EXHIBIT 99.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of May 6, 1999,
by and among Global Media Corp., a Nevada corporation, with headquarters located
at 83 Victoria Crescent, Unit 29, Nanaimo, British Columbia V9R 5B9, Canada
("COMPANY"), and each of the purchasers set forth on the signature pages hereto
(the "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Rule 506
under Regulation D ("REGULATION D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 ACT");
B. The Company has authorized the issuance of convertible debentures of
the Company, in the form attached hereto as EXHIBIT "A", in the aggregate
principal amount of Eight Million Five Hundred Thousand Dollars ($8,500,000)
(the "DEBENTURES"). Under certain circumstances, the Debentures are convertible
into a new series of preferred stock, to be designated as Series A Convertible
Preferred Stock (the "SERIES A PREFERRED STOCK"), having the rights, preferences
and privileges set forth in the Certificate of Designations, Rights and
Preferences attached hereto as EXHIBIT "B" (the "CERTIFICATE OF DESIGNATION");
C. The Debentures are, and the Series A Preferred Stock will be,
convertible into shares of common stock, $0.001 par value per share, of the
Company (the "COMMON STOCK"), upon the terms and subject to the limitations and
conditions set forth in the Certificate of Designation;
D. The Company has authorized the issuance to the Buyers of warrants, in
the form attached hereto as EXHIBIT "C", to purchase Six Hundred Eighty Thousand
(680,000) shares of Common Stock (the "WARRANTS");
E. The Buyers desire to purchase and the Company desires to issue and
sell, upon the terms and conditions set forth in this Agreement, (i) Debentures
in the aggregate principal amount of Eight Million Five Hundred Thousand Dollars
($8,500,000), and (ii) Warrants to purchase Six Hundred Eighty Thousand
(680,000) shares of Common Stock, for an aggregate purchase price of Eight
Million Five Hundred Thousand Dollars ($8,500,000).
F. Each Buyer wishes to purchase, upon the terms and conditions stated in
this Agreement, such principal amount of Debentures and number of Warrants as is
set forth immediately below its name on the signature pages hereto;
G. Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement, in
the form attached hereto as EXHIBIT "D" (the "REGISTRATION RIGHTS AGREEMENT"),
pursuant to which the Company has agreed to provide certain registration rights
under the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws; and
NOW THEREFORE, the Company and each of the Buyers severally (and not
jointly) hereby agree as follows:
1. PURCHASE AND SALE OF DEBENTURES
AND WARRANTS.
a. PURCHASE OF DEBENTURES AND WARRANTS. On the Closing Date
(as defined below), the Company shall issue and sell to each Buyer and each
Buyer severally agrees to purchase from the Company such principal amount of
Debentures and number of Warrants as is set forth immediately below such Buyer's
name on the signature pages hereto.
b. FORM OF PAYMENT. On the Closing Date (as defined below),
(i) each Buyer shall pay the purchase price for the Debentures and the Warrants
to be issued and sold to it at the Closing (as defined below) (the "PURCHASE
PRICE") by wire transfer of immediately available funds to the Company, in
accordance with the Company's written wiring instructions, against delivery of
duly executed Debentures and Warrants which such Buyer is purchasing and (ii)
the Company shall deliver such Debentures and Warrants duly executed on behalf
of the Company, to such Buyer, against delivery of such Purchase Price.
c. CLOSING DATE. Subject to the satisfaction (or waiver) of
the conditions thereto set forth in Section 6 and Section 7 below, the date and
time of the issuance and sale of the Debentures and the Warrants pursuant to
this Agreement (the "CLOSING DATE") shall be 12:00 noon Eastern Standard Time on
May 6, 1999 or such other mutually agreed upon time. The closing of the
transactions contemplated by this Agreement (the "CLOSING") shall occur on the
Closing Date at the offices of Morgan, Lewis & Bockius LLP, 1701 Market Street,
Philadelphia, Pennsylvania 19103, or at such other location as may be agreed to
by the parties.
2. BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer severally
(and not jointly) represents and warrants to the Company solely as to such Buyer
that:
a. INVESTMENT PURPOSE. As of the date hereof, the Buyer is
purchasing the Debentures and, when authorized and to the extent issued upon
conversion of the Debentures, the shares of Series A Convertible Preferred Stock
(the "PREFERRED SHARES") and the
shares of Common Stock issuable upon conversion of or otherwise pursuant to
the Debentures and the Preferred Shares (including, without limitation, (i)
such additional shares of Common Stock as are issuable as a result of the
events described in Articles I, II.D.3 or II.F of the Debentures, Articles V,
VI.D(b) or VI.E of the Certificate of Designation and Section 2(c) of the
Registration Rights Agreement and (ii) the shares of Common Stock issuable
pursuant to the investment options described in Article II.E of the
Debentures and Article VI.G of the Certificate of Designation (the
"INVESTMENT OPTIONS")) (such shares of Common Stock being collectively
referred to herein as the "CONVERSION SHARES") and the Warrants and the
shares of Common Stock issuable upon exercise thereof (the "WARRANT SHARES"
and, collectively with the Debentures, Preferred Shares, Warrants and
Conversion Shares, the "SECURITIES") for its own account and not with a
present view towards the public sale or distribution thereof, except pursuant
to sales registered or exempted from registration under the 1933 Act;
PROVIDED, HOWEVER, that by making the representations herein, the Buyer does
not agree to hold any of the Securities for any minimum or other specific
term and reserves the right to dispose of the Securities at any time in
accordance with or pursuant to a registration statement or an exemption under
the 1933 Act.
b. ACCREDITED INVESTOR STATUS. The Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D (an "ACCREDITED
INVESTOR").
c. RELIANCE ON EXEMPTIONS. The Buyer understands that the
Securities are being offered and sold to it in reliance upon specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and the
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Securities.
d. INFORMATION. The Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by the Buyer or its advisors. The Buyer and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company. Neither such inquiries nor any other due diligence investigation
conducted by Buyer or any of its advisors or representatives shall modify, amend
or affect Buyer's right to rely on the Company's representations and warranties
contained in Section 3 below. The Buyer understands that its investment in the
Securities involves a significant degree of risk.
e. GOVERNMENTAL REVIEW. The Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Securities.
f. TRANSFER OR RE-SALE. The Buyer understands that (i) except
as provided in the Registration Rights Agreement, the sale or re-sale of the
Securities has not been and is not being registered under the 1933 Act or any
applicable state securities laws, and the Securities may not be transferred
unless (a) the Securities are sold pursuant to an effective registration
statement under the 1933 Act, (b) the Buyer shall have delivered to the Company
an opinion of counsel (which opinion shall be in form, substance and scope
customary for opinions of counsel in comparable transactions) to the effect that
the Securities to be sold or transferred may be sold or transferred pursuant to
an exemption from such registration, (c) the Securities are sold or transferred
to an "affiliate" (as defined in Rule 144 promulgated under the 1933 Act (or a
successor rule) ("RULE 144")) of the Buyer who agrees to sell or otherwise
transfer the Securities only in accordance with this Section 2(f) and who is an
Accredited Investor or (d) the Securities are sold pursuant to Rule 144; (ii)
any sale of such Securities made in reliance on Rule 144 may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any re-sale of such Securities under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 1933 Act) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (iii) neither the Company nor any other person is under any
obligation to register such Securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder (in each case, other than pursuant to the Registration Rights
Agreement). Notwithstanding the foregoing or anything else contained herein to
the contrary, the Securities may be pledged as collateral in connection with a
BONA FIDE margin account or other lending arrangement.
g. LEGENDS. The Buyer understands that the Debentures,
Preferred Shares and the Warrants and, until such time as the Conversion Shares
and Warrant Shares have been registered under the 1933 Act as contemplated by
the Registration Rights Agreement or otherwise may be sold pursuant to Rule 144
without any restriction as to the number of securities as of a particular date
that can then be immediately sold, the Conversion Shares and Warrant Shares, may
bear a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of the certificates for such
Securities):
"The securities represented by this certificate have not
been registered under the Securities Act of 1933, as amended
or any state securities laws. The securities may not be
sold, transferred or assigned in the absence of an effective
registration statement for the securities under said Act and
applicable state securities laws, or an opinion of counsel,
in form, substance and scope customary for opinions of
counsel in comparable transactions, that registration is not
required under said Act or unless sold pursuant to and in
compliance with Rule 144 under said Act."
The legend set forth above shall be removed and the Company shall
issue a
certificate without such legend to the holder of any Security upon which it
is stamped, if, unless otherwise required by applicable state securities
laws, (a) such Security is registered for sale under an effective
registration statement filed under the 1933 Act or otherwise may be sold
pursuant to Rule 144 without any restriction as to the number of securities
as of a particular date that can then be immediately sold, or (b) such holder
provides the Company with an opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable transactions, to the effect
that a public sale or transfer of such Security may be made without
registration under the 1933 Act and such sale or transfer is effected or (c)
such holder provides the Company with reasonable assurances that such
Security can be sold pursuant to Rule 144 (which shall consist of the
documentation customarily executed by a seller and its broker, if any, in
connection with a proposed sale under Rule 144). The Buyer agrees to sell
all Securities, including those represented by a certificate(s) from which
the legend has been removed, in compliance with applicable federal and state
securities law requirements, including prospectus delivery requirements, if
any.
h. AUTHORIZATION; ENFORCEMENT. This Agreement and the
Registration Rights Agreement have been duly and validly authorized. This
Agreement has been duly executed and delivered on behalf of the Buyer, and this
Agreement constitutes, and upon execution and delivery by the Buyer of the
Registration Rights Agreement, such agreement will constitute, valid and binding
agreements of the Buyer enforceable in accordance with their terms.
i. RESIDENCY. The Buyer is a resident of the jurisdiction set
forth immediately below such Buyer's name on the signature pages hereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Buyer that:
a. ORGANIZATION AND QUALIFICATION. The Company and each of its
Subsidiaries (as defined below), if any, is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated, with full power and authority (corporate and other) to
own, lease, use and operate its properties and to carry on its business as and
where now owned, leased, used, operated and conducted. SCHEDULE 3(a) sets forth
a list of all of the Subsidiaries of the Company and the jurisdiction in which
each is incorporated. The Company and each of its Subsidiaries is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which its ownership or use of property or the nature of
the business conducted by it makes such qualification necessary except where the
failure to be so qualified or in good standing would not have a Material Adverse
Effect. "MATERIAL ADVERSE EFFECT" means any material adverse effect on (i) the
Securities, (ii) the business, operations, assets, financial condition or
prospects of the Company and its Subsidiaries, if any, taken as a whole, or
(iii) on the transactions contemplated hereby or by the agreements or
instruments to be entered into in connection herewith. "SUBSIDIARIES"
means any corporation or other organization, whether incorporated or
unincorporated, in which the Company owns, directly or indirectly, any equity
or other ownership interest.
b. AUTHORIZATION; ENFORCEMENT. (i) The Company has all
requisite corporate power and authority to enter into and perform this
Agreement, the Registration Rights Agreement and the Warrants and to consummate
the transactions contemplated hereby and thereby and to issue the Securities
(other than the Preferred Shares), in accordance with the terms hereof and
thereof, (ii) the execution and delivery of this Agreement, the Registration
Rights Agreement, the Debentures and the Warrants by the Company and the
consummation by it of the transactions contemplated hereby and thereby
(including without limitation, the issuance of the Debentures and the Warrants
and the issuance and reservation for issuance of the Conversion Shares issuable
upon conversion of or otherwise pursuant to the Debentures (including upon
exercise of the Investment Options contained therein) and the Warrant Shares
issuable upon exercise of or otherwise pursuant to the Warrants) have been duly
authorized by the Company's Board of Directors and no further consent or
authorization of the Company, its Board of Directors, or its stockholders is
required, (iii) (a) upon approval by the stockholders of the Company of the
issuance of preferred stock of the Company (the "BLANK CHECK PREFERRED STOCK"),
with the designations, preferences and rights to be determined by resolution of
the Board of Directors (the "STOCKHOLDER APPROVAL") and the filing of an
amendment to the Company's Articles of Incorporation (as defined below)
authorizing for issuance the Blank Check Preferred Stock (the "ARTICLES OF
AMENDMENT"), the Company will have all requisite power and authority to file and
perform its obligations under the Certificate of Designation, (b) the issuance
of the Preferred Shares and the issuance and reservation for issuance of the
Conversion Shares issuable upon conversion of or otherwise pursuant to the
Preferred Shares (including upon exercise of the Investment Options contained
therein) have been duly authorized by the Company's Board of Directors and no
further consent or authorization of the Company, its Board of Directors, or its
stockholders (other than the Stockholder Approval) will be required, (iv) this
Agreement has been duly executed and delivered by the Company, and (v) this
Agreement constitutes, and upon execution and delivery by the Company of the
Registration Rights Agreement, the Debentures and the Warrants and upon the
execution and filing of the Certificate of Designation, each of such agreements
and instruments will constitute, a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms.
c. CAPITALIZATION. As of the date hereof, the authorized
capital stock of the Company consists of (i) 200,000,000 shares of Common Stock
of which 20,544,431 shares are issued and outstanding, 4,346,700 shares are
reserved for issuance pursuant to the Company's stock option plans, no shares
are reserved for issuance pursuant to securities (other than the Debentures,
Preferred Shares and the Warrants) exercisable for, or convertible into or
exchangeable for shares of Common Stock and 5,544,615 (2x currently required)
shares are reserved for issuance upon conversion of or otherwise pursuant to the
Debentures or the Preferred Shares (including upon exercise of the Investment
Options) and exercise of or
otherwise pursuant to the Warrants (subject to adjustment pursuant to the
Company's covenant set forth in Section 4(h) below); and (ii) no shares of
preferred stock. All of such outstanding shares of capital stock are, or
upon issuance will be, duly authorized, validly issued, fully paid and
nonassessable. No shares of capital stock of the Company are subject to
preemptive rights or any other similar rights of the stockholders of the
Company or any liens or encumbrances imposed through the actions or failure
to act of the Company. Except as disclosed in SCHEDULE 3(c), as of the
effective date of this Agreement, (i) there are no outstanding options,
warrants, scrip, rights to subscribe for, puts, calls, rights of first
refusal, agreements, understandings, claims or other commitments or rights of
any character whatsoever relating to, or securities or rights convertible
into or exchangeable for any shares of capital stock of the Company or any
of its Subsidiaries, or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital
stock of the Company or any of its Subsidiaries, (ii) there are no agreements
or arrangements under which the Company or any of its Subsidiaries is
obligated to register the sale of any of its or their securities under the
1933 Act (except the Registration Rights Agreement) and (iii) there are no
anti-dilution or price adjustment provisions contained in any security issued
by the Company (or in any agreement providing rights to security holders)
that will be triggered by the issuance of the Debentures, the Preferred
Shares, the Warrants, the Conversion Shares or Warrant Shares. The Company
has furnished to the Buyer true and correct copies of the Company's Articles
of Incorporation as in effect on the date hereof ("ARTICLES OF
INCORPORATION"), the Company's By-laws, as in effect on the date hereof (the
"BY-LAWS"), and the terms of all securities convertible into or exercisable
for Common Stock of the Company and the material rights of the holders
thereof in respect thereto. The Company shall provide the Buyer with a
written update of this representation signed by the Company's Chief Executive
or Chief Financial Officer on behalf of the Company as of the Closing Date.
d. ISSUANCE OF SHARES. Upon receipt of the Stockholder
Approval, the filing of the Articles of Amendment and the filing of the
Certificate of Designation, the Preferred Shares will be duly authorized, and
upon issuance in accordance with the terms of this Agreement and the Debentures,
will be validly issued, fully paid and non-assessable, and free from all taxes,
liens, claims and encumbrances with respect to the issue thereof and shall not
be subject to preemptive rights or other similar rights of stockholders of the
Company and will not impose personal liability upon the holder thereof. The
Conversion Shares and Warrant Shares are duly authorized and reserved for
issuance, and, upon conversion of the Debentures and the Preferred Shares and
exercise of the Warrants in accordance with the terms thereof and exercise of
the Investment Options in accordance with Article II.E of the Debentures and
Article VI.G of the Certificate of Designation, will be validly issued, fully
paid and non-assessable, and free from all taxes, liens, claims and encumbrances
and will not be subject to preemptive rights or other similar rights of
stockholders of the Company and will not impose personal liability upon the
holder thereof.
e. ACKNOWLEDGMENT OF DILUTION. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock upon the
issuance of the Conversion Shares upon conversion of or otherwise pursuant to
the Debentures and the Preferred Shares (including upon exercise of the
Investment Options contained in the Debentures and the Certificate of
Designation) and upon issuance of the Warrant Shares upon exercise of the
Warrants. The Company's directors and executive officers have studied and fully
understand the nature of the Securities being sold hereunder. The Company
further acknowledges that its obligation to issue Conversion Shares and Warrant
Shares upon conversion of the Debentures and the Preferred Shares or exercise of
the Warrants in accordance with this Agreement, the Debentures, the Certificate
of Designation and the Warrants is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company. Taking the foregoing into account, the Company's
Board of Directors has determined, in its good faith business judgment, that the
issuance of the Securities hereunder and under the Debentures, the Certificate
of Designation and the Warrants and the consummation of the transactions
contemplated hereby and thereby are in the best interest of the Company and its
stockholders.
f. SERIES OF PREFERRED STOCK. The terms, designations, powers,
preferences and relative, participating and optional or special rights, and the
qualifications, limitations and restrictions of the Preferred Shares will be as
stated in the Certificate of Designation.
g. NO CONFLICTS. The execution, delivery and performance of
this Agreement, the Registration Rights Agreement, the Debentures and the
Warrants by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the filing of
the Certificate of Designation and the issuance and reservation for issuance, as
applicable, of the Debentures, Preferred Shares, Conversion Shares (including
those issuable upon exercise of the Investment Options) and Warrant Shares) will
not (i) conflict with or result in a violation of any provision of the Articles
of Incorporation or By-laws (assuming, in the case of the Preferred Shares, the
receipt of the Stockholder Approval and the filing of the Articles of Amendment)
or (ii) violate or conflict with, or result in a breach of any provision of, or
constitute a default (or an event which with notice or lapse of time or both
could become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture, patent,
patent license or instrument to which the Company or any of its Subsidiaries is
a party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations
and regulations of any self-regulatory organizations to which the Company or its
securities are subject) applicable to the Company or any of its Subsidiaries or
by which any property or asset of the Company or any of its Subsidiaries is
bound or affected (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect). Neither the
Company nor any of its Subsidiaries is in violation of its Articles of
Incorporation, By-laws or other organizational documents and neither the Company
nor any of its Subsidiaries
is in default (and no event has occurred which with notice or lapse of time
or both could put the Company or any of its Subsidiaries in default) under,
and neither the Company nor any of its Subsidiaries has taken any action or
failed to take any action that would give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Subsidiaries is a
party or by which any property or assets of the Company or any of its
Subsidiaries is bound or affected, except for possible defaults as would not,
individually or in the aggregate, have a Material Adverse Effect. The
businesses of the Company and its Subsidiaries, if any, are not being
conducted, and shall not be conducted so long as a Buyer owns any of the
Securities, in violation of any law, ordinance or regulation of any
governmental entity except where such violation would not have a Material
Adverse Effect. Except as specifically contemplated by this Agreement and as
required under the 1933 Act and any applicable state securities laws, the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court, governmental agency,
regulatory agency, self regulatory organization or stock market (other than,
solely with respect to the Preferred Shares, the receipt of Stockholder
Approval, the filing of the Articles of Amendment and the filing of the
Certificate of Designation) or any third party in order for it to execute,
deliver or perform any of its obligations under this Agreement, the
Registration Rights Agreement, the Debentures or the Warrants in accordance
with the terms hereof or thereof or to issue and sell the Debentures,
Preferred Shares and Warrants in accordance with the terms hereof and to
issue the Conversion Shares upon conversion of or otherwise pursuant to the
Debentures or the Preferred Shares (including upon exercise of the Investment
Options) and the Warrant Shares upon exercise of or otherwise pursuant to the
Warrants. Except as disclosed in SCHEDULE 3(g), all consents,
authorizations, orders, filings and registrations which the Company is
required to obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the date hereof. The Company is not in violation of
the listing requirements of the Over-the-Counter Bulletin Board (the "OTC
BB") and does not reasonably anticipate that the Common Stock will cease
trading on the OTC BB in the foreseeable future (unless such cessation in
trading is due to the fact that the Common Stock has been listed or included
for quotation on the Nasdaq National Market ("NASDAQ"), the Nasdaq SmallCap
Market ("NASDAQ SMALLCAP"), the New York Stock Exchange ("NYSE") or the
American Stock Exchange (the "AMEX"). The Company and its Subsidiaries are
unaware of any facts or circumstances which might give rise to any of the
foregoing.
h. SEC DOCUMENTS; FINANCIAL STATEMENTS. Except as disclosed in
SCHEDULE 3(h), since December 11, 1997, the Company has timely filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the SEC pursuant to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "1934 ACT") (all of the foregoing filed
prior to the date hereof and all exhibits included therein and financial
statements and schedules thereto and documents (other than exhibits to such
documents) incorporated by reference therein, being hereinafter referred to
herein as the "SEC DOCUMENTS"). The Company has delivered to each Buyer true
and complete copies of the SEC Documents, except for such exhibits and
incorporated documents. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the 1934
Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time
they were filed with the SEC, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. None of the
statements made in any such SEC Documents is, or has been, required to be
amended or updated under applicable law (except for such statements as have
been amended or updated in subsequent filings prior to the date hereof). As
of their respective dates, the financial statements of the Company included
in the SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto. Such financial statements have been prepared
in accordance with United States generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly
present in all material respects the consolidated financial position of the
Company and its consolidated Subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). Except as set forth in the financial statements of the Company
included in the SEC Documents, the Company has no liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to July 31, 1998 and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required
under generally accepted accounting principles to be reflected in such
financial statements, which, individually or in the aggregate, are not
material to the financial condition or operating results of the Company.
i. ABSENCE OF CERTAIN CHANGES. Since July 31, 1998, there has
been no material adverse change and no material adverse development in the
assets, liabilities, business, properties, operations, financial condition,
results of operations or prospects of the Company or any of its Subsidiaries.
j. ABSENCE OF LITIGATION. There is no action, suit, claim,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened against or
affecting the Company or any of its Subsidiaries, or their officers or
directors in their capacity as such, that could have a Material Adverse
Effect. SCHEDULE 3(j) contains a complete list and summary description of any
pending or threatened proceeding against or affecting the Company or any of
its Subsidiaries, without regard to whether it would have a Material Adverse
Effect. The Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
k. PATENTS, COPYRIGHTS, ETC.
(i) The Company and each of its Subsidiaries owns or
possesses the requisite licenses or rights to use all patents, patent
applications, patent rights, inventions, know-how, trade secrets, trademarks,
trademark applications, service marks, service names, trade names and copyrights
("INTELLECTUAL PROPERTY") necessary to enable it to conduct its business as now
operated (and, except as set forth in SCHEDULE 3(k) hereof, to the best of the
Company's knowledge, as presently contemplated to be operated in the future);
there is no claim or action by any person pertaining to, or proceeding pending,
or to the Company's knowledge threatened, which challenges the right of the
Company or of a Subsidiary with respect to any Intellectual Property necessary
to enable it to conduct its business as now operated (and, except as set forth
in SCHEDULE 3(k) hereof, to the best of the Company's knowledge, as presently
contemplated to be operated in the future); to the best of the Company's
knowledge, the Company's or its Subsidiaries' current and intended products,
services and processes do not infringe on any Intellectual Property or other
rights held by any person; and the Company is unaware of any facts or
circumstances which might give rise to any of the foregoing. The Company and
each of its Subsidiaries have taken reasonable security measures to protect the
secrecy, confidentiality and value of their Intellectual Property.
(ii) All of the Company's computer software and computer
hardware, and other similar or related items of automated, computerized or
software systems that are used or relied on by the Company in the conduct of its
business or that were, or currently are being, sold or licensed by the Company
to customers (collectively, "INFORMATION TECHNOLOGY"), are Year 2000 Complaint.
For purposes of this Agreement, the term "YEAR 2000 COMPLIANT" means, with
respect to the Company's Information Technology, that the Information Technology
is designed to be used prior to, during and after the calendar Year 2000 A.D.,
and the Information Technology used during each such time period will accurately
receive, provide and process date and time data (including, but not limited to,
calculating, comparing and sequencing) from, into and between the 20th and 21st
centuries, including the years 1999 and 2000, and leap-year calculations, and
will not malfunction, cease to function, or provide invalid or incorrect results
as a result of the date or time data, to the extent that other information
technology, used in combination with the Information Technology, properly
exchanges date and time data with it. The Company has delivered to the Buyer
true and correct copies of all analyses, reports, studies and similar written
information, whether prepared by the Company or another party, relating to
whether the Information Technology is Year 2000 Complaint.
l. NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Company
nor any of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a
party to any contract or agreement which in the judgment of the Company's
officers has or is expected to have a Material Adverse Effect.
m. TAX STATUS. Except as set forth on SCHEDULE 3(m), the
Company and each of its Subsidiaries has made or filed all federal, state and
foreign income and all other
tax returns, reports and declarations required by any jurisdiction to which
it is subject (unless and only to the extent that the Company and each of its
Subsidiaries has set aside on its books provisions reasonably adequate for
the payment of all unpaid and unreported taxes) and has paid all taxes and
other governmental assessments and charges that are material in amount, shown
or determined to be due on such returns, reports and declarations, except
those being contested in good faith and has set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to
the periods to which such returns, reports or declarations apply. There are
no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no
basis for any such claim. The Company has not executed a waiver with respect
to the statute of limitations relating to the assessment or collection of any
foreign, federal, state or local tax. Except as set forth on SCHEDULE 3(m),
none of the Company's tax returns is presently being audited by any taxing
authority.
n. CERTAIN TRANSACTIONS. Except as set forth on SCHEDULE 3(n)
and except for arm's length transactions pursuant to which the Company or any of
its Subsidiaries makes payments in the ordinary course of business upon terms no
less favorable than the Company or any of its Subsidiaries could obtain from
third parties and other than the grant of stock options disclosed on SCHEDULE
3(c), none of the officers, directors, or employees of the Company is presently
a party to any transaction with the Company or any of its Subsidiaries (other
than for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
o. DISCLOSURE. All information relating to or concerning the
Company or any of its Subsidiaries set forth in this Agreement and provided to
the Buyers pursuant to Section 2(d) hereof and otherwise in connection with the
transactions contemplated hereby is true and correct in all material respects
and the Company has not omitted to state any material fact necessary in order to
make the statements made herein or therein, in light of the circumstances under
which they were made, not misleading. No event or circumstance has occurred or
exists with respect to the Company or any of its Subsidiaries or its or their
business, properties, prospects, operations or financial conditions, which,
under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed (assuming for this purpose that the Company's reports filed under the
1934 Act are being incorporated into an effective registration statement filed
by the Company under the 1933 Act).
p. ACKNOWLEDGMENT REGARDING BUYERS' PURCHASE OF SECURITIES.
The Company acknowledges and agrees that the Buyers are acting solely in the
capacity of arm's
length purchasers with respect to this Agreement and the transactions
contemplated hereby. The Company further acknowledges that no Buyer is
acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereby and that any statement made by any Buyer or any of their respective
representatives or agents in connection with this Agreement and the
transactions contemplated hereby is not advice or a recommendation and is
merely incidental to the Buyers' purchase of the Securities and has not been
relied upon by the Company, its officers or its directors in any way. The
Company further represents to each Buyer that the Company's decision to enter
into this Agreement has been based solely on the independent evaluation by
the Company and its representatives.
q. NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would require registration under the
1933 Act of the issuance of the Securities to the Buyers. The issuance of the
Securities to the Buyers will not be integrated with any other issuance of the
Company's securities (past, current or future) for purposes of any stockholder
approval provisions applicable to the Company or its securities.
r. NO BROKERS. The Company has taken no action which would
give rise to any claim by any person for brokerage commissions, finder's fees or
similar payments relating to this Agreement or the transactions contemplated
hereby, except for dealings with Broadmark Capital Corporation, whose
commissions and fees will be paid for by the Company.
s. PERMITS; COMPLIANCE. The Company and each of its
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and to
carry on its business as it is now being conducted (collectively, the "COMPANY
PERMITS") except for any Company Permits the failure of which to possess would
not have a Material Adverse Effect, and there is no action pending or, to the
knowledge of the Company, threatened regarding suspension or cancellation of any
of the Company Permits. Neither the Company nor any of its Subsidiaries is in
conflict with, or in default or violation of, any of the Company Permits, except
for any such conflicts, defaults or violations which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect.
Since July 31, 1998, neither the Company nor any of its Subsidiaries has
received any notification from any governmental agency or authority with respect
to possible conflicts, defaults or violations of applicable laws, except for
notices relating to possible conflicts, defaults or violations, which conflicts,
defaults or violations would not have a Material Adverse Effect.
t. ENVIRONMENTAL MATTERS.
(i) Except as set forth in SCHEDULE 3(t), there are, to
the
Company's knowledge, with respect to the Company or any of its Subsidiaries or
any predecessor of the Company, no past or present violations of Environmental
Laws (as defined below), releases of any material into the environment, actions,
activities, circumstances, conditions, events, incidents, or contractual
obligations which may give rise to any common law environmental liability or any
liability under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 or similar federal, state, local or foreign laws and
neither the Company nor any of its Subsidiaries has received any notice with
respect to any of the foregoing, nor is any action pending or, to the Company's
knowledge, threatened in connection with any of the foregoing. The term
"ENVIRONMENTAL LAWS" means all federal, state, local or foreign laws relating to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata), including, without limitation, laws relating to emissions, discharges,
releases or threatened releases of chemicals, pollutants contaminants, or toxic
or hazardous substances or wastes (collectively, "HAZARDOUS MATERIALS") into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.
(ii) Other than those that are or were stored, used or
disposed of in compliance with applicable law, no Hazardous Materials are
contained on or about any real property currently owned, leased or used by the
Company or any of its Subsidiaries, and no Hazardous Materials were released on
or about any real property previously owned, leased or used by the Company or
any of its Subsidiaries during the period the property was owned, leased or used
by the Company or any of its Subsidiaries, except in the normal course of the
Company's or any of its Subsidiaries' business.
(iii) Except as set forth in SCHEDULE 3(t), there are no
underground storage tanks on or under any real property owned, leased or used by
the Company or any of its Subsidiaries that are not in compliance with
applicable law.
u. TITLE TO PROPERTY. The Company and its Subsidiaries have
good and marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them which is material to the
business of the Company and its Subsidiaries, in each case free and clear of all
liens, encumbrances and defects except such as are described in SCHEDULE 3(u) or
such as would not have a Material Adverse Effect. Any real property and
facilities held under lease by the Company and its Subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as would not
have a Material Adverse Effect.
v. INSURANCE. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such
amounts as management of the Company believes to be prudent and customary in
the businesses in which the Company and its Subsidiaries are engaged.
Neither the Company nor any such Subsidiary has any reason to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business at a cost that would not have a
Material Adverse Effect.
w. INTERNAL ACCOUNTING CONTROLS. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
x. FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of
its Subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any Subsidiary has, in the course of his
actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977; or made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to any foreign or domestic government
official or employee.
y. SOLVENCY. The Company (both before and after giving effect
to the transactions contemplated by this Agreement) is solvent (i.e., its assets
have a fair market value in excess of the amount required to pay its probable
liabilities on its existing debts as they become absolute and matured) and
currently the Company has no information that would lead it to reasonably
conclude that the Company would not have the ability to, nor does it intend to
take any action that would impair its ability to, pay its debts from time to
time incurred in connection therewith as such debts mature. The Company did not
receive a qualified opinion from its auditors with respect to its most recent
fiscal year end and does not anticipate or know of any basis upon which its
auditors might issue a qualified opinion in respect of its current fiscal year.
z. NO INVESTMENT COMPANY. The Company is not, and upon the
issuance and sale of the Securities as contemplated by this Agreement, the
Debentures, the Warrants and the Certificate of Designation will not be, an
"investment company" required to be registered under the Investment Company Act
of 1940 (an "INVESTMENT COMPANY"). The Company is not controlled by an
Investment Company.
aa. FORM SB-2 OR FORM S-1 ELIGIBILITY. The Company is
currently eligible to register the resale of its Common Stock on a registration
statement on Form SB-2 or Form S-1 under the 1933 Act. There exist no facts or
circumstances of which the Company is aware that would prohibit or delay the
preparation and filing of a registration statement on either Form SB-2 or Form
S-1 with respect to the Registrable Securities (as defined in the Registration
Rights Agreement) within the time periods referred to therein.
bb. NO GENERAL SOLICITATION. Neither the Company nor any
distributor participating on the Company's behalf in the transactions
contemplated hereby, if any, nor any person acting for the Company, or any such
distributor, has conducted any "general solicitation," as such term is defined
in Regulation D, with respect to any of the Securities being offered hereby.
4. COVENANTS.
a. BEST EFFORTS. The parties shall use their best efforts to
satisfy timely each of the conditions described in Section 6 and 7 of this
Agreement.
b. FORM D; BLUE SKY LAWS. The Company agrees to file a Form D
with respect to the Securities as required under Regulation D and to provide a
copy thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to the Buyers at the
Closing pursuant to this Agreement under applicable securities or "blue sky"
laws of the states of the United States (or to obtain an exemption from such
qualification), and shall provide evidence of any such action so taken to each
Buyer on or prior to the Closing Date.
c. REPORTING STATUS; ELIGIBILITY TO USE FORM SB-2 OR FORM S-1.
The Company represents and warrants that it meets the requirements for use of
Form SB-2 or Form S-1 for registration of the sale by the Buyers of the
Registrable Securities (as defined in the Registration Rights Agreement). The
Company's Common Stock is registered under Section 12(g) of the 1934 Act. So
long as any Buyer beneficially owns any of the Securities, the Company shall
timely file all reports required to be filed with the SEC pursuant to the 1934
Act, and the Company shall not terminate its status as an issuer required to
file reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would permit such termination. The Company further
agrees to take all necessary action to meet the "registrant eligibility"
requirements set forth in the general instructions to Form S-3 as soon as
practicable after the date hereof and thereafter to take all necessary actions
to maintain such eligibility.
d. USE OF PROCEEDS. The Company shall use the proceeds from
the
sale of the Debentures, Preferred Shares and the Warrants in the manner set
forth in SCHEDULE 4(d) attached hereto and made a part hereof and shall not,
directly or indirectly, use such proceeds for any loan to or investment in any
other corporation, partnership, enterprise or other person (except in connection
with its currently existing direct or indirect Subsidiaries). Subject to
SCHEDULE 4(d), within ten (10) business days of the Closing, the Company shall
convert (i) $127,000 of the debt owed to Ben Metcalfe set forth on Schedule 4(d)
and (ii) $115,000 of the debt owed to Sandcastle Inn Ltd. set forth on Schedule
4(d), into Common Stock at the Fixed Conversion Price (as defined in the
Debentures).
e. ADDITIONAL EQUITY CAPITAL; RIGHT OF FIRST REFUSAL.
Subject to the exceptions described below, the Company will not, without the
prior written consent of a majority-in-interest of the Buyers, negotiate or
contract with any party to obtain additional equity financing (including debt
financing with an equity component) during the period (the "LOCK-UP PERIOD")
beginning on the Closing Date and ending one hundred eighty (180) days from
the date the Registration Statement (as defined in the Registration Rights
Agreement) required pursuant to Section 2(a) of the Registration Rights
Agreement is declared effective (plus any days in which sales cannot be made
thereunder). In addition, subject to the exceptions described below, the
Company will not conduct any equity financing (including debt with an equity
component) ("FUTURE OFFERINGS") during the period beginning on the Closing
Date and ending one hundred eighty (180) days after the end of the Lock-up
Period, unless it shall have first delivered to each Buyer, at least fifteen
(15) business days prior to the closing of such Future Offering, written
notice describing the proposed Future Offering, including the terms and
conditions thereof and proposed definitive documentation to be entered into
in connection therewith, and providing each Buyer an option during the ten
(10) day period following delivery of such notice to purchase its pro rata
share (based on the ratio that the number of Preferred Shares purchased by it
hereunder bears to the aggregate number of Preferred Shares purchased
hereunder) of the securities being offered in the Future Offering on the same
terms as contemplated by such Future Offering (the limitations referred to in
this sentence and the preceding sentence are collectively referred to as the
"CAPITAL RAISING LIMITATIONS"). In the event the terms and conditions of a
proposed Future Offering are amended in any respect after delivery of the
notice to the Buyers concerning the proposed Future Offering, the Company
shall deliver a new notice to each Buyer describing the amended terms and
conditions of the proposed Future Offering and each Buyer thereafter shall
have an option during the ten (10) day period following delivery of such new
notice to purchase its pro rata share of the securities being offered on the
same terms as contemplated by such proposed Future Offering, as amended. The
foregoing sentence shall apply to successive amendments to the terms and
conditions of any proposed Future Offering. The Capital Raising Limitations
shall not apply to any transaction involving (i) issuances of securities in a
firm commitment underwritten public offering (excluding a continuous offering
pursuant to Rule 415 under the 1933 Act) or (ii) issuances of securities as
consideration for a merger, consolidation or purchase of assets, or in
connection with any strategic partnership, joint venture, alliance or similar
strategic transaction (the primary purpose of which is not to raise equity
capital), or in connection with the disposition or acquisition of a business,
product or license by the Company.
The Capital Raising Limitations also shall not apply to the issuance of
securities upon exercise or conversion of the Company's options, warrants or
other convertible securities outstanding as of the date hereof or to the
grant of additional options or warrants, or the issuance of additional
securities, under any Company stock option or restricted stock plan approved
by the stockholders of the Company.
f. EXPENSES. The Company shall pay to Rose Glen Capital
Management, L.P. ("ROSE GLEN") at the Closing a non-accountable expense
allowance equal to Twenty-Five Thousand Dollars ($25,000) (Five Thousand Dollars
($5,000) of which has been previously paid by the Company) for all expenses
incurred by it in connection with the negotiation, preparation, execution,
delivery and performance of this Agreement and the other agreements to be
executed in connection herewith, including, without limitation, attorneys' and
consultants' fees and expenses and travel expenses.
g. FINANCIAL INFORMATION. The Company agrees to send the
following reports to each Buyer until such Buyer transfers, assigns, or sells
all of the Securities: (i) within ten (10) days after the filing with the SEC, a
copy of its Annual Report on Form 10-K (or Form 10-KSB), its Quarterly Reports
on Form 10-Q (or Form 10-QSB) and any Current Reports on Form 8-K; (ii) within
one (1) day after release, copies of all press releases issued by the Company or
any of its Subsidiaries; and (iii) contemporaneously with the making available
or giving to the stockholders of the Company, copies of any notices or other
information the Company makes available or gives to such stockholders.
h. RESERVATION OF SHARES. The Company shall at all times have
authorized, and reserved for the purpose of issuance, a sufficient number of
shares of Common Stock to provide for the full conversion the outstanding
Debentures or Preferred Shares and issuance of the Conversion Shares in
connection with the Debentures or Preferred Shares (based on the lesser of the
Variable Conversion Price in effect from time to time and the Fixed Conversion
Price in effect from time to time (each as defined in the Debentures and the
Certificate of Designation)) and as otherwise required by the Debentures and the
Certificate of Designation (including sufficient shares to provide for the full
exercise of the Investment Options) and the full exercise of the Warrants and
issuance of the Warrant Shares in connection therewith (based on the Exercise
Price (as defined in the Warrants) of the Warrants in effect from time to time).
The Company shall not reduce the number of shares of Common Stock reserved for
issuance upon conversion of or otherwise pursuant to the Debentures and
Preferred Shares and upon exercise of or otherwise pursuant to the Warrants
without the consent of each Buyer. The Company shall use its best efforts at
all times to maintain the number of shares of Common Stock so reserved for
issuance at no less than two (2) times the number that is then actually issuable
upon full conversion of the Debentures and Preferred Shares and exercise of the
Investment Options thereunder (based on the lesser of the Variable Conversion
Price in effect from time to time and the Fixed Conversion Price in effect from
time to time (each as defined in the Debentures and the Certificate of
Designation)) and full exercise of the Warrants (based on
the Exercise Price (as defined in the Warrants) of the Warrants in effect
from time to time). If at any time the number of shares of Common Stock
authorized and reserved for issuance is below the number of Conversion Shares
issued and issuable upon conversion of or otherwise pursuant to the
Debentures or the Preferred Shares (based on the lesser of the Variable
Conversion Price in effect from time to time and the Fixed Conversion Price
in effect from time to time (each as defined in the Debentures and the
Certificate of Designation) and assuming the full exercise of the Investment
Options thereunder) and the aggregate number of Warrant Shares issued and
issuable upon exercise of the Warrants (based on the Exercise Price (as
defined in the Warrants) of the Warrants in effect from time to time), the
Company will promptly take all corporate action necessary to authorize and
reserve a sufficient number of shares, including, without limitation, calling
a special meeting of stockholders to authorize additional shares to meet the
Company's obligations under this Section 4(h), in the case of an insufficient
number of authorized shares, and using its best efforts to obtain stockholder
approval of an increase in such authorized number of shares.
i. LISTING. The Company shall promptly secure the listing of
the Conversion Shares and Warrant Shares upon each national securities exchange
or automated quotation system, if any, upon which shares of Common Stock are
then listed (subject to official notice of issuance) and, so long as any Buyer
owns any of the Securities, shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all Conversion Shares from time
to time issuable upon conversion of or otherwise pursuant to the Debentures or
the Preferred Shares (including upon exercise of the Investment Options under
the Debentures and the Preferred Shares) and all of the Warrant Shares from time
to time issuable upon exercise of the Warrants. The Company will, so long as
any Buyer owns any of the Securities, take all action necessary to continue the
listing and trading of its Common Stock on the OTC BB, and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the National Association of Securities Dealers ("NASD") and
such exchanges, as applicable. The Company shall promptly provide to each Buyer
copies of any notices it receives from the OTC BB and any other exchanges or
quotation systems on which the Common Stock is then listed regarding the
continued eligibility of the Common Stock for listing on such exchanges and
quotation systems.
j. CORPORATE EXISTENCE. So long as a Buyer beneficially owns
any Debentures, Preferred Shares or Warrants, the Company shall maintain its
corporate existence and shall not sell all or substantially all of the Company's
assets, except in the event of a merger or consolidation or sale of all or
substantially all of the Company's assets, where the surviving or successor
entity in such transaction (i) assumes the Company's obligations hereunder and
under the agreements and instruments entered into in connection herewith and
(ii) is a publicly traded corporation whose Common Stock is listed for trading
on Nasdaq, Nasdaq SmallCap, NYSE or AMEX.
k. NO INTEGRATION. The Company shall not make any offers or
sales
of any security (other than the Securities) under circumstances that would
require registration of the Securities being offered or sold hereunder under the
1933 Act or cause the offering of Securities to be integrated with any other
offering of securities by the Company for the purpose of any stockholder
approval provision applicable to the Company or its securities.
l. LISTING ON NASDAQ, NASDAQ SMALLCAP, THE NYSE OR AMEX. The
Company will take all necessary action to promptly secure the listing or
quotation of the Common Stock on Nasdaq or, if the Company is not eligible for
Nasdaq, the Nasdaq SmallCap and will thereafter, so long as the Buyer owns any
of the Securities, maintain the listing or quotation of the Common Stock on
Nasdaq, the Nasdaq SmallCap, the NYSE or the AMEX.
m. STOCKHOLDER APPROVAL. The Company shall, prior to any
issuance of the Preferred Shares, use its best efforts to obtain such approvals
of the Company's stockholders as may be required to issue all of the shares of
Common Stock issuable upon conversion or exercise of, or otherwise with respect
to, the Debentures, the Preferred Shares and the Warrants in accordance with
applicable law and the rules and regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization which may have
jurisdiction over the Company upon compliance by the Company with Section 4(l)
(the "20% RULE APPROVAL"). The Company shall comply with the filing and
disclosure requirements of Section 14 under the Exchange Act in connection with
the solicitation, acquisition and disclosure of such 20% Rule Approval. The
Company represents and warrants that its Board of Directors has approved, and
will recommend that the Company's stockholders approve, the proposal
contemplated by this Section 4(m) and shall so indicate such recommendation in
the proxy statement used to solicit such 20% Rule Approval. The Company shall
use its best efforts to cause its officers and directors to vote in favor of the
proposal contemplated by this Section 4(m).
5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable
instructions to its transfer agent to issue certificates, registered in the name
of each Buyer or its nominee, for the Conversion Shares and Warrant Shares in
such amounts as specified from time to time by each Buyer to the Company upon
conversion of the Debentures or the Preferred Shares (including upon exercise of
the Investment Options) or exercise of the Warrants in accordance with the terms
thereof (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). Prior to registration
of the Conversion Shares and Warrant Shares under the 1933 Act or the date on
which the Conversion Shares or Warrant Shares may be sold pursuant to Rule 144
without any restriction as to the number of securities as of a particular date
that can then be immediately sold, all such certificates shall bear the
restrictive legend specified in Section 2(g) of this Agreement. The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(f) hereof (in the case of the Conversion Shares and
Warrant Shares, prior to registration of the Conversion Shares and Warrant
Shares under the 1933 Act or the date on which the Conversion Shares or Warrant
Shares may be sold pursuant to
Rule 144 without any restriction as to the number of securities as of a
particular date that can then be immediately sold), will be given by the
Company to its transfer agent and that the Securities shall otherwise be
freely transferable on the books and records of the Company as and to the
extent provided in this Agreement and the Registration Rights Agreement.
Nothing in this Section shall affect in any way the Buyer's obligations and
agreement set forth in Section 2(g) hereof to comply with all applicable
federal and state securities laws, including prospectus delivery
requirements, if any, upon re-sale of the Securities. If a Buyer provides
the Company with (i) an opinion of counsel, in form, substance and scope
customary for opinions in comparable transactions, to the effect that a
public sale or transfer of such Securities may be made without registration
under the 1933 Act and such sale or transfer is effected or (ii) the Buyer
provides reasonable assurances that the Securities can be sold pursuant to
Rule 144 (which shall consist of the documentation customarily executed by a
seller and its broker, if any, in connection with a proposed sale under Rule
144), the Company shall permit the transfer, and, in the case of the
Conversion Shares and Warrant Shares, promptly instruct its transfer agent to
issue one or more certificates, free from any restrictive legend, in such
name and in such denominations as specified by such Buyer.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation
of the Company hereunder to issue and sell the Debentures and Warrants to a
Buyer at the Closing is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions thereto, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion:
a. The applicable Buyer shall have executed this Agreement and
the Registration Rights Agreement and delivered the same to the Company.
b. The applicable Buyer shall have delivered the Purchase Price
in accordance with Section 1(b) above.
c. The representations and warranties of the applicable Buyer
shall be true and correct in all material respects as of the date when made and
as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date, which representations and
warranties shall be true and correct as of such date), and the applicable Buyer
shall have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the applicable Buyer at or prior to the Closing
Date.
d. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The
obligation of each Buyer hereunder to purchase the Debentures and Warrants at
the Closing is subject to the satisfaction, at or before the Closing Date, of
each of the following conditions, provided that these conditions are for such
Buyer's sole benefit and may be waived by such Buyer at any time in its sole
discretion:
a. The Company shall have executed this Agreement and the
Registration Rights Agreement and delivered the same to the Buyer.
b. The Company shall have delivered to such Buyer duly executed
Debentures and Warrants in accordance with Section 1(b) above.
c. The Irrevocable Transfer Agent Instructions, in form and
substance satisfactory to a majority-in-interest of the Buyers, shall have been
delivered to and acknowledged in writing by the Company's Transfer Agent.
d. 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 such time (except for representations and
warranties that speak as of a specific date, which representations and
warranties shall be true and correct as of such date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date. The Buyer
shall have received a certificate or certificates, executed by the chief
executive officer of the Company, dated as of the Closing Date, to the foregoing
effect and as to such other matters as may be reasonably requested by such Buyer
including, but not limited to certificates with respect to the Company's
Certificate of Incorporation, By-laws and Board of Directors' resolutions
relating to the transactions contemplated hereby.
e. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
f. The Conversion Shares and the Warrant Shares shall have been
authorized for quotation on the OTC BB and trading in the Common Stock on the
OTC BB shall not have been suspended by the SEC or the OTC BB.
g. The Buyer shall have received opinions of the Company's
counsel, dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer and in substantially the same form as EXHIBIT "E-1"
and EXHIBIT "E-2" attached hereto.
h. The Buyer shall have received an officer's certificate
described in Section 3(c) above, dated as of the Closing Date.
i. No material adverse change or development in the business,
operations, properties, prospects, financial condition or operations of the
Company shall have occurred since the date hereof.
8. GOVERNING LAW; MISCELLANEOUS.
a. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
agreements made and to be performed in the State of Delaware (without regard to
principles of conflict of laws). Both parties irrevocably consent to the
jurisdiction of the United States federal courts and the state courts located in
Delaware with respect to any suit or proceeding based on or arising under this
Agreement, the agreements entered into in connection herewith or the
transactions contemplated hereby or thereby and irrevocably agree that all
claims in respect of such suit or proceeding may be determined in such courts.
Both parties irrevocably waive the defense of an inconvenient forum to the
maintenance of such suit or proceeding. Both parties further agree that service
of process upon a party mailed by first class mail shall be deemed in every
respect effective service of process upon the party in any such suit or
proceeding. Nothing herein shall affect either party's right to serve process
in any other manner permitted by law. Both parties agree that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
b. COUNTERPARTS; SIGNATURES BY FACSIMILE. This Agreement may
be executed in one or more counterparts, all of which shall be considered one
and the same agreement and shall become effective when counterparts have been
signed by each party and delivered to the other party. This Agreement, once
executed by a party, may be delivered to the other party hereto by facsimile
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.
c. HEADINGS. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. SEVERABILITY. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
e. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Buyer
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by
an instrument in writing signed by the party to be charged with enforcement.
f. NOTICES. Any notices required or permitted to be given
under the terms of this Agreement shall be sent by certified or registered mail
(return receipt requested) or delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile and shall be effective
five days after being placed in the mail, if mailed by regular United States
mail, or upon receipt, if delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile, in each case addressed
to a party. The addresses for such communications shall be:
If to the Company:
Global Media Corp.
83 Victoria Crescent
Unit 29
Nanaimo, British Columbia V9R 5B9
Attention: Chief Executive Officer
Facsimile: (250) 716-0502
With copy to:
Davis Wright Tremaine LLP
2600 Century Square
1501 Fourth Avenue
Seattle, Washington 98101
Attention: Eric A. DeJong
Facsimile: (206) 628-7699
If to a Buyer: To the address set forth immediately below such Buyer's
name on the signature pages hereto.
With copy to:
Morgan, Lewis & Bockius, LLP
1701 Market Street
Philadelphia, Pennsylvania 19103-2921
Attention: Keith S. Marlowe
Facsimile: (215) 963-5299
Each party shall provide notice to the other party of any change in
address.
g. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
Neither the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, subject to Section 2(f), any Buyer may assign its
rights hereunder to any person that purchases Securities in a private
transaction from a Buyer or to any of its "affiliates," as that term is defined
under the 1934 Act, without the consent of the Company.
h. THIRD PARTY BENEFICIARIES. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. SURVIVAL. The representations and warranties of the Company
and the agreements and covenants set forth in Sections 3, 4, 5 and 8 shall
survive the closing hereunder notwithstanding any due diligence investigation
conducted by or on behalf of the Buyers. The Company agrees to indemnify and
hold harmless each of the Buyers and all their officers, directors, employees
and agents for loss or damage arising as a result of or related to any breach or
alleged breach by the Company of any of its representations, warranties and
covenants set forth in Sections 3 and 4 hereof or any of its covenants and
obligations under this Agreement or the Registration Rights Agreement, including
advancement of expenses as they are incurred.
j. PUBLICITY. The Company and each of the Buyers shall have
the right to review a reasonable period of time before issuance of any press
releases, filings with the SEC, the NASD or any stock exchange or interdealer
quotation system, or any other public statements with respect to the
transactions contemplated hereby; provided, however, that the Company shall be
entitled, without the prior approval of each of the Buyers, to make any press
release or public filings with respect to such transactions as is required by
applicable law and regulations (although each of the Buyers shall be consulted
by the Company in connection with any such press release prior to its release
and shall be provided with a copy thereof and be given an opportunity to comment
thereon).
k. 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.
l. 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.
m. Remedies. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to each Buyer by vitiating
the intent and purpose of the transactions contemplated hereby. Accordingly,
the Company acknowledges that the remedy at law for a breach of its obligations
under this Agreement will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Agreement, that each
Buyer shall be entitled, in addition to all other available remedies in law or
in equity, to an injunction or injunctions to prevent or cure any breaches of
the provisions of this Agreement and to enforce specifically the terms and
provisions of this Agreement, without the necessity of showing economic loss and
without any bond or other security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused
this Agreement to be duly executed as of the date first above written.
GLOBAL MEDIA CORP.
By:
Name:
Title:
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P., Investment Manager
By: RGC General Partner Corp., as General Partner
By:
Wayne D. Bloch
Managing Director
RESIDENCE: Cayman Islands
ADDRESS:
c/o Rose Glen Capital Management, L.P.
3 Bala Plaza East, Suite 200
251 St. Asaphs Road
Bala Cynwyd, PA 19004
Facsimile: (610) 617-0570
Telephone: (610) 617-5900
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures:
$8,500,000
Number of Warrants: 680,000
Aggregate Purchase Price: $8,500,000