NETTER DIGITAL ENTERTAINMENT, INC.
PURCHASE AGREEMENT
$1,000,000 Principal Amount of Senior Subordinated Convertible Notes
Due March 29, 2,002
Dated as of March 29, 1999
To AIB Investments Pty Limited (ACN 000 000 000) of Xxxxx 00, Xxxxxxx,
0 Xxxxxxxxx Xxxxx, Xxxxxx, XXX, 0000, Xxxxxxxxx, with offices at , 000 Xxxx
Xxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000:
The undersigned, NETTER DIGITAL ENTERTAINMENT, Inc., a Delaware
corporation (the "Company"), agrees with you as follows:
1. DESCRIPTION OF NOTES; COMMITMENT; SALE AND PURCHASE AND CONVERSION.
1.1. Description of Notes. The Company has authorized the issue and sale
of$1,000,000 aggregate principal amount of its non-interest bearing
Senior Subordinated Notes due March 29, 2002 (the "Notes"), each to be
dated the date of issue (the "Issue Date"), payable on maturity, or the
day on which payment is due is not a Business Day, on the next
preceding Business Day, and to bear interest at the Overdue Rate on
overdue principal, if any, until paid, to be expressed to mature on
March 29, 2002 (the "Maturity Date") and to be substantially in the
form attached hereto as Exhibit A. Interest on overdue principal, if
any, on the Notes shall be computed on the basis of a 360-day year or
twelve 30-day months. The Notes are subject to prepayment in whole or
in part or redemption at the option of the Company at any time
prior to their expressed Maturity Date on the terms and conditions set
forth in Section 2 of this Agreement. Each of the Notes is convertible
into shares of Common Stock of the Company, par value $0.01 per share,
(the "Conversion Shares") upon the terms and conditions set forth in
Section 1.3 below. The terms that are capitalized herein shall have
the meanings set forth in Section 10 hereof unless the context shall
otherwise require. All expressions of dollar amounts in this Agreement
shall refer to denominations of the currency of the United States of
America.
1.2. Commitment; Sale and Purchase.
1.2.1. The Notes are being issued and sold pursuant to this Agreement
between you and the Company dated the date first above written for the
maximum aggregate purchase price in cash of $1,000,000. The Notes and
the Warrants delivered to you on the Initial Closing Date (as defined
below) will be delivered to you in the form of a single registered
Note for the full amount of your purchase (unless different
denominations are specified by you) and a single Warrant Certificate,
registered in your name and in the form attached hereto as Exhibit A,
and Exhibit B.
1.2.2. On the terms and subject to the conditions set forth in this
Agreement, you agree to purchase from the Company and the Company
agrees to sell and issue to you at the Initial Closing against payment
of the aggregate purchase price of $425,000 in immediately available
funds the following: (a) $425,000 in principal amount of Notes, and (b)
a warrant in the form attached at Exhibit B hereto (the "Warrant") to
purchase a maximum aggregate of 750,000 shares of Common Stock (subject
to adjustment as set forth in the warrant agreement therefor) for the
exercise price of $2.50 per share (subject to adjustment as set forth
in the Warrant).
1.2.3. On the terms and subject to the conditions set forth in this
Agreement, you agree to purchase from the Company and the Company agrees
to sell and issue to you on the third business day following the date of
any delivery to you of a Drawdown Certificate certifying the
occurrence prior to March 31, 2000 of a Drawdown Condition (as defined
in Section 10), a Note (sometimes referred to as a "Drawdown Note,")
in the principal amount of the lesser of (x) $200,000 and (y) the sum
of $1,000,000 minus the aggregate principal amount of all Notes
previously issued to you hereunder.
1.2.4. You shall have the right exercisable by delivery of written
notice to the Company at any time prior to April 15, 2000, at your
option, to purchase, and the Company shall sell to you, additional
Notes (sometimes referred to as "Option Notes) in the principal amount
of the sum of $1,000,000 minus the aggregate principal amount of all
Notes previously issued to you hereunder.
1.2.5. Each closing of the sale and purchase of a Drawdown Note and/or
Option Note is referred to as an "Additional Closing," and, together
with the Initial Closing, are each referred to as a "Closing".
1.2.6. The maximum aggregate principal amount of all Notes purchasable or
required to be purchased by you hereunder is $1,000,000.
1.3. Conversion. You shall have the right, exercisable at your option
at any time, to elect to require the Company to convert, at a price per
share equal to the Conversion Price on the Conversion Date, all or part of
the unpaid principal of your Note into Conversion Shares. Fractional
Shares of Common Stock are not to be issued upon conversion, but, in
lieu thereof, the Company will pay a cash adjustment based on the
Conversion Price. Except where cash payment is required as an
adjustment as described above, principal, if any, will be payable by the
Company on any Note surrendered for conversion subsequent to the
Conversion Date of such Note. The election to convert shall
be made by you at any time by delivery to the Company of a Conversion
Notice. The Conversion Notice shall be accompanied by an executed
Investment Letter of the holder in the form attached hereto as Exhibit C.
Upon receipt of a Conversion Notice, the Company will deliver the
Conversion Shares to you at your offices located at 000 Xxxx Xxxxxx,
00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000 and you shall tender the Note, on
the Conversion Date unless another date for conversion is agreed to by
the parties in writing. The Conversion Shares are subject to Securities
Laws restrictions as set forth in Section 9.1 of this Agreement unless a
current registration statement is in effect under the Securities Act.
Each certificate for Conversion Shares issued upon conversion of your
Note, unless at the time of conversion such Conversion Shares are
registered under the Securities Act, shall bear the following
legend (in addition to any legend required by any state securities laws):
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES
LAWS AND NO TRANSFER OF THESE SECURITIES MAY BE MADE UNLESS
(A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED
UNDER THE ACT, OR (B) PURSUANT TO AN EXEMPTION THEREFROM
WITH RESPECT TO WHICH THE COMPANY MAY, UPON REQUEST,
REQUIRE AN OPINION OF COUNSEL FOR THE HOLDER REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH TRANSFER IS EXEMPT
FROM THE REQUIREMENTS OF THE ACT.
Any certificate for Conversion Shares issued at any time in exchange or
substitution for any certificate bearing such legend (unless at that time
such Conversion Shares are registered under the Securities Act) shall
also bear such legend unless, in the written opinion of counsel selected
by the holder of such certificate, which counsel and opinion shall be
reasonably acceptable to the Company, the Conversion Shares
represented thereby need no longer be subject to restrictions on resale
under the Securities Act. The Company is authorized to notify its
transfer agent of the status of any securities bearing the foregoing
legend(s) and to take such other action as shall be reasonable and
proper to prevent any violation of the Securities Act or any state
securities laws.
The Company will issue to you a replacement Note with respect to any
amounts remaining due and payable to you following any conversion
as provided in Section 11.6.
1.4. Conversion Price Adjustment. The Conversion Price shall be
subject to adjustment from time to time as follows:
1.4.1. Additional Issuances.
1.4.1.1. If the Company shall issue, after the Issue Date of
the first Note issued under this Agreement, any
Additional Stock without consideration or for a
consideration per share less than the Conversion Price in
effect immediately prior to the issuance of such
Additional Stock, the Conversion Price for the Notes in
effect immediately prior to each such issuance shall
forthwith (except as otherwise provided in this clause (i))
be adjusted to a price determined by multiplying such
Conversion Price by a fraction, the numerator of which
shall be the number of shares of Common Stock
outstanding immediately prior to such issuance
(including shares of Common Stock deemed to be issued
pursuant to Section 1.4.1.5.1 or 1.4.1.5.2) plus the
number of shares of Common Stock that the aggregate
consideration received by the Company for such
issuance would purchase at such Conversion Price; and
the denominator of which shall be the number of shares
of Common Stock outstanding immediately prior to such
issuance (including shares of Common Stock deemed to
be issued pursuant to Section 1.4.1.5.1 or 1.4.1.5.2) plus
the number of shares of such Additional Stock.
1.4.1.2. No adjustment of the Conversion Price shall be
made in an amount less than one cent per share;
provided that any adjustments that are not required to be
made by reason of this sentence shall be carried forward
and an adjustment with respect thereto shall be made at
the time of and together with any subsequent adjustment
which, together with such amounts so carried forward,
shall aggregate one cent per share. Except to the limited
extent provided for in Sections 1.4.1.5.3 and 1.4.1.5.4
below, no adjustment of such Conversion Price pursuant
to this Section 1.4.1 shall have the effect of increasing
the Conversion Price above the Conversion Price in
effect immediately prior to such adjustment. In addition,
no adjustment of the Conversion Price pursuant to this
Section 1.4.1 shall have the effect of decreasing the
Conversion Price below $1.525 per Conversion Share.
1.4.1.3. In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the
amount of cash paid therefor before deducting any
reasonable discounts, commissions or other expenses
allowed, paid or incurred by the Company for any
underwriting or otherwise in connection with the
issuance and sale thereof.
1.4.1.4. In the case of the issuance of the Common Stock
for a consideration in whole or in part other than cash,
the consideration other than cash shall be deemed to be
the fair value thereof as determined in good faith by the
Company's Board of Directors; provided that if the
Company's Common Stock is publicly traded at the time
of such issuance, such fair value as determined by the
Board shall not exceed the Closing Price of the shares of
Common Stock being issued as of the date of issuance
thereof. "Closing Price" shall mean, if at the time of
such determination the Common Stock is traded in the
over-the-counter market, the NASDAQ National Market
or on a national or regional securities exchange, the
following: (1) If traded on a securities exchange or
through the NASDAQ National Market, the value shall
be the average of the closing prices of the securities on
such exchange or system over the thirty day period
ending three days prior to the date of issuance; (2) If
actively traded over-the-counter, the average of the
closing bid or sale prices (whichever is applicable) over
the thirty day period ending three days prior to the
Closing.
1.4.1.5. In the case of the issuance after the Issue Date of
the first Note issued hereunder of options to purchase or
rights to subscribe for Common Stock, securities by their
terms convertible into or exchangeable for Common
Stock or options to purchase or rights to subscribe for
such convertible or exchangeable securities, the
following provisions shall apply for all purposes of this
Section 1.4.1.5 and Section 1.4.3:
1.4.1.5.1. The aggregate maximum number of shares of
Common Stock deliverable upon exercise
(assuming the satisfaction of any conditions to
exercisability, including without limitation, the
passage of time, but without taking into account
potential antidilution adjustments) of such options
to purchase or rights to subscribe for Common
Stock shall be deemed to have been issued at the
time such options or rights were issued and for a
consideration equal to the consideration
(determined in the manner provided in Sections
1.4.1.3 and 1.4.1.4), if any, received by the
Company upon the issuance of such options or
rights plus the minimum exercise price provided in
such options or rights (without taking into account
potential antidilution adjustments) for the Common
Stock covered thereby.
1.4.1.5.2. The aggregate maximum number of shares of
Common Stock deliverable upon conversion of or
in exchange (assuming the satisfaction of any
conditions to convertibility or exchangeability,
including, without limitation, the passage of time,
but without taking into account potential
antidilution adjustments) for any such convertible
or exchangeable securities or upon the exercise of
options to purchase or rights to subscribe for such
convertible or exchangeable securities and
subsequent conversion or exchange thereof shall be
deemed to have been issued at the time such
securities were issued or such options or rights
were issued and for a consideration equal to the
consideration, if any, received by the Company for
any such securities and related options or rights
(excluding any cash received on account of accrued
interest or accrued dividends), plus the minimum
additional consideration, if any, to be received by
the Company (without taking into account
potential antidilution adjustments) upon the
conversion or exchange of such securities or the
exercise of any related options or rights to purchase
or acquire such convertible or exchangeable
securities and the subsequent conversion or
exchange thereof (the consideration in each case to
be determined in the manner provided in Sections
1.4.1.3 and 1.4.1.4).
1.4.1.5.3. In the event of any change in the number of
shares of Common Stock deliverable or in the
consideration payable to the Company upon
exercise of such options or rights or upon
conversion of or in exchange for such convertible
or exchangeable securities, including, but not
limited to, a change resulting from the antidilution
provisions thereof (unless such options or rights or
convertible or exchangeable securities were merely
deemed to be included in the numerator and
denominator for purposes of determining the
number of shares of Common Stock outstanding
for purposes of Section 1.4.1.1), the Conversion
Price, to the extent in any way affected by or
computed using such options, rights or securities,
shall be recomputed to reflect such change, but no
further adjustment shall be made for the actual
issuance of Common Stock or any payment of such
consideration upon the exercise of any such
options or rights or the conversion or exchange of
such securities.
1.4.1.5.4. Upon the expiration or cancellation of any such
options or rights, the termination of any such rights
to convert or exchange or the expiration or
cancellation of any options or rights related to such
convertible or exchangeable securities, the
Conversion Price, to the extent in any way affected
by or computed using such options, rights or
securities or options or rights related to such
securities (unless such options or rights were merely
deemed to be included in the numerator and
denominator for purposes of determining the
number of shares of Common Stock outstanding
for purposes of Section 1.4.1.1, shall be
recomputed to reflect the issuance of only the
number of shares of Common Stock (and
convertible or exchangeable securities that remain
in effect) actually issued upon the exercise of such
options or rights, upon the conversion or exchange
of such securities or upon the exercise of the
options or rights related to such convertible or
exchangeable securities and the subsequent
conversion or exchange thereof.
1.4.1.5.5. The number of shares of Common Stock
deemed issued and the consideration deemed paid
therefor pursuant to Sections 1.4.1.5.1 and 1.4.1.5.2
shall be appropriately adjusted to reflect any
change, termination or expiration of the type
described in either Section 1.4.1.5.3 or 1.4.1.5.4.
1.4.1.5.6. If the Conversion Price and the number of
shares issuable upon conversion shall have been
adjusted with respect to shares of Common Stock
deemed issued pursuant to Sections 1.4.1.5.1 and
1.4.1.5.2, then, no further adjustment of the
Conversion Price and the number of shares issuable
upon conversion shall be made for the actual
issuance of the shares of Common Stock deemed
issued pursuant to Sections 1.4.1.5.1 and 1.4.1.5.2.
1.4.2. Adjustment of Number of Shares. Upon each
adjustment of the Conversion Price as provided in Section
1.4.1, the Holder shall thereafter be entitled to purchase, at the
Conversion Price resulting from such adjustment, the number
of shares (calculated to the nearest tenth of a share) obtained
by multiplying the Conversion Price in effect immediately
prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment and
dividing the product thereof by the Conversion Price resulting
from such adjustment.
1.4.3. Definition. "Additional Stock" means any shares of
Common Stock issued (or deemed to have been issued
pursuant to Section 1.4.1.5) by the Company after the Issue
Date other than (A) Common Stock issued pursuant to a
transaction described in Section 1.4.4.1 hereof; (B) up to a
maximum of 546,550 shares of Common Stock (or securities
exercisable or convertible into Common Stock) issuable or
issued to employees, consultants, directors or vendors (if in
transactions with primarily non-financing purposes) of the
Company directly or pursuant to a stock option plan or
restricted stock plan approved by the Board of Directors of
the Company; (C) securities issued pursuant to the conversion
or exercise of convertible or exercisable securities outstanding
or deemed outstanding on the Issue Date of the first Note
issued under this Agreement; and (D) the Notes, the
Conversion Shares, the Warrants and the Warrant Shares.
1.4.4. Common Stock Reorganizations.
1.4.4.1. If the Company shall (1) declare a dividend
or make a distribution on its Common Stock in
shares of Common Stock, (2) subdivide or
reclassify the outstanding shares of Common
Stock into a greater number of shares, or (3)
combine or reclassify the outstanding Common
Stock into a smaller number of shares, the number
of Conversion Shares issuable upon conversion of
this Note at the time of the record date for such
dividend or distribution or the effective date of
such subdivision, combination or reclassification
shall be proportionately adjusted so that the Note
holder after such date shall be entitled to purchase
the number of shares of Common Stock which
such holder would have owned or been entitled to
receive after such date had this Note been
converted immediately prior to such date. In such
event the Conversion Price in effect at the time of
the record date for such dividend or distribution
or the effective date of such subdivision,
combination or reclassification shall be adjusted to
the number obtained by dividing (i) the product of
(a) the number of Conversion Shares issuable
upon the conversion of this Note before such
adjustment and (b) the Conversion Price in effect
immediately prior to the issuance giving rise to
this adjustment by (ii) the new number of
Conversion Shares issuable upon conversion of
the Note determined pursuant to the immediately
preceding sentence. Successive adjustments in the
Conversion Price shall be made whenever any
event specified above shall occur. In the case of
any adjustment made pursuant to this Section
1.4.4 as of the record date for any dividend or
distribution, if such dividend is not paid or such
distribution is not made, the Conversion Price and
the number of Conversion Shares issuable upon
conversion of this Note, as then in effect, shall be
readjusted, effective as of the date when the Board
of Directors determines not to pay such dividend
or make such distribution, as the case may be, to
the Conversion Price that would then be in effect
and the number of Conversion Shares that would
then be issuable upon conversion of this Note if
such record date had not been fixed.
1.4.4.2. INTENTIONALLY OMITTED.
1.4.5. Other Distributions.. In case the Company shall fix a
record date for the making of a distribution to all holders of
shares of its Common Stock (i) of shares of any class other
than its Common Stock or (ii) of evidence of indebtedness of
the Company or (iii) of assets (excluding ordinary cash
dividends, and dividends or distributions referred to in Section
5.4), or (iv) of rights or warrants (excluding those referred to
in Section 5.4), in each such case the Conversion Price in
effect immediately prior thereto shall be reduced immediately
thereafter to the price determined by dividing (x) an amount
equal to the difference resulting from (1) the number of shares
of Common Stock outstanding on such record date multiplied
by the Conversion Price per share on such record date, less (2)
the fair market value (as reasonably determined by the Board
of Directors) of said shares or evidences of indebtedness or
assets or rights or warrants to be so distributed, by (y) the
number of shares of Common Stock outstanding on such
record date; such adjustment shall be made successively
whenever such a record date is fixed. Upon each such
adjustment of the Conversion Price, the Note holder shall
thereafter be entitled to acquire, at the Conversion Price
resulting from such adjustment, the number of shares
(calculated to the nearest tenth of a share) obtained by
multiplying the Conversion Price in effect immediately prior
to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment and
dividing the product thereof by the Conversion Price resulting
from such adjustment. If such distribution is not so made, the
Conversion Price then in effect shall be readjusted, effective as
of the date when the Board of Directors determines not to
distribute such shares, evidences of indebtedness, assets, rights
or warrants, as the case may be, to the Conversion Price that
would then be in effect if such record date had not been fixed.
1.4.6. Recapitalizations. If at any time or from time to time
there shall be a recapitalization of the Common Stock (other
than a subdivision or combination provided for elsewhere in
this Section 1.4) provision shall be made so that the holders of
the Notes shall thereafter be entitled to receive upon
conversion thereof the number of shares of stock or other
securities or property of the Company or otherwise, to which
a holder of the Conversion Shares would have been entitled
on such recapitalization. In any such case, appropriate
adjustment shall be made in the application of the provisions
of this Section 1.4 with respect to the rights of the holders of
the Notes after the recapitalization to the end that the
provisions of this Section 1.4 (including adjustment of the
Conversion Price then in effect and the number of shares
purchasable upon exercise) shall be applicable after that event
as nearly equivalent as may be practicable.
1.4.7. No Impairment. The Company will not, by amendment
of its Certificate or through any reorganization,
recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed hereunder by
the Company, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 1.4 and in the
taking of all such action as may be necessary or appropriate in
order to protect your conversion rights set forth herein
against impairment.
1.4.8. No Fractional Shares and Certificate as to
Adjustments.
1.4.8.1. No fractional shares shall be issued upon conversion
of the Notes, and the number of Conversion Shares to
be issued shall be rounded, up or down, as the case may
be, to the nearest whole share.
1.4.8.2. Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this
Section 1.4, the Company, at its expense, shall promptly
compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to the
holders of the Notes a certificate setting forth such
adjustment or readjustment and showing in detail the
facts upon which such adjustment or readjustment is
based, the Conversion Price and the number of
Conversion Shares and the amount, if any, of other
property that at the time would be received upon the
conversion of the Notes, after such adjustment.
1.4.9. Notices of Record Date or Recapitalization. If the
Company shall propose to take any action of the type
described in this Section 1.4 (but only if the action of the type
described in this Section 1.4 would result in an adjustment in
the Conversion Price or the number of Conversion Shares
into which the Notes are convertible or a change in the type
of securities or property to be delivered upon conversion of
the Notes), the Company shall give notice to the Note holder,
in the manner set forth in Section 11.9), which notice shall
specify the record date, if any, with respect to any such action
and the approximate date on which such action is to take
place. Such notice shall also set forth the facts with respect
thereto as shall be reasonably necessary to indicate the effect
on the Conversion Price and the number, kind or class of
shares or other securities or property which shall be
deliverable upon conversion of the Notes. In the case of any
action which would require the fixing of a record date, such
notice shall be given at least 20 days prior to the date so fixed,
and in case of all other action, such notice shall be given at
least 15 days prior to the taking of such proposed action.
Failure to give such notice, or any defect therein, shall not
affect the legality or validity of any such action; provided,
however, that this sentence shall not diminish or affect the
rights and remedies available to you as a result of any failure
by the Company to comply with the provisions of this Section 1.4.9.
1.5. Closing.
1.5.1. The Initial Closing of the purchase and sale of the Notes
and the Warrants pursuant to this Agreement shall take place
at the offices of AIB Investments Pty Limited, at 000 Xxxx
Xxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, on March
30, 1999, or such other time and/or location as the parties
may mutually agree. The date of such Closing is hereinafter
referred to as the "Initial Closing Date." At the Initial
Closing, the Company shall deliver to you a certificate or
certificates evidencing the Notes and Warrants purchased by
you, against delivery to the Company by you of the purchase
price therefor in immediately available funds to an account in
the State of New York designated by the Company in writing
prior to the Initial Closing Date, all in accordance with Section
1.2.1.
1.5.2. Each Additional Closing of the purchase and sale of the
Drawdown Notes and/or Option Notes pursuant to this
Agreement shall take place at the offices of AIB Investments
Pty Limited, at 000 Xxxx Xxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx
Xxxx 00000, on the third business day following the date of
each delivery to you of a Drawdown Certificate or your
delivery to the Company of written notice pursuant to Section
1.2.4, as the case may be, or such other time and/or location
as the parties may mutually agree. The date of each
Additional Closing is hereinafter referred to as an "Additional
Closing Date," and collectively with the Initial Closing Date,
as the "Closing Dates." At each Additional Closing, the
Company shall deliver to you a certificate or certificates
evidencing the Notes purchased by you, against delivery to the
Company by you of immediately available funds to an account
specified in writing by the Company in amount equal to the
principal amount of such Notes.
2. PREPAYMENT OF NOTES. Except as described below in this
Section 2, the Notes will not be subject to prepayment and redemption
by the Company prior to the Maturity Date.
2.1. Prepayment on Liquidity Event. Upon or following the
occurrence of a Liquidity Event, the Company may prepay (at its
option and in its sole discretion) in immediately available funds the
outstanding Notes, in whole and not in part, by payment in cash
equal to 100% of the principal amount of the Notes.
2.2. Notice of Prepayments. The Company will give notice of any
prepayment of the Notes to you thereof, not less than 30 days nor
more than 60 days before the date fixed for such prepayment. Any
notice of prepayment hereunder shall specify (a) such date or
approximate date, as the case may be, for prepayment and the
aggregate principal amount of Notes to be redeemed. Such notice
of prepayment shall also certify all facts which are conditions
precedent to any such prepayment. Notice of prepayment having
been so given, the aggregate principal amount of the Notes
specified in such notice shall become due and payable on the
prepayment date.
2.3. Direct Payment. Notwithstanding anything to the contrary in
this Agreement or the Notes, in the case of any Note owned by (or
by a nominee of) you that has given written notice to the Company
requesting that the provisions of this Section 2.3 shall apply, the
Company will promptly and punctually pay when due the principal
thereof and premium, if any, and interest thereon, without any
presentment thereof, directly to such holder or such nominee, at
the address set forth in Section 11.9 or such other address as such
holder may from time to time designate in writing to the Company
or, if a bank account is designated in any written notice to the
Company from such holder, the Company will make such
payments in immediately available funds to such bank account, no
later than 1:00 p.m., New York time, on the date due, marked for
attention as indicated, or in such other manner or to such other
account of such holder in any bank in the United States as such
holder may from time to time direct in writing. If for any reason
whatsoever the Company does not make any such payment by
such 1:00 p.m. transmittal time, such payment shall be deemed to
have been made on the next following Business Day and such
payment shall bear interest at the Overdue Rate.
3. CLOSING CONDITIONS.
3.1. Conditions to Your Obligation to Close. Your obligation to
purchase the Notes and Warrants at the Initial Closing Date shall
be subject to the satisfaction of, or written waiver by you of, the
following conditions on or before the Closing Date:
3.1.1. The Company's representations and warranties contained in
Section 6 shall be true and correct in all material respects at
and as of the Closing Date.
3.1.2. The Company shall have performed and complied in all
material respects with all agreements, covenants and
conditions contained herein which are required to be
performed or complied with by the Company on or before the
Closing Date.
3.1.3. The Company shall have issued to you the Warrants.
3.1.4. You shall have received an opinion of counsel to the
Company satisfactory to you and your counsel, dated as of the
Initial Closing, covering the matters set forth in Exhibit E,
hereto.
3.2. Conditions to Your Obligation to Purchase Drawdown Notes.
Your obligation to purchase each Drawdown Note and at each
Additional Closing Date shall be subject to the satisfaction of, or
written waiver by you of, the following conditions on or before the
Additional Closing Date:
3.2.1. The Company's representations and warranties contained in
Section 6 shall be true and correct in all material respects at
and as of the Additional Closing Date.
3.2.2. The Company shall have performed and complied in all
material respects with all agreements, covenants and
conditions contained herein which are required to be
performed or complied with by the Company on or before the
Additional Closing Date and no Event of Default shall have
occurred.
3.2.3. You shall have received a Drawdown Certificate.
3.2.4. You shall have received a certificate dated as of the
Additional Closing Date and signed by the President and
Chief Operating Officer of the Company, certifying that the
conditions set forth in Sections 3.2.1and 3.2.2 are satisfied on
and as of such date, and no Default exists.
3.3. Conditions to the Company's Obligation to Close. The
Company's obligation to sell to you the Notes and the Warrants on
the Initial Closing Date and to sell to you the Drawdown Notes on
each Additional Closing Date shall be subject to the satisfaction of,
or written waiver by the Company of, the following conditions on
or before the applicable Closing Date:
3.3.1. Your representations and warranties contained in Section
6.2 shall be true and correct in all material respects at and as of
the Closing Date.
3.3.2. No suit, action, proceeding or investigation shall have
occurred, be pending or threatened which would or seek to
prevent or delay beyond the date of the Closing the
consummation of the transactions contemplated by this
Agreement.
3.3.3. You shall have executed and delivered to the Company the
standstill agreement in the form of Exhibit F hereto (the
"Standstill Agreement").
4. SUBORDINATION.
4.1. Notes Subordinated to Senior Indebtedness. The Company
and you, by your acceptance of the Notes, agree that the payment
of the principal of and interest, if any, on the Notes is
subordinated, to the extent and in the manner provided in this
Section 4, to the prior payment in full, in cash or cash equivalents,
of all Senior Indebtedness under that certain Loan and Security
Agreement, dated as of June 30, 1997 by and between Videssence,
Inc., a California corporation and Wholly Owned Subsidiary of the
Company ("Videssence"), as borrower, and Comerica Bank -
California, a California banking corporation ("Comerica Bank" or
"Senior Lender"), as secured party, in the aggregate amount of
$750,000 as guaranteed by the Company (collectively with all
related documents thereto, the "Credit Agreement"). This
Section 4 shall constitute a continuing covenant to all persons who,
in reliance upon such provisions, become holders of, or continue
to hold, Senior Indebtedness, and such provisions are made for the
benefit of the holders of Senior Indebtedness, and such holders are
made obligees hereunder and any one or more of them may
enforce such provisions. As a holder of Notes you agree that
whatever right, title and interest, if any, that you have or may
hereafter have in and to any assets provided to secure the principal
of or interest, if any, on the Notes, excluding the right to convert
the Notes to Common Stock as provided in Section 1.3, shall at all
times and in all respects be subject and subordinate to the right,
title and interest (including security interest) in any such assets, if
any, provided to secure the Senior Indebtedness unless and until
the Senior Indebtedness has been paid in full in cash or cash
equivalent (or such payment has been duly provided for). You
agree that any and all right to set off any Indebtedness, obligation
or liabilities you owe to the Company against the principal of or
interest, if any, on the Notes and the right to assert any
counterclaim in respect thereof is subject to the subordination
provisions of this Section 4 and shall not be asserted unless and
until the Senior Indebtedness has been paid in full in cash or cash
equivalents (or such payment has been duly provided for).
4.2. No Payment on Notes in Certain Circumstances.
4.2.1. No payment shall be made on account of principal or
interest, if any, on the Notes (other than principal or interest
paid with Junior Securities) (i) upon the maturity of any
Senior Indebtedness by lapse of time, acceleration or
otherwise, unless and until all Senior Indebtedness shall first
be paid in full, in cash or cash equivalents, or duly provided
for, or (ii) upon the happening of any default in payment of
any principal of, interest on or reimbursement obligations in
respect of any Senior Indebtedness when the same becomes
due and payable, unless and until such default shall have been
cured or waived or shall have ceased to exist.
4.2.2. No direct or indirect payment or distribution by or on
behalf of the Company in respect of the Notes (other than
principal or interest, if any, paid with Junior Securities) shall be
made if, at the time of such payment or distribution there
exists or would exist, without regard to any grace period or
lapse of time, (i) a default in the payment of any obligations
owing with respect to any Senior Indebtedness or (ii) any
default under Sections 7.1.6 or 7.1.8 of this Agreement
(collectively a "Payment or Bankruptcy Default"). In
addition, during the continuance of any other event of default
with respect to any Senior Indebtedness pursuant to which the
maturity thereof may be accelerated, (x) upon receipt by the
Company and you of written notice of such event of default
and commencement of a "Payment Blockage Period" (as
defined below) from the Senior Lender, or (y) if such event of
default results from the failure to make any payment due with
respect to the Notes, upon the date of such failure, no such
payment or distribution may be made by or on behalf of the
Company upon or in respect of the Notes for a period
("Payment Blockage Period") commencing on the earlier of
the date of receipt of such notice or the date of such failure
and ending 180 days thereafter (unless such Payment Blockage
Period shall be terminated by written notice to you from the
Senior Lender). For all purposes of this Section 4.2.2, a
Payment Blockage Period may not be commenced by a holder
of Senior Indebtedness until the first Business Day
immediately following the Maturity Date, if occurring after
the expiration or termination of any previous Payment
Blockage Period. During any Payment Blockage Period or any
period commencing on the date of a Payment or Bankruptcy
Default ("Monetary Default or Bankruptcy Period") (unless
such Monetary Default or Bankruptcy Period or Payment
Blockage Period shall be terminated by written notice to you
from the Senior Lender), you shall not, directly or indirectly,
xxx for, in whole or in part, any payment or distribution in
respect of the Note, foreclose on any assets of Company, or
file or otherwise commence any bankruptcy or insolvency
proceeding against Company unless the maturity of the Senior
Indebtedness has been accelerated, and unless you have
notified the holders of the Senior Indebtedness of your intent
to take any such action. Until all Senior Indebtedness is paid
in full, you shall not accept or receive, directly or indirectly,
any prepayment of the principal indebtedness of the Notes,
whether by acceleration or otherwise, without the prior
written consent of the Senior Lender; provided, however, no
consent shall be required in order to prepay the Notes as
contemplated by Section 2 hereof upon the occurrence of a
Liquidity Event. Except as otherwise prohibited by this
Section 4.2, however, you shall be entitled to receive the
principal of the Notes on the Maturity Date. Notwithstanding
the foregoing, in the event the Notes mature (on the Maturity
Date and not by reason of acceleration) during any Monetary
Default or Bankruptcy Period, in no event shall such
Monetary Default or Bankruptcy Period continue for more
than 180 days after the Maturity Date of the Notes. Nothing
in this Section 4.2.2 shall impair or prohibit your right to
convert any Notes to Common Stock as provided in Section
1.3 of this Agreement.
4.2.3. If, notwithstanding the foregoing provisions of this Section
4.2, any payment on account of principal of or interest, if any,
on the Notes (other than principal or interest, if any, paid
with Junior Securities) shall be made by or on behalf of the
Company and received by any holder of Notes, at a time when
such payment was prohibited by the provisions of this Section
4.2, then, unless and until such payment is no longer
prohibited by this Section 4.2, such payment shall be received
and held by such holder for the benefit of and shall be
immediately paid over to, the holders of Senior Indebtedness
or their representatives, pro rata according to the respective
amounts of the Senior Indebtedness held or represented by
each, for application to the payment of all Senior
Indebtedness remaining unpaid to the extent necessary to pay
all Senior Indebtedness in full in cash or cash equivalents in
accordance with its terms, after giving effect to any other
payment or distribution or provision therefor to or for the
holders of Senior Indebtedness, but only to the extent that,
upon notice from the Company to the holders of Senior
Indebtedness that such prohibited payment has been made,
the holders of the Senior Indebtedness (or their representative
or representatives or a trustee) notify the Company and you
of the amounts then due and owing on the Senior
Indebtedness, if any, and only the amounts specified in such
notice shall be paid to the holders of Senior Indebtedness.
4.2.4. The Company shall give written notice to you of any
default or event of default under, or any acceleration of, any
Senior Indebtedness promptly upon becoming aware thereof.
4.3. Notes Subordinated to Prior Payment of All Senior
Indebtedness on Dissolution, Liquidation or Reorganization
of the Company. Upon any distribution of assets of the
Company and upon any dissolution, winding up, liquidation or
reorganization of the Company (including, without limitation, in
bankruptcy, insolvency or receivership proceedings or upon any
assignment for the benefit of creditors):
4.3.1. The holders of all Senior Indebtedness shall first be entitled
to receive payments of all Senior Indebtedness in full, in cash
or cash equivalents (or to have such payment duly provided
for), before you are entitled to receive any payment on
account of the principal of or interest, if any, on the Notes
(other than principal or interest, if any, paid with Junior
Securities);
4.3.2. Any payment or distribution of assets of the Company of
any kind or character, whether in cash, property or securities,
to which you would be entitled except for the provisions of
this Section 4, shall be paid by the liquidating trustee or agent
or other person making such a payment or distribution,
directly to the holders of Senior Indebtedness or their
representatives, pro rata according to the respective amounts
of Senior Indebtedness held or represented by each, to the
extent necessary to make payment in full, in cash or cash
equivalents, of all Senior Indebtedness remaining unpaid after
giving effect to any concurrent payment or distribution or
provision therefor to the holders of such Senior Indebtedness;
and 4.3.3. In the event that, notwithstanding the foregoing, any
payment or distribution of assets of the Company of any kind
or character, whether in cash, property or securities, shall be
received by you on account of principal of or interest, if any,
on the Notes (other than principal or interest, if any, paid
with Junior Securities) before all Senior Indebtedness is paid in
full, in cash or cash equivalents, or provision made for its
payment, such payment or distribution shall be received and
held for and shall be paid over to the holders of the Senior
Indebtedness remaining unpaid or unproved for or their
representatives (pro rata according to the respective amounts
of Senior Indebtedness held or represented by each), for
application to the payment of such Senior Indebtedness until
all such Senior Indebtedness shall have been paid in full, in
cash or cash equivalents, after giving effect to any other
payment or distribution or provision therefor to the holders of
such Senior Indebtedness, but only to the extent that, upon
notice from the Company to the holders of Senior
Indebtedness that such prohibited payment has been made,
the holders of the Senior Indebtedness (or their representative
or representatives or a trustee) notify the Company of the
amounts then due and owing on the Senior Indebtedness, if
any, and only the amounts specified in such notice shall be
paid to the holders of Senior Indebtedness.
4.3.4. The Company shall give prompt written notice to you of
any dissolution, winding up, liquidation, or reorganization of
the Company or assignment for the benefit of creditors by the
Company. Issuance of Conversion Shares upon a Conversion
Event shall not be considered a "distribution" of securities or
a "payment" for purpose of this Section 4.3.
4.4. Subrogation to Rights of Holders of Senior Indebtedness.
4.4.1. Subject to the payment in full in cash or cash equivalents of
all Senior Indebtedness (or due provision therefor), you shall
be subrogated to the rights of the holders of Senior
Indebtedness to receive payments or distributions of assets of
the Company until all amounts owing on the Notes shall be
paid in full, in cash or cash equivalents, and for the purpose of
such subrogation no such payments or distributions to the
holders of Senior Indebtedness by or on behalf of the
Company, or by or on behalf of you by virtue of this Section
4, that otherwise would have been made to you shall, as
between the Company, on the one hand, and you, on the
other, be deemed to be payment by the Company to or on
account of you, it being understood that the provisions of this
Section 4 are and are intended solely for the purpose of
defining your relative rights , on the one hand, and the
holders of Senior Indebtedness, on the other.
4.4.2. If any payment or distribution to which you would
otherwise have been entitled but for the provisions of this
Section 4 shall have been applied, pursuant to the provisions
of this Section 4, to the payment of amounts payable under
the Senior Indebtedness, then you shall be entitled to receive
from Senior Indebtedness any payments or distributions
received by such holder of Senior Indebtedness in excess of
the amount sufficient to pay all amounts payable under or in
respect of the Senior Indebtedness in full in cash or cash
equivalents, after giving effect to any other payment or
distribution or provision therefor to or for the holders of
Senior Indebtedness. The holders of Senior Indebtedness by
accepting such payments or distributions shall be deemed to
agree to the provisions of this Section 4.
4.4.3. Issuance of Conversion Shares shall not be considered a
"distribution" or a "payment" for purposes of this Section 4.4.
4.5. Obligations of the Company Unconditional.
4.5.1. Nothing contained in this Section 4 or elsewhere in this
Agreement or in any Note is intended to or shall impair, as
between the Company, on the one hand, and you, on the
other, the respective obligations of the Company, which are
absolute and unconditional, to pay to you the principal and
interest, if any, on the Notes as and when the same shall
become due and payable in accordance with their terms, or is
intended to or shall affect your relative rights and creditors of
the Company other than the holders of the Senior
Indebtedness, nor shall anything herein or therein prevent
you from exercising all remedies otherwise permitted by
applicable law upon default under this Agreement, subject to
the rights, if any, under this Section 4, of the holders of Senior
Indebtedness in respect of cash, property or securities of the
Company received upon the exercise of any such remedy.
4.5.2. Without limiting the foregoing, the failure to make a
payment on account of principal or interest, if any, on the
Notes by reason of any provision of this Section 4 shall not be
construed as preventing the occurrence of a Default or an
Event of Default.
4.5.3. Upon any distribution of assets of the Company, you shall
be entitled to rely upon any order or decree made by any court
of competent jurisdiction in which such dissolution, winding
up, liquidation or reorganization proceedings are pending, or a
certificate of the liquidating trustee or agent or other person
making any distribution to such holders for the purpose of
ascertaining the persons entitled to participate in such
distribution, the holders of the Senior Indebtedness and other
Indebtedness of the Company, the amount thereof or payable
thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto or to this Section 4.
4.6. Subordination Rights Not Impaired. No right of any present or
future holders of any Senior Indebtedness to enforce
subordination as provided herein shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of
the Company or by any noncompliance by the Company with the
terms of this Agreement. The terms of Section 4, the
subordination effected hereby and the rights of the holders of the
Senior Indebtedness created hereby shall not be affected by (a) any
exercise or non-exercise of any right, power or remedy under or in
respect of any Senior Indebtedness or any instrument, agreement
or other documentation relating thereto or any collateral relating
thereto or (b) any waiver, forbearance, compromise, consent,
release, indulgence, delay or other action, inaction or omissions, in
respect of any Senior Indebtedness or any instrument, agreement
or other documentation relating thereto, including, without
limitation, (i) the taking or accepting of collateral as security for any
or all of the Senior Indebtedness or the release, surrender or
exchange of any collateral now or thereafter securing any or all of
the Senior Indebtedness, or (ii) the non-perfection of any security
interest or lien securing any or all of the Senior Indebtedness,
whether or not you shall have had notice or knowledge of any of
the foregoing. No course of dealing with you or delay by a holder
of the Senior Indebtedness in exercising any right or remedy
hereunder or in failing to exercise the same shall operate as a
waiver thereof.
4.7. Effectiveness of Subordination. This Section 4 shall continue to
be effective or be automatically reinstated, as the case may be, if at
any time payment of any of the Senior Indebtedness, in whole or
in part, is rescinded or must otherwise be restored or refunded by a
holder of the Senior Indebtedness as a preference, fraudulent
conveyance or otherwise under any Bankruptcy Law, all as though
such payment had not been made.
4.8. Proof of Claims in Bankruptcy. If you do not file a proper
claim or proof of claim of debt in the form required in any
bankruptcy, insolvency or similar proceeding prior to 5 days before
the expiration of the time to file such claim or claims, then the
holders of the Senior Indebtedness or their representatives are
hereby authorized to file an appropriate claim for and on behalf of
the holder of such Notes; provided, that the holders of Senior
Indebtedness have provided written notice to the holder of such
Note of their intention to so file not less than 30 days before such
expiration.
5. COMPANY'S COVENANTS. So long as the Notes shall
remain outstanding and/or so long as you and or your Affiliates hold or
hold rights to purchase at least 250,000 Shares of Underlying Common
Stock, the Company covenants and agrees that:
5.1. Limitation on Restricted Payments.
5.1.1. So long as you and your Affiliates hold or hold rights to
purchase at least 250,000 Shares of Underlying Common
Stock, the Company shall not declare or pay any dividend or
make any distribution on account of the Equity Interests of
the Company or any Subsidiary (other than (x) dividends or
distributions payable in Capital Stock (other than Disqualified
Stock) of the Company (y) dividends or distributions payable
by any Subsidiary of the Company to the Company or any
Wholly Owned Subsidiary of the Company or (z) conversion
of the Notes; or
5.1.2. The Company shall not purchase, redeem or otherwise
acquire or retire for value any Equity Interest of the Company
or any Subsidiary or other Affiliate of the Company (other
than retirement of the Warrants or retirement of the Notes).
5.2. Stay, Extension and Usury Laws. The Company shall not at
any time insist upon, plead or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury law
wherever enacted, now or at any time hereafter in force, that may
affect the covenants or the performance of this Agreement; and
the Company (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law and
covenants that it shall not, by resort to any such law, hinder, delay
or impede the execution of any power herein granted to the
holders of the Notes but shall suffer and permit the execution of
every such power as though no such law has been enacted.
5.3. Future Borrowings. So long as any of the Notes is outstanding,
the Company will not, and will not permit any of its Subsidiaries
to, make loans or advances to, or guarantee the obligations of any
person, including any Subsidiary, which is senior to the Notes,
except for additional borrowings from the Senior Lender under the
Credit Agreement and for borrowings from any lender from whom
the Company and / or a Subsidiary obtain a credit facility which is
used solely to retire the existing Senior Indebtedness outstanding
under the Credit Agreement.
5.4. Inspection Rights. The Company shall permit, and shall cause
each Subsidiary to permit, any representative designated by you, at
your expense, to visit and inspect any of the properties of the
Company or any Subsidiary, including its and their books of
account (and to make copies thereof and to take extracts there-
from), and to discuss its and their affairs, finances and accounts
with its and their officers and independent accountants, all at such
reasonable times following reasonable written notice and as often
as may be reasonably requested; provided that such rights shall be
exercised in a manner so as not to materially and adversely disrupt
the ordinary course of business of the Company and its
Subsidiaries
5.5. Board of Directors.
5.5.1. The Company shall maintain a Board of Directors
consisting of seven authorized members. The Company shall
not, without your prior written consent, amend Sections 9 or
10 of its Certificate or Article VII of its Bylaws. In that
connection, the Company shall continue to maintain in place
officers' and directors' insurance in place as of the date of this
Agreement, or a substantially similar replacement therefor
with an insurer with a substantially equivalent Best's or
Xxxxx'x rating, designated for the benefit of the directors.
Immediately following consummation of this Agreement, the
Company shall cause one person designated by you to be
appointed to the Board of Directors of the Company and each
Subsidiary; provided, however, that if you have not by
purchase of Notes and/or exercise of Warrants paid to the
Company an aggregate amount of $848,483 on or before April
15, 2000, such director shall resign from the Company's Board
of Directors and you shall thereafter have no right to
designate any nominee for election to the Board of Directors
in future meetings of the Company's stockholders. Upon
your payment to the Company by purchase of Notes and/or
exercise of Warrants of an aggregate amount of at least
$2,036,836, the Company shall cause an additional person
designated by you to be appointed to the Board of Directors
of the Company and each Subsidiary. While a representative
of the NASDAQ Smallcap Market has advised the Company
and you that the foregoing provisions of this Section 5.5.1 do
not contravene the continued listing standards of the
NASDAQ Smallcap Market, if the NASDAQ Smallcap
Market hereafter advises the Company in writing that the
foregoing provisions of this Section 5.5.1 violates their
standards for continued listing, the Company and you will
modify the provisions of this Section to the extent necessary
to avoid delisting.
5.5.2. The Bylaws shall provide that a majority of the authorized
members shall constitute a quorum of the Board of Directors
of the Company.
5.5.3. The Board of Directors of the Company shall hold regular
meeting no less frequently than 4 times per calendar year, with
each regular meeting being held no sooner than 45 days after
the previous regular meeting. This provision shall not limit
the number of special meetings which may from time to time
be held by the Board of Directors.
5.5.4. The Company shall pay reasonable travel and other out-of-
pocket expenses incurred in attending meetings of the Board
of Directors and committees of the Board of Directors
(provided that any travel to Los Angeles, California is for the
sole purpose of attending such meeting or otherwise assisting
the Company) and in working on special projects at the
request of the Board of Directors, by Directors who are not
employees of the Company.
5.6. The Notes and Warrants.
5.6.1. So long as any Notes are outstanding, the Company, during
the period within which the conversion rights under the Notes
may be exercised, shall at all times have authorized and
reserved, for the purpose of issuance upon the exercise of the
conversion rights, a sufficient number of shares of Common
Stock to provide for the exercise of such conversion rights.
5.6.2. So long as any Warrants are outstanding, the Company
shall at all times have authorized and reserved, for the purpose
of issuance upon the exercise of the Warrants, sufficient
number of shares of the Common Stock to provide for the
exercise of such Warrants.
5.7. Use of Proceeds. The Company shall use the proceeds of the sale
of the Notes hereunder exclusively to fund the Company's
operating activities; provided, however, that a maximum of
$250,000 in aggregate amount of the proceeds of the sale of the
Notes may be applied by the Company to finance the sale,
divestiture or shut down of the Company's Videssence, Inc.
subsidiary and/or to pay indebtedness of the Company and/or
Videssence Inc. to the Senior Lender and other creditors of
Videssence, Inc. in respect of obligations of Videssence, Inc.
5.8. Proprietary Rights. The Company shall use, and shall cause each
of its Subsidiaries to use, its commercially reasonable efforts to
maintain and preserve its right to use all patents, patent applica-
tions, licenses, trademarks, trade names, brand names, inventions,
and copyrights owned by the Company or used in connection with
the operation of its business as now conducted and as proposed to
be conducted; provided, however, that nothing contained herein
shall restrict or limit the Company's right to sell, lease or otherwise
dispose of all or any part of the assets of, sell all of the outstanding
Capital Stock of, or merge or combine, or otherwise divest
(including by cessation of operations) in any form of transaction
whatsoever, its Videssence, Inc. subsidiary, on such terms and
conditions, and for such consideration, as may be authorized by
the Company's Board of Directors..
5.9. Employee Confidentiality Agreements. The Company shall
continue to maintain, and have each of its employees sign their
acknowledgement of same as of their hiring, the proprietary
provisions contained in pages 14 and 15 of its employee
handbook._
5.10.Compliance with Environmental Laws. The Company will,
and will cause each Subsidiary to, comply in a timely fashion with,
or operate pursuant to valid waivers of, federal, state and local
environmental or pollution control laws, permits and licenses
governing, without limitation, the emission of waste water effluent,
solid and Hazardous Materials and air pollution, and laying down
general environmental conditions, together with any other
applicable requirements for conducting, on a timely basis, periodic
tests and monitoring for contamination of ground water, surface
water, air and land and for biological toxicity of the aforesaid and
diligently comply with all material Environmental Laws (except to
the extent such Environmental Laws are waived) of any relevant
department or authority charged with environmental protection ,
other than such instances of non-compliance or operation without
waivers which are not reasonably likely to have a Material Adverse
Effect.
5.11 Litigation. The Company shall promptly give you written
notice of all legal or arbitration proceedings, including
proceedings before any Governmental Authority, commenced
against the Company, its assets or properties, and involving in
excess of $150,000, except proceedings which if adversely
determined, would be entirely (other than amounts subject to
deductibles of $25,000 or less per annum) covered by the
Company's insurance policies.
5.12. Maintenance of Properties. etc.
5.12.1. The Company shall maintain its properties and assets in
normal working order and condition and make all necessary
repairs, renewals, replacements, additions, betterments and
improvements thereto, ordinary wear and tear excepted, all as
in the judgement of the Company may be necessary so that
the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided,
however, that nothing contained herein shall restrict or limit
the Company's right to sell, lease or otherwise dispose of all
or any part of the assets of, sell all of the outstanding Capital
Stock of, or merge or combine, or otherwise divest (including
by cessation of operations) in any form of transaction
whatsoever, its Videssence, Inc. subsidiary, on such terms and
conditions, and for such consideration, as may be authorized
by the Company's Board of Directors.
5.12.2. The Company shall keep true books of records and
accounts in which full and correct entries will be made of all
of its business transactions, in accordance with sound business
practices, and reflect in its quarterly and annual financial
statements adequate accruals and appropriations to reserves,
all in accordance with generally accepted accounting principles
subject, with respect to unaudited financial statements, normal
year-end adjustments.
5.12.3. The Company shall comply with all statutes, laws,
ordinances, or governmental rules and regulations to which it
is subject, noncompliance with which would materially
adversely affect the business, earnings, properties, assets or
financial condition of the Company.
5.13. Insurance.
5.13.1. The Company will keep all its insurable properties properly
insured against loss or damage by fire and other risks
maintain public liability insurance against claims for personal
injury, death or property damage suffered by others upon or in
or about any premises occupied by it or arising from
equipment owned by the Company and leased to and located
upon or in or about any premises occupied by any other
person maintain all such worker's compensation or similar
insurance as may be required under the laws of any state or
jurisdiction in which it may be engaged in business and
maintain such other insurance as is usually maintained by
persons engaged in the same or similar business as is the
Company and whose businesses are comparable in size to the
business of the Company. All such insurance shall be
maintained against such risks and in at least such amounts as
such insurance is usually carried by persons engaged in the
same or similar businesses and whose businesses are
comparable in size to the business of the Company, and all
insurance herein provided for shall be effected and maintained
in force under a policy or policies issued by insurers of
recognized responsibility, except that, the Company may effect
worker's compensation or similar insurance in respect of
operations in any state or other jurisdiction either through an
insurance fund operated by such state or other jurisdiction or
by causing to be maintained a system or systems of
self-insurance which is in accord with applicable laws.
5.14. Payment of Taxes; Corporate Existence.
5.14.1. The Company shall pay and discharge promptly, or cause to
be paid and discharged promptly, when due and payable, all
taxes, assessments and governmental charges or levies
imposed upon it or upon its income or upon any of its
property, real, personal and mixed, or upon any part thereof,
as well as all claims of any kind (including claims for labor,
materials and supplies) which, if unpaid might by law become
a lien or charge upon its property; provided, however, that the
Company shall not be required to pay any tax, assessment,
charge, levy or claim if the amount, applicability or validity
thereof shall currently be contested in good faith by appro-
priate proceedings and if the Company shall have set aside on
its books reserves (classified to the extent required by
generally accepted accounting principles) deemed by it
adequate with respect thereto; and provided further, that the
Company shall have no obligation to make any payments
under this paragraph (a) with respect to property subject to
leases pursuant to the terms of which the lessees or lessors
thereof, as applicable, have undertaken to make such
payments; and
5.14.2. The Company will do or cause to be done all things
necessary to preserve and keep in full force and effect its
corporate existence, rights and essential franchises, provided,
however, that nothing in this Section 5.13.2 shall (i), prevent
the abandonment or termination of the Company's
authorization to do business in any foreign or domestic
jurisdiction if, in the opinion of the Company's Board of
Directors, such abandonment or termination is in the interest
of the Company and not disadvantageous in any material
respect to you or (ii) require compliance with any law so long
as the validity or applicability thereof shall be disputed or
contested in good faith.
5.15. Key Man Insurance. The Company will maintain in full force
and effect a term life insurance policy in an amount not less than
$1,000,000 insuring the life of Xxxx Xxxxxx, which policy shall
designate the Company as the sole beneficiary of the proceeds
thereof.
5.16. Limitation on Transactions with Affiliates. Except for
intercompany transactions with Videssence, Inc., and Babylonian
Productions, Inc. in the ordinary course and consistent with past
practice, the Company shall not (a) conduct any business or
enter into any transaction or series of similar transactions
(including, without limitation, the purchase, sale, lease or
exchange of any property or the rendering of any service) with
any Affiliate of the Company or any officer of the Company
unless the terms of such business, transaction or series of
transactions are (i) set forth in writing and (ii) in the
determination of a majority of the directors of the Company that
do not have an interest in the transaction the transaction is as
favorable to the Company as that which would be obtainable at
the time for a comparable transaction or series of similar
transactions in arm's length dealings with an unrelated third
person; or (b) pay compensation to any officer or director unless
the terms thereof have been approved by a majority of the
disinterested directors of the Company; provided, however, that
nothing contained herein shall restrict or limit the Company's
right to sell, lease or otherwise dispose of all or any part of the
assets of, sell all of the outstanding Capital Stock of, or merge or
combine, or otherwise divest (including by cessation of
operations) in any form of transaction whatsoever, its
Videssence, Inc. subsidiary, on such terms and conditions, and
for such consideration, as may be authorized by the Company's
Board of Directors.. You shall not be deemed an Affiliate of the
Company for purposes of this Section 5.16.
5.17. Asset Sales. The Company shall not, during any 12 month
period, make any Asset Sale or Sales aggregating in excess of
10% of the book value of the assets of the Company unless the
terms of such transaction or series of transactions are (a) set
forth in writing and (b) in the determination of a majority of the
directors of the Company that do not have an interest in the
transaction(s), the transaction(s) are in the best interest of the
Company.
5.18. Successor Corporation. The Company shall not
consolidate with or merge with or into any Person unless the terms
of such transaction or series of transactions are (a) set forth in
writing and (b) in the determination of a majority of the directors
of the Company that do not have an interest in the transaction(s),
the transaction(s) are in the best interest of the Company.
5.19. Maintenance of Ownership of Subsidiaries. The Company
shall not create, nor sell any of the Capital Stock of, any
Subsidiary, except to the Company or another Subsidiary, or
permit any Subsidiary to issue, sell or otherwise dispose of any
shares of its Capital Stock or the Capital Stock of any Subsidiary
except to the Company or another Subsidiary, nor shall the
Company, acquire all or substantially all of the assets of or 50%
or more of the voting securities of another corporation which is
not, as of the date hereof, a Subsidiary of the Company unless
the terms of such transaction or series of transactions are (a) set
forth in writing and (b) in the determination of a majority of the
directors of the Company that do not have an interest in the
transaction(s), the transaction(s) are in the best interest of the
Company.
5.20. Change of Business. The Company shall not materially alter
the nature of its principal business unless a written proposal for
such alteration is presented to the Board of Directors of the
Company and a majority of the Directors determine that such
alteration is in the best interests the Company (without counting
the votes of any director who has an interest in any transaction
arising from such alteration).
5.21. No Conflicting Agreements. The Company shall not
enter into, and shall not permit any Subsidiary to enter into, any
agreement or make any amendment to any agreement which by its
terms would prohibit or conflict with the Company's performance
of its obligations to you, pursuant to the Company's Certificate of
Incorporation, as amended, Bylaws, this Agreement, or any of the
other agreements, unless the Company's obligations under such
conflicting agreement or amendment are conditioned upon
obtaining consent of the holders of Underlying Common Stock
and the Notes, as applicable, under this Section 5.21, and the
failure to obtain such consent shall not constitute a breach of such
conflicting agreement.
5.22. Amendment to Bylaws. The Company shall not amend its
Bylaws in any manner whatsoever if such amendment has an
adverse effect on or otherwise adversely modifies any of the
rights, preferences or privileges accorded to any of the holders of
the Notes or Underlying Common Stock.
6. REPRESENTATIONS AND WARRANTIES.
6.1. Representations of the Company. The Company represents and
warrants to you as follows, subject, in the cases specified in this
Section 6.1, to the matters set forth in the disclosure letter of the
Company delivered to you on the date hereof and incorporated by
reference herein (the "Company Disclosure Letter"):
6.1.1. Organization, Good Standing and Qualification. Each
of the Company and its Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws
of its jurisdiction of organization, and has all requisite
corporate or other organizational power and authority under
such laws to own or lease and operate its properties and to
carry on its business as now conducted. Each of the
Company and its Subsidiaries is duly qualified or licensed to
do business as a foreign corporation, in good standing in each
jurisdiction in which the nature of the business transacted by it
or the character of the properties owned or leased by it
requires it to so qualify or be licensed, except where the failure
to be so licensed or qualified would not, singly or in the
aggregate, be reasonably likely to have a Material Adverse
Effect. The Company has made available to you a complete
and correct copy of the Certificate of Incorporation and the
Bylaws of the Company and each of its Subsidiaries, each as
amended to date and each of which as so made available is in
full force and effect. The Company has made available to you
a complete and correct copy of the minute books of the
Company and each of its Subsidiaries, and each such minute
book includes minutes of the meetings of, and resolutions
adopted by, the board of directors of each such entity and the
committees thereof to date.
6.1.2. Authorization. (a) the Company has the requisite
corporate power and authority to execute, deliver and perform
its obligations under this Agreement and each Ancillary
Agreement to which it is a party, including without limitation,
the Warrants and the Notes; and (b) all corporate action on
the part of the Company, its officers, directors and
stockholders necessary for the authorization, execution and
delivery of this Agreement, each Ancillary Agreement to
which the Company is a party, including, without limitation,
the Warrants and the Notes, and the performance of all
obligations of the Company hereunder and thereunder, and
the authorization, issuance, sale and delivery of the Notes and
the Warrants, has been taken.
6.1.3. Enforceability. This Agreement and each Ancillary
Agreement to which the Company is a party and which is to
be entered into on the date hereof, have been duly authorized,
executed and delivered by the Company and constitute the
valid and legally binding obligations of the Company,
enforceable against the Company in accordance with their
respective terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity (whether
enforcement is sought by proceedings in equity or at law).
6.1.4. Consents; No Conflict.
6.1.4.1. Except (i) as set forth on the Company Disclosure
Letter; (ii) required blue sky filings, if any, which will be
effected in accordance with applicable blue sky laws;
(iii) filings required under the Securities Act in
connection with the Registration Rights Agreement or
Exchange Act; and (iv) the approval of NASDAQ for
the issuance and quotation of the Conversion Shares on
the NASDAQ SmallCap Market, subject to official
notice of issuance, no consent, approval, order or
authorization of, or registration, qualification,
designation, declaration or filing with, any Governmental
Authority or any other Person on the part of the
Company is required in connection with the
consummation of the transactions contemplated by this
Agreement and the Ancillary Agreements except for
consents which individually would not materially affect
the consummation of the transactions contemplated by
this agreement or result in material violation of any law.
6.1.4.2. The execution and delivery by the Company of this
Agreement, each of the Ancillary Agreements to which it
is a party, and the Warrant and the Notes, and the
performance by the Company of its obligations
hereunder and thereunder, will not (i) violate any
provision of the Certificate of Incorporation or Bylaws;
(ii) violate any provision of any law or any order of any
court or Governmental Authority; (iii) conflict with,
result in a breach of or constitute (with notice or lapse of
time or both) a default under, or allow any other party
thereto a right to terminate or seek a payment from the
Company or any Subsidiary under the terms of, any
indenture, agreement or other instrument by which the
Company or any of its subsidiaries or any of their
material properties or assets is bound; or (iv) result in the
creation or imposition of any Lien upon any of the
material properties or assets of the Company or any of
its Subsidiaries.
6.1.5. Capitalization. (a) The authorized capital stock of the
Company consists of (i) 2,000,000 shares of Preferred Stock,
57,286 of which have been designated as Series A Preferred
Stock; and (ii) 20,000,000 shares of Common Stock. As of the
date of this Agreement, 57,286 shares of Series A Preferred
Stock were issued and outstanding and there were issued and
outstanding (i) 3,334,405 shares of Common Stock and (ii)
options to purchase 878,250 shares of Common Stock under
the Option Plans and 415,000 shares of Common Stock other
than under the Option Plans. Except as set forth in the
Company Disclosure Letter or as provided in this Agreement,
there are no Derivative Securities outstanding (including
preemptive rights). The Company has, and will at the Initial
Closing have (after giving effect to the issuance of securities
being issued on the Initial Closing Date) sufficient authorized
Common Stock reserved for issuance for all outstanding
Derivative Securities. The Company has no obligation
(contingent or other) to purchase, redeem or otherwise
acquire any of its Equity Securities or any interest therein or to
pay any dividend or make any other distribution in respect
thereof , except for dividends payable on the shares of Series
A Preferred Stock in accordance with their terms.
6.1.6. Subsidiaries. (a) The Company Disclosure Letter lists, for
each Subsidiary of the Company, existing as of the date
hereof, the name of such Subsidiary, together with (i) the
jurisdiction and nature (e.g., corporation, partnership, limited
liability company) of its organization; (ii) the number and
percentage of shares of each class of Equity Securities of such
Subsidiary owned by the Company or any of its Subsidiaries;
and (iii) the identity of any Person other than the Company or
its Subsidiaries that has the right (including upon the passage
of time or upon the occurrence of specified events) to acquire
any of its Equity Securities. The Equity Securities of each
such Subsidiary owned, directly or indirectly, by the Company
are held free and clear of all Liens, and all such Equity
Securities have been duly authorized and validly issued and are
fully paid and non-assessable. Except for Equity Securities of
the Subsidiaries of the Company, as set forth in the Company
Disclosure Letter hereto, or investment securities of any
Person held by Subsidiaries of the Company in the ordinary
course of business (provided the Company and its Subsidiaries
Beneficially Own (and, after giving effect to such transactions,
would Beneficially Own), in the aggregate, less than 5% of the
Voting Power of the Voting Securities of such Person), the
Company does not, directly or indirectly, (i) Beneficially Own
or own of record any Equity Securities of, or any other equity
interest in, any other Person; or (ii) have any other equity
investment or other ownership interest in any other Person.
6.1.7. Dividends; Stock Repurchases. Except as disclosed in the
Company Disclosure Letter, there are no contractual or other
restrictions or limitations on the ability of the Company or any
of its Subsidiaries to pay any dividends or make any other
distributions on, or to purchase, redeem or otherwise acquire,
any of its Common Stock.
6.1.8. Valid Issuance of Securities. (a) The Conversion Shares
and Warrant Shares, when issued, sold and delivered in
accordance with the terms of this Agreement, the Notes and
the Warrants for the consideration expressed herein and
therein, will be duly authorized, validly issued, fully paid and
nonassessable. The outstanding shares of Common Stock and
Series A Preferred Stock are duly authorized, validly issued,
fully paid and nonassessable. The issuance, sale and delivery
of the Notes, Warrants, Conversion Shares and Warrant
Shares is not subject to any preemptive right of stockholders
of the Company arising under law or the Certificate of
Incorporation or Bylaws or to any contractual right of first
refusal or other contractual right in favor of any Person.
6.1.9. Litigation. Except as expressly disclosed in the SEC
Documents or in the Company Disclosure Letter, as of the
date hereof (i) there is no action, suit, proceeding or
investigation pending or, to the Knowledge of the Company,
currently threatened against the Company or any of its
Subsidiaries that involves a claim against the Company or any
of its Subsidiaries in an amount in excess of $50,000, or that
questions the validity of this Agreement or any of the
Ancillary Agreements or the right of the Company to enter
into, or to consummate, the transactions contemplated hereby
or thereby, or that would be reasonably likely, either
individually or in the aggregate, to have a Material Adverse
Effect, nor does the Company have Knowledge that there is
any basis for any of the foregoing; and (ii) the Company is not
a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any Governmental
Authority that specifically names the Company or any of its
Subsidiaries and as to which either compliance or
noncompliance is reasonably likely to have a Material Adverse
Effect; and (iii) there are no regulatory proceedings applicable
to, or pending (or to the Knowledge of the Company
threatened) against the Company or any of its Subsidiaries,
which are reasonably likely to have a Material Adverse Effect.
As of the date hereof, there is no action, suit, proceeding or
investigation by the Company or any of its Subsidiaries
currently pending or which the Company its Subsidiaries
intends to initiate that is material to the operations of the
Company and Subsidiaries considered as a whole.
6.1.10. Compliance with Law and Other Instruments.
6.1.10.1. Except as disclosed in the SEC Documents or in the
Company Disclosure Letter, the Company and its
Subsidiaries are not in conflict with, or in default or
violation of, (i) any law, rule, regulation, order, judgment
or decree applicable to any of them or by which any of
their property or assets is bound or affected or (ii) any
note, bond, mortgage, indenture, contract, agreement,
lease, License, permit, franchise or other instrument or
obligation to which any of them is a party or by which
any of their property or assets is bound or affected,
except for any such conflicts, defaults or violations that
are not reasonably likely, individually or in the aggregate,
to have a Material Adverse Effect.
6.1.10.2. The Company and each Subsidiary of the Company
holds all material Licenses from all Governmental
Authorities necessary for the conduct of its business and
has received no notice of proceedings relating to the
revocation of any such License, which alone or in the
aggregate, if the subject of an unfavorable decision,
ruling or finding, would be reasonably likely to have a
Material Adverse Affect.
6.1.11. SEC Documents; Financial Statements.
6.1.11.1. There are no agreements, understandings or
proposed transactions between the Company or any of
its Subsidiaries and any of their respective officers,
directors or Affiliates, or any Affiliate thereof, of a type
that would be required to be disclosed on Form 10-K for
the year ending on June 30, 1999 other than the
agreements, understandings or proposed transactions
disclosed in the SEC Documents (as defined below).
The Company has timely filed all reports required to be
filed by it with the SEC since July 1, 1995 pursuant to
the Exchange Act. The Company has provided you with
copies of (i) the Company's annual reports on Form 10-
K for the years ended June 30, 1996, 1997 and 1998; (ii)
the Proxy Statement filed by the Company with the SEC
on October 20, 1998 with respect to the 1998 Annual
Meeting of Stockholders of the Company; and (iii) the
Company's quarterly report on Form 10-Q for the
quarter ended December 31, 1998 (collectively, together
with any other reports or filings made by the Company
since July 1, 1995 and prior to the date hereof with the
SEC pursuant to the requirements of the Securities Act
or the Exchange Act, the "SEC Documents").
6.1.11.2. As of their respective dates, or, in the case of
registration statements as of their respective effective
dates, the SEC Documents complied (or, as to filings by
the Company with the SEC after the date hereof, will
comply) in all material respects with the requirements of
the Exchange Act or the Securities Act, as applicable.
None of the SEC Documents, as of their respective
dates, contained (or, as to filings by the Company with
the SEC after the date hereof, will contain) any untrue
statement of a material fact or omits to state any 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. Without limiting the representations and
warranties made in Section 6.1.11, the representation in
the immediately preceding sentence shall not apply to
any misstatement or omission in any SEC Document
filed prior to the date of this Agreement which was
superseded or corrected by a subsequent SEC Document
filed by the Company before the date hereof.
6.1.11.3. Except as otherwise noted therein or in the
Company Disclosure Letter, the financial statements of
the Company included in the SEC Documents comply
(or, as to filings by the Company with the SEC after the
date hereof, will comply) as to form in all material
respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with generally
accepted accounting principles, except in the case of
unaudited statements, applied on a consistent basis
(except as may be indicated therein or in the notes
thereto) during the periods involved and fairly present
the consolidated financial position of the Company and
its Subsidiaries as of the respective date thereof and the
consolidated results of their operations and cash flows
for the respective periods then ended (subject, in the
case of unaudited statements, to normal year-end audit
adjustments).
6.1.12. Undisclosed Liabilities. Except as disclosed in the SEC
Documents, at June 30, 1998, there were no liabilities or
obligations of any nature (whether accrued, absolute, fixed,
contingent, liquidated, unliquidated or otherwise and whether
due or to become due) required by GAAP to be set forth on
the Balance Sheet (as defined below) of the Company and its
Subsidiaries taken as a whole except as reflected or reserved
against on the balance sheet at June 30, 1998 (including the
notes thereto, the "Balance Sheet"). Since June 30, 1998,
except as set forth in the SEC Documents, the Company has
not incurred any such liabilities or obligations except (i)
liabilities incurred in the ordinary course of business consistent
with past practice, (ii) such as would not be reasonably likely
to, individually or in the aggregate, have a Material Adverse
Effect, or (iii) as contemplated by this Agreement.
6.1.13. Absence of Certain Changes or Events. Except as
disclosed in the SEC Documents or in the Company
Disclosure Letter, or as a consequence of, or as contemplated
by, this Agreement, since September 30, 1998, (i) the business
of the Company has been carried on only in the ordinary and
usual course; (ii) there has not occurred any change or event
which has resulted or is reasonably likely to result in a Material
Adverse Effect; provided, however, that in determining
whether a Material Adverse Effect has occurred, there shall be
excluded any change or effect resulting from matters disclosed
by the Company in any SEC Document filed prior to the date
hereof or in the Company Disclosure Letter, including,
without limitation, the Company's contemplated divestiture or
shutdown of its Wholly-Owned Subsidiary, Videssence, Inc.
6.1.14. ERISA and Other Employment Matters.
6.1.14.1. Except as disclosed in the Company Disclosure
Letter, neither the Company nor any of its Subsidiaries
nor any trade or business (whether or not incorporated)
under common control with the Company or any of its
Subsidiaries within the meaning of Section 414(b), (c),
(m) or (o) of the Code (the "Controlled Group")
maintains or contributes to or has any obligation to
contribute to, or has any liability (contingent or
otherwise) with respect to, any plan, program,
arrangement, agreement or commitment which is an
employment, consulting or deferred compensation
agreement, or an executive compensation, incentive
bonus or other bonus, employee pension, profit-sharing,
savings, retirement, stock option, stock purchase,
severance pay, life, health, disability or accident
insurance plan, or vacation, or other employee benefit
plan, program, arrangement, agreement or commitment,
including, without limitation, any "employee benefit
plan" as defined in Section 3(3) of ERISA (individually, a
"Plan", and collectively, the "Plans").
6.1.14.2. There has been no mass layoff or plant closing as
defined by the Worker Adjustment and Retraining
Notification Act or any similar state or local "plant
closing" law with respect to the employees of the
Company or any Company Subsidiary which resulted in
any liability of the Company or any Company Subsidiary
which remains unsatisfied.
6.1.14.3. The execution of, and performance of the
transactions contemplated in, this Agreement will not,
either alone or upon the occurrence of subsequent
events, result in (i) any payment (whether of severance
pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any employee
or (ii) the Company's or any Company Subsidiary's
failing to be able to deduct for Federal income tax
purposes any items on account of Section 280G or
162(m) of the Code.
6.1.15. Taxes. Except as disclosed in the Company Disclosure
Letter or in the SEC Documents:
6.1.15.1. The Company is the common parent of an
affiliated group of corporations (within the meaning of
Section 1504(a) of the Code) eligible to file consolidated
federal income Tax Returns, of which the Company is a
member. From July 1, 1994 through the Initial Closing
Date, the Company has included each Subsidiary (which
was, in the period covered thereby, a Subsidiary of the
Company) in its consolidated federal income Tax Return
as a member of the affiliated group of which the
Company is the common parent.
6.1.15.2. The Company and its Subsidiaries have duly filed
all U.S. federal, state, local, foreign and other tax returns
(including any information returns), reports and statements that
are required to have been filed with the
appropriate taxing authority and have paid all Taxes with
respect to the taxable periods covered by such returns,
reports or statements. All information provided with
respect to the taxable periods covered by such returns,
reports and statements is complete and accurate in all
material respects.
6.1.15.3. Any liability of the Company for Taxes not yet due
and payable, or which are being contested in good faith,
has been provided for on the financial statements of the
Company in accordance with generally accepted
accounting principles subject, with respect to unaudited
financial statements, normal year-end adjustments.
6.1.15.4. No audits or investigations relating to any Taxes for
which the Company or its Subsidiaries may be liable are
pending or threatened in writing by any taxing authority.
There are no agreements or applications by the
Company or any of its Subsidiaries for the extension of
the time for filing any tax return or paying any Tax, and
neither the Company nor any Subsidiary has extended or
waived any statute of limitation for the assessment of any
Taxes. The Company Disclosure Letter lists the audit
status of each of the Company's tax returns.
6.1.15.5. Neither the Company nor any of its Subsidiaries are
parties to any agreements relating to the sharing or
allocation of, or indemnification agreement with respect
to, Taxes, or similar contract or arrangement.
6.1.15.6. Since January 1, 1994, no claim has been made by
any Tax authority in a jurisdiction where the Company
or, to the Company's Knowledge, any Subsidiary does
not currently file a Tax return that it is or may be subject
to Tax by such jurisdiction, nor to the Company's
Knowledge is any such assertion threatened.
6.1.15.7. As of January 1, 1999 for U.S. federal income tax
purposes, the Company had no net operating loss
carryforwards. Except for the effect of the transactions
contemplated by this Agreement, there has not been an
ownership change of the Company within the meaning
of Section 382 of the Code during the five years
preceding the date of this Agreement.
6.1.15.8. The Company or its Subsidiaries have withheld
from its employees, independent contractors and third
parties and timely paid to the appropriate taxing
authority proper and accurate amounts in all material
respects through all periods in compliance in all material
respects with all Tax withholding provisions of all
Applicable Laws.
6.1.15.9. Neither the Company nor any Subsidiary has
income that is includable in computing the taxable
income of a United States person (pursuant to Section
7701 of the Code) under Section 951 of the Code.
6.1.15.10. All material elections with respect to Taxes of the
Company or any Subsidiary are set forth in the Company
Disclosure Letter.
6.1.16. Company Intellectual Property
6.1.16.1. The Company owns or has the valid and
enforceable right to use all material Intellectual Property
necessary for the conduct of its business and operations
as currently conducted.
6.1.16.2. The Company Disclosure Letter sets forth a
complete list of all material Intellectual Property owned
by the Company . Except as indicated in the Company
Disclosure Letter, the Company owns all right, title and
interest in such material Intellectual Property free and
clear of all Liens and other adverse claims and has the
right to use without payment to a third party. The
Intellectual Property owned or licensed by the Company
is adequate and sufficient for the conduct of the business
of the Company in the ordinary course and as currently
proposed to be conducted.
6.1.16.3. Except as set forth in the Company Disclosure
Letter and except as relates to trademarks and service
marks not registered or subject to application for
registration, (a) the material Intellectual Property owned
by the Company is valid, subsisting, unexpired, in proper
form and enforceable and all renewal fees and other
maintenance fees with respect to such material
Intellectual Property, as applicable, which have fallen due
on or before the effective date of this Agreement have
been paid and (b)the grants, registrations and
applications for such material Intellectual Property
owned by the Company have not lapsed, expired or been
abandoned and no application or registration thereof is
the subject of any legal or governmental proceeding
before any governmental, registration or other authority
in any jurisdiction other than grants, registrations or
applications, the lapse, expiration or abandonment of
which would not reasonably be expected to have a
Material Adverse Effect.
6.1.16.4. Except as set forth in the Company Disclosure
Letter and except for infringements, claims, demands,
proceedings and defects in rights that would not
reasonably be expected to have a Material Adverse
Effect, to the Company's Knowledge, (i) there are no
conflicts with or infringements of any Intellectual
Property owned or used by the Company by any third
party; and (ii) the conduct of the business of the
Company and its Subsidiaries as currently conducted
does not conflict with or infringe any proprietary right of
any third party. Except as set forth in the SEC
Documents, there is no claim, suit, action or proceeding
pending or, to the Knowledge of the Company or its
Subsidiaries, threatened against the Company or its
Subsidiaries, (i) alleging any such conflict or infringement
with any third party's proprietary rights; or (ii)
challenging the ownership, use, validity or enforceability
of the Intellectual Property owned or used by the
Company that would be reasonably likely, individually or
in the aggregate, to have a Material Adverse Effect.
6.1.16.5. The Company Disclosure Letter sets forth a
complete and correct list, as of the date hereof, of all
material Licenses whereby the Company or its
Subsidiaries is granted rights to use Intellectual Property
owned by another Person. The Company has furnished
you with complete and correct copies of any such
Licenses listed in the Company Disclosure Letter, as in
effect on the date hereof. Neither the Company nor its
Subsidiaries nor, to the Company's Knowledge, any
other party thereto, is in default under any such License
listed in the Company Disclosure Letter as of the date
hereof, and each such License listed in the Company
Disclosure Letter is in full force and effect as to the
Company or any of its Subsidiaries party thereto and, to
the Company's Knowledge, as to each other party thereto,
except for such defaults and failures to be in full
force and effect as would not reasonably be expected to
have a Material Adverse Effect. Except as set forth in
the Company Disclosure Letter, neither the Company
nor its Subsidiaries is under any obligation to pay
royalties or similar payments in connection with any
License listed in the Company Disclosure Letter in
excess of $10,000 per year in the aggregate.
6.1.16.6. Except as set forth in the Company Disclosure
Letter, neither the Company nor its Subsidiaries is, nor
will any of them be as a result of the execution and
delivery of this Agreement or the performance of its
obligations under this Agreement in breach of any such
License listed in the Company Disclosure Letter. The
validity and enforceability of the material Intellectual
Property owned or used by the Company and the
registration thereof has not been Materially Adversely
Affected as a result of the consummation of the
transactions contemplated by this Agreement.
6.1.16.7. Neither the Company nor its Subsidiaries has
entered into any material consent, indemnification,
forbearance to xxx or settlement agreement with any
person relating to the material Intellectual Property
owned or used by the Company or the Intellectual
Property of any third party other than as set forth in the
Company Disclosure Letter.
6.1.16.8. The Company's and its Subsidiaries' products or
systems used in the operation of the business of the
Company or its Subsidiaries, which incorporate the
processing of dates and date-related data (including, but
not limited to, calculating, comparing and sequencing)
that are operationally material to the business of
Company or its Subsidiaries including, but not limited to,
computer systems, infrastructure items, software
applications, hardware, and related equipment and
utilities ("Products") will be Year 2000 Compliant by
August 31, 1999. The Company either (i) has
undertaken (or will undertake) all reasonable efforts to
obtain, or has obtained, assurances from its vendors that
such vendors' products are already Year 2000 Compliant
or will be Year 2000 Compliant by August 31, 1999; or
(ii) the Company will have modified or replaced such
products by August 31, 1999, except in each such case as
any such non-compliance would not have a Material
Adverse Effect.
6.1.17. Contracts.
6.1.17.1. Except as set forth in the SEC Documents or the
Company Disclosure Letter, neither the Company nor
any of its Subsidiaries is a party or subject to any of the
following (whether written or oral, express or implied):
(i) any employment agreement or understanding or
obligation, with respect to severance or termination, to
pay liabilities or fringe benefits with any present or
former officer or director of the Company or with any
consultant of the Company or any of its Subsidiaries,
who is or may be entitled to receive pursuant to the
terms thereof, compensation in excess of $100,000 upon
termination of such Person's employment or
engagement; (ii) any plan, contract or understanding
providing for bonuses, pensions, options, deferred
compensation, retirement payments, royalty payments,
profit sharing or similar understanding with respect to
any present or former officer or director of the Company
or with any consultant of the Company or any of its
Subsidiaries, who is or may be entitled to receive
pursuant to the terms thereof, compensation in excess of
$100,000 in any single year, or (iii) any non-compete or
similar agreement or obligation of the Company or any
Subsidiary. Except as set forth in the Company
Disclosure Letter or in the SEC Documents, neither the
Company nor any of its Subsidiaries is a party to any
collective bargaining agreement covering their respective
employees.
6.1.17.2. Except as set forth in the SEC Documents, none of
the Company, any of its Subsidiaries, or to the
Knowledge of the Company, any other party is in breach
or violation or in default in the performance or
observance of any term or provision of any contract,
agreement, indenture, mortgage, loan agreement, note,
lease or other instrument to which the Company or any
such Subsidiary is a party or by which the Company or
any such Subsidiary is bound or to which any of the
properties of the Company or any such Subsidiary is
subject, which breach, violation or default is reasonably
likely to, individually or in the aggregate, have a Material
Adverse Effect.
6.1.18. Insurance. The Company and its Subsidiaries are insured
with reputable insurers against such risks and in such amounts
as are prudent in accordance with industry practices. All the
insurance policies, binders, or bonds maintained by the
Company or its Subsidiaries (the "Policies") have been
maintained in accordance with their respective terms and will
remain in full force and effect after the Closing. Except as set
forth in the Company Disclosure Letter, neither the Company
nor any of its Subsidiaries has received any notice of default
with respect to any provision of any such Policies. With
respect to its directors' and officers' liability insurance policies,
neither the Company nor any of its Subsidiaries has failed to
give any notice or present any claim thereunder in due and
timely fashion or as required by any such policies so as to
jeopardize full recovery under such Policies.
6.1.19. Registration Rights. Other than as set forth in the
Company Disclosure Letter, the Company has not granted or
agreed to grant any registration rights, including piggyback
rights, to any person or entity.
6.1.20. Brokers. Other than its financial advisor, Sutro & Co.
("Sutro"), the Company has not employed any investment
banker, broker, finder, or intermediary in connection with the
transactions contemplated by this Agreement, and the
Company is under no obligation to pay any investment
banking, brokerage, finder's or similar fee or commission in
connection with such transactions, other than certain fees
payable to Sutro, which are the obligation of the Company,
which fees are specified in the Company Disclosure Letter.
The Company has provided to you copies of all agreements
between the Company or any of its Subsidiaries and Sutro
with respect to the transactions contemplated hereby.
6.1.21. Environmental Protection
6.1.21.1. The Company and its Subsidiaries are not in
violation of any Environmental Laws, other than such
violations which have not had and are reasonably
expected not to have a Material Adverse Effect and
have, and are in compliance with all terms and
conditions of, all permits, licenses and authorizations
necessary for the conduct of their respective businesses,
other than such instances of non-compliance which are
not reasonably likely to have a Material Adverse Effect.
6.1.21.2. There is no site which is listed on either the
National Priorities List pursuant to CERCLA or a similar
state or local law list with respect to which the Company
or any Subsidiary has received notice from the United
States Environmental Protection Agency or a state or
local agency that the Company or any Subsidiary is
considered to be a potentially responsible party by
reason of arranging for disposal, owning or operating
any facility or site or transporting any Hazardous Waste.
6.1.22. State Takeover Laws. The Company has taken all actions
necessary to render any potentially applicable state takeover
law, including, but not limited to, Section 203 of the DGCL,
inapplicable to (a) the transactions contemplated hereby and
by the Ancillary Agreements and (b) any future transactions
between the Company, on the one hand, and you and/or any
of your Affiliates, on the other hand. The Company has taken
all action so that the entering into of this Agreement and the
consummation of the sale of the Notes, the issuance of the
Warrant, the conversion of the Note and the exercise of the
Warrant and the other transactions contemplated by this
Agreement do not and will not result in the grant of any rights
to any person under the Certificate of Incorporation, Bylaws,
or other governing instruments of the Company, or restrict or
impair the your or your Affiliates' ability as holders of the
Conversion Shares or the Warrant Shares to vote, or otherwise
to exercise the rights of a stockholder with respect to, shares
of the Company that may be directly or indirectly acquired or
controlled by you or your assigns.
6.2. Your Representations and Warranties. You represent and
warrant to the Company that:
6.2.1. Organization. You are a corporation duly organized,
validly existing and in good standing under the laws of
Australia and are a Wholly-Owned Subsidiary of Allco
Finance Group Limited, an Australian corporation. All
corporate action on your part and the part of your officers,
directors and stockholders necessary for the authorization,
execution and delivery of this Agreement, each Ancillary
Agreement to which you are a party and the performance of
all of your obligations hereunder and thereunder has been
taken.
6.2.2. Authorization and Enforceability. You have full power
and authority to enter into this Agreement and the Ancillary
Agreements. Each of this Agreement and the Ancillary
Agreements to which you are a party has been duly
authorized, executed and delivered by you and constitutes
your valid and legally binding obligation, enforceable against
you in accordance with its terms, except as enforceability may
be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general
principles of equity (whether enforcement is sought by
proceedings in equity or at law).
6.2.3. Purchase for Investment. You (and/or the Affiliate on
whose behalf you are acquiring the Securities) are an
"accredited investor" as defined under Rule 501(a) of the
Securities Act, and have such knowledge, sophistication and
experience in business and financial matters as to be capable
of evaluating the Company and the merits and risks of an
investment in the Securities, including the Underlying
Common Stock, and is able to bear the economic risk of such
an investment for an indefinite period of time. The Securities
will be acquired for investment for your (or your Affiliate's)
own account and not with a view to the resale or distribution
of any part thereof, except in compliance with the provisions
of the Securities Act and any applicable state securities laws or
exemptions therefrom.
6.2.4. Consents; No Conflict. No consent, approval, order or
authorization of, or registration, qualification, designation,
declaration or filing with, any Governmental Authority,
agency or body or any other person on your part is required in
connection with the consummation of the transactions
contemplated by this Agreement and the Ancillary
Agreements, except for (i) filings required under the Securities
Act or the Exchange Act; or (ii) such consents, approvals,
orders, authorizations, registrations, qualifications,
designations, declarations or filings, which if not obtained or
made, as the case may be, are not reasonably likely to impair in
any material respect your ability to perform any of its
obligations or agreements hereunder or under the Ancillary
Agreements or consummate the transactions contemplated
hereby or thereby.
7. EVENTS OF DEFAULT AND REMEDIES THEREFOR.
7.1. Events of Default. Any one or more of the following shall
constitute an "Event of Default" as the term is used herein:
7.1.1. Default shall occur in the making of payment of the
principal of any Note at the Maturity Date and such default
shall not have been remedied or waived in writing within 2
days following receipt by the Company of notice of such
default from you; or
7.1.2. Default shall occur in the observance or performance of any
provision of this Agreement and, provided such default is
capable of being cured, such default shall not have been
remedied or waived in writing within 30 days following receipt
by the Company of notice of such default from you or the
Company shall have breached any of the representations or
warranties contained herein as of any Closing Date; or
7.1.3. Default shall occur in the observance or performance of any
covenant or agreement contained in Sections 5.1 through 5.6
hereof; or
7.1.4. Default or the happening of any event shall occur under any
indenture, agreement or other instrument under which any
Senior Indebtedness with an aggregate principal amount of at
least $100,000 (other than the Notes) of the Company may be
issued or outstanding and, as a result thereof, the maturity of
any such Senior Indebtedness has been accelerated; or
7.1.5. Final judgment or judgments for the payment of money
(other than judgments as to which a reputable insurance
company has accepted in writing full liability) aggregating in
excess of $250,000 is or are outstanding against the Company
or against any property or assets thereof and any one of such
judgments has remained unpaid, unvacated, unbonded or
unstayed by appeal or otherwise for a period of 90 days from
the date of its entry; or
7.1.6. The Company (i) becomes insolvent, (ii) is generally not
paying its debts as they become due, (iii) makes an assignment
for the benefit of creditors, (iv) applies for or consents to the
appointment of a custodian, trustee, liquidator, or receiver for
the Company or for all or substantially all of any of their
respective property or (v) admits in writing its inability to pay
debts as the same become due; or
7.1.7. A custodian, trustee, liquidator or receiver is appointed for
the Company or for all or substantially all of the property of
any of them and is not discharged within 60 days after such
appointment; or
7.1.8. Bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any
bankruptcy or similar law or laws for the relief of debtors, are
instituted by or against the Company and are consented to or
are not dismissed within 60 days after such institution.
Notwithstanding the foregoing, or any other provision of this Agreement
to the contrary, except as provided in Section 1.3 permitting
conversion of the Notes to Common Stock, so long as any Senior
Indebtedness remains outstanding, you shall not seek to enforce its
rights under this Agreement prior to the time permitted under Section 4
of this Agreement or other than in accordance with the provisions of
Section 4 of this Agreement.
7.2. Notice to Holder. When any Event of Default has occurred, or if
you or the holder of any other evidence of Indebtedness of the
Company gives any notice or takes any other action with respect to
a claimed default, including accelerating the maturity of the Notes
under Section 7.3 below, the Company agrees to give notice within
three Business Days of such event to all holders of the Notes then
outstanding.
7.3. Acceleration of Maturities; Notice of Acceleration or
Conversion. When any Event of Default described in Section 7.1
has happened and is continuing, you may, by notice in writing sent
in the manner provided in Section 11 hereof to the Company,
declare the entire principal of the Note to be, and such Note shall
thereupon become, forthwith due and payable, without any
presentment, demand, protest or other notice of any kind, all of
which are hereby expressly waived by the Company. Upon the
Notes becoming due and payable as a result of any Event of
Default as aforesaid, the Company will forthwith pay to you the
entire principal and interest (including interest, if any, accrued at
the Overdue Rate, and any interest accrued subsequent to an
Event of Default described in Sections 7.1.6, 7.1.7, or 7.1.8).
7.4. No Waiver. No course of dealing on you part nor any delay or
failure on your part to exercise any right shall operate as a waiver
of such right or otherwise prejudice your rights, powers and
remedies. Notwithstanding any provision of this agreement
(including Section 11.8) to the contrary, the Company further
agrees, to the extent permitted by law, to pay to you all costs and
expenses incurred by you in enforcing your rights hereunder and
under the Notes, including (without limitation) in the collection of
any amount due hereunder and under the Notes upon any default
hereunder or thereon, including the fees and expenses of your
attorneys for all services rendered in connection therewith.
7.5. Rescission of Acceleration. The provisions of Section 7.3 are
subject to the condition that if the principal of any outstanding
Notes have been declared immediately due and payable by reason
of the occurrence of any Event of Default, you may, by written
instrument filed with the Company, rescind and annul such
declaration and the consequences thereof, provided that at the
time such declaration is annulled or rescinded:
7.5.1. No judgment or decree has been entered for the payment of
any monies due pursuant to the Notes or this Agreement;
7.5.2. All arrears of interest upon all the Notes and all other sums
payable under the Notes and under this Agreement (except
any principal, interest or premium, if any, on the Notes that
has become due and payable solely by reason of such
declaration under Section 7.3) shall have been duly paid; and.
7.5.3. Each and every other Default and Event of Default shall
have been made good, cured or waived pursuant to Section 7.1;
7.5.4. And provided further, that no such rescission and
annulment shall extend to or affect any subsequent Default or
Event of Default or impair any right consequent thereto or
the right of any holder to elect to convert any Note.
8. AMENDMENTS, WAIVERS AND CONSENTS.
8.1. Consent Required. Any term, covenant, agreement or condition
of this Agreement may, with the consent of the Company, be
amended or compliance therewith may be waived (either generally
or in a particular instance and either retroactively or prospectively),
if the Company shall have obtained your consent in writing,
provided that no amendment, modification or waiver of any term,
covenant or agreement of Section 9 of this Agreement may be
made except as provided in Section 9. So long as any Senior
Indebtedness is outstanding under the Credit Agreement and you
have no written agreement with such parties regarding
subordination of the Notes, the provisions of Section 7 may not be
amended or waived without the prior written consent of the Senior
Lender or the holders of a majority in principal amount of the
Senior Indebtedness outstanding thereunder.
8.2. Intentionally Omitted
8.3. Effect of Amendment or Waiver. No amendment or waiver shall
extend to or affect any obligation not expressly amended or waived
or impair any right consequent thereon.
9. REGISTRATION OF REGISTRABLE SECURITIES
9.1. Registration.
9.1.1. Warrant Shares. You shall not sell, hypothecate, transfer
or otherwise dispose of any Warrant Shares except (a)
pursuant to an effective registration statement filed under the
Securities Act or (b) pursuant to an exemption therefrom with
respect to which the Company may, upon request, require an
opinion of counsel for you reasonably satisfactory to the
Company that such transfer is exempt from the requirements
of the Securities Act. The Company shall use all reasonable
efforts following the Closing Date to effect the registration
("Warrant Share Registration") of the Warrant Shares under
the Securities Act for resale as expeditiously as reasonably
possible by performing the following:
9.1.1.1. The Company shall, as expeditiously as possible
following the Initial Closing (but in any event within 90
days of the Initial Closing), prepare and file with the
Commission a registration statement with respect to the
resale of the Warrant Shares. The Company shall use all
reasonable efforts to cause the registration statement to
become effective within 60 days of such filing and to
remain effective for a period ending on the earlier of (i)
five years from the effective date of such registration
statement or (ii) the date on which, in the opinion
Company counsel, all remaining Warrant Shares held by
the you and your transferees may be sold in any calendar
quarter in unsolicited broker transactions without
volume limitation pursuant to Rule 144 promulgated
under the Securities Act (or any successor rule thereto),
or (iii) when all of the Warrant Shares have been sold
pursuant to such registration statement.
9.1.1.2. The Company shall prepare and file with the
Commission such amendments and supplements to such
registration statement and the prospectus used in
connection therewith as may be necessary to update and
keep such registration statement effective and to comply
with the provisions of the Securities Act with respect to
the sale of all securities covered by such registration
statement. Notwithstanding anything else to the
contrary contained herein, the Company may defer filing
with the Commission of a registration statement under
Section 9.1.1 if the Company shall furnish to the holders
of Registrable Securities a certificate signed by the
Company's Chief Executive Officer or Chairman of the
Board stating that in the good faith judgment of the
Board of Directors of the Company, it would be
seriously detrimental to the Company and its
stockholders for such registration statement to be
effected at such time, in which event the Company shall
have the right to defer such filing for a period of not
more than ninety (90) days after receipt of the request of
the Initiating Holders; provided that such right to delay a
request may be exercised by the Company on only one
occasion; and
9.1.1.3. The Company shall furnish to the holders of the
Warrant Shares such number of copies of the final
prospectus the holder may reasonably request in order to
facilitate the sale of the shares owned by such holder.
Holders of the Warrant Shares so registered shall comply
with all prospectus delivery requirements under the
Securities Act.
9.1.2. Conversion Shares. You shall not sell, hypothecate,
transfer or otherwise dispose of any Conversion Shares except
(a) pursuant to an effective registration statement filed under
the Securities Act or (b) pursuant to an exemption therefrom
with respect to which the Company may, upon request,
require an opinion of counsel for you reasonably satisfactory
to the Company that such transfer is exempt from the
requirements of the Securities Act. The Company shall use all
reasonable efforts following the Closing Date to effect the
registration ("Conversion Share Registration") of the
Conversion Shares under the Securities Act for resale as
expeditiously as reasonably possible by performing the
following:
9.1.2.1. The Company shall, as expeditiously as possible
following issuance of the initial Note issuable hereunder
(but in any event within 90 days following the issuance of
the initial Note), prepare and file with the Commission a
registration statement with respect to the resale of the
Conversion Shares issuable upon conversion of the initial
Note. The Company shall use all reasonable efforts to
cause the registration statement to become effective within
60 days of such filing and to remain effective for a period
ending on the earlier to occur of (i) of five years from the
effective date of such registration statement, or (ii) the date
on which, in the opinion Company counsel, all remaining
Conversion Shares held by or issuable to you or your
transferees may be sold in any calendar quarter in
unsolicited broker transactions without volume limitation
pursuant to Rule 144 promulgated under the Securities Act
(or any successor rule thereto), or (iii) when all of the
Conversion Shares have been sold pursuant to such
registration statement.
9.1.2.2. The Company shall, as expeditiously as possible
following the time (the "Drawdown Note Registration
Date") of the first to occur of April 15, 2000, and the
issuance of Notes with an aggregate principal amount of
$1,000,000 hereunder, but in any event within 90 days
following the Drawdown Note Registration Date, prepare
and file with the Commission a registration statement with
respect to the resale of the Conversion Shares issuable upon
conversion of all of the Drawdown Notes. The Company
shall use all reasonable efforts to cause the registration
statement to become effective within 60 days of such filing
and to remain effective for a period ending on the earlier to
occur of (i) of five years from the effective date of such
registration statement, or (ii) the date on which, in the
opinion Company counsel, all remaining Conversion Shares
held by or issuable to you or your transferees may be sold in
any calendar quarter in unsolicited broker transactions
without volume limitation pursuant to Rule 144 promulgat-
ed under the Securities Act (or any successor rule thereto),
or (iii) when all of the Conversion Shares have been sold
pursuant to such registration statement
9.1.2.3. The Company shall prepare and file with the
Commission such amendments and supplements to such
registration statement and the prospectus used in
connection therewith as may be necessary to update and
keep such registration statement effective and to comply
with the provisions of the Securities Act with respect to
the sale of all securities covered by such registration
statement, the Company may defer filing with the
Commission of a registration statement under Section
9.1.2 if the Company shall furnish to the holders of
Registrable Securities a certificate signed by the
Company's Chief Executive Officer or Chairman of the
Board stating that in the good faith judgment of the
Board of Directors of the Company, it would be
seriously detrimental to the Company and its
stockholders for such registration statement to be
effected at such time, in which event the Company shall
have the right to defer such filing for a period of not
more than ninety (90) days after receipt of the request of
the Initiating Holders; provided that such right to delay a
request may be exercised by the Company on only one
occasion; and
9.1.2.4. The Company shall furnish to the holders of the
Conversion Shares such number of copies of the final
prospectus the holder may reasonably request in order
to facilitate the sale of the shares owned by such holder.
Holders of the Conversion Shares so registered shall
comply with all prospectus delivery requirements under
the Securities Act.
9.1.3. All expenses incurred by the Company in complying with
this Section 9.1, including, without limitation, all registration
and filing fees, printing expenses, and fees and disbursements
of counsel for Company, are herein called "Registration
Expenses." All selling commissions and discounts applicable
to the sales of the Shares, any applicable transfer taxes, and all
fees and disbursements of counsel for any holder of
Registrable Securities are herein called "Selling Expenses."
The Company will pay all Registration Expenses in
connection with registration pursuant to Section 9.1. All
Selling Expenses in connection with such registration shall be
borne by the holders r of the shares being registered.
9.1.4. Notwithstanding anything to the contrary contained in this
Section 9.1, no person (as defined, for these purposes, in Rule
144(a)(2) of the Commission) who then beneficially owns 1% or
less of the outstanding Equity Securities of the Company may
request that any of its shares of Registrable Securities be
included in any registration statement filed by the Company
pursuant to Section 9.1 unless, in the opinion of counsel for
such person, such person's intended disposition of Registrable
Securities could not be effected within 90 days of the date of
said opinion without registration of such shares under the
Securities Act.
9.1.5. The Company will use its best efforts to register or qualify the
Warrant Shares and Conversion Shares covered by each
registration statement required to be filed hereunder under such
securities or blue sky laws of any State of the United States as
the holder's of the Warrant Shares and Conversion Shares shall
reasonably request, and do any and all other acts and things
which may be reasonably necessary or advisable to enable such
holders, if any, to consummate the disposition in such
jurisdictions of their Warrant Shares and Conversion Shares,
except that the Company shall not for any such purpose be
required to qualify generally to do business as a foreign
corporation in any jurisdiction where, but for the requirements
of this Section, it would not be obligated to be so qualified, to
subject itself to taxation in any such jurisdiction, or to consent
to general service of process in any such jurisdiction.
9.1.6. During the period when any prospectus is required to be
delivered under the Securities Act, the Company will
promptly file all documents required to be filed with the
Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act and furnish a copy thereof to each holder of
Conversion Shares or Warrant Shares promptly after such
document is so filed.
9.2. Transfers of Shares After Registration. You agree that you will
not effect any disposition of any Warrant Shares or Conversion
Shares that would constitute a sale within the meaning of the
Securities Act except as contemplated in the registration statement
by which the resale of such securities is registered pursuant to
Section 9.1 or as otherwise in compliance with applicable securities
laws and that it will promptly notify the Company of any material
changes in the information set forth in the registration statement
regarding it or your plan of distribution.
9.3. Updating. The Company shall prepare and file with the
Commission such amendments (including post-effective
amendments) and supplements to each registration statement
required to be filed hereunder and the prospectus used in
connection therewith as may be necessary to keep such
registration statement effective for at least the periods specified
in Sections 9.1.1 and 9.1.2 and to comply with the provisions of
the Securities Act with respect to the disposition of the Warrant
Shares and Conversion Shares covered by each registration
statement during such period in accordance with the intended
methods of disposition by the holder set forth in such
registration statement, as so amended, or such prospectus, as so
supplemented. The Company will promptly notify holders of
Warrant Shares and Conversion Shares at any time when a
prospectus relating thereto is required to be delivered under the
Securities Act and the Company becomes aware that the
prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances existing at the time it is to be delivered to a
purchaser; and promptly prepare and file an amendment or
supplement and furnish to such holders a reasonable number of
copies of the amended or supplemental prospectus as may be
necessary so that, as thereafter delivered to the purchasers of
such Warrant Shares and Conversion Shares, such prospectus
shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances then existing. The Company's obligation to keep
such registration statement effective shall be extended for a
period of time equal to the period of time during which
prospectuses were not available so that the actual period of
effectiveness for such registration statement shall equal that
called for in Section 9.1.
9.4. Holder Obligations. Whenever the Company is required to
effect the registration of any Warrant Shares or Conversion
Shares under the Securities Act as provided in this Agreement,
as expeditiously as possible each holder of such shares shall
furnish the Company in writing such information and documents
(or true copies of documents) regarding such holder and the
distribution of such holder's Warrant Shares or Conversion
Shares as the Company may reasonably request, including
questionnaires, powers of attorney, indemnities, standstill
agreements, underwriting agreements and other documents
required under the terms of such underwriting agreements. Such
holder agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section
9.3, such holder will forthwith discontinue disposition of
Registrable Shares pursuant to the registration statement
covering such Registrable Shares until such holder's receipt of
copies of the supplemented or amended prospectus contemplated
by Section 9.3, and, if so directed by the Company, such holder
will deliver to the Company (at the Company's expense) all
copies, other than permanent file copies then in such holder's
possession, of the prospectus covering such Registrable Shares
current at the time of receipt of such notice. In the event the
Company shall give any such notice, the period mentioned in
Section 9.1.1.1 and/or 9.1.2.1 and/or 9.1.2.2, as the case may be,
shall be extended by the number of days during the period from
and including the date of the giving of such notice pursuant to
Section 9.3 to and including the date when such holder shall
have received the copies of the supplemented or amended
prospectus contemplated by Section 9.3.
9.5. Indemnification.
9.5.1. Upon the registration of the Registrable Securities under the
Securities Act pursuant to this Agreement, the Company shall
indemnify and hold harmless each holder of Registrable
Securities whose securities are registered for resale thereunder
pursuant to the provisions of Section 9.1 above (a "Selling
Holder") and each controlling person of any Selling Holder, if
any (within the meaning of the Securities Act) against any
losses, claims, damages or liabilities, joint or several (or actions
in respect thereof), to which such Selling Holder or
controlling person may be subject under the Securities Act,
under any other statute or at common law, insofar as such
losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon (i) any untrue
statement (or alleged untrue statement) of any material fact
contained in the registration statement under which such
securities were registered under the Securities Act, any
preliminary prospectus or final prospectus contained therein,
or any summary prospectus issued in connection with the
securities being registered, or any amendment or supplement
thereto, or any other document used to sell the securities
(including an illegal prospectus), or (ii) any omission (or
alleged omissions) to state therein a material fact required to
be stated therein or necessary to make the statements therein
not misleading, or (iii) any violation by the Company of the
Securities Act or any state securities or blue sky laws, or any
rule or regulation promulgated under the Securities Act or any
state securities or blue sky laws, or any other law, applicable to
the Company in connection with any such registration and
shall reimburse each such Selling Holder or controlling person
for any legal or other expenses reasonably incurred by such
Selling Holder or controlling person in connection with
investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall
not be liable to any Selling Holder or controlling person in any
such event to the extent that any such loss, claim, damage or
liability arises out of or is based upon any such untrue
statement or omission made in such registration statement,
preliminary prospectus, summary prospectus, prospectus, or
amendment or supplement thereto, or any other document, in
reliance upon and in conformity with written information
furnished to the Company by any such Selling Holder or
controlling person, specifically for use therein and the
Company shall not be liable to any Selling Holder or
controlling person to the extent any such loss, claim, damage
or liability rises out of the Selling Holder's failure to comply
with the provisions of Section 9.4. The indemnity provided
for herein shall remain in full force and effect regardless of
any investigation made by or on behalf of such Selling Holder
or controlling person, and shall survive transfer of such
securities by such Selling Holder.
9.5.2. Upon the registration of the Conversion Shares and/or the
Warrant Shares under the Securities Act pursuant to this
Agreement, each Selling Holder shall furnish to the Company
in writing such information and affidavits as the Company
reasonably requests for use in connection with such
registration statement and agrees to indemnify and hold
harmless the Company, its directors and each controlling
person (within the meaning of the Securities Act) of the
Company, if any, against any losses, claims, damages or
liabilities, joint or several (or actions in respect thereof), to
which the Company, or any director or controlling person
may be subject under the Securities Act, under any other
statute or at common law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out
of or are based upon (i) any untrue statement (or alleged
untrue statement) of any material fact contained in the
registration statement under which the Registrable Securities
were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein, or any
summary prospectus issued in connection with any securities
being registered, or any amendment or supplement thereto, or
any other document used to sell the securities (including an
illegal prospectus), or (ii) any omission (or alleged omission) to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and
shall reimburse the Company, any director and controlling
person for any legal or other expenses reasonably incurred by
such persons in connection with investigating or defending
any such loss, claim, damage, liability or action; in each case,
to the extent, and only to the extent, that such untrue
statement or omission is contained in any information or
affidavit so furnished in writing by such Selling Holder ;
provided, however, that the Company shall not be liable to
any Selling Holder or controlling person to the extent any
such loss, claim, damage or liability rises out of the Selling
Holder's failure to comply with the provisions of Section 9.4.
The indemnity provided for herein shall survive transfer of
such securities by said holder of Registrable Securities.
9.5.3. If the indemnification provided for in Sections 9.5.1 or 9.5.2
above is unavailable to an indemnified party in accordance
with its terms in respect of any losses, claims, damages or
liabilities referred to therein, then the indemnitor in lieu of
indemnifying such indemnified party thereunder shall contri-
bute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages or liabilities, in such
proportion as is appropriate to reflect the relative fault of the
indemnitor on the one hand and of the indemnified parties on
the other in connection with the statements or omissions
which resulted in such losses, claims, damages, or liabilities, as
well as any other relevant equitable considerations. The
relative fault of the indemnitor and of the indemnified parties
shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to
information supplied by the indemnitor, or the indemnified
parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such
statement or omission.
9.5.4. The Company and the other parties hereto agree that it
would not be just and equitable if contribution pursuant to
this Section 9.5 were determined by pro rata allocation or by
any other method of allocation which does not take account
of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages and
liabilities or actions in respect thereof referred to in the
immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or
claim. No person guilty of a fraudulent misrepresentation
(within the meaning of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such
fraudulent misrepresentation. omission.
9.5.5. Promptly after receipt by an indemnified party under
Sections 9.5.1 or 9.5.2 above of notice of the commencement
of any action, such indemnified party shall, if a claim in
respect thereof is to be made against an indemnitor under
such paragraph, notify the indemnitor in writing of the
commencement thereof; but the omission so to notify the
indemnitor shall not relieve it from any liability which it may
have to any indemnified party otherwise than under such
Section or to the extent that it has not been prejudiced as a
proximate result of such failure. In case any action shall be
brought against any indemnified party, and it shall notify the
indemnitor of the commencement thereof, the indemnitor
shall be entitled to participate therein and, to the extent that it
shall wish, to assume the defense thereof. Upon the
assumption by the indemnitor of the defense of such action,
the indemnitor shall not be liable to such indemnified party
under this Section 9.3 for any legal or other expenses
subsequently incurred by such indemnified party in
connection with the defense thereof.
9.6. Amendment, Modification or Waiver of Section 9. Any term,
covenant, agreement or condition of this Section 9 may, with the
consent of the Company, be amended or compliance therewith
may be waived (either generally or in a particular instance and
either retroactively or prospectively), if the Company shall have
obtained the consent in writing of the holders of at least a majority
in of the outstanding Registrable Securities, provided that without
the written consent of the holders of a majority of the Conversion
Shares then outstanding, no such waiver, modification, alteration
or amendment shall be effective (a) which will adversely affect the
rights of the Conversion Shares, or (b) which will change the
percentage of holders of the Conversion Shares required to
consent to any such amendment, modification or waiver of any of
the provisions of this Section 9.
10. INTERPRETATION OF AGREEMENT; DEFINITIONS.
10.1. Definitions. Unless the context otherwise requires, the terms
hereinafter set forth when used herein shall have the following
meanings and the following definitions shall be equally
applicable to both the singular and plural forms of any of the
term herein defined:
10.1.1. "Affiliate" means, with respect to any referenced Person, (i)
any Person or entity directly or indirectly controlling or
controlled by or under direct or indirect common control with
such Person, (ii) any spouse or non-adult child (including by
adoption) of such Person, (iii) any relative other than a spouse
non-adult child (including by adoption), who has the same
principal residence of any such Person, (iv) any trust in which
any such Persons described in clause (i), (ii) or (iii) above has a
beneficial interest and (v) any corporation, partnership, limited
liability company or other organization of which any such
Persons described in clause (i), (ii) or (iii) above, or any trust
described in clause (iv) above collectively owns more than fifty
percent (50%) of the equity of such entity.
10.1.2. "Ancillary Agreements" means, collectively, the
Registration Rights Agreement, Standstill Agreement,
Warrants and Notes.
10.1.3. "Applicable Law" means with respect to any Person any
Federal, state, local or foreign statute, law, code, ordinance,
rule or regulation or any judgment, decree, rule or order of any
court or governmental agency or authority applicable to such
Person or any of its subsidiaries or any of their respective
properties or assets.
10.1.4. "Asset Sale" means, with respect to the Company, any
sale, lease, conveyance or other disposition of assets or rights,
(including by way of merger or consolidation), of the
Company not made in the ordinary course of business, which
ordinary course includes disposition of obsolete or replaced
equipment.
10.1.5. "Available Cash Amount" means, (i) all amounts
(determined as of the date of the Company's regularly
prepared financial statements for the most recently ended
calendar month) which the Company was able to borrow but
has not borrowed under any loan agreement with the Senior
Lender and any other loan facilities (other than purchase
money financing arrangements for the purchase of equipment,
whether by capital lease or otherwise) to which the Company
is a party, plus (ii) all Cash on Hand.
10.1.6. "Bankruptcy Law" means Title 11, U.S. Code or any
similar Federal, state or foreign law for the relief of debtors.
10.1.7. "Beneficially Own" with respect to any securities means
having "beneficial ownership" of such securities (as
determined pursuant to Rule13d-3 under the Exchange Act as
in effect on the date hereof. The terms "Beneficial
Ownership" and "Beneficial Owner" have correlative
meanings.
10.1.8. "Board of Directors" means the board of directors of the
Company.
10.1.9. "Bylaws" means the bylaws of the Company as amended
from time to time.
10.1.10. "Business Day" means any day other than a Saturday,
Sunday, statutory holiday or other day on which banks in
New York or California are authorized to close.
10.1.11. "Capital Stock" means any and all shares, interests,
participations, rights or other equivalents (however
designated) of corporate stock, including, without limitation,
partnership interests and other indicia of ownership of a
business entity.
10.1.12. "Cash on Hand" means all cash and cash equivalents of
the Company (as reflected in the Company's regularly
prepared balance sheet for the most recently ended calendar
month).
10.1.13. "Certificate of Incorporation" means the certificate of
incorporation of the Company as may be amended from
time to time.
10.1.14. "Code" means the Internal Revenue Code of 1986, as
amended, and the regulations thereunder from time to time
promulgated.
10.1.15. "Commission" or "SEC" means the Securities and
Exchange Commission, as from time to time constituted,
created under the Exchange Act.
10.1.16. "Common Stock" means the Common Stock, par value
$0.01 per share, of the Company.
10.1.17. "Company" means the party named as such in the first
paragraph of this Agreement, until a successor replaces such
Person in accordance with the terms of this Agreement, and
thereafter means such successor.
10.1.18. "Company Disclosure Letter" has the meaning set
forth in Section 6.1.
10.1.19. "Conversion Date" shall be the date specified in the
Conversion Notice, but will in any case occur on or before
the 30th day after the Conversion Notice is delivered by the
Note holder as provided in Section 7.3, or if such day is not a
Business Day, the next Business Day thereafter.
10.1.20. INTENTIONALLY OMITTED.
10.1.21. "Conversion Price" shall mean $2.00 per share, subject
to adjustment as set forth in Section 1.4.
10.1.22. "Conversion Shares" means any shares of Common
Stock issued or issuable upon conversion of the Notes.
10.1.23. "Credit Agreement" shall have the meaning set forth in
Section 4.1.
10.1.24. "Debt" means Indebtedness specified in clauses (i)
through (iii), inclusive, of the definition of "Indebtedness."
10.1.25. "Default" means any event or condition, the occurrence
of which would, with the lapse of time or the giving of
notice, or both, constitute an Event of Default.
10.1.26. "Derivative Securities" means any subscriptions,
options, conversion rights, exchange rights, warrants, or
other agreements (oral or in writing), securities or
commitments of any kind obligating the Company or any of
its Subsidiaries to issue, grant, deliver or sell, or cause to be
issued, granted, delivered or sold, any Equity Securities of
the Company or any of its Subsidiaries.
10.1.27. "Disqualified Stock" means (a) in the case of the
Company, any Equity Interest that, (i) either by its terms or
the terms of any security into which it is convertible or for
which it is exchangeable or otherwise is, or upon the
happening of an event or the passage of time would be,
required to be redeemed or repurchased (in whole or in part)
prior to the final stated maturity of the Notes or is
redeemable (in whole or in part) at the option of the holder
thereof at any time prior to such final stated maturity or (ii) is
convertible into or exchangeable at the option of the issuer
thereof or any other person for debt securities or
Disqualified Stock and (b) in the case of any other person,
any Equity Interest other than Capital Stock issued to the
Company or to a Wholly Owned Subsidiary of the Company.
10.1.28. "Drawdown Certificate" means a certificate executed by
the President and Chief Operating Officer of the Company,
showing in reasonable detail a calculation of the Available
Cash Amount at the end of the calendar month ending prior
to delivery of the Draw Down Certificate and certifying the
occurrence of a Drawdown Condition.
10.1.29. "Drawdown Condition" occurs when and if the
Available Cash Amount at the end of a calendar month
ending prior to the Maturity Date is less than $100,000 or is
projected in writing by the Company's Chief Operating
Officer to be less than $100,000 at the end of the first
calendar month ending after the delivery of such projection.
10.1.30. "Environmental Laws" means any federal, state or local
statute, code, ordinance, rule, regulation, permit, consent,
approval, license, judgment, order, writ, decree, injunction or
other authorization and any amendments thereto, relating
to:(i) emissions, discharges, release or threatened releases of
pollutants, contaminants or hazardous or toxic materials or
wastes into indoor or ambient air, surface water, ground
water, publicly owned treatment works, septic systems or
land; (ii) the treatment, storage, disposal, handling,
manufacturing, transportation, or shipment of Hazardous
Waste or hazardous and/or toxic wastes, material,
substances, products or by-products as defined in the
Comprehensive Environmental Response Compensation and
Liability Act as amended by the Superfund Amendments and
Reauthorization Act, as amended, 42 U.S.C. - 9601 et seq.;
the Resource Conservation Recovery Act, as amended, 42
U.S.C. - 6901 et seq. and the Toxic Substances Control Act,
as amended, 15 U.S.C. - 2601 et seq. as amended from time
to time and corresponding state legislation and all regulations
promulgated thereunder; or (iii) otherwise relating to the
pollution or protection of health or the environment.
10.1.31. "Equity Interests" means Capital Stock or warrants,
options or other rights to acquire Capital Stock (but
excluding any debt security that is convertible into, or
exchangeable for, Capital Stock).
10.1.32. "Equity Securities" means any stock or similar security,
transferrable shares, voting trust certificate or certificates of
deposit for stock, or any security convertible, with or without
consideration into such a security or carrying any warrant
right to subscribe to or purchase such a security; or any such
warrant or right; or any put, call, straddle or other option or
privilege of buying such a security.
10.1.33. "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended, and all regulations
promulgated thereunder, as in effect from time to time.
10.1.34. "Exchange Act" means the Securities Exchange Act of
1934, as amended.
10.1.35. "GAAP" means generally accepted accounting principles
set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards
Board.
10.1.36. "Governmental Authority" means any nation or
government, any state or other political subdivision thereof,
any entity exercising executive, legislative, judicial, regulatory
or administrative functions of or pertaining to government,
including, without limitation, any multilateral authority or
government authority, department, board, commission or
instrumentality of the United States, any state of the United
States or any political subdivision thereof, and any tribunal or
arbitrator(s) of competent jurisdiction, and any self-
regulatory organization.
10.1.37. "Hazardous Materials" or "Hazardous Waste" means
any chemical substance or material including, but not
limited to wastes, petroleum and petroleum-derived
substances, asbestos, urea formaldehyde foam insulation,
transformer equipment containing dielectric fluid with
levels of polychlorinated biphenyls, radon gas, radioactive
materials or other pollutants or contaminants which have
the characteristic of hazardous waste as set forth in or
which are now or hereafter included or regulated by the
Clean Water Act, 33 U.S.C. - 1251 et seq.; the Clean Air
Act, as amended, 42 U.S.C. - 7401, et seq.; the Federal
Water Pollution Control Act, as amended, 33 U.S.C.
- 1251 et seq.; CERCLA; RCRA; and TSCA.
10.1.38. "Hedging Obligations" means, with respect to any
person, the obligations of such person under (i) interest or
currency rate swap agreements, interest rate cap agreements
and interest rate collar agreements and (ii) other agreements
or arrangements designed to protect such person against
fluctuations in interest rates or exchange rates.
10.1.39. "Indebtedness" of any person means (without
duplication) (i) all indebtedness of such person for borrowed
money, (ii) all obligations of such person evidenced by
bonds, debentures, notes or other similar instruments, (iii) all
obligations of such person to pay the deferred purchase price
of property or services (other than trade payables on
customary terms incurred in the ordinary course of business),
(iv) all obligations, contingent or otherwise, of such person
under bankers' acceptance, letter of credit facilities and letter
of credit risk participation agreements and (v) all obligations
of such person in respect of Hedging Obligations.
10.1.40. "Intellectual Property" means all intellectual property
rights including, but not limited to, patents, patent rights,
trade secrets, know-how, trademarks, service marks, trade
names, copyrights, licenses, proprietary processes and
formulae, customer marketing information, data list
software, broker producer lists and technology rights.
10.1.41. "Junior Securities" means (a) Capital Stock of the
Company and (b) any debt security of the Company subject
to subordination provisions no less favorable to the holders
of Senior Indebtedness than the provisions of Section 4
hereof.
10.1.42. "Knowledge" means with respect to the Company or its
Subsidiaries, the actual knowledge of the officers and
directors of the Company or its Subsidiaries, respectively.
10.1.43. "Licenses" means all licenses, permits, franchises,
authorizations and similar rights.
10.1.44. "Lien" means any mortgage, lien, security interest,
encumbrance, charge, hypothecation, pledge, title retention
agreement, adverse claim, right of occupation, any matter
capable of registration against title, option, right of
preemption, privilege, easement, judgment or imperfection
of title of any nature whatsoever..
10.1.45. "Liquidity Event" means an underwritten offering or
series of related offerings by the Company of Common
Stock or any security convertible into Common Stock from
which the Company receives gross proceeds of $5,000,000 or
more.
10.1.46. "Material Adverse Effect" means (i) a material adverse
change in or effect with respect to the business, operations,
assets, properties, financial condition or results of operations
of the Company and its Subsidiaries taken as a whole
(provided, however, that the Company's divestiture or
shutdown of Videssence, Inc. shall not be deemed to have
had a Material Adverse Effect); or (ii) any impairment in any
material respect of the Company's ability to perform any of
its obligations or agreements hereunder or under the
Ancillary Agreements to which it is a party or consummate
the transactions contemplated hereby or thereby.
10.1.47. "Option Plans" mean collectively the Company's 1995
Stock Option Plan, 1997 Stock Incentive Plan and 1997
Directors' Stock Option Plan, each, as from time to time
may be amended and restated effective.
10.1.48. "Obligations" means all the obligations of the Company
to pay and perform their obligations under the Notes,
together with all extensions, amendments, restatements,
modifications, supplements and renewals thereof, when the
same shall become due by acceleration or otherwise, and
shall include, without limitation, any interest which accrues
after the commencement of any case, proceeding or other
action relating to the bankruptcy, insolvency or
reorganization of the Company, whether or not a claim for
post-filing or post-petition interest is allowed in such
proceeding.
10.1.49. "Overdue Rate" means the lesser of (a) the maximum
interest rate permitted by law and (b) 15%.
10.1.50. "Person" or "person" means an individual, partnership,
corporation, joint venture, association, joint stock company,
trust or unincorporated organization, and a government or
agency or political subdivision thereof, or any other entity.
10.1.51. "Preferred Stock" means the Series A Preferred Stock,
par value $0.001 per share, of the Company.
10.1.52. "Proceeding" means an action, claim, suit or proceeding
(including, without limitation, an investigation or partial
proceeding, such as a deposition).
10.1.53. "Registrable Shares" means the Warrant Shares issuable
upon exercise of the Warrants and any Conversion Shares
issued by the Company upon conversion of any of the
Notes.
10.1.54. "Registration Expenses" shall have the meaning set
forth in Section 9.1.3.
10.1.55. "Securities" means the Notes, the Warrants, the Warrant
Shares and any Conversion Shares.
10.1.56. "Securities Act" means the Securities Act of 1933, as
amended from time to time.
10.1.57. "Selling Expenses" shall have the meaning set forth in
Section 9.1.3.
10.1.58. "Senior Indebtedness" with respect to the Company
means Indebtedness of the Company under the Credit
Agreement (or any agreements relating to a new credit
facility of the Company or a Subsidiary used solely to retire
the Senior Indebtedness existing as of the date of this
Agreement) and any premium, interest, fees or other
amounts payable thereon or in connection therewith,
including, without limitation, all loans, letters of credit, letter
of credit guarantees and other extensions of credit under the
Credit Agreement (or such other agreements), all
commitment, facility and other fees payable under the Credit
Agreement (or such other agreements) and all expenses,
reimbursements, indemnities and other amounts payable by
the Company under the Credit Agreement (or such other
agreements), whether such Indebtedness, Debt, other
indebtedness, obligations or liabilities now exist or may
hereafter arise or be incurred
10.1.59. "Senior Lender" has the meaning as set forth in Section
4.1 or the lender on any new credit facility described in the
parenthetical in Section 10.1.58.
10.1.60. "Standstill Agreement" has the meaning as set forth in
Section 3.3.3.
10.1.61. "Subsidiary" or "Subsidiaries" means the Company's
Subsidiaries, Videssence, Inc., a California corporation, and
Babylonian Productions, a California corporation.
10.1.62. "Tax" or "taxes" means all taxes, including any
interest, liabilities, fines, penalties or additions to tax that
may become payable in respect thereof, imposed by any
Governmental Authority, which taxes shall include,
without limiting the generality of the foregoing, income
taxes (including, but not limited to, United States federal
income taxes and state income taxes), payroll and
employee withholding taxes, unemployment insurance,
social security, sales and use taxes, excise taxes, franchise
taxes, gross or net receipts taxes, occupation taxes, real and
personal property taxes, ad valorem taxes, stamp taxes,
transfer taxes, capital taxes, import duties, withholding
taxes, workers' compensation taxes, and other obligations
of the same or of a similar nature.
10.1.63. "Tax Return" means any return, declaration, report,
claim for refund, or information return or statement relating
to Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
10.1.64. "Underlying Common Stock" means (i) the Conversion
Shares, (ii) the Warrant Shares to the extent the same are
issued and outstanding, and (iii) any Common Stock issued
or issuable (directly or indirectly) with respect to the
securities described in clauses (i) and (ii) above as a result of
a stock dividend, stock split or in connection with a
combination of shares, recapitalization, merger,
consolidation or other reorganization. As to any particular
shares of Underlying Common Stock, such shares shall cease
to be within the definition of Underlying Common Stock
only when they have been (A) transferred to a Person
unaffiliated with any holder of Underlying Common Stock
pursuant to an effective registration statement under the
Securities Act, or (B) transferred to a Person unaffiliated with
any holder of Underlying Common Stock pursuant to Rule
144 (or any similar provision then in force) of the rules and
regulations of the Securities and Exchange Commission
under the Securities Act. For the purposes of any
determination of (i) outstanding Underlying Common Stock,
(ii) the identity of all holders of Underlying Common Stock,
or (iii) obtaining the consent or approval of or any waiver
from the holders of the Underlying Common Stock, (x) all
Notes then outstanding shall be deemed to have been
converted and shall be voted on an "as-converted" basis and
(y) all shares of Common Stock issuable upon exercise of the
Warrants shall be deemed to have been purchased and voted
on an "as purchased" basis.
10.1.65. "Voting Power" means, with respect to any Voting
Securities, the aggregate number of votes attributable to
such Voting Securities that could generally be cast by the
holders thereof for the election of directors (or similar
managing persons) at the time of determination (assuming
such election were then being held.
10.1.66. "Voting Securities" means (i) with respect to the
Company, the Equity Securities of the Company entitled to
vote generally for the election of directors of the Company,
and (ii) with respect to any other Person, any securities of
or interests in such Person entitled to vote generally for the
election of directors or any similar managing person of
such Person.
10.1.67. "Warrants" shall have the meaning set forth in Section
1.2.2.
10.1.68. "Warrant Shares" means the shares of Common Stock
issuable upon exercise of the Warrants.
10.1.69. "Wholly Owned Subsidiary" means, with respect to any
person, a subsidiary all the Equity Interests of which (other
than director's qualifying shares) is owned by such person or
another Wholly Owned Subsidiary of such person.
11. MISCELLANEOUS.
11.1. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED, INTERPRETED AND THE
RIGHTS OF THE PARTIES DETERMINED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK (WITHOUT
REGARD TO NEW YORK'S CONFLICT OF LAWS PROVISIONS ).
11.2. Counterparts. This Agreement may be executed in one 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. Negotiation of Agreement. Each of the parties acknowledges
that it has been represented by independent counsel of its choice
throughout all negotiations that have preceded the execution of
this Agreement and that it has executed the same with consent
and upon the advice of said independent counsel. Each party
and its counsel cooperated in the drafting and preparation of this
Agreement and the documents referred to herein, and any and all
drafts relating thereto shall be deemed the work product of the
parties and may not be construed against any party by reason of
its preparation. Accordingly, any rule of law or any legal
decision that would require interpretation of any ambiguities in
this Agreement against the party that drafted it is of no applica-
tion and is hereby expressly waived. The provisions of this
Agreement shall be interpreted in a reasonable manner to effect
the intentions of the parties and this Agreement.
11.5. Note Register. The Company shall cause to be kept at its
principal office a register for the registration of the Notes, and
the Company will register or transfer or cause to be registered or
transferred, as hereinafter provided and under such reasonable
regulations as it may prescribe, any Note issued pursuant to this
Agreement.
11.6. Exchange of Notes. At any time and from time to time, upon
not less than ten days' notice to that effect given by the holder of
any Note initially delivered or of any Note substituted therefor
pursuant to Section 1.3, this Section 11.6 or Section 11.7, and,
upon surrender of such Note at its office, the Company will
deliver in exchange therefor, without expense to the holder,
Notes for the same aggregate principal amount as the then
unpaid or unconverted, as the case may be, principal amount of
the Note so surrendered, in the denomination of $1,000 or any
amount in excess thereof as such holder shall specify, dated as of
the date of issue, registered in the name of such Person or
Persons as may be designated by such holder, and otherwise of
the same form and tenor as the Notes so surrendered for
exchange.
11.7. Loss, Theft, Etc. of Notes. Upon receipt of evidence
satisfactory to the Company of the loss, theft, mutilation or
destruction of any Note, and in the case of any such loss, theft,
or destruction upon delivery of a bond or indemnity in such
form and amount as shall be reasonably satisfactory to the
Company, or in the event of such mutilation upon surrender and
cancellation of the Note, the Company will make and deliver
without expense to the holder thereof, a new Note, of like tenor,
in lieu of such lost, stolen, destroyed or mutilated Note. If you
or any subsequent holder is the owner of any such lost, stolen or
destroyed Note, then the affidavit of an authorized officer of
such owner, setting forth the fact of loss, theft or destruction
shall be accepted as satisfactory evidence thereof and no further
indemnity shall be required as a condition to the execution and
delivery of the new Note other than the written agreement of
such owner to indemnify the Company.
11.8. Expenses, Stamp and Other Taxes. Unless the Initial Closing
is not consummated, the Company agrees to pay directly all of
your reasonable out-of-pocket expenses in connection with the
preparation, execution and delivery of the Agreement, including
but not limited to the reasonable charges and disbursements of
your special counsel (if any), duplicating and printing costs and
charges for shipping the Notes adequately insured to you at your
home office or at such other place as you may designate, and all
such expenses relating to any amendments, waivers or consents
pursuant to the provisions of this Agreement (whether or not the
same are actually executed and delivered), including, without
limitation, any amendments, waivers or consents resulting from
any work-out, restructuring or similar proceedings relating to the
performance by the Company of their obligations under this
Agreement and the Notes; provided, however, notwithstanding
anything contained herein to the contrary, the total amount of
your expenses incurred in connection with the negotiation and
execution of this Agreement and the Ancillary Agreements
(including all due diligence and other related activities) which the
Company shall be obligated to pay shall not exceed the aggregate
sum of $25,000. The Company also agrees that they will pay and
save you harmless against any and all liability with respect to
stamp and other taxes, if any, which may be payable or which
may be determined to be payable in connection with the
execution and delivery of this Agreement or the Notes, whether
or not any Notes are then outstanding.
11.9. Notices. All notices and other communications among the
parties shall be in writing and shall be deemed to have been duly
given when (i) delivered in person, or (ii) five (5) days after
posting in the U.S. mail as registered mail or certified mail, return
receipt requested, or (iii) delivered by telecopier and promptly
confirmed by delivery in person or post as aforesaid in each case,
with postage prepaid, addressed as follows:
If to the Company, to:
NETTER DIGITAL ENTERTAINMENT, Inc.
0000 Xxxxxxxxxx Xxxxxxxxx Xxxxx Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Chief Financial Officer
Phone No.: (000) 000-0000
With a copy to:
Xxxxx, Xxxxx & Xxxxxx
0000 Xxxxxxxx Xxxx., 0xx Xxxxx
Xxxxxxx Xxxxx, XX
ATTN: Xxxxxxx X. Xxxx, Esq.
Phone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
If to you, to your address set forth below your signature.
With a copy to:
Troop Xxxxxxx Xxxxxx Xxxxxxx & Xxxxx, LLP
0000 Xxxxxxx Xxxx Xxxx, 00xx Xxxxx
Xxxxxxx Xxxx, XX 00000
ATTN: Xxxxxx Xxxxxxxx, Esq.
Phone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
11.10. Excess Interest. The Notes are expressly limited so that in no
contingency or event whatsoever, whether by reason of
acceleration of maturity of the unpaid principal balance thereof
or otherwise, shall the amount paid or agreed to be paid to any
holder of a Note exceed the maximum legal rate permissible
under any law which a court of competent jurisdiction may deem
applicable thereto. If, for any circumstances whatsoever,
fulfillment of any provision of a Note, at the time performance
of such provision shall be due, shall involve transcending the
maximum legal rate of interest prescribed by law which a court
of competent jurisdiction may deem applicable thereto, then,
ipso facto, the obligation to be fulfilled shall be reduced to the
limit of such maximum rate, and if from any circumstances any
holder of a Note shall ever receive as interest an amount which
would exceed said maximum legal rate, such amount which
would be excessive interest shall be applied to the reduction of
the unpaid principal balance due under such Note and not to the
payment of interest; to the extent that such excessive amount
exceeds the unpaid principal balance thereon, such holder shall
refund it to Company. In determining whether excessive interest
would be charged, to the extent permitted by applicable law all
sums paid or agreed to be paid to a holder of Note for the use,
forbearance, or detention of the indebtedness evidenced thereby
outstanding from time to time shall be prorated, amortized,
allocated and spread from the date of disbursement of the
proceeds of such Note until payment in full of the unpaid
principal sum so that the actual rate of interest on account of
such indebtedness is uniform throughout the term thereof. This
provision shall control every other provision of this Agreement
and the Notes.
11.11. 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 the
Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms to
the fullest extent permitted by law.
11.12. Further Assurances. Each of the parties shall, without further
consideration, use reasonable efforts to execute and deliver such
additional documents and take such other action as the other
parties, or any of them may reasonably request to carry out the
intent of this Agreement and the transactions contemplated
hereby.
11.13. Successors and Assigns. This Agreement shall be binding
upon and all rights hereto shall inure to the benefit of the
Company, their successors and permitted assigns, and shall be
binding upon and all rights hereto shall inure to the benefit of
the other parties hereto and their respective heirs, successors and
permitted assigns.
11.14. ENTIRE AGREEMENT. THIS AGREEMENT, TOGETHER WITH THE EXHIBITS AND
COMPANY DISCLOSURE LETTER ATTACHED HERETO, EMBODIES THE ENTIRE
AGREEMENT AND UNDERSTANDING OF THE PARTIES HERETO IN RESPECT OF THE
ACTIONS AND TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
11.15. Counterparts. The execution hereof by you shall constitute a
contract between us for the uses and purposes hereinabove set
forth, and this Agreement may be executed in any number of
counterparts, each executed counterpart constituting an original
but all together only one agreement.
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IN WITNESS WHEREOF, the undersigned have caused this Purchase Agreement
to be duly executed, as of the date first written above.
NETTER DIGITAL ENTERTAINMENT, INC.,
a Delaware corporation
By: /s/ Xxxxxxx Xxxxxx
Name: Xxxxxxx Xxxxxx
Title: Chief Executive Officer
By: /s/ Xxxxxxx Xxxxxx
Name: Xxxxxxx Xxxxxx
Title: Chief Executive Officer
AIB INVESTMENTS PTY LIMITED
By: /s/ Xxxxxxxx Xxxx
Name: Xxxxxxxx Xxxx
Title: Director
Address: 000 Xxxx Xxxxxx
00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
FORM OF NOTE
EXHIBIT A
TO NOTE PURCHASE AGREEMENT
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT")
OR ANY STATE SECURITIES LAWS AND NO TRANSFER OF THESE SECURITIES
MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT, OR (B) PURSUANT TO AN EXEMPTION
THEREFROM WITH RESPECT TO WHICH THE COMPANY MAY, UPON
REQUEST, REQUIRE A SATISFACTORY OPINION OF COUNSEL FOR THE
HOLDER THAT SUCH TRANSFER IS EXEMPT FROM THE REQUIREMENTS OF
THE ACT. PAYMENT ON THIS NOTE IS SUBORDINATED TO THE CLAIMS OF
SENIOR LENDERS PURSUANT TO THE TERMS OF A NOTE PURCHASE
AGREEMENT OF EVEN DATE HEREWITH.
NETTER DIGITAL ENTERTAINMENT, INC.
Senior Convertible Subordinated Note
Note Due 2000
No. N-____ ________________, 1999
NETTER DIGITAL ENTERTAINMENT, INC., a Delaware corporation (the
"Company"), for value received, hereby, promises to pay to AIB Investments
Pty Limited or registered assigns on the 29th day of March, 2002 (the
"Maturity Date") the principal amount of DOLLARS ($ ) without interest.
The Company agrees to pay interest on overdue principal, if any, at the
Overdue Rate per annum from the date such payment is due, whether by
acceleration or otherwise, until paid.
Both the principal hereof and interest hereon are payable at
__________________________________, New York, New York, in coin or currency
of the United States of America which at the time of payment shall be legal
tender for the payment of public and private debts. If any amount of
principal or interest, if any, on or in respect of this Note becomes due and
payable on any date which is not a Business Day, such amount shall be payable
on the next preceding Business Day.
This Note is one of the Senior Subordinated Convertible Notes due 2000
of the Company in the aggregate principal amount of up to $1,000,000 issued
or to be issued under and pursuant to the terms and provisions of the Note
Agreement, dated as of March 29 , 1999 (the "Note Agreement"), entered into
by the Company with the holder hereof. Capitalized terms used but not
otherwise defined herein have the meaning given thereto in the Note Agreement.
This Note and the other Notes outstanding under the Note Agreement
may be declared due prior to their expressed maturity dates and only in the
events, on the terms and in the manner and amounts as provided in the Note
Agreement. The Notes are not subject to prepayment or redemption at the
option of the Company prior to their expressed maturity dates except on the
terms and conditions set forth in the Note Agreement. This Note is
convertible to Common Stock of the Company at the election of the Note holder
subject to the limitations and on the terms and conditions set forth in the
Note Agreement.
This Note is registered on the books of the Company and is
transferable only by surrender thereof at the principal office of the Company
duly endorsed or accompanied by a written instrument or transfer duly
executed by the registered holder of this Note or its attorney duly
authorized in writing. Payment of or on account of principal and interest,
if any, on this Note shall be made only to or upon the order in writing of the
registered holder.
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This Note and said Note Agreement are governed by and construed in
accordance with the internal laws of New York, without regard to New York's
conflict of law provisions.
NETTER DIGITAL ENTERTAINMENT, INC.,
a Delaware corporation
By: /s/ Xxxxxxx Xxxxxx
Name: Xxxxxxx Xxxxxx
Title: Chief Executive Officer
By: /s/ Xxxx Xxxxxxx
Name: Xxxx Xxxxxxx
Title: Chief Financial Officer
FORM OF WARRANT
EXHIBIT B
TO NOTE PURCHASE AGREEMENT
FORM OF INVESTMENT LETTER FOR NOTE
EXHIBIT C
TO NOTE PURCHASE AGREEMENT
To: NETTER DIGITAL ENTERTAINMENT, INC.
In connection with the purchase by the undersigned of ___________
shares of the Common Stock (the "Conversion Shares") of NETTER DIGITAL
ENTERTAINMENT, Inc., a Delaware corporation (the "Company"), upon conversion
of that certain Senior Subordinated Convertible Note due 2002, dated as of
March 29, 1999, and appended hereto, the undersigned hereby represents and
warrants as follows:
The Conversion Shares to be received by the undersigned upon
conversion of the Note are being acquired for its own account or the account
of its Affiliate (as defined in that certain Purchase Agreement between the
Company and AIB Investments Pty Limited, dated as of March 29, 1999) and not
with a view to resale or distribution of any part thereof, and the
undersigned has (and its Affiliate has) no present intention of selling,
granting any participation in, or otherwise distributing the same. The
undersigned further represents that it does not (and such Affiliate does
not) have any contract, undertaking, agreement or arrangement with any person
(other than such Affiliate of the undersigned) to sell, transfer or grant
participation to such person or to any third person, with respect to the
Conversion Shares. The undersigned believes it has received all the
information it considers necessary or appropriate for deciding whether to
purchase the Stock.
The undersigned understands that the Conversion Shares are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in transactions not
involving a public offering and that under such laws and applicable
regulations such securities may be resold, assigned, transferred,
hypothecated or otherwise disposed of without registration under the
Securities Act of 1933, as amended (the "Act"), only in certain
limited circumstances. In this connection, the undersigned represents that
it is familiar with Rule 144 promulgated under the Act, as presently in
effect, and understands the resale limitations imposed thereby and by the Act.
Further, the undersigned represents that it understands that the resale,
assignment, transfer, hypothecation or other disposition of the Conversion
Shares may require registration or qualification under applicable state
securities laws unless an exemption is available.
Without in any way limiting the representations set forth above,
the undersigned agrees not to make any disposition of all or any portion of
the Conversion Shares unless and until:
There is then in effect a registration statement under the Act
covering such proposed disposition and such disposition is made in accordance
with such registration statement; or
(i) The undersigned shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and (ii) if requested,
the undersigned shall have furnished the Company with an opinion of counsel,
reasonably satisfactory to the Company that such disposition will not require
registration of such Shares under the Act. The Company will not require an
opinion of counsel for sales made pursuant to Rule 144 except in unusual
circumstances.
The undersigned understands the instruments evidencing the
Conversion Shares will bear the following legend (and the Company's transfer
agent will be correspondingly instructed):
THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT")OR
ANY STATE SECURITIES LAWS AND NOTRANSFER OF THESE SECURITIES MAY BE
MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT, OR (B) PURSUANT TO AN EXEMPTION THEREFROM WITH
RESPECT TO WHICH THE COMPANY MAY, UPON REQUEST RECEIVE AN OPINION
OF COUNSEL FOR THE HOLDER REASONABLY SATISFACTORY TO THE COMPANY
THAT SUCH TRANSFER IS EXEMPT FROM THE REQUIREMENTS OF THE ACT.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
Dated: 3/29/99 AIB INVESTMENTS PTY LIMITED
Name: /s/ Xxxxxxxx Xxxx
Title: Director
FORM OF INVESTMENT LETTER FOR WARRANT
EXHIBIT D
TO NOTE PURCHASE AGREEMENT
To: NETTER DIGITAL ENTERTAINMENT, INC.
In connection with the purchase by the undersigned of ___________
shares of the Common Stock (the "Warrant Shares") of NETTER DIGITAL
ENTERTAINMENT, Inc., a Delaware corporation (the "Company"), upon exercise of
that certain Warrant dated March 29, 1999, and appended hereto, the
undersigned hereby represents and warrants as follows:
The Warrant Shares to be received by the undersigned upon exercise
of the Warrant are being acquired for its own account or the account of its
Affiliate (as defined in that certain Note Purchase Agreement by and between
the Company and AIB Investments Pty Limited, dated as of March 29, 1999) and
not with a view to resale or distribution of any part thereof, and the
undersigned has (and its Affiliate has) no present intention of selling,
granting any participation in, or otherwise distributing the same except
pursuant to an offering registered with the Securities Exchange Commission
under the Securities Act of 1933 (the "Act"). The undersigned further
represents that it does not (and its Affiliate does not) have any contract,
undertaking, agreement or arrangement with any person (other than such
Affiliate of the undersigned) to sell, transfer or grant participation to
such person or to any third person, with respect to the Warrant Shares. The
undersigned believes it has received all the information it considers
necessary or appropriate for deciding whether to purchase the Warrant Shares.
The undersigned understands that the Warrant Shares are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in transactions not
involving a public offering and that under such laws and applicable regulations
such securities may be resold, assigned, transferred, hypothecated or
otherwise disposed of without registration under the Act, only in certain
limited circumstances. In this connection, the undersigned represents that
it is familiar with Rule 144 promulgated under the Act, as presently in
effect, and understands the resale limitations imposed thereby and by the Act.
Further, the undersigned represents that it understands that the resale,
assignment, transfer, hypothecation or other disposition of the Conversion
Shares may require registration or qualification under applicable
state securities laws unless an exemption is available.
Without in any way limiting the representations set forth above, the
undersigned agrees not to make any disposition of all or any portion of the
Conversion Shares unless and until:
There is then in effect a registration statement under the Act
covering such proposed disposition and such disposition is made in accordance
with such registration statement; or
(i) The undersigned shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and (ii) if requested,
the undersigned shall have furnished the Company with an opinion of counsel,
reasonably satisfactory to the Company that such disposition will not require
registration of such Shares under the Act. The Company will not require an
opinion of counsel for sales made pursuant to Rule 144 except in unusual
circumstances.
The undersigned understands the instruments evidencing the
Conversion Shares will bear the following legend (and the Company's transfer
agent will be correspondingly instructed):
THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR
ANY STATE SECURITIES LAWS AND NO TRANSFER OF THESE SECURITIES MAY BE
MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
FILED UNDER THE ACT, OR (B) PURSUANT TO AN EXEMPTION THEREFROM WITH
RESPECT TO WHICH THE COMPANY MAY, UPON REQUEST, REQUIRE AN OPINION
OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
TRANSFER IS EXEMPT FROM THE REQUIREMENTS OF THE ACT.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
AIB INVESTMENTS PTY LIMITED
Name: /s/ Xxxxxxxx Xxxx
Title: Director
OPINION
EXHIBIT E
TO NOTE PURCHASE AGREEMENT
STANDSTILL AGREEMENT
EXHIBIT F
TO NOTE PURCHASE AGREEMENT
March 29, 1999
AIB Investments Pty Limited
Xxxxx 00, Xxxxxxx
0 Xxxxxxxxx Xxxxx
Xxxxxx, XXX, 0000
Xxxxxxxxx
Gentlemen:
In connection with your investment in Netter Digital Entertainment, Inc.
(the "Company") pursuant to that certain that certain Purchase Agreement,
dated as of March 29, 1999 by and between the Company and AIB Investments Pty.,
Limited. (the "Purchase Agreement") you agree as follows:
1. For a period commencing on the date hereof and extending through the
first to occur of (i) a Covenant Termination Event (as defined below),
and (ii) the second anniversary of the date of this letter, you will
not, nor will you permit any of your "affiliates" or "associates"
(as such terms are defined in Rule 12b-2 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), directly or
indirectly (except as provided in Paragraph 2 below) do any of the
following:
a. except as a result of a stock split, stock dividend or similar
recapitalization by the Company, directly or indirectly acquire,
offer to acquire, or agree to acquire by purchase, individually or
by joining a partnership, limited partnership, syndicate
or other "group" (as such term is used in Section 13(d)(3) of the
Exchange Act, such term to have such meaning throughout this
Agreement) (any such act, to "acquire"), any securities of the
Company entitled to vote in the election of directors of the
Company (collectively, "Voting Securities"), any securities
directly or indirectly convertible into or exchangeable for
Voting Securities, any direct or indirect rights, warrants or
options to acquire any Voting Securities or any right to vote
any Voting Securities if, immediately after such acquisition, you
and your affiliates and associates collectively would
"beneficially own" (as defined in Rules 13d-3 and 13d-5 of the
Exchange Act) in excess of 30% of the fully diluted voting power
of the Company's outstanding Voting Securities.
b. For purposes of this letter, "Covenant Termination Event" means
any sale or other disposition of Voting Securities of the
Company by Xxxxxxx Xxxxxx if, after such sale or other
disposition, Xxxxxxx Xxxxxx and his affiliates and associates
would beneficially own in the aggregate less than 20% of the fully
diluted voting power of the Company's outstanding Voting
Securities.
2. Notwithstanding the provisions of paragraph 1 above to the contrary,
you and your affiliates and associates may purchase or otherwise
acquire beneficial ownership of any Voting Securities if (i) you and/
or your affiliates or associates are specifically invited or
permitted in writing to do so by the Board of Directors of the Company,
or (ii) such Voting Securities are acquired from Xxxxxxx Xxxxxx and/or
his affiliates or associates. For purposes of this letter, any
Voting Securities acquired by you from Xxxxxxx Xxxxxx and/or his
affiliates and associates will be disregarded and excluded from any
determination of the percentage of the fully diluted voting power of
the Company's outstanding Voting Securities beneficially owned by you
and your affiliates and associates.
3. For purposes of this letter, all calculations of the fully diluted
outstanding Voting Securities shall assume the conversion or exchange
of all outstanding securities convertible into or exchangeable for
Voting Securities and the exercise of all outstanding rights,
warrants and options to purchase Voting Securities regardless of
whether such rights of conversion, exchange or purchase are then
exercisable.
4. This letter shall be governed and construed in accordance with the
internal, substantive laws of the State of New York without regard to
conflict of laws principles. No failure or delay by the Company in
exercising any right, power or privilege hereunder shall operate as a
waiver thereof nor shall any single or partial exercise thereof
preclude any other or further exercise of any such right, power or
privilege. This letter shall be binding upon, and inure to the
benefit of each of the parties hereto and their respective successors
and assigns. In addition to all other rights and remedies which
either party hereto may have hereunder, at law, in equity, by statute
or otherwise, the prevailing party in any litigation to enforce the
provisions of this letter shall be entitled to recover attorneys'
fees and expenses and court costs. This letter may be modified only
by an agreement in writing signed by all parties hereto. This letter
constitutes the final agreement of the parties concerning the matters
herein and supersedes all prior and contemporaneous agreements and
understandings, whether oral or written, between them respecting the
subject matter hereof. If any of the provisions of this letter are
determined to be illegal, invalid or otherwise unenforceable, in
whole or in part, they shall be deemed severable from, and shall in no
way affect the validity or enforceability of, the remaining provisions
of this letter.
5. You hereby recognize, acknowledge and agree that the agreements and
undertakings set forth herein relate to matters that are of a special,
unique and extraordinary character which gives them a peculiar and
special value impossible of replacement, and for the breach of which
the non-breaching party cannot reasonably or adequately be
compensated in damages, and that any breach by you of any of the
terms or provisions hereof will cause the Company irreparable injury
and harm. Therefore you hereby agree that, in addition to any and all
rights and remedies which the Company may have at law, in equity, by
statute or otherwise, the Company shall be entitled to injunctive or
other equitable relief to prevent the continuing breach by you of each
and all of the terms and provisions hereof or to otherwise secure the
enforcement of each and all of the terms and provisions hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
Please acknowledge your agreement to the foregoing by countersigning
this letter and the enclosed copy in the space provided below and returning
the executed copy to us.
Very truly yours,
NETTER DIGITAL ENTERTAINMENT, INC.
By: /s/ Xxxxxxx Xxxxxx
Its: Chief Executive Officer
Received and consented to
the 29th day of March, 1999
AIB Investments Pty, Limited
By: /s/ Xxxxxxxx Xxxx
Its: Director
