SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of
March 29, 1999, between Brilliant Digital Entertainment, Inc., a Delaware
corporation (the "COMPANY"), and St. Annes Investments, Ltd., a British Virgin
Islands corporation (together with its successors in interest and permitted
assigns or designees, the "INVESTOR").
WHEREAS:
A. The Company and the Investor are executing and delivering
this Agreement in reliance upon the exemption from securities registration
afforded by Section 4(2) under the Securities Act of 1933, as amended (the
"SECURITIES ACT").
B. The parties desire that, upon the terms and subject to the
conditions contained herein, the Investor shall purchase up to $6,000,000 of
shares (the "SHARES") of the Company's common stock, par value $.001 per share
(the "COMMON STOCK").
C. Contemporaneously with the execution and delivery of this
Agreement, the Company and the Investor are executing and delivering a
Registration Rights Agreement in the form attached hereto as EXHIBIT A (the
"REGISTRATION RIGHTS AGREEMENT"), pursuant to which the Company has agreed to
provide to the Investor certain registration rights under the Securities Act and
the rules and regulations promulgated thereunder.
NOW THEREFORE, the Company and the Investor hereby agree as
follows:
For purposes of this Agreement, "AVERAGE STOCK PRICE,""AVERAGE TRADING
VOLUME,""BUSINESS DAY," "CAP AMOUNT," "CAPITAL SHARES," "CAPITAL SHARES
EQUIVALENTS,""MAJOR TRANSACTION,""MARKET PRICE," "PRINCIPAL MARKET," "SEC
DOCUMENTS," "TAX," "TAXES," "TAX RETURN," "TRADING DAY," and "TRANSACTION
DOCUMENTS" shall have the respective meanings set forth in ANNEX A.
1. PURCHASE AND SALE OF COMMON STOCK.
(a) PURCHASE AND SALE OF COMMON STOCK. Upon the
terms and conditions set forth herein, the Company may, at its sole discretion,
issue and sell to the Investor, and the Investor shall purchase from the
Company, up to those number of Shares having an aggregate Purchase Price (as
defined herein) of $6,000,000.
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(b) DELIVERY OF PUT NOTICES.
(i) Subject to the satisfaction of the conditions
set forth in this Agreement, at any time and from time to time during the period
beginning on and including the date on which a Registration Statement (as
defined in the Registration Rights Agreement) filed pursuant to the Registration
Rights Agreement is first declared effective (such date, the "EFFECTIVE DATE")
by the Securities and Exchange Commission (the "SEC") and ending on the earlier
of the (i) date which is 36 months after the Effective Date and (ii) termination
of this Agreement in accordance with the terms hereof (the "OPEN PERIOD"), the
Company may, in its sole discretion, deliver a written notice to the Investor
(each such notice, a "PUT NOTICE") stating a dollar amount (the "DOLLAR AMOUNT")
of Shares which the Company intends to sell to the Investor at a Closing (as
hereinafter defined) pursuant to such Put Notice. The "PUT NOTICE DATE" with
respect to a Put Notice shall be the Business Day on which the Investor receives
such Put Notice by facsimile transmission prior to 4:30 p.m. Eastern Time (and,
if the time of receipt is after 4:30 p.m. Eastern Time, the Put Notice Date
shall be the following Business Day).
(ii) During the Open Period, the Company shall
deliver such number of Put Notices as requires the Investor to purchase Shares
having an aggregate Purchase Price of at least $1,000,000. Such requirement
shall not have been satisfied if the conditions precedent set forth in this
Agreement to (x) the delivery of such Put Notices, (y) the Dollar Amount
required pursuant thereto to be purchased, or (z) the purchase of Shares
pursuant to such Put Notices, are not satisfied or waived by the appropriate
party. If the Company fails to deliver such number of Put Notices as requires
the Investor to purchase at least $1,000,000 of Shares prior to the expiration
of the Open Period, the Company shall deliver to the Investor on such expiration
date an amount equal to $145,000 multiplied by (1-x), where x is equal to the
fraction of $1,000,000 represented by the aggregate Purchase Price of Shares
sold by the Company to the Investor hereunder prior to the expiration of the
Open Period. The Company shall deliver such amount by wire transfer of
immediately available funds as compensation to the Investor for making the
commitment to purchase Shares pursuant to this Agreement, which amount shall be
Investor's sole remedy for the Company's failure to deliver such number of Put
Notices. If the Company fails to pay to the Investor such amount when due, the
Company shall pay to the Investor, on the first Business Day following the date
such payment was due (in addition to, and not in lieu of, any remedy the
Investor may have in law or equity) an amount equal to $3,000, in cash by wire
transfer, plus compounded annual interest of 18% on such amount during the
period, beginning on the Business Day after such amount was due, during which
such amount, or any portion thereof, is outstanding.
(c) INVESTOR OBLIGATION TO PURCHASE SHARES.
Subject to the terms and conditions set forth in this Agreement, following the
Investor's receipt of a valid Put Notice, the Investor shall be required to
purchase from the Company at the related Closing a number of Shares having an
aggregate Purchase Price equal to the lesser of (i) the Dollar Amount set forth
in the Put Notice and (ii) the Cap Amount (the lesser of (i) or (ii) above is
referred to herein as the "REQUIRED DOLLAR AMOUNT"). Notwithstanding anything to
the contrary contained herein, the Investor shall in
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no event be required to purchase pursuant to this Agreement a number of Shares
having an aggregate Purchase Price which is greater than $6,000,000.
(d) LIMITATION ON INVESTOR'S OBLIGATION TO
PURCHASE SHARES. Notwithstanding anything to the contrary in this Agreement, in
no event shall the Investor be required to purchase a number of Shares, and a
Required Dollar Amount may not include an amount which, when added to all other
Shares previously acquired by the Investor pursuant to this Agreement and still
owned by the Investor, would exceed 9.99% of the number of shares of Common
Stock outstanding on the applicable Put Notice Date, as determined in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), and inclusive of all Shares that such Investor would be
required to purchase pursuant to such Put Notice. Each Put Notice shall include
a representation of the Company as to the number of shares of Common Stock
outstanding on the related Put Notice Date as determined in accordance with
Section 13(d) of the Exchange Act. In the event of any dispute as to whether the
Investor may be deemed to be deemed to be the beneficial owner of more than
9.99% of the Common Stock for purposes of Section 16(b) of the Exchange Act, the
Investor shall be entitled to receive an unqualified opinion of counsel for the
Company that such proposed purchase will not cause the Investor to be deemed to
be the beneficial owner of more than 9.99% of the Common Stock for purposes of
Section 16(b). The Investor shall provide such counsel with such information
about the Investor's interests in the Company as shall be reasonably necessary
for counsel to render such opinion. The cost of such opinion shall be the sole
responsibility of the Company.
(e) OVERALL LIMIT ON COMMON STOCK ISSUABLE.
Notwithstanding anything contained herein to the contrary, the aggregate number
of Shares that the Company may issue and sell to the Investor pursuant to this
Agreement shall not exceed 19.99% of the shares of Common Stock outstanding as
of the date of this Agreement (the "MAXIMUM COMMON STOCK ISSUANCE") if the rules
or regulations of the Principal Market on which the Common Stock is then listed
or traded requires the issuance of Shares hereunder in excess of the Maximum
Common Stock Issuance to first be approved by the Company's stockholders unless
(x) such stockholder approval shall have been obtained and (y) such issuance is
permitted pursuant to the By-laws and Certificate of Incorporation of the
Company and applicable law. In the event a Put Notice would result in the
issuance of shares of Common Stock hereunder in excess of the Maximum Common
Stock Issuance, then the Required Dollar Amount for such Put Notice shall be
adjusted so that such limit is not exceeded. The parties understand and agree
that the Company's failure to seek or obtain such stockholder approval shall in
no way adversely affect the validity and due authorization of the issuance and
sale of Shares hereunder or the Investor's obligation in accordance with the
terms and conditions hereof to purchase a number of Shares in the aggregate up
to the Maximum Common Stock Issuance and that such approval pertains only to the
applicability of the Maximum Common Stock Issuance limitation provided in this
Section.
(f) CONDITIONS TO INVESTOR'S OBLIGATION TO
PURCHASE SHARES. Notwithstanding anything to the contrary in this Agreement, in
addition to the conditions set forth
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in Section 6 hereof, the Company shall not be entitled to deliver a Put Notice
or require the Investor to purchase any Shares at a Closing unless each of the
following conditions have been satisfied:
(i) The Market Price on the Put Notice Date shall not
be less than $1.00 (in each case, equitably adjusted for stock
splits, stock dividends, combinations and similar
transactions).
(ii) The Required Dollar Amount shall be at least
$100,000.7
(iii) A Registration Statement shall have been
declared effective and shall remain effective and available
for sale of all Registrable Securities (as defined in the
Registration Rights Agreement) at all times during the period
beginning on the Put Notice Date and ending on and including
the related Closing Date (as defined herein).
(iv) At all times during the period beginning on the
Put Notice Date and ending on and including the related
Closing Date, the Common Stock shall have been listed for
trading on the Principal Market and shall not have been
suspended from trading thereon and the Company shall not have
been notified of any pending or threatened proceeding or other
action to delist or suspend the Common Stock.
(v) The Closing Date with respect to any Put Notice
shall not occur within 15 Business Days of any other Closing
Date.
(vi) The Company has complied with its obligations
under and is otherwise not in breach of, or in default under,
the Transaction Documents.
If any of the events described in clause (i) with respect to
the Purchase Price floor, or in any of clauses (iii) through (vi) above occurs
after an effective Put Notice is so delivered and prior to the applicable
Closing, then the Investor shall have no further obligation to purchase the
Required Dollar Amount of Common Stock at such Closing. In addition to the other
conditions specified in the this Agreement, the Company agrees that in no event
shall the Investor be required to purchase Shares during any single month with
an aggregate Purchase Price of more than $1,500,000.
(g) PURCHASE PRICE PER SHARE. For purposes of
this Agreement, the "PURCHASE PRICE" for each Share purchased by the Investor
shall equal (1) if the Market Price on the Put Notice Date relating to a Closing
is less than or equal to $4.00, 86% of the Market Price on such Put Notice Date
or (2) if the Market Price on the Put Notice Date relating to a Closing is
greater than $4.00, 88% of the Market Price on such Put Notice Date. The number
of Shares to be purchased pursuant to each Put Notice shall be rounded to the
nearest whole number so as to avoid the issuance of fractional shares.
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(h) CLOSING MECHANICS. Subject to the
satisfaction of the conditions set forth in this Agreement, the closing of the
purchase by the Investor of Shares (a "CLOSING") shall occur on the date which
is five (5) Business Days following the applicable Put Notice Date (or such
other date as is mutually agreed to by the Company and the Investor) (a "CLOSING
DATE") at the offices of Troop ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLP, ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ("TROOP ▇▇▇▇▇▇▇"). At least one
Business Day prior to each Closing, the Company shall deliver (or cause to be
delivered) into escrow with Troop ▇▇▇▇▇▇▇ (1) the certificates, registered in
the name of the Investor, representing the Shares to be issued and sold to the
Investor at such Closing and meeting the requirements of Section 4 hereof; (2)
the certificate contemplated by Section 6(c) hereof; (3) the legal opinion
contemplated by Section 6(d) hereof; (4) all other documents, instruments and
writings required to be delivered by it pursuant to the Transaction Documents in
order to effect a Closing hereunder; (5) the Trinity Certificates (as defined
below); and (6) a writing, executed by each of the Investor and the Company as
to the number of Shares to be issued and sold at such Closing and the Purchase
Price to be paid therefor by the Investor (the items contemplated by clauses (1)
through (6) above are collectively referred to as the "COMPANY REQUIRED ITEMS").
Troop ▇▇▇▇▇▇▇ shall notify each of the Company, the Investor and Trinity Capital
Advisors, Inc. ("TRINITY") on the Business Day it receives all of the Company
Required Items relating to such Closing. If Troop ▇▇▇▇▇▇▇ shall have provided
such notice by the Closing, then, provided that the other conditions to the
Investor's obligation to purchase Shares hereunder shall have been satisfied or
appropriately waived, the Investor shall deliver (or cause to be delivered) (x)
to the Company, the Purchase Price for the Shares to be issued and sold at such
Closing, less the amounts contemplated by clauses (y) and (z) following this
clause (x); (y) to Trinity, (A) an amount equal to 3% of the Purchase Price for
the Shares to be issued and sold at such Closing and (B) certificates,
registered in the name of Trinity, representing a number of shares of Common
Stock having an aggregate Market Price as of the Put Notice Date equal to 2% of
the aggregate Purchase Price of the Shares to be issued and sold at such
Closing, which certificates shall meet the requirements of Section 4 hereof (the
"TRINITY CERTIFICATES"); and (z) to Troop ▇▇▇▇▇▇▇, $500.00. Notwithstanding the
foregoing, if the Company is requested by the Investor to deliver Shares via
electronic book-entry through The Depository Trust Company ("DTC"), then the
parties hereto shall cooperate with one another and with DTC in order to
facilitate such delivery and to amend the provisions of this Section in order to
facilitate a smooth Closing whereby the risk of loss as to delivery of Purchase
Price and Shares in a Closing is not materially adjusted. The parties hereto
understand and agree that Troop ▇▇▇▇▇▇▇ will not release the Company Required
Items to the Investor prior to its receipt of written confirmation from the
Company that the Company has received the net proceeds from the sale of the
Shares to have been sold at such Closing; provided, however, if the Company does
not confirm such receipt by 5:00 p.m. Eastern Time on the Business Day following
the Closing Date, the parties hereby direct Troop ▇▇▇▇▇▇▇ to deliver the Company
Required Items to the Investor at such time as Troop ▇▇▇▇▇▇▇ receives written
evidence from the institution from which the Purchase Price was delivered on
behalf of the Investor that funds equal to the amount required hereunder to be
delivered to the Company as payment of the Shares to have been sold at such
Closing were delivered in accordance with the wire instructions provided by the
Company for such purpose (a federal wire number for the correct amount and in
accordance with the wire instructions provided by the Company for such purpose
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shall be conclusive evidence of the Company's receipt). Each of the parties
hereto hereby agrees jointly and severally to indemnify and hold harmless Troop
▇▇▇▇▇▇▇ and its members, employees, agents and representatives from any and all
claims, liabilities, costs or expenses in any way arising from or relating to
the performance of its duties hereunder and agrees that Troop ▇▇▇▇▇▇▇ shall not
have any liability hereunder other than as arising solely from its willful
misconduct in performing its duties hereunder. The parties hereto understand and
agree that Troop ▇▇▇▇▇▇▇ may, at any time upon two Business Days prior written
notice to the parties hereto, resign from its duties and obligations hereunder
without recourse to any party. The Investor further understands and agrees that
Troop ▇▇▇▇▇▇▇ acts as legal counsel to the Company in connection with the
transactions contemplated hereby and may, from time to time, represent the
Company in other matters, including such matters as may directly or indirectly
be adverse to the interests of the Investor. The Investor consents to such
representation and waives any claim that such representation represents a
conflict of interest on the part of Troop ▇▇▇▇▇▇▇. The Investor understands that
the Company and Troop ▇▇▇▇▇▇▇ are relying explicitly on the foregoing provision
in connection with the Company entering into this Agreement.
(i) EFFECT OF FAILURE TO SATISFY CLOSING
OBLIGATIONS. Subject to the Company's compliance with all of the terms and
conditions of this Agreement, with respect to each Put Notice, if all of the
conditions applicable to the requirement of the Investor to purchase the
Required Dollar Amount as a result of such Put Notice have been met and (subject
to the limitations and restrictions of Shares issuance and Investor ownership
set forth in this Agreement), and the Investor shall fail to purchase the entire
Required Dollar Amount on the applicable Closing Date, then the Investor shall,
in addition to any other remedies under this Agreement, pay as additional
damages in cash to the Company, on the eighth Business Day following the
applicable Closing Date and on each succeeding fifth Business Day thereafter
until the Required Dollar Amount is paid, an amount equal to one percent (1%) of
the balance of the Required Dollar Amount that was not paid to the Company for
such Put Notice.
(j) DELISTING; SUSPENSION. If at any time
during the Open Period or within 30 days after the end of the Open Period, the
Common Stock shall not be listed on the Principal Market or shall have been
suspended from trading thereon (excluding suspensions of not more than one
Trading Day resulting from business announcements by the Company) or the Company
shall have been notified of any pending or threatened proceeding or other action
to delist or suspend the Common Stock (each of the foregoing, a "REPURCHASE
EVENT"), the Investor shall have the right (the "REPURCHASE OPTION"), as partial
relief for the damages to the Investor by reason of the occurrence of a
Repurchase Event (which remedy shall not be exclusive of any other remedies
available at law or equity), in its sole discretion, which right shall be
exercised within 30 days of a Repurchase Event, to sell to the Company, and the
Company agrees to buy, promptly upon the exercise of such right by the Investor,
but in any event within 10 calendar days of the exercise of such right all or
any part of the Shares issued to the Investor within the 30 Business Days
preceding the Investor's exercise of the Repurchase Option and then held by the
Investor at a price per Share equal to the Purchase Price paid by the Investor
for such Shares (the "PAYMENT AMOUNT"). If the Company fails to pay to
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the Investor the full aggregate Payment Amount within 10 calendar days of the
Investor's exercise of the Repurchase Option hereunder, the Company shall pay to
the Investor, on the first Business Day following such tenth calendar day, in
addition to and not in lieu of the Payment Amount payable by the Company to the
Investor upon exercise of the Repurchase Option, an amount equal to 2% of the
aggregate Payment Amount then due and payable to the Investor, in cash by wire
transfer, plus compounded annual interest of 18% on such Payment Amount during
the period, beginning on the day following such tenth calendar day, during which
such Payment Amount, or any portion thereof, is outstanding.
(k) LIMITATIONS ON SHORT SALES. The Investor
will not enter into any Short Sales (as hereinafter defined) from the period
commencing on the date the Registration Statement is first declared effective by
the SEC and ending on the expiration of the Open Period (or such earlier time as
this Agreement is terminated in accordance with its terms); provided, that, the
Company may from time to time notify the Investor that the provisions of this
Section will not apply for periods of time to be determined by the Company. For
purposes of this Section, a "Short Sale" by the Investor shall mean a sale of
Common Stock by the Investor that is marked as a short sale and that is made at
a time when there is no equivalent offsetting long position in Common Stock held
by the Investor. For purposes of determining whether there is an equivalent
offsetting long position in Common Stock held by the Investor, the number of
Shares issuable in respect of delivered Put Notices for which the Closing
therefor has not yet occurred shall be deemed to be held long by the Investor.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Investor that:
(a) ORGANIZATION OF THE COMPANY. The Company is a
corporation duly incorporated and existing in good standing under the laws of
the State of Delaware and has all requisite corporate authority to own its
properties and to carry on its business as now being conducted. The Company does
not have any subsidiaries and does not own more than fifty percent (50%) of or
control any other business entity except as set forth in the SEC Documents other
than Brilliant Digital Filmed Entertainment, a Delaware corporation, and
Brilliant Interactive Ideas, Pty. Ltd., a company incorporated in New South
Wales, Australia, each of which is a wholly-owned subsidiary of the Company. The
Company is duly qualified and is in good standing as a foreign corporation to do
business 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 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
any of its obligations under the Transaction Documents in any material respect
(a "MATERIAL ADVERSE EFFECT").
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(b) AUTHORITY. (i) The Company has the requisite
corporate power and corporate authority to enter into and perform its
obligations under this Agreement and to issue the Shares pursuant to the terms
hereunder, (ii) the execution, issuance and delivery of the Transaction
Documents by the Company 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) the Transaction Documents have been duly
executed and delivered by the Company and, at each Closing, shall 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. The Company has duly and validly
authorized and reserved for issuance shares of Common Stock sufficient in number
for the issuance of Shares hereunder. The Company further acknowledges that its
obligation to issue Shares in accordance with this Agreement is absolute and
unconditional regardless of any dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company and notwithstanding
the commencement of any case under 11 U.S.C. ss. 101 et seq. (the "BANKRUPTCY
CODE"). The Company shall not seek judicial relief from its obligations
hereunder except pursuant to the Bankruptcy Code. In the event the Company is a
debtor under the Bankruptcy Code, the Company hereby waives to the fullest
extent permitted any rights to relief it may have under 11 U.S.C. ss. 362 in
respect of the issuance of shares. The Company agrees, without cost or expense
to the Investor, to take or consent to any and all action necessary to
effectuate relief under 11 U.S.C. ss. 362.
(c) CAPITALIZATION. The authorized capital stock of the
Company consists of 30,000,000 shares of Common Stock of which 9,409,001 shares
are issued and outstanding as of March 19, 1999 and 1,000,000 shares of
preferred stock, par value $0.001 per share, of which no shares are issues and
outstanding. Except for outstanding options and warrants to acquire a total of
1,636,262 shares of Common Stock as of March 19, 1999, there are no outstanding
Capital Shares Equivalents. All of the outstanding shares of Common Stock of the
Company have been duly and validly authorized and issued and are fully paid and
non-assessable.
(d) COMMON STOCK. The Company has registered its Common
Stock pursuant to Section 12(b) of the Exchange Act and is in full compliance
with all reporting requirements of the Exchange Act, and the Company is in
compliance with all requirements for the continued listing or quotation of its
Common Stock, and such Common Stock is currently listed or quoted on the
Principal Market. As of the date of this Agreement, the Principal Market is the
American Stock Exchange and the Company has not received any notice regarding,
and to its knowledge there is no threat, of the termination or discontinuance of
the eligibility of the Common Stock for such listing.
(e) SEC DOCUMENTS. The Company has delivered or made
available to the Investor true and complete copies of the SEC Documents. The
Company has not provided to the Investor any information that, according to
applicable law, rule or regulation, should have been
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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 Exchange Act, and rules and
regulations of the SEC promulgated thereunder and the SEC Documents did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC
Documents complied in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC or other
applicable rules and regulations with respect thereto at the time of such
inclusion. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they exclude footnotes or may be condensed or summary
statements) and fairly present in all material respects the financial position
of the Company as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited interim
statements, to normal year-end audit adjustments). Neither the Company nor any
of its subsidiaries has any material indebtedness, obligations or liabilities of
any kind (whether accrued, absolute, contingent or otherwise, and whether due or
to become due) that would have been required to be reflected in, reserved
against or otherwise described in the financial statements or in the notes
thereto in accordance with GAAP, which was not fully reflected in, reserved
against or otherwise described in the financial statements or the notes thereto
included in the SEC Documents or was not incurred in the ordinary course of
business consistent with the Company's past practices since the last date of
such financial statements.
(f) EXEMPTION FROM REGISTRATION; VALID ISSUANCES. Subject
to the accuracy of the Investor's representations in Section 3, the sale of the
Shares to the Investor will not require registration under the Securities Act
and/or any applicable state securities law. When issued and paid for in
accordance herewith, the Shares will be duly and validly issued, fully paid, and
non-assessable. Neither the sale of the Shares nor the Company's performance of
its obligations under the Transaction Documents, will (i) result in the creation
or imposition by the Company of any liens, charges, claims or other encumbrances
upon the Shares, 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. Ownership of the Shares shall not subject the
Investor to personal liability to the Company or its creditors by reason of the
possession thereof.
(g) NO GENERAL SOLICITATION OR ADVERTISING IN REGARD TO
THIS TRANSACTION. Neither the Company nor any of its affiliates nor any person
acting on its or their behalf has (i) conducted or will conduct any general
solicitation (as that term is used in Rule 502(c) of Regulation D) or general
advertising with respect to the sale hereunder of any of the Shares to the
Investor, or (ii) made any offers or sales of any security or solicited any
offers to buy any security under any circumstances that would, other than
pursuant to the Registration Rights Agreement, require
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registration of the Shares under the Securities Act; provided, that the Company
makes no representation or warranty with respect to the Investor or Trinity
Capital Advisors, Inc.
(h) CORPORATE DOCUMENTS. The Company has furnished or
made available to the Investor true and correct copies of the Company's
Certificate 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").
(i) 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
the Shares, do not and will not (i) result in a violation of the Company's
Certificate of Incorporation or By-Laws or (ii) conflict with, or constitute a
material 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 or
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 or local law, rule, regulation, order, judgment or decree
(subject to the effectiveness of the Registration Statement, including federal
and state securities laws and regulations) applicable to the Company or by which
any material property or asset of the Company is bound or affected, nor is the
Company otherwise in violation of, conflict with or default under any of the
foregoing (except in each case for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not have,
individually or in the aggregate, a Material Adverse Effect). 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 would 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 Shares in accordance with the terms hereof (other than any SEC, American
Stock Exchange or state securities filings that may be required to be made by
the Company subsequent to 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 American Stock Exchange); provided
that, for purposes of the representation made in this sentence, the Company is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Investor herein.
(j) NO MATERIAL ADVERSE CHANGE. Since September 30, 1998,
no Material Adverse Effect has occurred or exists with respect to the Company,
except as disclosed in the SEC Documents.
(k) NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since
September 30, 1998, 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,
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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.
(l) NO INTEGRATED OFFERING. The Company will not take,
and the Company shall not permit any of its directors, officers or Affiliates
directly or indirectly to take, any action, so as to make unavailable the
exemption from Securities Act registration being relied upon by the Company for
the offer and sale to Investor of the Shares as contemplated by this Agreement.
(m) LITIGATION AND OTHER PROCEEDINGS. There are no
lawsuits or proceedings pending or, to the knowledge of the Company, threatened,
against the Company, nor has the Company received any written or oral notice of
any such action, suit, proceeding or investigation, which could reasonably be
expected to 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, to the knowledge of the Company, requested of any court,
arbitrator or governmental agency which could result in a Material Adverse
Effect.
(n) NO MISLEADING OR UNTRUE COMMUNICATION. The Company
and, to the knowledge of the Company, any person representing the Company, have
not made, at any time, any oral communication in connection with the offer or
sale of the Shares to the Investor 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 provided that the Company makes no representation or warranty
with respect to Trinity.
(o) NON-PUBLIC INFORMATION. The Company has not disclosed
to the Investor any non-public information that (i) if disclosed, would, or
could reasonably be expected to have, a material 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.
(p) INSURANCE. The Company maintains property and
casualty, general liability, workers' compensation, environmental hazard,
personal injury and other similar types of insurance with financially sound and
reputable insurers that is adequate, consistent with industry standards and the
Company's historical claims experience. The Company has not received notice
from, and has no knowledge of any threat by, any insurer (that has issued any
insurance policy to the Company) that such insurer intends to deny coverage
under or cancel, discontinue or not renew any insurance policy presently in
force.
(q) TAX MATTERS. (i) The Company has filed all Tax
Returns which it is required to file under applicable laws; all such Tax Returns
are true and accurate and have been prepared in compliance with all applicable
laws; the Company has paid all Taxes due and owing by it (whether or not such
Taxes are required to be shown on a Tax Return) and have withheld and paid over
to the appropriate taxing authorities all Taxes which it is required to withhold
from amounts paid or owing
-11-
to any employee, stockholder, creditor or other third parties; and since
December 31, 1997, the charges, accruals and reserves for Taxes with respect to
the Company (including any provisions for deferred income taxes) reflected on
the books of the Company are adequate to cover any Tax liabilities of the
Company if its current tax year were treated as ending on the date hereof.
(ii) No claim has been made by a taxing authority
in a jurisdiction where the Company does not file tax returns that such
corporation is or may be subject to taxation by that jurisdiction. There are no
foreign, federal, state or local tax audits or administrative or judicial
proceedings pending or being conducted with respect to the Company; no
information related to Tax matters has been requested by any foreign, federal,
state or local taxing authority; and, except as disclosed above, no written
notice indicating an intent to open an audit or other review has been received
by the Company from any foreign, federal, state or local taxing authority. There
are no material unresolved questions or claims concerning the Company's Tax
liability. The Company (A) has not executed or entered into a closing agreement
pursuant to ss. 7121 of the Internal Revenue Code or any predecessor provision
thereof or any similar provision of state, local or foreign law; or (B) has not
agreed to or is required to make any adjustments pursuant to ss. 481 (a) of the
Internal Revenue Code or any similar provision of state, local or foreign law by
reason of a change in accounting method initiated by the Company or any of its
subsidiaries or has any knowledge that the Internal Revenue Service (the "IRS")
has proposed any such adjustment or change in accounting method, or has any
application pending with any taxing authority requesting permission for any
changes in accounting methods that relate to the business or operations of the
Company. The Company has not been a United States real property holding
corporation within the meaning of ss. 897(c)(2) of the Internal Revenue Code
during the applicable period specified in ss. 897(c)(1)(A)(ii) of the Internal
Revenue Code.
(iii) The Company has not made an election under
ss. 341(f) of the Internal Revenue Code. The Company is not liable for the Taxes
of another person that is not a subsidiary of the Company under (A) Treas. Reg.
ss. 1.1502-6 (or comparable provisions of state, local or foreign law), (B) as a
transferee or successor, (C) by contract or indemnity or (D) otherwise. The
Company is not a party to any tax sharing agreement. The Company has not made
any payments, is obligated to make payments or is a party to an agreement that
could obligate it to make any payments that would not be deductible under ss.
280G of the Internal Revenue Code.
(r) PROPERTY. Neither the Company nor either of its
subsidiaries owns any real property. Each of the Company and its subsidiaries
has good and marketable title to all personal property owned by it, free and
clear of all liens, encumbrances and defects (other than certain liens on the
Company's personal property in the U.S. securing indebtedness not in excess of
$100,000) except such as do not materially affect the value of such property and
do not materially interfere with the use made and proposed to be made of such
property by the Company; and to the Company's knowledge any real property and
buildings held under lease by the Company as tenant are held by it under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not interfere with the use made and intended to be made of such property and
buildings by the Company.
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(s) INTELLECTUAL PROPERTY. Each of the Company and its
subsidiaries owns or possesses adequate and enforceable rights to use all
patents, patent applications, trademarks, trademark applications, trade names,
service marks, copyrights, copyright applications, licenses, know-how (including
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) and other similar rights and
proprietary knowledge (collectively, "INTANGIBLES") necessary for the conduct of
its business as now being conducted. To the Company's knowledge, except as
disclosed in the SEC Documents neither the Company nor any of its subsidiaries
is infringing upon or in conflict with any right of any other person with
respect to any Intangibles. Except as disclosed in the SEC Documents, no claims
have been asserted by any person to the ownership or use of any Intangibles and
the Company has no knowledge of any basis for such claim.
(t) INTERNAL CONTROLS AND PROCEDURES. The Company
maintains books and records and internal accounting controls which provide
reasonable assurance that (i) all transactions to which the Company is a party
or by which its properties are bound are executed with management's
authorization; (ii) the recorded accountability of the Company's assets is
compared with existing assets at regular intervals; (iii) access to the
Company's assets is permitted only in accordance with management's
authorization; and (iv) all transactions to which the Company is a party or by
which its properties are bound are recorded as necessary to permit preparation
of the financial statements of the Company in accordance with GAAP.
(u) PAYMENTS AND CONTRIBUTIONS. Neither the Company nor
any of its directors, officers or, to its knowledge, other employees has (i)
used any Company funds for any unlawful contribution, endorsement, gift,
entertainment or other unlawful expense relating to political activity; (ii)
made any direct or indirect unlawful payment of Company funds to any foreign or
domestic government official or employee; (iii) violated or is in violation of
any provision of the Foreign Corrupt Practices Act of 1977, as amended; or (iv)
made any bribe, rebate, payoff, influence payment, kickback or other similar
payment to any person with respect to Company matters.
(v) NO MISREPRESENTATION. No representation or warranty
of the Company contained in this Agreement, any schedule, annex or exhibit
hereto or any agreement, instrument or certificate furnished by the Company to
the Investor pursuant to this Agreement, contains any 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.
3. INVESTOR'S REPRESENTATIONS AND WARRANTIES.
The Investor represents and warrants to the Company that:
(a) INTENT. The Investor is entering into this Agreement
for its own account; provided, however, that by making the representations
herein, the Investor does not agree to hold
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such securities for any minimum or other specific term and reserves the right to
dispose of the Shares at any time in accordance with federal and state
securities laws applicable to such disposition.
(b) SOPHISTICATED INVESTOR. The Investor is a
sophisticated investor (as described in Rule 506(b)(2)(ii) of Regulation D) and
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 the Shares. The Investor
acknowledges that an investment in the Shares is speculative and involves a high
degree of risk.
(c) AUTHORITY. The Transaction Documents have been duly
authorized and validly executed and delivered by the Investor and each
Transaction Document 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.
(d) NOT AN AFFILIATE. The Investor is not an officer,
director or "affiliate" (as that term is defined in Rule 405 of the Securities
Act) of the Company.
(e) ABSENCE OF CONFLICTS. The execution and delivery of
the Transaction Documents, 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 (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.
(f) DISCLOSURE; ACCESS TO INFORMATION. The Investor has
received all documents, records, books and other publicly available information
pertaining to Investor's investment in the Company that have been requested by
the Investor. The Investor has reviewed or received copies of all SEC Documents
that have been requested by it.
(g) 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.
4. LEGENDS AND TRANSFER AGENT INSTRUCTIONS.
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(a) LEGENDS. Stock certificates evidencing ownership of
the Shares shall be issued free of any and all restrictive legends and the
Company may not place any stop-transfer order against transfer of such stock
certificates. The Investor covenants that, in connection with any transfer of
Shares by it pursuant to an effective registration statement under the
Securities Act, it will (i) comply with the applicable prospectus delivery
requirements of the Securities Act, provided that copies of a current prospectus
relating to such effective registration statement are or have been supplied to
the Investor, and (ii) comply with the "Plan of Distribution" section of the
current prospectus relating to such effective registration statement.
(b) TRANSFER AGENT INSTRUCTIONS. The Company shall issue
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates, registered in the name of the Investor or its
respective nominee(s), for the Shares in such amounts as specified from time to
time by the Investor to the Company in connection with a Closing hereunder, in
the form of EXHIBIT A, attached hereto (the "IRREVOCABLE TRANSFER AGENT
INSTRUCTIONS"). The Irrevocable Transfer Agent Instructions shall have been
delivered by the Company to, and acknowledged in writing by, the Company's
transfer agent prior to the Company's delivery of a Put Notice hereunder. The
Company warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section will be given by the Company to its
transfer agent with respect to the Shares and that the Shares shall be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement. Nothing in this Section shall affect in any way the
Investor's obligations and agreements to comply with all applicable prospectus
delivery requirements, if any, upon resale of the Shares. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Investor by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section, that the Investor shall be entitled,
in addition to all other available remedies, to an injunction restraining any
breach and requiring immediate issuance and transfer, without the necessity of
showing economic loss and without any bond or other security being required.
5. CONDITIONS OF THE COMPANY'S OBLIGATION TO SELL.
The obligation hereunder of the Company to issue and sell the
Shares to the Investor is further subject to the satisfaction, at or before each
Closing, of each of the following conditions set forth below. These conditions
are for the Company's sole benefit and may be waived by the Company at any time
in its sole discretion.
(a) The Investor shall have executed each of the
Transaction Documents and delivered the same to the Company.
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(b) The Investor shall have delivered to the
Company the Purchase Price for the Shares being purchased by the Investor at the
applicable Closing in accordance with and subject to Section 1(h) hereof.
(c) The representations and warranties of the
Investor shall be true and correct as of the date when made and as of the
applicable Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date, which shall be true and correct
as of such date), and the Investor shall have performed, satisfied and complied
with the covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Investor at or prior to such
Closing Date.
(d) 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 which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(e) The Registration Statement shall be
effective at the time of each Closing and no stop order suspending the
effectiveness of the Registration Statement shall be in effect or shall be
pending or threatened.
(f) At the time of each Closing, the
Registration Statement (including information or documents incorporated by
reference therein) and any amendments or supplements thereto shall 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.
(g) If applicable, the shareholders of the
Company shall have approved the issuance of any Shares in excess of the Maximum
Common Stock Issuance in accordance with Section 1.
6. CONDITIONS OF THE INVESTOR'S OBLIGATION TO PURCHASE.
The obligation of the Investor hereunder to purchase Shares is
subject to the satisfaction, at or before each Closing, of each of the following
conditions set forth below. These conditions are for the Investor's sole benefit
and may be waived by the Investor at any time in its sole discretion.
(a) The Company shall have executed each of the
Transaction Documents and delivered the same to the Investor.
(b) The Common Stock shall be authorized for
trading or quotation on the Principal Market and trading in the Common Stock
shall not have been suspended by the Principal
-16-
Market or the SEC, at any time beginning on the applicable Put Notice Date and
through and including the respective Closing Date.
(c) The representations and warranties of the
Company shall be true and correct as of the date when made and as of the
applicable Closing Date as though made at that time (except for (i)
representations and warranties that speak as of a specific date and (ii) with
respect to the representations made in Sections 2(k) and (m), events which occur
on or after the date of this Agreement and are disclosed in SEC filings made by
the Company at least ten Business Days prior to the applicable Put Notice Date)
and the Company shall have performed, satisfied and complied with the covenants,
agreements and conditions required by the Transaction Documents to be performed,
satisfied or complied with by the Company at or prior to such Closing Date. The
Investor shall have received (or receipt shall have been confirmed on its behalf
of) a certificate, executed by the Chief Executive Officer and Chief Financial
Officer of the Company, dated as of the applicable Closing Date to the foregoing
effect and as to such other matters as may be reasonably requested by the
Investor including, without limitation, an update as of such Closing Date
regarding any changes in the Company's Certificate of Incorporation and bylaws
since the immediately preceding Closing Date.
(d) Such Investor shall have received (or
receipt shall have been confirmed on its behalf of) the opinion of the Company's
outside counsel dated as of the applicable Closing Date, as to the continued
accuracy of the legal opinion provided on the date of this Agreement and as to
the continued effectiveness of the Registration Statement.
(e) The Irrevocable Transfer Agent Instructions
shall have been delivered to, and acknowledged in writing by the Company's
transfer agent.
(f) 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 which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(g) The Registration Statement shall be
effective at the time of each Closing and no stop order suspending the
effectiveness of the Registration Statement shall be in effect or shall be
pending or threatened.
(h) At the time of each Closing, the
Registration Statement (including information or documents incorporated by
reference therein) and any amendments or supplements thereto shall 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.
(i) There shall have been no filing of a
petition in bankruptcy, either voluntarily or involuntarily, with respect to the
Company and there shall not have been commenced
-17-
any proceedings under any bankruptcy or insolvency laws, or any laws relating to
the relief of debtors, readjustment of indebtedness or reorganization of
debtors, and there shall have been no calling of a meeting of creditors of the
Company or appointment of a committee of creditors or liquidating agents or
offering of a composition or extension to creditors by, for, with or without the
consent or acquiescence of the Company.
(j) If applicable, the shareholders of the
Company shall have approved the issuance of any Shares in excess of the Maximum
Common Stock Issuance in accordance with Section 1.
(k) The conditions to such Closing set forth in
Section l shall have been satisfied on or before such Closing Date.
(l) The Investor shall have received (or receipt
shall have been confirmed on its behalf of) the stock certificates representing
the Shares to be purchased at such Closing, which Shares shall meet the
requirements set forth in this Agreement.
7. TERMINATION.
(a) TERMINATION BY MUTUAL CONSENT. This
Agreement may be terminated at any time by the mutual written consent of the
Company and the Investor. The representations, warranties and covenants
contained in or incorporated into this Agreement, insofar as applicable to the
transactions consummated hereunder prior to such termination, shall survive its
termination for the period of any applicable statute of limitations.
(b) AUTOMATIC TERMINATION. This Agreement shall
automatically terminate without any further action of either party hereto upon
the earlier of the date on which (i) the Investor has purchased an aggregate of
$6,000,000 of Shares pursuant to this Agreement, (ii) 36 months after the
Effective Date or (iii) 39 months after the date hereof.
(c) TERMINATION AT THE OPTION OF INVESTOR. This
Agreement may be terminated by the Investor within ten (10) Business Days after
notice from the Company of any Major Transaction (which notice shall include
copies of the executed final agreements in connection therewith, if applicable).
If the Investor receives proper notice of a Material Transaction and fails to
terminate this Agreement by the expiration of the ten (10) Business Day period
set forth in the immediately preceding sentence, then the Investor shall be
deemed to have permanently waived its right of termination as to such Major
Transaction (but not as to any subsequent Major Transaction). If this Agreement
is terminated in accordance with this Section 7(c), the Company shall be
relieved of its obligations under Section 1(b)(ii) hereof.
-18-
All representations, warranties and covenants shall survive
the termination of this Agreement.
8. INDEMNIFICATION.
(a) GENERAL. (i) The Company hereby agrees to indemnify
and hold harmless the Investor, its Affiliates and their respective officers,
directors, partners and members (collectively, the "INVESTOR INDEMNITEES"), from
and against any and all losses, claims, damages, judgments, penalties, expenses,
liabilities and deficiencies (collectively, "LOSSES"), and agrees to reimburse
the Investor Indemnitees for all reasonable out-of-pocket expenses (including
the reasonable fees and expenses of legal counsel), in each case promptly as
incurred by the Investor Indemnitees and to the extent arising out of or in
connection with (A) any misrepresentation, omission of fact or breach of any of
the Company's representations or warranties contained in this Agreement, the
annexes, schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Company pursuant to this Agreement;
or (B) any failure by the Company to perform in any material respect any of its
covenants, agreements, undertakings or obligations set forth in this Agreement,
the annexes, schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Company pursuant to this Agreement;
or (C) the status of the Investor or holder of the Shares as an investor in the
Company (but not in case of Losses arising solely as a result of actions or
events that are wholly internal to the Investor).
(ii) The Investor hereby agrees to indemnify and
hold harmless the Company, its Affiliates and their respective officers,
directors, partners and members (collectively, the "COMPANY INDEMNITEES"), from
and against any and all Losses, and agrees to reimburse the Company Indemnitees
for reasonable all out-of-pocket expenses (including the reasonable fees and
expenses of legal counsel), in each case promptly as incurred by the Company
Indemnitees and to the extent arising out of or in connection with (A) any
misrepresentation, omission of fact, or breach of any of the Investor's
representations or warranties contained in this Agreement, the annexes,
schedules or exhibits hereto or any instrument, agreement or certificate entered
into or delivered by the Investor pursuant to this Agreement; or (B) any failure
by the Investor to perform in any material respect any of its covenants,
agreements, undertakings or obligations set forth in this Agreement or any
instrument, certificate or agreement entered into or delivered by the Investor
pursuant to this Agreement.
(b) NOTICE. Promptly after receipt by either party hereto
seeking indemnification pursuant to Section 7(a) (an "INDEMNIFIED PARTY") of
written notice of any investigation, claim, proceeding or other action in
respect of which indemnification is being sought (each, a "CLAIM"), the
Indemnified Party promptly shall notify the party against whom indemnification
pursuant to Section 7(a) is being sought (the "INDEMNIFYING PARTY") of the
commencement thereof; but the omission to so notify the Indemnifying Party shall
not relieve it from any liability that it otherwise may have to the Indemnified
Party, except to the extent that the Indemnifying Party is materially prejudiced
and forfeits substantive rights and defenses by reason of such failure. In
connection with
-19-
any Claim as to which both the Indemnifying Party and the Indemnified Party are
parties, the Indemnifying Party shall be entitled to assume the defense thereof.
Notwithstanding the assumption of the defense of any Claim by the Indemnifying
Party, the Indemnified Party shall have the right to employ separate legal
counsel and to participate in the defense of such Claim, and the Indemnifying
Party shall bear the reasonable fees, out-of-pocket costs and expenses of such
separate legal counsel to the Indemnified Party if (and only if): (x) the
Indemnifying Party shall have agreed to pay such fees, out-of-pocket costs and
expenses, (y) the Indemnified Party and the Indemnifying Party reasonably shall
have concluded that representation of the Indemnified Party and the Indemnifying
Party by the same legal counsel would not be appropriate due to actual or, as
reasonably determined by legal counsel to the Indemnified Party, potentially
differing interests between such parties in the conduct of the defense of such
Claim, or if there may be legal defenses available to the Indemnified Party that
are in addition to or disparate from those available to the Indemnifying Party,
or (z) the Indemnifying Party shall have failed to employ legal counsel
reasonably satisfactory to the Indemnified Party within a reasonable period of
time after notice of the commencement of such Claim. If the Indemnified Party
employs separate legal counsel in circumstances other than as described in
clauses (x), (y) or (z) above, the fees, costs and expenses of such legal
counsel shall be borne exclusively by the Indemnified Party. Except as provided
above, the Indemnifying Party shall not, in connection with any Claim in the
same jurisdiction, be liable for the fees and expenses of more than one firm of
legal counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnifying Party shall not, without the prior written consent of
the Indemnified Party (which consent shall not unreasonably be withheld), settle
or compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.
(c) DIRECT CLAIMS. In the event one party hereunder
should have a claim for indemnification that does not involve a claim or demand
being asserted by a third party, the Indemnified Party promptly shall deliver
notice of such claim to the Indemnifying Party. If the Indemnified Party
disputes the claim, such dispute shall be resolved by mutual agreement of the
Indemnified Party and the Indemnifying Party or by binding arbitration conducted
in accordance with the procedures and rules of the American Arbitration
Association as set forth in Section 8. Judgment upon any award rendered by any
arbitrators may be entered in any court having competent jurisdiction thereof.
9. GOVERNING LAW; MISCELLANEOUS.
(a) GOVERNING LAW; ARBITRATION. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made in New York by persons domiciled in New York City
and without regard to its principles of conflicts of laws. Any dispute under
this Agreement or any Exhibit attached hereto shall be submitted to arbitration
under the American Arbitration Association (the "AAA") in New York City, New
York, and shall be finally and conclusively determined by the decision of a
board of arbitration consisting
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of three (3) members (hereinafter referred to as the "Board of Arbitration")
selected as according to the rules governing the AAA. The Board of Arbitration
shall meet on consecutive business days in New York City, New York, and shall
reach and render a decision in writing (concurred in by a majority of the
members of the Board of Arbitration) with respect to the amount, if any, which
the losing party is required to pay to the other party in respect of a claim
filed. In connection with rendering its decisions, the Board of Arbitration
shall adopt and follow the laws of the State of New York. To the extent
practical, decisions of the Board of Arbitration shall be rendered no more than
thirty (30) calendar days following commencement of proceedings with respect
thereto. The Board of Arbitration shall cause its written decision to be
delivered to all parties involved in the dispute. Any decision made by the Board
of Arbitration (either prior to or after the expiration of such thirty (30)
calendar day period) shall be final, binding and conclusive on the parties to
the dispute, and entitled to be enforced to the fullest extent permitted by law
and entered in any court of competent jurisdiction. The non-prevailing party to
any arbitration (as determined by the Board of Arbitration) shall pay the
expenses of the prevailing party including reasonable attorney's fees, in
connection with such arbitration.
(b) 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 reputable 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:
If to the Company: Brilliant Digital Entertainment, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
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with a copy to:
(shall not constitute notice) Troop ▇▇▇▇▇▇▇ Pasich Reddick & ▇▇▇▇▇, LLP
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Investor: St. Annes Investments, Ltd.
▇/▇ ▇▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇
CH-8022
with a copy to:
(shall not constitute notice) ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (212) 541- 4630
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 8 by giving at least ten (10) days' prior written
notice of such changed address or facsimile number to the other party hereto.
(c) COUNTERPARTS/ FACSIMILE/ AMENDMENTS. 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. Except
as otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by all parties.
(d) ENTIRE AGREEMENT. This Agreement, the agreements
attached as Exhibits hereto, which include, but are not limited to, 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
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Agreement are incorporated herein by this reference and shall constitute part of
this Agreement as is fully set forth herein.
(e) SEVERABILITY. 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.
(f) HEADINGS. The headings used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.
(g) REPORTING ENTITY FOR THE COMMON STOCK. The reporting
entity relied upon for the determination of the 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.
(h) REPLACEMENT OF CERTIFICATES. Upon (i) receipt of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of a certificate representing the Shares and (ii) in the case of
any such loss, theft or destruction of such certificate, upon delivery of an
indemnity agreement or security reasonably satisfactory in form and amount to
the Company (which shall not exceed that required by the Company's transfer
agent in the ordinary course) or (iii) in the case of any such mutilation, on
surrender and cancellation of such certificate, the Company at its expense will
execute and deliver, in lieu thereof, a new certificate of like tenor.
(i) 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 to ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇,
up to $7,500 of which $5,000 is to be paid upon execution of this Agreement in
connection with fees incurred on behalf of the Investor in connection with the
transactions contemplated hereby as contemplated by the Registration Rights
Agreement.
(j) BROKERAGE. 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 other party
except for Trinity, whose fee shall be paid by the Company. 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 person
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.
(k) ASSIGNMENT. Neither this Agreement nor any rights of
the Investor or the Company hereunder may be assigned by either party to any
other person. Notwithstanding the foregoing, (a) the provisions of this
Agreement shall inure to the benefit of, and be enforceable by,
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any permitted transferee of any of the Shares purchased by the Investor
hereunder, and (b) upon the prior written consent of the Company, which consent
shall not unreasonably be withheld or delayed, the Investor's interest in this
Agreement may be assigned at any time, in whole or in part, to any other person
or entity (including any affiliate of the Investor) who agrees to make the
representations and warranties contained in Section 3 and who agrees to be bound
by the conditions of Section 5. Such permitted assignment shall not relieve the
Investor of its obligations hereunder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this
Securities Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
.
BRILLIANT DIGITAL ENTERTAINMENT, INC.
By: /S/ ▇▇▇▇ ▇▇▇▇, CHIEF EXECUTIVE OFFICER
--------------------------------------
ST. ANNES INVESTMENTS, LTD.
By: /S/ ▇. ▇▇▇▇, DIRECTOR
--------------------------------------
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ANNEX A
"AVERAGE STOCK PRICE" means the average of the closing prices (as
reported by Bloomberg) on the Principal Market or, if the Common Stock is not
then traded or quoted on a Principal Market, such other trading or quotation
facility on which the Common Stock is then listed or quoted for trading for the
five (5) consecutive Trading Days immediately prior to the Put Notice Date.
"AVERAGE TRADING VOLUME" means the average daily trading volume for the
Common Stock on all markets during the 20 consecutive Trading Days immediately
prior to the Put Notice Date.
"BUSINESS DAY" means any day other than a Saturday, Sunday or a day on
which commercial banks in the City of New York are authorized or required by law
or executive order to remain closed or on which the Principal Market for the
Common Stock is not open for trading.
"CAP AMOUNT" means 20% of (Average Stock Price* (Average Trading
Volume* 22)).
"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.
"CAPITAL SHARES EQUIVALENTS" shall mean any securities, rights, or
obligations that are convertible into or exchangeable for or give any right to
subscribe for any Capital Shares of the Company or any warrants, options or
other rights to subscribe for or purchase Capital Shares or any such convertible
or exchangeable securities.
"MAJOR TRANSACTION" means any of the following transactions or series
of related transactions: (i) the consolidation, merger or other business
combination of the Company with or into another person (other than pursuant to a
migratory merger effected solely for the purposes of changing the jurisdiction
of incorporation of the Company or a merger in which the Company is the
surviving entity and (x) shareholders of the Company immediately prior to the
closing of such merger continue to own in excess of 50% of the voting power of
the Company after the merger and (y) a majority of the directors comprising the
board of directors of the Company after the closing of the merger were directors
of the Company immediately prior to the merger); (ii) the sale or transfer of
all or substantially all of the Company's assets; or (iii) the consummation of a
purchase, tender or exchange offer made to, and accepted by, the holders of more
than 50% of the economic interest in, or the combined voting power of all
classes of voting stock of, the Company.
"MARKET PRICE" shall mean, for any Trading Day of determination, the
lowest Volume Adjusted Price for any Trading Day during the ten (10) Trading
Days immediately preceding such Trading Day of determination.
"PRINCIPAL MARKET" means the national stock market or trading facility
on which the Common Stock is listed or quoted for trading.
"SEC DOCUMENTS" means the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1997 and each report, proxy statement or
registration statement filed by the
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Company with the SEC pursuant to the Exchange Act or the Securities Act since
the filing of such Annual Report through the date hereof or any Closing Date, as
applicable.
"TAX" or "TAXES" means federal, state, county, local, foreign, or other
income, gross receipts, ad valorem, franchise, profits, sales or use, transfer,
registration, excise, utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"TAX RETURN" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and including any
amendment thereof.
"TRADING DAY" means any day during which the then Principal Market
shall be open for business.
"TRANSACTION DOCUMENTS" means the Purchase Agreement and the
Registration Rights Agreement.
"VOLUME ADJUSTED PRICE" means on any Trading Date, the quotient
obtained by dividing (1) the total dollar value of all shares of Common Stock
traded on the Principal Market on such Trading Day, by (2) the total volume of
the Common Stock traded on the Principal Market on such Trading Day, each as
reported by Bloomberg.
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