreement, the Certificate or the Warrants and (vii) the
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Company does not have any stock appreciation rights or "phantom stock" plans or
agreements or any similar plan or agreement. The Company has furnished to the
Investor true and correct copies of the Company's Certificate of Incorporation,
as amended and as in effect on the date hereof (the "Certificate of
Incorporation"), and the Company's By-laws, as in effect on the date hereof (the
"By-laws"), and the terms of all securities convertible or exchangeable into or
exercisable for Common Stock and the material rights of the holders thereof in
respect thereto. All restrictions upon the shares of Common Stock contained in
Article FOURTH, Sections B(1)(b), B(1)(c) and B(1)(d) of the Company's
Certificate of Incorporation have lapsed and are of no further force and effect
pursuant to Article FOURTH, Section B(1)(f)(i) thereof. Schedule 2.1(c) also
lists all outstanding debt of the Company with sufficient detail acceptable to
Investor, including without limitation approximately $1.1 million of outstanding
debt to Merrill Lynch ("Merrill Lynch").
(d) Issuance of Shares. Upon issuance in accordance with this Agreement and
the Certificate, the Preferred Shares, Warrants and Common Shares will be
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issue thereof.
(e) No Conflicts. Except as disclosed in Schedule 2.1(e), 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
and issuance of the Preferred Shares, the Warrants and the Common Shares
underlying the Preferred Shares or the Warrants will not (i) result in a
violation of the Certificate of Incorporation, any certificate of designations,
preferences and rights of any outstanding series of preferred stock of the
Company or the By-laws; (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, indenture or instrument to which the Company or
any of its Subsidiaries is a party, or (iii) result in a violation of any law,
rule, regulation, order, judgment or decree (including United States federal and
state securities laws and regulations and the rules and regulations of the
Nasdaq National Market ("Principal Market") or principal securities exchange or
trading market on which the Common Stock is traded or listed) 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 as disclosed in
Schedule 2.1(e), neither the Company nor its Subsidiaries is in violation of any
term of, or in default under, (x) its certificate of incorporation, any
certificate of designations, preferences and rights of any outstanding series of
preferred stock or By-laws or their organizational charter or by-laws,
respectively, (y) any material contract, agreement, mortgage, indebtedness,
indenture, instrument, or (z) any judgment, decree or order or any statute, rule
or regulation applicable to the Company or its Subsidiaries, the non-compliance
with which (in the case of (z) only), would be material to the Company or its
Subsidiaries or interfere with the performance of its obligations under the
Transaction Documents. Except as specifically contemplated by this Agreement and
as required under the 1933 Act, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court, governmental agency or any regulatory or self-regulatory agency in order
for it to execute, deliver or perform any of its obligations under, or
contemplated by, the Transaction Documents or the issuance of the Preferred
Shares, the Warrants and the Common Shares underlying the Preferred Shares or
the Warrants in accordance with the terms hereof or thereof. Except as disclosed
in Schedule 2.1(e), all consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof. The
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Company complies with and is not in violation of the listing requirements of the
Principal Market as in effect on the date hereof and on each of the Closing
Dates and is not aware of any facts which would reasonably lead to delisting or
suspension of the Common Stock by the Principal Market in the foreseeable
future.
(f) SEC Documents; Financial Statements. Since June 14, 1999, the Company
has filed all reports, schedules, forms, statements and other documents required
to be filed by it with the SEC pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "1934 Act") (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents incorporated by
reference therein being hereinafter referred to as the "SEC Documents"). The
Company has delivered to the Investor or its representatives true and complete
copies of any SEC Documents that were not filed electronically via EDGAR. As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other written
information provided by or on behalf of the Company to the Investor which is not
included in the SEC Documents, including, without limitation, information
referred to in Section 2.2(b) of this Agreement, contains any untrue statement
of a material fact or omits to state any material fact necessary in order to
make the statements therein, in the light of the circumstance under which they
are or were made, not misleading. Neither the Company nor any of its
Subsidiaries or any of their officers, directors, employees or agents have
provided the Investor with any material, nonpublic information which was not
publicly disclosed prior to the date hereof.
(g) Absence of Certain Changes. Except as disclosed in Schedule 2.1(g) or
the SEC Documents filed at least thirty (30) days prior to the date hereof,
since December 31, 1998 there has been no adverse change or adverse development
in the business, properties, assets, operations, financial condition, prospects,
liabilities or results of operations of the Company or its Subsidiaries which
has had or, to the knowledge of the Company or its Subsidiaries, is reasonably
likely to have a Material Adverse Effect. The Company has not taken any steps,
and does not currently expect to take any steps, to seek protection pursuant to
any bankruptcy law nor does the Company or its Subsidiaries have any knowledge
or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings. Schedule 2.1(g) lists all material events, transactions
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and agreements which have occurred or been entered into affecting the Company
since December 31, 1999.
(h) Absence of Litigation. There is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the Company
or any of its Subsidiaries, threatened against or affecting the Company, the
Common Stock or any of the Company's Subsidiaries or any of the Company's or the
Company's Subsidiaries' officers or directors in their capacities as such, (i)
except as set forth in SEC Documents which were filed at least 10 days before
the date hereof, (ii) except as set forth in Schedule 2.1(h), and (iii) except
which individually and in the aggregate, respectively, would be reasonably
likely to result in liability to the Company in excess of $50,000 and $100,000,
respectively.
(i) Acknowledgment Regarding Investor's Purchase of Shares. The Company
acknowledges and agrees that the Investor is acting solely in the capacity of
arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby. The Company further acknowledges
that the Investor is not acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to the Transaction Documents
and the transactions contemplated hereby and thereby, and any advice given by
the Investor or any of its respective representatives or agents in connection
with the Transaction Documents and the transactions contemplated hereby and
thereby is merely incidental to the Investor's purchase of the Preferred Shares
and the Warrants. The Company further represents to the Investor that the
Company's decision to enter into the Transaction Documents has been based solely
on the independent evaluation by the Company and its representatives.
(j) No Undisclosed Events, Liabilities, Developments or Circumstances. No
event, liability, development or circumstance has occurred or exists with
respect to the Company or its Subsidiaries or their respective business,
properties, prospects, operations or financial condition, that would be required
to be disclosed by the Company under applicable securities laws on a
registration statement filed with the SEC relating to an issuance and sale by
the Company of its Common Stock and which has not been publicly disclosed.
(k) No Inside Information. The Company has not provided and, the Company
shall not provide, any Investor with any non-public information.
(l) No Integrated Offering. Neither the Company, nor any of its affiliates,
nor any person acting on its or their behalf has, directly or indirectly, made
any offers or sales of any security or solicited any offers to buy any security,
under circumstances that would cause this offering of Preferred Shares and
Warrants to the Investor to be integrated with prior offerings by the Company
for purposes of the 1933 Act or any applicable shareholder approval provisions,
including, without limitation, under the rules and regulations of the Principal
Market or other Approved Market, nor will the Company or any of its Subsidiaries
take any action or steps that would cause the offering of the Preferred Shares
to be integrated with other offerings.
(m) Employee Relations. Neither the Company nor any of its Subsidiaries is
involved in any labor dispute nor, to the knowledge of the Company or any of its
Subsidiaries, is any such dispute threatened, the effect of which would be
reasonably likely to result in a Material Adverse Effect. Neither the Company
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nor any of its Subsidiaries is a party to a collective bargaining agreement. The
Company and its Subsidiaries believe that relations between the Company and its
Subsidiaries and their respective employees are good. No executive officer (as
defined in Rule 501(f) of the 1933 Act) whose departure would be adverse to the
Company has notified the Company that such officer intends to leave the Company
or otherwise terminate such officer's employment with the Company.
(n) Intellectual Property Rights. The Company and its Subsidiaries own or
possess adequate rights or licenses to use all trademarks, trade names, service
marks, service mark registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, governmental authorizations, trade
secrets and rights necessary to conduct their respective businesses as now
conducted. Except as set forth on Schedule 2.1(n), none of the Company's
trademarks, trade names, service marks, service mark registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
government authorizations, trade secrets or other intellectual property rights
have expired or terminated, or are expected to expire or terminate within two
(2) years from the date of this Agreement. The Company and its Subsidiaries do
not have any knowledge of any infringement by the Company or its Subsidiaries of
trademark, trade name rights, patents, patent rights, copyrights, inventions,
licenses, service names, service marks, service mark registrations, trade secret
or other similar rights of others, or of any such development of similar or
identical trade secrets or technical information by others and, except as set
forth on Schedule 2.1(n), there is no claim, action or proceeding being made or
brought against, or to the Company's knowledge, being threatened against, the
Company or its Subsidiaries regarding trademarks, trade name rights, patents,
patent rights, inventions, copyrights, licenses, service names, service marks,
service mark registrations, trade secrets or other infringement. The Company and
its Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties.
(o) Environmental Laws. The Company and its Subsidiaries (i) are in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval where such noncompliance or
failure to receive permits, licenses or approvals referred to in clauses (i),
(ii) or (iii) above could have, individually or in the aggregate, a Material
Adverse Effect.
(p) Title. The Company and its Subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company and its
Subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such as are described in Schedule 2.1(p) or such as do not materially and
adversely affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company or any of its
Subsidiaries. Any real property and facilities held under lease by the Company
or any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
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with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
(q) Insurance. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company
and its Subsidiaries taken as a whole.
(r) Regulatory Permits. The Company and its Subsidiaries possess all
material certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities, necessary to conduct their
respective businesses, and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.
(s) Internal Accounting Controls. The Company and each of its Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management's general
or specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(t) Foreign Corrupt Practices Act. Neither the Company, nor any director,
officer, agent, employee or other person acting on behalf of the Company or any
Subsidiary has, in the course of acting for, or on behalf of, the Company,
directly or indirectly used any corporate funds for any unlawful contribution,
gift, entertainment or other unlawful expenses relating to political activity;
directly or indirectly made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended, or any similar treaties of the United States;
or directly or indirectly made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to any foreign or domestic government or
party official or employee.
(u) Tax Status. The Company and each of its Subsidiaries has made or filed
all United States federal and state income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject and (i) has
paid all taxes and other governmental assessments and charges, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and (ii) has set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
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unpaid taxes claimed to be due by the taxing authority of any jurisdiction, and
the Company is not aware of any basis for any such claim.
(v) Certain Transactions. Except as set forth on Schedule 2.1(v) and in the
SEC Documents filed on EDGAR at least thirty (30) Trading Days prior to the date
hereof and except for arm's length transactions pursuant to which the Company
makes payments in the ordinary course of business upon terms no less favorable
than the Company could obtain from third parties and other than the grant of
stock options disclosed on Schedule 2.1(c), none of the officers, directors or
employees of the Company is presently a party to any transaction with the
Company or any of its Subsidiaries (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director
or any such employee has a substantial interest or is an officer, director,
trustee or partner.
(w) Dilutive Effect. The Company understands and acknowledges that the
number of Common Shares issuable upon conversion of Preferred Shares and
exercise of the Warrants purchased pursuant to this Agreement will increase in
certain circumstances. The Company further acknowledges that, subject to such
limitations as are expressly set forth in the Transaction Documents, its
obligation to issue Common Shares upon conversion of Preferred Shares and
exercise of the Warrants purchased pursuant to this Agreement, is absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other shareholders of the Company.
(x) Application of Takeover Protections. There are no anti-takeover
provisions contained in the Company's Certificate of Incorporation or otherwise
which will or could be triggered as a result of the transactions contemplated by
this Agreement, including, without limitation, the Company's issuance of the
Common Shares and the Investor's ownership of the Common Shares.
(y) Rights Plan. Neither the Company nor any of its Subsidiaries has
adopted a shareholder rights plan or similar arrangement relating to
accumulations of beneficial ownership of Common Stock or a change in control of
the Company. The Company confirms that no provision of such plan will, under any
present or future circumstances, delay, prevent or interfere with the
performance of any of the Company's obligations under the Transaction Documents
and such plan will not be "triggered" by such performance.
(z) Market Capitalization. As of the date hereof, the aggregate market
value of the voting common equity of the Company held by non-affiliates of the
Company is greater than $40 million.
(aa) Obligations Absolute. Each of the Company and the Investor agrees
that, subject only to the conditions, qualifications and exceptions (if any)
specifically set forth in the Transaction Documents, its obligations under the
Transaction Documents are unconditional and absolute. Except to the extent (if
any) specifically set forth in the Transaction Documents, each party's
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obligations thereunder are not subject to any right of set off, counterclaim,
delay or reduction.
(bb) Issuance of Common Shares. The Common Shares are duly authorized and
reserved for issuance and, upon conversion of Preferred Shares in accordance
with the Certificate or exercise of the Warrants in accordance with the terms
thereof, such Common Shares will be validly issued, fully paid and
non-assessable, free and clear of any and all liens, claims and encumbrances,
and entitled to be traded on the Pacific Exchange and the Principal Market or
the New York Stock Exchange or the American Stock Exchange, or the Nasdaq Small
Cap Market (collectively with the Principal Market, the "Approved Markets"), and
the holders of such Common Shares shall be entitled to all rights and
preferences accorded to a holder of Common Stock. As of the date of this
Agreement, the outstanding shares of Common Stock are currently listed on the
Principal Market and the Pacific Exchange.
(cc) Form S-3. After June 14, 2000 the Company will be eligible to file the
Registration Statement (as defined in the Registration Rights Agreement) for
secondary offerings on Form S-3 (as in effect on the date of this Agreement)
under the 1933 Act and rules promulgated thereunder, and Form S-3 (as in effect
on the date of this Agreement) will be permitted to be used for the transactions
contemplated hereby under the 1933 Act and rules promulgated thereunder.
(dd) Brokers. The Company has taken no action which would give rise to any
claim by any person for brokerage commissions, finder's fees or similar payments
by the Company or the Investor relating to this Agreement or the transactions
contemplated hereby, except for the broker's fee of Shoreline Pacific
Institutional Finance, the Institutional Division of Financial West Group
("Shoreline"), which shall be paid by the Company out of the Closing proceeds.
Section 2.2 Representations and Warranties of the Investor. The Investor
hereby makes the following representations and warranties to the Company as of
the date hereof and the Closing Date:
(a) Accredited Investor Status; Sophisticated Investor. The Investor is an
"accredited investor" as that term is defined in Rule 501(a) of Regulation D
under the 1933 Act. The Investor has such knowledge and experience in financial
and business matters that it is capable of evaluating the merits and risks of
investment in the Preferred Shares, the Warrants and Common Shares.
(b) Information. The Investor and its advisors, if any, have been furnished
with all materials relating to the business, finances and operations of the
Company which have been requested and materials relating to the offer and sale
of the Preferred Shares, the Warrants and Common Shares which have been
requested by the Investor. The Investor and its advisors, if any, have been
afforded the opportunity to ask questions of the Company. The Investor has not
received any material, non-public information concerning the Company. Neither
such inquiries nor any other due diligence investigations conducted by the
Investor or its advisors, if any, or its representatives shall modify, amend or
affect the Investor's right to rely on the Company's representations and
warranties contained in Section 2.1 above. The Investor understands that its
10
investment in the Preferred Shares, the Warrants and Common Shares involves a
high degree of risk. The Investor has sought such accounting, legal and tax
advice as it has considered necessary to make an informed investment decision
with respect to its acquisition of the Preferred Shares, the Warrants and Common
Shares.
(c) No Governmental Review. The Investor understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Preferred Shares, the
Warrants and Common Shares or the fairness or suitability of the investment in
the Preferred Shares, the Warrants and Common Shares nor have such authorities
passed upon or endorsed the merits of the offering of the Preferred Shares, the
Warrants and Common Shares.
(d) Legends. The Company shall issue certificates for the Preferred Shares,
the Warrants and Common Shares to the Investor without any legend except as
described in Article VI below. The Investor covenants that, in connection with
any transfer of Common Shares by the Investor pursuant to the registration
statement contemplated by the Registration Rights Agreement, it will comply with
the applicable prospectus delivery requirements of the 1933 Act, provided that
copies of a current prospectus relating to such effective registration statement
are or have been supplied to the Investor.
(e) Authorization; Enforcement. Each of this Agreement, the Registration
Rights Agreement and the Escrow Agreement have been duly and validly authorized,
executed and delivered on behalf of the Investor and is a valid and binding
agreement of the Investor enforceable against the Investor in accordance with
their terms, subject as to enforceability to general principles of equity and to
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies. The Investor has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the Registration Rights Agreement and the Escrow Agreement and
each other agreement entered into by the parties hereto in connection with the
transactions contemplated by this Agreement.
(f) Residency. The Investor is a resident of the jurisdiction indicated on
Schedule I.
(g) No Conflicts. The execution, delivery and performance of this Agreement
and the Registration Rights Agreement by the Investor and the consummation by
the Investor of the transactions contemplated hereby and thereby will not (i)
result in a violation of the certificate of incorporation, by-laws or other
documents of organization of the Investor, (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 others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Investor is bound, or (iii) result in a violation of any law, rule,
regulation or decree applicable to the Investor.
(h) Investment Representation. The Investor is purchasing the Preferred
Shares and the Warrants for its own account and not with a view to distribution
in violation of any securities laws. The Investor has been advised and
understands that neither the Preferred Shares, the Warrants nor the shares of
11
Common Stock issuable upon conversion or exercise thereof have been registered
under the 1933 Act or under the "blue sky" laws of any jurisdiction and may be
resold only if registered pursuant to the provisions of the 1933 Act or if an
exemption from registration is available, except under circumstances where
neither such registration nor such an exemption is required by law. The Investor
has been advised and understands that the Company, in issuing the Preferred
Shares and Warrants, is relying upon, among other things, the representations
and warranties of the Investor contained in this Section 2.2 in concluding that
such issuance is a "private offering" and is exempt from the registration
provisions of the 1933 Act.
(i) Rule 144. The Investor understands that there is no public trading
market for the Preferred Shares, or the Warrants, that none is expected to
develop, and that the Preferred Shares and Warrants must be held indefinitely
unless and until such Preferred Shares, Warrants or Common Shares received upon
conversion or exercise thereof are registered under the 1933 Act or an exemption
from registration is available. The Investor has been advised or is aware of the
provisions of Rule 144 promulgated under the 1933 Act.
(j) Brokers. The Investor has taken no action which would give rise to any
claim by any person for brokerage commissions, finder's fees or similar payments
by the Company or the Investor relating to this Agreement or the transactions
contemplated hereby except for the broker's fee of Shoreline which shall be paid
by the Company out of the Closing proceeds.
(k) Reliance by the Company. The Investor understands that the Preferred
Shares and Warrants are being offered and sold in reliance on a transactional
exemption from the registration requirements of Federal and state securities
laws and that the Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
the Investor set forth herein in order to determine the applicability of such
exemptions and the suitability of the Investor to acquire the Preferred Shares
and Warrants.
Article III
Covenants
Section 3.1 Registration and Listing; Effective Registration. Until such
time as no Preferred Shares or Warrants are outstanding, the Company will cause
the Common Stock to continue at all times to be registered under Sections 12(b)
or (g) of the Exchange Act, will comply in all material respects with its
reporting and filing obligations under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and will not take any action or file any document
(whether or not permitted by the Exchange Act or the rules thereunder) to
terminate or suspend such reporting and filing obligations. Until such time as
no Preferred Shares or Warrants are outstanding, the Company shall continue the
listing or trading of the Common Stock on the Principal Market or one of the
other Approved Markets and comply in all material respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
Approved Market on which the Common Stock is listed. The Company shall cause the
Common Shares to be listed on the Pacific Exchange and the Principal Market or
one of the other Approved Markets no later than the effectiveness of the
registration of the Common Shares under the Act, and shall continue such
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listing(s) on one of the Approved Markets, for so long as any Preferred Shares
or Warrants are outstanding.
Section 3.2 Certificates on Conversion. Upon any conversion by the Investor
(or then holder of Preferred Shares) of the Preferred Shares pursuant to the
Certificate, the Company shall issue and deliver to the Investor (or holder)
within three (3) trading days of the conversion date a new certificate or
certificates for the number of Preferred Shares which the Investor (or holder)
has not yet elected to convert but which are evidenced in part by the
certificate(s) submitted to the Company in connection with such conversion (with
the denominations of such new certificate(s) designated by the Investor or
holder).
Section 3.3 Replacement Certificates. The certificate(s) representing the
Preferred Shares held by any Investor (or then holder) may be exchanged by the
Investor (or such holder) at any time and from time to time for certificates
with different denominations representing an equal aggregate number of Preferred
Shares, as requested by the Investor (or such holder) upon surrendering the
same. No service charge will be made for such registration or transfer or
exchange.
Section 3.4 Securities Compliance. The Company shall notify the SEC and the
Principal Market, in accordance with their requirements, of the transactions
contemplated by this Agreement, the Certificate, the Warrants and the
Registration Rights Agreement, 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 Preferred Shares and
Warrants hereunder and the Common Shares issuable upon conversion or exercise
thereof.
Section 3.5 Notices. The Company agrees to provide all holders of Preferred
Shares and Warrants with copies of all notices and information, including
without limitation notices and proxy statements in connection with any meetings,
that are provided to the holders of shares of Common Stock, contemporaneously
with the delivery of such notices or information to such Common Stock holders.
Section 3.6 Use of Proceeds. The Company agrees that the net proceeds
received by the Company from the sale of the Preferred Shares hereunder and
payment of the exercise price of the Warrants shall be used for legally
permitted corporate purposes, provided that upon or within two (2) days
following Closing a portion of such proceeds shall be used to pay off the
Merrill Debt in full.
Section 3.7 Reservation of Shares; Stock Issuable Upon Conversion.
(a) The Company shall reserve all authorized but unissued Series B
Cumulative Convertible Preferred Stock for issuance to the Investor pursuant to
the terms of this Agreement.
(b) The Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the Preferred Shares and exercise of the Warrants,
such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all Preferred Shares and exercise of all
of the Warrants, and if at any time the number of authorized but unissued shares
of Common Stock shall not be sufficient to effect the conversion of all the then
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outstanding Preferred Shares and all of the then outstanding Warrants, the
Company will take such corporate action as may be necessary to expeditiously
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose, including without limitation
engaging in best efforts to obtain the requisite shareholder approval and taking
the actions described in the Certificate. Without in any way limiting the
foregoing, the Company agrees to reserve and at all times keep available solely
for purposes of conversion of Preferred Shares and exercise of the Warrants,
such number of authorized but unissued shares of Common Stock that is at least
equal to 200% of the number of Common Shares issuable upon conversion of all
Preferred Shares and exercise of all of the Warrants, computed as if all
Preferred Shares are convertible at the Conversion Price (as defined in the
Certificate) and all Warrants are exercisable at the Exercise Price (as defined
in the Warrants). If at any time the number of authorized but unissued shares of
Common Stock is not sufficient to effect such issuance, conversion, or exercise,
respectively, up to the Maximum Common Stock Issuance (as defined in Section
5(i)(iii)of the Certificate of Designations), of all the then outstanding
Preferred Shares and the Warrants, the Investor shall be entitled to, inter
alia, the redemption rights provided in the Registration Rights Agreement.
Section 3.8 Best Efforts. The parties shall use their best efforts to
satisfy timely each of the conditions described in Article V of this Agreement.
Section 3.9 Form D; Blue Sky Laws. The Company agrees to file a Form D with
respect to the Preferred Shares, the Warrants and Common Shares, as required
under Regulation D and to provide a copy thereof to the Investor promptly after
such filing. The Company shall, on or before the Closing Date, take such action
as the Company shall have reasonably determined is necessary to qualify the
Preferred Shares, the Warrants and Common Shares for sale to the Investor under
applicable securities or "blue sky" laws of the states of the United States (or
to obtain an exemption from such qualification), and shall provide evidence of
any such action so taken to the Investor on or prior to the Closing Date;
provided, however, that the Company shall not be required in connection
therewith to register or qualify as a foreign corporation in any jurisdiction
where it is not now so qualified or to take any action that would subject it to
service of process in suits or taxation, in each case, in any jurisdiction where
it is not now so subject.
Section 3.10 Publicity. The Company shall, immediately upon the Closing,
issue a press release with respect to such transactions, in the form of press
release attached as Exhibit D hereto.
Section 3.11 Shareholder Rights Plan. None of the acquisitions of Preferred
Shares, Warrants or Common Shares nor the deemed beneficial ownership of shares
of Common Stock prior to, or the acquisition of such shares pursuant to, the
conversion of Preferred Shares or exercise of the Warrants will in any event
under any circumstances trigger the poison pill provisions of any stockholders'
rights or similar agreements, or a substantially similar occurrence under any
successor or similar plan.
Section 3.12 Financial Information. The Company agrees to send the
following to the Investor for so long as any Preferred Shares or Warrants are
outstanding: (i) on the same day as the release thereof, facsimile or e-mail
14
copies of all press releases issued by the Company or any of its Subsidiaries;
and (ii) copies of any notices and other information made available or given to
the shareholders of the Company generally, contemporaneously with the making
available or giving thereof to the shareholders.
Section 3.13 Transactions With Affiliates. The Company agrees that any
transaction or arrangement between it or any of its subsidiaries and any
affiliate or employee of the Company shall be effected on an arms' length basis
in accordance with customary commercial practice and, except with respect to
grants of options and stock to service providers, including employees, shall be
approved by a majority of the Company's outside directors.
Section 3.14 Amendment to Certificate of Incorporation. The Company agrees
that at the next shareholders meeting or pursuant to the next shareholders
consent solicitation, it shall obtain the requisite shareholder approval for
amendment of the Company's Certificate of Incorporation to delete Article
FOURTH, Section B(1) thereof and/or otherwise clarify that all restrictions upon
the shares of Common Stock contained in Article FOURTH, Sections B(1)(b),
B(1)(c) and B(1)(d) of the Company's Certificate of Incorporation have lapsed
and are of no further force and effect pursuant to Article FOURTH, Section
B(1)(f)(i) thereof.
Section 3.15 Trading Restrictions. Each Investor agrees that so long as any
Preferred Shares or Warrants are outstanding, such Investor will not on any
given date have a net short position in the Common Stock which exceeds the
number of shares of Common Stock which such Investor would reasonably expect to
receive upon conversion of all the Preferred Shares and exercise of all the
Warrants then held by such Investor and upon conversion or exercise of all other
securities issued by the Company then held by such Investor. In addition, so
long as any Preferred Shares remain outstanding, if the closing bid price on any
Trading Day ("Prior Day Close") is less than the Closing Price (as defined in
the Certificate), then the Investor agrees it will not sell short on the
Principal Market more than $150,000 of shares of Common Stock (based on net
proceeds of shares actually sold) on the following Trading Day (any such
following day hereinafter referred to as a "Limitation Day"); provided, however,
that if at any time and from time to time on such Limitation Day a sale of
Common Stock on the Principal Market occurs at a price which is greater than
both (i) 120% of the then applicable Conversion Price (as defined in the
Certificate) and (ii) the Prior Day Close, then the limitation contained in this
sentence shall no longer apply and the Investor may sell or continue to sell
short shares of Common Stock during such Limitation Day on the Principal Market
until such time as a sale of Common Stock on the Principal Market occurs at a
price which is equal to or less than the Prior Day Close, provided that if from
time to time during the Limitation Day a later sale occurs above the Prior Day
Close, the limitation contained in this sentence shall again no longer apply;
provided further, that the limitation contained in this sentence shall not apply
if the Investor converts all of the outstanding Preferred Shares held by it
within five (5) Trading Days following any day which would have been a
Limitation Day but for this proviso.
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Article IV
Transfer Agent Instructions.
The Company shall issue irrevocable instructions to its transfer agent, and
any subsequent transfer agent, to issue certificates, registered in the name of
the Investor or its respective nominee(s), for the Common Shares in such amounts
as specified from time to time by the Investor to the Company upon delivery of a
conversion or exercise notice (the "Irrevocable Transfer Agent Instructions").
The Company warrants that no instruction relating to the Common Shares other
than the Irrevocable Transfer Agent Instructions referred to in this Article IV
will be given by the Company to its transfer agent and that the Common Shares
shall be freely transferable on the books and records of the Company as
contemplated by Article VI below when the legend referred to therein may be
removed. Nothing in this Article IV shall affect in any way the Investor's
obligations and agreements set forth in Section 2.2(d) to comply with all
applicable prospectus delivery requirements, if any, upon resale of the Common
Shares. The Company shall instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by the Investor
and without any restrictive legends. The Company acknowledges that a breach by
it of its obligations hereunder will cause irreparable harm to the Investor by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Section will be inadequate and agrees, in the event of a
breach or threatened breach by the Company of the provisions of this Section,
that the Investor shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach and requiring immediate
issuance and transfer, without the necessity of showing economic loss and
without any bond or other security being required.
Article V
Conditions to Closings
Section 5.1 Conditions Precedent to the Obligation of the Company to Sell
the Preferred Shares and Warrants. The obligation hereunder of the Company to
issue and/or sell the Preferred Shares and the Warrants to the Investor at the
Closing is subject to the satisfaction, at or before the Closing, of each of the
applicable 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 Investor's Representations and Warranties. The
representations and warranties of the Investor will 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.
(b) Performance by the Investor. The Investor shall have performed all
agreements and satisfied all conditions required to be performed or satisfied by
the Investor at or prior to the Closing, including payment of the purchase price
set forth on Schedule I.
(c) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
16
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement or
the Registration Rights Agreement or the Certificate.
(d) Certificate. The Investor shall have delivered a certificate to the
Company certifying that the representations and warranties of the Investor
contained in Section 2.2 are true and correct in all material respects as of the
Closing Date.
Section 5.2 Conditions Precedent to the Obligation of the Investor to
Purchase the Preferred Shares. The obligation hereunder of the Investor to
acquire and pay for the Preferred Shares at the Closing is subject to the
satisfaction, at or before the Closing, of each of the applicable conditions set
forth below. These conditions are for the Investor's benefit and may be waived
by the Investor at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties as of an earlier
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 all
agreements and satisfied all conditions required to be performed or satisfied by
the Company at or prior to the Closing, including, without limitation, delivery
of certificates representing the Preferred Shares and Warrants issued to
Investor.
(c) Nasdaq Trading. From the date hereof to the Closing Date, trading in
the Company's Common Stock shall not have been suspended by the SEC and trading
in securities generally as reported by the Principal Market (or other Approved
Market) shall not have been suspended or limited, and the Common Stock shall be
listed on the Principal Market or another Approved Market.
(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, the
Warrants, the Registration Rights Agreement or the Certificate. The NASD shall
not have objected or indicated that it may object to the consummation of any of
the transactions contemplated by this Agreement.
(e) Opinion of Counsel. At the Closing, the Investor shall have received an
opinion of counsel to the Company in the form attached hereto as Exhibit E and
such other opinions, certificates and documents as the Investor or their counsel
shall reasonably require incident to the Closing.
(f) Registration Rights Agreement. The Company and the Investor shall have
executed and delivered the Registration Rights Agreement in the form and
substance of Exhibit C attached hereto.
17
(g) Officer's Certificate. The Company shall have delivered to the Investor
a certificate in form and substance satisfactory to the Investor and the
Investor's counsel, executed by an officer of the Company, certifying as to
satisfaction of closing conditions, incumbency of signing officers, and the
true, correct and complete nature of the Certificate of Incorporation, By-Laws,
good standing and authorizing resolutions of the Company.
(h) Certificate. The Certificate shall have been accepted for filing by the
Secretary of State of the State of Delaware and a stamped copy thereof shall
have been provided to the Investor's counsel.
(i) Miscellaneous. The Company shall have delivered to the Investor such
other documents relating to the transactions contemplated by this Agreement or
the Investor or its counsel may reasonable request.
Article VI
Legend and Stock
Upon payment therefor as provided in this Agreement, the Company will issue
one or more certificates representing the Preferred Shares and Warrants in the
name the Investor or its designees and in such denominations to be specified by
the Investor prior to (or from time to time subsequent to) Closing. Each
certificate representing the Preferred Shares or Warrants and any Common Shares
issued upon conversion or exercise thereof, prior to such Common Shares being
registered under the 1933 Act for resale or available for resale under Rule 144
under the 1933 Act, shall be stamped or otherwise imprinted with a legend
substantially in substantially the following form:
These Securities Have Not Been Registered For Offer or Sale Under The
Securities Act Of 1933 Or Any State securities laws. They May Not Be Sold Or
Offered For Sale Except Pursuant To An Effective Registration Statement Under
Said Act And Any Applicable State Securities Law Or An Applicable Exemption From
Such Registration Requirements.
The Company agrees to reissue Preferred Shares, Warrants and/or Common
Shares issuable upon conversion of Preferred Shares or exercise of Warrants,
without the legend set forth above, at such time as (i) the holder thereof is
permitted to dispose of such Preferred Shares or Warrants and/or Common Shares
issuable upon conversion of the Preferred Shares or exercise of the Warrants
pursuant to Rule 144(k) under the 1933 Act, or (ii) such Preferred Shares are
sold to a purchaser or purchasers who (in the opinion of counsel to the seller
or such purchaser(s), in form and substance reasonably satisfactory to the
Company and its counsel) are able to dispose of such shares publicly without
registration under the 1933 Act, or (iii) such securities have been registered
under the 1933 Act.
18
Prior to the Registration Statement (as defined in the Registration Rights
Agreement) being declared effective, any Common Shares issued pursuant to
conversion of Preferred Shares or exercise of the Warrants shall bear a legend
in the same form as the legend indicated above; provided that such legend shall
be removed from the Common Shares and the Company shall issue new certificates
without such legend if (i) the holder has sold or disposed of such Common Shares
pursuant to Rule 144(k) under the 1933 Act, or the holder is permitted to
dispose of such Common Shares pursuant to Rule 144(k) under the 1933 Act, (ii)
such Common Shares are registered for resale under the 1933 Act, or (iii) such
Common Shares are sold to a purchaser or purchasers who (in the opinion of
counsel to the seller or such purchaser(s), in form and substance reasonably
satisfactory to the Company and it counsel) are able to dispose of such shares
publicly without registration under the 1933 Act. Upon such Registration
Statement becoming effective, the Company agrees to promptly, but no later than
three (3) business days thereafter, issue new certificates representing such
Common Shares without such legend. Any Common Shares issued after the
Registration Statement has become effective shall be free and clear of any
legends, transfer restrictions and stop orders. Notwithstanding the removal of
such legend, the Investor agrees to sell the Common Shares represented by the
new certificates in accordance with the applicable prospectus delivery
requirements (if copies of a current prospectus are provided to the Investor by
the Company) or in accordance with an exemption from the registration
requirements of the 1933 Act.
Nothing herein shall limit the right of any holder to pledge these
securities pursuant to a bona fide margin account or lending arrangement entered
into in compliance with law, including applicable securities laws.
Article VII
Termination
Section 7.1 Termination by Mutual Consent. This Agreement may be terminated
at any time prior to the Closing by the mutual written consent of the Company
and the Investor.
Section 7.2 Other Termination. This Agreement may be terminated by action
of the Board of Directors of the Company or by the Investor at any time if the
Closing shall not have been consummated by the third business day following the
date of this Agreement; provided, however, that the party (or parties) prepared
to close shall retain its (or their) right to sue for any breach by the other
party (or parties).
Article VIII
Indemnification
In consideration of the Investor's execution and delivery of the this
Agreement and the Registration Rights Agreement and acquiring the Preferred
Shares hereunder and in addition to all of the Company's other obligations under
the Transaction Documents, the Company shall defend, protect, indemnify and hold
harmless the Investor and all of its partners, officers, directors, employees,
members and direct or indirect investors and any of the foregoing person's
19
agents or other representatives (including, without limitation, those retained
in connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnitees") from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys' fees and disbursements (the
"Indemnified Liabilities"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
any other certificate or document contemplated hereby or thereby, (b) any breach
of any covenant, agreement or obligation of the Company contained in the
Transaction Documents or any other certificate or document contemplated hereby
or thereby, (c) any cause of action, suit or claim brought or made against such
Indemnitee by a third party and arising out of or resulting from (i) the
execution, delivery, performance, breach by the Company or enforcement of the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (ii) any transaction financed or to be financed
in whole or in part, directly or indirectly, with the proceeds of the issuance
of the Preferred Shares or (iii) the status of the Investor or holder of the
Preferred Shares or Warrants as an investor in the Company and (d) the
enforcement of this Section. Notwithstanding the foregoing, Indemnified
Liabilities shall not include any liability of any Indemnitee arising solely out
of such Indemnitee's willful misconduct or fraudulent action(s). To the extent
that the foregoing undertaking by the Company may be unenforceable for any
reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law. Except as otherwise set forth herein, the mechanics and
procedures with respect to the rights and obligations under this Article VIII
shall be the same as those set forth in Section 6 (other than Section 6(b)) of
the Registration Rights Agreement, including, without limitation, those
procedures with respect to the settlement of claims and Company's right to
assume the defense of claims.
Article IX
Governing Law, Miscellaneous.
Section 9.1 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICT OF LAWS. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO
THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY
OF NEW YORK, BOROUGH OF MANHATTAN, FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER
OR IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR
DISCUSSED HEREIN, AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY
SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS BROUGHT
IN AN INCONVENIENT FORUM OR THAT THE VENUE OF SUCH SUIT, ACTION OR PROCEEDING IS
IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND
CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY
MAILING A COPY THEREOF TO SUCH PARTY AT THE ADDRESS FOR SUCH NOTICES TO IT UNDER
20
THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT
SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED
TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.
IF ANY PROVISION OF THIS AGREEMENT SHALL BE INVALID OR UNENFORCEABLE IN ANY
JURISDICTION, SUCH INVALIDITY OR UNENFORCEABILITY SHALL NOT AFFECT THE VALIDITY
OR ENFORCEABILITY OF THE REMAINDER OF THIS AGREEMENT IN THAT JURISDICTION OR THE
VALIDITY OR ENFORCEABILITY OF ANY PROVISION OF THIS AGREEMENT IN ANY OTHER
JURISDICTION. EACH PARTY HERETO IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY.
Section 9.2 Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
Section 9.3 Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
Section 9.4 Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
Section 9.5 Entire Agreement; Amendments; Waivers.
(a) This Agreement supersedes all other prior oral or written agreements
between the Investor, the Company, their affiliates and persons acting on their
behalf with respect to the matters discussed herein, and this Agreement and the
instruments referenced herein (including the other Transaction Documents)
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor the Investor makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be amended other than by an instrument in writing signed by
the Company and the Investor, and no provision hereof may be waived other than
by an instrument in writing signed by the party against whom enforcement is
sought.
(b) The Investor may at any time elect, by notice to the Company, to waive
(whether permanently or temporarily, and subject to such conditions, if any, as
the Investor may specify in such notice) any of its rights under any of the
Transaction Documents to acquire shares of Common Stock from the Company, in
which event such waiver shall be binding against the Investor in accordance with
its terms; provided, however, that the voluntary waiver contemplated by this
sentence may not reduce the Investor's obligations to the Company under the
Transaction Documents.
21
Section 9.6 Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing, must be delivered by (i) courier, mail or hand delivery or (ii)
facsimile, and will be deemed to have been delivered upon receipt. The addresses
and facsimile numbers for such communications shall be:
If to the Company:
GenesisIntermedia.com, Inc.
5805 Sepulveda Boulevard
Van Nuys, California 91411
Telephone: (818) 902-4100
Facsimile: (818) 902-4301
Attention: Ramy El-Batrawi
With a copy to:
Nida & Maloney, LLP
800 Anacapa Street
Santa Barbara, CA 93101
Telephone: (805) 568-1151
Facsimile: (805) 568-1955
Attention: Theodore R. Maloney
If to the Transfer Agent:
U.S. Stock Transfer Corporation
1745 Gardena Avenue
Glendale, California 91204
Telephone: (818) 502-1404
Facsimile: (818) 502-0674
Attention: Syed Hussaimi
If to the Investor:
Elliott Associates, L.P.
c/o Stonington Management Corporation
712 Fifth Avenue
New York, New York 10019
Telephone: 212-506-2999
Facsimile: 212-974-2093 and (212) 586-9467
Attention: Brett Cohen
22
and
Westgate International, L.P.
c/o Stonington Management Corporation
712 Fifth Avenue
New York, New York 10019
Telephone: 212-506-2999
Facsimile: 212-974-2093 and (212) 586-9467
Attention: Brett Cohen
With a copy to:
Kleinberg, Kaplan, Wolff & Cohen, P.C.
551 Fifth Avenue, 18th Floor
New York, New York 10176
Telephone: 212-986-6000
Facsimile: 212-986-8866
Attention: Stephen M. Schultz
Each party shall provide five (5) days prior written notice to the other
party of any change in address, telephone number or facsimile number. Written
confirmation of receipt (A) given by the recipient of such notice, consent,
waiver or other communication, (B) mechanically or electronically generated by
the sender's facsimile machine containing the time, date, recipient facsimile
number and an image of the first page of such transmission or (C) provided by a
nationally recognized overnight delivery service, shall be rebuttable evidence
of personal service, receipt by facsimile or receipt from a nationally
recognized overnight delivery service in accordance with clause (i), (ii) or
(iii) above, respectively.
Section 9.7 Successors and Assigns. Except as otherwise provided herein,
this Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and assigns, including any Permitted Assignee (as
defined below). The Company shall not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the Investor,
including by merger or consolidation. The Investor may assign some or all of its
rights hereunder to any assignee of the Preferred Shares, Warrants or Common
Shares (in each case, a "Permitted Assignee"); provided, however, that any such
assignment shall not release the Investor from its obligations hereunder unless
such obligations are assumed by such assignee and the Company has consented to
such assignment and assumption. Notwithstanding anything to the contrary
contained in the Transaction Documents, the Investor shall be entitled to pledge
the Preferred Shares, Warrants or Common Shares in connection with a bona fide
margin account.
Section 9.8 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.
Section 9.9 Survival. The representations, warranties and agreements of the
Company and the Investor contained in the Agreement shall survive the Closing.
23
Section 9.10 Further Assurances. Each party shall do and perform, or cause
to be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and documents,
as the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
Section 9.11 Placement Agent. The Investor and the Company each
acknowledges and warrants that it has not engaged any placement agent in
connection with the sale of the Preferred Shares and the Warrants other than
Shoreline, whose fees will be paid exclusively by the Company. The Company and
the Investor shall each be responsible for the payment of any other fees or
commissions of placement agents or brokers engaged, directly or indirectly, by
the Company or the Investor, respectively, in connection with the purchase of
the Preferred Shares and the Warrants by the Investor. The Company and the
Investor shall pay, and hold the other party harmless against, any liability,
loss or expense (including, without limitation, reasonable attorneys' fees and
out-of-pocket expenses) arising in connection with any such claim.
Section 9.12 No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
Section 9.13 Remedies. The Investor and each Permitted Assignee shall have
all rights and remedies set forth in this Agreement and the Registration Rights
Agreement and all rights and remedies which such holders have been granted at
any time under any other agreement or contract and all of the rights which such
holders have under any law. Any person having any rights under any provision of
this Agreement or the Registration Rights Agreement shall be entitled to enforce
such rights specifically (without posting a bond or other security), to recover
damages by reason of any breach of any provision of this Agreement or the
Registration Rights Agreement and to exercise all other rights granted by law.
The Investor and each Permitted Assignee without prejudice may withdraw, revoke
or suspend its pursuit of any remedy at any time prior to its complete recovery
as a result of such remedy.
Section 9.14 Payment Set Aside. To the extent that the Company makes a
payment or payments to the Investor hereunder or under the Registration Rights
Agreement or the Investor enforces or exercises its rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other person under any law (including, without limitation, any
bankruptcy law, state or federal law, common law or equitable cause of action),
then to the extent of any such restoration the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full force
and effect as if such payment had not been made or such enforcement or setoff
had not occurred.
Section 9.15 Days. Unless the context refers to "business days" or "Trading
Days", all references herein to "days" shall mean calendar days.
24
Section 9.16 Rescission and Withdrawal Right. Notwithstanding anything to
the contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, wherever the Investor exercises a right, election, demand
or option under a Transaction Document and the Company does not fully perform
its related obligations within the periods therein provided, then the Investor
in its sole discretion may rescind or withdraw from time to time any relevant
notice, demand or election in whole or in part without prejudice to its future
actions and rights.
* * * * *
[Signature Page Follows]
IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed as of the date and year first above written.
COMPANY: INVESTORS:
GENESISINTERMEDIA.COM, INC. WESTGATE INTERNATIONAL, L.P.
By: MARTLEY INTERNATIONAL, INC., as
attorney-in-fact
By: __________________________ By: _____________________________
Name: Ramy El-Batrawi Name: Paul E. Singer
Title: President Title: President
ELLIOTT ASSOCIATES, L.P.
By: _____________________________
Name: Paul E. Singer
Title: General Partner
List of Schedules
Schedule 2.1(a) Subsidiaries
Schedule 2.1(c) Capitalization
Schedule 2.1(e) No Conflicts
Schedule 2.1(g) Certain Changes
Schedule 2.1(h) Litigation
Schedule 2.1(n) Intellectual Property Rights
Schedule 2.1(p) Title
Schedule 2.1(v) Certain Transactions
Schedule I Investors
List of Exhibits
EXHIBIT A Certificate of Designation
EXHIBIT B Warrant
EXHIBIT C Registration Rights Agreement
EXHIBIT D Form of Press Release
EXHIBIT E Opinion of Counsel
SCHEDULE I
Jurisdiction of
Organization Number of Number of
Investor Preferred Shares Warrants Purchase Price
Elliott Associates, L.P. Delaware, U.S.A. 2,000 56,000 $2,000,000
Westgate International, L.P. Cayman Islands, B.W.I. 2,000 56,000 $2,000,000