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EXHIBIT 10.39
PURCHASE AGREEMENT
DATED AS OF MAY 21, 1999
BETWEEN DIGITAL ENTERTAINMENT NETWORK, INC.
AND THE PURCHASERS SET FORTH
ON THE SIGNATURE PAGES HERETO
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TABLE OF CONTENTS
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1. Authorization and Closing................................................................................1
1A. Authorization of the Preferred Stock............................................................1
1B. Purchase and Sale of the Preferred Stock........................................................1
1C. The Closing.....................................................................................1
2. Conditions of Each Purchaser's Obligation at the Closing.................................................2
2A. Representations and Warranties; Covenants.......................................................2
2B. Certificate of Designation......................................................................2
2C. Registration Agreement..........................................................................2
2D. Sale of Preferred Stock to Each Purchaser.......................................................2
2E. Securities Law Compliance.......................................................................2
2F. Closing Documents...............................................................................2
2G. Joint Sale and Voting Agreement.................................................................3
2H. Proceedings.....................................................................................3
2I. Waiver..........................................................................................4
3. Covenants................................................................................................4
3A. Financial Statements and Other Information......................................................4
3B. Designation of Directors........................................................................5
3C. Restrictions....................................................................................6
3D. Affirmative Covenants...........................................................................7
3E. Compliance with Agreements......................................................................8
3F. SBIC Regulatory Provisions......................................................................8
3G. Reservation of Common Stock.....................................................................9
3H. Intellectual Property Rights....................................................................9
3I. Rights of First Refusal and Preemptive Rights..................................................10
3J. Regulatory Compliance Cooperation..............................................................12
3K. Put Rights.....................................................................................12
3L. Incentive Compensation for Founders............................................................13
4. Transfer of Restricted Securities.......................................................................14
4A. General Provisions.............................................................................14
4B. Opinion Delivery...............................................................................14
4C. Rule 144A......................................................................................14
4D. Legend Removal.................................................................................14
5. Representations and Warranties of the Company...........................................................15
5A. Organization, Corporate Power and Licenses.....................................................15
5B. Capital Stock and Related Matters..............................................................15
5C. Subsidiaries; Investments......................................................................16
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5D. Authorization; No Breach.......................................................................16
5E. Financial Statements...........................................................................17
5F. Absence of Undisclosed Liabilities.............................................................17
5G. No Material Adverse Change.....................................................................17
5H. Absence of Certain Xxxxxxxxxxxx................................................................00
0X. Assets.........................................................................................19
5J. Contracts and Commitments......................................................................20
5K. Intellectual Property Rights...................................................................22
5L. Litigation, etc................................................................................22
5M. Brokerage......................................................................................22
5N. Governmental Consent, etc......................................................................23
5O. Insurance......................................................................................23
5P. Compliance with Laws...........................................................................23
5Q. Taxes..........................................................................................23
5R. Environmental, Health, and Safety Matters......................................................24
5S. Employees......................................................................................25
5T. Year 2000......................................................................................25
5U. Small Business Concern, Etc....................................................................26
5V. Closing Date...................................................................................27
6. Definitions.............................................................................................27
6A. Definitions....................................................................................27
7. Miscellaneous...........................................................................................30
7A. Expenses.......................................................................................30
7B. Purchaser's Representations....................................................................31
7C. Consent to Amendments..........................................................................32
7D. Survival of Representations and Warranties.....................................................32
7E. Successors and Assigns.........................................................................32
7F. Severability...................................................................................32
7G. Counterparts...................................................................................33
7H. Descriptive Headings; Xxxxxxxxxxxxxx...........................................................00
0X. Governing Law..................................................................................33
7J. Notices........................................................................................33
7K. No Strict Construction.........................................................................33
7L. Indemnification................................................................................33
Schedules and Exhibits
Schedule of Wire Transfer Instructions
Schedule of Purchasers
Schedule of Subscribers
List of Exhibits
List of Disclosure Schedules
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DIGITAL ENTERTAINMENT NETWORK, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of May 21, 1999, between Digital
Entertainment Network, Inc., a Delaware corporation (the "Company"), and the
Persons listed on the Schedule of Purchasers attached hereto (collectively
referred to herein as the "Purchasers" and individually as a "Purchaser").
Except as otherwise indicated herein, capitalized terms used herein are defined
in Section 6 hereof.
The parties hereto agree as follows:
Section 1. Authorization and Closing.
1A. Authorization of the Preferred Stock. The Company shall
authorize the issuance and sale to the Purchasers of 210,577 shares of its
Series B Convertible Preferred Stock, par value $.01 per share (the "Preferred
Stock"), having the rights and preferences set forth in Exhibit A attached
hereto. The Preferred Stock is convertible into shares of the Company's Common
Stock, par value $.01 per share (the "Common Stock").
1B. Purchase and Sale of the Preferred Stock. Subject to the
terms and conditions set forth herein, at the Closing, the Company shall sell to
each Purchaser and, each Purchaser shall purchase from the Company, the number
of shares of Preferred Stock set forth opposite such Purchaser's name on the
Schedule of Purchasers attached hereto at a price of $104.00 per share.
1C. The Closing. The closing of the separate purchases and
sales of the Preferred Stock (the "Closing") shall take place at the offices of
Katten, Muchin & Zavis, 0000 Xxxxxx xx xxx Xxxxx, Xxxxx 0000, Xxx Xxxxxxx,
Xxxxxxxxxx at 10:00 a.m. on May 21, 1999, or at such other place or on such
other date as may be mutually agreeable to the Company and each Purchaser. At
the Closing, the Company shall deliver to each Purchaser stock certificates
evidencing the Preferred Stock to be purchased by such Purchaser, registered in
such Purchaser's or its nominee's name, upon payment of the purchase price
thereof by wire transfer of immediately available funds to the Company's account
at Imperial Bank, Beverly Hills, California, as set forth on the attached
Schedule of Wire Transfer Instructions, in the aggregate amount set forth
opposite such Purchaser's name on the Schedule of Purchasers.
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Section 2. Conditions of Each Purchaser's Obligation at the
Closing. The obligation of each Purchaser to purchase and pay for the Preferred
Stock at the Closing is subject to the satisfaction or waiver as of the Closing
of the following conditions:
2A. Representations and Warranties; Covenants. The
representations and warranties contained in Section 5 hereof shall be true and
correct in all material respects at and as of the Closing as though then made,
except to the extent of changes caused by the transactions contemplated herein,
and the Company shall have performed in all material respects all of the
covenants required to be performed by it hereunder prior to the Closing.
2B. Certificate of Designation. The Company shall have duly
adopted, executed and filed with the Secretary of State of Delaware a
Certificate of Designation of Rights and Preferences establishing the terms and
the relative rights and preferences of the Preferred Stock in the form set forth
in Exhibit A hereto (the "Certificate of Designation"), and the Company shall
not have adopted or filed any other document designating terms, relative rights
or preferences of its preferred stock, other than the Certificate of
Designations, Preferences and Relative Optional and other Specific Rights of
Series A Convertible Preferred Stock and Qualifications, Limitations and
Restrictions thereof, filed with the Secretary of State of Delaware on December
14, 1998 (such Stock, the "Series A Preferred Stock") or otherwise amended its
certificate of incorporation, except for permitted amendments pursuant to
paragraph 3C.(x). The Certificate of Designation shall be in full force and
effect as of the Closing under the laws of Delaware and shall not have been
amended or modified.
2C. Registration Agreement. The Company and the Purchasers
shall have entered into a registration rights agreement in form and substance as
set forth in Exhibit B attached hereto (the "Registration Agreement"), and the
Registration Agreement shall be in full force and effect as of the Closing.
2D. Sale of Preferred Stock to Each Purchaser. The Company
shall have simultaneously sold to each Purchaser the Preferred Stock to be
purchased by such Purchaser hereunder at the Closing and shall have received
payment therefor in full.
2E. Securities Law Compliance. The Company shall have made all
filings under all applicable federal and state securities laws necessary to
consummate the issuance of the Preferred Stock pursuant to this Agreement in
compliance with such laws.
2F. Closing Documents. The Company shall have delivered to
each Purchaser all of the following documents:
(i) an Officer's Certificate, dated the date of the
Closing, stating that the conditions specified in Section 1 and
Paragraphs 2A through 2E, inclusive, have been fully satisfied in all
material respects;
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(ii) certified copies of the resolutions duly adopted by
the Company's board of directors authorizing the execution, delivery
and performance of this Agreement, the Registration Agreement and each
of the other agreements contemplated hereby, the filing of the
Certificate of Designation, the issuance and sale of the Preferred
Stock, the reservation for issuance upon conversion of the Preferred
Stock of an aggregate of 2,500,001 shares of Common Stock and the
consummation of all other transactions contemplated by this Agreement;
(iii) certified copies of the Company's Restated
Certificate of Incorporation (the "Certificate of Incorporation"),
Certificate of Designations, Preferences and Relative, Optional and
Other Special Rights of Series A Convertible Preferred Stock and
Qualifications, Limitations and Restrictions Thereof, the Certificate
of Designation and the Company's Amended and Restated Bylaws (the
"Bylaws"), each as in effect at the Closing;
(iv) copies of all third party and governmental
consents, approvals and filings required in connection with the
consummation of the transactions hereunder (including, without
limitation, all blue sky law filings and waivers of all preemptive
rights and rights of first refusal (if any));
(v) an opinion of Katten, Muchin & Zavis, counsel to
the Company, with respect to the matters set forth in the attached
Exhibit E;
(vi) in the case of Xxxxxxxxx/Digital Entertainment
Network Partners, L.L.C. ("Xxxxxxxxx/Chase") and Chase Capital Partners
("Chase Capital"), (A) duly completed and executed SBA Forms 480, 652
and Parts A and B of 1031, (B) a business plan showing the Company's
financial projections for the years ended 1999 through 2001, and (C) a
list, after giving effect to the transactions contemplated by this
Agreement, of (1) the name of each of the Company's directors, (2) the
name and title of each of the Company's officers, and (3) the name of
each of the Company's stockholders setting forth the number and class
of shares held of record; and
(vii) such other documents relating to the transactions
contemplated by this Agreement as any Purchaser or its special counsel
may reasonably request.
2G. Joint Sale and Voting Agreement. The Purchasers and Xxxx
Xxxxxxx-Xxxxxx shall have entered into an agreement in form and substance as set
forth in Exhibit D attached hereto the "Joint Sale and Voting Agreement"), and
the Joint Sale and Voting Agreement shall be in full force and effect as of the
Closing.
2H. Proceedings. All corporate and other proceedings taken or
required to be taken by the Company in connection with the transactions
contemplated hereby to be consummated at or prior to the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to each Purchaser and its special counsel.
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2I. Waiver. Any condition specified in this Section 2 may be
waived if consented to by each Purchaser; provided that no such waiver shall be
effective against any Purchaser unless it is set forth in a writing executed by
such Purchaser.
Section 3. Covenants.
3A. Financial Statements and Other Information. The Company
shall deliver to each Purchaser:
(i) as soon as available but in any event within 30 days
after the end of each monthly accounting period in each fiscal year,
unaudited consolidating and consolidated statements of income and cash
flows of the Company and its Subsidiaries for such monthly period and
for the period from the beginning of the fiscal year to the end of such
month, and unaudited consolidating and consolidated balance sheets of
the Company and its Subsidiaries as of the end of such monthly period,
and commencing with the statements for January 2000, setting forth in
each case comparisons to the corresponding period in the preceding
fiscal year, and all such statements, except as disclosed therein,
shall be prepared in accordance with generally accepted accounting
principles, consistently applied, subject to the absence of footnote
disclosures and to normal year-end adjustments and the Company's chief
financial officer shall deliver a certificate to such effect;
(ii) within 90 days after the end of each fiscal year,
consolidating and consolidated statements of income and cash flows of
the Company and its Subsidiaries for such fiscal year, and
consolidating and consolidated balance sheets of the Company and its
Subsidiaries as of the end of such fiscal year, setting forth in each
case comparisons to the Company's annual budget and to the preceding
fiscal year, all prepared in accordance with generally accepted
accounting principles, consistently applied (except as otherwise
disclosed in such financial statements), and accompanied by, (a) with
respect to the consolidated portions of such statements, an opinion of
an independent accounting firm of recognized national standing, (b) a
certificate from such accounting firm, addressed to the Company's board
of directors, stating that in the course of its examination nothing
came to its attention that caused it to believe that there was an Event
of Noncompliance in existence or that there was any material default by
the Company or any Subsidiary in the fulfillment of or compliance with
any of the terms, covenants, provisions or conditions of any other
material agreement to which the Company or any Subsidiary is a party
or, if such accountants have reason to believe any Event of
Noncompliance or other such a default by the Company or any Subsidiary
exists, a certificate specifying the nature and period of existence
thereof, and (c) a copy of such firm's annual management letter to the
board of directors;
(iii) promptly upon receipt thereof, any additional
reports, management letters or other detailed information concerning
significant aspects of the Company's
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operations or financial affairs given to the Company by its independent
accountants (and not otherwise contained in other materials provided
hereunder);
(iv) not more than 90 nor less than 60 days prior to the
beginning of each fiscal year commencing as of January 1, 2000, an
annual financial plan for the Company and its Subsidiaries for such
fiscal year (displaying anticipated statements of income and cash flows
and balance sheets), and promptly upon preparation thereof any
revisions of such annual financial plan; and
(v) with reasonable promptness, such other information
and financial data concerning the Company and its Subsidiaries as a
Purchaser may reasonably request.
Each of the financial statements referred to in subparagraph (i) and (ii) shall
be true and correct in all material respects as of the dates and for the periods
stated therein, subject in the case of the unaudited financial statements to
changes resulting from normal year-end adjustments.
Notwithstanding the foregoing, the provisions of this paragraph 3A shall cease
to be effective so long as the Company (a) is subject to the periodic reporting
requirements of the Securities Exchange Act and continues to comply with such
requirements and (b) promptly provides to each Person otherwise entitled to
receive information pursuant to this paragraph 3A all reports and other
materials filed by the Company with the Securities and Exchange Commission
pursuant to the periodic reporting requirements of the Securities Exchange Act.
Except as otherwise required by law or judicial order or decree or by any
governmental agency or authority, each Purchaser entitled to receive information
regarding the Company and its Subsidiaries under paragraph 3A shall use its best
efforts to maintain the confidentiality of all nonpublic information obtained
by it hereunder which the Company has reasonably designated as, or that a
reasonable person would believe was, proprietary or confidential in nature;
provided that each such Purchaser may, to the extent required by law, disclose
such information in connection with a bona fide sale or transfer of any
Preferred Stock, if the proposed transferee of such Person's Preferred Stock
agrees in advance in writing in a written instrument in form and substance
satisfactory to the Company to be bound by the provisions hereof.
3B. Designation of Directors. So long as any Preferred Stock
and, until the fifth anniversary of the date of this Agreement, at least 25% of
the Underlying Common Stock (calculated on an as-if-converted basis) originally
purchased by Xxxxxxxxx/Chase and Chase Capital is held by Xxxxxxxxx/Chase and
Chase Capital, Xxxxxxxxx/Chase and Chase Capital shall each have the right to
select one (1) representative to be elected to the Company's board of directors,
at least one of which shall also be elected to the Company's Compensation
Committee, and at least one of which shall also be elected to the Company's
Executive Committee, and the Company shall nominate such representatives for
election to the board of directors and such committee(s). The Company shall use
its best efforts to cause such representatives to be elected to the board of
directors and such committee(s) and shall not take any action which would
diminish the prospects of such
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representatives being elected to the board of directors and such committee(s).
All reasonable out-of-pocket and documented expenses of each board member
incurred in connection with attending regular and special board meetings and any
meeting of any board committee shall be reimbursed by the Company.
3C. Restrictions. The Company shall not, without the prior
written consent of the holders of at least a majority of the outstanding
Preferred Stock:
(i) directly or indirectly declare or pay any dividends
or make any distributions upon any of its capital stock or other equity
securities, except for dividends payable in shares of Common Stock
issued upon the outstanding shares of Common Stock, Series A Preferred
Stock and the Preferred Stock;
(ii) directly or indirectly redeem, purchase or
otherwise acquire, or permit any Subsidiary to redeem, purchase or
otherwise acquire, any of the Company's or any Subsidiary's capital
stock or other equity securities (including, without limitation,
warrants, options and other rights to acquire such capital stock or
other equity securities), other than pursuant to this Agreement;
(iii) except as expressly contemplated by this Agreement,
authorize, issue or enter into any agreement providing for the issuance
(contingent or otherwise) of, (a) any notes or debt securities
containing equity features (including, without limitation, any notes or
debt securities convertible into or exchangeable for capital stock or
other equity securities, issued in connection with the issuance of
capital stock or other equity securities or containing profit
participation features) or (b) any capital stock or other equity
securities (or any securities convertible into or exchangeable for any
capital stock or other equity securities) which are senior to or on a
parity with the Preferred Stock with respect to the payment of
dividends, redemptions or distributions upon liquidation or otherwise,
or (c) additional shares of Preferred Stock, other than shares issued
at or within five (5) business days of the Closing to the Persons set
forth on the Schedule of Subscribers attached hereto in the number of
shares set forth opposite such Persons names on such schedule;
(iv) merge or consolidate with any Person or sell all or
substantially all of the consolidated assets of the Company and its
Subsidiaries, other than in a transaction or series of related
transactions in which (A) the holders of the Preferred Stock would
receive consideration comprised of cash and/or publicly traded
securities and (B) the consideration received by holders of the
Preferred Stock (on an as-if-converted basis) would be not less than
the applicable IPO Valuation;
(v) issue in a transaction or series of related
transactions involving a Change of Control any capital stock, or
securities exchangeable or exercisable for, or convertible into,
capital stock, other than in a transaction or series of related
transactions in which (A) the Company would receive consideration
comprised of cash and/or publicly
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traded securities and (B) the consideration received by holders of the
Preferred Stock (on an as-if-converted basis) would be not less than
the applicable IPO Valuation;
(vi) consummate any offering of equity securities
registered under the Securities Act other than the Qualified IPO;
(vii) consummate any material sale of assets out of the
ordinary course of business, excluding transactions approved by the
Company's board of directors (including both of the directors elected
pursuant to paragraph 3B);
(viii) enter into any transactions with Affiliates,
excluding (A) transactions having an aggregate value (as of the date of
such transaction) of less than $25,000 and (B) transactions that are on
terms fair to the Company and that are no less favorable to the Company
than those that could have been obtained in a comparable transaction by
the Company from an independent third party, as determined in the good
faith judgment of the board of directors of the Company (including both
of the directors elected pursuant to paragraph 3B);
(ix) enter into the ownership, active management or
operation of any business other than (A) the development, creation,
distribution and/or exploitation of informational, educational and/or
entertainment content and/or the intellectual property rights related
thereto in all forms of media now or hereafter known, throughout the
universe, including, without limitation, with respect to programming
distributed via the Internet and/or other forms of digital delivery and
all aspects of the music and recording industries; (B) Internet,
on-line and/or digital delivery business activities now or hereafter
known, throughout the universe, including, without limitation,
entertainment and commerce; and/or (C) all ancillary business
activities related to (A) or (B) now or hereafter known, throughout the
universe; and
(x) except as contemplated by Exhibit C, make any
amendment to the Certificate of Incorporation or the Bylaws.
3D. Affirmative Covenants. So long any of the Preferred Stock
remains outstanding the Company shall, and shall cause each Subsidiary to,
unless it has received the prior written consent of the holders of at least a
majority of the outstanding Preferred Stock:
(i) at all times cause to be done all things necessary
to maintain, preserve and renew its corporate existence and all
material licenses, authorizations and permits necessary to the conduct
of its businesses;
(ii) maintain and keep its material properties in good
repair, working order and condition, and from time to time make all
necessary repairs, renewals and replacements;
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(iii) pay and discharge when payable all taxes,
assessments and governmental charges imposed upon its properties or
upon the income or profits therefrom (in each case before the same
becomes delinquent and before penalties accrue thereon) and all claims
for labor, materials or supplies to the extent to which the failure to
pay or discharge such obligations would reasonably be expected to have
a Material Adverse Effect, unless and to the extent that, in either
case, the same are being contested in good faith and by appropriate
proceedings and adequate reserves (as determined in accordance with
generally accepted accounting principles, consistently applied) have
been established on its books with respect thereto;
(iv) comply with all other obligations which it incurs
pursuant to any contract or agreement, as such obligations become due,
unless the failure to so comply would not reasonably be expected to
have a Material Adverse Effect, or such obligations are being contested
in good faith and by appropriate proceedings and adequate reserves (as
determined in accordance with generally accepted accounting principles,
consistently applied) have been established on its books with respect
thereto;
(v) comply with all applicable laws, rules and
regulations of all governmental authorities, the violation of which
would reasonably be expected to have a Material Adverse Effect;
(vi) apply for and continue in force adequate insurance
covering risks of such types and in such amounts as are customary for
corporations of similar size engaged in similar lines of business; and
(vii) maintain proper books of record and account which
present fairly in all material respects its financial condition and
results of operations and make provisions on its financial statements
for all such proper reserves as in each case are required in accordance
with generally accepted accounting principles, consistently applied.
3E. Compliance with Agreements. The Company shall perform and
observe (i) all of its obligations to each holder of the Preferred Stock set
forth in the Certificate of Designation, and (ii) all of its obligations to each
holder of Registrable Securities set forth in the Registration Agreement.
3F. SBIC Regulatory Provisions.
(i) Within 75 days after the Closing, and at the end
of each month thereafter until all of the proceeds of the Financing
have been used by the Company and its Subsidiaries, the Company shall
deliver to Xxxxxxxxx/Chase and Chase Capital a written statement
certified by the Company's chief executive officer or chief financial
officer describing in reasonable detail the use of the proceeds of the
Financing (as hereinafter defined) hereunder by the Company and its
Subsidiaries. In addition to any other rights
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granted hereunder, the Company shall xxxxx Xxxxxxxxx/Chase, Chase
Capital and the United States Small Business Administration (the "SBA")
access to the Company's records for the purpose of verifying the use of
such proceeds.
(ii) Upon the occurrence of a Regulatory Violation
(as hereinafter defined) or in the event that Xxxxxxxxx/Chase or Chase
Capital determines in its reasonable good faith judgment that a
Regulatory Violation has occurred, in addition to any other rights and
remedies to which it may be entitled as a holder of Preferred Stock,
Xxxxxxxxx/Chase and Chase Capital shall each have the right to the
extent, but only to the extent, required under the SBIC Regulations to
demand the immediate repurchase of all of the outstanding shares of
Preferred Stock owned by it at a price per share equal to the purchase
price paid for such stock hereunder by delivering written notice of
such demand to the Company. The Company shall pay the purchase price
for such stock by a cashier's or certified check or by wire transfer of
immediately available funds to such holder within 45 days after the
Company's receipt of the demand notice, provided that such holder had
previously delivered to the Company the certificates evidencing the
Preferred Stock to be repurchased duly endorsed for transfer or
accompanied by duly executed forms of assignment.
(iii) For purposes of this paragraph, "Regulatory
Violation" means (a) a diversion of the a material portion proceeds of
such Financing from the use thereof previously provided to the
Purchasers, if such diversion was effected without obtaining the prior
written consent of Xxxxxxxxx/Chase and Chase Capital (which may be
withheld in their sole discretion) or (b) a change in the principal
business activity of the Company and its Subsidiaries to an ineligible
business activity (within the meaning of the SBIC Regulations) if such
change occurs within one year after the date of the closing of the
Financing hereunder; "SBIC Regulations" means the Small Business
Investment Act of 1958 and the regulations issued thereunder as set
forth in 13 CFR 107 and 121, as amended; and the term "Financing" shall
have the meaning set forth in the SBIC Regulations.
3G. Reservation of Common Stock. 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 issuance upon the conversion of the
Preferred Stock, such number of shares of Common Stock issuable upon the
conversion of all outstanding Preferred Stock. All shares of Common Stock which
are so issuable shall, when issued, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges. The Company shall take
all such actions as may be necessary to assure that all such shares of Common
Stock may be so issued without violation of any applicable law or governmental
regulation or any requirements of any domestic securities exchange upon which
shares of Common Stock may be listed (except for official notice of issuance
which shall be promptly transmitted by the Company upon issuance).
3H. Intellectual Property Rights. The Company shall, and shall
cause each Subsidiary to, possess and maintain all Intellectual Property Rights
necessary to the conduct of their respective businesses and own all right, title
and interest in and to, or have a valid license for, all
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such Intellectual Property Rights, except to the extent that the failure to do
so would, individually or in the aggregate, be reasonably likely to have a
Material Adverse Effect. Neither the Company nor any Subsidiary shall take any
action, or fail to take any action, which would result in the invalidity,
abandonment, misuse or unenforceability of such Intellectual Property Rights or
which would materially infringe upon or misappropriate any material rights of
other Persons, except to the extent that such action or failure to take action
would not be reasonably likely to have a Material Adverse Effect.
3I. Rights of First Refusal and Preemptive Rights.
(i) Except for issuances of shares of Preferred Stock
to the Persons and in the number of shares of Preferred Stock and at
the purchase price set forth on the Schedule of Subscribers, issuances
of Common Stock or Common Stock equivalents that constitute Excluded
Issuances and issuances of Common Stock, Common Stock equivalents or
other securities in a public offering consented to by the holders of
the Preferred Stock pursuant to Section 3.C.(vi), if the Company
authorizes the issuance or sale in a financing (other than a financing
incurred to fund the Company's obligations under paragraph 3K below) of
any shares of Common Stock or any securities containing options or
rights to acquire any shares of Common Stock (other than as a dividend
on the outstanding Common Stock, Series A Preferred Stock and Preferred
Stock), the Company shall first offer to sell to each holder of
Preferred Stock a portion of such stock or securities equal to (x) the
quotient determined by dividing (1) the number of shares of Underlying
Common Stock held by such holder by (2) the sum of the total number of
shares of Underlying Common Stock (the "First Offer Right"). The
Company shall make such offer by delivering to each holder a written
notice (the "First Offer Notice") setting forth the following proposed
terms of such financing: (i) the aggregate amount of such financing,
(ii) the proposed type of security to be issued, (iii) the number of
shares or units of such security to be issued, (iv) the proposed
purchase price, (v) the conversion price if such security is
convertible into Common Stock, (vi) the dividend rate and liquidation
preference, if any and (vii) such other terms as the Company deems
material.
(ii) In order to exercise its First Offer Right, a
holder of Underlying Common Stock must within 10 business days after
receipt of a First Offer Notice from the Company deliver a written
notice to the Company describing its election with respect to the First
Offer Right. If all of the stock and securities offered to the holders
of Underlying Common Stock is not fully subscribed by such holders, the
remaining stock and securities shall be available for offer by the
Company to the Persons to whom the Company originally proposed to issue
such securities.
(iii) In the event that a holder of Underlying Common
Stock does not exercise its First Offer Right, such holder shall be
entitled to elect to purchase a portion of the stock or securities to
be sold in such financing equal to (x) the quotient determined by
dividing (1) the number of shares of Underlying Common Stock held by
such holder by (2)
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the sum of the total number of shares of Underlying Common Stock and
the number of shares of Common Stock outstanding, the number of shares
of Common Stock issuable upon the exercise of any options or warrants,
and upon the conversion of the Series A Preferred Stock, any other
equity security convertible into Common Stock and any convertible
indebtedness of the Company, which are not shares of Underlying Common
Stock (the "Preemptive Right").
(iv) In order to exercise its Preemptive Right, a
holder of Underlying Common Stock must within 10 business days after
receipt of a First Offer Notice from the Company deliver a written
notice to the Company describing its election with respect to the
Preemptive Right. If all of the stock and securities offered to the
holders of Underlying Common Stock is not fully subscribed by such
holders and holders of Underlying Common Stock exercising the First
Offer Right, the remaining stock and securities shall be available for
offer by the Company to the Persons to whom the Company originally
proposed to issue such securities.
(v) Upon the expiration of the offering period
described above, and for a period of 120 days thereafter, the Company
shall be entitled to sell such stock or securities which the holders of
Underlying Common Stock have not elected to purchase on terms and
conditions no more favorable to the purchasers thereof than those
offered to such holders; provided, however, that a deviation of not
more than 10% in the principal terms of the transaction outlined in the
First Offer Notice shall be deemed not to be more favorable to the
purchasers thereof than those offered to such holders.
(vi) Each holder of Underlying Common Stock who has
exercised a First Offer Right or a Preemptive Right shall be entitled
to purchase such stock or securities on the same terms and conditions
as such stock or securities are sold to any other Persons; provided
that if all Persons entitled to purchase or receive such stock or
securities are required to also purchase other securities of the
Company, the holders of Underlying Common Stock exercising their rights
pursuant to this paragraph shall also be required to purchase the same
combination of securities (on the same terms and conditions) that such
other Persons are required to purchase. The purchase price for all
stock and securities offered to the holders of the Underlying Common
Stock shall be payable in cash at the closing of the transaction with
the other purchasers.
(vii) The rights of the holders of Underlying Common
Stock under this paragraph shall terminate upon the effectiveness of a
registration statement filed by the Company with the Securities and
Exchange Commission under the Securities Act with respect to a
Qualified IPO; provided that if the registration statement is withdrawn
or abandoned before any shares of Common Stock are sold thereunder, the
provisions of this paragraph shall remain in effect.
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3J. Regulatory Compliance Cooperation.
(i) In the event that an SBIC Holder determines that
it has a Regulatory Problem (as defined below), the SBIC Holder shall
have the right to transfer its Preferred Stock without regard to any
restrictions on transfer set forth in this Agreement other than the
securities law restrictions set forth in Section 5 hereof (provided
that the transferee agrees to become a party to this Agreement), and
the Company shall take all such actions as are reasonably requested by
the SBIC Holder in order to (a) effectuate and facilitate any transfer
by the SBIC Holder of any securities of the Company then held by such
SBIC Holder to any Person designated by such SBIC Holder, (b) permit
such SBIC Holder (or any Affiliate of such SBIC Holder) to exchange all
or any portion of the Common Stock then held by such SBIC Holder on a
share-for-share basis for shares of a class of nonvoting common stock
of the Company, which nonvoting common stock shall be identical in all
respects to such Common Stock, except that such common stock shall be
nonvoting and shall be convertible into Common Stock on such terms as
are requested by such SBIC Holder in light of regulatory considerations
then prevailing, and (d) amend this Agreement and other related
agreements to effectuate and reflect the foregoing.
(ii) For purposes of this Agreement, a "Regulatory
Problem" means any set of facts or circumstances wherein it has been
asserted by any governmental regulatory agency (or the SBIC Holder
believes that there is a substantial risk of such assertion) that the
SBIC Holder and its Affiliates are not entitled to hold, or exercise
any significant right with respect to, the Preferred Stock or the
Common Stock.
3K. Put Rights.
(i) At any time during the Put Exercise Period (as
hereinafter defined), each holder of the Preferred Stock shall have the
right, by delivering not less than 270 days prior notice of its
intention to exercise such right to the Company (the "Put Notice"), to
require the Company to repurchase all of the Preferred Stock held by
such holder(s) (the "Put") at the fair market value of such stock as of
the date of such Put Notice, as determined pursuant to subparagraph
(ii) below (the "Put Price"). The "Put Exercise Period" shall commence
on the fifth anniversary of the closing of the purchase and sale of the
Preferred Stock pursuant to this Agreement and shall terminate upon
consummation of a Qualified IPO. The obligation of each Selling Holder
(as hereinafter defined) to deliver its shares of Preferred Stock on
the Put Closing Date (as hereinafter defined) shall be irrevocable on
the date of delivery to the Company of such Selling Holder's Put
Notice.
(ii) Upon the delivery of the Put Notice, the Company
and such holder(s) as have delivered a Put Notice (the "Selling
Holders") shall in good faith attempt to mutually agree on the Put
Price. If the Company and the Selling Holders have not mutually agreed
on the Put Price within 30 days of delivery of the Put Notice, the
disagreement shall be submitted for final determination to an
accounting firm or appraisal
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firm of recognized national standing (the "Independent Appraiser"),
such Independent Appraiser to be appointed within 45 days of delivery
of the Put Notice by two other accounting or appraisal firms of
recognized national standing, one of which will be selected by the
Company and one of which will be selected by the Selling Holders. The
Independent Appraiser shall follow such procedures as it deems
appropriate for obtaining the necessary information in considering the
positions of the Company and the Selling Holders but shall not conduct
an independent audit. The Independent Appraiser shall render its
determination on the matter within 60 days of its submission by the
Company and the Selling Holders, and such determination shall be final,
conclusive and binding upon the Company and the Selling Holders. The
fees and expenses of the Independent Appraiser shall be paid by the
Selling Holders if the Company's proposed Put Price is closer to the
Independent Appraiser's determination than was the proposed Put Price
of the Selling Holders; provided, that, in the event there is more than
one such holder, the obligation to pay the fees and expenses of the
Independent Appraiser shall be several among the Selling Holders.
Conversely, if the Selling Holders' proposed Put Price is closer to the
Independent Appraiser's determination than the proposed Put Price of
the Company, the fees and expenses of the Independent Appraiser shall
be paid by the Company. The "Put Closing Date" shall be the first
business day that is 270 days after the date on which the Put Notice is
delivered to the Company, or such earlier date that is specified by the
Company by not less than 30 nor more than 60 days prior written notice
delivered to the Selling Holders (such notice, the "Confirmation
Notice").
(iii) On the Put Closing Date, the Selling Holders
shall deliver to the Company certificates representing the shares of
Preferred Stock to be repurchased by the Company, free and clear of all
Liens and duly endorsed in blank or accompanied by duly executed forms
of assignment (with signatures guaranteed), and the Company shall
deliver to such holder(s) the Put Price as determined by the
Independent Appraiser by cashier's or certified check payable to such
holder(s) or by wire transfer of next day funds to an account
designated in writing by such holder(s); provided, that if and to the
extent any such purchase for cash is prohibited by the provisions of
applicable state law or by the provisions of the Company's debt
agreements or would cause the Company to violate any minimum working
capital level in any such debt agreements, the amount of the Put Price
which is not able to be paid in cash shall be paid for by the issuance
of subordinated promissory notes in form and substance satisfactory to
such holder(s) with the principal amount payable on the first
anniversary of issuance, bearing interest (payable quarterly in
arrears) at a floating rate per annum equal to the prime rate plus 700
basis points and secured by collateral reasonably satisfactory to such
holder(s); provided, that such holder(s) shall be entitled to rescind
any portion of the exercised Put if any portion of the Put Price would
be payable by such a note.
3L. Incentive Compensation for Founders. The Company and each of
the Purchasers acknowledge that Xxxx Xxxxxxx-Xxxxxx will be provided a
compensation arrangement for each of himself, Xxxx Xxxxxxxx and Xxxxx Xxxxxx
(collectively, the "Founders") that will be
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in the form of warrants or options to purchase Common Stock and will provide the
Founders with base compensation and incentives to grow the Company. The Company
and each of the Purchasers agree that promptly after the Closing and upon
receipt of a proposal from the Founders, they will negotiate in good faith the
terms of such compensation arrangement and, subject to the receipt of all
requisite approvals, including, without limitation, approvals by the Company and
approvals pursuant to Section 3C of this Agreement, the Company will implement
such an incentive compensation arrangement.
Section 4. Transfer of Restricted Securities.
4A. General Provisions. Restricted Securities are transferable
only pursuant to (i) public offerings registered under the Securities Act, (ii)
Rule 144 or Rule 144A of the Securities and Exchange Commission (or any similar
rule or rules then in force) if such rule is available and (iii) subject to the
conditions specified in paragraph 4B below, any other legally available means of
transfer.
4B. Opinion Delivery. In connection with the transfer of any
Restricted Securities (other than a transfer described in paragraph 4A(i)
above), the holder thereof shall deliver written notice to the Company
describing in reasonable detail the transfer or proposed transfer, together with
an opinion (in form and substance satisfactory to the Company) of Xxxxxxxx &
Xxxxx or other counsel which (to the Company's satisfaction) is knowledgeable in
securities law matters to the effect that such transfer of Restricted Securities
may be effected without registration of such Restricted Securities under the
Securities Act. In addition, if the holder of the Restricted Securities delivers
to the Company such opinion of Xxxxxxxx & Xxxxx or such other counsel that no
subsequent transfer of such Restricted Securities shall require registration
under the Securities Act, the Company shall promptly upon such contemplated
transfer deliver new certificates for such Restricted Securities which do not
bear the Securities Act legend set forth in paragraph 7B. If the Company is not
required to deliver new certificates for such Restricted Securities not bearing
such legend, the holder thereof shall not transfer the same until the
prospective transferee has confirmed to the Company in writing (in form and
substance satisfactory to the Company) its agreement to be bound by the
conditions contained in this paragraph and paragraph 7B.
4C. Rule 144A. Upon the request of any Purchaser and the
execution and delivery to the Company of a confidentiality agreement by such
Purchaser's prospective transferees in form and substance satisfactory to the
Company, the Company shall promptly supply to such Purchaser or its prospective
transferees all information regarding the Company required to be delivered in
connection with a transfer pursuant to Rule 144A of the Securities and Exchange
Commission.
4D. Legend Removal. If any Restricted Securities become
eligible for sale pursuant to Rule 144(k), the Company shall, upon the request
of the holder of such Restricted Securities, remove the legend set forth in
paragraph 7B from the certificates for such Restricted Securities.
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Section 5. Representations and Warranties of the Company. The
Company hereby represents and warrants to the Purchasers that, except as set
forth in the disclosure schedules hereto:
5A. Organization, Corporate Power and Licenses. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of Delaware and is qualified to do business in every jurisdiction in which
its lease or ownership of property or conduct of business requires it to so
qualify, except where the failure to so qualify has not had and would not
reasonably be expected to have a Material Adverse Effect. The Company possesses
all requisite corporate power and authority and all material licenses, permits
and authorizations necessary to own and operate its properties, to carry on its
businesses as now conducted and to carry out the transactions contemplated by
this Agreement, except for such licenses, permits and authorizations as the
failure to possess would not reasonably be expected to have a Material Adverse
Effect. The copies of the Company's and each Subsidiary's charter documents and
bylaws which have been furnished to the Purchasers' special counsel reflect all
amendments made thereto at any time prior to the date of this Agreement and are
correct and complete.
5B. Capital Stock and Related Matters.
(i) As of the Closing and immediately thereafter, the
authorized capital stock of the Company shall consist of (a) 20,000,000
shares of preferred stock, of which 260,000 shares shall be designated
as Preferred Stock and 250,000 shares have been designated as Series A
Preferred Stock, of which 70,453 shares of Series A Preferred Stock are
issued and outstanding, and (b) 100,000,000 shares of Common Stock, of
which 4,459,744 are issued and outstanding and 2,500,001 shares shall
be reserved for issuance upon conversion of the Preferred Stock. As of
the Closing, neither the Company nor any Subsidiary shall have
outstanding any stock or securities convertible or exchangeable for any
shares of its capital stock or containing any profit participation
features, nor shall it have outstanding any rights or options to
subscribe for or to purchase its capital stock or any stock or
securities convertible into or exchangeable for its capital stock or
any stock appreciation rights or phantom stock plans, except as set
forth on the attached "Capitalization Schedule." As of the Closing,
neither the Company nor any Subsidiary shall be subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire
or retire any shares of its capital stock or any warrants, options or
other rights to acquire its capital stock, except as contemplated by
this Agreement. As of the Closing, all of the outstanding shares of the
Company's capital stock shall be validly issued, fully paid and
nonassessable.
(ii) There are no statutory or contractual
stockholders preemptive rights or rights of refusal with respect to the
issuance of the Preferred Stock hereunder or the issuance of the Common
Stock upon conversion of the Preferred Stock. The Company has not
violated any applicable federal or state securities laws in connection
with the offer, sale or issuance of any of its capital stock, and the
offer, sale and issuance of the Preferred Stock hereunder does not
require registration under the Securities Act or any applicable state
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securities laws. To the best of the Company's knowledge, there are no
agreements between the Company's stockholders with respect to the
voting or transfer of the Company's capital stock, except for (A) the
Stockholder's Agreement, dated as of January 1, 1998, between Xxxx
Xxxxxxx-Xxxxxx and Xxxx Xxxxxxxx, (B) the Convertible Note Option
Agreement, dated as of October 27, 1998, between Xxxx Xxxxxxx-Xxxxxx
and Xxxxx Xxxxxx and (C) as set forth on paragraph 5B of the Disclosure
Schedule.
5C. Subsidiaries; Investments. The attached "Subsidiary
Schedule" correctly sets forth the name of each Subsidiary, the jurisdiction of
its incorporation and the Persons owning the outstanding capital stock of such
Subsidiary. Each Subsidiary is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, possesses all
requisite corporate power and authority and all material licenses, permits and
authorizations necessary to own its properties and to carry on its businesses as
now being conducted and as presently proposed to be conducted, except for such
licenses, permits and authorizations as the failure to possess would not
reasonably be expected to have a Material Adverse Effect, and is qualified to do
business in every jurisdiction in which its lease or ownership of property or
conduct of business require it to so qualify, except where the failure to so
qualify has not had and would not reasonably be expected to have a Material
Adverse Effect. All of the outstanding shares of capital stock of each
Subsidiary are validly issued, full paid and nonassessable, and all such shares
are owned by the Company or another Subsidiary free and clear of any Lien and
not subject to any option or right to purchase any such shares. Except as set
forth on the Subsidiary Schedule, neither the Company nor any Subsidiary owns or
holds the right to acquire any shares of stock or any other security or interest
in any other Person.
5D. Authorization; No Breach. The execution, delivery and
performance of this Agreement and the Registration Agreement and the filing of
the Certificate of Designation have been duly authorized by the Company. This
Agreement, the Registration Agreement and the Certificate of Designation each
constitutes a valid and binding obligation of the Company, enforceable in
accordance with its terms. The execution and delivery by the Company of this
Agreement and the Registration Agreement, the offering, sale and issuance of the
Preferred Stock hereunder, the issuance of the Common Stock upon conversion of
the Preferred Stock, the filing of the Certificate of Designation and the
fulfillment of and compliance with the respective terms hereof and thereof by
the Company, do not and would not (i) conflict with or result in a breach of the
terms, conditions or provisions of, (ii) constitute a default under, (iii)
result in the creation of any lien, security interest, charge or encumbrance
upon the Company's or any Subsidiary's capital stock or assets pursuant to, (iv)
give any third party the right to modify, terminate or accelerate any obligation
under, (v) result in a violation of, or (vi) other than pursuant to applicable
securities laws, rules and regulations, require any authorization, consent,
approval, exemption or other action by or notice or declaration to, or filing
with, any court or administrative or governmental body or agency pursuant to,
the Certificate of Designation or the charter or bylaws of the Company or any
Subsidiary, or any law, statute, rule or regulation to which the Company or any
Subsidiary is subject, or any agreement, instrument, order, judgment or decree
to which the Company or any Subsidiary is subject.
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5E. Financial Statements. Attached hereto as the
"Financial Statements Schedule" are the following financial statements:
(i) the audited consolidated balance sheets of the
Company and its Subsidiaries as of December 31, 1998 and 1997, and the
related statements of income and cash flows (or the equivalent) for the
respective twelve-month periods then ended.
(ii) the unaudited consolidated balance sheet of the
Company and its Subsidiaries as of March 31, 1999 (the "Latest Balance
Sheet and the related statements of income and cash flows (or the
equivalent) for the three-month period then ended).
Each of the foregoing financial statements (including in all cases the notes
thereto, if any) is accurate and complete in all material respects, is
consistent with the books and records of the Company (which, in turn, are
accurate and complete in all material respects) and has been prepared in
accordance with generally accepted accounting principles, consistently applied,
except as disclosed therein, subject in the case of the unaudited financial
statements to the absence of footnote disclosure and changes resulting from
normal year end adjustments.
5F. Absence of Undisclosed Liabilities. Except as set forth on
the attached "Liabilities Schedule," the Company and its Subsidiaries do not
have any obligation or liability other than: (i) liabilities set forth on the
Latest Balance Sheet (including any notes thereto), (ii) liabilities and
obligations which have arisen after the date of the Latest Balance Sheet in the
ordinary course of business and in connection with this transaction (iii) other
liabilities and obligations disclosed in the other Schedules to this Agreement,
and (iv) other liabilities or obligations which would not reasonably be expected
to have a Material Adverse Effect.
5G. No Material Adverse Change. Except as set forth on the
attached "Adverse Change Schedule," and other than changes in general economic
and business conditions and changes that generally affect the Internet and
entertainment industries and the Company's competitors since the date of the
Latest Balance Sheet, there has been no material adverse change in the financial
condition, operating results, assets, operations, employee relations or customer
or supplier relations of the Company and its Subsidiaries taken as a whole.
5H. Absence of Certain Developments.
(i) Except as expressly contemplated by this
Agreement or as set forth on the attached "Developments Schedule,"
since the date of the Latest Balance Sheet, neither the Company nor any
Subsidiary have
(a) issued any notes, bonds or other debt
securities or, except as set forth in the Capitalization
Schedule, any capital stock or other equity securities or any
securities convertible, exchangeable or exercisable into any
capital stock or other equity securities;
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(b) borrowed any amount or incurred or
become subject to any material liabilities, except
liabilities incurred in the ordinary course of business and
liabilities under contracts entered into in the ordinary
course of business;
(c) discharged or satisfied any material
Lien, other than Permitted Liens, or paid any material
obligation or liability, other than current liabilities paid
in the ordinary course of business;
(d) declared or made any payment or
distribution of cash or other property to its stockholders
with respect to its capital stock or other equity securities
or purchased or redeemed any shares of its capital stock or
other equity securities (including, without limitation, any
warrants, options or other rights to acquire its capital
stock or other equity securities);
(e) mortgaged or pledged any of its
properties or assets or subjected them to any material Lien,
except Permitted Liens and Liens for current property taxes
not yet due and payable;
(f) sold, assigned or transferred any of its
tangible assets, except in the ordinary course of business,
or canceled any material debts or claims;
(g) sold, assigned or transferred any
Intellectual Property Rights, corporate names, trade secrets
or other intangible assets;
(h) suffered any material extraordinary
losses or waived any rights of material value, except in the
ordinary course of business and consistent with past
practice;
(i) made any capital expenditures or
commitment therefor that is in excess of $50,000;
(j) made any loans or advances to,
guarantees for the benefit of, or any investments in, any
Person in excess of $50,000 in the aggregate;
(k) made any charitable contributions in
excess of $50,000 in the aggregate;
(l) suffered any damage, destruction or
casualty loss exceeding $50,000, whether or not covered by
insurance;
(m) changed any of the accounting methods
used unless required by GAAP;
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(n) adopted or amended in any material
respect any collective bargaining agreement;
(o) filed any amended Tax Return,
surrendered any right to claim a refund of Taxes or take any
similar action, or omitted to take any action relating to the
filing of any Tax Return or the payment of any Tax, if such
election, adoption, change, amendment, agreement, settlement,
surrender, consent, or other action or omission would have
the effect of increasing the present or future tax liability
or decreasing any present or future Tax asset of the Company;
or
(p) authorized or entered into an agreement,
whether in writing or otherwise, to do any of the actions
prohibited above.
(ii) No officer, director, employee or agent of the
Company or any of its Subsidiaries has been or is authorized to make or
receive, and the Company does not know of any such person making or
receiving, any bribe, kickback or other illegal payment.
5I. Assets. Except as set forth on the attached "Assets
Schedule," the Company and each Subsidiary have good and marketable title to, or
a valid leasehold interest in, the material properties and assets used by them,
located on their premises or shown on the Latest Balance Sheet or acquired
thereafter, free and clear of all Liens, except for properties and assets
disposed of in the ordinary course of business since the date of the Latest
Balance Sheet and except for Liens disclosed on the Latest Balance Sheet
(including any notes thereto) and Liens for current property taxes not yet due
and payable. Except as set forth in the attached Assets Schedule, the Company
and the Subsidiaries validly own or lease all buildings, machinery, equipment,
and other tangible assets necessary for the conduct of their businesses as
presently conducted. Except as described on the Assets Schedule, the Company's
and each Subsidiary's buildings, equipment and other tangible assets are in good
operating condition in all material respects and are fit for use in the ordinary
course of business. There are no proceedings in eminent domain or other similar
proceedings pending or, to the knowledge of the Company, threatened, affecting
any portion of the material real property owned or leased by the Company or any
Subsidiary. There exists no writ, injunction, decree, order or judgment
outstanding, nor any litigation, pending or threatened, relating to the
ownership, lease, use, occupancy or operation by any Person of any such real
property. The current use of the real property does not violate in any material
respect any instrument of record or agreement affecting such real property.
There is no violation of any covenant, condition, restriction, easement,
agreement or order of any governmental authority having jurisdiction over any of
the real property that affects such real property or the use or occupancy
thereof, except a violation which would not result in material liabilities to
the Company or any Subsidiary or otherwise result in a Material Adverse Effect.
No damage or destruction has occurred with respect to any of the real property
that, individually or in the aggregate, has had or resulted in, or will have or
result in, material liabilities to the Company or any Subsidiary or otherwise
result in a Material Adverse Effect.
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5J. Contracts and Commitments.
(i) Except as expressly contemplated by this
Agreement or as set forth on the attached "Contracts Schedule" or the
attached "Employee Benefits Schedule," neither the Company nor any
Subsidiary is a party to or bound by any written or oral:
(a) pension, profit sharing, stock option,
employee stock purchase or other plan or arrangement
providing for deferred or other compensation to employees or
any other employee benefit plan or arrangement, or any
collective bargaining agreement or any other contract with
any labor union, or severance agreements, programs, policies
or arrangements;
(b) contract for the employment of any
officer, individual employee or other Person on a full-time,
part-time, consulting or other basis providing annual
compensation in excess of $100,000 or contract relating to
loans to officers, directors or Affiliates;
(c) contract under which the Company or any
Subsidiary has advanced or loaned any other Person amounts in
the aggregate exceeding $50,000;
(d) agreement or indenture relating to
borrowed money or other Indebtedness or the mortgaging,
pledging or otherwise placing a Lien on any material asset or
material group of assets of the Company and its Subsidiaries;
(e) guarantee of any obligation in excess of
$50,000 (other than by the Company of a Wholly-Owned
Subsidiary's debts or a guarantee by a Subsidiary of the
Company's debts or another Subsidiary's debts);
(f) lease or agreement under which the
Company or any Subsidiary is lessee of or holds or operates
any property, real or personal, owned by any other party,
except for any lease of real or personal property under which
the aggregate annual rental payments do not exceed $50,000;
(g) lease or agreement under which the
Company or any Subsidiary is lessor of or permits any third
party to hold or operate any property, real or personal,
owned or controlled by the Company or any Subsidiary;
(h) contract or group of related contracts
with the same party or group of affiliated parties the
performance of which involves consideration in excess of
$100,000;
(i) any agreement under which the Company or
any Subsidiary could have liabilities in the future relating
to the acquisition or disposition of assets
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or properties having a fair market value in excess of
$100,000 by way of merger, consolidation, purchase, sale or
otherwise, or granting to any Person a right at such Person's
option to purchase or acquire any material asset or property,
of the Company or any Subsidiary or any interest therein (not
including dispositions of inventory in the ordinary course of
business);
(j) any agreement for the construction,
acquisition or modification of any land, building, structure,
improvement, fixture or other fixed asset, or for the
incurrence of any other capital expenditure involving amounts
in excess of $50,000 in the aggregate;
(k) assignment, license, indemnification or
agreement with respect to any material intangible property
(including without limitation any Intellectual Property);
(l) warranty agreement with respect to its
services rendered or its products sold or leased;
(m) agreement under which it has granted any
Person any registration rights (including, without
limitation, demand and piggyback registration rights);
(n) sales, distribution or franchise
agreement; or
(o) contract or agreement prohibiting it
from freely engaging in any business or competing anywhere in
the world.
(ii) All of the contracts, agreements and instruments
set forth on the Contracts Schedule are, with respect to the Company,
valid, binding and enforceable in accordance with their respective
terms. The Company and each Subsidiary have performed all material
obligations required to be performed by them under the contracts,
agreements and instruments listed on the Contracts Schedule to which
they are parties and are not in material default under or in material
breach of nor in receipt of any written claim of default or breach
under any material contract, agreement or instrument to which the
Company or any Subsidiary is a party listed on the Contracts Schedule;
and no event has occurred which with the passage of time or the giving
of notice or both would result in a material default, breach or event
of noncompliance by the Company or any Subsidiary under any material
contract, agreement or instrument to which the Company or any
Subsidiary is a party listed on the Contracts Schedule.
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5K. Intellectual Property Rights.
(i) The attached "Intellectual Property Schedule"
contains a complete and accurate list, as of May 14, 1999, of all (a)
patented or registered Intellectual Property Rights owned or used by
the Company or any Subsidiary, (b) pending patent applications and
applications for registrations of other Intellectual Property Rights
filed by the Company or any Subsidiary, (c) unregistered trade names
and corporate names owned or used by the Company or any Subsidiary and
(d) unregistered trademarks, service marks, copyrights and computer
software owned or used by the Company or any Subsidiary, in each case
which are material to the financial condition, operating results,
assets, operations or business prospects of the Company and its
Subsidiaries taken as a whole. The Intellectual Property Schedule also
contains a complete and accurate list of all licenses and other rights
granted by the Company or any Subsidiary to any third party with
respect to any material Intellectual Property Rights and all licenses
and other rights granted by any third party to the Company or any
Subsidiary with respect to any material Intellectual Property Rights,
in each case identifying the subject Intellectual Property Rights.
Except as set forth on the Intellectual Property Schedule, the Company
or one of its Subsidiaries owns all right, title and interest to, or
has the right to use pursuant to a valid license, all Intellectual
Property Rights necessary for the operation of the businesses of the
Company and its Subsidiaries as presently conducted. To the Company's
knowledge, the Company and its Subsidiaries have taken all reasonably
necessary actions to maintain and protect the Intellectual Property
Rights which they own.
(ii) Except as set forth on the Intellectual Property
Schedule, (a) there have been no claims made against the Company or any
Subsidiary asserting the invalidity, misuse or unenforceability of any
of such Intellectual Property Rights, (b) neither the Company nor any
Subsidiary has received any notices of any infringement or
misappropriation by, or conflict with, any third party with respect to
such Intellectual Property Rights, and (c) to the Company's knowledge,
the conduct of the Company's and each Subsidiary's business has not
infringed, misappropriated or conflicted with and does not infringe,
misappropriate or conflict with any Intellectual Property Rights of
other Persons.
5L. Litigation, etc. Except as set forth on the attached
"Litigation Schedule," there are no actions, suits, proceedings, orders,
investigations or claims pending or, to the best of the Company's knowledge,
threatened against the Company or any Subsidiary that would reasonably be
expected to have a Material Adverse Effect. Neither the Company nor any
Subsidiary is subject to any arbitration proceedings under collective bargaining
agreements or otherwise or, to the Company's knowledge, any governmental
investigations or inquiries. Neither the Company nor any Subsidiary is subject
to any judgment, order or decree of any court or other governmental agency.
5M. Brokerage. Except as set forth on the attached "Brokerage
Schedule," there are no claims for brokerage commissions, finders' fees or
similar compensation in connection with
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the transactions contemplated by this Agreement based on any arrangement or
agreement binding upon the Company or any Subsidiary.
5N. Governmental Consent, etc. Other than with respect to
applicable securities laws, rules and regulations, and filings with the
Secretary of State of Delaware, no permit, consent, approval or authorization
of, or declaration to or filing with, any governmental authority is required in
connection with the execution, delivery and performance by the Company of this
Agreement or the Registration Agreement, or the consummation by the Company of
any other transactions contemplated hereby or thereby, except as set forth on
the attached "Consents Schedule" and except as expressly contemplated herein or
in the exhibits hereto.
5O. Insurance. The attached "Insurance Schedule" contains a
true, correct and complete description of each insurance policy maintained by
the Company and its Subsidiaries with respect to its properties, assets and
businesses, and each such policy is in full force and effect as of the Closing.
Neither the Company nor any Subsidiary is in default with respect to its
obligations under any insurance policy maintained by it, and neither the Company
nor any Subsidiary has been denied insurance coverage. Except as set forth on
the Insurance Schedule, the Company and its Subsidiaries do not have any
self-insurance or co-insurance programs, and the reserves set forth on the
Latest Balance Sheet are adequate to cover all anticipated liabilities with
respect to any such self-insurance or co-insurance programs.
5P. Compliance with Laws. Except as set forth on the attached
"Compliance Schedule," to the Company's knowledge, neither the Company nor any
Subsidiary has violated any law or any governmental regulation or requirement
which violation has had or would reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect, and neither the
Company nor any Subsidiary has received notice of any such violation.
5Q. Taxes.
Except for any failure or default as would not
reasonably be expected to have a Material Adverse Effect,
(i) The Company has timely filed (or has had timely
filed on its behalf) or will file or cause to be timely filed, all
material Tax Returns required by applicable law to be filed by any of
them prior to or as of the Closing. All such Tax Returns are, or will
be at the time of filing, true, complete and correct in all material
respects.
(ii) The Company has paid (or has had paid on its
behalf), or where payment is not due, has established (or has had
established on its behalf and for its sole benefit and recourse), or
will establish or cause to be established on or before the Closing, an
adequate accrual for the payment of, all material Taxes due with
respect to any period ending prior to or as of the Closing.
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(iii) The Company and its Subsidiaries have withheld
and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, creditor,
independent contractor or other third party.
(iv) For purposes of this Agreement, the following
terms shall have the following meanings: (A) "Taxes" shall mean all
Federal, state, local and foreign taxes, and other assessments of a
similar nature (whether imposed directly or through withholding),
including any interest, additions to tax, or penalties applicable
thereto, and (B) "Tax Returns" shall mean all Federal, state, local and
foreign tax returns, declarations, statements, reports, schedules,
forms and information returns and any amended tax return relating to
Taxes.
5R. Environmental, Health, and Safety Matters. Except as set
forth in Section 5R of the Disclosure Schedule or as would not reasonably be
expected to have a Material Adverse Effect:
(i) the Company, the Subsidiaries and their
respective Affiliates have complied and are in compliance with all
Environmental and Safety Requirements (including without limitation all
permits and licenses required thereunder);
(ii) the Company, the Subsidiaries and their
respective Affiliates have not received any written or oral notice,
report or other information regarding any actual or alleged violation
of Environmental and Safety Requirements, or any liabilities or
potential liabilities, including any investigatory, remedial or
corrective obligations, relating to any of them or its facilities
arising under Environmental and Safety Requirements;
(iii) to the Company's knowledge, none of the
following exists at any property or facility owned or operated by the
Company or any Subsidiary or any of their respective Affiliates: (a)
underground storage tanks, (b) asbestos-containing material in any form
or condition, (c) materials or equipment containing polychlorinated
biphenyls, or (d) landfills, surface impoundments, or disposal areas;
(iv) neither the Company nor any Subsidiary has
treated, stored, disposed of, arranged for or permitted the disposal
of, transported, handled, or released any substance, including without
limitation any hazardous substance, or owned or operated any property
or facility (and no such property or facility is contaminated by any
such substance) in a manner that has given or would give rise to
liabilities, including without limitation any liability for response
costs, corrective action costs, personal injury, property damage,
natural resources damages or attorney fees, pursuant to the CERCLA, the
Solid Waste Disposal Act, as amended or any other Environmental and
Safety Requirements;
(v) to the Company's knowledge, neither this
Agreement nor the consummation of the transactions contemplated hereby
will result in any obligations for site investigation or cleanup, or
notification to or consent of government agencies or third parties,
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pursuant to any of the so-called "transaction-triggered" or
"responsible property transfer" Environmental and Safety Requirements;
(vi) to the Company's knowledge, the Company and the
Subsidiaries have not, either expressly or by operation of law,
assumed, undertaken or otherwise become subject to any liability,
including without limitation any liability for corrective or remedial
action, of any other Person relating to Environmental and Safety
Requirements; and
(vii) to the Company's knowledge, no facts, events or
conditions relating to the past or present facilities, properties or
operations of the Company or any Subsidiary will prevent, hinder or
limit continued compliance with Environmental and Safety Requirements,
give rise to any investigatory, remedial or corrective liabilities
pursuant to Environmental and Safety Requirements, or give rise to any
other liabilities pursuant to Environmental and Safety Requirements,
including without limitation any liability relating to onsite or
offsite releases or threatened releases of hazardous materials,
substances or wastes, personal injury, property damage or natural
resources damage;
except, in each case, where the failure to comply would not result in material
liabilities to the Company or any Subsidiary or otherwise result in a Material
Adverse Effect.
5S. Employees. Except as set forth on Section 5S of the
Disclosure Schedule, to the Knowledge of the Company, no officer of the Company
who is an Executive Vice President or higher ranking officer and no group of
employees or independent contractors of the Company or any Subsidiary has any
plans to terminate his, her or its employment or relationship as an independent
contractor with the Company or any Subsidiary. Except as set forth in Section 5S
of the Disclosure Schedule, no organizational effort is presently being made or,
to the knowledge of the Company, threatened by or on behalf of any labor union
with respect to any employees of the Company or any Subsidiary and none of their
employees are represented by any labor union. Except as set forth in Section 5S
of the Disclosure Schedule and, in each case, where the failure to comply would
not result in material liabilities to the Company or any Subsidiary or otherwise
result in a Material Adverse Effect, the Company and the Subsidiaries are in
compliance with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, and are not
engaged in any unfair labor practice and, to the knowledge of the Company, there
is no reasonable basis for any unfair labor practice complaint or claim to be
asserted against the Company or any Subsidiary, and there is no labor strike,
dispute, slowdown or stoppage actually pending or, to the knowledge of the
Company, threatened, against the Company or any Subsidiary. Except as set forth
in Section 5S of the Disclosure Schedule, the employees of the Company and the
Subsidiaries are not subject to any collective bargaining agreement.
5T. Year 2000.
Except as set forth on Schedule 5T,
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(i) To the Company's knowledge, none of the computer
software, computer firmware, computer hardware (whether general or
special purpose) or other similar or related items of automated,
computerized or software systems that are used or relied on by Company
or by any of its Subsidiaries in the conduct of their respective
businesses will malfunction, will cease to function, will generate
incorrect data or will produce incorrect results when processing,
providing or receiving (a) date-related data from, into and between the
twentieth and twenty-first centuries or (b) date-related data in
connection with any valid date in the twentieth and twenty-first
centuries;
(ii) To the Company's knowledge, none of the products
and services sold, licensed, leased, rendered, or otherwise provided by
the Company or by any of its Subsidiaries in the conduct of their
respective businesses will malfunction, will cease to function, will
generate incorrect data or will produce incorrect results when
processing, providing or receiving (a) date-related data from, into and
between the twentieth and twenty-first centuries or (b) date-related
data in connection with any valid date in the twentieth and
twenty-first centuries; and, accordingly, neither the Company nor any
of its Subsidiaries is or will be subject to any claim, demand, action,
suit, liability, damage, material loss, or material expense arising
from, or related to, circumstances where such products and services
malfunction, cease to function, generate incorrect data, or produce
incorrect results when processing, providing or receiving (x)
date-related data from, into and between the twentieth and twenty-first
centuries or (y) date-related data in connection with any valid date in
the twentieth and twenty-first centuries; and
(iii) Neither the Company nor any of its Subsidiaries
has made any other representations or warranties regarding the ability
of any product or service sold, licensed, leased, rendered, or
otherwise provided by Company or by any of its Subsidiaries in the
conduct of their respective businesses to operate without malfunction,
to operate without ceasing to function, to generate correct data or to
produce correct results when processing, providing or receiving (a)
date-related data from, into and between the twentieth and twenty-
first centuries and (b) date-related data in connection with any valid
date in the twentieth and twenty-first centuries.
5U. Small Business Concern, Etc.
(a) The information regarding the Company and its
affiliates set forth in the Small Business Administration the ("SBA") Forms 480,
652 and Parts A and B of Form 1031 to be delivered at the Closing will be
accurate and complete in all material respects.
(b) The proceeds from the purchase of stock by
Xxxxxxxxx/Chase and Chase Capital under this Agreement (the "Financing") will be
used by the Company for purposes of acquisitions, working capital and capital
expenditures, including, without limitation, up to $3,000,000 that will be used
to fund the development and initial operations of the Company's music subsidiary
and $2,000,000 that will be used to fund advances against the compensation of
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the co-presidents of the Company's music subsidiary; provided that such
proceeds will not be used for the purchase or redemption of any shares of
capital stock of the Company or any of its Subsidiaries or affiliates.
5V. Closing Date. The representations and warranties of the
Company contained in this Section 5 and elsewhere in this Agreement and all
information contained in any exhibit, schedule or attachment hereto or in any
certificate or other writing delivered by, or on behalf of, the Company to any
Purchaser at the Closing shall be true and correct in all material respects on
the date of the Closing as though then made, except as affected by the
transactions expressly contemplated by this Agreement, and will not contain any
untrue statement of a material fact or omit a material fact necessary to make
each statement contained herein or therein misleading.
Section 6. Definitions.
6A. Definitions. For the purposes of this Agreement, the
following terms have the meanings set forth below:
"Affiliate" of any particular Person means any other Person
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise.
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
"Change of Control" means an issuance or related issuances of
stock by the Corporation to a Person or group (as defined in Section 13(d)(3) of
the Exchange Act), (other than the existing beneficial owners of the Company's
Common Stock) who, as a result of such issuance or issuances, becomes the direct
or indirect beneficial owner of more than 50% of the outstanding voting stock of
the Corporation.
"Environmental and Safety Requirements" means all federal,
state, local and foreign statutes, regulations, ordinances and other provisions
having the force or effect of law, all judicial and administrative orders and
determinations, all contractual obligations and all common law concerning public
health and safety, worker health and safety and pollution or protection of the
environment, including without limitation all such standards of conduct and
bases of obligations relating to the presence, use, production, generation,
handling, transport, treatment, storage, disposal, distribution, labeling,
testing, processing, discharge, release, threatened release, control, or cleanup
of any hazardous materials, substances or wastes, chemical substances or
mixtures, pesticides, pollutants, contaminants, toxic chemicals, petroleum
products or by-products, asbestos, polychlorinated biphenyls (or PCBs), noise or
radiation, each as amended and as now or hereafter in effect.
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31
"Event of Noncompliance" means any condition, occurrence or
event which, without regard to any giving of notice, lapse of time, or both,
would constitute a breach of any of the Company's obligations under this
Agreement.
"Excluded Issuances" has the meaning set forth in Section 6(c)
of the Certificate of Designation.
"Intellectual Property Rights" means all (i) patents, patent
applications, patent disclosures and inventions, (ii) trade names, trademarks,
service marks and registrations and applications for registration thereof, and
(iii) copyrights (registered or unregistered) and registrations and applications
for registration thereof.
"IPO Valuation" has the meaning set forth in Section 5(a)
of the Certificate of Designation.
"Liens" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind, any sale of receivables with recourse
against the Company, any Subsidiary or any Affiliate, any filing or agreement to
file a financing statement as debtor under the Uniform Commercial Code or any
similar statute other than to reflect ownership by a third party of property
leased to the Company or any Subsidiaries under a lease which is not in the
nature of a conditional sale or title retention agreement, or any subordination
arrangement in favor of another Person (other than any subordination arising in
the ordinary course of business).
"Material Adverse Effect" means a material adverse effect on
the financial condition, operating results, assets, operations or business
prospects of the Company and its Subsidiaries taken as a whole.
"Officer's Certificate" means a certificate signed on behalf
of the Company by the Company's chief executive officer, its chief financial
officer or chief administrative officer, stating that (i) the officer signing
such certificate has made or has caused to be made such investigations as are
reasonably necessary in order to permit him to verify the accuracy of the
information set forth in such certificate and (ii) to such officer's knowledge,
such certificate does not misstate any material fact and does not omit to state
any material fact necessary to make the certificate not misleading.
"Permitted Liens" means:
(i) tax liens with respect to taxes not
yet due and payable or which are
being contested in good faith by
appropriate proceedings and for
which appropriate reserves have been
established in accordance with
generally accepted accounting
principles, consistently applied;
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(ii) deposits or pledges made in
connection with, or to secure
payment of, utilities or similar
services, workers' compensation,
unemployment insurance, old age
pensions or other social security
obligations;
(iii) purchase money security interests in
any property acquired by the Company
or any Subsidiary to the extent
permitted by this Agreement;
(iv) interests or title of a lessor under
any lease permitted by this
Agreement;
(v) mechanics', materialmen's or
contractors' liens or encumbrances
or any similar lien or restriction;
(vi) easements, rights-of-way,
restrictions and other similar
charges and encumbrances not
interfering with the ordinary
conduct of the business of the
Company and its Subsidiaries or
detracting from the value of the
assets of the Company and its
Subsidiaries;
(vii) liens outstanding on the date hereof
which secure indebtedness and which
are described in the schedules to
this Agreement.
"Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Qualified IPO" has the meaning set forth in Section 5(a) of
the Certificate of Designation.
"Restricted Securities" means (i) the Preferred Stock issued
hereunder, (ii) the Common Stock issued upon conversion of the Preferred Stock
and (iii) any securities issued with respect to the securities referred to in
clauses (i) or (ii) above by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization. As to any particular Restricted Securities, such
securities shall cease to be Restricted Securities when they have (a) been
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering them, (b) been distributed to the
public through a broker, dealer or market maker pursuant to Rule 144 (or any
similar provision then in force) under the Securities Act or become eligible for
sale pursuant to Rule 144(k) (or any similar provision then in force) under the
Securities Act or (c) been otherwise transferred and new certificates for them
not bearing the Securities Act legend set forth in paragraph 7B have been
delivered
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by the Company in accordance with paragraph 4B. Whenever any particular
securities cease to be Restricted Securities, the holder thereof shall be
entitled to receive from the Company, without expense, new securities of like
tenor not bearing a Securities Act legend of the character set forth in
paragraph 7B.
"SBIC" means a small business investment company licensed
under the Small Business Investment Act of 1958, as amended.
"SBIC Regulations" means the Small Business Investment Company
Act of 1958, as amended, and the regulations issued by the Small Business
Administration thereunder, 13 CFR 107 and 121, as amended.
"Securities Act" means the Securities Act of 1933, as amended,
or any similar federal law then in force.
"Securities and Exchange Commission" includes any governmental
body or agency succeeding to the functions thereof.
"Securities Exchange Act" means the Securities Exchange Act of
1934, as amended, or any similar federal law then in force.
"Subsidiary" means any corporation of which the securities
having a majority of the ordinary voting power in electing the board of
directors are, at the time as of which any determination is being made, owned by
the Company either directly or through one or more Subsidiaries.
"Underlying Common Stock" means (i) the Common Stock issued or
issuable upon conversion of the Preferred Stock and (ii) any Common Stock issued
or issuable with respect to the securities referred to in clause (i) above by
way of stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization.
"Wholly-Owned Subsidiary" means, with respect to any Person, a
Subsidiary of which all of the outstanding capital stock or other ownership
interests are owned by such Person or another Wholly-Owned Subsidiary of such
Person.
Section 7. Miscellaneous.
7A. Expenses. The Company shall reimburse the Purchasers for
all reasonable and documented out-of-pocket expenses (including the reasonable
attorneys' fees and out-of-pocket expenses of one outside counsel) actually
incurred by them in connection with the transactions contemplated by this
Agreement up to $150,000 in the aggregate.
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7B. Purchaser's Representations. Each Purchaser hereby
represents and warrants to the Company as follows:
(i) it is acquiring the Restricted Securities
purchased hereunder or acquired pursuant
hereto for its own account with the
intention of holding such securities for
purposes of investment, and that it has no
intention of selling such securities in a
public distribution in violation of the
federal securities laws or any applicable
state securities laws. Each certificate or
instrument representing Restricted
Securities shall be imprinted with a legend
in substantially the following form:
"The securities represented by this certificate were originally issued
on May __, 1999, and have not been registered under the Securities Act
of 1933, as amended or the securities laws of any state. The transfer
of the securities represented by this certificate is subject to the
conditions specified in the Purchase Agreement, dated as of May __,
1999 and as amended and modified from time to time, between the issuer
(the "Company") and certain investors, and the Company reserves the
right to refuse the transfer of such securities until such conditions
have been fulfilled with respect to such transfer. A copy of such
conditions shall be furnished by the Company to the holder hereof upon
written request and without charge."
(ii) it is, if an entity, an entity duly
organized, validly existing and in
good standing under the laws of the
jurisdiction of its organization
and is qualified to do business in every
jurisdiction in which its lease
or ownership of property or conduct of
business requires it to so qualify, except
where the failure to so qualify has not had
and would not reasonably be expected to
have a material adverse effect on the
financial condition, operating results,
assets, operations or business prospects of
such Purchaser or on such Purchaser's
ability to perform its obligations hereunder
(a "Purchaser Material Adverse Effect"). It
possesses all requisite power and authority
(corporate or otherwise) and all material
licenses, permits and authorizations
necessary to own and operate its properties,
to carry on its businesses as now conducted
and to carry out the transactions
contemplated by this Agreement, except for
such licenses, permits and authorizations
as the failure to possess would not
reasonably be expected to have a Purchaser
Material Adverse Effect.
(iii) The execution, delivery and performance of
this Agreement have been duly authorized by
such Purchaser. This Agreement constitutes a
valid and binding obligation of such
Purchaser, enforceable in accordance with
its terms. The execution and delivery by
such Purchaser of this Agreement, the
purchase of the Preferred Stock
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35
hereunder and the fulfillment of and
compliance with the terms hereof by such
Purchaser, do not and would not (i) conflict
with or result in the breach of the terms,
conditions or provisions of, (ii) constitute
a default under, (iii) result in the
creation of any lien, security interest,
charge or encumbrance upon such Purchaser's
securities or assets pursuant to, (iv) give
any third party the right to modify,
terminate or accelerate any obligation
under, (v) result in a violation of, or (vi)
other than pursuant to applicable securities
laws, rules and regulations, require any
authorization, consent, approval, exemption
or other action by or notice or declaration
to, or filing with, any court or
administrative or governmental body or
agency pursuant to, the organization
documents of such Purchaser, or any law,
statute, rule or regulation to which such
Purchaser is subject, or any agreement,
instrument, order, judgment or decree to
which such Purchaser is subject.
(iv) Such Purchaser is an "accredited investor"
as defined in Regulation D promulgated under
the Securities Act.
7C. Consent to Amendments. Except as otherwise expressly
provided herein, the provisions of this Agreement may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company has obtained the written
consent of the holders of a majority of the outstanding Preferred Stock. No
other course of dealing between the Company and the holder of any Preferred
Stock or any delay in exercising any rights hereunder or under the Certificate
of Designation shall operate as a waiver of any rights of any such holders. For
purposes of this Agreement, shares of Preferred Stock held by the Company or any
Subsidiaries shall not be deemed to be outstanding.
7D. Survival of Representations and Warranties. All
representations and warranties contained herein or made in writing by any party
in connection herewith shall survive the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby for a
period of one year after the Closing.
7E. Successors and Assigns. Except as otherwise expressly
provided herein, all covenants and agreements contained in this Agreement by or
on behalf of any of the parties hereto shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto whether so expressed
or not.
7F. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
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7G. Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, any one of which need not contain
the signatures of more than one party, but all such counterparts taken together
shall constitute one and the same Agreement.
7H. Descriptive Headings; Interpretation. The descriptive
headings of this Agreement are inserted for convenience only and do not
constitute a substantive part of this Agreement. The use of the word "including"
in this Agreement shall be by way of example rather than by limitation.
7I. Governing Law. This Agreement and the exhibits and
schedules hereto shall be governed by, and construed in accordance with, the
laws of the State of California, without giving effect to any choice of law or
conflict of law rules or provisions (whether of the State of California or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of California.
7J. Notices. All notices, demands or other communications to
be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given when delivered
personally to the recipient, sent to the recipient by reputable overnight
courier service (charges prepaid) or mailed to the recipient by certified or
registered mail, return receipt requested and postage prepaid. Such notices,
demands and other communications shall be sent to each Purchaser at the address
indicated on the Schedule of Purchasers and to the Company at the address
indicated below:
0000 Xxxxxxxx
Xxxxx Xxxxxx, XX 00000
Attn: General Counsel and Chief Administrative Officer
Telephone: 000-000-0000
Facsimile: 000-000-0000
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
7K. No Strict Construction. The parties hereto have
participated jointly in the negotiation and drafting of this Agreement. In the
event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties hereto, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement.
7L. Indemnification. In consideration of the Purchaser's
execution and delivery of this Agreement and acquiring the Preferred Stock
hereunder and in addition to all of the Company's other obligations under this
Agreement, the Company shall defend, protect, indemnify and hold harmless each
Purchaser and all of their officers, directors, employees and agents
(collectively, the "Indemnitees") from and against any and all actions, causes
of action, suits, claims,
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37
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 the Indemnitees or any of them as a result of, or arising out of, or
relating to the execution, delivery, performance or enforcement of this
Agreement and any other instrument, document or agreement executed pursuant
hereto by any of the Indemnitees Notwithstanding the foregoing, Indemnified
Liabilities shall not include costs and expenses incurred by any Indemnitee in
connection with (a) any violations of law or governmental regulations by such
Indemnitee, (b) any acts of willful misconduct or gross negligence by such
Indemnitee or (c) any actions against such Indemnitee by creditors of such
Indemnitee or shareholders or creditors of such Indemnitee's parent companies.
[Signatures Appear on Following Page]
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first written above.
DIGITAL ENTERTAINMENT NETWORK, INC.
By: /s/ XXXXX X. XXXXXXX
---------------------------------------
Name: Xxxxx X. Xxxxxxx
Title: COO/CFO
PURCHASERS:
XXXXXXXXX/DIGITAL ENTERTAINMENT
NETWORK PARTNERS, L.L.C.
By: Xxxxxxxxx-Xxxxx Entertainment
Partners, L.L.C.
By: /s/ XXXXXX X. XXXXXXXXXX
-----------------------------------
Xxxxxx X. Xxxxxxxxxx, Member
CHASE VENTURE CAPITAL ASSOCIATES
By: /s/ XXXXXXXX XXXXX
----------------------------------------
Xxxxxxxx Xxxxx, Executive Partner
DELL USA L.P., a Texas limited partnership
By: Dell Gen. P. Corp., a Delaware
corporation
By: /s/ XXXXXX X. XXXXX, XX.
----------------------------
Xxxxxx X. Xxxxx, Xx.
Assistant Secretary
MICROSOFT CORPORATION
By: /s/ XXXX XXXXXX
---------------------------------------
Name: Xxxx Xxxxxx
Title: CFO and Senior Vice President
39
DEN PARTNERS LLC
By: /s/ SAID ARMUTCUOGLU
-----------------------------------------
Said Armutcuoglu, Managing Member
XXXXX X. XXXXXXX
/s/ XXXXX X. XXXXXXX
-------------------------------------------
40
SCHEDULE OF WIRE TRANSFER INSTRUCTIONS
Wire transfers should be sent to the Company's account at:
Imperial Bank
000 Xxxxxxxx Xxxxxxxxx
Xxxxxxx Xxxxx, XX 00000
ABA No.: 000000000
Account holder: Digital Entertainment Network, Inc.
Account No.: 00-000-000
Reference: Series B Preferred Stock
Contact Information at Imperial Bank:
Xx. Xxxxx Xxxxxxx
Telephone no.: 000-000-0000
Facsimile no.: 000-000-0000
41
SCHEDULE OF PURCHASERS
Total
No. of Purchase
Shares Price
of for
Names and Preferred Preferred
Addresses Stock Stock
----------- ---------- --------------
Xxxxxxxxx/Digital Entertainment 63,461.5 $6,599,996.00
Network Partners, L.L.C.
Chase Venture Capital Associates 36,538.5 3,800,004.00
Dell USA L.P. 28,846.2 3,000,004.80
Microsoft Corporation 43,269.2 4,499,996.80
DEN Partners LLC 36,538.5 3,800,004.00
Xxxxx X. Xxxxxxx 1,923.1 200,002.40
TOTAL 210,577 $21,900,008.00
42
SCHEDULE OF SUBSCRIBERS
DIGITAL ENTERTAINMENT NETWORK, INC.
SERIES B SUBSCRIBERS
Series B Preferred
Purchase Price Shares at $104
-------------- ------------------
Xxxxx Xxxxxx $500,000.80 4,807.7
Xxx Xxxxx 50,003.20 480.8
Xx Xxxxxx 200,002.40 1,923.1
Xxxxx Xxxxxxx 799,999.20 7,692.3
Xxxx Xxxxx 31,002.40 298.1
Xxxx Xxxxx 500,000.80 4,807.7
Xxxx Xxxxx 99,996.00 961.5
GAS, LLC 99,996.00 961.5
Xxxx Xxxxxxx 99,996.00 961.5
Xxxxxxxx Xxxxxxx 500,000.80 4,807.7
Xxx Xxxxx 500,000.80 4,807.7
Xxxxx Xxxxxxx 50,003.20 480.8
Xxxx Xxxxx 50,003.20 480.8
Xxxxxxx Xxxxx 19,999.20 192.3
Xxxxxxx Xxxxxxxxx 50,003.20 480.8
Xxxxxxxx Xxxx 149,999.20 1,442.3
Xxxxx Xxxxxxx 50,003.20 480.8
Xxx Xxxxxxxx 98,997.60 951.9
Xxxxxxx Xxxxxxx 50,003.20 480.8
Xxx Xxxxx 50,003.20 480.8
Xxxx Xxxxxxx 50,003.20 480.8
43
Ziffren Xxxxxxxxxx 50,003.20 480.8
Branca & Xxxxxxx
LLP
Xxxxxx Xxxxx 25,001.60 240.4
Xxxxx Xxxxx 25,001.60 240.4
TOTAL $4,100,023.20 39,423.3
44
LIST OF EXHIBITS
Exhibit A - Certificate of Designation
Exhibit B - Registration Agreement
Exhibit C - Permitted Changes to Certificate of Incorporation and Bylaws
Exhibit D - Joint Sale and Voting Agreement
Exhibit E - Legal Opinion of Katten, Muchin & Zavis
45
LIST OF DISCLOSURE SCHEDULES
Capitalization Schedule
Subsidiary Schedule
Restrictions Schedule
Financial Statements Schedule
Liabilities Schedule
Adverse Change Schedule
Developments Schedule
Assets Schedule
Contracts Schedule
Intellectual Property Schedule
Litigation Schedule
Brokerage Schedule
Consents Schedule
Insurance Schedule
Compliance Schedule
Employee Schedule
Y2K Schedule
