EXHIBIT 10.4
PRIVATE EQUITY LINE OF CREDIT AGREEMENT
BY AND BETWEEN
GRENVILLE FINANCIAL LTD.
AND
SELECT MEDIA COMMUNICATIONS, INC.
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DATED AS OF NOVEMBER 27, 2001
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This PRIVATE EQUITY LINE OF CREDIT AGREEMENT is entered into as of the
27th day of November, 2001 (this "Agreement"), by and between the investor
identified on Schedule A hereto ("Investor"), and Select Media Communications,
Inc., a corporation organized and existing under the laws of the State of New
York (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to each Investor,
from time to time as provided herein, and each Investor shall purchase his
Proportionate Share of up to $20,000,000 of the Common Stock (as defined below).
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 "Average Daily Price" shall be the price based on the VWAP.
Section 1.2 "Bid Price" shall mean the closing bid price (as reported
by Bloomberg, L.P.) of the Common Stock on the Principal Market.
Section 1.3 "Capital Shares" shall mean the Common Stock and any shares
of any other class of common stock whether now or hereafter authorized, having
the right to participate in the distribution of earnings and assets of the
Company.
Section 1.4 "Closing" shall mean one of the closings of a purchase and
sale of the Common Stock pursuant to Section 2.1.
Section 1.5 "Closing Date" shall mean, with respect to a Closing the
twelfth (12th) Trading Day following the Optional Purchase Date related to such
Closing and the first Trading Day following the Valuation Period, provided all
conditions to such Closing have been satisfied on or before such Trading Days.
Section 1.6 "Commitment Amount" shall mean the $20,000,000 up to which
the Investor have agreed to provide to the Company in order to purchase Put
Shares pursuant to the terms and conditions of this Agreement.
Section 1.7 "Commitment Period" shall mean the period commencing on the
earlier to occur of (i) the Effective Date or (ii) such earlier date as the
Company and the Investor may mutually agree in writing, and expiring on the
earliest to occur of (x) the date on which the Investor shall have purchased Put
Shares pursuant to this Agreement for an aggregate Purchase Price of
$20,000,000, (y) the date this Agreement is terminated pursuant to Section 2.5,
or (z) the date occurring twenty-four (24) months from the date of commencement
of the Commitment Period.
Section 1.8 "Common Stock" shall mean the Company's common stock, $.001
par value per share.
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Section 1.9 "Common Stock Equivalents" shall mean any securities that
are convertible into or exchangeable for Common Stock or any warrants, options
or other rights to subscribe for or purchase Common Stock or any such
convertible or exchangeable securities.
Section 1.10 "Condition Satisfaction Date" See Section 7.2.
Section 1.11 "Damages" shall mean any loss, claim, damage, liability,
costs and expenses (including, without limitation, reasonable attorneys' fees
and disbursements and costs and expenses of expert witnesses and investigation).
Section 1.12 "Effective Date" shall mean the date on which the SEC
first declares effective a Registration Statement registering resale of the
Registrable Securities as set forth in Section 7.2(a).
Section 1.13 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended and the regulations promulgated thereunder.
Section 1.14 "Finder" See Section 13.4.
Section 1.15 "Finder's Fee" See Section 13.4.
Section 1.16 "Floor Price" shall mean the lowest price per share at
which the Company will issue Put Shares, as may be determined from time to time
by the Company and designated in an Optional Purchase Notice.
Section 1.17 "Investment Amount" shall mean the dollar amount (within
the range specified in Section 2.2) to be invested by the Investor to purchase
Put Shares with respect to any Optional Purchase Date as notified by the Company
to the Investor in accordance with Section 2.2 hereof.
Section 1.18 "Legend" See Section 9.1.
Section 1.19 "Material Adverse Effect" shall mean any effect on the
business, operations, properties, prospects, or financial condition of the
Company that is material and adverse to the Company and its subsidiaries and
affiliates, taken as a whole, and/or any condition, circumstance, or situation
that would prohibit or otherwise interfere with the ability of the Company to
enter into and perform its obligations under any of (a) this Agreement and (b)
the Registration Rights Agreement in any material respect.
Section 1.20 "Maximum Put Amount" shall mean the lesser of (i) fifteen
percent (15%) of the Average Daily Prices for the twenty-two Trading Days
immediately preceding the Optional Purchase Date multiplied by the reported
daily trading volume of the Common Stock on the Principal Market for the
twenty-two Trading Days immediately preceding the Optional Purchase Date, (ii)
the maximum amount of Common Stock that may be issued without the approval of
the Company's Shareholders according to the rules and regulations of the
Principal Market, or (iii) the amount specified in Section 7.2(j).
Section 1.21 "Minimum Put Amount" shall mean $100,000 to all Investor
in the aggregate for each Optional Purchase Notice.
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Section 1.22 "NASD" shall mean the National Association of Securities
Dealers, Inc.
Section 1.23 "Optional Purchase Date" shall mean the Trading Day during
the Commitment Period that an Optional Purchase Notice to sell Common Stock to
the Investor is deemed delivered pursuant to Section 2.2(b) hereof.
Section 1.24 "Optional Purchase Notice" shall mean a written notice to
the Investor setting forth the Investment Amount that the Company intends to
sell to the Investor.
Section 1.25 "Outstanding" when used with reference to Common Shares or
Capital Shares (collectively the "Shares"), shall mean, at any date as of which
the number of such Shares is to be determined, all issued and outstanding
Shares, and shall include all such Shares issuable in respect of outstanding
scrip or any certificates representing fractional interests in such Shares;
provided, however, that "Outstanding" shall not mean any such Shares then
directly or indirectly owned or held by or for the account of the Company.
Section 1.26 "Person" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
Section 1.27 "Principal Market" shall mean the Nasdaq National Market,
the Nasdaq Small-Cap Market, the OTC Bulletin Board, the American Stock Exchange
or the New York Stock Exchange, whichever is at the time the principal trading
exchange or market for the Common Stock. As of the date of this Agreement, the
OTC Bulletin Board is the Principal Market.
Section 1.28 "Proportionate Share" shall mean the proportion of the
Commitment Amount agreed to be purchased by the Investor as set forth on
Schedule A.
Section 1.29 "Purchase Price" as used in this Agreement shall mean the
following: For each Trading Day during a Valuation Period (or such other date on
which the Purchase Price is calculated in accordance with the terms and
conditions of this Agreement) the Purchase Price shall be 90% of the VWAP.
Section 1.30 "Put" shall mean each occasion the Company elects to
exercise its right to tender an Optional Purchase Notice requiring the Investor
to purchase a discretionary amount as determined by the Company and as limited
by this Agreement of the Company's Common Stock, subject to the terms of this
Agreement, which tender must be given to each Investor for such Investor's
Proportionate Share.
Section 1.31 "Put Shares" shall mean all shares of Common Stock issued
or issuable pursuant to a Put that has occurred or may occur in accordance with
the terms and conditions of this Agreement.
Section 1.32 "Registrable Securities" shall mean the Put Shares and
Warrant Shares until the Registration Statement has been declared effective by
the SEC and all Put Shares and Warrant Shares have been disposed of pursuant to
the Registration Statement.
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Section 1.33 "Registration Rights Agreement" shall mean the agreement
regarding the filing of the Registration Statement for the resale of the
Registrable Securities, entered into between the Company and the Investor as of
the Subscription Date.
Section 1.34 "Registration Statement" shall mean a registration
statement on Form S-1 (if use of such form is then available to the Company
pursuant to the rules of the SEC and, if not, on such other form promulgated by
the SEC for which the Company then qualifies and which form shall be available
for the resale of the Registrable Securities to be registered thereunder in
accordance with the provisions of this Agreement and the Registration Rights
Agreement, and in accordance with the intended method of distribution of such
securities), for the registration of the resale by the Investor of the
Registrable Securities under the Securities Act.
Section 1.35 "Regulation D" shall mean Regulation D of the Securities
Act.
Section 1.36 "SEC" shall mean the Securities and Exchange Commission.
Section 1.37 "Section 4(2)" shall mean Section 4(2) of the Securities
Act.
Section 1.38 "Securities Act" shall mean the United States Securities
Act of 1933, as amended, and the regulations promulgated thereunder.
Section 1.39 "SEC Documents" shall mean the Company's latest Form 10-K
as of the time in question, all Forms 10-Q and 8-K filed thereafter, and the
Proxy Statement for its latest fiscal year as of the time in question until such
time the Company no longer has an obligation to maintain the effectiveness of a
Registration Statement as set forth in the Registration Rights Agreement.
Section 1.40 "Subscription Date" shall mean the date on which this
Agreement is executed and delivered by the parties hereto.
Section 1.41 "Trading Cushion" shall mean, at any time, the mandatory
thirty (30) calendar days between Optional Purchase Dates and five (5) Trading
Days after the most recent Closing Date.
Section 1.42 "Trading Day" shall mean any day during which the New York
Stock Exchange shall be open for business.
Section 1.43 "Valuation Event" shall mean an event in which the Company
at any time during a Valuation Period takes any of the following actions:
(a) subdivides or combines its Common Stock;
(b) pays a dividend in its Capital Stock or makes any
other distribution of its Capital Shares;
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(c) issues any additional Capital Shares ("Additional
Capital Shares"), otherwise than as provided in the foregoing
Subsections (a) and (b) above, at a price per share less, or
for other consideration lower, than the Bid Price in effect on
the Trading Day immediately prior to such issuance, or without
consideration;
(d) issues any warrants, options or other rights to
subscribe for or purchase any Additional Capital Shares and
the price per share for which Additional Capital Shares may at
any time thereafter be issuable pursuant to such warrants,
options or other rights shall be less than the Bid Price in
effect immediately prior to such issuance;
(e) issues any securities convertible into or
exchangeable for Capital Shares and the consideration per
share for which Additional Capital Shares may at any time
thereafter be issuable pursuant to the terms of such
convertible or exchangeable securities shall be less than the
Bid Price in effect immediately prior to such issuance;
(f) makes a distribution of its assets or evidences
of indebtedness to the holders of its Capital Shares as a
dividend in liquidation or by way of return of capital or
other than as a dividend payable out of earnings or surplus
legally available for dividends under applicable law or any
distribution to such holders made in respect of the sale of
all or substantially all of the Company's assets (other than
under the circumstances provided for in the foregoing
subsections (a) through (e); or
(g) takes any action affecting the number of
Outstanding Capital Shares, other than an action described in
any of the foregoing Subsections (a) through (f) hereof,
inclusive, which in the opinion of the Company's Board of
Directors, determined in good faith, would have a materially
adverse effect upon the rights of the Investor at the time of
a Put or Closing Date.
Upon each occurrence of any one or more of the foregoing Valuation Events, the
Purchase Price and number of Put Shares to be issued shall be adjusted to offset
the dilutive effect of such one or more Valuation Events.
Section 1.44 "Valuation Period" shall mean the period of twenty (20)
Trading Days during which the Purchase Price of the Common Stock is determined,
which period shall be with respect to the Purchase Prices on any Optional
Purchase Date, the twenty (20) Trading Days following the day on which an
Optional Purchase Notice is deemed to be delivered.
Section 1.45 "VWAP" shall mean the daily volume weighted average price
of the Common Stock on the Principal Market as reported by Bloomberg, L.P. using
the AQR function.
Section 1.46 "Warrant" shall mean the common stock purchase warrants of
the Company described in Section 13.1, a form of which is annexed hereto as
Exhibit E. Each Warrant shall evidence the right of the holder to purchase one
Warrant Share.
Section 1.47 "Warrant Shares" shall mean the Common Stock issuable upon
exercise of a Warrant.
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ARTICLE II
PURCHASE AND SALE OF COMMON STOCK
Section 2.1 Puts. Upon the terms and conditions set forth herein
(including, without limitation, the provisions of Article III hereof), on any
Optional Purchase Date the Company may exercise a Put by the delivery of an
Optional Purchase Notice. The number of Put Shares that the Investor shall
receive pursuant to such Put shall be determined by dividing the relevant
portions of the Investment Amount specified in the Optional Purchase Notice by
the corresponding Purchase Prices for each Trading Day during the Valuation
Period.
Section 2.2 Mechanics.
(a) Optional Purchase Notice. At any time during the
Commitment Period, the Company may deliver an Optional Purchase Notice to the
Investor, subject to the conditions set forth in Section 7.2; provided, however,
the Investment Amount for each Put as designated by the Company in the
applicable Optional Purchase Notices shall be neither less than the Minimum Put
Amount in the aggregate to all Investor nor more than the Maximum Put Amount.
The Optional Purchase Notice shall state the commencement date of the Valuation
Period.
(b) Date of Delivery of Optional Purchase Notice. An Optional
Purchase Notice shall be deemed delivered on (i) the Trading Day it is received
by facsimile or otherwise by the Investor if such notice is received prior to
12:00 noon New York time, or (ii) the immediately succeeding Trading Day if it
is received by facsimile or otherwise after 12:00 noon New York time on a
Trading Day or at any time on a day which is not a Trading Day. No Optional
Purchase Notice may be deemed delivered on a day that is not a Trading Day.
(c) Determination of Put Shares Issuable. The Purchase Price
shall be based on the Average Daily Price on each separate Trading Day during
the Valuation Period. The number of Put Shares to be purchased by each Investor
with respect to such Investor's Proportionate Share shall be determined on a
daily basis during each Valuation Period and settled on each Closing Date. The
portion of Investment Amount for which Put Shares may be issued for each Trading
Day during the Valuation Period may not exceed one-twentieth (1/20th) of the
Investment Amount.
(d) Maximum Optional Purchase Notices/Amount. There shall be a
maximum of twenty-four (24) Optional Purchase Notices given during the term of
this Agreement. Subject to the terms and conditions of this Agreement, the
Company shall have the right to issue each Optional Purchase Notice for an
Investment Amount up to the Maximum Put Amount. The Company may not issue an
Optional Purchase Notice in connection with any amount of shares which would
exceed the amount permitted to be issued without approval of the Company's
shareholders, if such approval is required pursuant to the rules of the
Principal Market.
(e) Trading Halt Limitations and Blackouts. The Investor is
not required to purchase Put Shares for any Trading Day during which trading of
the Common Stock is suspended or halted for three or more hours or for any day
during which any of the events described in Section 6.8 has occurred or is
continuing. In such case, one-twentieth (1/20th) of the Investment Amount shall
be withdrawn from the Investment Amount for each such Trading Day.
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(f) Floor Price. On each such date during the Valuation Period
that the Purchase Price of the Common Stock is less than the Floor Price ("Low
Price Day"), (i) the Investment Amount specified in the applicable Put Notice
shall be reduced by one-twentieth (1/20th), and (ii) the Company shall not sell
and the Investor shall not purchase Put Shares equal to such reduction in the
Investment Amount for such Low Price Day and the Valuation Period shall be
extended for each such Low Price Day as if such Low Price Day were not in the
Valuation Period. However, the Valuation Period may not be extended more than
six Trading Days corresponding to six Low Price Days, in relation to each
Optional Purchase Notice.
Section 2.3 Closings. On each Closing Date for a Put the Company shall
deliver to the Investor or to escrow one or more certificates, at the Investor's
option, representing the Put Shares to be purchased by the Investor pursuant to
Section 2.1 herein, after the Optional Purchase Date and on or prior to such
Closing Date, registered in the name of the Investor or, at the Investor's
option, deposit such certificate(s) into such account or accounts belonging to
the Investor previously designated by the Investor. If the Company is qualified
to do so, delivery of Put Shares shall, at the Investor's election, be made by
electronic transfer. The Investor shall deliver to escrow the Investment Amount
specified in the Optional Purchase Notice by wire transfer of immediately
available funds to an account designated by the Company on or before the Closing
Date. In addition, on or prior to the Closing Date, each of the Company and the
Investor shall deliver all documents, instruments and writings required to be
delivered or reasonably requested by either of them pursuant to this Agreement
in order to implement and effect the transactions contemplated herein. Payment
of funds to the Company and delivery of the certificates to the Investor shall
occur out of escrow in accordance with the escrow agreement referred to in
Section 7.2(o) following (x) the Company's deposit into escrow of the
certificates representing the Put Shares and (y) the Investor's deposit into
escrow of the Investment Amount; provided, however, that to the extent the
Company has not paid the fees, expenses and disbursements of the Investor's
counsel in accordance with Section 13.3, the amount of such fees, expenses and
disbursements shall be paid in immediately available funds drawn out of the
deposited funds, at the direction of the Investor, to Investor's counsel with no
reduction in the number of Put Shares issuable to the Investor on such Closing
Date.
Section 2.4 Liquidated Damages. In the event the Company issues an
Optional Purchase Notice but fails or refuses to deliver Put Shares on a Closing
Date, the Company will pay the Investor, as liquidated damages for such failure
to deliver, and not as a penalty, five percent (5%) of the applicable Investment
Amount for each seven (7) day period, or part thereof following such failure, in
cash, until such Put Shares have been delivered. The Escrow Agent shall be
directed to pay such liquidated damages to the Investor out of the Investment
Amount delivered by the Investor to the Escrow Agent.
Section 2.5 Termination of Investment Obligation. The obligation of the
Investor to purchase shares of Common Stock shall terminate permanently
(including with respect to a Closing Date that has not yet occurred) in the
event that (i) there shall occur any stop trade order by the SEC or Principal
Market or suspension by the SEC of the effectiveness of the Registration
Statement for a consecutive five day calendar period or for an aggregate of
twenty (20) Trading Days during the Commitment Period, for any reason, or (ii)
the Company shall at any time fail to comply with the requirements of Article VI
hereof, without regard to any cure period or written notice to cure which may be
permitted or required.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Each Investor represents and warrants to the Company that:
Section 3.1 Intent. The Investor is entering into this Agreement for
its own account and the Investor has no present arrangement or intention
(whether or not legally binding) at any time to sell the Common Stock to or
through any person or entity; provided, however, that by making the
representations herein, the Investor does not agree to hold the Common Stock for
any minimum or other specific term and reserves the right to dispose of the
Common Stock at any time in accordance with federal and state securities laws
applicable to such disposition.
Section 3.2 Sophisticated Investor. The Investor is a sophisticated
investor (as described in Rule 506(b)(2)(ii) of Regulation D) or an accredited
investor (as defined in Rule 501 of Regulation D), and Investor has such
experience in business and financial matters that it is capable of evaluating
the merits and risks of an investment in Common Stock. The Investor acknowledges
that an investment in the Common Stock is speculative and involves a high degree
of risk. The Investor is able to bear the risk of such investment for an
indefinite period and to afford a complete loss thereof.
Section 3.3 Authority. This Agreement has been duly authorized and
validly executed and delivered by the Investor and is a valid and binding
agreement of the Investor enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
Section 3.4 Not an Affiliate. The Investor is not an officer, director
or to Investor's good faith belief, an "affiliate" (as that term is defined in
Rule 405 of the Securities Act) of the Company.
Section 3.5 Absence of Conflicts. The execution and delivery of this
Agreement and any other document or instrument executed in connection herewith,
and the consummation of the transactions contemplated thereby, and compliance
with the requirements thereof, will not violate any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on Investor, or, to
the Investor's knowledge, (a) violate any provision of any indenture, instrument
or agreement to which Investor is a party or is subject, or by which Investor or
any of its assets is bound, (b) conflict with or constitute a material default
thereunder, (c) result in the creation or imposition of any lien pursuant to the
terms of any such indenture, instrument or agreement, or constitute a breach of
any fiduciary duty owed by Investor to any third party, or (d) require the
approval of any third-party (which has not been obtained) pursuant to any
material contract, agreement, instrument, relationship or legal obligation to
which Investor is subject or to which any of its assets, operations or
management may be subject.
Section 3.6 Disclosure; Access to Information. Investor has received
all documents, records, books and other information pertaining to Investor's
investment in the Company that have been requested by Investor. The Company is
subject to the periodic reporting requirements of the Exchange Act, and Investor
has had access to copies of any such reports that have been requested by it.
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Section 3.7 Manner of Sale. At no time was Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
Section 3.8 Compliance with Securities Act. The Investor understands
and agrees that the Agreement, the Common Stock, Warrants and Warrant Shares
have not been registered under the 1933 Act or State Securities laws, and by
reason of the execution of the Agreement by Investor and by reason of the
issuance of the Warrants in a transaction that does not require registration
under the 1933 Act (based in part on the accuracy of the representations and
warranties of Investor contained herein), and that such Warrants must be held
unless a subsequent disposition is registered under the 1933 Act or State
Securities laws or is exempt from such registration. The Investor agrees that it
may be identified as an Underwriter in the Registration Statement.
Section 3.9 Correctness of Representations. The Investor represents
that the foregoing representations and warranties are true and correct as of the
date hereof and, unless the Investor otherwise notifies the Company prior to the
Subscription Date, shall be true and correct as of the Subscription Date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investor that:
Section 4.1 Organization of the Company. The Company is a corporation
duly organized and existing in good standing under the laws of the State of New
York and has all requisite corporate authority to own its properties and to
carry on its business as now being conducted. Except as set forth in the SEC
Documents, the Company does not have any subsidiaries. The Company is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, other than those in which the
failure so to qualify would not have a Material Adverse Effect.
Section 4.2 Authority. (i) The Company has the requisite corporate
power and authority to enter into and perform its obligations under this
Agreement and the Registration Rights Agreement and to issue the Put Shares;
(ii) the execution, issuance and delivery of this Agreement and the Registration
Rights Agreement and the consummation by it of the transactions contemplated
hereby have been duly authorized by all necessary corporate action and no
further consent or authorization of the Company or its Board of Directors or
stockholders is required; and (iii) this Agreement and the Registration Rights
Agreement have been duly executed and delivered by the Company and constitute
valid and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.
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Section 4.3 Capitalization. The authorized and outstanding capital
stock of the Company as of the Subscription Date is set forth on Schedule 4.3
hereto. Except as set forth in the SEC Documents or Schedule 4.3, as of the
Subscription Date, there are no options, warrants or rights to subscribe for
securities, rights or obligations convertible into or exchangeable for, or
giving any rights to receive any Capital Shares. All of the outstanding shares
of Common Stock of the Company have been duly and validly authorized and issued
and are fully paid and nonassessable.
Section 4.4 Common Stock. As of the commencement of and throughout the
Commitment Period, the Company will have registered its Common Stock pursuant to
Section 12(b) or 12(g) of the Exchange Act and be in full compliance with all
reporting requirements of the Exchange Act, and the Company will have maintained
all requirements for the continued listing or quotation of its Common Stock, and
such Common Stock is then listed or quoted on the Principal Market.
Section 4.5 SEC Documents. The Company has delivered or made available
to the Investor true and complete copies of the SEC Documents (including,
without limitation, proxy information and solicitation materials). The Company
has not provided to the Investor any information that, according to applicable
law, rule or regulation, should have been disclosed publicly prior to the date
hereof by the Company, but which has not been so disclosed. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
rules and regulations of the SEC promulgated thereunder and other federal, state
and local laws, rules and regulations applicable to such SEC Documents, and none
of the SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company
described above and/or included in the SEC Documents comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC or other applicable rules and regulations with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of operations
and cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments).
Section 4.6 Valid Issuances. If made in accordance with this Agreement,
the sale by the Company of the Put Shares and Warrant will be properly
accomplished pursuant to Section 4(2), Regulation D and/or any applicable state
law. The sale by the Company of the Warrant Shares, if made in accordance with
the terms of the Warrant, will be properly accomplished pursuant to Section
4(2), Regulation D and any applicable state law. When issued, the Put Shares
shall be duly and validly issued, fully paid, and nonassessable. Neither the
sales of the Put Shares and Warrant Shares pursuant to, nor the Company's
performance of its obligations under, this Agreement or the Registration Rights
Agreement will (i) result in the creation or imposition of any liens, charges,
claims or other encumbrances upon the Put Shares or any of the assets of the
Company, or (ii) entitle the holders of Outstanding Capital Shares to preemptive
or other rights to subscribe to or acquire the Capital Shares or other
securities of the Company except as set forth on Schedule 4.6. The Put Shares
and Warrant Shares shall not subject the Investor or holder to personal
liability by reason of the possession thereof.
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Section 4.7 No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor any of its affiliates nor any distributor
or any person acting on its or their behalf, if any, (i) has conducted or will
conduct any general solicitation (as that term is used in Rule 502(c) of
Regulation D) or general advertising with respect to any of the Put Shares or
Warrant Shares, or (ii) made any offers or sales of any security or solicited
any offers to buy any security under any circumstances that would require
registration of the sale of the Put Shares or the Warrant Shares under the
Securities Act.
Section 4.8 Corporate Documents. The Company has furnished or made
available to the Investor true and correct copies of the Company's Articles of
Incorporation, as amended and in effect on the date hereof (the "Certificate"),
and the Company's By-Laws, as amended and in effect on the date hereof (the
"By-Laws").
Section 4.9 No Conflicts. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby, including, without limitation, the issuance of
Common Stock, Warrant and Warrant Shares do not and will not (i) result in a
violation of the Company's Articles of Incorporation or By-Laws or (ii) conflict
with, or constitute a default (or an event that with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture,
instrument or any "lock-up" or similar provision of any underwriting or similar
agreement to which the Company is a party, or (iii) result in a violation of any
federal, state, local or foreign law, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations) applicable
to the Company or by which any property or asset of the Company is bound or
affected (except for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect) nor is the Company otherwise in
violation of, conflict with or in default under any of the foregoing; provided
that, for purposes of the Company's representations and warranties as to
violations of foreign law, rule or regulation referenced in clause (iv), such
representations and warranties are made only to the best of the Company's
knowledge insofar as the execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby are or may be affected by the status of the Investor under
or pursuant to any such foreign law, rule or regulation. The business of the
Company is not being conducted in violation of any law, ordinance or regulation
of any governmental entity, except for possible violations that either singly or
in the aggregate do not and will not have a Material Adverse Effect. The Company
is not required under federal, state or local law, rule or regulation to obtain
any consent, authorization or order of, or make any filing or registration with,
any court or governmental agency in order for it to execute, deliver or perform
any of its obligations under this Agreement or issue and sell the Common Stock
in accordance with the terms hereof other than any SEC, NASD, Principal Market
or state securities filings that may be required to be made by the Company
subsequent to any Closing, any registration statement that may be filed pursuant
hereto, and any shareholder approval required by the rules applicable to
companies whose common stock trades on the Principal Market.
Section 4.10 No Material Adverse Change. Since the date of the most
recent financial statements included in the SEC Documents, no Material Adverse
Effect has occurred or exists with respect to the Company, except as disclosed
in the SEC Documents.
Section 4.11 No Undisclosed Liabilities. The Company has no liabilities
or obligations which are material, individually or in the aggregate, and are not
disclosed in the SEC Documents or otherwise publicly announced, other than those
incurred in the ordinary course of the Company's businesses since the date of
the most recent financial statements included in the SEC Documents and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect on the Company.
12
Section 4.12 No Undisclosed Events or Circumstances. Since the date of
the most recent financial statements included in the SEC Documents, no event or
circumstance has occurred or exists with respect to the Company or its
businesses, properties, prospects, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the SEC Documents.
Section 4.13 No Integrated Offering. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, other than pursuant to this Agreement, under circumstances
that would require registration of the Common Stock under the Securities Act.
Section 4.14 Litigation and Other Proceedings. Except as may be set
forth in the SEC Documents, there are no lawsuits or proceedings pending or to
the best knowledge of the current management and Board of Directors of the
Company threatened, against the Company, nor has the Company received any
written or oral notice of any such action, suit, proceeding or investigation,
which might have a Material Adverse Effect. Except as set forth in the SEC
Documents, no judgment, order, writ, injunction or decree or award has been
issued by or, so far as is known by the Company, requested of any court,
arbitrator or governmental agency which might result in a Material Adverse
Effect.
Section 4.15 No Misleading or Untrue Communication. The Company and any
Person representing the Company, in connection with the transactions
contemplated by this Agreement, have not made, at any time, any oral or written
communication in connection with same, which contained any untrue statement of a
material fact or omitted to state any material fact necessary in order to make
the statements, in the light of the circumstances under which they were made,
not misleading.
Section 4.16 Material Non-Public Information. The Company is not in
possession of, nor has the Company or its agents disclosed to the Investor, any
material non-public information that (i) if disclosed, would, or could
reasonably be expected to have, an effect on the price of the Common Stock or
(ii) according to applicable law, rule or regulation, should have been disclosed
publicly by the Company prior to the date hereof but which has not been so
disclosed.
ARTICLE V
COVENANTS OF THE INVESTOR
Section 5.1 Compliance with Law. The Investor's trading activities with
respect to shares of the Company's Common Stock will be in compliance with all
applicable state and federal securities laws, rules and regulations and the
rules and regulations of the Principal Market on which the Company's Common
Stock is listed.
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ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1 Registration Rights. The Company shall cause the
Registration Rights Agreement to remain in full force and effect and the Company
shall comply in all respects with the terms thereof.
Section 6.2 Reservation of Common Stock. As of the date hereof, the
Company has reserved not less than 2,925,000 shares of Common Stock for issuance
as Put Shares and 75,000 Shares for issuance as Warrant Shares. The Company
shall continue to reserve and keep available at all times, free of preemptive
rights, shares of Common Stock for the purpose of enabling the Company to
satisfy any obligation to issue the Put Shares issuable after the giving of all
Optional Purchase Notices; such amount of shares of Common Stock to be reserved
shall be calculated based upon the minimum Purchase Price therefor under the
terms of this Agreement.
Section 6.3 Listing of Common Stock. The Company shall maintain the
listing of the Common Stock on a Principal Market, and as soon as practicable
(but in any event prior to the commencement of the Commitment Period) to list
the Put Shares and Warrant Shares on the Principal Market. The Company further
shall, if the Company applies to have the Common Stock traded on any other
Principal Market, include in such application the Put Shares, and shall take
such other action as is necessary or desirable in the opinion of the Investor to
cause the Common Stock to be listed on such other Principal Market as promptly
as possible. The Company shall take all action necessary to continue the listing
and trading of its Common Stock on a Principal Market (including, without
limitation, maintaining sufficient net tangible assets) and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of such Principal Market.
Section 6.4 Exchange Act Registration. The Company shall cause its
Common Stock to continue to be registered under Section 12(g) or 12(b) of the
Exchange Act, will comply in all respects with its reporting and filing
obligations under said Act, and will not take any action or file any document
(whether or not permitted by said Act or the rules thereunder) to terminate or
suspend such registration or to terminate or suspend its reporting and filing
obligations under said Act. The Company will take all action to continue the
listing and trading of its Common Stock on the Principal Market and will comply
in all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the Principal Market.
Section 6.5 Legends. The certificates evidencing the Common Stock to be
sold by the Investor pursuant to Section 9.1 shall be free of legends.
Section 6.6 Corporate Existence. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company.
Section 6.7 Additional SEC Documents. The Company will deliver to the
Investor, as and when the originals thereof are submitted to the SEC for filing,
copies of all SEC Documents so furnished or submitted to the SEC.
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Section 6.8 Blackout Period. Subject to the requirements of Regulation
FD under the Exchange Act, the Company will immediately notify the Investor upon
the occurrence of any of the following events in respect of a Registration
Statement or related prospectus in respect of an offering of Registrable
Securities; (i) receipt of any request for additional information by the SEC or
any other federal or state governmental authority during the period of
effectiveness of the Registration Statement for amendments or supplements to the
Registration Statement or related prospectus; (ii) the issuance by the SEC or
any other federal or state governmental authority of any stop order suspending
the effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose; (iii) receipt of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any event
that makes any statement made in such Registration Statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of any
changes in the Registration Statement, related prospectus or documents so that,
in the case of the Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (v) the Company's
reasonable determination that a post-effective amendment to the Registration
Statement would be appropriate; and the Company will promptly make available to
the Investor any such supplement or amendment to the related prospectus. The
Company shall not deliver to the Investor any Optional Purchase Notice during
the continuation of any of the foregoing events.
Section 6.9 Expectations Regarding Optional Purchase Notices. Within
ten (10) days after the commencement of each calendar quarter occurring
subsequent to the commencement of the Commitment Period, the Company undertakes
to notify the Investor as to its reasonable expectations as to the dollar amount
it intends to raise during such calendar quarter, if any, through the issuance
of Optional Purchase Notices. Such notification shall constitute only the
Company's good faith estimate and shall in no way obligate the Company to raise
such amount, or any amount, or otherwise limit its ability to deliver Optional
Purchase Notices. The failure by the Company to comply with this provision can
be cured by the Company's notifying the Investor at any time as to its
reasonable expectations with respect to the current calendar quarter.
Section 6.10 Consolidation; Merger. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument the
obligation to deliver to the Investor such shares of stock and/or securities as
the Investor is entitled to receive pursuant to this Agreement.
Section 6.11 Issuance of Put Shares. The sale and issuance of the Put
Shares and Warrant Shares shall be made in accordance with the provisions and
requirements of applicable state law; provided, however, that the Company shall
not for any such purpose be required to qualify generally to transact business
as a foreign corporation in any jurisdiction where it is not so qualified or to
consent to general service of process in any such jurisdiction.
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ARTICLE VII
CONDITIONS TO DELIVERY OF OPTIONAL
PURCHASE NOTICES AND CONDITIONS TO CLOSING
Section 7.1 Conditions Precedent to the Obligation of the Company to
Issue and Sell Common Stock. The obligation hereunder of the Company to issue
and sell the Put Shares to the Investor incident to each Closing is subject to
the satisfaction, at or before each such Closing, of each of the conditions set
forth below.
(a) Accuracy of the Investor's Representation and Warranties.
The representations and warranties of the Investor shall be true and correct in
all material respects as of the date of this Agreement and as of the date of
each such Closing as though made at each such time.
(b) Performance by the Investor. The Investor shall have
performed, satisfied and complied in all respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Investor at or prior to such Closing.
Section 7.2 Conditions Precedent to the Right of the Company to Deliver
an Optional Purchase Notice and the Obligation of the Investor to Purchase Put
Shares. The right of the Company to deliver an Optional Purchase Notice and the
obligation of the Investor hereunder to acquire and pay for the Put Shares
incident to a Closing is subject to the satisfaction, on (i) the date of
delivery of such Optional Purchase Notice, (ii) for each day during the
Valuation Period; and (iii) the applicable Closing Date (each a "Condition
Satisfaction Date"), of each of the following conditions:
(a) Registration of the Common Stock with the SEC. As set
forth in the Registration Rights Agreement, the Company shall have filed with
the SEC a Registration Statement with respect to the resale of the Registrable
Securities that shall have been declared effective by the SEC prior to the first
Optional Purchase Date, but in no event later than the date set forth in the
Registration Rights Agreement and shall have filed a prospectus supplement on
the first trading day after each Closing Date.
(b) Effective Registration Statement. As set forth in the
Registration Rights Agreement, the Registration Statement shall have previously
become effective and shall remain effective on each Condition Satisfaction Date
and (i) neither the Company nor the Investor shall have received notice that the
SEC has issued or intends to issue a stop order with respect to the Registration
Statement or that the SEC otherwise has suspended or withdrawn the effectiveness
of the Registration Statement, either temporarily or permanently, or intends or
has threatened to do so, and (ii) no other suspension of the use or withdrawal
of the effectiveness of the Registration Statement or related prospectus shall
exist.
(c) Accuracy of the Company's Representations and Warranties.
The representations and warranties of the Company shall be true and correct in
all material respects as of each Condition Satisfaction Date as though made at
each such time (except for representations and warranties specifically made as
of a particular date) with respect to all periods, and as to all events and
circumstances occurring or existing to and including each Condition Satisfaction
Date, except for any conditions which have temporarily caused any
representations or warranties herein to be incorrect and which have been
corrected with no continuing impairment to the Company or the Investor.
16
(d) Performance by the Company. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement and the Registration Rights
Agreement to be performed, satisfied or complied with by the Company at or prior
to each Condition Satisfaction Date.
(e) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction that prohibits or directly and adversely affects any of the
transactions contemplated by this Agreement, and no proceeding shall have been
commenced that may have the effect of prohibiting or adversely affecting any of
the transactions contemplated by this Agreement.
(f) Adverse Changes. Since the date of filing of the Company's
most recent SEC Document, no event that had or is reasonably likely to have a
Material Adverse Effect has occurred.
(g) No Suspension of Trading In or Delisting of Common Stock.
The trading of the Common Stock (including without limitation the Put Shares)
shall not have been suspended by the SEC, the Principal Market or the NASD and
the Common Stock (including without limitation the Put Shares) shall have been
approved for listing or quotation on and shall not have been delisted from the
Principal Market. The issuance of shares of Common Stock with respect to the
applicable Closing, if any, shall not violate the shareholder approval
requirements of the Principal Market.
(h) Legal Opinions. The Company shall have caused to be
delivered to the Investor, within five (5) Trading Days of the effective date of
the Registration Statement, an opinion of the Company's independent counsel in
the form of Exhibit B hereto, addressed to the Investor; provided, however, that
in the event that such an opinion cannot be delivered by the Company's
independent counsel to the Investor, the Company shall promptly revise the
Registration Statement and shall not deliver an Optional Purchase Notice. If an
Optional Purchase Notice shall have been delivered in good faith without
knowledge by the Company that an opinion of independent counsel can not be
delivered as required, at the option of the Investor, either the applicable
Closing Date shall automatically be postponed for a period of up to five (5)
Trading Days until such an opinion is delivered to the Investor, or such Closing
shall otherwise be canceled. Liquidated damages determined pursuant to Section
2.4 shall be calculated and payable on the Closing Date. The Company's
independent counsel shall also deliver to the Investor upon execution of this
Agreement an opinion in form and substance reasonably satisfactory to the
Investor addressing, among other things, corporate matters and the exemption
from registration under the Securities Act of the issuance of the Warrants by
the Company to the Investor under this Agreement.
(i) Due Diligence. No dispute between the Company and the
Investor shall exist pursuant to Section 8.2(c) as to the adequacy of the
disclosure contained in the Registration Statement.
17
(j) Beneficial Ownership Limitation. On each Closing Date, the
number of Put Shares then to be purchased by the Investor shall not exceed the
number of such shares that, when aggregated with all other shares of Common
Stock then owned by the Investor beneficially or deemed beneficially owned by
the Investor, would result in the Investor owning more than 4.99% of all of such
Common Stock as would be outstanding on such Closing Date, as determined in
accordance with Section 16 of the Exchange Act and the regulations promulgated
thereunder. For purposes of this Section 7.2(j), in the event that the amount of
Common Stock outstanding as determined in accordance with Section 16 of the
Exchange Act and the regulations promulgated thereunder is greater on a Closing
Date than on the date upon which the Optional Purchase Notice associated with
such Closing Date is given, the amount of Common Stock outstanding on such
Closing Date shall govern for purposes of determining whether the Investor, when
aggregating all purchases of Common Stock made pursuant to this Agreement and,
if any, Shares, would own more than 4.99% of the Common Stock following such
Closing Date.
(k) Cross Default. The Company shall not be in default of a
material term, covenant, warranty or undertaking of any other agreement to which
the Company and any Investor are parties, nor shall there have occurred an event
of default under any such other agreement
(l) No Knowledge. The Company shall have no knowledge of any
event more likely than not to have the effect of causing such Registration
Statement to be suspended or otherwise ineffective (which event is more likely
than not to occur within the fifteen Trading Days following the Trading Day on
which such Notice is deemed delivered).
(m) Trading Cushion. The Trading Cushion shall have elapsed
since the immediately preceding Optional Purchase Date and Closing Date.
(n) Shareholder Vote. The issuance of shares of Common Stock
with respect to the applicable Closing, if any, shall not violate the
shareholder approval requirements of the Principal Market or the laws of any
jurisdiction to which the Company is subject.
(o) Escrow Agreement. If requested by the Company or any
Investor, the parties hereto shall have entered into a mutually approved escrow
agreement for the Purchase Price due hereunder and the Company shall have agreed
to pay the fees and expenses of the Escrow Agent and not be in default of any
such payments.
(p) Voting Restrictions. The Investor shall not be subject to
voting or other restrictions arising under any applicable "anti-takeover" laws,
rules or regulations.
(q) Other. On each Condition Satisfaction Date, the Investor
shall have received and been reasonably satisfied with such other certificates
and documents as shall have been reasonably requested by the Investor in order
for the Investor to confirm the Company's satisfaction of the conditions set
forth in this Section 7.2., including, without limitation, a certificate in
substantially the form and substance of Exhibit C hereto, executed in either
case by an executive officer of the Company and to the effect that all the
conditions to such Closing shall have been satisfied as at the date of each such
certificate.
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ARTICLE VIII
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION
Section 8.1 Due Diligence Review. The Company shall make available for
inspection and review by the Investor, advisors to and representatives of the
Investor (who may or may not be affiliated with the Investor and who are
reasonably acceptable to the Company), any underwriter participating in any
disposition of the Registrable Securities on behalf of the Investor pursuant to
the Registration Statement, any such registration statement or amendment or
supplement thereto or any blue sky, NASD, Principal Market, or other filing, all
financial and other records, all SEC Documents and other filings with the SEC,
and all other corporate documents and properties of the Company as may be
reasonably necessary for the purpose of such review, and cause the Company's
officers, directors and employees to supply all such information reasonably
requested by the Investor or any such representative, advisor or underwriter in
connection with such Registration Statement (including, without limitation, in
response to all questions and other inquiries reasonably made or submitted by
any of them), prior to and from time to time after the filing and effectiveness
of the Registration Statement for the sole purpose of enabling the Investor and
such representatives, advisors and underwriters and their respective accountants
and attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
Section 8.2 Non-Disclosure of Non-Public Information.
(a) The Company represents and warrants that the Company and
its officers, directors, employees and agents have not disclosed any non-public
information to the Investor or advisors to or representatives of the Investor.
The Company covenants and agrees that it shall refrain from disclosing, and
shall cause its officers, directors, employees and agents to refrain from
disclosing, unless prior to disclosure of such information the Company
identifies such information as being non-public information and provides the
Investor, such advisors and representatives with the opportunity to accept or
refuse to accept such non-public information for review. The Company may, as a
condition to disclosing any non-public information hereunder, require the
Investor's advisors and representatives to enter into a confidentiality
agreement in form reasonably satisfactory to the Company and the Investor.
(b) The Company acknowledges and understands that the Investor
is entering into this Agreement and the Registration Rights Agreement at the
request of the Company and in good faith reliance on the Company's
representation set forth in Section 4.16 that neither it nor its agents have
disclosed to the Investor any material non-public information.
(c) Nothing herein shall require the Company to disclose
non-public information to the Investor or its advisors or representatives, and
the Company represents that it does not disseminate non-public information to
any Investor who purchase stock in the Company in a public offering, to money
managers or to securities analysts, in violation of Regulation FD of the
Exchange Act provided, subject to its compliance with Regulation FD of the
Exchange Act, however, that notwithstanding anything herein to the contrary, the
Company will, as hereinabove provided, immediately notify the advisors and
representatives of the Investor and, if any, underwriters, of any event or the
existence of any circumstance (without any obligation to disclose the specific
event or circumstance) of which it becomes aware, constituting non-public
information (whether or not requested of the Company specifically or generally
during the course of due diligence by such persons or entities), which, if not
disclosed in the prospectus included in the Registration Statement would cause
such prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements, therein, in light
of the circumstances in which they were made, not misleading. Nothing contained
in this Section 8.2 shall be construed to mean that such persons or entities
other than the Investor (without the written consent of the Investor prior to
disclosure of such information) may not obtain non-public information in the
course of conducting due diligence in accordance with the terms of this
Agreement and nothing herein shall prevent any such persons or entities from
notifying the Company of their opinion that based on such due diligence by such
persons or entities, that the Registration Statement contains an untrue
statement of a material fact or omits a material fact required to be stated in
the Registration Statement or necessary to make the statements contained
therein, in light of the circumstances in which they were made, not misleading.
19
Section 8.3 Confidentiality. The Company agrees that it will not
publicly or privately disclose the identities of the Investor, or Finders unless
expressly agreed to in writing by the Investor or otherwise required by law.
ARTICLE IX
LEGENDS
Section 9.1 Legends. Unless otherwise provided below, each certificate
representing Registrable Securities will bear the following legend (the
"Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES
LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST
OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE
DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A
TRANSACTION THAT IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH
REGISTRATION. THE HOLDER OF THIS CERTIFICATE IS THE
BENEFICIARY OF CERTAIN OBLIGATIONS OF THE COMPANY SET FORTH IN
A PRIVATE EQUITY LINE OF CREDIT AGREEMENT AMONG SELECT MEDIA
COMMUNICATIONS, INC. AND CERTAIN INVESTOR DATED NOVEMBER ___,
2001. A COPY OF THE PORTION OF THE AFORESAID AGREEMENT
EVIDENCING SUCH OBLIGATIONS MAY BE OBTAINED FROM THE COMPANY'S
EXECUTIVE OFFICES.
Upon the execution and delivery hereof, the Company is issuing
to the transfer agent for its Common Stock (and to any substitute or replacement
transfer agent for its Common Stock upon the Company's appointment of any such
substitute or replacement transfer agent) instructions in substantially the form
of Exhibit D hereto. Such instructions shall be irrevocable by the Company from
and after the date hereof or from and after the issuance thereof to any such
substitute or replacement transfer agent, as the case may be, except as
otherwise expressly provided in the Registration Rights Agreement. It is the
intent and purpose of such instructions, as provided therein, to require the
transfer agent for the Common Stock from time to time upon transfer of
Registrable Securities by the Investor to issue certificates evidencing such
Registrable Securities free of the Legend during the following periods and under
the following circumstances and without consultation by the transfer agent with
the Company or its counsel and without the need for any further advice or
instruction or documentation to the transfer agent by or from the Company or its
counsel or the Investor:
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(a) at any time after the Effective Date, upon surrender of
one or more certificates evidencing Common Stock that bear the Legend, to the
extent accompanied by a notice requesting the issuance of new certificates free
of the Legend to replace those surrendered, or prior to issuance of a
certificate; provided that (i) the Registration Statement shall then be
effective; (ii) the Investor confirms to the transfer agent that it has sold,
pledged or otherwise transferred or agreed to sell, pledge or otherwise transfer
such Common Stock in a bona fide transaction to a third party that is not an
affiliate of the Company; and (iii) the Investor or sales agent confirms to the
transfer agent that the Investor or sales agent has complied with the prospectus
delivery requirement; and
(b) at any time upon any surrender of one or more certificates
evidencing Registrable Securities that bear the Legend, to the extent
accompanied by a notice requesting the issuance of new certificates free of the
Legend to replace those surrendered and containing representations that (i) the
Investor is permitted to dispose of such Registrable Securities without
limitation as to amount or manner of sale pursuant to Rule 144(k) under the
Securities Act or (ii) the Investor has sold, pledged or otherwise transferred
or agreed to sell, pledge or otherwise transfer such Registrable Securities in a
manner other than pursuant to an effective registration statement, to a
transferee who will upon such transfer be entitled to freely tradeable
securities. Any of the notices referred to above in this Section 9.1 may be sent
by facsimile to the Company's transfer agent.
Section 9.2 No Other Legend or Stock Transfer Restrictions. No legend
other than the one specified in Section 9.1 has been or shall be placed on the
share certificates representing the Common Stock and no instructions or "stop
transfers orders," so called, "stock transfer restrictions," or other
restrictions have been or shall be given to the Company's transfer agent with
respect thereto other than as expressly set forth in this Article IX.
ARTICLE X
CHOICE OF LAW/VENUE
Section 10.1 Choice of Law/Venue. This Agreement and the Registration
Rights Agreement shall be governed by and construed in accordance with the laws
of the State of New York without regard to principles of conflicts of laws. Any
action brought by either party against the other concerning the transactions
contemplated by this Agreement or the Registration Rights Agreement shall be
brought only in the state courts of New York or in the federal courts located in
the state of New York. Both parties and the individuals executing this Agreement
and other agreements on behalf of the Company agree to submit to the
jurisdiction of such courts and waive trial by jury. The prevailing party shall
be entitled to recover from the other party its reasonable attorney's fees and
costs. In the event that any provision of this Agreement or any other agreement
delivered in connection herewith is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision of any agreement.
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ARTICLE XI
ASSIGNMENT; ENTIRE AGREEMENT, AMENDMENT; TERMINATION
Section 11.1 Assignment. Neither this Agreement nor any rights of the
Investor or the Company hereunder may be assigned by either party to any other
person.
Section 11.2 Termination. This Agreement shall terminate upon the
earlier of twenty-four (24) months after the commencement of the Commitment
Period or pursuant to Section 1.1(c) of the Registration Rights Agreement;
provided, however, that the provisions of Articles VI, VIII, IX, X, XI, XII,
XIII and XIV shall survive the termination of this Agreement.
Section 11.3 Entire Agreement, Amendment. This Agreement and the
Registration Rights Agreement constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof,
and no party shall be liable or bound to any other party in any manner by any
warranties, representations or covenants except as specifically set forth in
this Agreement or therein. Except as expressly provided in this Agreement,
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by both parties hereto.
ARTICLE XII
NOTICES; INDEMNIFICATION
Section 12.1 Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
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If to Select Media Communications, Inc.:
Select Media Communications, Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to (which communication shall not constitute notice):
Wolf, Block, ▇▇▇▇▇▇ & ▇▇▇▇▇-▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ Bring, Esq.
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Investor:
To the address and telecopier number set forth on Schedule A hereto
with a copy to (which communication shall not constitute notice):
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
c/o Grushko & ▇▇▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 12.1 by giving at least ten (10) days' prior
written notice of such changed address or facsimile number to the other party
hereto.
Section 12.2 Indemnification.
(a) The Company agrees to indemnify and hold harmless the
Investor, its partners, affiliates, officers, directors, employees, and duly
authorized agents, and each Person or entity, if any, who controls the Investor
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, together with the Controlling Persons (as defined in the
Registration Rights Agreement) from and against any Damages, joint or several,
and any action in respect thereof to which the Investor, its partners,
affiliates, officers, directors, employees, and duly authorized agents, and any
such Controlling Person becomes subject to, resulting from, arising out of or
relating to any misrepresentation, breach of warranty or nonfulfillment of or
failure to perform any covenant or agreement on the part of Company contained in
this Agreement in any event as such Damages are incurred.
(b) The Investor agrees to indemnify and hold harmless the
Company, its partners, affiliates, officers, directors, employees, and duly
authorized agents, and each Person or entity, if any, who controls the Investor
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, together with the Controlling Persons (as defined in the
Registration Rights Agreement) from and against any Damages, joint or several,
and any action in respect thereof to which the Company, its partners,
affiliates, officers, directors, employees, and duly authorized agents, and any
such Controlling Person becomes subject to, resulting from, arising out of or
relating to any misrepresentation, breach of warranty or nonfulfillment of or
failure to perform any covenant or agreement on the part of Investor contained
in this Agreement in an aggregate amount not to exceed such Investor's
Proportionate Share.
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Section 12.3 Method of Asserting Indemnification Claims. All claims for
indemnification by any Indemnified Party (as defined below) under Section 12.2
will be asserted and resolved as follows:
(a) In the event any claim or demand in respect of which any
person claiming indemnification under any provision of Section 12.2 (an
"Indemnified Party") might seek indemnity under Section 12.2 is asserted against
or sought to be collected from such Indemnified Party by a person other than the
Company, the Investor or any affiliate of the Company (a "Third Party Claim"),
the Indemnified Party shall deliver a written notification, enclosing a copy of
all papers served, if any, and specifying the nature of and basis for such Third
Party Claim and for the Indemnified Party's claim for indemnification that is
being asserted under any provision of Section 12.2 against any person (the
"Indemnifying Party"), together with the amount or, if not then reasonably
ascertainable, the estimated amount, determined in good faith, of such Third
Party Claim (a "Claim Notice") with reasonable promptness to the Indemnifying
Party. If the Indemnified Party fails to provide the Claim Notice with
reasonable promptness after the Indemnified Party receives notice of such Third
Party Claim, the Indemnifying Party will not be obligated to indemnify the
Indemnified Party with respect to such Third Party Claim to the extent that the
Indemnifying Party's ability to defend has been irreparably prejudiced by such
failure of the Indemnified Party. The Indemnifying Party will notify the
Indemnified Party as soon as practicable within the period ending thirty (30)
calendar days following receipt by the Indemnifying Party of either a Claim
Notice or an Indemnity Notice (as defined below) (the "Dispute Period") whether
the Indemnifying Party disputes its liability or the amount of its liability to
the Indemnified Party under Section 12.2 and whether the Indemnifying Party
desires, at its sole cost and expense, to defend the Indemnified Party against
such Third Party Claim.
1. If the Indemnifying Party notifies the Indemnified Party
within the Dispute Period that the Indemnifying Party desires to defend the
Indemnified Party with respect to the Third Party Claim pursuant to this Section
12.3(a), then the Indemnifying Party will have the right to defend, with counsel
reasonably satisfactory to the Indemnified Party, at the sole cost and expense
of the Indemnifying Party, such Third Party Claim by all appropriate
proceedings, which proceedings will be vigorously and diligently prosecuted by
the Indemnifying Party to a final conclusion or will be settled at the
discretion of the Indemnifying Party (but only with the consent of the
Indemnified Party in the case of any settlement that provides for any relief
which affects the Indemnified Party, other than the payment of monetary damages,
or that provides for the payment of monetary damages as to which the Indemnified
Party will not be indemnified in full pursuant to Section 12.2). The
Indemnifying Party will have full control of such defense and proceedings,
including any compromise or settlement thereof; provided, however, that the
Indemnified Party may, at the sole cost and expense of the Indemnified Party, at
any time prior to the Indemnifying Party's delivery of the notice referred to in
the first sentence of this clause 1, file any motion, answer or other pleadings
or take any other action that the Indemnified Party reasonably believes to be
necessary or appropriate to protect its interests; and provided further, that if
requested by the Indemnifying Party, the Indemnified Party will, at the sole
cost and expense of the Indemnifying Party, provide reasonable cooperation to
the Indemnifying Party in contesting any Third Party Claim that the Indemnifying
Party elects to contest. The Indemnified Party may participate in, but not
control, any defense or settlement of any Third Party Claim controlled by the
Indemnifying Party pursuant to this clause 1, and except as provided in the
preceding sentence, the Indemnified Party will bear its own costs and expenses
with respect to such participation. Notwithstanding the foregoing, the
Indemnified Party may take over the control of the defense or settlement of a
Third Party Claim at any time if it irrevocably waives its right to indemnity
under Section 12.2 with respect to such Third Party Claim.
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2. If the Indemnifying Party fails to notify the Indemnified
Party within the Dispute Period that the Indemnifying Party desires to defend
the Third Party Claim pursuant to Section 12.3(a), or if the Indemnifying Party
gives such notice but fails to prosecute vigorously and diligently or settle the
Third Party Claim, or if the Indemnifying Party fails to give any notice
whatsoever within the Dispute Period, then the Indemnified Party will have the
right to defend, at the sole cost and expense of the Indemnifying Party, the
Third Party Claim by all appropriate proceedings, which proceedings will be
prosecuted by the Indemnified Party in a reasonable manner and in good faith or
will be settled at the discretion of the Indemnified Party (with the consent of
the Indemnifying Party, which consent will not be unreasonably withheld). The
Indemnified Party will have full control of such defense and proceedings,
including any compromise or settlement thereof; provided, however, that if
requested by the Indemnified Party, the Indemnifying Party will, at the sole
cost and expense of the Indemnifying Party, provide reasonable cooperation to
the Indemnified Party and its counsel in contesting any Third Party Claim which
the Indemnified Party is contesting. Notwithstanding the foregoing provisions of
this clause 2, if the Indemnifying Party has notified the Indemnified Party
within the Dispute Period that the Indemnifying Party disputes its liability or
the amount of its liability hereunder to the Indemnified Party with respect to
such Third Party Claim and if such dispute is resolved in favor of the
Indemnifying Party in the manner provided in clause 3 below, the Indemnifying
Party will not be required to bear the costs and expenses of the Indemnified
Party's defense pursuant to this clause 2 or of the Indemnifying Party's
participation therein at the Indemnified Party's request, and the Indemnified
Party will reimburse the Indemnifying Party in full for all reasonable costs and
expenses incurred by the Indemnifying Party in connection with such litigation.
The Indemnifying Party may participate in, but not control, any defense or
settlement controlled by the Indemnified Party pursuant to this clause 2, and
the Indemnifying Party will bear its own costs and expenses with respect to such
participation.
3. If the Indemnifying Party notifies the Indemnified Party
that it does not dispute its liability or the amount of its liability to the
Indemnified Party with respect to the Third Party Claim under Section 12.2 or
fails to notify the Indemnified Party within the Dispute Period whether the
Indemnifying Party disputes its liability or the amount of its liability to the
Indemnified Party with respect to such Third Party Claim, the loss in the amount
specified in the Claim Notice will be conclusively deemed a liability of the
Indemnifying Party under Section 12.2 and the Indemnifying Party shall pay the
amount of such Loss to the Indemnified Party on demand. In the event any
Indemnified Party should have a claim under Section 12.2 against the
Indemnifying Party that does not involve a Third Party Claim, the Indemnified
Party shall deliver a written notification of a claim for indemnity under
Section 12.2 specifying the nature of and basis for such claim, together with
the amount or, if not then reasonably ascertainable, the estimated amount,
determined in good faith, of such claim (an "Indemnity Notice") with reasonable
promptness to the Indemnifying Party. The failure by any Indemnified Party to
give the Indemnity Notice shall not impair such party's rights hereunder except
to the extent that the Indemnifying Party demonstrates that it has been
irreparably prejudiced thereby. If the Indemnifying Party notifies the
Indemnified Party that it does not dispute the claim or the amount of the claim
described in such Indemnity Notice or fails to notify the Indemnified Party
within the Dispute Period whether the Indemnifying Party disputes the claim or
the amount of the claim described in such Indemnity Notice, the Loss in the
amount specified in the Indemnity Notice will be conclusively deemed a liability
of the Indemnifying Party under Section 12.2 and the Indemnifying Party shall
pay the amount of such Loss to the Indemnified Party on demand.
25
ARTICLE XIII
FEES-EXPENSES-WARRANTS
Section 13.1 Warrants. The Investor shall receive in the aggregate
75,000 Warrants. A form of Warrant is annexed hereto as Exhibit E. The Purchase
Price (as defined in the Warrant) of the Warrant Shares shall be 110% of the Bid
Price on the Trading Day immediately preceding the Subscription Date. The
Warrants will be exercisable for five years from the Issue Date (as defined in
the Warrant). The Investor is granted the registration rights set forth in the
Registration Rights Agreement with respect to the Warrant Shares. The Warrants
must be delivered to the Investor on the Subscription Date. All the
representations, undertakings and covenants made by the Company to or for the
benefit of the Investor relating to the Put Shares and to or for the benefit of
the holder of Put Shares are also made by the Company to and for the benefit of
the Investor in relation to the Warrant Shares.
Section 13.2 Timely Delivery. In the event any Warrants are not timely
delivered, the Investor shall have no obligation to purchase Put Shares pursuant
to this Agreement.
Section 13.3 Fees and Expenses. Each of the Company and the Investor
agrees to pay its own expenses incident to the performance of its obligations
hereunder, except that the Company shall pay the fees, and reasonable expenses
and disbursements of the Investor's counsel in an amount of $20,000 on or before
the Subscription Date.
Section 13.4 Finders. Each of the parties hereto represents that it has
had no dealings in connection with this transaction with any finder or broker
who will demand payment of any fee or commission from the Company or Investor
except as described on Schedule 13 ("Finder"). The Company agrees to pay to the
Finder the fee set forth on Schedule 13 ("Finder's Fee"). The Finder's Fee shall
be paid out of the escrow account established for deposit of Investment Amounts,
if any. A default by the Company of the Company's obligations to the Finder
shall be deemed a default under the Agreement, and shall terminate the
Investor's obligation to comply with any Optional Purchase Notices provided such
default is not due to a failure by an escrow agent to comply with his
obligations. The Company on the one hand, and the Investor, on the other hand,
agree to indemnify the other against and hold the other harmless from any and
all liabilities to any other persons claiming brokerage commissions or finder's
fees on account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby and arising out of such party's actions.
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ARTICLE XIV
MISCELLANEOUS
Section 14.1 Counterparts. This Agreement may be executed in multiple
counterparts, each of which may be executed by less than all of the parties and
shall be deemed to be an original instrument which shall be enforceable against
the parties actually executing such counterparts and all of which together shall
constitute one and the same instrument. This Agreement may be delivered by
telecopier transmission which such copy shall be deemed an original executed
Agreement.
Section 14.2 Entire Agreement. This Agreement, the Exhibits hereto, the
documents delivered in connection herewith, and the Registration Rights
Agreement set forth the entire agreement and understanding of the parties
relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements, negotiations and understandings between the parties,
both oral and written relating to the subject matter hereof. The terms and
conditions of all Exhibits to this Agreement are incorporated herein by this
reference and shall constitute part of this Agreement as if fully set forth
herein.
Section 14.3 Survival; Severability. The representations, warranties,
covenants and agreements of the parties hereto shall survive each Closing
hereunder. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it materially
changes the economic benefit of this Agreement to any party.
Section 14.4 Title 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.
Section 14.5 Reporting Entity for the Common Stock. The reporting
entity relied upon for the determination of the Bid Price, VWAP, trading price
or trading volume of the Common Stock on any given Trading Day for the purposes
of this Agreement shall be Bloomberg, L.P. or any successor thereto. The written
mutual consent of the Investor and the Company shall be required to employ any
other reporting entity.
Section 14.6 Remedies for Breach. The Company and each Investor
acknowledges that the other party's remedy at law for the breach of the
provisions provided in this Agreement is inadequate. Therefore, the Company and
each Investor agrees that a breach or violation of this Agreement by the
Company, on the one hand, and the Investor, on the other hand, will entitle the
other party, as a matter of right, to an injunction or other equitable relief,
issued by any court or arbitration panel of competent jurisdiction, restraining
any further or continued breach or violation of this Agreement. Such right to an
injunction will be cumulative and in addition to, and not in lieu of, any other
remedies to which the Company and the Investor may show themselves justly
entitled.
Section 14.7 Publicity. Except as required by applicable law, neither
the Company nor the Investor shall issue any press release or otherwise make any
public statement or announcement with respect to this Agreement or the
transactions contemplated hereby or the existence of this Agreement without the
prior consent of the other party, which consent shall not be unreasonably
withheld or delayed.
Section 14.8 Confidentiality. Investor agrees to maintain the
confidentiality of all information about the Company received from any officer,
employee or agent of the Company, until such time as that confidential
information is released to the public generally as contemplated by Regulation FD
of the Exchange Act other than as a result of any disclosure by Investor.
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[THIS SPACE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Private Equity
Line of Credit Agreement to be executed by the undersigned, thereunto duly
authorized, as of the date first set forth above.
SELECT MEDIA COMMUNICATIONS, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
----------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Chairman and CEO
/s/
--------------------------------------------
GRENVILLE FINANCIAL LTD. - Investor
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