EXHIBIT 10.41
NOTE AND WARRANT PURCHASE AGREEMENT
THIS NOTE AND WARRANT PURCHASE AGREEMENT (this "AGREEMENT"), is made and
entered into as of the 10th day of December, 2001, by and between BRILLIANT
DIGITAL ENTERTAINMENT, INC., a Delaware corporation (the "COMPANY"), located at
0000 Xxxxxxx Xxxxxx Xxxxxxxxx, Xxxxx 000, Xxxxxxxx Xxxxx, XX 00000, and the
purchaser identified on the signature page to this Agreement (the "PURCHASER"),
located at the address set forth on the Signature Page to this Agreement.
ARTICLE 1
AUTHORIZATION AND SALE OF SECURITIES
1.1 AUTHORIZATION. The Company has authorized the sale and issuance to the
Purchaser and others of (i) 10% secured convertible promissory notes due no
later than November 10, 2002 in the form attached hereto as EXHIBIT A (the
"CONVERTIBLE NOTES"), convertible into Common Stock, par value $.001 per share,
of the Company ("COMMON STOCK"), which Convertible Notes are issuable on the
Closing Date (as defined below) in an aggregate principal amount not exceeding
$750,000, and (ii) warrants expiring May 10, 2004 to purchase Common Stock in
the form attached hereto as EXHIBIT B (the "WARRANTS"), each at an exercise
price per share equal to 1.125 times the lesser of (i) $0.20 or (ii) the volume
weighted average price of a share of the Common Stock on the American Stock
Exchange, or any exchange on which the Common Stock is then traded, over any
five (5) consecutive trading days during the period commencing on December 14,
2001 and terminating at 5:00 p.m. Pacific Time on November 10, 2002, which
Warrants are issuable no later than the Closing Date. The shares of capital
stock issuable upon conversion of the Convertible Notes are referred to as the
"CONVERSION SHARES." The shares of capital stock issuable upon exercise of the
Warrants are referred to as the "WARRANT SHARES." The Convertible Notes, the
Warrants, the Conversion Shares and the Warrant Shares are collectively referred
to as the "SECURITIES."
1.2 AGREEMENT TO PURCHASE AND SELL CONVERTIBLE NOTES. The Company agrees to
issue and sell to the Purchaser, and the Purchaser agrees to purchase from the
Company, a Convertible Note in the principal amount set forth on the Signature
Page to this Agreement (the "COMMITTED AMOUNT") on the terms and conditions set
forth herein. Additionally, in further consideration of the Purchaser's purchase
of the Convertible Note hereunder, the Company agrees to issue to the Purchaser,
and the Purchaser agrees to accept from the Company, a Warrant initially
exercisable for a number of Warrant Shares equal to two hundred percent (200%)
of the Committed Amount (the "WARRANT COVERAGE") at an exercise price equal to
112.5% multiplied by the lesser of (i) $0.20 or (ii) the volume weighted average
price of a share of the Common Stock on the American Stock Exchange, or any
exchange on which the Common Stock is then traded, over any five (5) consecutive
trading days commencing on December 14, 2001 and terminating at 5:00 p.m.
Pacific Time on November 10, 2002. The number and type of shares issuable upon
exercise of the Warrant is subject to adjustment as set forth in the Warrant.
1.3 CLOSING AND DELIVERY. The purchase and sale of the Convertible Note
shall occur at 12:00 p.m., Los Angeles time, on December 19, 2001, or at such
other time on or before December 31, 2001 as is mutually agreed upon by the
Company and the Agent (as defined below) on behalf of himself and all purchasers
of Convertible Notes. Such purchase and sale is referred to herein as the
"CLOSING," and the date of the Closing is referred to herein as the "CLOSING
DATE." The Closing shall be held at the offices of the Company first set forth
above. At the Closing, the Company will deliver to Purchaser the Convertible
Note being purchased at such Closing and the Purchaser shall deliver to the
Company by check or wire the principal amount being advanced against such
Convertible Note at the Closing, as set forth in the Convertible Note. At the
Closing, the Company shall also deliver or cause to be delivered to the
Purchaser a Warrant and a fully executed copy of the December Security
Agreement, the December Guaranty and the Investor Rights Agreement(each as
defined below).
1.4 NATURE OF OFFERING. The investment in the Securities is being made in
reliance upon the provisions of Section 4(2) ("SECTION 4(2)") of the United
States Securities Act of 1933, as amended (the "SECURITIES ACT"), and Regulation
D ("REGULATION D") and the other rules and regulations promulgated under the
Securities Act and/or upon such other exemption from the registration
requirements of the Securities Act as may be available with respect to the
investment to be made hereunder.
1.5 SECURITY; GUARANTY: INVESTORS RIGHTS. The Company's obligations under
the Convertible Note will be secured by the collateral set forth in that certain
Security and Pledge Agreement (the "DECEMBER SECURITY AGREEMENT") dated as of
the Closing Date by and among the Company, the subsidiaries of the Company named
therein and Xxxxxx Xxxxx ("XXXXX") as agent for himself and the other purchasers
of the Convertible Notes ("AGENT"), in the form attached hereto as EXHIBIT C,
and guaranteed pursuant to the Guaranty dated as of the Closing Date (the
"DECEMBER GUARANTY") made by the Guarantors (as defined in the December
Guaranty) in favor of Toibb as Agent for himself and the other purchasers of the
Convertible Notes, in the form attached hereto as EXHIBIT D. The parties hereto,
along with certain other entities or individuals, are entering into an Investor
Rights Agreement dated the Closing Date (the "INVESTOR RIGHTS AGREEMENT").
ARTICLE 2
CONVERSION
2.1 OPTIONAL CONVERSION. From and after the Closing Date, the Purchaser
shall have the right, at its option, by giving written notice to the Company at
its principal office at any time prior to the full repayment of the Convertible
Note, to convert in whole or in part the outstanding principal amount of the
Convertible Note and all accrued interest thereon into a number of Conversion
Shares equal to the quotient obtained by dividing the outstanding principal
amount of the Convertible Note and all accrued interest thereon at a price per
share equal to the lesser of (i) $0.20 (the "FIXED CONVERSION PRICE") or (ii)
the volume weighted average price of a share of the Common Stock on the American
Stock Exchange, or any exchange on which the Common Stock is then traded, over
any five (5) consecutive trading days commencing on December 14, 2001 and
terminating at 5:00 p.m. Pacific Time on November 10, 2002 (subject to
appropriate adjustment for stock splits, stock dividends, combinations,
recapitalizations and the like) ((i) and (ii) above are collectively referred to
as the "CONVERSION PRICE").
2.2 ISSUANCE OF ADDITIONAL STOCK BELOW THE FIXED CONVERSION PRICE. If the
Company shall issue any Additional Stock (as defined below) without
consideration or for a consideration per share less than the Fixed Conversion
Price in effect immediately prior to the issuance of such
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Additional Stock, the Fixed Conversion Price in effect immediately prior to each
such issuance shall automatically be adjusted on a full ratchet basis such that
the new Fixed Conversion Price of the shares subject to conversion shall be
equal to the value of the consideration paid per each share of Additional Stock
issued. For purposes of this SECTION 2.2, "ADDITIONAL STOCK" shall mean any
shares of Common Stock issued or issuable by the Company, other than (i) shares
of Common Stock issued pursuant to any stock split, stock subdivision, stock
dividend, redemption, conversion or other reclassification of securities, or
recapitalization, (ii) shares of Common Stock, or options or warrants to
purchase Common Stock, issued or issuable to employees, consultants or directors
of the Company for the primary purpose of soliciting or retaining their
employment or services directly or pursuant to a stock option plan or restricted
stock plan approved by the Board of Directors of the Company, (iii) shares of
Common Stock, or options or warrants to purchase Common Stock, issued to
financial institutions or lessors in connection with commercial credit
arrangements, equipment financings or similar transactions, provided such
issuances are primarily for other than equity financing purposes and are
approved by the Board of Directors of the Company, (iv) shares of Common Stock,
or options or warrants to purchase Common Stock, issued to any corporate or
other strategic partners of the Company, provided such issuances are primarily
for other than equity financing purposes and are approved by the Board of
Directors of the Company, (v) shares of Common Stock of the Company issuable
upon exercise of warrants, options, notes or other rights to acquire securities
of the corporation outstanding as of December 3, 2001, and (vi) shares of Common
Stock, or warrants or options to purchase shares of Common Stock issued in
connection with bona fide acquisitions, mergers or similar transactions;
PROVIDED, HOWEVER, that the exceptions to the definition of Additional Stock
provided for in clauses (ii), (iii), (iv) and (vi) above shall apply only with
respect to an aggregate number of shares of Common Stock issued or issuable by
the Company thereunder equal to 1.5% of the number of shares of Common Stock
outstanding as of December 3, 2001.
2.3 AUTHORIZED SHARES. At all times from and after the Closing Date, the
Company shall maintain or, if necessary, shall repurchase, a sufficient number
of authorized shares of Common Stock reserved for issuance in a timely manner
upon conversion or exercise of the Convertible Note, the Warrants, the Prior
Notes and the Prior Warrants (as defined below) in accordance with the terms
hereof and thereof, PROVIDED, HOWEVER, that to the extent that an insufficient
number of shares of Common Stock are currently reserved for issuance to enable
the Company to satisfy this SECTION 2.3, the Company shall have until February
28, 2002 to meet the requirements of this covenant.
2.4 ISSUANCE OF SHARES ON CONVERSION. As soon as practicable after any
conversion of the Convertible Note, the Company, at its expense, will cause to
be issued in the name of and delivered to the holder of the Convertible Note, a
certificate or certificates for the number of fully paid and non-assessable
Conversion Shares to which that holder shall be entitled on such conversion. No
fractional shares will be issued on conversion of the Convertible Note. If on
conversion of the Convertible Note a fraction of a share results, the Company
will pay the cash value of that fractional share, with the value of any such
full share equal to the Conversion Price.
2.5 LIMITATIONS ON CONVERSION. Notwithstanding anything to the contrary
contained in this Agreement and the Convertible Note, a Convertible Note may not
be converted, in whole or in part, into Conversion Shares unless and until any
then-applicable requirements of all federal and state securities laws and
regulatory agencies charged with enforcing securities laws shall have been fully
complied with to the satisfaction of the Company and its counsel; PROVIDED,
HOWEVER, that the
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Company shall at all times use its best efforts to comply with such
requirements. The Company may, in its reasonable discretion, condition any
conversion of the Convertible Note upon the holder's delivery to the Company of
a written agreement, in form and substance satisfactory to the Company, whereby
the holder makes, at the time of conversion, such representations and warranties
to and for the benefit of the Company as are comparable to the representations
and warranties of the Purchaser set forth in SECTION 3.2(d) below as and to the
extent applicable to the issuance of the Conversion Shares upon conversion of
the Convertible Note.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 BY THE COMPANY. The Company hereby represents and warrants to the
Purchaser as follows:
(a) STATUS. The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, and has the
corporate power to own and operate its properties and assets, to carry on its
business as now conducted and to enter into and to perform its obligations under
this Agreement, the Convertible Note, the Warrant, the December Security
Agreement, the December Guaranty and the Investor Rights Agreement
(collectively, the "TRANSACTION DOCUMENTS"). The Company is duly qualified to do
business and is in good standing in California and in each other state in which
a failure to be so qualified would have a material adverse effect on the
Company's financial condition or its ability to own and operate its properties
and assets and conduct its business in the manner now conducted.
(b) AUTHORIZATION. The Company has full legal right, power and authority to
conduct its business and affairs. The Company has full legal right, power and
authority to enter into and perform its obligations under the Transaction
Documents, including the issuance of the Securities. The execution and delivery
of this Agreement, the borrowing hereunder, the execution and delivery of the
other Transaction Documents, and the performance by the Company of its
obligations thereunder, including the issuance of the Securities, are within the
corporate powers of the Company and have been duly authorized by all necessary
corporate action properly taken and the Company has received all necessary
governmental approvals, if any, that are required. The officer(s) executing this
Agreement and all of the other Transaction Documents are duly authorized to act
on behalf of the Company.
(c) VALIDITY AND BINDING EFFECT. This Agreement and the other Transaction
Documents are the legal, valid and binding obligations of the Company and its
subsidiaries, enforceable in accordance with their respective terms, subject to
limitations imposed by bankruptcy, insolvency, moratorium or other similar laws
affecting the rights of creditors generally or the application of general
equitable principles.
(d) VALIDITY AND BINDING EFFECT OF PRIOR TRANSACTION DOCUMENTS. The three
Note and Warrant Purchase Agreements, dated April, 2001, executed by the Company
in favor of the purchasers named therein, as amended (the "Prior Purchase
Agreements"), the three Secured Convertible Promissory Notes dated May 23, 2001,
executed and delivered in connection with the Prior Purchase Agreements (the
"Prior Notes"), the Warrants To Purchase Common Stock of Brilliant Digital
Entertainment, Inc. issued in May, 2001 in connection with the Prior Purchase
Agreements (the "Prior Warrants"), the Security and Pledge Agreement, dated May
23, 2001,
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executed by the Company and its subsidiaries named therein in favor of Xxxxxx
Xxxxx (the "May Security Agreement"), and the Guaranty, dated as May 23, 2001,
executed in favor of Xxxxxx Xxxxx by the parties named therein (the "May
Guaranty") are, and after they are amended on the Closing Date, shall continue
to be, the legal, valid and binding obligations of the Company and its
subsidiaries, enforceable in accordance with their respective terms, subject to
limitations imposed by bankruptcy, insolvency, moratorium or other similar laws
affecting the rights of creditors generally or the application of general
equitable principles. The Prior Purchase Agreements, the Prior Notes, the Prior
Warrants, the May Security Agreement and the May Guaranty are collectively
referred to herein as the "Prior Transaction Documents".
(e) NO CONFLICTS. Consummation of the transactions contemplated hereby and
the performance of the obligations of the Company under and by virtue of the
Transaction Documents, including the issuance of the Securities, do not conflict
with, and will not result in any breach of, or constitute a default or trigger a
lien under, any mortgage, security deed or agreement, deed of trust, lease, bank
loan or credit agreement, corporate charter or bylaws, agreement or certificate
of limited partnership, partnership agreement, license, franchise or any other
instrument or agreement to which the Company is a party or by which the Company
or its respective properties may be bound or affected or to which the Company
has not obtained an effective waiver.
(f) EXEMPTION FROM REGISTRATION; VALID ISSUANCES. Subject to the accuracy
of the Purchaser's representations in SECTION 3.2(d), (e), (g) and (h), the sale
of the Securities will not require registration under the Securities Act and/or
any applicable state securities law. The Conversion Shares and the Warrant
Shares issuable by the Company upon conversion of the Convertible Note and
exercise of the Warrant, respectively, shall, if and when the Convertible Note
is converted and the Warrant is exercised in accordance with their respective
terms, be duly and validly issued, fully-paid and non-assessable shares of
Common Stock, free of all liens, claims, encumbrances, preemptive rights, rights
of first refusal and restrictions on transfer, except as imposed by applicable
securities laws.
(g) SEC DOCUMENTS. The Company has made available to the Purchaser true and
complete copies of the Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 2000 and each report, proxy statement or registration
statement filed by the Company with the Securities and Exchange Commission (the
"SEC") pursuant to the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT") or the Securities Act since the filing of such Annual Report
through the date hereof (collectively such documents are referred to as the "SEC
DOCUMENTS"). As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Exchange Act, and rules and
regulations of the SEC promulgated thereunder and the SEC Documents did not
contain any untrue statement of a material fact or omit 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. The financial statements of the Company included in the SEC
Documents complied in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC or other
applicable rules and regulations with respect thereto at the time of such
inclusion. Such financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") applied on a consistent basis
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 exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof
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and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited interim statements, to normal year-end audit
adjustments). Neither the Company nor any of its subsidiaries has any material
indebtedness, obligations or liabilities of any kind (whether accrued, absolute,
contingent or otherwise, and whether due or to become due) that would have been
required to be reflected in, reserved against or otherwise described in the
financial statements or in the notes thereto in accordance with GAAP, which was
not fully reflected in, reserved against or otherwise described in the financial
statements or the notes thereto included in the SEC Documents or was not
incurred in the ordinary course of business consistent with the Company's past
practices since the last date of such financial statements.
(h) NO GENERAL SOLICITATION OR ADVERTISING IN REGARD TO THIS TRANSACTION.
Neither the Company nor any of its affiliates nor any person acting on its or
their behalf (i) has conducted or will conduct any general solicitation (as that
term is used in Rule 502(c) of Regulation D) or general advertising with respect
to the Securities or (ii) made any offers or sales of any security or solicited
any offers to buy any security under any circumstances that would require
registration of the Securities under the Securities Act; PROVIDED, that the
Company makes no representation or warranty with respect to the Purchaser or any
other purchaser of the Convertible Notes.
(i) NO MATERIAL ADVERSE EFFECT. Since September 30, 2001, no Material
Adverse Effect (as defined) has occurred or exists with respect to the Company,
except as disclosed in the SEC Documents. For purposes hereof, "MATERIAL ADVERSE
EFFECT" shall mean any effect on the business, operations, properties,
prospects, material agreements or financial condition of the Company that is
material and adverse to the Company and its subsidiaries and affiliates, taken
as a whole, and/or any condition, circumstance, or situation that would prohibit
or otherwise interfere with the ability of the Company to enter into and perform
any of its obligations under the Transaction Documents in any material respect.
(j) NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since September 30, 2001, no
event or circumstance has occurred or exists with respect to the Company or its
businesses, properties, prospects, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the SEC Documents.
(k) NO INTEGRATED OFFERING. Other than as described in the SEC Documents or
pursuant to an effective registration statement under the Securities Act, or
pursuant to the issuance or exercise of employee stock options, or pursuant to
its discussion with the Purchaser or any other purchaser of the Convertible
Notes in connection with the transactions contemplated hereby or by the
transactions contemplated by the Prior Purchase Agreements or other purchasers
represented by the Agent in connection with such transaction, the Company has
not issued, offered or sold the Convertible Notes or any shares of Common Stock
(including for this purpose any securities of the same or a similar class as the
Convertible Notes or Common Stock or any securities convertible into,
exchangeable or exercisable for the Convertible Notes or Common Stock or any
such other securities) within the six-month period next preceding the date
hereof in a manner that would make unavailable the exemption from Securities Act
registration being relied upon by the Company for the offer and sale to the
Purchaser and the other purchasers of the Securities as contemplated by this
Agreement, and the Company shall not permit any of its directors, officers or
affiliates directly or indirectly to take any action (including, without
limitation, any offering or sale to any person or entity of the Convertible
Notes or shares of Common Stock), so as to make unavailable the
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exemption from Securities Act registration being relied upon by the Company for
the offer and sale to the Purchaser and the other purchasers of the Securities
as contemplated by this Agreement.
(l) LITIGATION AND OTHER PROCEEDINGS. Except as disclosed in the SEC
Documents, there are no lawsuits or proceedings pending or, to the knowledge of
the Company, threatened, against the Company, nor has the Company received any
written or oral notice of any such action, suit, proceeding or investigation,
which could reasonably be expected to either have a Material Adverse Effect or
result in a judgment against the Company in an amount in excess of $75,000.
Except as set forth in the SEC Documents, no judgment, order, writ, injunction
or decree or award has been issued by or, to the knowledge of the Company,
requested of any court, arbitrator or governmental agency which could result in
a Material Adverse Effect.
(m) NO MISLEADING OR UNTRUE COMMUNICATION. The Company and, to the
knowledge of the Company, any person representing the Company, or any other
person selling or offering to sell the Convertible Notes or Warrants in
connection with the transaction contemplated by this Agreement, have not made,
at any time, any oral communication in connection with the offer or sale of the
same which contained any untrue statement of a material fact or omitted to state
any material fact necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading.
(n) SUBSIDIARIES. The Company does not have any subsidiaries except for
Brilliant Studios, Inc., a Delaware corporation, B3D, Inc., a Delaware
corporation, and Brilliant Interactive Ideas Pty. Limited, an Australian
corporation. The Company also owns seventy-five percent (75%) of the outstanding
shares of Digital Hip Hop, Inc., a Delaware corporation.
(o) VALIDITY OF LIEN. The December Security Agreement is effective to
create in favor of the Purchaser, a legal, valid and enforceable security
interest in the Collateral (as defined in the December Security Agreement) and
proceeds thereof. When financing statements in appropriate form are filed in the
Office of the Secretary of State for the State of Delaware, the security
interests granted pursuant to the December Security Agreement will constitute
legal, valid, perfected and enforceable security interests in all of the
Collateral in favor of the Purchaser.
(p) SOLVENCY OF THE COMPANY. The Company will be solvent under GAAP
following each receipt of an advance under the Convertible Notes.
(q) NO DEFAULT. No Event of Default has occurred and is continuing
hereunder or under the Convertible Note
(r) VALIDITY OF EARLIER LIEN. The liens and security interests granted by
the May Security Agreement continue to create a valid and perfected first
priority security interest in all of the collateral purported to be covered
thereby.
3.2 BY THE PURCHASER. The Purchaser hereby represents and warrants to the
Company as follows:
(a) STATUS. If Purchaser is a corporation, partnership, trust or limited
liability company, Purchaser is duly organized, validly existing and in good
standing (to the extent applicable) under the laws of the state of its
formation, and has the power to own and operate its properties, to
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carry on its business as now conducted and to enter into and to perform its
obligations under this Agreement and the other Transaction Documents to which it
is a party.
(b) AUTHORIZATION. Purchaser has the full legal right, power and authority
to enter into and perform its obligations under the Transaction Documents. The
execution and delivery of this Agreement, the execution and delivery of each
Transaction Document to which the Purchaser is a party, and the performance by
the Purchaser of its obligations hereunder and thereunder are within the powers
of the Purchaser and have been duly authorized by all necessary action properly
taken and the Purchaser has received all necessary governmental approvals, if
any, that are required. The person executing this Agreement and all of the other
Transaction Documents to which the Purchaser is a party is duly authorized to
act on behalf of the Purchaser.
(c) VALIDITY AND BINDING EFFECT. This Agreement and the other Transaction
Documents are the legal, valid and binding obligations of the Purchaser,
enforceable in accordance with their respective terms, subject to limitations
imposed by bankruptcy, insolvency, moratorium or other similar laws affecting
the rights of creditors generally or the application of general equitable
principles.
(d) INVESTMENT REPRESENTATIONS.
(i) Purchaser has such knowledge and experience in financial and business
matters, including investments of the type represented by the Convertible Note
and the Warrant and the Common Stock issuable upon conversion of the Convertible
Note and exercise of the Warrant, as to be capable of evaluating the merits of
investment in the Company and can bear the economic risk of an investment in the
Convertible Note and the Warrant and the Common Stock issuable upon conversion
of the Convertible Note and exercise of the Warrant;
(ii) Purchaser is an "accredited investor" as such term is defined in Rule
501 of Regulation D under the Securities Act; and
(iii) Purchaser is acquiring the Convertible Note and the Warrant and, to
the extent converted or exercised, as the case may be, will be acquiring the
Common Stock issuable upon conversion of the Convertible Note and exercise of
the Warrant, for investment purposes only, for its own account and not with a
view to, or for resale in connection with, the distribution or other disposition
thereof in contravention of the Securities Act or any state securities law,
without prejudice, however, to Purchaser's right at all times to sell or
otherwise dispose of all or any part of the Securities pursuant to an effective
registration statement under the Securities Act and applicable state securities
laws, or under an exemption from such registration available under the
Securities Act and other applicable state securities laws.
(e) TRANSFER RESTRICTIONS. Purchaser acknowledges and agrees that the
Convertible Note and the securities issuable upon conversion of the Convertible
Note are subject to, and that Purchaser will be bound by, the additional
transfer restrictions set forth in Section 6 of the Convertible Note.
(f) ABSENCE OF CONFLICTS. The execution and delivery of this Agreement and
the other Transaction Documents to which the Purchaser is a party, and the
consummation of the transactions contemplated thereby, and compliance with the
requirements thereof, will not violate
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any law, rule, regulation, order, writ, judgment, injunction, decree or award
binding on Purchaser or (a) violate any provision of any indenture, instrument
or agreement to which Purchaser is a party or is subject, or by which Purchaser
or any of its assets is bound; (b) conflict with or constitute a material
default thereunder; (c) result in the creation or imposition of any lien
pursuant to the terms of any such indenture, instrument or agreement, or
constitute a breach of any fiduciary duty owed by Purchaser to any third party;
or (d) require the approval of any third-party (which has not been obtained)
pursuant to any material contract, agreement, instrument, relationship or legal
obligation to which Purchaser is subject or to which any of its assets,
operations or management may be subject.
(g) DISCLOSURE; ACCESS TO INFORMATION. The Purchaser has received all
documents, records, books and other publicly available information pertaining to
Purchaser's investment in the Company that have been requested by the Purchaser.
The Company is subject to the periodic reporting requirements of the Exchange
Act, and the Purchaser has reviewed or received copies of all SEC Documents that
have been requested by it.
(h) MANNER OF SALE. At no time was Purchaser presented with or solicited by
or through any leaflet, public promotional meeting, television advertisement or
any other form of general solicitation or advertising.
ARTICLE 4
COVENANTS AND AGREEMENTS
4.1 LISTING OF COMMON STOCK. The Company hereby agrees to use its best
efforts to maintain the listing of the Common Stock on any of the American Stock
Exchange, the New York Stock Exchange, the NASDAQ National Market, or the NASDAQ
Small-Cap Market, whichever is at the time the principal trading exchange or
market for the Common Stock (the "PRINCIPAL Market"), and as soon as reasonably
practicable following the Closing to list the Conversion Shares and the Warrant
Shares on the Principal Market. The Company further agrees, if the Company
applies to have the Common Stock traded on any other Principal Market, it will
include in such application the Conversion Shares and the Warrant Shares.
4.2 ISSUANCE OF CONVERTIBLE NOTE AND WARRANT. The sale of the Convertible
Notes and the Warrant and the issuance of the Common Stock upon conversion of
the Convertible Note or exercise of the Warrant, as the case may be, shall be
made in accordance with the provisions and requirements of Section 4(2) and
Regulation D under the Securities Act (with respect to the issuance of the
Convertible Notes, the Warrants and the Warrant Shares), Section 3(a)(9) of the
Securities Act (with respect to the issuance of the Conversion Shares) and any
applicable state securities law. The Company shall make all necessary SEC and
"blue sky" filings required to be made by the Company in connection with the
sale of the Securities to the Purchaser as required by all applicable laws.
4.3 ESTABLISHMENT OF ESCROW ACCOUNT. Purchaser and the Company agree that
ten percent (10%) of all amounts advanced by Purchaser under the Convertible
Note will be deposited into an escrow account with Akin, Gump, Strauss, Xxxxx &
Xxxx, LLP. If the Company does not commit an Event of Default described in
SECTIONS 6.1(h) OR (i), the funds in the escrow account shall be released to the
Company immediately following the funding of the Equity Investment (as defined
in SECTION 6.1(h)). If an Event of Default as described in SECTIONS 6.1(h) OR
(i) does occur, then the funds in the escrow account shall be released to the
Company, and such funds shall be used for the
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sole purpose of paying the Company's expenses, including legal expenses and any
expenses that might be incurred in connection with the Company's filing for
bankruptcy protection.
4.4 NOTICE OF TITLE 11 FILING. The Company shall provide to the Purchaser
written notice of any decision or corporate action taken by the Company
authorizing the filing by the Company of a voluntary petition for relief under
Title 11 of the United States Code at least ten (10) days prior to the date
selected for such filing.
4.5 WAIVER OF RIGHTS UNDER SECTION 362 OF THE BANKRUPTCY CODE. In the event
that the Company files a petition under the United States Bankruptcy Code or
under any other similar federal or state law, the Company unconditionally and
irrevocably agrees that the Agent, on behalf of the Purchaser, shall be
entitled, and the Company hereby unconditionally and irrevocably consents, to
relief from the automatic stay so as to allow the Agent to exercise its rights
and remedies under the December Security Agreement with respect to the
Collateral (as such term is defined in the December Security Agreement),
including taking possession of the Collateral, foreclosing on its lien or
security interests or otherwise exercising its rights and remedies with respect
to the Collateral. In such event, the Company hereby agrees it shall not, in any
manner, oppose or otherwise delay any motion filed by the Agent for relief from
the automatic stay.
4.6 SALE OF ASSETS. The Company hereby agrees that in the event the Company
commences a bankruptcy proceeding under Chapter 11 of the United States
Bankruptcy Code, the Company shall, at the request of the Buyers (as defined
herein), file, within the first twenty (20) days of the commencement of the
bankruptcy case a motion under section 363 of the Bankruptcy Code asking the
Court to approve the sale of all or substantially all of the assets of the
Company and its subsidiaries to Xxxxxx Xxxxx and such other Purchasers
(including those under the Prior Transaction Documents) that desire to
participate in the sale (collectively, the "BUYERS"), on terms and conditions
reasonably acceptable to the Buyers, including the right of the Buyers to credit
bid any secured indebtedness owed to them.
4.7 DEBTOR IN POSSESSION FINANCING. The Company hereby agrees that in the
event the Company decided to commence a bankruptcy proceeding under Chapter 11
of the United States Bankruptcy Code, the Company shall give Xxxxxx Xxxxx and
such other Purchasers (including those under the Prior Transaction Documents)
that desire to participate in the financing (collectively, the "LENDERS") the
right of first refusal (but without any corresponding obligation of the Lenders)
with respect to the provision to the Company and its subsidiaries of debtor in
possession financing.
ARTICLE 5
LEGEND
Each certificate representing the Conversion Shares and the Warrant Shares
will bear a legend in substantially the following form (the "LEGEND"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
OTHER SECURITIES LAWS. NEITHER
Page 10
THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED,
SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE
DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM, OR NOT
SUBJECT TO, SUCH REGISTRATION.
ARTICLE 6
DEFAULT AND REMEDIES
6.1 EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an Event of Default hereunder:
(a) Default in the payment of the principal of or interest on the
indebtedness evidenced by the Convertible Note in accordance with the terms of
the Convertible Note;
(b) A default or event of default shall occur in respect of any of the
other Convertible Notes or any other indebtedness of the Company that exceeds,
in the aggregate, $75,000 and, if subject to a cure right, such default or event
of default shall not be cured within the applicable cure period;
(c) The Company shall be liquidated, dissolved, partitioned or terminated,
or the charter thereof shall expire or be revoked;
(d) The Company (i) shall generally not pay or shall be unable to pay its
debts as such debts become due, or (ii) shall make an assignment for the benefit
of creditors or petition or apply to any tribunal for the appointment of a
custodian, receiver or trustee for it or a substantial part of its assets, or
(iii) shall commence any proceeding under any bankruptcy, reorganization,
arrangement, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, whether now or hereafter in effect, or (iv) shall have had any
such petition or application filed or any such proceeding commenced against it
that is not dismissed within thirty (30) days, or (v) shall indicate, by any act
or intentional and purposeful omission, its consent to, approval of or
acquiescence in any such petition, application, proceeding or order for relief
or the appointment of a custodian, receiver or trustee for it or a substantial
part of its assets, or (vi) shall suffer any such custodianship, receivership or
trusteeship to continue undischarged for a period of thirty (30) days or more;
(e) Failure of the Company to perform any of its obligations, covenants or
agreements under this Agreement or any of the other Transaction Documents (other
than the payment of the principal of or interest on the indebtedness evidenced
by the Convertible Note, which shall be subject to SUBSECTION 6.1(a) above and
not this SUBSECTION (e));
(f) A default or event of default shall occur under any of the other
Transaction Documents or under the Prior Transaction Documents and, if subject
to a cure right, such default or event of default shall not be cured within the
applicable cure period;
(g) The Purchaser's inability to convert the Convertible Note into
Conversion Shares upon written notice to the Company as provided for herein due
to the Company's failure to comply with (and not due to the holder's failure to
meet all applicable investor suitability
Page 11
requirements of) the then-applicable requirements of all federal, state and
local securities laws and regulatory agencies charged with enforcing securities
laws as provided for in SECTION 2.4 of this Agreement;
(h) The Company shall fail to provide the Agent with a copy of a signed
letter of intent with an investor who is, and on terms and conditions that are,
reasonably satisfactory to the Agent, dated no later than February 28, 2002,
pursuant to which such investor agrees to acquire equity in the Company in
consideration for an investment of at least three million dollars ($3,000,000)
(the "EQUITY INVESTMENT");
(i) The Equity Investment shall fail to fund by April 15, 2002;
(j) A default or event of default shall occur in respect of any agreement
of the Company that requires the payment by the Company of an amount in excess
of $75,000; or
(k) Either of the Company's agreements with Consumer Empowerment B.V.
(better known as "Kazaa") or StreamCast Networks, Inc. (better known as
"Morpheus") shall be terminated or amended in such a way as to result in a
Material Adverse Effect.
With respect to any Event of Default described above in SUBSECTIONS 6.1(e),
(f) and (j) that is capable of being cured and that does not already provide its
own cure procedure (a "CURABLE DEFAULT"), the occurrence of such Curable Default
shall not constitute an Event of Default hereunder if the Company provides
notice to the Purchaser of such Curable Default in accordance with the
provisions hereof within three (3) business days of the Company learning of such
default and such Curable Default is fully cured and/or corrected within fifteen
(15) days of the Company's notice thereof to the Purchaser.
6.2 ACCELERATION OF MATURITY; REMEDIES. Upon the occurrence of any Event of
Default described in SUBSECTION 6.1(d), the indebtedness evidenced by the
Convertible Note shall be immediately due and payable in full; and upon the
occurrence of any other Event of Default described above, the Agent, on behalf
of the Purchaser, at any time thereafter may at its option accelerate the
maturity of the indebtedness evidenced by the Convertible Note without notice of
any kind. Upon the occurrence of any such Event of Default and the acceleration
of the maturity of the indebtedness evidenced by the Convertible Note:
(a) The Agent, on behalf of the Purchaser, shall be immediately entitled to
exercise any and all rights and remedies possessed by the Purchaser pursuant to
the terms of the Convertible Note and all of the other Transaction Documents;
and
(b) The Agent, on behalf of the Purchaser, shall have any and all other
rights and remedies that the Purchaser may now or hereafter possess at law, in
equity or by statute.
6.3 REMEDIES CUMULATIVE; NO WAIVER. No right, power or remedy conferred
upon or reserved to the Purchaser by this Agreement or any of the other
Transaction Documents is intended to be exclusive of any other right, power or
remedy, but each and every such right, power and remedy shall be cumulative and
concurrent and shall be in addition to any other right, power and remedy given
hereunder, under any of the other Transaction Documents or now or hereafter
existing at law, in equity or by statute. No delay or omission by the Agent to
exercise any right, power or remedy accruing upon the occurrence of any Event of
Default shall exhaust or impair any
Page 12
such right, power or remedy or shall be construed to be a waiver of any such
Event of Default or an acquiescence therein, and every right, power and remedy
given by this Agreement and the other Transaction Documents to the Agent or the
Purchaser may be exercised from time to time and as often as may be deemed
expedient by the Agent or the Purchaser.
ARTICLE 7
CONDITIONS TO CLOSING
7.1 CONDITIONS TO THE OBLIGATIONS OF PURCHASER. The obligations of
Purchaser to advance funds under the Convertible Note at the Closing and the
other obligations of Purchaser under this Agreement are subject to the
satisfaction as of the Closing of the following conditions, any of which may be
waived in writing in whole or in part by Purchaser:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Company contained in this Agreement shall be true and correct as of the date
hereof and as of the Closing Date with the same force and effect as though such
representations and warranties had been made at and as of such date (i.e., with
respect to a representation that a state of facts exists on or as of the date
hereof, it is a condition that such state of facts exists on or as of the
Closing Date, and with respect to a representation that a state of facts has or
has not changed between a date prior to the date hereof and the date hereof, it
is a condition that such state of facts has or has not changed between such
prior date and the Closing Date), except as affected by transactions
contemplated hereby and except that any such representation or warranty made as
of a specified date (other than the date of this Agreement) shall only need to
have been true on and as of such date.
(b) PERFORMANCE. The Company shall have performed all obligations and
complied with all covenants required by this Agreement to be performed or
complied with by the Company on or prior to the Closing Date.
(c) FAIRNESS OPINION. The Company shall have delivered to the Purchaser an
opinion from The Mentor Group stating that the transactions contemplated by this
Agreement are fair to the Company and its shareholders.
(d) BOARD APPROVAL. The Company shall have delivered to the Purchaser a
resolution of a special committee of the Board of Directors of the Company
consisting solely of members of the Board of Directors of the Company who are
not employees or officers of or lenders to the Company, approving the
transactions contemplated by this Agreement.
(e) FORCE MAJEURE. None of the following shall have occurred: (i) any
suspension of trading, disruption or material adverse change, or any development
involving a prospective material adverse change, in or affecting the capital
markets generally or any of the corporate bond, interest rate swaps or
commercial mortgage backed securities markets in particular; (ii) any suspension
or limitation of trading in securities generally on the New York Stock Exchange,
NASDAQ, the American Stock Exchange or any setting of minimum prices for trading
on any such exchange; (iii) any banking moratorium declared by Federal, New York
or Delaware authorities; or (iv) any outbreak or escalation of major hostilities
in which the United States is involved, any declaration of war by Congress or
any other substantial national or international calamity or emergency, PROVIDED,
HOWEVER, that this item (iv) shall not include the current military activities
of the United States of America in the country of Afghanistan.
Page 13
(f) AMENDMENT OF PRIOR TRANSACTION DOCUMENTS. The Company, and its
subsidiaries to the extent they are parties, shall have delivered to the Agent,
duly executed amendments to the Prior Purchase Agreements, the Prior Notes, the
Prior Warrants and the May Security Agreement, in form and substance
satisfactory to the Agent, and a duly executed reaffirmation of the May
Guaranty, in form and substance satisfactory to the Agent.
(g) DELIVERY OF DOCUMENTS. The Company, and its subsidiaries to the extent
they are parties, shall have delivered to the Agent the Convertible Notes,
Warrants, December Security Agreement, December Guaranty, UCC-1 financing
statements and Investor Rights Agreement, in form and substance satisfactory to
the Agent and the Company, duly executed by the Company and its subsidiaries (to
the extent they are parties).
7.2 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligations of the
Company to sell the Convertible Note to Purchaser at the Closing and the other
obligations of the Company under this Agreement are subject to the satisfaction
as of the Closing of the following conditions, any of which may be waived in
writing in whole or in part by the Company:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Purchaser contained in this Agreement shall be true and correct as of the
date hereof and as of the Closing Date with the same force and effect as though
such representations and warranties had been made at and as of such date (i.e.,
with respect to a representation that a state of facts exists on or as of the
date hereof, it is a condition that such state of facts exists on or as of the
Closing Date, and with respect to a representation that a state of facts has or
has not changed between a date prior to the date hereof and the date hereof, it
is a condition that such state of facts has or has not changed between such
prior date and the Closing Date), except as affected by transactions
contemplated hereby and except that any such representation or warranty made as
of a specified date (other than the date of this Agreement) shall only need to
have been true on and as of such date.
(b) PERFORMANCE. The Purchaser shall have performed all obligations and
complied with all covenants required by this Agreement to be performed or
complied with by the Purchaser on or prior to the Closing Date.
ARTICLE 8
CONDITIONS TO ADDITIONAL ADVANCES
8.1 CONDITIONS TO THE OBLIGATIONS OF PURCHASER. The obligations of
Purchaser to make additional advances pursuant to the Schedule of Advances (as
defined in the Convertible Note) under the terms of the Convertible Note and the
other obligations of Purchaser under this Agreement are subject to the
satisfaction as of the time of each such additional advance of the conditions
set forth in the Convertible Note and the following conditions, any of which may
be waived in writing in whole or in part by the Agent:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Company contained in this Agreement shall be true and correct as of the date
of such additional advance with the same force and effect as though such
representations and warranties had been made at and as of such date (i.e., with
respect to a representation that a state of facts exists on or as of the date
hereof, it is a condition that such state of facts exists on or as of the date
of such additional advance, and with respect to a representation that a state of
facts has or has not changed
Page 14
between a date prior to the date hereof and the date hereof, it is a condition
that such state of facts has or has not changed between such prior date and the
date of such additional advance), except as affected by transactions
contemplated hereby and except that any such representation or warranty made as
of a specified date (other than the date of this Agreement) shall only need to
have been true on and as of such date.
(b) PERFORMANCE. The Company shall have performed all obligations and
complied with all covenants required by this Agreement to be performed or
complied with by the Company on or prior to the date of such additional advance.
(c) FORCE MAJEURE. None of the following shall have occurred: (i) any
suspension of trading, disruption or material adverse change, or any development
involving a prospective material adverse change, in or affecting the capital
markets generally or any of the corporate bond, interest rate swaps or
commercial mortgage backed securities markets in particular; (ii) any suspension
or limitation of trading in securities generally on the New York Stock Exchange,
NASDAQ, the American Stock Exchange or any setting of minimum prices for trading
on any such exchange; (iii) any banking moratorium declared by Federal, New York
or Delaware authorities; or (iv) any outbreak or escalation of major hostilities
in which the United States is involved, any declaration of war by Congress or
any other substantial national or international calamity or emergency, PROVIDED,
HOWEVER, that this item (iv) shall not include the current military activities
of the United States of America in the country of Afghanistan.
ARTICLE 9
TERMINATION
9.1 TERMINATION PRIOR TO CLOSING. Either party (the "TERMINATING PARTY")
may (but shall not be obligated to) terminate this Agreement prior to the
Closing by giving written notice to the other party if any of the conditions to
the Terminating Party's obligations provided for in SECTION 7 have not been
satisfied as of the Closing (other than due to the Terminating Party's failure
to comply with its obligations under this Agreement) and the Terminating Party
has not expressly waived such condition in writing on or before the Closing.
9.2 TERMINATION FOLLOWING THE CLOSING. If the Closing occurs, this
Agreement shall remain in full force and effect until the payment in full by the
Company of the full principal amount of the Convertible Note and all accrued
interest thereon, or conversion of the same into Conversion Shares as provided
herein, at which time the Purchaser shall cancel the Convertible Note and
deliver it to the Company.
ARTICLE 10
SURVIVAL; INDEMNIFICATION
10.1 SURVIVAL. The representations, warranties and covenants made by each
of the Company and the Purchaser in this Agreement, the schedules and exhibits
hereto and in each instrument, agreement and certificate entered into and
delivered by them pursuant to this Agreement, shall survive the Closing and the
consummation of the transactions contemplated hereby. In the event of a breach
or violation of any of such representations, warranties or covenants, the party
to whom such representations, warranties or covenants have been made shall have
all rights and remedies for such breach or violation available to it under the
provisions of this
Page 15
Agreement or otherwise, whether at law or in equity, irrespective of any
investigation made by or on behalf of such party on or prior to the Closing
Date.
10.2 INDEMNITY.
(a) BY THE COMPANY. The Company hereby agrees to indemnify and hold
harmless the Purchaser, its affiliates and their respective officers, directors,
partners and members (collectively, the "PURCHASER INDEMNITEES"), from and
against any and all losses, claims, damages, costs, expenses (including, without
limitation, reasonable attorney's fees and disbursements and reasonable costs
and expenses of expert witnesses and investigation), judgments, penalties,
liabilities and deficiencies (collectively, "LOSSES"), and agrees to reimburse
the Purchaser Indemnitees for all reasonable out-of-pocket expenses (including
the reasonable fees and expenses of legal counsel), in each case promptly as
incurred by the Purchaser Indemnitees and to the extent arising out of or in
connection with:
(i) any misrepresentation, omission of fact or breach of any of the
Company's representations or warranties contained in this Agreement, the
schedules or exhibits hereto or any instrument, agreement or certificate entered
into or delivered by the Company pursuant to this Agreement; or
(ii) any failure by the Company to perform in any material respect any of
its covenants, agreements, undertakings or obligations set forth in this
Agreement, the schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Company pursuant to this Agreement.
(b) BY THE PURCHASER. The Purchaser hereby agrees to indemnify and hold
harmless the Company, its affiliates and their respective officers, directors,
partners and members (collectively, the "COMPANY INDEMNITEES"), from and against
any and all Losses, and agrees to reimburse the Company Indemnitees for
reasonable all out-of-pocket expenses (including the reasonable fees and
expenses of legal counsel), in each case promptly as incurred by the Company
Indemnitees and to the extent arising out of or in connection with:
(i) any misrepresentation, omission of fact, or breach of any of the
Purchaser's representations or warranties contained in this Agreement, the
schedules or exhibits hereto or any instrument, agreement or certificate entered
into or delivered by the Purchaser pursuant to this Agreement; or
(ii) any failure by the Purchaser to perform in any material respect any of
its covenants, agreements, undertakings or obligations set forth in this
Agreement or any instrument, certificate or agreement entered into or delivered
by the Purchaser pursuant to this Agreement.
10.3 NOTICE. Promptly after receipt by either party hereto seeking
indemnification pursuant to SECTION 10.2 (an "INDEMNIFIED PARTY") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "CLAIM"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to SECTION
10.2 is being sought (the "INDEMNIFYING PARTY") of the commencement thereof; but
the omission to so notify the Indemnifying Party shall not relieve it from any
liability that it otherwise may have to the Indemnified Party, except to the
extent that the Indemnifying Party is materially
Page 16
prejudiced and forfeits substantive rights and defenses by reason of such
failure. In connection with any Claim as to which both the Indemnifying Party
and the Indemnified Party are parties, the Indemnifying Party shall be entitled
to assume the defense thereof. Notwithstanding the assumption of the defense of
any Claim by the Indemnifying Party, the Indemnified Party shall have the right
to employ separate legal counsel and to participate in the defense of such
Claim, and the Indemnifying Party shall bear the reasonable fees, out-of-pocket
costs and expenses of such separate legal counsel to the Indemnified Party if
(and only if): (x) the Indemnifying Party shall have agreed to pay such fees,
out-of-pocket costs and expenses, (y) the Indemnified Party and the Indemnifying
Party reasonably shall have concluded that representation of the Indemnified
Party and the Indemnifying Party by the same legal counsel would not be
appropriate due to actual or, as reasonably determined by legal counsel to the
Indemnified Party, potentially differing interests between such parties in the
conduct of the defense of such Claim, or if there may be legal defenses
available to the Indemnified Party that are in addition to or disparate from
those available to the Indemnifying Party, or (z) the Indemnifying Party shall
have failed to employ legal counsel reasonably satisfactory to the Indemnified
Party within a reasonable period of time after notice of the commencement of
such Claim. If the Indemnified Party employs separate legal counsel in
circumstances other than as described in clauses (x), (y) or (z) above, the
fees, costs and expenses of such legal counsel shall be borne exclusively by the
Indemnified Party. Except as provided above, the Indemnifying Party shall not,
in connection with any Claim in the same jurisdiction, be liable for the fees
and expenses of more than one firm of legal counsel for the Indemnified Party
(together with appropriate local counsel). The Indemnifying Party shall not,
without the prior written consent of the Indemnified Party (which consent shall
not unreasonably be withheld), settle or compromise any Claim or consent to the
entry of any judgment that does not include an unconditional release of the
Indemnified Party from all liabilities with respect to such Claim or judgment.
10.4 DIRECT CLAIMS. In the event one party hereunder should have a claim
for indemnification that does not involve a claim or demand being asserted by a
third party, the Indemnified Party promptly shall deliver notice of such claim
to the Indemnifying Party. If the Indemnified Party disputes the claim, such
dispute shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by any court of competent jurisdiction.
ARTICLE 11
APPOINTMENT OF AGENT
11.1 APPOINTMENT. The Purchaser hereby designates Xxxxxx Xxxxx as Agent to
act as specified herein and in the other Transaction Documents. The Purchaser
hereby irrevocably authorizes the Agent to take such action on its behalf under
the provisions of this Agreement, the other Transaction Documents and any other
instruments and agreements referred to herein or therein and to exercise such
powers and to perform such duties hereunder and thereunder as are specifically
delegated to or required of the Agent by the terms hereof and thereof and such
other powers as are reasonably incidental thereto. The Agent may perform any of
its duties hereunder by or through its officers, directors, agents or employees.
Purchaser acknowledges that the Agent also serves in a similar capacity as agent
under the Prior Transaction Documents, and Purchaser agrees that any actions
that the Agent takes when acting in that capacity shall not be and shall not be
deemed to be a conflict with his responsibilities hereunder.
11.2 NATURE OF DUTIES. The Agent shall have no duties or responsibilities
except those expressly set forth in this Agreement and the other Transaction
Documents. Neither the Agent nor
Page 17
any of its officers, directors, agents or employees shall be liable for any
action taken or omitted by any of them hereunder or under any other Transaction
Document or in connection herewith or therewith, unless caused by its or their
gross negligence or willful misconduct. The duties of the Agent shall be
mechanical and administrative in nature; the Agent shall not have by reason of
this Agreement or any other Transaction Document a fiduciary relationship in
respect of the Purchaser and nothing in this Agreement or any other Transaction
Document, expressed or implied, is intended to or shall be so construed as to
impose upon the Agent any obligations in respect of this Agreement or any other
Transaction Document except as expressly set forth herein. The Agent shall
promptly transmit to the Purchaser a copy of each notice given to it by the
Company pursuant to the terms of this Agreement and shall give notice to the
Purchaser of any default or Event of Default of which it becomes aware.
11.3 LACK OF RELIANCE ON THE AGENT. Independently and without reliance upon
the Agent, the Purchaser, to the extent it deems appropriate, has made (i) its
own independent investigation of the financial condition and affairs of the
Company in connection with the making of the loan provided for hereunder and the
taking or not taking of any action in connection herewith and (ii) its own
appraisal of the creditworthiness of the Company and, except as expressly
provided in this Agreement, the Agent shall have no duty or responsibility,
either initially or on a continuing basis, to provide the Purchaser with any
credit or other information with respect thereto, whether coming into its
possession before the making of the loan or at any time or times thereafter. The
Agent shall not be responsible to the Purchaser for any recitals, statements,
information, representations or warranties herein or in any document,
certificate or other writing delivered in connection herewith or for the
execution, effectiveness, genuineness, validity, enforceability, perfection,
collectibility, priority or sufficiency of this Agreement or any other
Transaction Document or the financial condition of the Company or be required to
make any inquiry concerning either the performance or observance of any of the
terms, provisions or conditions of this Agreement or any other Transaction
Document, or the financial condition of the Company or the existence or possible
existence of any default or Event of Default.
11.4 RELIANCE. The Agent shall be entitled to rely, and shall be fully
protected in relying, upon any note, writing, resolution, notice, statement,
certificate, telex, teletype or telecopier message, cablegram, radiogram, order
or other document or telephone message signed, sent or made by any person that
the Agent believed to be the proper person, and, with respect to all legal
matters pertaining to this Agreement and any other Transaction Document and its
duties hereunder and thereunder, upon advice of counsel selected by it.
11.5 INDEMNIFICATION. To the extent the Agent is not reimbursed and
indemnified by the Company, the Purchaser will reimburse and indemnify the
Agent, in proportion to the principal amount of the amounts owing to the
Purchaser and all other purchasers of Convertible Notes, for and against any and
all liabilities, obligations, losses, damages, penalties, claims, actions,
judgments, suits, costs, expenses or disbursements of whatsoever kind or nature
which may be imposed on, asserted against or incurred by the Agent in performing
its duties hereunder or under any other Transaction Document; PROVIDED, HOWEVER,
that the Purchaser shall not be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from the Agent's gross negligence or willful
misconduct.
11.6 THE AGENT IN ITS INDIVIDUAL CAPACITY. With respect to its obligation
to purchase one or more of the Convertible Notes, the Agent shall have the
rights and powers specified in the
Page 18
Agent's respective purchase agreement as a purchaser thereof and may exercise
the same rights and powers as though it were not performing the duties specified
herein. Toibb may lend money to and generally engage in any kind of business
with the Company or any affiliate of the Company as if it were not performing
the duties specified herein, and may accept fees and other consideration from
the Company for services in connection with this Agreement and otherwise without
having to account for the same to the Purchaser.
11.7 SUCCESSION.
(a) The Agent may resign from the performance of all its functions and
duties hereunder and/or under the other Transaction Documents at any time by
giving fifteen (15) business days' prior written notice to the Company and the
Purchaser. Such resignation shall take effect upon the appointment of a
successor Agent pursuant to clauses (b) and (c) below or as otherwise provided
below.
(b) Upon any such notice of resignation, the holders of at least a majority
of the principal amount of the Convertible Notes shall appoint a successor Agent
hereunder which shall be a person or entity reasonably acceptable to the
Company.
(c) If a successor Agent shall not have been so appointed within such
fifteen (15) business day period, the Agent, with the consent of the Company,
may then appoint a successor Agent which shall serve as Agent hereunder until
such time, if any, as the holders of at least a majority of the principal amount
of the Convertible Notes appoint a successor Agent as provided above.
ARTICLE 12
MISCELLANEOUS
12.1 SUCCESSORS AND ASSIGNS INCLUDED IN PARTIES. Whenever in this Agreement
one of the parties hereto is named or referred to, the heirs, legal
representatives, successors, successors-in-title and assigns of such parties
shall be included, and all covenants and agreements contained in this Agreement
by or on behalf of the Company or by or on behalf of the Purchaser shall bind
and inure to the benefit of their respective heirs, legal representatives,
successors-in-title and assigns, whether so expressed or not.
12.2 SEVERABILITY. Wherever possible each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
such law, such provision shall be ineffective to the extent of such prohibition
or invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement and shall be interpreted so as to be
effective and valid.
12.3 INTEREST AND LOAN CHARGES NOT TO EXCEED MAXIMUM ALLOWED BY LAW.
Anything in this Agreement, the Convertible Note or any of the other Transaction
Documents to the contrary notwithstanding, in no event whatsoever, whether by
reason of advancement of proceeds of the Committed Amount, acceleration of the
maturity of the unpaid balance of the indebtedness evidenced by the Convertible
Note or otherwise, shall the interest and other charges agreed to be paid to the
Purchaser for the use of the money advanced or to be advanced hereunder exceed
the
Page 19
maximum amounts collectible under applicable laws in effect from time to time.
It is understood and agreed by the parties that, if for any reason whatsoever
the interest or loan charges paid or contracted to be paid by the Company in
respect of the indebtedness evidenced by the Convertible Note shall exceed the
maximum amounts collectible under applicable laws in effect from time to time,
then IPSO FACTO, the obligation to pay such interest and/or loan charges shall
be reduced to the maximum amounts collectible under applicable laws in effect
from time to time, and any amounts collected by the Purchaser that exceed such
maximum amounts shall be applied to the reduction of the principal balance of
the indebtedness evidenced by the Convertible Note and/or refunded to the
Company so that at no time shall the interest or loan charges paid or payable in
respect of the indebtedness evidenced by the Convertible Note exceed the maximum
amounts permitted from time to time by applicable law.
12.4 ARTICLE AND SECTION HEADINGS, DEFINED TERMS. Numbered and titled
article and section headings and defined terms are for convenience only and
shall not be construed as amplifying or limiting any of the provisions of this
Agreement.
12.5 NOTICES. Any and all notices, elections or demands permitted or
required to be made under this Agreement shall be in writing, signed by the
party giving such notice, election or demand and shall be delivered personally,
telecopied, or sent by certified mail or overnight via nationally recognized
courier service (such as Federal Express), to the other party at the address set
forth in the introductory paragraph to this Agreement, or at such other address
as may be supplied in writing and of which receipt has been acknowledged in
writing. The date of personal delivery or telecopy or two (2) business days
after the date of mailing (or the next business day after delivery to such
courier service), as the case may be, shall be the date of such notice, election
or demand.
12.6 ENTIRE AGREEMENT. This Agreement and the other written agreements
between the Company and the Purchaser represent the entire agreement between the
parties concerning the subject matter hereof, and all oral discussions and prior
agreements are merged herein; PROVIDED, if there is a conflict between this
Agreement and any other document executed contemporaneously herewith with
respect to the obligations described herein, the provision of this Agreement
shall control.
12.7 GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with, and shall be governed by, the laws of the State of California,
without regard to conflict of law principles thereof.
12.8 AMENDMENT. Neither this Agreement nor any term hereof may be amended,
waived, discharged or terminated other than by a written instrument signed by
the party against whom enforcement of any such amendment, waiver, discharge or
termination is sought; PROVIDED, HOWEVER, that the Agent may, with the consent
of the Company, waive or amend, on behalf of all purchasers of Convertible
Notes, any provisions hereof or of the Convertible Notes, PROVIDED that any such
waiver or amendment which affects any holder in any manner materially and
adversely different than any other holder may not be effected without the
consent and agreement of the holder so adversely affected.
12.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties contained herein or in any of the Transaction Documents or made by or
furnished on behalf of the
Page 20
Company in connection herewith or in any Transaction Documents shall survive the
execution and delivery of this Agreement and the other Transaction Documents.
12.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties to this Agreement in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same Agreement.
12.11 CONSTRUCTION AND INTERPRETATION. Should any provision of this
Agreement require judicial interpretation, the parties hereto agree that the
court interpreting or construing the same shall not apply a presumption that the
terms hereof shall be more strictly construed against one party by reason of the
rule of construction that a document is to be more strictly construed against
the party that itself or through its agent prepared the same, it being agreed
that the Company, the Purchaser and their respective agents have participated in
the preparation hereof.
12.12 COSTS AND ATTORNEYS' FEES. If any action, suit, arbitration or other
proceeding is instituted to remedy, prevent or obtain relief from a default in
the performance by any party to this Agreement of its obligations under this
Agreement, the prevailing party (as determined by the court or other
fact-finder) will be entitled to recover from the losing party all actual costs
incurred in each and every such action, suit, arbitration or other proceeding,
including any and all appeals or petitions therefrom, including, without
limitation, reasonable attorneys' fees and disbursements.
12.13 AUDIT RIGHTS. Purchaser shall have the continuing right, without
hindrance or delay, to inspect, audit, check and make extracts from the
Company's books, records, journals, orders, receipts and other accounting
records at the office of the Company at the address set forth on the first page
of this Agreement at any time during regular business hours upon one business
day's advance notice (absent an Event of Default then existing). The Purchaser
shall also during any such examination be provided with reasonable access to the
officers of the Company.
12.14 WAIVER OF JURY TRIAL. The Purchaser and the Company each waive all
right to trial by jury in any action or proceeding to enforce or defend any
rights or remedies hereunder or relating hereto.
12.15 LEGAL FEES. The Company shall pay all legal fees and expenses of
Xxxxxx Xxxxx incurred in connection with the negotiation and documentation of
the Transaction Documents and in connection with the negotiation and
documentation of amendments to the Prior Transaction Documents.
Page 21
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or
have caused this Agreement to be executed by their duly authorized officers, as
of the day and year first above written.
COMPANY:
BRILLIANT DIGITAL ENTERTAINMENT, INC.,
a Delaware corporation
By: /S/ XXXXXX XXXXXX
--------------------------------
Xxxxxx Xxxxxx
Title: Chief Operating Officer and
Chief Financial Officer
PURCHASER:
XXXXXX XXXXX
---------------------------------------
(Print Name of Purchaser)
/S/ XXXXXX XXXXX
---------------------------------------
(Signature)
N/A
---------------------------------------
(Title, if applicable)
0000 XXXXXXX XXXXXX XXXX., XXXXX 000
XXXXXXXX XXXXX, XXXXXXXXXX 00000
FACSIMILE: (000) 000-0000
---------------------------------------
(Address)
Committed Amount: $350,000
----------------------
Accepted and Acknowledged by:
XXXXXX XXXXX,
as Agent under Article 11
/S/ XXXXXX XXXXX
------------------------------
Xxxxxx Xxxxx
SIGNATURE PAGE TO
NOTE AND WARRANT PURCHASE AGREEMENT
Page 22
EXHIBIT A
SECURED CONVERTIBLE
PROMISSORY NOTE
(See Exhibit 10.43)
EXHIBIT B
WARRANT
(See Exhibit 10.45)
EXHIBIT C
SECURITY AND PLEDGE AGREEMENT
(See Exhibit 10.53)
EXHIBIT D
GUARANTY
(See Exhibit 10.55)
