EXHIBIT 10.37
SPORTSPRIZE ENTERTAINMENT INC.
Debenture and Warrant Purchase Agreement
This Debenture and Warrant Purchase Agreement (this "Agreement") is entered
into as of May 30, 2000, by and between SPORTSPRIZE ENTERTAINMENT INC., a Nevada
corporation (the "Company"), Cutter Services Corp., ("Cutter"), and Strathburn
Investments Inc. ("Strathburn") (together with Cutter, the "Purchasers").
In consideration of the mutual promises hereinafter set forth, the parties
hereto agree as follows:
1. Agreement to Sell and Purchase
1.1 Sale and Purchase. Subject to the terms and conditions hereof, at the
Closing (as defined in Section 2 below), the Company hereby agrees to
issue and sell to the Purchasers, and the Purchasers agree to purchase
from the Company, the following convertible debentures (the
"Debentures") due May 30, 2005, in the respective principal amounts
set out opposite the name of each of the Purchasers below, each
Debenture to be in the form of the Debenture attached hereto as
Exhibit A and to be --------- convertible (subject to adjustment and
therein provided) into the number of shares of the Company's common
stock ("Common Stock") at the conversion price ("Conversion Price")
and in accordance with the terms of the Debenture:
Purchaser Principal Amount
--------- ----------------
Cutter US$850,000
Strathburn US$200,000
1.2 Sale of Warrant. In connection with and in consideration for the
offering of the Debentures (the "Offering"), the Company will issue to
the Purchasers warrants (the "Warrants") exercisable for two (2) years
from the date of issue to purchase from the Company the number of
shares of the Company's Common Stock set out opposite the name of each
of the Purchasers below, at the respective exercise prices set out
below opposite the name of such Purchaser, each such Warrant to be in
the form of the Warrant attached hereto as Exhibit B:
Purchaser Shares Purchasable Exercise Price per Share
--------- ------------------ ------------------------
Cutter 48,000 $1.275
Strathburn 12,000 $1.275
-1-
1.3 Purchase Price. The purchase price shall be US$1,050,000 paid as
follows:
Purchaser Purchase Price
--------- --------------
Cutter US$850,000
Strathburn US$200,000
1.4 Grant of Security Interest. To secure the prompt and full payment of
all principal and interest owing to the Purchasers pursuant to the
Debentures, the Company agrees to grant to each Purchaser a security
interest in all of the Company's assets, accounts receivable and
inventory, now existing or hereafter arising, and all proceeds
therefrom. Such security interest shall terminate on the earlier of
(i) the date the Company completes any unsecured financing in excess
of $2.5 million after May 30, 2000 or (ii) the date such Purchaser's
Debenture is redeemed or converted in full. The Company shall file
UCC-1 Financing Statements in the States of California and Nevada and,
at the written request of each Purchaser, execute for filing, any
additional financing statements or continuation statements as may be
required from time to time to perfect or continue such Purchaser's
security interest in such assets.
2. Closing, Delivery and Payment
2.1 The closing of the sale and purchase of the Debentures and the
Warrants under this Agreement (the "Closing") shall take place on May
30, 2000, at the offices of Xxxxx Xxxxxx, 800 - 885 West Georgia
Street, Vancouver, British Columbia, or at such other time or place as
the Company and the Purchasers may mutually agree (such date being
hereinafter referred to as the "Closing Date"). At the Closing, the
Purchasers shall pay to the Company, by certified check or wire
transfer of immediately available funds, the Purchase Price (less a
non-refundable fee payable to Sonora Capital as set forth in Section
2.1), and the Company shall, at the Closing, deliver to the Purchasers
the Debentures and the Warrants, each dated the Closing Date.
2.2 At the Closing, the Purchasers shall pay to Sonora Capital a
non-refundable fee of US$100,000 on behalf of the Company.
3. Representations and Warranties of the Company
The Company hereby represents and warrants to each of the Purchasers as
follows:
3.1 Organization, Subsidiaries, Good Standing, Qualification and Power and
Authority. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada.
The Company has all requisite corporate power and authority to own and
operate its properties and assets and to carry on its business as
presently conducted and as presently proposed to be conducted, and is
duly qualified to do business and is in good standing as a foreign
-2-
corporation in each jurisdiction in which the failure to so qualify
would have a material adverse effect on its business, properties,
prospects or financial condition. The Company has all requisite
corporate power and authority (a) to execute and deliver this
Agreement, the Debentures, the Warrants and the other agreements,
instruments and documents contemplated to be executed and delivered by
it pursuant to this Agreement (this Agreement, the Debentures, and the
Warrants, and such other agreements instruments and documents being
herein sometime collectively referred to as, the "Transaction
Documents"), (b) to issue and sell the Debentures and to issue the
shares of the Company's Common Stock issuable upon conversion of the
Debentures (the "Conversion Shares"), (c) to issue and sell the
Warrants and to issue the shares of the Company's Common Stock
issuable upon exercise of the Warrants (the "Warrant Shares"), and (d)
to carry out the other provisions of the Transaction Documents. The
Company has no subsidiaries or affiliates other than SportsPrize,
Inc., a Nevada corporation ("Subsidiary"), and does not, directly or
indirectly, own any interest in or control any corporation,
partnership, joint venture, or other business entity.
3.2 Capitalization. All issued and outstanding shares of the Common Stock
of the Company have been duly authorized and validly issued and are
fully paid and nonassessable. The issued and outstanding capital stock
of the Company immediately prior to the Closing will be as set forth
on Schedule 3.2 attached hereto and incorporated by reference herein.
3.3 Authorization; Binding Obligations. All corporate action on the part
of the Company, its officers, directors and shareholders necessary for
the authorization of the Transaction Documents and the performance of
all of its obligations thereunder and for the authorization, sale,
issuance and delivery of the Debentures, the Warrants, the Conversion
Shares and the Warrant Shares has been taken or will be taken prior to
the Closing. The Conversion Shares and the Warrant Shares have been or
will prior to the Closing be duly and validly reserved for issuance
and, when issued upon conversion of the Debentures or upon the
exercise of the Warrants, as the case may be, will be validly issued,
fully paid and nonassessable. The Company shall take all such action
as may be necessary to assure that an adequate number of shares of
Common Stock is authorized and reserved for issuance of the Conversion
Shares and the Warrant Shares. This Agreement has been duly authorized
and executed by the Company. This Agreement constitutes, and the
Debentures, the Warrants and the other Transaction Documents will once
executed constitute, valid, legal and binding obligations of the
Company enforceable in accordance with their terms, except to such
limitations as may result from any applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
affecting the enforcement of creditors' rights generally.
3.4 No Real Property. The Company does not own or have any interest in any
real estate.
3.5 Consents and Approvals. Except as required by the Securities Act of
1933, as amended (the "Securities Act"), the Securities Exchange Act
of 1934, as amended
-3-
(the "Exchange Act") and any applicable state securities laws, no
filings with, notices to, or approvals of any governmental or
regulatory body are required to be obtained or made by the Company in
connection with the consummation of the transactions contemplated
hereby.
3.6 No Violations. The execution and delivery of this Agreement, the
Debentures, the Warrants or the other Transaction Documents and the
performance by the Company of its obligations hereunder and thereunder
(a) do not and will not conflict with or violate any provision of the
Company's Articles of Incorporation or bylaws, and (b) do not and will
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 encumbrance upon the capital stock or assets of the
Company 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) require any authorization, consent, approval,
exemption or other action by or notice to any court or administrative
or governmental body or other third party pursuant to, any law,
statute, rule or regulation or any agreement or instrument or any
order, judgment or decree to which the Company is subject or by which
any of its assets are bound except for such consents which have been
obtained by the Company.
3.7 Compliance with Laws. The business of the Company to its knowledge has
been conducted in compliance with all applicable laws and regulations
of governmental authorities, except for such violations that have been
cured or that, individually or in the aggregate, may not reasonably be
expected to have a material adverse effect on the business,
operations, financial condition or prospects of the Company. To the
Company's knowledge, neither the real or personal properties leased,
operated or occupied by the Company, nor the use, operation or
maintenance thereof (i) violates any applicable laws, or regulations
of any government or governmental authorities, or (ii) violates any
restrictive or similar covenant, agreement, commitment, understanding
or arrangement.
3.8 Licenses; Permits; Related Approvals. The Company to its knowledge
possesses all licenses, permits, consents, approvals, authorizations,
qualifications, and orders of all governments and governmental
authorities legally required to enable the Company to conduct its
business in all jurisdictions in which such business is conducted.
3.9 Title to Assets. Except as set forth on Schedule 3.9 attached hereto
and incorporated by reference herein, the Company to its knowledge has
good and marketable title to its property and assets free and clear of
all mortgages, security interests, liens, claims, and other
encumbrances. With respect to the property and assets it leases, the
Company is in material compliance with such leases and, to its
knowledge, holds a valid leasehold interest free of any security
interests, liens, claims, or other encumbrances.
3.10 Defaults. The Company and its Subsidiary is not in default in the
performance, observance or fulfillment of any obligation, agreement,
covenant, or condition
-4-
contained in any contract, indenture, mortgage, loan agreement, note,
lease or other instrument to which it is a party or by which it or any
of its properties may be bound, other than such violations or defaults
that would not individually or in the aggregate have a material
adverse effect on the Company's or such Subsidiary's business,
prospects, properties, condition (financial or other), results of
operations or net worth.
3.11 Intellectual Property. Except as set forth on Schedule 3.11 attached
hereto and incorporated by reference herein, the following statements
are correct, other than such exceptions that would not have a material
adverse effect on the Company. The Company owns or has a license to
use all intellectual property used in its business. The Company to its
knowledge has not infringed, and is not now infringing, on any
proprietary right belonging to any other person, firm, or entity. The
Company has the exclusive right and authority to use all of its
creations and inventions, trade secrets, processes, models, designs,
software and formulas as are necessary to enable the Company to
conduct and to continue to conduct all phases of its business in the
manner presently conducted by it and in accordance with the its
business plan. The Company is the sole owner of its trade secrets,
free and clear of any liens, encumbrances, restrictions, or legal or
equitable claims of others and the Company has taken all reasonable
security measures to protect the secrecy, confidentiality, and value
of these trade secrets. Any of the Company's employees and any other
persons who, either alone or in concert with others, developed,
invented, discovered, derived, programmed, or designed these secrets,
or who have knowledge of or access to information relating to them,
have assigned and transferred their rights to such trade secrets to
the Company and each such person has been put on notice and, if
necessary, has entered into agreements that these secrets are
proprietary to the Company and are not to be divulged or misused.
3.12 Proprietary Rights. The Company has not received any communications
alleging that it has violated or, by conducting its business as
proposed would violate, any proprietary rights of any other person,
and the Company is not aware of any basis for the foregoing.
3.13 No Litigation. There is no action, suit or proceeding pending or, to
the knowledge of the Company, threatened against or affecting the
Company, its Subsidiary or any of their properties or rights before
any court or by or before any governmental body or arbitration board
or tribunal, and the Company and its Subsidiary are not in default
with respect to any final judgment, writ, injunction, decree, rule or
regulation of any court or federal, state, local or other governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign.
3.14 Financial Statements; Undisclosed Liabilities. Attached hereto as
Schedule 3.14 and incorporated by reference herein are copies of the
Company's consolidated balance sheet as of February 29, 2000, and the
Company's consolidated statement of operations and retained earnings
for the period ended February 29, 2000, and the Company's consolidated
statement of cash flows for the period ended February 29, 2000
(hereinafter collectively referred to as the "Financial Statements").
The
-5-
Financial Statements are in accordance with the books and records of
the Company, are true, correct and complete and accurately present the
Company's financial position as of the dates set forth therein and the
results of the Company's operations and changes in the Company's
financial position for the periods then ended, all in conformity with
generally accepted accounting principles applied on a consistent basis
during each period and on a basis consistent with that of prior
periods. Except (i) as disclosed in the Financial Statements, (ii) as
disclosed in this Agreement, and (iii) as are incurred in the ordinary
course of the routine daily affairs of the Company's and its
Subsidiary's business, neither the Company nor its Subsidiary has any
liabilities or obligations of any nature or kind, known or unknown,
whether accrued, absolute, contingent, or otherwise. There is no basis
for assertion against the Company or its Subsidiary of any material
claim, liability or obligation not fully disclosed in the Financial
Statements or in this Agreement.
3.15 Tax Matters. The Company and its Subsidiary has duly and timely filed,
or obtained extensions of time for filing, all material tax returns
required by federal, state and local authorities (the "Returns"). All
information reported on the Returns is true, accurate, and complete.
The Company is not a party to, and is not aware of, any pending or
threatened action, suit, proceeding, or assessment against it for the
collection of taxes by any government. The Company and its Subsidiary
has paid in full all taxes, interest, penalties, assessments and
deficiencies owed by it to all taxing authorities.
4. Representations And Warranties of the Purchasers
The Purchasers each severally and not jointly hereby represent and warrant
to the Company as follows:
4.1 Requisite Power and Authority. Such Purchaser has all necessary power
and authority to execute and deliver this Agreement and to carry out
its provisions. All actions on such Purchaser's part required for the
lawful execution and delivery of this Agreement have been or will be
effectively taken prior to the Closing.
4.2 Investment Representations. Such Purchaser understands that none of
the "Securities" (collectively the Debentures, the Warrants, the
Conversion Shares and the Warrant Shares) to be acquired by such
Purchaser has been registered under the Securities Act. Such Purchaser
also understands that such Debenture and such Warrants are being
offered and sold pursuant to an exemption from registration contained
in regulations under the Securities Act based in part upon such
Purchaser's representations contained in this Agreement.
4.3 Acquisition for Own Account. Such Purchaser is acquiring the
Debentures and/or the Conversion Shares and the Warrants and/or the
Warrant Shares to be acquired by it for its own account for investment
only, and not with a view towards their distribution in violation of
applicable securities laws.
-6-
4.4 Accredited Investor. Each Purchaser represents that it is an
"accredited investor" within the meaning of Rule 501(a) of Regulation
D under the Securities Act.
4.5 Non-U.S. Person. Such Purchaser represents, warrants and agrees:
(a) Purchaser is not a "U.S. Person," as such term is defined by Rule 902
of Regulation S under the Securities Act (the definition of which
includes, but is not limited to, an individual resident in the United
States and an estate or trust of which any executor or administrator
or trustee, respectively, is a U.S. Person and any partnership or
corporation organized or incorporated under the laws of the United
States);
(b) Purchaser was outside the United States at the time of execution and
delivery of the Agreement;
(c) no offers to sell the Securities were made by any person to the
Purchaser while the Purchaser was in the United States;
(d) the Securities are not being acquired, directly or indirectly, for the
account or benefit of a U.S. Person or a person in the United States;
(e) that the Securities have not been registered under the Securities Act,
and the Purchaser undertakes and agrees that it will not offer or sell
the Securities unless such Securities are sold in accordance with
Regulation S under the Securities Act, the Securities are registered
under the Securities Act and the securities laws of all applicable
states of the United States, or such Securities are sold pursuant to
an available exemption from such registration requirements that does
not require registration under the Securities Act or any applicable
state laws and regulations governing the offer and sale of securities.
The Purchaser understands that the Company presently has no obligation
or present intention of filing a registration statement under the
Securities Act for the Securities; and
(f) hedging transactions involving the Securities may not be conducted
unless in compliance with the Securities Act.
4.6 Such Purchaser has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks
of an investment in the Debenture, the Warrants, the Debenture Shares
and the Warrant Shares and it is able to bear the economic risk of
loss of its entire investment.
4.7 The Company has provided to such Purchaser the opportunity to ask
questions and receive answers concerning the terms and conditions of
the Offering and it has had access to such information concerning the
Company as it has considered necessary or appropriate in connection
with its investment decision to acquire the Securities.
4.8 Such Purchaser understands and agrees that the certificates
representing the Securities will bear a legend stating that such
shares have not been registered under the Securities Act or the
securities laws of any state of the United States and may
-7-
not be offered for sale or sold unless registered under the Securities
Act and the securities laws of all applicable states of the United
States or an exemption from such registration requirements is
available.
4.9 Such Purchaser consents to the Company making a notation on its
records or giving instructions to any transfer agent of the Company in
order to implement the restrictions on transfer set forth and
described herein.
4.10 Such Purchaser acknowledges the Company is relying on the
representations, warranties and agreements of the Purchaser and that
this offering is being made in reliance on the exemption from
registration provided by Regulation S of the Securities Act and
Section 4(2) of the Securities Act, as interpreted by Rule 506 of
Regulation D under the Securities Act.
5. Registration Rights Relating To Conversion Shares and Warrant Shares
5.1 Definitions. As used in this Article 5, the following terms shall have
the following respective meanings:
(a) "Equity Securities" means (i) any securities of the Company entitled
to participate with the Common Stock in a distribution of the
Company's remaining assets (after distribution to all holders of
securities entitled to such distribution in priority to the holders of
Common Stock) and (ii) any securities convertible into or exercisable
or exchangeable for securities of the type referred to in Section
5.1(a)(i).
(b) "Public Offering" shall mean an underwritten public offering (with a
nationally recognized underwriter) of Common Stock pursuant to an
effective registration statement under the Securities Act.
(c) "Public Sale" means any sale of Registrable Securities to the public
pursuant to an offering registered under the Securities Act or to the
public through a broker, dealer or market maker pursuant to the
provisions of Rule 144.
(d) "registers," "registered," and "registration" shall refer to a
registration effected by preparing and filing a registration statement
in compliance with the Securities Act and the declaration or ordering
of the effectiveness of such registration statement by the SEC.
(e) "Registrable Securities" shall mean (i) the Conversion Shares, (ii)
the Warrant Shares, if the Warrants are exercised and (iii) any shares
of Common Stock or Equity Securities issued as a dividend or other
distribution with respect to or in exchange for or in replacement of
the Conversion Shares or the Warrant Shares, provided, however, that
Registrable Securities shall not include any such shares or Equity
Securities that have previously been registered under the Securities
Act or that have otherwise been sold to the public in an open-market
transaction under Rule 144.
-8-
(f) "Registration Expenses" shall mean all expenses incurred in connection
with effecting any registration pursuant to this Agreement, including
without limitation all registration, qualification and filing fees,
printing expenses, escrow fees, fees and disbursements of counsel for
the Company, blue sky fees and expenses, expenses of any regular or
special audits incident to or required by any such registration, and
the fees and expenses of one counsel for the selling holders of
Registrable Securities, but excluding Selling Expenses.
(g) "Rule 144" shall mean Rule 144 as promulgated by the SEC under the
Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the SEC.
(h) "SEC" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
(i) "Selling Expenses" shall mean all stock transfer taxes, underwriting
discounts, expenses for special counsel of a selling stockholder and
selling commissions applicable to the sale of Registrable Securities.
5.2 Piggyback Registrations.
(a) Request for Inclusion. If the Company shall determine to register any
of its securities for its own account or for the account of other
security holders of the Company on any registration form in a Public
Offering or other registration of Equity Securities (other than a
registration relating to either Form S-4 or S-8), which permits the
inclusion of Registrable Securities (a "Piggyback Registration"), the
Company will promptly give Agent, as set forth in Section 8.2 written
notice thereof (the "Registration Notice") and, subject to Section
5.2(c), shall include in such registration all of the Registrable
Securities requested to be included therein pursuant to the written
request of Agent received within thirty (30) days after delivery of
the Company's notice.
(b) Underwriting. If the Piggyback Registration relates to an underwritten
Public Offering, the Company shall so advise Agent as a part of the
written notice given pursuant to Section 5.2(a). In such event, the
right of any holder of Registrable Securities to participate in such
registration shall be conditioned upon such holder's participation in
such underwriting in accordance with the terms and conditions thereof.
Agent shall be responsible for answering that all holders of
Registrable Securities proposing to distribute their securities
through such underwriting enter into an underwriting agreement in
customary form with the underwriter or underwriters selected by the
Company.
(c) Priorities. If such proposed Piggyback Registration is an underwritten
offering and the managing underwriter for such offering advises the
Company that the amount of securities requested to be included therein
exceeds the amount of securities that can be sold in such offering, or
if the Company and the managing underwriter shall in good faith
determine to reduce the number of shares to be
-9-
offered by the Company pursuant to a reasonable assessment of market
conditions (an "Underwriter's Cutback"), (i) the number of Registrable
Securities requested to be included in such Piggyback Registration,
(ii) the number of securities determined by the directors of the
Company in good faith to be sold by the Company, and (iii) the number
of securities, if any, to be sold by any other security holders of the
Company exercising demand registration rights, if any, in such
offering, shall each be reduced pro rata among the holders on the
basis of the percentage of the outstanding Common Stock held by such
holders (assuming the complete conversion of the Debenture and the
exercise in full of the Warrant and any other options, warrants and
similar rights held by such holders). Notwithstanding the foregoing,
in no event shall the Underwriter's Cutback reduce the number of
Registrable Securities included in such Public Offering or other
registration of Equity Securities to less than fifty percent (50%) of
the Registrable Securities held by the Purchasers on the date of the
Registration Notice.
5.3 Expenses of Registration. Except as provided in this Section 5.4, the
Company shall bear all Registration Expenses incurred in connection
with any Piggyback Registrations. All Selling Expenses incurred by the
Company relating to Registrable Securities included in any Piggyback
Registration, shall be reimbursed by each Purchaser, pro rata based on
the number of Registrable Securities being registered on their behalf.
5.4 Registration Procedures. In the case of each registration effected by
the Company pursuant to this Article 5, the Company will keep Agent
advised in writing as to the initiation of such registration and as to
the completion thereof. The Company will use its reasonable efforts
to:
(a) cause such registration to be declared effective by the SEC;
(b) prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement (including post-effective amendments) as may be
necessary to comply with the provisions of the Securities Act and the
Exchange Act with respect to the disposition of all securities covered
by such registration statement;
(c) obtain appropriate qualifications of the securities covered by such
registration under state securities or "blue sky" laws in such
jurisdictions as may be requested by Agent;
(d) furnish such number of prospectuses and other documents incident
thereto, including any amendment of or supplement to the prospectus,
as Agent from time to time may reasonably request;
(e) notify Agent at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of
any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact
-10-
required to be stated therein or necessary to make the statements
therein not misleading or incomplete in the light of the circumstances
then existing, and at the request of Agent, prepare and furnish to
Agent a reasonable number of copies of a supplement to or an amendment
of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not
include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading or incomplete in the light of the
circumstances then existing; cause all Registrable Securities covered
by such registration to be listed on each securities exchange or
inter-dealer quotation system on which similar securities issued by
the Company are then listed;
(f) provide a transfer agent and registrar for all Registrable Securities
covered by such registration and, if necessary, a CUSIP number for all
such Registrable Securities, in each case not later than the effective
date of such registration;
(g) otherwise comply with all applicable rules and regulations of the SEC,
and make available to its security holders, as soon as reasonably
practicable, an earnings statement covering the period of at least 12
months, but not more than 18 months, beginning with the first month
after the effective date of the registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the
Securities Act; and
5.5 Indemnification.
(a) The Company will indemnify each Purchaser, each of such Purchaser's
officers and directors, and each person controlling such Purchaser
within the meaning of Section 15 of the Securities Act, with respect
to each registration, qualification or compliance effected pursuant to
this Article 5 or otherwise, against all expenses, claims, losses,
damages and liabilities (or actions, proceedings or settlements in
respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any
prospectus, offering circular or other document (including any related
registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission
(or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, or any violation by the Company of the Securities Act
applicable to the Company and relating to action or inaction required
of the Company in connection with any such registration, qualification
or compliance, and will reimburse each such indemnified person for any
legal and any other expenses reasonably incurred in connection with
investigating and defending or settling any such claim, loss, damage,
liability or action; provided, however, that the Company will not be
liable in any such case to the extent that any such claims, loss,
damage, liability or expense arises out of or is based on any untrue
statement or omission based upon written information furnished to the
Company by such Purchaser and stated to be specifically for use
therein. It is agreed that the indemnity agreement contained in this
Section 5.5(a) shall not apply to amounts paid in settlement of any
such loss,
-11-
claim, damage, liability or action if such settlement is effected
without the consent of the Company (which consent has not been
unreasonably withheld).
(b) Each of the Purchasers, to the extent it is a holder of Registrable
Securities included in any registration effected pursuant to this
Article 5, shall indemnify the Company, each of its directors,
officers, agents, employees and representatives, and each person who
controls the Company within the meaning of Section 15 of the
Securities Act, against all claims, losses, damages and liabilities
(or actions in respect thereof) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained
in any such registration statement, prospectus, offering circular or
other document, or any omission (or alleged omission) to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse such indemnified
persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to
the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance
upon and in strict conformity with written information furnished to
the Company by Agent on behalf of such Purchaser; provided, however,
that (x) such Purchaser shall not be liable hereunder for any amounts
in excess of the net proceeds received by such Purchaser pursuant to
such registration, and (y) the obligations of such Purchaser hereunder
shall not apply to amounts paid in settlement of any such claims,
losses, damages or liabilities (or actions in respect thereof) if such
settlement is effected without the consent of such Purchaser (which
consent has not been unreasonably withheld).
(c) Each party entitled to indemnification under this Section 5.5 (the
"Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting
therefrom, provided that counsel selected by the Indemnifying Party,
who shall conduct the defense of such claim or any litigation
resulting therefrom, shall be approved by the Indemnified Party (whose
approval shall not unreasonably be withheld), and the Indemnified
Party may participate in such defense at such party's expense, and
provided further that the failure of any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Section 5.5 to the extent such failure is
not prejudicial. No Indemnifying Party in the defense of any such
claim or litigation shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement
which does not include an unconditional release of such Indemnified
Party from all liability in respect to such claim or litigation. Each
Indemnified Party shall furnish such information regarding itself or
the claim in question as an Indemnifying Party may reasonably request
in writing and as shall be reasonably required in connection with
defense of such claim and litigation resulting therefrom.
-12-
(d) If the indemnification provided for in this Section 5.5 is held by a
court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage or expense
referred to therein, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party hereunder, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such
loss, liability, claim, damage or expense in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party on
the one hand and of the Indemnified Party on the other in connection
with the statements or omissions which resulted in such loss,
liability, claim, damage or expense as well as any other relevant
equitable considerations. The relative fault of the Indemnifying Party
and of the Indemnified Party shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of
a material fact or the omission to state a material fact relates to
information supplied by the Indemnifying Party or by the Indemnified
Party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission.
(e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in an underwriting
agreement entered into in connection with an underwritten public
offering are in conflict with the foregoing provisions, the provisions
in the underwriting agreement shall control.
5.6 Other Obligations. With a view to making available the benefits of
certain rules and regulations of the SEC which may effectuate the
registration of Registrable Securities or permit the sale of
Registrable Securities to the public without registration, the Company
agrees to:
(a) after its initial registration under the Securities Act, exercise best
efforts to cause the Company to be eligible to utilize Form S-3 (or
any similar form) for the registration of Registrable Securities;
(b) at such time as any Registrable Securities are eligible for transfer
under Rule 144(k), upon the request of Agent on behalf of the holder
of such Registrable Securities, promptly remove any restrictive legend
from the certificates evidencing such securities, at no cost to Agent
or such holder where such holder is a Purchaser hereunder, and at the
cost of Agent in any other case;
(c) make and keep available public information as defined in Rule 144
under the Securities Act at all times from and after its initial
registration under the Securities Act;
(d) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act
at any time after it has become subject to such reporting
requirements; and
(e) furnish Agent upon request a written statement by the Company as to
its compliance with the reporting requirements of Rule 144 (at any
time following
-13-
the effective date of the first registration statement filed by the
Company under the Securities Act for an offering of its securities to
the general public), and of the Securities Act and the Exchange Act
(at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of
the Company, and such other reports and documents as a holder of
Registrable Securities may reasonably request in availing itself of
any rule or regulation of the Commission (including Rule 144A)
allowing a holder of Registrable Securities to sell any such
securities without registration.
5.7 Termination of Registration Rights. The right of Agent to request
inclusion of Registrable Securities in any registration pursuant to
this Article 5 shall terminate at the date that is the earlier of: (a)
that date that all Registrable Securities have been registered under
the Securities Act has or otherwise been sold to the public in an
open-market transaction under Rule 144; and (b) the earlier of (i) the
fifth anniversary of the Closing Date, and (ii) the first anniversary
of the date on which the last Registrable Securities obtainable by
each Purchaser have been obtained by conversion or exercise of such
Purchaser's Debenture or Warrant, as applicable.
6. Conditions Precedent To Purchasers' Obligations
The obligation of the Purchasers to purchase and pay for the Debentures and
the Warrants to be delivered to it at the Closing shall be subject to the
satisfaction of the following conditions as of the Closing Date:
6.1 the representations and warranties of the Company contained in this
Agreement, the Debenture and the Warrant shall be true and correct on
and as of the Closing Date.
7. Company Covenants and Purchaser Covenants.
7.1 Company Covenants. The Company covenants and agrees with the
Purchasers that:
(a) Reservation of Common Stock. The Company will reserve and keep
available that maximum number of its authorized but unissued Common
Stock as may be required for the issuance of Conversion Shares and the
Warrant Shares.
(b) Board Appointment. On the Closing Date, the Company shall use its
reasonable effort to have one (1) representative of the Purchasers
appointed to serve as a director on the Board of Directors.
Thereafter, until such time as either (a) 50% of the principal amount
of the Debenture has been converted into the Company's Common Stock,
or (b) the Debenture shall have been repaid in full, the Company shall
use its reasonable effort to nominate one (1) representative of the
Purchasers for election at each meeting of the Company's shareholders
for which all members of the Board of Directors stand for election.
The Agent shall designate such representative on behalf of the
Purchasers.
(c) Security Interests in Software. The Company will not grant a security
interest or encumber any of its properties or assets which are
material individually or in the
-14-
aggregate, to its and its business, taken as a whole, to secure the
repayment of debt in excess of $50,000, except in the ordinary course
of business consistent with past practice, without the expressed
written consent of the Purchasers, which shall not be unreasonably
withheld.
7.2 Purchaser Covenants. Each of the Purchasers covenants and agrees with
the Purchasers that it will not either directly or indirectly take any
short position or hedge position in the Company's Common Stock until
all of the Purchasers have converted all of the Debentures into
Debenture Shares and exercised all of the Warrants for Warrant Shares,
nor will any Purchaser make any promissory notes and/or pledges to
that effect on the Company's Common Stock.
8. Cutter As Agent for the Purchaser
8.1 Provisions for the Benefit of Purchasers Only. The provisions of this
Section 8 relate to the rights and obligations of the Purchasers and
Agent, inter se, and shall be operative as between the Purchasers and
Agent only, and the Company shall not have any rights or be entitled
to rely for any purposes upon such provisions, save as provided in
section 8.2(b).
8.2 Authorization and Action.
(a) Each Purchaser appoints Cutter, as its agent (in such capacity,
"Agent"), for the purposes of collecting payments, electing to
exercise the rights of the Purchasers under this Agreement and the
other Transaction Documents as herein and therein provided. For such
purposes, each Purchaser authorizes Agent on behalf of such Purchaser
to take such action and to exercise such rights, powers and
discretions as are expressly delegated to it under this Agreement and
the other Transaction Documents and on the terms hereof or thereof
together with such other rights, powers and discretions as are
reasonably incidental thereto; provided always, however, that, without
the consent of the Purchasers, Agent shall not effect or agree to any
change in the interest rate, payment dates, maturity date or
conversion rights under the Debentures. Agent may perform any of its
duties hereunder or thereunder by or through its agents, officers or
employees. Agent shall not be required to exercise any right, power or
discretion or take any action as to any matters not expressly provided
for by this Agreement or the other Transaction Documents (including,
without limitation, enforcement of the collection of any amounts owing
to the Purchasers hereunder). Agent shall not be required to exercise
any right, power or discretion or to take any action which exposes
Agent to personal liability or risk thereof or which is contrary to
this Agreement, the other Transaction Documents or applicable law. The
duties of Agent, as agent, shall be mechanical and administrative in
nature. Agent shall not have, by reason of this Agreement or the other
Transaction Documents, a fiduciary relationship in respect of either
Purchaser.
(b) Agent shall only act on behalf of the Purchasers in dealings and
communications with the Company as set out in this Agreement, and
shall be the only person to so
-15-
act, except as may be otherwise agreed in writing between the parties
hereto. The Company and the Subsidiaries may rely upon the grant and
delegation of authority provided in this Section 8 from each of the
Purchasers to Agent without further inquiry.
8.3 Exoneration.
(a) Agent and its limited and general partners, and their respective
directors, officers, managers, members, shareholders, agents or
employees shall not be liable to any person, company or firm
(including the Purchasers and the Company) for any action taken or
omitted to be taken by any of them (other than actions taken or
omitted to be taken by Agent in its capacity as a Purchaser,
including, without limitation, actions giving rise to indemnification
obligations pursuant to Section 5.5(b)) under or in connection with
this Agreement or the other Transaction Documents unless directly due
to their own gross negligence or willful misconduct.
(b) Without limiting the generality of the foregoing Section 8.3(a):
(i) subject to sections 8.8 and 9, Agent may retain, consult with and
pay legal counsel, independent accountants and other experts
selected by it (provided that all reasonable costs and fees in
respect thereof shall be paid by the Company as provided for in
Section 9) and Agent shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the
advice of such counsel, accountants or experts;
(ii) Agent shall not incur any liability by acting upon any notice,
consent, certificate or other instrument or writing (which may be
by telegram, telecopy, cable or telex) believed by it at the time
to be genuine or by acting upon any representation or warranty of
the Company made hereunder;
(iii) Agent may assume without inquiry or investigation that no event
of default, default, or other event which is, or which with the
passing of time or giving of notice or both would become an event
of default under the Debentures or any other Transaction
Document, has occurred unless it has received from the Company or
any Cutter notice thereof specifying the nature of the relevant
event whereupon Agent may assume that such event has occurred as
therein described and that an default hereunder or default or
event of default thereunder, as the case may be, has occurred;
and
(iv) Agent shall not have any duty to ascertain or to inquire as to
the performance or observance of any of the terms, covenants or
conditions of this Agreement or any other Transaction Document,
to inspect the property (including the books and records) of the
Company, the Subsidiaries or any of the other parties, or to
conduct any other inquiry usual for a lender; Agent shall not be
responsible to any Purchaser for the due execution, legality,
validity, enforceability,
-16-
genuineness, sufficiency or value of this Agreement, any other
Transaction Document or any security provided by the Company and
the Subsidiaries.
8.4 Agent as Purchaser. Agent, which also is a Purchaser of this
Debenture, shall have the same rights and powers under this Agreement
and the other Transaction Documents as any other Purchaser and may
exercise the same as though it were not Agent; and the terms
"Purchaser" or "Purchasers" shall, unless otherwise expressly
indicated, include Agent in its capacity as Purchaser. Subject to any
restrictions on the Company herein, Agent may accept deposits from,
lend money to, and generally engage in any kind of business with the
Company and any other party, all as if Agent were not agent hereunder
and without any duty to account therefore to either Purchaser.
8.5 Credit Decision. Each Purchaser has entered into this Agreement after
its own negotiations with the Company and is and will continue to be
solely responsible for its own independent appraisal of and
investigations into the financial condition, creditworthiness, affairs
and nature of the Company and all other credit and banking matters
relative to this Agreement and the other Transaction Documents. Each
Purchaser confirms to Agent that it has not relied, and will not
hereafter rely, on Agent:
(a) to check or inquire on its behalf into the adequacy, accuracy or
completeness of any information provided by the Company under or in
connection with this Agreement or the transactions herein contemplated
and that each Purchaser shall be responsible for obtaining directly
from the Company, through requests made by Agent to the Company on its
behalf, such information, documents or other information as each
Purchaser deems necessary from time to time; or
(b) to assess or keep under review on its behalf the financial condition,
creditworthiness, affairs or nature of the Company, the Subsidiary or
their respective properties or any other credit or banking matters
relative to this Agreement.
(c) A copy of this Agreement including all Schedules hereto has been, or
prior to such Purchaser entering into this Agreement will be, made
available to each Purchaser for review by it and each Purchaser is, or
will be, satisfied with the form and substance of this Agreement
including all Schedules hereto; and Agent is not liable in any way to
such Purchaser in respect thereof or in respect of the accuracy or
completeness of any information or data, financial or otherwise, made
available to such Purchaser in connection with the negotiation of this
Agreement or for any statements, warranties or representations whether
made in writing or orally made in connection with the negotiation of
this Agreement.
8.6 Sharing of Payments. All Purchasers shall share in payments received
from or other recoveries from the Company or any its Subsidiary in
respect of their indebtedness (including amounts paid by the Company
in accordance with the
-17-
Debentures and this Agreement, amounts received on any exercise of any
right of counterclaim, set-off, banker's lien or similar right and
amounts recovered on the realization of the Security) pari passu,
equally and ratably on a pro rata basis between the Purchasers, based
upon the respective amounts of indebtedness owing under their
Debentures.
8.7 Indemnification. The Purchasers agree to indemnify Agent (to the
extent not reimbursed by the Company) ratably according to the
respective amounts of indebtedness owing under their Debentures from
and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements
of any nature or kind whatsoever which may be imposed on, incurred by,
or asserted against Agent in its capacity as Agent hereunder in any
way relating to or arising out of this Agreement, any other
Transaction Document or any action taken or omitted by Agent under
this Agreement or any other Transaction Document; provided that no
Purchaser shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from Agent's gross
negligence or willful misconduct. Without limitation each Purchaser
Agrees to reimburse Agent promptly upon demand for its ratable share
as above described of out-of-pocket expenses (including the fees and
disbursements of counsel) incurred by Agent in connection with the
determination or preservation of any rights of Agent or the Purchasers
under, or the enforcement of, or legal advice in respect of rights or
responsibilities under, this Agreement or other Transaction Documents,
to the extent that Agent is not reimbursed for such expenses by the
Company on demand.
8.8 Selling Expenses. Agent shall be entitled to be reimbursed for all
Selling Expenses incurred by it pursuant to Section 5.3 by the holders
of Registrable Securities included in the Registration to which such
Selling Expenses relate, and may require payment of any holder's
estimated share thereof to it as a precondition to including such
Registrable Securities in such Registration.
8.9 Exchange of Information. The Company agrees that each Purchaser and
Agent may provide to the other Purchasers or Agent such information
concerning the financial position and property and operations of the
Company and the Subsidiaries as, in the opinion of such Purchaser or
Agent, is relevant to the ability of the Company and the Subsidiary to
fulfill their obligations under or in connection with this Agreement
and the other Transaction Documents.
8.10 Replacement of Agent. Upon any dissolution of Agent, Agent shall be
entitled to transfer to its shareholders or to one or more
corporations or limited partnerships, the majority of the shareholders
or partners of which are shareholders of Agent, all of its rights as
Agent under the Transaction Documents. In connection with such
distribution, Agent shall be entitled to assign to its limited
partners or such corporations or partnerships Agent's rights
hereunder. In addition, the Purchasers may agree to immediately remove
Agent from its position and appoint a successor Agent in the stead of
Cutter. Upon the acceptance of any appointment as Agent
-18-
hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Agent, and the retiring Agent shall be then
discharged from its further duties and obligations as Agent under this
Agreement provided that the Agent shall execute such documents as may
be necessary or desirable to assign and transfer the retiring Agent's
interest in this Agreement and the other Transaction Documents to the
successor Agent. After any retiring Agent's resignation or removal
hereunder as Agent, the provisions of this Section 8 shall inure to
its benefit as to any actions taken or omitted to be taken by it while
it was an Agent under this Agreement.
9. Miscellaneous
9.1 Currency. Except as may be otherwise expressly provided, all dollar
amounts herein are references to United States dollars.
9.2 Governing Law. This Agreement shall be governed by the internal law,
and not the law of conflicts, of the State of California.
9.3 Survival. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by or on behalf of
the Purchasers and the closing of the transactions contemplated
hereby. All statements as to factual matters contained in any
certificate or other instrument delivered by or on behalf of the
Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and
warranties by the Company hereunder solely as of the date of such
certificate or instrument.
9.4 Successors and Assigns. Neither Purchaser shall be entitled to assign
its rights under this Agreement or any of the other Transaction
Documents, without the consent of the Company, which consent shall not
be unreasonably withheld or delayed; provided always, however, that no
such consent shall be required for either Purchaser to assign such
rights to any person or group of persons controlling or owning the
majority of all beneficial interests in such Purchaser, any other
entity controlled by such person or persons, or an entity controlled
by such Purchaser, provided that such entity shall continue to be so
controlled by such persons or such Cutters applicable. The provisions
hereof shall inure to the benefit of, and be binding upon, the
successors, permitted assigns, heirs, executors and administrators of
the parties hereto.
9.5 Entire Agreement; Amendment and Waiver. This Agreement, the Schedules
and Exhibits hereto and the other documents expressly delivered
pursuant hereto or thereto supersede any other agreement, whether
written or oral, that may have been made or entered into by the
parties hereto relating to the matters contemplated hereby, and
constitute the full and entire understanding and agreement between the
parties with regard to the subjects hereof and thereof, and no party
shall be liable or bound to any other in any manner by any
representations, warranties, covenants and agreements except as
specifically set forth or incorporated by reference herein
-19-
and therein. Neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated except by a written
instrument signed by the Company and the Purchasers.
9.6 Severability. In case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
9.7 Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal
delivery to the party to be notified; (ii) when sent by confirmed
telex or facsimile if sent during normal business hours of the
recipient, if not, then on the next business day; (iii) five (5) days
after having been sent by registered or certified mail, return receipt
requested, postage prepaid; or (iv) one (1) day after deposit with a
nationally recognized overnight courier, special next day delivery,
with verification of receipt. All communications shall be sent:
to the Company at:
SportsPrize Entertainment Inc.
00000 Xxxxxxxxxx Xxxx., Xxxxx 000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attn: Chief Executive Officer
Fax: (000) 000-0000
with a copy to:
Xxxxxx & Xxxxxxx LLP
U.S. Bank Centre
0000 Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxxx Xxx
Fax: (000) 000-0000
to the Purchasers:
Cutter Services Corp.
X.X. Xxx X-0000 (X-00)
Xxxx Xxx Shopping Center
Nassau, Bahamas
Strathburn Investments Inc.
Xxxxx 00, Xxxx Xxx Xxxxxxxx Xxxxxx
X.X. Xxx X-0000
Nassau, Bahamas
-20-
with a copy to:
Xxxxx Xxxxxx
800 - 000 Xxxx Xxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxx Xxxxxxxx
Xxxxxx X0X 0X0
Attn: Xxxxxxx Xxxxxx
Fax: (000) 000-0000
or at such other address as the Company or Agent on behalf of Purchasers may
designate by ten (10) days advance written notice to the other parties hereto.
9.8 Counterparts; Facsimile. This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument. This Agreement may be
executed and delivered by facsimile.
9.9 Broker's Fees. Except as provided in Section 2.2, each party hereto
represents and warrants that no agent, broker, investment banker,
person or firm acting on behalf of or under the authority of such
party hereto is or will be entitled to any broker's or finder's fee or
any other commission directly or indirectly in connection with the
transactions contemplated herein.
-21-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date set forth in the first paragraph hereof.
COMPANY:
SportsPrize Entertainment Inc.
By: -------------------------------
Name: -----------------------------
Title: ----------------------------
PURCHASERS:
Cutter Services Corp.
By: -------------------------------
Name: -----------------------------
Title: ----------------------------
Strathburn Investments Inc.
By: -------------------------------
Name: -----------------------------
Title: ----------------------------
-22-
Schedule 3.2
Issued and outstanding shares of Common Stock
17,585,374
-23-
Schedule 3.9
Mortgages, security interests, liens, claims, and other encumbrances on assets
NONE
-24-
Schedule 3.11
Intellectual Property Exceptions
NONE
-25-
Schedule 3.14
Financial Statements
-26-
Exhibit A
FORM OF THE DEBENTURE
-26-
Exhibit B
FORM OF THE WARRANT
-27-
