EXHIBIT 10.23(a)
PURCHASE AGREEMENT
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THIS PURCHASE AGREEMENT ("Agreement") is made as of the ________ day
of December 1999 by and between ImaginOn, Inc., a corporation organized under
the laws of Delaware, USA with headquarters located at 0000 Xxxxxx Xxxxxx, Xxxxx
Xx. 0, Xxx Xxxxxx, XX 00000, XXX (the "Company"), and the Investors set forth on
the signature page affixed hereto (each an "Investor" and collectively the
"Investors").
Recitals
A. The Company and the Investors are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("Regulation D"), as promulgated by the U.S.
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 Act");
B. Each Investor wishes to purchase, and the Company wishes to sell
and issue to each Investor, upon the terms and conditions stated in this
Agreement, certain of the Company's shares of Common Stock, par value $0.01 per
share (the "Common Stock") and warrants to acquire shares of Common Stock in the
form attached hereto as Exhibit A (the "Warrants"); and
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C. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
in the form attached hereto as Exhibit B (the "Registration Rights Agreement"),
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pursuant to which the Company has agreed to provide certain registration rights
under the 1933 Act, and the rules and regulations promulgated thereunder, and
applicable state securities laws;
In consideration of the mutual promises made herein and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. In addition to those terms defined above and elsewhere in
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this Agreement, for the purposes of this Agreement, the following terms shall
have the meanings here set forth:
1.1 "Affiliate" means, with respect to any Person, any other Person
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which directly or indirectly controls, is controlled by, or is under common
control with, such Person.
1.2 "Agreements" means this Agreement, the Registration Rights
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Agreement, and the Warrants.
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1.3 "Closing" means the consummation of the transactions contemplated
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by this Agreement, and "Closing Date" means the date of such Closing.
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1.4 "Control" means the possession , direct or indirect, of the power
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to direct or cause the direction of the management and policies of a person,
whether through the ownership of voting securities, by contract or otherwise.
1.5 "Market Price" means the average of the lowest ten (10) closing
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bid prices of the Common Stock over the immediately preceding forty (40) trading
days before the date hereof as reported by Nasdaq Small Cap Market ("the Nasdaq
Stock Market").
1.6 "Material Adverse Effect" means a material adverse effect on the
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(i) condition (financial or otherwise), business, assets, or results of
operations of the Company and its subsidiaries, taken as a whole; (ii) ability
of the Company to perform any of its material obligations under the Agreements;
or (iii) rights and remedies of the Investor under the Agreements.
1.7 "Person" means an individual, corporation, partnership, trust,
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business trust, association, joint stock company, joint venture, pool,
syndicate, sole proprietorship, unincorporated organization, governmental
authority or any other form of entity not specifically listed herein.
1.8 "SEC Filings" has the meaning set forth in Section 4.6.
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1.9 "Securities" means the Shares, the Warrants and the Warrant
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Shares (defined below).
1.10 "Shares" means the shares of Common Stock being purchased by the
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Investors hereunder.
1.11 "Warrant Shares" means the shares of Common Stock issuable upon
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exercise of or otherwise pursuant to the Warrants.
1.12 "1933 Act" means the Securities Act of 1933, as amended, and the
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rules and regulations promulgated thereunder.
1.13 "1934 Act" means the Securities Exchange Act of 1934, as
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amended, and the rules and regulations promulgated thereunder.
2. Purchase and Sale of the Shares and Warrants. Subject to the terms and
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conditions of this Agreement, each of the Investors hereby severally, and not
jointly, agrees to purchase and the Company hereby agrees to sell and issue to
the Investors, the number of Shares and Warrants to purchase the number of
shares of Common Stock set forth on such Investor's signature page attached
hereto. The number of Shares to be purchased by the Investors shall be
determined by dividing the Investor's aggregate purchase price (as the aggregate
purchase price is set forth on Investor's signature page attached hereto), by an
amount equal to the Market Price of the Common Stock on the date hereof (the
"Purchase Price"). The number of shares of Common
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Stock purchasable by each Investor pursuant to the Warrants shall be equal to
40% of the number of Shares purchased by each Investor, with an initial exercise
price equal to 125% of the Market Price on the date hereof.
3. Closing. On the date of this Agreement, the Purchase Price shall be
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determined. The Company shall promptly deliver to Investors' counsel, on the
date hereof, in trust, (i) the Warrants and a certificate registered in such
name or names as each Investor may designate, representing all of the Shares,
and (ii) payment in full of the fees and expenses referred to in Section 11.5(b)
and (c) below, with instructions that such certificates, Warrants and dollar
amounts are to be held for release to each Investor only upon payment of the
aggregate Purchase Price to the Company. Upon receipt by counsel to the
Investors of the certificates, the Warrants and dollar amounts, the Investors
shall promptly cause a wire transfer in same day funds to be sent to the account
of the Company as instructed in writing by the Company, in amounts representing
the Investor's aggregate Purchase Price. On the date the Company receives such
funds, the certificates evidencing the Shares and the Warrants shall be released
to the Investors and the dollar amounts shall be released to the payees as
contemplated by Section 11.5(b) (and such date shall be deemed the "Closing
Date").
4. Representations and Warranties of the Company. The Company hereby
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represents and warrants to the Investors that:
4.1 Organization, Good Standing and Qualification. The Company is a
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corporation duly incorporated, validly existing and in good standing under the
laws of Delaware and has all requisite power and authority to carry on its
business and own its properties as now conducted and owned. The Company is duly
qualified or licensed to do business as a foreign corporation and is in good
standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property makes such qualification or licensing necessary
unless the failure to so qualify or be licensed would not have a Material
Adverse Effect. Schedule 4.1 lists all subsidiaries of the Company. Except
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when the context otherwise requires, representations and warranties in this
Section 4 by the Company shall be deemed to include representations and
warranties as to its subsidiaries as well.
4.2 Authorization. The Company has full power and authority and has
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taken all requisite action on the part of the Company, its officers, directors
and stockholders necessary for (i) the authorization, execution and delivery of
the Agreements, (ii) the performance of all obligations of the Company hereunder
or thereunder, and (iii) the authorization, issuance (or reservation for
issuance) and delivery of the Securities. The Agreements constitute the legal,
valid and binding obligations of the Company, enforceable against the Company in
accordance with their terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability,
relating to or affecting creditors' rights generally.
4.3 Capitalization. Set forth on Schedule 4.3 hereto is (a) the
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authorized capital stock of the Company on the date hereof; (b) the number of
shares of capital stock issued and outstanding; (c) the number of shares of
capital stock issuable pursuant to the Company's stock plans; and (d) the number
of shares of capital stock issuable and reserved for issuance pursuant to
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securities (other than the Shares and the Warrants) exercisable for, or
convertible into or exchangeable for any shares of capital stock. All of the
issued and outstanding shares of the Company's capital stock have been duly
authorized and validly issued and are fully paid, nonassessable and free of
preemptive rights. Except as set forth on Schedule 4.3, no Person is entitled
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to preemptive or similar statutory or contractual rights with respect to any
securities of the Company, including the Shares, the Warrants and the Warrant
Shares. Except as set forth on Schedule 4.3, there are no outstanding warrants,
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options, convertible securities or other rights, agreements or arrangements of
any character under which the Company is or may be obligated to issue any equity
securities of any kind, or to transfer any equity securities of any kind; and
except as contemplated by this Agreement or as set forth on Schedule 4.3, the
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Company does not have any present plan or intention to issue any equity
securities of any kind, or to transfer any equity securities of any kind owned
by it. Except as set forth on Schedule 4.3, the Company does not know of any
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voting agreements, buy-sell agreements, option or right of first purchase
agreements or other agreements of any kind among any of the securityholders of
the Company relating to the securities held by them. Except as set forth on
Schedule 4.3, the Company has not granted any Person the right to require the
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Company to register any securities of the Company under the 1933 Act, whether on
a demand basis or in connection with the registration of securities of the
Company for its own account or for the account of any other Person.
4.4 Valid Issuance. The Company has reserved a sufficient number of
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shares of Common Stock for issuance pursuant to this Agreement and upon exercise
of the Warrants. The Company will take such steps as may be necessary to
reserve sufficient shares for issuance pursuant to Section 7 below when such
issuance is determinable. The Shares and Warrants are duly authorized, and such
Securities, along with the Warrant Shares when issued in accordance herewith and
with the terms of the Warrants, will be duly authorized, validly issued, fully
paid, non-assessable and free and clear of all encumbrances and restrictions,
except for restrictions on transfer imposed by applicable securities laws.
4.5 Consents. The execution, delivery and performance by the Company
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of the Agreements and the offer, issuance and sale of the Securities require no
consent of, action by or in respect of, or filing with, any Person, governmental
body, agency, or official other than (i) filings that have been made pursuant to
applicable state securities laws and the requirements of the Nasdaq Stock Market
and (ii) post-sale filings pursuant to applicable state and federal securities
laws and the requirements of the Nasdaq Stock Market which the Company
undertakes to file within the applicable time periods.
4.6 Delivery of SEC Filings; Business. The Company has provided the
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Investors with copies of the Company's most recent Annual Report on Form 10K for
the fiscal year ended December 31, 1998, and all other reports filed by the
Company pursuant to the 1934 Act since the filing of the Annual Report on Form
10K (collectively, the "SEC Filings"). The Company is engaged only in the
business described in the SEC Filings and the SEC Filings contain a complete and
accurate description of the business of the Company. The Company has not
provided to the Investors (i) any information required to be filed under the
1934 Act that has not been so filed or (ii) any non-public information.
4.7 Use of Proceeds. The proceeds of the sale of the Securities
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hereunder shall be
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used by the Company for working capital and general corporate purposes.
4.8 No Material Adverse Change. Except as set forth in Schedule 4.8,
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since the filing of the Company's most recent Annual Report on Form 10K or as
otherwise identified and described in subsequent reports filed by the Company
pursuant to the 1934 Act, there has not been:
(i) any change in the consolidated assets, liabilities,
financial condition or operating results of the Company from that reflected in
the financial statements included in the Company's most recent Report on Form
10Q, except changes in the ordinary course of business which have not had, in
the aggregate, a Material Adverse Effect;
(ii) any declaration or payment of any dividend, or any
authorization or payment of any distribution, on any of the capital stock of the
Company, or any redemption or repurchase of any securities of the Company;
(iii) any material damage, destruction or loss, whether or
not covered by insurance to any assets or properties of the Company or any of
its subsidiaries;
(iv) any waiver by the Company of a valuable right or of a
material debt owed to it;
(v) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and which is not material to the assets, properties,
financial condition, operating results or business of the Company taken as a
whole (as such business is presently conducted and as it is proposed to be
conducted);
(vi) any material change or amendment to a material
contract or arrangement by which the Company or any of its assets or properties
is bound or subject;
(vii) any labor difficulties or labor union organizing
activities with respect to employees of the Company;
(viii) any transaction entered into by the Company other than
in the ordinary course of business; or
(ix) any other event or condition of any character that
might have a Material Adverse Effect.
4.9 SEC Filings; Material Contracts.
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(a) As of its filing date, each report filed by the
Company with the SEC pursuant to the 1934 Act, complied as to form in all
material respects with the requirements of the 1934 Act and did 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 the light of the circumstances
under which they were made, not misleading.
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(b) Each registration statement and any amendment thereto
filed by the Company pursuant to the 1933 Act and the rules and regulations
thereunder, as of the date such statement or amendment became effective,
complied as to form in all material respects with the 1933 Act and did not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; and
each prospectus filed pursuant to Rule 424(b) under the 1933 Act, as of its
issue date and as of the closing of any sale of securities pursuant thereto did
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 the
light of the circumstances under which they were made, not misleading.
(c) Except as set forth on Schedule 4.3 hereto, there are no
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agreements or instruments currently in force and effect that constitute a
warrant, option, convertible security or other right, agreement or arrangement
of any character under which the Company is or may be obligated to issue any
material amounts of any equity security of any kind, or to transfer any material
amounts of any equity security of any kind.
4.10 Form S-3 Eligibility. Although the Company is not currently
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eligible to register the resale of its Common Stock on a registration statement
on Form S-3 under the 1933 Act, the Company will be eligible to register said
resales on Form S-3 under the 1933 Act on and after, June 28, 2000, assuming
compliance by the Company with its reporting requirements under the 1934 Act.
4.11 No Conflict, Breach, Violation or Default. (a) The execution,
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delivery and performance of the Agreements by the Company and the issuance and
sale of the Securities will not conflict with or result in a breach or violation
of any of the terms and provisions of, or constitute a default under (i) the
Company's Certificate of Incorporation ("Articles") or Bylaws, each as in effect
on the date hereof, or (ii) except where it would not have a Material Adverse
Effect, (a) any statute, rule, regulation or order of any governmental agency or
body or any court, domestic or foreign, having jurisdiction over the Company or
any of its properties, or (b) any agreement or instrument to which the Company
is a party or by which the Company is bound or to which any of the properties of
the Company are subject.
(a) Except as set forth on Schedule 4.11 hereto, or where it
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would not have a Material Adverse Effect, the Company (i) is not in violation of
any statute, rule or regulation applicable to the Company or its assets, (ii) is
not in violation of any judgment, order or decree applicable to the Company or
its assets; and (iii) is not in breach or violation of any agreement, note or
instrument to which it or its assets are a party or are bound. The Company has
not received notice from any Person of any claim or investigation that, if
adversely determined, would render the preceding sentence untrue or incomplete.
4.12 Tax Matters. The Company has correctly and timely prepared and
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filed or timely obtained extensions for, all tax returns required to have been
filed by it with all appropriate governmental agencies and timely paid all taxes
owed by it. The charges, accruals and reserves on the books of the Company in
respect of taxes for all fiscal periods are adequate in all material respects,
and there are no material unpaid assessments of the Company nor, to the
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knowledge of the Company, any basis for the assessment of any additional taxes,
penalties or interest for any fiscal period or audits by any federal, state or
local taxing authority except such as which are not material. All material
taxes and other assessments and levies that the Company is required to withhold
or to collect for payment have been duly withheld and collected and paid to the
proper governmental entity or third party. There are no tax liens or claims
pending or threatened against the Company or any of its assets or property.
There are no outstanding tax sharing agreements or other such arrangements
between the Company and any other corporation or entity.
4.13 Title to Properties. Except as disclosed in the SEC Filings,
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the Company has good and marketable title to all real properties and all other
properties and assets owned by it, in each case free from liens, encumbrances
and defects that would materially affect the value thereof or materially
interfere with the use made or currently planned to be made thereof by them; and
except, as disclosed in the SEC Filings, the Company holds any leased real or
personal property under valid and enforceable leases with no exceptions that
would materially interfere with the use made or currently planned to be made
thereof by them.
4.14 Certificates, Authorities and Permits. The Company possesses
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adequate certificates, authorizations or permits issued by appropriate
governmental agencies or bodies necessary to conduct its business as presently
operated and has not received any written notice of proceedings relating to the
revocation or modification of any such certificate, authority or permit that, if
determined adversely to the Company, would individually or in the aggregate have
a Material Adverse Effect.
4.15 No Labor Disputes. No labor dispute with the employees of the
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Company or any subsidiary exists or, to the knowledge of the Company, is
imminent.
4.16 Intellectual Property. Except as set forth on Schedule 4.16,
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the Company owns or possesses adequate trademarks and trade names and have all
other rights to inventions, know-how, patents, copyrights, trademarks, trade
names, confidential information and other intellectual property (collectively,
"Intellectual Property Rights"), free and clear of all liens, security
interests, charges, encumbrances, equities and other adverse claims, necessary
to conduct the business now operated by it, or presently employed by it, and
presently contemplated to be operated by it, and has not received any notice of
infringement of or conflict with asserted rights of others with respect to any
Intellectual Property Rights. Schedule 4.16 sets forth a list by serial number
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and title of the patents and/or patent applications owned or possessed by the
Company. No proprietary technology of any Person was used in the design or
development by the Company of (or otherwise with respect to) any of the
Intellectual Property Rights, which technology was not properly acquired or
licensed by the Company from such Person.
4.17 Environmental Matters. The Company is not in violation of any
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statute, rule, regulation, decision or order of any governmental agency or body
or any court, U.S. or foreign, relating to the use, disposal or release of
hazardous or toxic substances or relating to the protection or restoration of
the environment or human exposure to hazardous or toxic substances
(collectively, "Environmental Laws"), does not own or operate any real property
contaminated with any substance that is subject to any Environmental Laws, is
not liable for any off-site
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disposal or contamination pursuant to any Environmental Laws, and is not subject
to any claim relating to any Environmental Laws, which violation, contamination,
liability or claim would individually or in the aggregate have a Material
Adverse Effect; and the Company is not aware of any pending investigation that
might lead to such a claim.
4.18 Litigation. Except as disclosed in the SEC Filings, there are
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no pending actions, suits or proceedings against or affecting the Company, or
any of its properties that, if determined adversely to the Company, would
individually or in the aggregate have a Material Adverse Effect or would
materially and adversely affect the ability of the Company to perform its
obligations under the Agreements, or which are otherwise material in the context
of the sale of the Securities; and to the Company's knowledge, no such actions,
suits or proceedings are threatened or contemplated.
4.19 Financial Statements. The financial statements included in each
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SEC Filing present fairly and accurately the consolidated financial position of
the Company as of the dates shown and its results of operations and cash flows
for the periods shown, and such financial statements have been prepared in
conformity with generally accepted accounting principles applied on a consistent
basis. Except as set forth on Schedule 4.19 or in the financial statements of
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the Company included in the SEC Filings filed prior to the date hereof, the
Company has no liabilities, contingent or otherwise, except those which
individually or in the aggregate are not material to the financial condition or
operating results of the Company.
4.20 Insurance Coverage. The Company maintains in full force and
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effect insurance coverage that is customary for comparably situated companies
for the business being conducted, and properties owned or leased, by the
Company, and the Company reasonably believes such insurance coverage to be
adequate against all liabilities, claims and risks against which it is customary
for comparably situated companies to insure.
4.21 Compliance with Nasdaq Continued Listing Requirements. The
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Company is in compliance with all applicable Nasdaq continued listing
requirements for the Nasdaq Stock Market. There are no proceedings pending or,
to the Company's knowledge, threatened against the Company relating to the
continued listing of the Company's Common Stock on the Nasdaq Stock Market and
the Company has not received any notice of, nor to the knowledge of the Company
is there any basis for, the delisting of the Common Stock from the Nasdaq Stock
Market.
4.22 Acknowledgement of Dilution. The number of shares of Common
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Stock issuable pursuant to this Agreement may increase significantly. The
Company's executive officers and directors have studied and fully understand the
nature of the transactions being contemplated hereunder and recognize that they
have a potential dilutive effect.
4.23 Brokers and Finders. The Investors shall have no liability or
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responsibility for the payment of any commission or finder's fee to any third
party in connection with or resulting from this agreement or the transactions
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contemplated by this Agreement by virtue of any agreement made by the Company to
a third party, and except a fee payable to Ladenburg Xxxxxxx & Co. of five
percent (5%) of the aggregate purchase price, the Company shall have no
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such liability or responsibility for any such commission or finder's fee.
4.24 No Directed Selling Efforts or General Solicitation. Neither
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the Company nor, to its knowledge, any Person acting on its behalf has conducted
any general solicitation or general advertising (as those terms are used in
Regulation D) in connection with the offer or sale of any of the Securities.
4.25 No Integrated Offering. Neither the Company nor any of its
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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 adversely affect reliance by
the Company on Section 4(2) for the exemption from registration for the
transactions contemplated hereby or would require registration of the Securities
under the 1933 Act; or would require the integration of this offering with any
other offering of securities for purposes of determining the need to obtain
shareholder approval of the transactions contemplated hereby under the rules of
the Nasdaq Stock Market.
4.26 Disclosures. No representation or warranty made under any
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Section hereof and no information furnished by the Company pursuant hereto, or
in any other document, certificate or statement furnished by the Company to the
Investors or any authorized representative of the Investors, pursuant to the
Agreements or in connection therewith, contains any untrue statement of a
material fact or omits to state a material fact necessary to make the respective
statements contained herein or therein, in light of the circumstances under
which the statements were made, not misleading.
5. Representations and Warranties of the Investor. Each of the Investors
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hereby severally, and not jointly, represents and warrants to the Company that:
5.1 Organization and Existence. The Investor is a validly existing
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company and has all requisite corporate or limited liability company power and
authority to invest in the Securities pursuant to this Agreement.
5.2 Authorization. The execution, delivery and performance by the
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Investor of the Agreements have been duly authorized and the Agreements will
each constitute the valid and legally binding obligation of the Investor,
enforceable against the Investor in accordance with their terms.
5.3 Purchase Entirely for Own Account. The Securities to be received
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by the Investor hereunder will be acquired for the Investor's own account, not
as nominee or agent, and not with a view to the resale or distribution of any
part thereof in violation of securities laws, and the Investor has no present
intention of selling, granting any participation in, or otherwise distributing
the same in violation of securities laws. The Investor is not a registered
broker dealer or an entity engaged in the business of being a broker or dealer.
5.4 Investment Experience. The Investor acknowledges that it can
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bear the economic risk and complete loss of its investment in the Securities and
has such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of
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the investment contemplated hereby.
5.5 Disclosure of Information. The Investor has had an opportunity
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to receive documents related to the Company and to ask questions of and receive
answers from the Company regarding the Company, its business and the terms and
conditions of the offering of the Securities. Neither such inquiries nor any
other due diligence investigation conducted by the Investor shall modify, amend
or affect the Investor's right to rely on the Company's representations and
warranties contained in this Agreement or made pursuant to this Agreement.
5.6 Restricted Securities. The Investor understands that the
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Securities are characterized as "restricted securities" under the U.S. federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the 1933 Act only in certain limited circumstances.
5.7 Legends. It is understood that, until registration for resale
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pursuant to the Registration Rights Agreement or until sales under Rule 144 are
permitted, certificates evidencing the Securities will bear one or all of the
following legends or legends substantially similar thereto:
"These securities have not been registered under the Securities Act of
1933, as amended (the "Act"), and may not be offered, sold, pledged,
hypothecated, assigned or transferred except (i) pursuant to a registration
statement under the Act which has become effective and is current with respect
to these securities, or (ii) pursuant to a specific exemption from registration
under the Act but only upon a holder hereof first having obtained the written
opinion of counsel to the Corporation, or other counsel reasonably acceptable to
the Corporation, that the proposed disposition is consistent with all applicable
provisions of the Act."
Upon registration for resale pursuant to the Registration Rights
Agreement (and provided the registration statement covering such resales is
current and effective) or when sale of the Shares or Warrant Shares under Rule
144(k) are permitted, the Company shall promptly cause certificates evidencing
the Shares or Warrant Shares, as applicable, previously issued hereunder (or to
be issued hereunder) to be replaced with certificates which do not bear such
restrictive legends.
5.8 Accredited Investor. The Investor is an accredited investor as
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defined in Rule 501(a) of Regulation D, as amended, under the 0000 Xxx.
5.9 No General Solicitation. The Investor did not learn of the
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investment in the Securities as a result of any public advertising or general
solicitation.
6. Registration Rights Agreement. The parties acknowledge and agree that
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part of the inducement for the Investors to enter into this Agreement is the
Company's execution and delivery of the Registration Rights Agreement. The
parties acknowledge and agree that simultaneously with the execution hereof, the
Registration Rights Agreement is being duly executed and delivered by the
parties thereto.
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7. Covenants and Agreements of the Company.
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7.1 Subsequent Sale at Lower Price.
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(a) Required Adjustments. Subject to the exclusions
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contained in Section 7.1(f) below, if during the period ending on the later of
(i) twenty-four (24) months following the Closing Date or (ii) twenty-one (21)
months following the effective date of the Registration Statement contemplated
by the Registration Rights Agreement (the "MFN Period"), the Company sells any
shares of its Common Stock at a per share selling price ("Per Share Selling
Price") lower than the Purchase Price per share set forth in Section 2 hereof,
the Purchase Price per share of the Shares originally sold to the Investors
hereunder shall be adjusted downward to equal such lower Per Share Selling Price
and each Investor shall be entitled to receive the additional shares as provided
by Section 7.1(c); provided, however, if the Investor then owns less than 70% of
the Shares originally acquired by it hereunder, such Investor shall be entitled
to additional shares only with respect to the number of Shares originally
acquired and then owned by the Investor as provided in Section 7.1(c). For so
long as any Investor owns 70% or more of the Shares originally acquired by such
Investor hereunder, the Investor shall be entitled to the full benefit of the
Purchase Price adjustment required by this Section 7.1. The Company shall give
to the Investors written notice of any such sale within 24 hours of the closing
of any such sale and shall within such 24 hour period issue a press release
announcing such sale.
(b) Definitions.
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(i) For the purposes of this Section 7.1, the
term "Per Share Selling Price" as used in this Section 7.1 shall include the
amount actually paid by third parties for each share of Common Stock; in the
event a fee is paid by the Company in connection with the transaction, any such
fee shall be deducted from the selling price pro rata to all shares sold in the
transaction to arrive at the Per Share Selling Price. A sale of shares of Common
Stock shall include the sale or issuance of rights, options, warrants or
convertible securities ("derivative securities") under which the Company is or
may become obligated to issue shares of Common Stock, and in such circumstances
the sale of Common Stock shall be deemed to have occurred at the time of the
issuance of the derivative securities and the Per Share Selling Price of the
Common Stock covered thereby shall also include the exercise or conversion price
thereof (in addition to the consideration received by the Company upon such sale
or issuance less the fee amount as provided above). In case of any such security
issued within the MFN Period in a "Variable Rate Transaction" or an "MFN
Transaction" (each as defined below), the Per Share Selling Price shall be
deemed to be the lowest conversion or exercise price at which such securities
are converted or exercised or might have been converted or exercised in the case
of a Variable Rate Transaction, or the lowest adjustment price in the case of an
MFN Transaction. If shares are issued for a consideration other than cash, the
per share selling price shall be the fair value of such consideration as
determined in good faith by the Board of Directors of the Company.
(ii) The term "Variable Rate Transaction" shall
mean a transaction in which the Company issues or sells (a) any debt or equity
securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional shares of Common
11
Stock either (x) at a conversion, exercise or exchange rate or other price that
is based upon and/or varies with the trading prices of or quotations for the
Common Stock at any time after the initial issuance of such debt or equity
securities, or (y) with a fixed conversion, exercise or exchange price that is
subject to being reset at some future date after the initial issuance of such
debt or equity security or upon the occurrence of specified or contingent events
directly or indirectly related to the business of the Company or the market for
the Common Stock (but excluding customary anti-dilution provisions for forward
or reverse stock splits, stock dividends, reclassifications, recapitalization,
mergers or consolidations or similar adjustments affecting the Company's Common
Stock), or (b) any securities of the Company pursuant to an "equity line"
structure which provides for the sale, from time to time, of securities of the
Company which are registered for resale pursuant to the 1933 Act.
(iii) The term "MFN Transaction" shall mean a transaction in
which the Company issues or sells any securities in a capital raising
transaction or series of related transactions (the "New Offering") which grants
to an investor (the "New Investor") the right to receive additional shares based
upon future transactions of the Company on terms more favorable than those
granted to the New Investor in the New Offering.
(iv) The term "MFN Period" shall have the meaning set forth
in Section 7.1(a), above.
(c) Adjustment Mechanism. If an adjustment of the Purchase
--------------------
Price is required pursuant to Section 7.1(a), the Company shall deliver to the
Investor (at a U.S. delivery address provided in advance to the Company) within
eight calendar days of the closing of the transaction giving rise to the
adjustment or by such other date as may be required by Section 7.1(d) ("Delivery
Date") the Investor's share of such number of additional shares of Common Stock
equal to (i) the aggregate Purchase Price paid by the Investor divided by the
adjusted Per Share Purchase Price as required under Section 7.1(a), minus (ii)
the total number of shares of Common Stock previously delivered to the Investor
hereunder; provided however, that the Company shall delay effecting such
----------------
adjustment, in whole or in part, to the extent required by Section 7.1(d). If
the Company fails to deliver the additional shares by the applicable Delivery
Date, the Company shall be liable to the Investor for a delay payment equal to
2% of the Purchase Price per month payable in Common Stock or cash, at the
Investor's election. If at the time of any adjustment the proviso of the first
sentence of Section 7.1(a) is applicable, then the number of additional shares
otherwise determined as deliverable under this Section 7.1(c) shall be adjusted
so that it is equal to such number, multiplied by a fraction, the numerator of
which is the number of Shares acquired on the Closing Date and still owned at
the time of the adjustment and the denominator is the total number of Shares
acquired on the Closing Date.
(d) Limitation on Number of Shares.
------------------------------
(i) If by way of any adjustment required by
this Section 7.1, an Investor would receive a number of shares of Common Stock
such that the total number of such shares beneficially owned (within the meaning
of Section 13(d) of the 0000 Xxx) by the Investor as of the date of such
adjustment would be greater than 9.90% but less than 13.0% of the total
outstanding Common Stock of the Company, then the Company shall not effect the
adjustment
12
required by this Section to the extent necessary to avoid causing the aforesaid
limitation to be exceeded until 120 days following the date such adjustment
would have otherwise been made.
(ii) If by way of any adjustment required by this
Section 7.1, an Investor would receive a number of shares of Common Stock such
that the total number of such shares held by the Investor as of the date of such
adjustment would equal or exceed 13.0% of the total outstanding Common Stock of
the Company, then the Company shall not effect the adjustment required by this
Section to the extent necessary to avoid causing the aforesaid limitation to be
exceeded until 180 days following the date such adjustment would have otherwise
been made.
(iii) In no event shall the Company issue to an
Investor additional shares pursuant to an adjustment required by this Section
7.1 such that the total number of shares issued to the Investor (when added to
the Warrant Shares) would exceed 19.9% of the Company's issued and outstanding
shares of Common Stock on the date hereof. Instead, the Company shall redeem
such excess shares at 120% of the Per Share Purchase Price, as adjusted. Only
shares acquired pursuant to this Agreement will be included in determining
whether the limitations would be exceeded for purposes of this Section
7.1(d)(iii).
(iv) The time periods in paragraphs (i) (120 days)
and (ii) (180 days) above shall be extended one (1) day for each day, prior to
the time that sales under Rule 144(k) would be permitted, that sales under the
Registration Statement contemplated by the Registration Rights Agreement may not
be made.
(e) Capital Adjustments. In case of any stock split or reverse stock
-------------------
split, stock dividend, reclassification of the common stock, recapitalization,
merger or consolidation, or like capital adjustment affecting the Common Stock
of the Company, the provisions of Section 7.1 shall be applied in a fair,
equitable and reasonable manner so as to give effect, as nearly as may be, to
the purposes hereof.
(f) Exclusions. Section 7.1(a) shall not apply to (i) sales of shares
----------
of Common Stock by the Company upon conversion or exercise of any convertible
securities, options or warrants outstanding prior to the date hereof; or (ii)
sales of shares of Common Stock by the Company pursuant to the provisions of any
shareholder-approved option or similar plan heretofore adopted by the Company.
7.2 Limitation on Transactions.
--------------------------
(a) Until the date of effectiveness of the registration statement
contemplated by the Registration Rights Agreement, without the prior written
consent of the Investors (which consent may be withheld in the Investors'
discretion), the Company shall not (i) issue or sell or agree to issue or sell
any securities for cash in a non-public MFN Transaction; or (ii) issue or sell,
or agree to issue or sell, any securities for cash in a non-public Variable Rate
Transaction.
(b) During the period after effectiveness of the registration
statement
13
contemplated by the Registration Rights Agreement and until the expiration of
the MFN Period, without the prior written consent of the Investors (which
consent may be withheld in the Investors' discretion), the Company shall not (i)
issue or sell or agree to issue or sell any securities for cash in a non-public
MFN Transaction; or (ii) issue or sell, or agree to issue or sell, any
securities for cash in a non-public Variable Rate Transactions.
(c) The Company shall not issue any securities in any
transaction that would be integrated with the Securities issued pursuant to this
Agreement.
7.3 Right of Investors to Participate in Future Transactions. The
--------------------------------------------------------
Company agrees that during the MFN Period the Investors will have a right to
participate in future non-public capital raising transactions as set forth in
this Section 7.3. The Company shall give advance written notice to the
Investors prior to any offer or sale of any of its equity securities or any
securities convertible into or exchangeable or exercisable for such securities
in a non-public capital raising transaction. Prior to the closing of any such
transaction, the Investors shall have the right to participate in up to 50% of
such new offering (or in the case of a Variable Rate Transaction, up to 75% of
such new offering) and purchase such securities for the same consideration and
on the same terms and conditions as contemplated for such third-party sale. To
exercise this right, an Investor must give written notice to the Company of the
Investor's election to participate and such notice must be given within ten (10)
days following receipt of the notice from the Company. If the Company gives
notice to the Investors of an expected transaction pursuant to this Section 7.3
but cannot consummate such transaction, the Company will give the Investors
prompt written notice of the cancellation of such transaction. If, subsequent
to the Company giving notice to the Investors hereunder, the terms and
conditions of the proposed third-party sale are changed in any way, the Company
shall be required to provide a new notice to the Investors hereunder and the
Investors shall have the right to participate in the offering on such changed
terms and conditions as provided hereunder.
7.4 Opinion of Counsel. On or prior to the Closing Date, the Company
------------------
will deliver to the Investors the opinions of independent legal counsel to the
Company, in form and substance reasonably acceptable to the Investors,
addressing those legal matters set forth in Schedule 7.4 hereto.
------------
7.5 Reservation of Common Stock Pursuant to Section 7.1 and Exercise
----------------------------------------------------------------
of Warrants. The Company hereby agrees, at all times with respect to shares
-----------
issuable upon exercise of the Warrants, and at all appropriate times with
respect to shares issuable pursuant to Section 7.1, to reserve and keep
available out of its authorized but unissued shares of Common Stock, solely for
the purpose of providing for the additional issuance(s) of Common Stock pursuant
to Section 7.1 and exercise of the Warrants, such number of shares of Common
Stock as shall from time to time equal the number of shares sufficient to permit
the issuance, if any, required pursuant to Section 7.1 plus the number of shares
of Common Stock as shall be necessary to permit the exercise of the Warrants in
accordance with the terms of the Warrants.
7.6 Reports. Within one week of filing the following reports with
-------
the SEC, or in the absence of such filing within the time periods specified
below, the Company shall send a copy of the following reports to each Investor
by regular mail:
14
(a) Quarterly Reports. As soon as available the Company's quarter-
-----------------
annual report on Form 10-Q or, in the absence of such report, consolidated
balance sheets of the Company and its subsidiaries as at the end of such period
and the related consolidated statements of operations, stockholders' equity and
cash flows for such period and for the portion of the Company's fiscal year
ended on the last day of such quarter, prepared in accordance with the rules and
regulations promulgated by the SEC.
(b) Annual Reports. As soon as available after the end of each fiscal
--------------
year of the Company, the Company's Form 10K or, in the absence of a Form 10K,
consolidated balance sheets of the Company and its subsidiaries as at the end of
such year and the related consolidated statements of earnings, stockholders'
equity and cash flows for such year, all in reasonable detail and accompanied by
the report on such consolidated financial statements of an independent certified
public accountant selected by the Company.
(c) Securities Filings. As promptly as practicable and in any event
------------------
within one week after the same are issued or filed, copies of (i) all notices,
proxy statements, financial statements, reports and documents as the Company or
any subsidiary shall send or make available generally to its stockholders or to
financial analysts, and (ii) all periodic and special reports, documents and
registration statements which the Company or any subsidiary furnishes or files,
or any officer or director of the Company or any of its subsidiaries (in such
person's capacity as such) furnishes or files with the SEC.
(d) Other Information. Such other information relating to the Company
-----------------
or its subsidiaries as from time to time may reasonably be requested by the
Investors provided the Company produces such information in its ordinary course
of business, and further provided that the Company, solely in its own
discretion, determines that such information is not confidential in nature and
disclosure to the Investors would not be harmful to the Company.
(e) Rule 144. The Company agrees to make publicly available on a
--------
timely basis the information necessary to enable Rule 144 to be available for
resale.
7.7 Press Releases. Any press release or other publicity concerning this
--------------
Agreement or the transactions contemplated by this Agreement shall be submitted
to the Investors for comment at least two (2) business days prior to issuance,
unless the release is required to be issued within a shorter period of time by
law or pursuant to the rules of a national securities exchange or the Nasdaq
Stock Market. The Company shall issue a press release concerning the fact and
material terms of this Agreement within one business day of the Closing.
7.8 No Conflicting Agreements. The Company will not, and will not permit
-------------------------
its subsidiaries to, take any action, enter into any agreement or make any
commitment that would conflict or interfere in any material respect with the
obligations to the Investors under the Agreements.
7.9 Insurance. For so long as any Investor beneficially owns any of the
---------
Securities, the Company shall, and shall cause each subsidiary to, have in full
force and effect (a) insurance reasonably believed to be adequate on all assets
and activities of a type customarily insured,
15
covering property damage and loss of income by fire or other casualty, and (b)
insurance reasonably believed to be adequate protection against all liabilities,
claims and risks against which it is customary for companies similarly situated
as the Company and the subsidiaries to insure.
7.10 Compliance with Laws. For so long as any Investor beneficially
--------------------
owns any of the Securities, the Company will use reasonable efforts, and will
cause each of its subsidiaries to use reasonable efforts, to comply with all
applicable laws, rules, regulations, orders and decrees of all governmental
authorities, except to the extent non-compliance (in one instance or in the
aggregate) would not have a Material Adverse Effect.
7.11 Listing of Underlying Shares and Related Matters. The Company
------------------------------------------------
hereby agrees, promptly following the Closing of the transactions contemplated
by this Agreement, to take such action to cause the Shares, the Warrant Shares
and the shares of Common Stock issuable under Section 7.1(a) hereof to be listed
on the Nasdaq Stock Market as promptly as possible but no later than the
effective date of the registration contemplated by the Registration Rights
Agreement. The Company further agrees that if the Company applies to have its
Common Stock or other securities traded on any other principal stock exchange or
market, it will include in such application the Common Stock underlying the
Warrants, and will take such other action as is necessary to cause such Common
Stock to be so listed. The Company will take all action necessary to continue
the listing and trading of its Common Stock on the Nasdaq Stock Market and will
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of such exchange, as applicable, to ensure
the continued eligibility for trading of the Shares and the Warrant Shares
thereon.
7.12 Corporate Existence. So long as the Investors beneficially owns
-------------------
any of the Shares or Warrants, the Company shall maintain its corporate
existence, except in the event of a merger, consolidation or sale of all or
substantially all of the Company's assets, as long as the surviving or successor
entity in such transaction (a) assumes the Company's obligations hereunder and
under the agreements and instruments entered into in connection herewith,
regardless of whether or not the Company would have had a sufficient number of
shares of Common Stock authorized and available for issuance in order to fulfill
its obligations hereunder and effect the exercise in full of all Warrants
outstanding as of the date of such transaction; (b) has no legal, contractual or
other restrictions on its ability to perform the obligations of the Company
hereunder and under the agreements and instruments entered into in connection
herewith; and (c) (i) is a publicly traded corporation whose common stock and
the shares of capital stock issuable upon exercise of the Warrants are (or would
be upon issuance thereof) listed for trading on the Nasdaq Stock Market, New
York Stock Exchange or American Stock Exchange, or (ii) if not such a publicly
traded corporation, then the buyer agrees that it will, at the election of an
Investor, purchase such Investor's Shares (and Warrant Shares) then held at a
price equal to 120% of the Per Share Purchase Price of such Shares.
8. Limitation on Investors' Transactions. During the MFN Period, the
-------------------------------------
Investors agree not to, directly or indirectly, participate in or effect any
derivative transactions with respect to any security of the Company that is
listed on a national securities exchange or the Nasdaq Stock Market.
16
9. Survival. All representations, warranties, covenants and agreements
--------
contained in this Agreement shall be deemed to be representations, warranties,
covenants and agreements as of the date hereof and shall survive the execution
and delivery of this Agreement.
10. Arbitration.
-----------
10.1 Scope. Resolution of any and all disputes arising from or in
-----
connection with the Agreements, whether based on contract, tort, common law,
equity, statute, regulation, order or otherwise ("Disputes"), shall be
exclusively governed by and settled in accordance with the provisions of this
Section 10; provided, that the foregoing shall not preclude equitable or other
judicial relief to enforce the provisions hereof or to preserve the status quo
pending resolution of Disputes hereunder.
10.2 Binding Arbitration. The parties hereby agree to submit all
-------------------
Disputes to arbitration for final and binding resolution. Either party may
initiate such arbitration by delivery of a demand therefor (the "Arbitration
Demand") to the other party. The arbitration shall be conducted in New York,
New York by a sole arbitrator selected by agreement of the parties not later
than 10 business days after delivery of the Arbitration Demand, or, failing such
agreement, appointed pursuant to the Commercial Arbitration Rules of the
American Arbitration Association, as amended from time to time (the "AAA
Rules"). If the arbitrator becomes unable to serve, his successor(s) shall be
similarly selected or appointed.
10.3 Procedure. The arbitration shall be conducted pursuant to the
---------
Federal Arbitration Act and such procedures as the parties may agree or, in the
absence of or failing such agreement, pursuant to the AAA Rules.
Notwithstanding the foregoing, (a) each party shall have the right to conduct
limited discovery of information relevant to the Dispute; (b) each party shall
provide to the other, reasonably in advance of any hearing, copies of all
documents that a party intends to present in such hearing; (c) all hearings
shall be conducted on an expedited schedule; and (d) all proceedings shall be
confidential, except that either party may at its expense make a stenographic
record thereof.
10.4 Timing. The arbitrator shall use best efforts to complete all
------
hearings not later than 90 days after his or her selection or appointment, and
shall use best efforts to make a final award not later than 30 days thereafter.
The arbitrator shall apportion all costs and expenses of the arbitration,
including the arbitrator's fees and expenses, and fees and expenses of experts
("Arbitration Costs") between the prevailing and non-prevailing party as the
arbitrator shall deem fair and reasonable. In circumstances where a Dispute has
been asserted or defended against on grounds that the arbitrator deems
manifestly unreasonable, the arbitrator may assess all Arbitration Costs against
the non-prevailing party and may include in the award the prevailing party's
attorney's fees and expenses in connection with any and all proceedings under
this Section 10. Notwithstanding the foregoing, in no event may the arbitrator
award multiple or punitive damages.
11. Miscellaneous.
-------------
11.1 Successors and Assigns. This Agreement may not be assigned by
----------------------
a party
17
hereto without the prior written consent of the other party hereto, except that
without the prior written consent of the Company, but after notice duly given,
an Investor may assign its rights hereunder in whole or in part to any purchaser
of Securities from the Investor, provided that, unless the Shares or Warrant
Shares are sold pursuant to the registration statement contemplated by the
Registration Rights Agreement, the purchaser of the Securities shall make all
representations and warranties of the Investor contained in Section 5 hereof, in
writing to the Company prior to the purchase of the Securities. The terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective permitted successors and assigns of the parties. Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
11.2 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.3 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
11.4 Notices. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be given in writing and shall be deemed
effectively given only upon delivery to each party to be notified by (i)
personal delivery, (ii) telex or telecopier, upon receipt of the electronically
generated confirmation of delivery, or (iii) a recognized overnight air courier,
addressed to the party to be notified at the address as follows, or at such
other address as such party may designate by at least ten days' advance written
notice to the other party:
If to the Company:
ImaginOn, Inc.
0000 Xxxxxx Xxxxxx, Xxxxx Xx. 0
Xxx Xxxxxx, XX 00000
XXX
Telephone: (000) 000 0000
Telefax: (000) 000 0000
Attention: Chief Executive Officer
with a copy to:
Friedlob Xxxxxxxxx Xxxxxx Xxxxxxx & Xxxxxxxxxxx, LLC
0000 Xxxxxxx Xxxxx, Xxxxx 000
Xxxxxx, XX 00000
Attn: Xxxxxx Xxxxxx, Esq. and Xxxx X. Xxxxxxx, Esq.
Telephone: (000) 000-0000
18
Facsimile: (000) 000-0000
If to the Investors, to the addresses set forth on the
signature pages hereto, and with a copy to:
__________________________
__________________________
__________________________
__________________________
Telephone: _______________
Facsimile: _______________
11.5 Fees and Expenses.
-----------------
(a) Except as set forth below, the parties hereto shall pay
their own costs and expenses in connection herewith.
(b) Tail Wind Inc. shall receive an expense allowance to cover
due diligence expenses and legal expenses, in an amount equal to 0.8% of the
aggregate Purchase Price. Such expense allowance shall be paid by the Company at
the Closing.
11.6 Amendments and Waivers. Any term of this Agreement may be
----------------------
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Investors.
Any amendment or waiver effected in accordance with this paragraph shall be
binding upon each holder of any Securities purchased under this Agreement at the
time outstanding, each future holder of all such securities, and the Company.
11.7 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of this Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
11.8 Entire Agreement. This Agreement, including the Exhibits and
----------------
Schedules hereto, and the Registration Rights Agreement constitute the entire
agreement among the parties hereof with respect to the subject matter hereof and
thereof and supersede all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter hereof and
thereof.
11.9 Further Assurances. The parties shall execute and deliver all
------------------
such further instruments and documents and take all such other actions as may
reasonably be required to carry out the transactions contemplated hereby and to
evidence the fulfillment of the agreements herein contained.
11.10 Applicable Law. This Agreement shall be governed by, and
--------------
construed in accordance with, the laws of the State of New York without regard
to principles of conflicts of laws.
19
11.11 Remedies.
--------
(a) The Investors shall be entitled to specific performance of
the Company's obligations under the Agreements.
(b) The Company shall be entitled to specific performance of
each Investor's obligations under the Agreements.
(c) Each party shall indemnify the other and hold it harmless
from any loss, cost, expense or fees (including attorneys' fees and expenses)
arising out of any breach of any representation, warranty, covenant or agreement
in any of the Agreements, or arising out of the enforcement of this Section
11.11
20
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
The Company:
IMAGINON, INC.
By:_________________________
Name: Xxxxx X. Xxxxxxxx
Title: Chief Executive Officer
21
The Investor:
By:_________________________
Name:
Title:
By:_________________________
Name:
Title:
Aggregate Purchase Price:
Number of Shares of Common Stock:
Number of Warrants:
Effective per share Purchase Price of Shares: $2.669
Exercise price of Warrants: $3.34 (125% premium to Market Price)
Address for Notice:
Corporate Centre
with a copy to:
Telephone:
Facsimile:
22
