Exhibit 2.5
SECURITIES PURCHASE AGREEMENT
-----------------------------
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of July 21,
2005, by and among Futuremedia PLC, a corporation organized under the laws of
England and Wales (the "Company"), on the one hand, and MERCATOR MOMENTUM FUND,
LP ("Momentum Fund"), MERCATOR MOMENTUM FUND III, LP ("Momentum Fund III") and
MONARCH POINTE FUND, LTD. ("Monarch") (collectively, the "Funds") and M.A.G.
CAPITAL, LLC ("M.A.G.") on the other hand.
WHEREAS:
A. The Company and the Funds are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by the
provisions of Section 4(2) and Regulation D ("Regulation D"), as promulgated by
the United States Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "Securities Act").
B. The Company is issuing (i) Convertible Debentures in the form attached
hereto as Exhibit A (the "Debentures") in the aggregate principal amount of
$4,000,000, pursuant to which ordinary shares in the Company ("Ordinary Shares")
may be issued upon the conversion of the Debentures (the "Debenture Shares");
and (ii) warrants in the form attached hereto as Exhibit B (the "Warrants") to
acquire Ordinary Shares ("Warrant Shares").
C. The Funds are purchasing, severally and not jointly, subject to the
terms and conditions in this Agreement, the Debentures. For no additional
consideration, the Warrants are being issued to the Funds and M.A.G.
D. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
in the form attached hereto as Exhibit C (the "Registration Rights Agreement"),
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act and the rules and regulations promulgated thereunder,
and applicable state securities laws.
NOW, THEREFORE, the Company and the Funds hereby agree as follows:
1. CERTAIN DEFINITIONS.
For purposes of this Agreement, the following terms shall have the
meanings ascribed to them as provided below:
"Business Day" shall mean any day except Saturday, Sunday and any day
which shall be a federal legal holiday in the United States or a day on which
banking institutions are authorized or required by law or other government
action to close.
"Investment Amount" shall mean the dollar amount of the Debentures
purchased by the Funds at the Closing pursuant to this Agreement, as set forth
in Section 2 hereto.
"Material Adverse Effect" shall mean any material adverse effect on (i)
the Securities, (ii) the ability of the Company to perform its obligations
hereunder (including the issuance of the Debentures and the Warrants), under the
Debentures and Warrants (including the issuance of the Debenture Shares and
Warrant Shares) or under the Registration Rights Agreement or (iii) the
business, operations, properties, prospects or financial condition of the
Company and its subsidiaries taken as a whole.
"Pro Rata Percentage" shall mean, with respect to any Fund, a percentage
computed by dividing such Fund's Investment Amount by the aggregate Investment
Amounts of all Funds.
"Securities" shall mean the Debentures, the Warrants, the Debenture Shares
and the Warrant Shares.
"Shares" means the Ordinary Shares to be issued upon the conversion of the
Debentures or exercise of the Warrants.
2. PURCHASE AND SALE OF DEBENTURES AND WARRANTS.
(a) Generally. Except as otherwise provided in this Section 2 and subject
to the satisfaction (or waiver) of the conditions set forth in Section 6 and
Section 7 below, each Fund shall purchase the number of Debentures for the
Investment Amount as provided in this Section 2 and the Company shall issue to
the Funds and M.A.G. the number of Debentures and Warrants as provided in this
Section 2.
--------------------------------- ---------------- --------------- ---------------- ---------------- ----------------
Mercator Mercator
Momentum Fund, Momentum Fund Monarch Pointe M.A.G.
LP III, LP Fund, Ltd. Capital, LLC Total
--------------------------------- ---------------- --------------- ---------------- ---------------- ----------------
Investment Amount $ 1,110,000 $ 300,000 $ 2,590,000 $ -- $ 4,000,000
--------------------------------- ---------------- --------------- ---------------- ---------------- ----------------
Warrants 856,796 231,566 1,999,190 3,087,552 6,175,104
--------------------------------- ---------------- --------------- ---------------- ---------------- ----------------
Monthly Principal Pmt $ 92,500 $ 25,000 $ 215,833 $ -- $ 333,333
--------------------------------- ---------------- --------------- ---------------- ---------------- ----------------
(b) Purchase of Debentures and Warrants; Form of Payment; Closing Date.
The execution of definitive documents relating to the transactions
described herein (the "Execution") shall take place at a time and on a date (the
"Execution Date") to be specified by the parties, which will be no later than
5:00 p.m. (Pacific time) on July 22, 2005. On the Execution Date, the Company
shall deliver (a) Debentures, in the names and amounts set forth below (b)
Warrants, in the names and amounts set forth below, and (c) the Securities
Purchase Agreement, and Registration Rights Agreement, each duly executed on
behalf of the Company. On the Execution Date, the Funds shall deliver the
Investment Amount or $4,000,000 by wire transfer of immediately available funds
to the Company, and (ii) the Securities Purchase Agreement and Registration
Rights Agreement, each duly executed on behalf of the Funds and MAG. The closing
("Closing") will occur when (a) all documents and instruments necessary or
appropriate to effect the transactions contemplated herein are exchanged by the
parties. All actions taken at the Closing will be deemed to be taken
simultaneously and the date on which such actions take place shall be the
"Closing Date".
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Within three (3) Trading Days after receipt of and the Investment Amount,
the Company shall deliver by wire transfer of immediately available funds to
M.A.G. (a) the Due Diligence Fee in the amount of $190,000, and (b) the legal
fees in the amount of $10,000.
3. THE FUNDS' AND M.A.G.'s REPRESENTATIONS AND WARRANTIES.
Each Fund and M.A.G., severally and not jointly represents and warrants to
the Company as follows:
(a) Organization, Good Standing and Qualification. Each of the Momentum
Fund and Momentum Fund III is a limited partnership duly organized, validly
existing and in good standing under the laws of the State of California and has
all the requisite power and authority to carry on its business as now conducted
and as proposed to be conducted. Monarch is an international business company
duly organized, validly existing and in good standing under the laws of the
British Virgin Islands and has all the requisite power and authority to carry on
its business as now conducted and as proposed to be conducted. M.A.G. is a
limited liability company duly organized, validly existing and in good standing
under the laws of the State of California and has all the requisite power and
authority to carry on its business as now conducted and as proposed to be
conducted.
(b) Purchase for Own Account. The Fund is purchasing the Securities for
the Fund's own account and not with a present view towards the distribution
thereof. M.A.G. is acquiring the Warrants for M.A.G.'s own account and not with
a present view towards the distribution thereof. The Fund understands that the
Fund must bear the economic risk of this investment indefinitely, unless the
Securities are registered pursuant to the Securities Act and any applicable
state securities or blue sky laws or an exemption from such registration is
available, and that the Company has no present intention of registering any such
Securities other than as contemplated by the Registration Rights Agreement.
Notwithstanding anything in this Section 3(b) to the contrary, by making the
foregoing representation, the Fund and M.A.G. do not agree to hold the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption from registration under the Securities
Act and any applicable state securities laws.
(c) Information. The Fund and M.A.G. have been furnished all materials
relating to the business, finances and operations of the Company and its
subsidiaries and materials relating to the offer and sale of the Securities,
which have been requested by the Fund and M.A.G. The Fund and M.A.G. have been
afforded the opportunity to ask questions of the Company and have received what
the Fund and M.A.G. believe to be satisfactory answers to any such inquiries.
The Fund and M.A.G. understand that its investment in the Securities involves a
high degree of risk. Neither such inquiries nor any other due diligence
investigation conducted by the Fund and M.A.G. or its counsel or any of its
representatives shall modify, amend or affect the Fund's and M.A.G.'s right to
rely on the Company's representations and warranties contained in Section 4
below.
(d) Governmental Review. The Fund and M.A.G. understand that no United
States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Securities.
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(e) Accredited Investor Status. The Fund and M.A.G. are "Accredited
Investors" as that term is defined in Rule 501(a) of Regulation D.
(f) Authorization; Enforcement. The Fund has the requisite power and
authority to enter into and perform its obligations under this Agreement and to
purchase the Debentures and the Warrants in accordance with the terms hereof.
MAG has the requisite power and authority to enter into and perform its
obligations under this Agreement and to aquire the Warrants in accordance with
the terms hereof. This Agreement has been duly and validly authorized, executed
and delivered on behalf of the Fund and M.A.G. and is a valid and binding
agreement of the Fund and M.A.G. enforceable against the Fund and M.A.G. in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and other laws affecting
creditors' rights and remedies generally and to general principles of equity
(regardless of whether enforcement is sought in a proceeding at law or in
equity).
(g) Restrictions on Transfer. The Funds and M.A.G. understand and
acknowledge that neither the Debentures, the Warrants, the Debenture Shares nor
the Warrant Shares have been registered under the Securities Act. Unless and
until otherwise permitted by the Company, the Debentures and Warrants and each
certificate and other document evidencing any of the Debenture Shares and
Warrant Shares shall be endorsed with the legend substantially in the following
form:
THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED ("TRANSFERRED") IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. IN THE ABSENCE OF SUCH
REGISTRATION, SUCH SHARES MAY NOT BE TRANSFERRED UNLESS, IF THE COMPANY
REQUESTS, THE COMPANY HAS RECEIVED A WRITTEN OPINION FROM COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO THE COMPANY STATING THAT SUCH TRANSFER IS BEING MADE
IN COMPLIANCE WITH ALL APPLICABLE FEDERAL AND STATE SECURITIES LAWS.
(h) Covenants of Funds and M.A.G. Not to Short Stock. Commencing July 13,
2005 and continuing until such time as the Debentures and Warrants are no longer
outstanding, the Funds and M.A.G., on behalf of themselves and their affiliates,
hereby covenant and agree not to, directly or indirectly, offer to "short sell",
contract to "short sell" or otherwise "short sell" the securities of the
Company, including, without limitation, Ordinary Shares that will be received as
a result of the conversion of the Debentures.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY .
The Company represents and warrants to each Fund as follows and except as
set forth in the Company's public filings with the Securities and Exchange
Commission:
(a) Organization and Qualification. The Company is a corporation duly
organized and existing under the laws of England and Wales and has the requisite
corporate power to own its properties and to carry on its business as now being
conducted. The Company is duly qualified as a foreign corporation to do business
and is in good standing in every jurisdiction in which the nature of the
business conducted by it makes such qualification necessary and where the
failure so to qualify would have a Material Adverse Effect. The Company is the
sole record and beneficial owner of all of the outstanding equity securities of
each such subsidiary.
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(b) Authorization; Enforcement. The Company has the requisite corporate
power and authority to enter into and perform its obligations under this
Agreement, the Debentures, the Warrants and the Registration Rights Agreement;
to issue the Debenture Shares upon conversion of the Debentures in accordance
with the terms of the Debentures; and to issue and sell the Warrant Shares upon
exercise of the Warrants in accordance with the terms of the Warrants, and
receipt of the exercise price. The execution, delivery and performance of this
Agreement, the Debentures, the Warrants and the Registration Rights Agreement by
the Company and the consummation by it of the transactions contemplated hereby
and thereby (including, without limitation, the reservation for issuance and
issuance of the Debenture Shares and the reservation for issuance and issuance
of the Warrant Shares) have been duly authorized by the Company's Board of
Directors and no further consent or authorization of the Company, its Board of
Directors or its shareholders is required. This Agreement has been duly executed
and delivered by the Company. This Agreement constitutes, and, upon execution
and delivery by the Company and the other parties thereto, the Debentures,
Registration Rights Agreement and the Warrants will constitute, valid and
binding obligations of the Company enforceable against the Company in accordance
with their respective terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and other laws affecting
creditors' rights and remedies generally and to general principles of equity.
(c) Capitalization. The capitalization of the Company as of the date
hereof is set forth on Schedule 4(c), including the authorized capital stock,
the number of shares issued and outstanding, the number of shares issuable and
reserved for issuance pursuant to the Company's stock option plans, the number
of shares issuable and reserved for issuance pursuant to securities exercisable
for, or convertible into or exchangeable for any shares of capital stock. All of
such outstanding shares of the capital stock of the Company have been, or upon
issuance will be, validly issued, fully paid and nonassessable. Except as set
forth on Schedule 4(c), no shares of capital stock of the Company (including the
Debenture Shares and the Warrant Shares) or any of the subsidiaries are subject
to preemptive rights or any other similar rights of the shareholders of the
Company or any liens or encumbrances. Except for the Securities and as disclosed
in Schedule 4(c), as of the date of this Agreement, there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever to which the Company or any of the subsidiaries is a party
relating to the issuance by the Company or any of its subsidiaries of securities
or rights convertible into or exercisable or exchangeable for, any shares of
capital stock of the Company or any of its subsidiaries, or arrangements by
which the Company or any of its subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or such subsidiaries. Except
as set forth on Schedule 4(c), there are no securities or instruments containing
antidilution or similar provisions that may be triggered by the issuance of the
Securities in accordance with the terms of this Agreement, the Debentures, the
Warrants or the Registration Rights Agreement.
(d) Issuance of Shares. The Debenture Shares are duly authorized and upon
the conversion of the Debentures in accordance with the terms thereof, will be
validly issued, fully paid and non-assessable, and free from all taxes, liens,
claims and encumbrances (other than those imposed through acts or omissions of
the Funds), and will not be subject to preemptive rights or other similar rights
of shareholders of the Company and will not impose personal liability upon the
holder thereof. The Warrant Shares are duly authorized and reserved for
issuance, and, upon exercise of the Warrants in accordance with the terms
thereof and receipts of the exercise price, will be validly issued, fully paid
and non-assessable and free from all taxes and liens, claims and encumbrances
(other than those imposed through acts or omissions of the Funds thereof), and
will not be subject to preemptive rights or other similar rights of shareholders
of the Company and will not impose personal liability upon the holder thereof.
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(e) No Conflicts. The execution, delivery and performance of this
Agreement, the Debentures, the Registration Rights Agreement and the Warrants by
the Company, and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the reservation
for issuance and issuance of the Debenture Shares and the Warrant Shares and the
issuance of the Warrants) will not (i) conflict with or result in a violation of
the Company's Memorandum and Articles of Association or (ii) conflict with, or
constitute a default (or an event which, with notice or lapse of time or both,
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of any agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, or result
in a violation of any law, rule, regulation, order, judgment or decree
(including (assuming the accuracy of the representations and warranties of the
Funds) the United States federal and state securities laws and regulations)
applicable to the Company or any of its subsidiaries or by which any property or
asset of the Company or any of its subsidiaries is bound or affected (except,
with respect to clause (ii), for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect). Neither the
Company nor any of its subsidiaries is in violation of its Articles of
Association, By-laws or other organizational documents and neither the Company
nor any of its subsidiaries is in default (and no event has occurred which, with
notice or lapse of time or both, would put the Company or any of its
subsidiaries in default) under, nor has there occurred any event giving others
(with notice or lapse of time or both) any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, except for actual or possible
violations, defaults or rights as would not, individually or in the aggregate,
have a Material Adverse Effect. The businesses of the Company and its
subsidiaries are not being conducted in violation of any law, ordinance or
regulation of any governmental entity, except for actual or possible violations,
if any, the sanctions for which either singly or in the aggregate would not have
a Material Adverse Effect. Except as specifically contemplated by this Agreement
and as required under the Securities Act and any applicable state securities
laws, the Company is not required to obtain any consent, approval, authorization
or order of, or make any filing or registration with, any court or governmental
agency or any regulatory or self regulatory agency in order for it to execute,
deliver or perform any of its obligations under this Agreement including without
limitation the issuance and sale of the Debentures and Warrants as provided
hereby (including without limitation the issuance of the Debenture Shares and
Warrant Shares) or the Registration Rights Agreement. The Company represents and
warrants that issuance of the Debentures and the Warrants does not require
shareholder approval.
(f) SEC Documents; Financial Statements. The Company has timely filed
(subject to extensions permissible under Rule 12b-25 of the Exchange Act) all
reports, schedules, forms, statements and other documents required to be filed
by it with the SEC pursuant to the Securities and Exchange Act of 1934, as
amended ("Exchange Act"), and has filed all registration statements and other
documents required to be filed by it with the SEC pursuant to the 1933 Act (all
of the foregoing filed prior to the date hereof, and all exhibits included
therein and financial statements and schedules thereto and documents
incorporated by reference therein, being hereinafter referred to herein as the
"SEC Documents"). As of their respective dates, the SEC Documents complied in
all material respects with the requirements of the Exchange Act or the
Securities Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. Any statements
made in any such SEC Documents that are or were required to be updated or
amended under applicable law have been so updated or amended. As of their
respective dates, the financial statements of the Company included in the SEC
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Documents complied in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC applicable with
respect thereto. Such financial statements have been prepared in accordance with
United States generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements) and fairly present in all material respects the
consolidated financial position of the Company and its subsidiaries as of the
dates thereof and the results of their operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal and
recurring year-end audit adjustments). Except as set forth in the SEC Documents,
the Company has no liabilities, contingent or otherwise, other than (i)
liabilities incurred in the ordinary course of business subsequent to the date
of such SEC Documents and (ii) obligations under contracts and commitments
incurred in the ordinary course of business and not required under generally
accepted accounting principles to be reflected in such SEC Documents, which
liabilities and obligations referred to in clauses (i) and (ii), individually or
in the aggregate, would not have a Material Adverse Effect.
(g) Absence of Certain Changes. Except as disclosed in the SEC Documents,
there has been no change or development, which, individually or in the
aggregate, has had or could have a Material Adverse Effect on the Company.
(h) Absence of Litigation. Except as disclosed in the SEC Documents, there
is no action, suit, proceeding, inquiry or investigation before or by any court,
public board, government agency, self-regulatory organization or body pending
or, to the knowledge of the Company, threatened against or affecting the
Company, or any of its subsidiaries, or any of their directors or officers in
their capacities as such which would have a Material Adverse Effect.
(i) Intellectual Property. The Company and each of its subsidiaries owns
or is licensed to use all patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, copyright applications,
licenses, permits, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures) and
other similar rights and proprietary knowledge (collectively, "Intangibles")
necessary for the conduct of its business as now being conducted and as proposed
to be conducted. Neither the Company nor any of its subsidiaries has received
written notice that it is infringing upon or in conflict with any third party
Intangibles. Neither the Company nor any of its subsidiaries has entered into
any consent, indemnification, forbearance to xxx or settlement agreements with
respect to the validity of the Company's or such subsidiary's ownership or right
to use its Intangibles. The Intangibles are valid and enforceable, and no
registration relating thereto has lapsed, expired or been abandoned or canceled
or is the subject of cancellation or other adversarial proceedings, and all
applications therefor are pending and in good standing. The Company and its
subsidiaries have complied with their contractual obligations relating to the
protection of the Intangibles used pursuant to licenses. To the knowledge of the
Company, no person is infringing on or violating the Intangibles owned or used
by the Company or any of its subsidiaries.
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(j) Environment. Except as disclosed in the SEC Documents (i) there is no
environmental liability, nor factors likely to give rise to any environmental
liability, affecting any of the properties of the Company or any of its
subsidiaries that individually or in the aggregate, would have a Material
Adverse Effect and (ii) neither the Company nor any of the subsidiaries has
violated any environmental law applicable to it now or previously in effect,
other than such violations or infringements that, individually or in the
aggregate, have not had and will not have a Material Adverse Effect.
(k) Title. The Company and each of its subsidiaries has good title in fee
simple to any and all real property that it owns and good title to all personal
property owned by it which is material to its business, free and clear of all
liens, encumbrances and defects except for such defects in title that,
individually or in the aggregate, would not have a Material Adverse Effect. Any
real property and facilities held under lease by the Company or any of its
subsidiaries are held by the Company or such subsidiary under valid, subsisting
and enforceable leases with such exceptions, which have not had and will not
have a Material Adverse Effect.
(l) Insurance. The Company and its subsidiaries maintain such insurance
relating to their business, operations, assets, key-employees and officers and
directors as is appropriate to their business, assets and operations, in such
amounts and against such risks as are customarily carried and insured against by
owners of comparable businesses, assets and operations, and such insurance
coverages will be continued in full force and effect to and including the
Closing Date other than those insurance coverages in respect of which the
failure to continue in full force and effect could not reasonably be expected to
have a Material Adverse Effect.
(m) Acknowledgment Regarding the Fund's Purchase of the Securities. The
Company acknowledges and agrees that neither Fund is acting as a financial
advisor or is acting as a fiduciary of the Company (or in any similar capacity)
with respect to this Agreement or the transactions contemplated hereby, and the
relationship between the Company and the Funds is "arms length" and that any
statement made by any Fund or any of its representatives or agents in connection
with this Agreement and the transactions contemplated hereby is not advice or a
recommendation and is merely incidental to such Fund's purchase of Securities
and has not been relied upon by the Company, its officers or directors in any
way. The Company further represents to the Funds that its decision to enter into
this Agreement has been based solely on an independent evaluation by the
Company.
(n) Brokers. Except for Alegro Capital Limited, the Company has not
engaged any person to which or to whom brokerage commissions, finder's fees,
financial advisory fees or similar payments are or will become due in connection
with this Agreement or the transactions contemplated hereby except for M.A.G.,
whose administrative fee will be paid by the Company.
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(o) Tax Status. The Company and each of its subsidiaries has made or filed
all material tax returns, reports and declarations required by any jurisdiction
to which it is subject (unless and only to the extent that the Company or the
applicable subsidiary has set aside on its books provisions adequate for the
payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provisions adequate
for the payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no material unpaid taxes
claimed to be due by the taxing authority of any jurisdiction. The Company has
not executed a waiver with respect to any statute of limitations relating to the
assessment or collection of any federal, state or local tax.
(p) No General Solicitation. Neither the Company nor any person
participating on its behalf in the transactions contemplated hereby has
conducted any "general solicitation" or "general advertising" as such terms are
used in Regulation D, with respect to any of the Securities being offered
hereby.
(q) Securities Laws. Neither the Company nor any of its affiliates, nor
any person acting on their behalf, has, directly or indirectly, made any offers
or sales of any security or solicited any offers to buy any security under
circumstances that would require registration of the Securities being offered
hereby under the Securities Act or cause this offering of Securities to be
integrated with any prior offering of securities of the Company for purposes of
the Securities Act or any applicable stockholder approval provisions, including,
without limitation, Rule 4350(i) of the National Association of Securities
Dealers ("NASD") or any similar rule. Subject to (i) the Company's reliance on
the representations and warranties of the Funds and M.A.G. contained herein and
(ii) any applicable post-Closing filing requirements (including without
limitation the filing of a Form D with the U.S. Securities and Exchange
Commission), the offer, sale and delivery of the Debentures and the Warrants,
and of Ordinary Shares upon the conversion of thereof, will be exempt from the
registration requirements of Section 5 of the Securities Act.
(r) F-2 or F-3 Eligibility. The Company is currently eligible to register
the resale of its Ordinary Shares on a registration statement on Form F-2 or F-3
under the Securities Act. There exist no facts or circumstances (including
without limitation any required approvals or waivers of any circumstances that
may delay or prevent the obtaining of accountant's consents) that would prohibit
or delay the preparation and filing of a registration statement on Form F-2 or
F-3 with respect to the Registrable Securities (as defined in the Registration
Rights Agreement).
(s) Disclosure. All information relating to or concerning the Company and
its subsidiaries set forth in this Agreement or otherwise provided to the Funds
in connection with the transactions contemplated hereby is true and correct in
all material respects and the Company and subsidiaries have not omitted to state
any material fact necessary in order to make the statements made herein or
therein, in light of the circumstances under which they were made, not
misleading.
(t) None of the officers or directors of the Company (i) has been
convicted of any crime (other than traffic violations or misdemeanors not
involving fraud) or is currently under investigation or indictment for any such
crime, or (ii) has been found by a court or governmental agency to have violated
any securities or commodities law or to have committed fraud or is currently a
party to any legal proceeding in which either is alleged.
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5. COVENANTS.
(a) Satisfaction of Conditions. The parties shall use their best efforts
to satisfy in a timely manner each of the conditions set forth in Section 6 and
Section 7 of this Agreement.
(b) Form D; Blue Sky Laws. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to M.A.G. promptly after such filing. The Company shall, on or before
the Closing Date, take such action as the Company shall reasonably determine is
necessary to qualify the Securities for sale to the Funds and M.A.G. pursuant to
this Agreement under applicable securities or "blue sky" laws of the applicable
states of the United States or obtain exemption therefrom, and shall provide
evidence of any such action so taken to M.A.G. on or prior to the Closing Date.
(c) Reserved.
(d) Use of Proceeds. The Company shall use the net proceeds from the sale
of the Debentures and the Warrants for the purposes set forth on Schedule 5(d);
and no portion of the net proceeds shall be used to repay any promissory notes
due to officers or directors of the Company.
(e) Due Diligence Fee and Expenses. At the Closing, the Company shall (i)
pay to M.A.G. a due diligence fee of $190,000; and (ii) reimburse M.A.G. for
$10,000 in legal expenses reasonably incurred by M.A.G. and its affiliates in
connection with the negotiation, preparation, execution and delivery of this
Agreement, the Debenture, the Registration Rights Agreement, the Warrants and
the other agreements to be executed in connection herewith, including, without
limitation, in conducting M.A.G.'s and its affiliates' and advisors' reasonable
due diligence and M.A.G.'s and its affiliates' reasonable attorneys' fees and
expenses (the "Expenses").
(f) Reserved.
(g) Reservation of Shares. The Company has and shall at all times use its
commercially reasonable best efforts to have authorized and reserved for the
purpose of issuance a sufficient number of Ordinary Shares to provide for the
issuance of the Shares as provided in Section 2 hereof, and the full conversion
of the Debentures and the issuance of the Warrant Shares in connection therewith
and as otherwise required hereby and by the Warrants in accordance with the
Registration Rights Agreement. The Company shall not reduce the number of
Ordinary Shares reserved for issuance under this Agreement, the Debentures, the
Warrants (except as a result of the issuance of the Warrant Shares upon the
exercise of the Warrants) or the Registration Rights Agreement without the
consent of the Funds and M.A.G.
(h) Listing. On the Closing Date, the Company's Ordinary Shares shall
trade on the NASDAQ Small Cap ("NASDAQ") The Company shall use its best efforts
to continue trading of its Ordinary Shares on the NASDAQ, or alternatively, the
Nasdaq National Market System, Over-the-Counter Bulletin Board, the New York
Stock Exchange ("NYSE") or the American Stock Exchange ("AMEX") (each a
"Subsequent Market") and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the NASDAQ
or a Subsequent Market, as applicable.
-10-
(i) No Integrated Offerings. The Company shall not make any offers or
sales of any security (other than the Securities) under circumstances that would
require registration of the Securities being offered or sold hereunder under the
Securities Act.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell Shares and
Warrants to a Fund at the Closing hereunder is subject to the satisfaction, at
or before the Closing Date, of each of the following conditions thereto;
provided, however, that these conditions are for the Company's sole benefit and
may be waived by the Company at any time in its sole discretion.
(a) The applicable Fund shall have executed the signature page to this
Agreement and the Registration Rights Agreement, and delivered the same to the
Company.
(b) The applicable Fund shall have delivered to the escrow holder such
Fund's Investment Amount in accordance with Section 2(b) above.
(c) The representations and warranties of the applicable Fund shall be
true and correct as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as of a
specific date, which representations and warranties shall be true and correct as
of such date), and the applicable Fund shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
applicable Fund at or prior to the Closing Date.
(d) No statute, rule, regulation, executive order, decree, ruling,
injunction; action, proceeding or interpretation shall have been enacted,
entered, promulgated, endorsed or adopted by any court or governmental authority
of competent jurisdiction or any self-regulatory organization, or the staff of
any thereof, having authority over the matters contemplated hereby which
questions the validity of, or challenges or prohibits the consummation of, any
of the transactions contemplated by this Agreement.
7. CONDITIONS TO EACH FUND'S OBLIGATION TO PURCHASE DEBENTURES AND
WARRANTS.
The obligation of each Fund hereunder to purchase Debentures and Warrants
to be purchased by it hereunder is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions, provided that these
conditions are for such Fund's sole benefit and may be waived by such Fund at
any time in such Fund's sole discretion:
(a) The Company shall have executed the signature pages to this Agreement,
the Debentures, and the Security Agreement and delivered the same to M.A.G. on
its own behalf and on behalf of the Funds.
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(b) The Company shall have executed the signature pages of the Warrants
and the Registration Rights Agreement, and delivered the same to M.A.G. on its
own behalf and on behalf of the Funds.
(c) The Shares shall be quoted on the NASDAQ or authorized for quotation
or trading on a Subsequent Exchange and shall not have been suspended or be
under threat of suspension by the SEC or the NASD.
(d) The representations and warranties of the Company shall be true and
correct in all material respects as of the date when made and as of the Closing
Date as though made at that time (except for representations and warranties that
speak as of a specific date, which representations and warranties shall be true
and correct as of such date) and the Company shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing Date. In the event that this Agreement is
executed prior to the Closing Date, M.A.G. shall have received a certificate
executed on behalf of the Company by its Chief Financial Officer, dated as of
the Closing Date, to the foregoing effect and attaching true and correct copies
of the resolutions adopted by the Board of Directors of the Company authorizing
the execution, delivery and performance by the Company of its obligations under
this Agreement, the Debentures, the Warrants and the Registration Rights
Agreement.
(e) No statute, rule, regulation, executive order, decree, ruling,
injunction, action, proceeding or interpretation shall have been enacted,
entered, promulgated, endorsed or adopted by any court or governmental authority
of competent jurisdiction or any self-regulatory organization, or the staff of
any thereof, having authority over the matters contemplated hereby which
questions the validity of, or challenges or prohibits the consummation of, any
of the transactions contemplated by this Agreement.
(f) From the date of this Agreement through the Closing Date, there shall
not have occurred any Material Adverse Effect.
8. GOVERNING LAW MISCELLANEOUS.
(a) Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed in the State of New York, without regarding
to conflicts of laws provisions.
(b) Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. This Agreement, once executed by a party, may be
delivered to the other parties hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
(c) Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
(d) Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
-12-
(e) Entire Agreement; Amendments; Waiver. This Agreement and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Funds make
any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by
an instrument in writing signed by the Company and by the Funds. Any waiver by
the Funds, on the one hand, or the Company, on the other hand, of a breach of
any provision of this Agreement shall not operate as or be construed to be a
waiver of any other breach of such provision of or any breach of any other
provision of this Agreement. The failure of the Funds, on the one hand, or the
Company, on the other hand to insist upon strict adherence to any term of this
Agreement on one or more occasions shall not be considered a waiver or deprive
that party of the right thereafter to insist upon strict adherence to that term
or any other term of this Agreement.
(f) Notices. Any notices required or permitted to be given under the terms
of this Agreement shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier or by confirmed telecopy , and
shall be effective five days after being placed in the mail, if mailed, or upon
receipt or refusal of receipt, if delivered personally or by courier or
confirmed telecopy, in each case addressed to a party. The addresses for such
communications shall be:
If to the Company:
Futuremedia Plc
Xxxx Xxxxx
Xxxx Xxxxxx
Xxxxxxxx
XX0 0XX
Tel: x00 (0) 0000 000000
Fax: x00 (0) 0000 000000
with a copy to:
Xxxx X. Xxxxx, Esq.
Xxxxx Xxxxxxx / 0 Xxxxxxxx Xxxxxx / Xxxxxx X0X 0XX
Tel: x00-00-0000-0000 (Direct)
Fax: x00-00-0000-0000
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If to a Fund or M.A.G.
M.A.G. Capital, LLC
000 Xxxxx Xxxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxxxxx, XX 00000
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
Attention: Xxxxx Xxxxxxxxx
With a copy to
Xxxxxxxx Xxxxxx Xxxxxxx & Xxxxxxx LLP
000 Xxxxx Xxxx Xxxxxx
00xx Xxxxx
Xxx Xxxxxxx, XX 00000-0000
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
Attention: Xxxxx X. Xxxxx
Each party hereto may from time to time change its address or facsimile number
for notices under this Section 8 by giving at least ten (10) days' prior written
notice of such changed address or facsimile number, in the case of the Funds to
the Company, and in the case of the Company to all of the Funds and M.A.G.
(g) Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and assigns. The Company
shall not assign this Agreement or any rights or obligations hereunder without
the prior written consent of each of the Funds and M.A.G. The Funds and M.A.G.
will not assign their rights hereunder except in compliance with federal and
state securities laws.
(h) Third Party Beneficiaries. This Agreement is intended for the benefit
of the parties hereto and their respective permitted successors and assigns, and
is not for the benefit of nor may any provision hereof be enforced by any other
person.
(i) Survival. The representations and warranties of the Company and the
agreements and covenants of the Company shall survive the Closing
notwithstanding any due diligence investigation conducted by or on behalf of the
Funds and M.A.G. Moreover, none of the representations and warranties made by
the Company herein shall act as a waiver of any rights or remedies a Fund or
M.A.G. may have under applicable federal or state securities laws. The Company
agrees to indemnify and hold harmless each Fund and M.A.G. and each of their
managers, officers, directors, employees, partners, members, agents and
affiliates for loss or damage relating to the Securities purchased hereunder
arising as a result of or related to any breach by the Company or any of its
representations or covenants set forth herein, including advancement of expenses
as they are incurred.
(j) Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
-14-
(k) Termination. In the event that the Closing Date shall not have
occurred on or before July 22, 2005, unless the parties agree otherwise, this
Agreement shall terminate at the close of business on such date and the escrow
holder shall return all funds to the Fund. Notwithstanding any termination of
this Agreement, any party not in breach of this Agreement shall preserve all
rights and remedies it may have against another party hereto for a breach of
this Agreement prior to or relating to the termination hereof.
(l) Joint Participation in Drafting. Each party to this Agreement has
participated in the negotiation and drafting of this Agreement, the Debentures,
the Registration Rights Agreement, and the Warrants. As such, the language used
herein and therein shall be deemed to be the language chosen by the parties
hereto to express their mutual intent, and no rule of strict construction will
be applied against any party to this Agreement, the Debentures, the Registration
Rights Agreement, or the Warrants.
(m) Equitable Relief. Each party acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the other parties by
vitiating the intent and purpose of the transactions contemplated hereby.
Accordingly, each party acknowledges that the remedy at law for a breach of its
obligations hereunder will be inadequate and agrees, in the event of a breach or
threatened breach by such party of the provisions of this Agreement, that the
other parties shall be entitled, in addition to all other available remedies, to
an injunction restraining any breach and requiring immediate issuance and
transfer, without the necessity of showing economic loss and without any bond or
other security being required.
(n) Determinations. Except as otherwise expressly provided herein, all
consents, approvals and other determinations to be made by the Funds pursuant to
this Agreement and all waivers and amendments to or of any provisions in this
Agreement prior to the Closing Date to be binding upon a Fund shall be made by
such Fund and except as otherwise expressly provided herein, all consents,
approvals and other determinations (other than amendments to the terms and
provisions of this Agreement) to be made by the Funds pursuant to this Agreement
and all waivers and amendments to or of any provisions in this Agreement after
the Closing Date shall be made by the Funds.
(o) Costs and Attorneys' Fees. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the Registration
Rights Agreement or any of the Debentures or Warrants, the prevailing party or
parties shall be entitled to receive from the other party or parties reasonable
attorneys' fees, costs and necessary disbursements in addition to any other
relief to which the prevailing party or parties may be entitled.
9. ADDITIONAL FUNDING.
The Funds will provide additional funding ("Additional Funding") in the form of
Convertible Debentures to Company in the amount of $2,000,000 (or such larger
amount as agreed with the Company) on the terms herein subject to the following
milestones and conditions:
-15-
(a) Company requests the Additional Funding in writing on or before
September 30, 2006;
(b) There is not and there has not been at any time, a default by Company
under the terms of this Agreement, the Debentures, the Registration Rights
Agreement or the Warrants;
(c) The closing price of the Ordinary Shares on the NASDAQ for the 20
trading days immediately preceding the written request for Additional Funding
has been equal to or greater than the Conversion Price;
(d) The Company exceeds FY 2006 Q2 Budget Revenue of UK (pound)4,172,000
(as defined in the Company's Board Minutes) and reaches break-even EBIT; and
(e) Shareholder approval of the Additional Funding is not required.
Provided that the Market Price (as defined in the Debentures) of the Ordinary
Shares at the closing date of the Additional Funding is less than or equal to
$0.80 per share, then the conversion price for the debentures issued in the
Additional Funding shall equal the Conversion Price. If the Market Price of the
Ordinary Shares at the closing date of the Additional Funding is greater than
$0.80 per share, then the conversion price for the debentures issued in the
Additional Funding shall equal the Market Price on the closing date of the
Additional Funding. Upon the closing of the Additional Funding, the Company
shall issue additional warrants to the Funds and M.A.G. calculated by dividing
$1,000,000 by the conversion price of the convertible debentures issued in the
Additional Financing. The exercise price per share for the Warrants shall equal
the closing price of the Ordinary Shares on the last trading day preceding the
closing of the Additional Funding.
10. RIGHT OF FIRST REFUSAL.
Commencing on the Closing Date hereof and continuing until the Registration
Statement (as defined in the Registration Rights Agreement) is deemed effective
by the SEC, the Funds shall have a right of first refusal on any financing in
which the Company is the issuer of debt or equity securities. Such right of
first refusal to be exercised within five (5) trading days after delivery of
written notice by Company to the Funds of the terms of a prospective financing.
11. NASDAQ RULES
In accordance with the shareholder approval requirements under the rules of the
Nasdaq Stock Market, notwithstanding any other provision contained in this
Agreement, the Debenture or the Warrants, in no event shall the Company be
obligated in connection with the transactions contemplated hereby to issue
shares representing more than 19.99% of its outstanding capital stock as of the
date hereof (and before giving effect to the transactions contemplated hereby)
without prior approval of its shareholders at a general meeting called for that
purpose.
Signature Page to Follow
-16-
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
Futuremedia PLC M.A.G. Capital, LLC
By: /s/ Xxxxxxx X. Xxxxxx By: /s/ Xxxxx Xxxxxxxxx
-------------------------------- -------------------------
Name: Xxxxxxx X. Xxxxxx Name: Xxxxx Xxxxxxxxx
------------------------------ -------------------
Title: President Title: Managing Member
----------------------------- ------------------
The Funds:
Mercator Momentum Fund LP Monarch Pointe Fund, Ltd.
-------------------------
By: M.A.G. Capital, LLC,
Its: General Partner By: /s/ Xxxxx Xxxxxxxxx
-------------------------
Name: Xxxxx Xxxxxxxxx
By: /s/ Xxxxx Xxxxxxxxx Title: President
------------------------------ -------------------
Name: Xxxxx Xxxxxxxxx
------------------------------
Title: Managing Member
------------------------------
Mercator Momentum Fund III, LP
By: M.A.G. Capital, LLC,
Its: General Partner
By: /s/ Xxxxx Xxxxxxxxx
------------------------------
Name: Xxxxx Xxxxxxxxx
------------------------------
Title: Managing Member
------------------------------
-17-
DISCLOSURE SCHEDULES
--------------------
Schedule 4(c) - Capitalization
------------------------------
o Authorised capital: 250,000,000 ordinary shares of 1 1/9 xxxxx each
("Ordinary Shares") and 2,000,000 preference shares of 2 xxxxx each
("Preference Shares").
o Outstanding capital: 91,769,479 Ordinary Shares. There are no Preference
Shares outstanding.
o Outstanding options: There are currently outstanding options to purchase
of an aggregate of 5,188,899 Ordinary Shares.
o Total option pool: There are an aggregate of 15,070,818 Ordinary Shares
reserved for issuance under the Company's share option plans (including
the 5,188,899 Ordinary Shares covered by outstanding options as noted
above).
o Alegro warrants: Following completion of the transactions contemplated by
this Agreement, the Company will be obligated to issue warrants to Alegro
Capital Limited equal to 5% of the funds raised based on the price per
share of transaction and with an exercise price equal to such per share
price. Such warrants will otherwise be on substantially similar terms and
conditions as the Warrants to be issued under this Agreement.
Schedule 5(d) - Use of Proceeds
-------------------------------
Use of proceeds include the following:
o payment of certain existing creditors;
o investment in our new products including "e-shop" and "FM broadband"; and
o general working capital, including funding inventories and paying trade
debtors in connection with increased sales activity.
-18-
