Exhibit 10.6
FIRST SENIOR SECURED CONVERTIBLE LOAN AGREEMENT
This first Senior Secured Loan Agreement (this "Agreement") is dated as of
January 30, 2007 among Navstar Media Holdings, Inc., a Delaware corporation (the
"Company"), and the purchaser identified on the signature page hereto (including
its successors and assigns, a "Lender").
WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act") and Rule 506 promulgated thereunder, the Company desires to
borrow from and issue and sell to the Lender, and the Lender desires to lend to
and buy from the Company, securities of the Company as more fully described in
this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Lender agree as
follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this Agreement:
(a) capitalized terms that are not otherwise defined herein have the meanings
given to such terms in the Warrants (as defined herein), and (b) the following
terms have the meanings indicated in this Section 1.1:
"AAA" shall mean the American Arbitration Association.
"Action" shall have the meaning ascribed to such term in Section
3.1(j).
"Acquiring Person" shall have the meaning ascribed to such term in
Section 4.9.
"Affiliate" means any Person that, directly or indirectly through one
or more intermediaries, controls or is controlled by or is under common
control with a Person, as such terms are used in and construed under Rule
144 under the Securities Act. With respect to the Lender, any investment
fund or managed account that is managed on a discretionary basis by the
same investment manager as the Lender will be deemed to be an Affiliate of
the Lender.
"Closing" means each of the closings of the purchase and sale of the
Securities pursuant to Section 2.2.
"Closing Date" means, in the case of the first Closing, the Trading
Day when all of the Transaction Documents have been executed and delivered
by the applicable parties thereto, and all conditions precedent to (i) the
Lender's obligations to pay the Investment Amount and (ii) the Company's
obligations to deliver the Securities have been satisfied or waived, and,
in the case of the second Closing, the date of draw down, pursuant to
Section 2.1 of the second tranche of the Total Commitment.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, par value $.001
per share, and any other class of securities into which such securities may
hereafter have been reclassified or changed into.
"Common Stock Equivalents" means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including, without limitation, any debt, preferred stock,
rights, options, warrants or other instrument that is at any time
convertible into or exercisable or exchangeable for, or otherwise entitles
the holder thereof to receive, Common Stock or other securities that
entitle the holder to receive, directly or indirectly, Common Stock.
"Company Counsel" means Xxxxx & XxXxxxxx, LLP.
"Disclosure Schedules" shall have the meaning ascribed to such term in
Section 3.1.
"Effective Date" means the date that the initial Registration
Statement filed by the Company pursuant to the Registration Rights
Agreement is first declared effective by the Commission.
"Evaluation Date" shall have the meaning ascribed to such term in
Section 3.1(r).
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"GAAP" shall have the meaning ascribed to such term in Section 3.1(h).
"Knowledge" means, with respect to any statement made to the knowledge
of a party, that the statement is based upon actual knowledge of the
officers of such party having responsibility for the matter or matters that
are the subject of the statement, after due inquiry.
"Intellectual Property Rights" shall have the meaning ascribed to such
term in Section 3.1(o).
"Investment Amount" means, as to the Lender, the aggregate amount to
be paid for the Note and Warrants purchased hereunder at each Closing Date
as specified below the Lender's name on the signature page of this
Agreement and next to the heading "Investment Amount", in United States
Dollars and in immediately available funds.
2
"Legend Removal Date" shall have the meaning ascribed to such term in
Section 4.1(c).
"Liens" means a lien, charge, security interest, encumbrance, right of
first refusal, preemptive right or other restriction.
"Material Adverse Effect" shall have the meaning assigned to such term
in Section 3.1(b).
"Material Permits" shall have the meaning ascribed to such term in
Section 3.1(m).
"Note" shall mean the senior secured promissory note issued or to be
issued from time to time pursuant to this Agreement.
"Notice" shall have the meaning ascribed to such term in Section 2.1.
"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding,
such as a deposition), whether commenced or threatened.
"Lender Party" shall have the meaning ascribed to such term in Section
4.12.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated the date hereof, among the Company and the Lender, in the
form of Exhibit A attached hereto.
"Registration Statement" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering
the resale of the Underlying Shares and Warrant Shares by the Lender as
provided for in the Registration Rights Agreement.
"Required Approvals" shall have the meaning ascribed to such term in
Section 3.1(e).
"Rule 144" means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"SEC Reports" shall have the meaning ascribed to such term in Section
3.1(h).
"Securities" means the Underlying Shares, the Note, the Warrants and
the Warrant Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means the shares of Common Stock issuable to the Lender
pursuant to this Agreement, par value $.001 per share.
"Short Sales" shall include all "short sales" as defined in Rule 200
of Regulation SHO under the Exchange Act (but shall not be deemed to
include the location and/or reservation of borrowable shares of Common
Stock).
"Subsidiary" means any subsidiary of the Company as set forth on
Schedule 3.1(a).
"Total Commitment" shall have the meaning set forth in Section 2.2.
"Trading Day" means a day on which the Common Stock is traded on a
Trading Market.
"Trading Market" means the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in question: the
Nasdaq Capital Market, the American Stock Exchange, the New York Stock
Exchange, the Nasdaq National Market or the OTC Bulletin Board.
"Transaction Documents" means this Agreement, the Note, the Warrants,
the Registration Rights Agreement and any other documents or agreements
executed in connection with the transactions contemplated hereunder.
"Underlying Shares" shall mean the shares of Common Stock, issuable
upon conversion of the Note, including Principal and any interest accrued
thereon.
"Warrants" means collectively the Common Stock purchase warrants, in
the form of Exhibit B delivered to the Lender at the Closing in accordance
with Section 2.3(a) hereof, which Warrants shall be exercisable immediately
and have a term of exercise equal to four years.
"Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants.
ARTICLE II.
SENIOR SECURITY OF THE NOTE & CLOSING
2.1 Seniority and Security
4
The Note and this loan obligation shall be senior to all existing and
future indebtedness of the Company and shall be secured by the Company's
ownership interest in all its subsidiaries. The Company hereby assigns, grants
and pledges to the Lender for its benefit a continuing security interest in all
of the Company's now existing and hereafter acquired assets, including its
ownership interest in the Company's subsidiaries, rights, properties, interests,
accounts and other tangible and intangible assets as more fully described in
Annex A hereto (collectively the "Collateral") which is incorporated herein and
made a part hereof. This Agreement secures the full and prompt performance of
all of the obligations of the Company to the Lender arising from the Note and
this Agreement (collectively the "Obligations").
2.2 Commitment and Closings.
The Lender hereby commits to invest in the Company a total amount of up to
US$2,500,000 (the "Total Commitment") at the closing ("Closing").
2.3 Deliveries.
(a) On each Closing Date (except in the case of items (i), (iv) and
(v), which shall be delivered on the first Closing Date), the Company shall
deliver or cause to be delivered to the Lender the following:
(i) this Agreement duly executed by the Company;
(ii) the Note or Underlying Shares applicable to such closing;
(iii) a Warrant registered in the name of the Lender exercisable
into a number of shares of Common Stock equal to 100% of Underlying
Shares, with an exercise price equal to $0.25 per Share, subject to
adjustment therein;
(iv) the legal opinion of Company Counsel, in agreed form,
addressed to the Lender; and
(v) the Registration Rights Agreement, duly executed by the
Company.
(b) On each Closing Date (except in the case of items (i) and (iii),
which shall be delivered on the first Closing Date), the Lender shall
deliver or cause to be delivered to the Company the following:
(i) this Agreement duly executed by the Lender;
(ii) the Lender's applicable Investment Amount by wire transfer
to the account as specified in writing by the Company; and
(iii) the Registration Rights Agreement, duly executed by the
Lender.
2.4 Closing Conditions.
5
(a) The obligations of the Company hereunder in connection with the
Closings are subject to the following conditions being met:
(i) the accuracy in all material respects when made and on each
Closing Date of the representations and warranties of the Lender
contained herein;
(ii) all obligations, covenants and agreements of the Lender
required to be performed at or prior to each Closing Date shall have
been performed; and
(iii) the delivery by the Lender of the items set forth in
Section 2.3(b) of this Agreement.
(iv) the waiver, non-exercise or satisfaction of any
participation rights, right of first refusal or any other similar
rights by any prior investors.
(b) The respective obligations of the Lender hereunder in connection
with the Closings are subject to the following conditions being met:
(i) the accuracy in all material respects on each Closing Date of
the representations and warranties of the Company contained herein;
(ii) all obligations, covenants and agreements of the Company
required to be performed at or prior to each Closing Date shall have
been performed;
(iii) the delivery by the Company of the items set forth in
Section 2.3(a) of this Agreement;
(iv) since the date of execution of this Agreement, no event or
series of events shall have occurred that reasonably could have or
result in (i) an adverse effect on the legality, validity or
enforceability of any Transaction Document, or (ii) a Material Adverse
Effect;
(v) no statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent
jurisdiction that prohibits the consummation of any of the
transactions contemplated by the Transaction Documents; and
(vi) from the date hereof to the Closing Date, trading in the
Common Stock shall not have been suspended by the Commission or the
Company's principal Trading Market (except for any suspension of
trading of limited duration agreed to by the Company, which suspension
shall be terminated prior to the Closing), and, at any time prior to
the Closing Date, trading in securities generally as reported by
Bloomberg Financial Markets shall not have been suspended or limited,
or minimum prices shall not have been established on securities whose
trades are reported by such service, or on any Trading Market, nor
shall a banking moratorium have been declared either by the United
States or New York State authorities nor shall there have occurred any
material outbreak or escalation of hostilities or other national or
international calamity of such magnitude in its effect on, or any
material adverse change in, any financial market which, in each case,
in the reasonable judgment of the Lender, makes it impracticable or
inadvisable to purchase the Note at the Closing.
6
(vii) the waiver, non-exercise or satisfaction of any
participation rights, right of first refusal or any other similar
rights by any prior investors to the satisfaction of the Lender.
(viii) the detailed projection of the Company's TV Shopping
Project use of funds and its business plan to the satisfaction of the
Lender.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth
under the corresponding section of the disclosure schedules delivered to the
Lender concurrently herewith (the "Disclosure Schedules") which Disclosure
Schedules shall be deemed a part hereof, the Company hereby makes the
representations and warranties set forth below to the Lender.
(a) Subsidiaries. All of the direct and indirect subsidiaries of the
Company are set forth on Schedule 3.1(a). The Company owns, directly or
indirectly, all of the capital stock or other equity interests of each
Subsidiary free and clear of any Liens, and all the issued and outstanding
shares of capital stock of each Subsidiary are validly issued and are fully
paid, non-assessable and free of preemptive and similar rights to subscribe
for or purchase securities. If the Company has no subsidiaries, then
references in the Transaction Documents to the Subsidiaries will be
disregarded.
(b) Organization and Qualification. The Company and each of the
Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the requisite power and
authority to own and use its properties and assets and to carry on its
business as currently conducted. Neither the Company nor any Subsidiary is
in violation or default of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational or
charter documents. Each of the Company and the Subsidiaries is duly
qualified to conduct business and is in good standing as a foreign
corporation or other entity in each jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing,
as the case may be, could not, individually, or in the aggregate, have or
reasonably be expected to result in (i) a material adverse effect on the
legality, validity or enforceability of any Transaction Document, (ii) a
material adverse effect on the results of operations, assets, business,
prospects or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (iii) a material adverse effect on the
Company's ability to perform in any material respect on a timely basis its
obligations under any Transaction Document (any of (i), (ii) or (iii), a
"Material Adverse Effect") and no Proceeding has been instituted in any
such jurisdiction revoking, limiting or curtailing or seeking to revoke,
limit or curtail such power and authority or qualification.
7
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder. The
execution and delivery of each of the Transaction Documents by the Company
and the consummation by it of the transactions contemplated thereby have
been duly authorized by all necessary action on the part of the Company and
no further action is required by the Company, its board of directors or its
stockholders in connection therewith other than in connection with the
Required Approvals. Each Transaction Document has been (or upon delivery
will have been) duly executed by the Company and, when delivered in
accordance with the terms hereof and thereof, will constitute the valid and
binding obligation of the Company enforceable against the Company in
accordance with its terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally and (ii)
as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies.
(d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of
the other transactions contemplated hereby and thereby do not and will not:
(i) conflict with or violate any provision of the Company's or any
Subsidiary's certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) conflict with, or constitute a
default (or an event that with notice or lapse of time or both would become
a default) under, result in the creation of any Lien upon any of the
properties or assets of the Company or any Subsidiary, or give to others
any rights of termination, amendment, acceleration or cancellation (with or
without notice, lapse of time or both) of, any agreement, credit facility,
debt or other instrument (evidencing a Company or Subsidiary debt or
otherwise) or other understanding to which the Company or any Subsidiary is
a party or by which any property or asset of the Company or any Subsidiary
is bound or affected, or (iii) subject to the Required Approvals, conflict
with or result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or
governmental authority to which the Company or a Subsidiary is subject
(including federal and state securities laws and regulations), or by which
any property or asset of the Company or a Subsidiary is bound or affected;
except in the case of each of clauses (ii) and (iii), such as could not,
individually, or in the aggregate, have or reasonably be expected to result
in a Material Adverse Effect.
(e) Filings, Consents and Approvals. The Company is not required to
obtain any consent, waiver, authorization or order of, give any notice to,
or make any filing or registration with, any court or other federal, state,
local or other governmental authority or other Person in connection with
the execution, delivery and performance by the Company of the Transaction
Documents, other than (i) filings required pursuant to Section 4.8, (ii)
8
the filing with the Commission of one or more Registration Statements in
accordance with the requirements of the Registration Rights Agreement,
(iii) filings required by state securities laws in accordance with the
requirements of the Registration Rights Agreement, which when permitted,
will be made prior to the Effectiveness Date (as such term is defined in
the Registration Rights Agreement), (iv) the notice and/or application(s)
to each applicable Trading Market for the issuance and sale of the Note,
Warrants and the listing of the Underlying Shares and Warrant Shares for
trading thereon in the time and manner required thereby and (v) the filing
of Form D with the Commission and such filings as are required to be made
under applicable state securities laws (collectively, the "Required
Approvals").
(f) Issuance of the Securities. The Securities are duly authorized
and, when issued and paid for in accordance with the applicable Transaction
Documents, will be duly and validly issued, fully paid and nonassessable,
free and clear of all Liens other than restrictions on transfer provided
for in the Transaction Documents. The Underlying Shares, when issued upon
exercise of the Note, will be validly issued, fully paid and nonassessable,
free and clear of all Liens. The Warrant Shares, when issued in accordance
with the terms of the Transaction Documents, will be validly issued, fully
paid and nonassessable, free and clear of all Liens. The Company has
reserved from its duly authorized capital stock the shares of Common Stock
issuable pursuant to this Agreement, the Note and the Warrants in order to
issue the Underlying Shares and the Warrant Shares. The Securities are not
subject to any preemptive or similar rights to subscribe for or purchase
securities.
(g) Capitalization. Other than disclosed in the SEC Reports and as set
forth on Schedule 3.1(g), the Company has not issued any capital stock
other than pursuant to the exercise of employee stock options under the
Company's stock option plans, the issuance of shares of Common Stock to
employees pursuant to the Company's employee stock purchase plan and
pursuant to the conversion or exercise of outstanding Common Stock
Equivalents all as set forth on Schedule 3.1(g). No securities of the
Company are entitled to preemptive or similar rights and no Person has any
right of first refusal, preemptive right, right of participation, or any
similar right to participate in the transactions contemplated by the
Transaction Documents. As of the date of this Agreement, except as
disclosed in the SEC Reports and as set forth in Schedule 3.1(g) and as a
result of the purchase and sale of the Warrants, there are no outstanding
options, warrants, script rights to subscribe to, calls or commitments of
any character whatsoever relating to, or securities, rights or obligations
convertible into or exercisable or exchangeable for, or giving any Person
any right to subscribe for or acquire, any shares of the capital stock of
the Company, or contracts, commitments, understandings or arrangements by
which the Company or any Subsidiary is or may become bound to issue
additional shares of its capital stock, or securities or rights convertible
or exchangeable into shares of Common Stock. The issuance and sale of the
Securities will not obligate the Company to issue shares of Common Stock or
other securities to any Person (other than the Lender) and will not result
in a right of any holder of Company securities to adjust the exercise,
conversion, exchange or reset price under such securities. All of the
outstanding shares of capital stock of the Company are validly issued,
fully paid and nonassessable, have been issued in compliance with all
federal and state securities laws, and none of such outstanding shares was
issued in violation of any preemptive rights or similar rights to subscribe
for or purchase securities. No further approval or authorization of any
stockholder, the Board of Directors of the Company or others is required
for the issuance and sale of the Securities. There are no stockholders
agreements, voting agreements or other similar agreements with respect to
the Company's capital stock to which the Company is a party or, to the
Knowledge of the Company, between or among any of the Company's
stockholders.
9
(h) SEC Reports; Financial Statements. The Company has filed all
reports, schedules, forms, statements and other documents required to be
filed by it under the Securities Act and the Exchange Act, including
pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the
date hereof (or such shorter period as the Company was required by law to
file such material) (the foregoing materials, including the exhibits
thereto and documents incorporated by reference therein, being collectively
referred to herein as the "SEC Reports") on a timely basis or has received
a valid extension of such time of filing and has filed any such SEC Reports
prior to the expiration of any such extension. As of their respective
dates, the SEC Reports complied in all material respects with the
requirements of the Securities Act and the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and none of the SEC
Reports, when filed, 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 the light of the circumstances
under which they were made, not misleading. The financial statements of the
Company included in the SEC Reports comply in all material respects with
applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis
during the periods involved ("GAAP"), except as may be otherwise specified
in such financial statements or the notes thereto, and fairly present in
all material respects the financial position of the Company and its
consolidated Subsidiaries as of and for the dates thereof and the results
of operations and cash flows for the periods then ended, subject, in the
case of unaudited statements, to normal, immaterial, year-end audit
adjustments. The Company maintains and will continue to maintain a standard
system of accounting established and administered in accordance with GAAP
and the applicable requirements of the Exchange Act.
(i) Material Changes. Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically
disclosed in the SEC Reports, (i) there has been no event, occurrence or
development that has had or that, individually, or in the aggregate, could
reasonably be expected to result in a Material Adverse Effect, (ii) the
Company has not incurred any liabilities (contingent or otherwise) other
than (A) trade payables and accrued expenses incurred in the ordinary
course of business consistent with past practice, (B) liabilities not
10
required to be reflected in the Company's financial statements pursuant to
GAAP or required to be disclosed in filings made with the Commission, and
(C) other liabilities that would not, individually or in the aggregate,
have a Material Adverse Effect, (iii) the Company has not altered its
method of accounting or the identity of its auditors, (iv) the Company has
not declared or made any dividend or distribution of cash or other property
to its stockholders or purchased, redeemed or made any agreements to
purchase or redeem any shares of its capital stock and (v) the Company has
not issued any equity securities to any officer, director or Affiliate,
except pursuant to existing Company stock option plans. The Company does
not have pending before the Commission any request for confidential
treatment of information. Except for the issuance of the Securities
contemplated by this Agreement or as set forth on Schedule 3.1(i), no
event, liability or development has occurred or exists with respect to the
Company or its Subsidiaries or their respective business, properties,
operations or financial condition, that would be required to be disclosed
by the Company under applicable securities laws at the time this
representation is made that has not been publicly disclosed 1 Trading Day
prior to the date that this representation is made.
(j) Litigation. Other than as otherwise disclosed in Schedule 3.1(j)
there is no action, suit, inquiry, notice of violation, proceeding or
investigation pending or, to the Knowledge of the Company, threatened
against or affecting the Company, any Subsidiary or any of their respective
properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county,
local or foreign) (collectively, an "Action") which (i) adversely affects
or challenges the legality, validity or enforceability of any of the
Transaction Documents or the Securities or (ii) could if there were an
unfavorable decision, individually, or in the aggregate, have or reasonably
be expected to result in a Material Adverse Effect. Neither the Company nor
any Subsidiary, nor any director or officer thereof, is or has been the
subject of any Action involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary duty.
There has not been, and to the Knowledge of the Company, there is not
pending or contemplated, any investigation by the Commission involving the
Company or any current or former director or officer of the Company. The
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act. None of the
Company's or its Subsidiaries' employees is a member of a union that
relates to such employee's relationship with the Company, and neither the
Company or any of its Subsidiaries is a party to a collective bargaining
agreement, and the Company and its Subsidiaries believe that their
relationships with their employees are good. No executive officer, to the
Knowledge of the Company, is, or is now expected to be, in violation of any
material term of any employment contract, confidentiality, disclosure or
proprietary information agreement or non-competition agreement, or any
other contract or agreement or any restrictive covenant, and the continued
employment of each such executive officer does not subject the Company or
any of its Subsidiaries to any liability with respect to any of the
foregoing matters. The Company and its Subsidiaries are in compliance with
all U.S. federal, state, local and foreign laws and regulations relating to
employment and employment practices, terms and conditions of employment and
wages and hours, except where the failure to be in compliance could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
11
(k) Labor Relations. No material labor dispute exists or, to the
Knowledge of the Company, is imminent with respect to any of the employees
of the Company which could reasonably be expected to result in a Material
Adverse Effect.
(l) Compliance. Neither the Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has not
been waived that, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the Company or any
Subsidiary received notice of a claim that it is in default under or that
it is in violation of, any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any of its
properties is bound (whether or not such default or violation has been
waived), (ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is or has been in violation of any statute,
rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws applicable to its
business and all such laws that affect the environment, except in each case
as could not, individually, or in the aggregate, have a Material Adverse
Effect. The Company is in compliance with all effective requirements of the
Xxxxxxxx-Xxxxx Act of 2002, as amended, and the rules and regulations
thereunder, that are applicable to it, except where such noncompliance,
individually or in the aggregate, could not have or reasonably be expected
to result in a Material Adverse Effect.
(m) Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the
failure to possess such permits could not, individually, or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect ("Material Permits"), and neither the Company nor any Subsidiary has
received any notice of proceedings relating to the revocation or
modification of any Material Permit.
(n) Title to Assets. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them that is
material to the business of the Company and the Subsidiaries and good and
marketable title in all personal property owned by them that is material to
the business of the Company and the Subsidiaries. Any real property and
facilities held under lease by the Company and the Subsidiaries are held by
them under valid, subsisting and enforceable leases of which the Company
and the Subsidiaries are in compliance.
(o) Patents and Trademarks. The Company and the Subsidiaries have, or
have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, trade secrets, inventions,
copyrights, licenses and other intellectual property rights or similar
rights necessary or material for use in connection with their respective
12
businesses as described in the SEC Reports and which the failure to so have
could, individually, or in the aggregate, have or reasonably be expected to
have a Material Adverse Effect (collectively, the "Intellectual Property
Rights"). Neither the Company nor any Subsidiary has received a notice
(written or otherwise) that the Intellectual Property Rights used by the
Company or any Subsidiary violates or infringes upon the rights of any
Person. All such Intellectual Property Rights are enforceable and do not
violate or infringe the Intellectual Property Rights of others in any
respect that would, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect and, to the Knowledge of
the Company, there is no existing infringement by another Person of any of
the Company's or the Subsidiary's Intellectual Property Rights. The Company
and its Subsidiaries have taken reasonable security measures to protect the
secrecy, confidentiality and value of all of their intellectual properties,
except where failure to do so could not, individually or in the aggregate,
reasonably be expect to have a Material Adverse Effect.
(p) Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses in
which the Company and the Subsidiaries are engaged, including, but not
limited to, directors and officers insurance coverage at least equal to the
aggregate Investment Amount. To the best Knowledge of the Company, such
insurance contracts and policies are accurate and complete. Neither the
Company nor any Subsidiary has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business without a significant increase in cost.
(q) Transactions With Affiliates and Employees. Except as set forth in
the SEC Reports, none of the officers or directors of the Company and, to
the Knowledge of the Company, none of the employees of the Company is
presently a party to any transaction with the Company or any Subsidiary
(other than for services as employees, officers and directors), including
any contract, agreement or other arrangement providing for the furnishing
of services to or by, providing for rental of real or personal property to
or from, or otherwise requiring payments to or from any officer, director
or such employee or, to the Knowledge of the Company, any entity in which
any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
(r) Xxxxxxxx-Xxxxx; Internal Accounting Controls. The Company is in
compliance with all provisions of the Xxxxxxxx-Xxxxx Act of 2002 which are
applicable to it as of the Closing Date. The Company and the Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or
specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences. The Company has
established disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure
controls and procedures to ensure that material information relating to the
Company, including its Subsidiaries, is made known to the certifying
13
officers by others within those entities, particularly during the period in
which the Company's most recently filed periodic report under the Exchange
Act, as the case may be, is being prepared. The Company's certifying
officers have evaluated the effectiveness of the Company's controls and
procedures as of the date prior to the filing date of the most recently
filed periodic report under the Exchange Act (such date, the "Evaluation
Date"). The Company presented in its most recently filed periodic report
under the Exchange Act the conclusions of the certifying officers about the
effectiveness of the disclosure controls and procedures based on their
evaluations as of the Evaluation Date. Since the Evaluation Date, there
have been no significant changes in the Company's internal controls (as
such term is defined in Item 307(b) of Regulation S-K under the Exchange
Act) or, to the Knowledge of the Company, in other factors that could
significantly affect the Company's internal controls.
(s) Private Placement. Assuming the accuracy of the Lender's
representations and warranties set forth in Section 3.2, no registration
under the Securities Act is required for the offer and sale of the
Securities by the Company to the Lender as contemplated hereby. The
issuance and sale of the Securities hereunder does not contravene the rules
and regulations of the Trading Market. Except as described in Schedule
3.1(s), the Company has not granted or agreed to grant to any Person any
rights (including "piggy-back" registration rights) to have any securities
of the Company registered with the Commission or any other governmental
authority that have not been satisfied.
(t) Investment Company. The Company is not, and is not an Affiliate
of, and immediately after receipt of payment for the Securities, will not
be or be an Affiliate of, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended. The Company shall conduct its
business in a manner so that it will not become subject to the Investment
Company Act.
(u) Registration Rights. The Lender has the right to cause the Company
to effect the registration under the Securities Act of the Securities that
such Lender holds.
(v) Listing and Maintenance Requirements. The Company's Common Stock
is registered pursuant to Section 12(g) of the Exchange Act, and the
Company has taken no action designed to, or which to its Knowledge is
likely to have the effect of, terminating the registration of the Common
Stock under the Exchange Act nor has the Company received any notification
that the Commission is contemplating terminating such registration. The
Company has not, in the 24 months preceding the date hereof, received
notice from any Trading Market on which the Common Stock is or has been
listed or quoted to the effect that the Company is not in compliance with
the listing or maintenance requirements of such Trading Market. The Company
is, and has no reason to believe that it will not in the foreseeable future
continue to be, in compliance with all such listing and maintenance
requirements. The issuance and sale of the Securities under the Transaction
Documents does not contravene the rules and regulations of the Trading
Market on which the Common Stock is currently listed or quoted, and no
approval of the stockholders of the Company thereunder is required for the
Company to issue and deliver to the Lender the Securities contemplated by
the Transaction Documents. As of the date hereof, the Company's Common
Stock is listed on the OTC Bulletin Board.
14
(w) Disclosure. The Company confirms that neither it nor any other
Person acting on its behalf has provided the Lender or its agents or
counsel with any information that constitutes or might constitute material,
nonpublic information. The Company understands and confirms that the Lender
will rely on the foregoing representations and covenants in effecting
transactions in securities of the Company. All disclosure provided to the
Lender regarding the Company, its business and the transactions
contemplated hereby, including the Disclosure Schedules to this Agreement,
furnished by or on behalf of the Company with respect to the
representations and warranties made herein are true and correct with
respect to such representations and warranties and do not contain any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The Company
acknowledges and agrees that the Lender makes or has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 3.2 hereof.
(x) No Integrated Offering. Neither the Company, nor any of its
Affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any
offers to buy any security, under circumstances that would cause this
offering of the Securities to be integrated with prior offerings by the
Company for purposes of the Securities Act or any applicable shareholder
approval provisions, including, without limitation, under the rules and
regulations of any Trading Market on which any of the securities of the
Company are listed or designated.
(y) Solvency. Based on the financial condition of the Company as of
the Closing Date after giving effect to the receipt by the Company of the
proceeds from the sale of the Securities hereunder, (i) the Company's cash
and fair saleable value of its assets in an orderly liquidation exceeds the
amount that will be required to be paid on or in respect of the Company's
existing debts and other liabilities (including known contingent
liabilities) as they mature; (ii) the Company's assets do not constitute
unreasonably small capital to carry on its business for the current fiscal
year as now conducted and as proposed to be conducted including its capital
needs taking into account the particular capital requirements of the
business conducted by the Company, and projected capital requirements and
capital availability thereof; and (iii) the current cash flow of the
Company, together with the proceeds the Company would receive, were it to
liquidate all of its assets, after taking into account all anticipated uses
of the cash, would be sufficient to pay all amounts on or in respect of its
debt when such amounts are required to be paid. The Company does not intend
to incur debts beyond its ability to pay such debts as they mature (taking
into account the timing and amounts of cash to be payable on or in respect
of its debt). The Company has no Knowledge of any facts or circumstances
which lead it to believe that it will file for reorganization or
liquidation under the bankruptcy or reorganization laws of any jurisdiction
within one year from the Closing Date.
15
(z) Tax Status. Except for matters that would not, individually or in
the aggregate, have or reasonably be expected to result in a Material
Adverse Effect, the Company and each Subsidiary has filed all necessary
federal, state and foreign income and franchise tax returns and has paid or
accrued all taxes shown as due thereon, and the Company has no Knowledge of
a tax deficiency which has been asserted or threatened against the Company
or any Subsidiary.
(aa) No General Solicitation. Neither the Company nor any person
acting on behalf of the Company has offered or sold any of the Securities
by any form of general solicitation or general advertising. The Company has
offered the Securities for sale only to the Lender.
(bb) No Disagreements with Accountants and Lawyers. There are no
disagreements of any kind presently existing, or reasonably anticipated by
the Company to arise, between the accountants and lawyers formerly or
presently employed by the Company and the Company is current with respect
to any fees owed to its accountants and lawyers.
(cc) Acknowledgment Regarding Lender's Purchase of Securities. The
Company acknowledges and agrees that the Lender is acting solely in the
capacity of an arm's length purchaser with respect to the Transaction
Documents and the transactions contemplated hereby. The Company further
acknowledges that any advice given by the Lender or any of its respective
representatives or agents in connection with this Agreement and the
transactions contemplated hereby is merely incidental to the Lender's
purchase of the Securities. The Company further represents to the Lender
that the Company's decision to enter into this Agreement has been based
solely on the independent evaluation of the transactions contemplated
hereby by the Company and its representatives.
(dd) Acknowledgement Regarding Lender's Trading Activity. Anything in
this Agreement or elsewhere herein to the contrary notwithstanding, it is
understood and agreed by the Company (i) that the Lender has not been asked
to agree, nor has the Lender agreed, to desist from purchasing or selling,
long and/or short, securities of the Company, or "derivative" securities
based on securities issued by the Company or to hold the Securities for any
specified term; (ii) that past or future open market or other transactions
by the Lender, including Short Sales, and specifically including, without
limitation, Short Sales or "derivative" transactions, before or after the
closing of this or future private placement transactions, may negatively
impact the market price of the Company's publicly-traded securities; (iii)
that the Lender, and counter parties in "derivative" transactions to which
the Lender is a party, directly or indirectly, presently may have a "short"
position in the Common Stock, and (iv) that the Lender shall not be deemed
to have any affiliation with or control over any arm's length counter-party
in any "derivative" transaction. The Company further understands and
acknowledges that (a) the Lender may engage in hedging activities at
various times during the period that the Securities are outstanding,
including, without limitation, during the periods that the value of the
Warrant Shares deliverable with respect to Securities are being determined
16
and (b) such hedging activities (if any) could reduce the value of the
existing stockholders' equity interests in the Company at and after the
time that the hedging activities are being conducted. The Company
acknowledges that such aforementioned hedging activities do not constitute
a breach of any of the Transaction Documents.
(ee) Manipulation of Price. The Company has not, and to its Knowledge
no one acting on its behalf has, (i) taken, directly or indirectly, any
action designed to cause or to result in the stabilization or manipulation
of the price of any security of the Company to facilitate the sale or
resale of any of the Securities, (ii) sold, bid for, purchased, or, paid
any compensation for soliciting purchases of, any of the Securities (other
than for the placement agent's placement of the Securities), or (iii) paid
or agreed to pay to any person any compensation for soliciting another to
purchase any other securities of the Company.
(ff) Press Releases. The press releases disseminated by the Company
during the two (2) years preceding the date of this Agreement taken as a
whole do 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.
(gg) No Additional Agreements. The Company does not have any agreement
or understanding with the Lender with respect to the transactions
contemplated by the Transaction Documents other than as specified in the
Transaction Documents.
(hh) TV Shopping Project. The Company has secured the right to work
with CCTV Shopping Company, Ltd., an affiliate of the China Central
Television Station, a state-owned national television network and will
immediately commence the TV shopping operation upon the Closing.
3.2 Representations and Warranties of the Lender. The Lender hereby
represents and warrants as of the Closing Date to the Company as follows:
(a) Organization; Authority. The Lender is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its organization with the requisite corporate or partnership power and
authority to enter into and to consummate the transactions contemplated by
the Transaction Documents and otherwise to carry out its obligations
hereunder and thereunder. The execution, delivery and performance by the
Lender of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate or similar action on the part of the
Lender. Each Transaction Document to which it is a party has been duly
executed by the Lender, and when delivered by the Lender in accordance with
the terms hereof, will constitute the valid and legally binding obligation
of the Lender, enforceable against it in accordance with its terms, except
(i) as limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally, (ii) as
limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable
law.
17
(b) Own Account. The Lender understands that the Securities are
"restricted securities" and have not been registered under the Securities
Act or any applicable state securities law and is acquiring the Securities
as principal for its own account and not with a view to or for distributing
or reselling such Securities or any part thereof in violation of the
Securities Act or any applicable state securities law, has no present
intention of distributing any of such Securities in violation of the
Securities Act or any applicable state securities law and has no
arrangement or understanding with any other persons regarding the
distribution of such Securities (this representation and warranty not
limiting the Lender's right to sell the Securities pursuant to the
Registration Statement or otherwise in compliance with applicable federal
and state securities laws) in violation of the Securities Act or any
applicable state securities law. Subject to the immediately preceding
sentence, nothing contained herein shall be deemed a representation or
warranty by the Lender to hold the Securities for any period of time. The
Lender is acquiring the Securities hereunder in the ordinary course of its
business. The Lender does not have any agreement or understanding, directly
or indirectly, with any Person to distribute any of the Securities.
(c) Lender Status. At the time the Lender was offered the Securities,
it was, and at the date hereof it is, and on each date on which it
exercises any Warrants it will be either: (i) an "accredited investor" as
defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the
Securities Act or (ii) a "qualified institutional buyer" as defined in Rule
144A(a) under the Securities Act. The Lender is not required to be
registered as a broker-dealer under Section 15 of the Exchange Act.
(d) Experience of the Lender. The Lender, either alone or together
with its representatives, has such Knowledge, sophistication and experience
in business and financial matters so as to be capable of evaluating the
merits and risks of the prospective investment in the Securities, and has
so evaluated the merits and risks of such investment. The Lender is able to
bear the economic risk of an investment in the Securities and, at the
present time, is able to afford a complete loss of such investment.
(e) General Solicitation. The Lender is not purchasing the Securities
as a result of any advertisement, article, notice or other communication
regarding the Securities published in any newspaper, magazine or similar
media or broadcast over television or radio or presented at any seminar or
any other general solicitation or general advertisement.
(f) Short Sales and Confidentiality Prior To The Date Hereof. Other
than the transaction contemplated hereunder, the Lender has not directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with the Lender, executed any disposition, including Short
Sales, in the securities of the Company during the period commencing from
the time that the Lender first received a term sheet from the Company or
18
any other Person setting forth the material terms of the transactions
contemplated hereunder until the date hereof. Notwithstanding the
foregoing, in the case that the Lender is a multi-managed investment
vehicle whereby separate portfolio managers manage separate portions of the
Lender's assets and the portfolio managers have no direct Knowledge of the
investment decisions made by the portfolio managers managing other portions
of the Lender's assets, the representation set forth above shall only apply
with respect to the portion of assets managed by the portfolio manager that
made the investment decision to purchase the Securities covered by this
Agreement. Other than to other Persons party to this Agreement, the Lender
has maintained the confidentiality of all disclosures made to it in
connection with this transaction (including the existence and terms of this
transaction).
The Company acknowledges and agrees that the Lender does not make or has
not made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section
3.2.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) The Securities may only be disposed of in compliance with state
and federal securities laws. In connection with any transfer of Securities
other than pursuant to an effective registration statement or Rule 144, to
the Company or to an affiliate of the Lender or in connection with a pledge
as contemplated in Section 4.1(b), the Company may require the transferor
thereof to provide to the Company an opinion of counsel selected by the
transferor and reasonably acceptable to the Company, the form and substance
of which opinion shall be reasonably satisfactory to the Company, to the
effect that such transfer does not require registration of such transferred
Securities under the Securities Act.
(b) The Lender agrees to the imprinting, so long as is required by
this Section 4.1(b), of a legend on any of the Securities in the following
form:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [EXERCISABLE] [CONVERTIBLE] HAVE BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF
ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT
TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE
WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION
OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH
SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND
THE SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION] OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
19
The Company acknowledges and agrees that the Lender may from time to
time pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the Securities
to a financial institution that is an "accredited investor" as defined in
Rule 501(a) under the Securities Act and, if required under the terms of
such arrangement, the Lender may transfer pledged or secured Securities to
the pledgees or secured parties. Such a pledge or transfer would not be
subject to approval of the Company and no legal opinion of legal counsel of
the pledgee, secured party or pledgor shall be required in connection
therewith. Further, no notice shall be required of such pledge. At the
expense of the Lender, the Company will execute and deliver such reasonable
documentation as a pledgee or secured party of Securities may reasonably
request in connection with a pledge or transfer of the Securities,
including, if the Securities are subject to registration pursuant to the
Registration Rights Agreement, the preparation and filing of any required
prospectus supplement under Rule 424(b)(3) under the Securities Act or
other applicable provision of the Securities Act to appropriately amend the
list of Selling Stockholders thereunder.
(c) Certificates evidencing any of the Securities shall not contain
any legend (including the legend set forth in Section 4.1(b) hereof): (i)
whenever the Underlying Shares and Warrant Shares are registered for resale
under the Securities Act, or (ii) following any sale or transfer of such
Underlying Shares or Warrant Shares pursuant to Rule 144, or (iii) while
such Underlying Shares or Warrant Shares are eligible for sale under Rule
144(k), or (iv) if such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission). The Company shall
cause its counsel to issue a standing legal opinion to the Company's
transfer agent promptly after the Effective Date if required by the
Company's transfer agent to effect the removal of the legend hereunder.
Following such time as restrictive legends are not required to be placed on
certificates representing the Underlying Shares or Warrant Shares, the
Company will, no later than three Trading Days following the delivery by
the Lender to the Company or the Company's transfer agent of (i) a
certificate representing such Underlying Shares or Warrant Shares
containing a restrictive legend (endorsed or with stock power attached,
signatures guaranteed, and otherwise in form necessary to affect reissuance
and/ or transfer), or (ii) an exercise notice in the manner stated in the
Warrants to affect the exercise of such Warrant in accordance with its
terms (such third Trading Day, the "Legend Removal Date"), deliver or cause
to be delivered to the Lender a certificate representing such Underlying
Shares or Warrant Shares that is free from all restrictive and other
legends. The Company may not make any notation on its records or give
instructions to any transfer agent of the Company that enlarge the
restrictions on transfer set forth in this Section. Certificates for
Securities subject to legend removal hereunder shall be transmitted by the
transfer agent of the Company to the Lender by crediting the account of the
Lender's prime broker with the Depository Trust Company System.
20
4.2 Acknowledgment of Dilution. The Company acknowledges that the issuance
of the Securities may result in dilution of the outstanding shares of Common
Stock, which dilution may be substantial under certain market conditions. The
Company further acknowledges that its obligations under the Transaction
Documents, including without limitation its obligation to issue the Underlying
Shares and Warrant Shares pursuant to the Transaction Documents, are
unconditional and absolute and not subject to any right of set off,
counterclaim, delay or reduction, regardless of the effect of any such dilution
or any claim the Company may have against the Lender and regardless of the
dilutive effect that such issuance may have on the ownership of the other
stockholders of the Company.
4.3 Furnishing of Information. As long as the Lender owns Securities, the
Company covenants to timely file (or obtain extensions in respect thereof and
file within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to the Exchange Act. As long as the
Lender owns Securities, if the Company is not required to file reports pursuant
to the Exchange Act, it will prepare and furnish to the Lender and make publicly
available in accordance with Rule 144(c) such information as is required for the
Lender to sell the Securities under Rule 144. The Company further covenants that
it will take such further action as any holder of Securities may reasonably
request, all to the extent required from time to time to enable such Person to
sell such Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144.
4.4 Integration. The Company shall not, and shall use its best efforts to
ensure that no Affiliate of the Company shall, sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Lender or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market.
4.5 Conversion. The Note, the principal and any accrued interest thereon
shall at any time, upon request of the Lender, in its sole discretion, subject
to receipt by the Company of due notice, automatically be converted into shares
of Common Stock, as such shares shall be constituted at the date of conversion,
at the conversion price of US$0.15 per share..,. Upon any conversion, the Lender
shall surrender the Note for conversion against receipt of one or more
certificate(s) representing the Underlying Shares, at the principal office of
the Company; provided however that any failure or delay in the delivery of the
Note shall not affect the Conversion. The Conversion of the Note in accordance
with its terms shall be a complete discharge of the Company's liability with
respect to the Note.
4.6 Exercise Procedures. The form of Notice of Exercise included,
respectively, in each of the Warrants and the Note set forth the totality of the
procedures required of the Lender in order to exercise each of the Warrants or
the Note. No additional legal opinion or other information or instructions shall
be required of the Lender to exercise its Warrants or the Note. The Company
shall honor exercises of each of the Warrants and the Note and shall deliver
21
Warrant Shares and Underlying Shares in accordance with the terms, conditions
and time periods set forth in the Transaction Documents.
4.7 TV Shopping Obligation. The proceeds from the Closing under this
Agreement shall be used mainly for the TV Shopping operation in cooperation with
the CCTV Shopping Company, Ltd. and other regional and local TV stations and
networks in China.
4.8 Securities Laws Disclosure; Publicity. By 9:00 a.m. (New York time) on
the Trading Day following the execution of this Agreement, and by 9:00 a.m. (New
York time) on the Trading Day following the Closing Date, the Company shall
issue press releases disclosing the transactions contemplated hereby and the
Closing. On the Trading Day following the execution of this Agreement the
Company will file a Current Report on Form 8-K disclosing the material terms of
the Transaction Documents (and attach as exhibits thereto the Transaction
Documents), and on the Trading Day following the Closing Date the Company will
file an additional Current Report on Form 8-K to disclose the Closing. In
addition, the Company will make such other filings and notices in the manner and
time required by the Commission and the Trading Market on which the Common Stock
is listed. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of the Lender, or include the name of the Lender in any filing
with the Commission (other than the Registration Statement and any exhibits to
filings made in respect of this transaction in accordance with periodic filing
requirements under the Exchange Act) or any regulatory agency or Trading Market,
without the prior written consent of the Lender, except to the extent such
disclosure is required by law or Trading Market regulations.
4.9 Shareholder Rights Plan. No claim will be made or enforced by the
Company or, to the Knowledge of the Company, any other Person that the Lender is
an "Acquiring Person" under any shareholder rights plan or similar plan or
arrangement in effect or hereafter adopted by the Company, or that the Lender
could be deemed to trigger the provisions of any such plan or arrangement, by
virtue of receiving Securities under the Transaction Documents or under any
other agreement between the Company and the Lender. The Company shall conduct
its business in a manner so that it will not become subject to the Investment
Company Act.
4.10 Use of Proceeds. The Company shall use the net proceeds from the sale
of the Securities hereunder for (A) working capital purposes, (B) launching of
the TV shopping network and related operations and other purposes subject to the
approval of the Lender.
4.11 Reimbursement. If the Lender becomes involved in any capacity in any
Proceeding by or against any Person who is a stockholder of the Company (except
as a result of sales, pledges, margin sales and similar transactions by the
Lender to or with any current stockholder), solely as a result of the Lender's
acquisition of the Securities under this Agreement, the Company will reimburse
the Lender for its reasonable legal and other expenses (including the cost of
any investigation preparation and travel in connection therewith) incurred in
connection therewith, as such expenses are incurred. The reimbursement
obligations of the Company under this paragraph shall be in addition to any
liability which the Company may otherwise have, shall extend upon the same terms
and conditions to any Affiliates of the Lender who are actually named in such
action, proceeding or investigation, and partners, directors, agents, employees
and controlling persons (if any), as the case may be, of the Lender and any such
22
Affiliate, and shall be binding upon and inure to the benefit of any successors,
assigns, heirs and personal representatives of the Company, the Lender and any
such Affiliate and any such Person. The Company also agrees that neither the
Lender nor any such Affiliates, partners, directors, agents, employees or
controlling persons shall have any liability to the Company or any Person
asserting claims on behalf of or in right of the Company solely as a result of
acquiring the Securities under this Agreement.
4.12 Indemnification of Lender. Subject to the provisions of this Section
4.12 and in addition to the indemnity provided in the Registration Rights
Agreement, the Company will indemnify and hold the Lender and its directors,
officers, shareholders, members, partners, employees and agents (and any other
Persons with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title), each Person who
controls the Lender (within the meaning of Section 15 of the Securities Act and
Section 20 of the Exchange Act), and the directors, officers, agents, members,
partners or employees (and any other Persons with a functionally equivalent role
of a Person holding such titles notwithstanding a lack of such title or any
other title) of such controlling person (each, a "Lender Party") harmless from
any and all losses, liabilities, obligations, claims, contingencies, damages,
costs and expenses, including all judgments, amounts paid in settlements, court
costs and reasonable attorneys' fees and costs of investigation that any such
Lender Party may suffer or incur as a result of or relating to (a) any breach,
misrepresentation or inaccuracy of any of the representations, warranties,
covenants or agreements made by the Company in this Agreement or in the other
Transaction Documents or (b) any action instituted against the Lender, or any of
its respective Affiliates, by any stockholder of the Company who is not an
Affiliate of the Lender, with respect to any of the transactions contemplated by
the Transaction Documents (unless such action is based upon a material breach of
the Lender's representations, warranties or covenants under the Transaction
Documents or any agreements or understandings that the Lender may have with any
such stockholder or any violations by the Lender of state or federal securities
laws or any conduct by the Lender which constitutes fraud, gross negligence,
willful misconduct or malfeasance). If any action shall be brought against any
Lender Party in respect of which indemnity may be sought pursuant to this
Agreement, such Lender Party shall promptly notify the Company in writing, and
the Company shall have the right to assume the defense thereof with counsel of
its own choosing. Any Lender Party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Lender Party except
to the extent that (i) the employment thereof has been specifically authorized
by the Company in writing, (ii) the Company has failed after a reasonable period
of time to assume such defense and to employ counsel or (iii) in such action
there is, in the reasonable opinion of such separate counsel, a material
conflict on any material issue between the position of the Company and the
position of such Lender Party. The Company will not be liable to any Lender
Party under this Agreement (i) for any settlement by a Lender Party effected
without the Company's prior written consent, which shall not be unreasonably
withheld or delayed; or (ii) to the extent, but only to the extent that a loss,
claim, damage or liability is attributable to any Lender Party's material breach
of any of the representations, warranties, covenants or agreements made by the
Lender in this Agreement or in the other Transaction Documents.
23
4.13 Form D. The Company agrees to timely file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof,
promptly upon request of the Lender.
4.14 Subsequent Registrations. Other than pursuant to the Registration
Statement, prior to the Effective Date, the Company may not file any
registration statement (other than on Form S-8) with the Commission with respect
to any securities of the Company.
4.15 Listing of Common Stock. The Company hereby agrees to use best efforts
to maintain the listing and trading of its Common Stock on the OTC Bulletin
Board (or another nationally recognized Trading Market). The Company further
agrees, if the Company applies to have the Common Stock traded on any other
Trading Market, it will include in such application the Underlying Shares and
Warrant Shares, and will take such other action as is necessary or desirable in
the opinion of the Lender to cause all of the Underlying Shares and Warrant
Shares to be listed on such other Trading Market as promptly as possible. The
Company will use best efforts and take all action reasonably necessary to
continue the listing and trading of its Common Stock on the Trading Market on
which the Common Stock is currently listed or quoted and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of such Trading Market.
4.16 Form SB-2 and Form S-1 Eligibility. The Company is eligible to
register the resale of the Underlying Shares and the Warrant Shares by the
Lender under Form SB-2 or Form S-1 promulgated under the Securities Act and the
Company hereby covenants and agrees to use its best efforts to maintain its
eligibility to use Form SB-2 until the Registration Statement covering the
resale of the Underlying Shares and Warrant Shares shall have been filed with,
and declared effective by, the Commission. If for any reason the Company is not
eligible to register the resale of the Underlying Shares and the Warrant Shares
by the Lender under Form SB-2, the Company covenants and agrees to register the
resale of the Underlying Shares and Warrant Shares on Form S-1 promulgated under
the Securities Act.
4.17 Limitation on Issuance of Future Priced Securities. During the twelve
(12) months following the first Closing Date, the Company shall not issue any
security that would be a "Future Priced Securities" as such term is described by
NASD IM-4350-1, that would have a conversion price lower than $0.15 per share or
exercise price lower than $0.25 per share.
4.18 Lender's Oversight Right. The Lender shall have the right to appoint a
member to the board of directors or otherwise audit the board meetings. The
Lender shall have the power to veto any expense or investment in the amount
exceeding US$100,000. The Company shall make its executives and financial
records available and accessible to the Lender promptly for discussions with the
Company operations and financial conditions.
24
ARTICLE V.
MISCELLANEOUS
5.1 Termination. This Agreement may be terminated prior to Closing:
(a) by written agreement of the Lender and the Company; and
(b) by the Company or the Lender upon written notice to the other, if
the Closing shall not have taken place by 6:30 p.m. Eastern time on [___ ],
2007; provided, that the right to terminate this Agreement under this
Section shall not be available to any Person whose failure to comply with
its obligations under this Agreement has been the cause of or resulted in
the failure of the Closing to occur on or before such time.
Upon a termination in accordance with this Section 5.1, the Company and the
Lender shall not have any further obligation or liability (including as arising
from such termination) to the other except pursuant to Section 4.12.
5.2 Entire Agreement. The Transaction Documents, together with the exhibits
and schedules thereto, contain the entire understanding of the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, discussions, oral or written, with respect to such matters,
which the parties acknowledge have been merged into such documents, exhibits and
schedules.
5.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile (provided the sender
receives a machine-generated confirmation of successful transmission) at the
facsimile number set forth on the signature pages attached hereto prior to 5:30
p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the
date of transmission, if such notice or communication is delivered via facsimile
at the facsimile number set forth on the signature pages attached hereto on a
day that is not a Trading Day or later than 5:30 p.m. (New York City time) on
any Trading Day, (c) the 2nd Trading Day following the date of mailing, if sent
by U.S. nationally recognized overnight courier service, or (d) upon actual
receipt by the party to whom such notice is required to be given. The address
for such notices and communications shall be as set forth on the signature pages
attached hereto.
5.4 Amendments; Waivers. No provision of this Agreement may be waived,
modified, supplemented or amended except in a written instrument signed, in the
case of an amendment, by the Company and the Lender or, in the case of a waiver,
by the party against whom enforcement of any such waiver is sought. No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right.
25
5.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party. This Agreement
shall be construed as if drafted jointly by the parties, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement or any of the Transaction
Documents.
5.6 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Lender. The Lender may assign any or
all of its rights under this Agreement to any Person to whom the Lender assigns
or transfers any Securities, provided such transferee agrees in writing to be
bound, with respect to the transferred Securities, by the provisions hereof that
apply to the Lender.
5.7 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.12 (as to each
Lender Party).
5.8 Dispute Resolution. The parties agree that any dispute or claim,
whether based on contract, tort, discrimination, retaliation, or otherwise,
relating to, arising from, or connected in any manner with this Agreement, if
not amicably settled by the parties, shall be resolved exclusively through final
and binding arbitration under the auspices of the American Arbitration
Association ("AAA") in accordance with the commercial arbitration rules and
supplementary procedures for international commercial arbitration of the AAA.
The arbitration shall be held in New York City. There shall be three
arbitrators: one arbitrator shall be chosen by each party to the dispute and
those two arbitrators shall choose the third arbitrator. Each party shall
cooperate with the other in making full disclosure of and providing complete
access to all information and documents requested by the other party in
connection with the arbitration proceedings. Arbitration shall be the sole,
binding, exclusive and final remedy for resolving any dispute between the
parties; provided, however, that either party may apply to any court of
competent jurisdiction in the State of New York for enforcement of any award
granted by the arbitrators. The arbitrators shall have jurisdiction to determine
any claim, including the arbitrability of any claim, submitted to them. The
arbitrators may grant any relief authorized by law for any properly established
claim. The interpretation and enforceability of this paragraph of this Agreement
shall be governed and construed in accordance with the United States Federal
Arbitration Act, 9. U.S.C. ss.1, et seq.
5.9 Survival. The representations, warranties, covenants and other
agreements contained herein shall survive the Closing and the delivery, exercise
and/or conversion of the Securities, as applicable for the applicable statue of
limitations.
26
5.10 Execution. This Agreement may be executed in two or more counterparts,
all of which when taken together 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, it being understood that both parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
5.11 Severability. If any provision of this Agreement is held to be invalid
or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
5.12 Replacement of Securities. If any certificate or instrument evidencing
any Securities is mutilated, lost, stolen or destroyed, the Company shall issue
or cause to be issued in exchange and substitution for and upon cancellation
thereof, or in lieu of and substitution therefor, a new certificate or
instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
5.13 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Lender and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
5.14 Payment Set Aside. To the extent that the Company makes a payment or
payments to the Lender pursuant to any Transaction Document or the Lender
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
5.15 Out-of-Pocket Expenses. Reasonable out-of-pocket expenses incurred in
connection with the Total Commitment, including legal, audit, stamp duties and
due diligence expenses directly related to the Total Commitment shall be borne
by the Company up to and not exceeding US$20,000.00.
27
5.16 Construction. The parties agree that each of them and/or their
respective counsel has reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto.
5.17 Limitation of Liability. Notwithstanding anything herein to the
contrary, the Company acknowledges and agrees that the liability of the Lender
arising directly or indirectly, under any Transaction Document of any and every
nature whatsoever shall be satisfied solely out of the assets of the Lender, and
that no trustee, officer, other investment vehicle or any other Affiliate of the
Lender or any investor, shareholder or holder of shares of beneficial interest
of the Lender shall be personally liable for any liabilities of the Lender.
(Signature Pages Follow)
28
IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
NAVSTAR MEDIA HOLDINGS, INC. Address for Notice:
-------------------
China
Fax:
By:____________________________
Name:
Title:
TS Telver Sky Partners, L.P.
By: Telver Limited
--------------
Name:
Title:
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
29
Annex A
CLOSING STATEMENT
Pursuant to the attached Securities Purchase Agreement, dated as of the date
hereto, the Lender shall purchase the Note and Warrants from Navstar Media
Holdings, Inc. (the "Company"). All funds will be wired into a trust account
maintained by ____________, counsel to the Company. All funds will be disbursed
in accordance with this Closing Statement.
Disbursement Date: __________ ___, 2007
I. PURCHASE PRICE
Gross Proceeds to be Received in Trust $
II. DISBURSEMENTS
$
$
$
$
$
Total Amount Disbursed: $
WIRE INSTRUCTIONS:
To: _____________________________________
To: _____________________________________
30
ANNEX A
COLLATERAL
As used in this Agreement, the term Collateral means all of the Company's
assets , including its direct and indirect ownership interest in its direct and
indirect subsidiaries, now existing or hereinafter acquired, including but not
limited to cash, accounts receivable, inventory, equipment, furniture, fixtures,
general intangibles, patents, contract rights and all proceeds therefrom.
31
