EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "AGREEMENT") is dated as of April
23, 2004, among TNX Television Holdings, Inc., a Delaware corporation (the
"COMPANY"), and the investors identified on the signature pages hereto (each, an
"INVESTOR" and collectively, the "INVESTORS").
WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act (as defined below) and Rule
506 promulgated thereunder, the Company desires to issue and sell to each
Investor, and each Investor, severally and not jointly, desires to purchase from
the Company certain securities of the Company, as more fully described in this
Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Investors agree
as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms shall have
the meanings indicated in this Section 1.1:
"ACTION" means any action, suit, inquiry, notice of violation,
proceeding (including any partial proceeding such as a deposition) or
investigation pending or threatened in writing against or affecting the Company,
any Subsidiary or any of their respective properties before or by any court,
arbitrator, governmental or administrative agency, regulatory authority
(federal, state, county, local or foreign), stock market, stock exchange or
trading facility.
"AFFILIATE" means any Person that, directly or indirectly through
one or more intermediaries, controls or is controlled by or is under common
control with a Person, as such terms are used in and construed under Rule 144.
"BUSINESS DAY" means any day other than Saturday, Sunday or other
day on which commercial banks in The City of New York are authorized or required
by law to remain closed.
"CERTIFICATE OF DESIGNATION" shall mean a Certificate of Designation
relating to the Shares to be filed prior to the Closing by the Company with the
Secretary of State of the State of Delaware incorporating the rights,
preferences and privileges set forth on Exhibit A hereto.
"CLOSING" means the closing of the purchase and sale of the Shares
and the Warrants pursuant to Article II.
"CLOSING DATE" means the Business Day immediately following the date
on which all the conditions set forth in Sections 5.1 and 5.2 are satisfied, or
such other date as the parties may agree.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock of the Company, $0.001 par
value per share, and any securities into which such common stock may hereafter
be reclassified.
"COMMON STOCK EQUIVALENTS" means any securities of the Company or
any Subsidiary which entitle the holder thereof to acquire Common Stock at any
time, including, without limitation, any debt, preferred stock, rights, options,
warrants or other instrument that is at any time convertible into or
exchangeable or exercisable for, or otherwise entitles the holder thereof to
receive, Common Stock or other securities that entitle the holder to receive,
directly or indirectly, Common Stock.
"COMPANY COUNSEL" means Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C.
"COMPANY DELIVERABLES" has the meaning set forth in Section 2.2(a).
"DISCLOSURE MATERIALS" means the SEC Reports and the Company's
Schedules to this Agreement, collectively.
"EFFECTIVE DATE" means the date that the Registration Statement
required by Section 2(a) of the Registration Rights Agreement is first declared
effective by the Commission.
"ESCROW AGENT" means the Escrow Agent under the Escrow Agreement.
"ESCROW AGREEMENT" means the Escrow Agreement, dated as of the date
of this Agreement, among the Company, ▇▇▇▇ Capital Partners, LLC and the Escrow
Agent, in the form of Exhibit D hereto.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"GAAP" means U.S. generally accepted accounting principles.
"INTELLECTUAL PROPERTY RIGHTS" means the ownership or right to use
patents, patent applications, trademarks, trademark applications, service marks,
trade names, copyrights, licenses and other similar rights in connection with
the respective businesses of the Company and the Subsidiaries as described in
the SEC Reports.
"INVESTMENT AMOUNT" means, with respect to each Investor, the
Investment Amount indicated on such Investor's signature page to this Agreement.
"LEAD INVESTOR" means Smithfield Fiduciary LLC.
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"LIEN" means any lien, charge, encumbrance, claim, security
interest, right of first refusal or other restriction of any kind.
"LOSSES" means any and all losses, liabilities, obligations, claims,
contingencies, damages, costs or expenses, including all judgments, amounts paid
in settlements, court costs and reasonable attorneys' fees and costs of
investigation.
"MATERIAL ADVERSE EFFECT" means any of (a) an adverse effect on the
legality, validity or enforceability of any Transaction Document, (b) a material
and adverse effect on the results of operations, assets, prospects, business or
condition (financial or otherwise) of the Company and the Subsidiaries, taken as
a whole, or (c) an adverse impairment to the Company's ability to perform fully
on a timely basis its obligations under any Transaction Document.
"PERSON" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or other entity of any kind.
"PROCEEDING" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"REGISTRABLE SECURITIES" shall have the meaning set forth in the
Registration Rights Agreement.
"REGISTRATION STATEMENT" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering the
resale by the Investors of the Underlying Shares and the Warrant Shares.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of the date of this Agreement, among the Company and the
Investors, in the form of Exhibit B hereto.
"RELATED PERSON" shall have the meaning set forth in Section 4.8.
"RULE 144" means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"SEC REPORTS" has the meaning set forth in Section 3.1(h).
"SECURITIES" means the Shares, the Underlying Shares, the Warrants
and the Warrant Shares.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
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"SHARES" means the shares of 5% Series A Convertible Preferred Stock
issued or issuable to the Investors pursuant to this Agreement having the
rights, preferences and privileges set forth in the Certificate of Designation.
"STATED VALUE" has the meaning set forth in the Certificate of
Designation.
"STRATEGIC TRANSACTION" means a transaction in which the Company
issues shares of Common Stock or other securities of the Company to a Person
which is, itself or through its Subsidiaries, an operating company in a business
synergistic with the business of the Company and in which the Company receives
benefits in addition to the investment of funds, but shall not include a
transaction in which the Company is issuing securities primarily for the purpose
of raising capital or to an entity whose primary business is investing in
securities.
"SUBSIDIARY" means any Person in which the Company, directly or
indirectly, owns capital stock or holds an equity or similar interest.
"TRADING DAY" means (i) a day on which the Common Stock is traded on
a Trading Market (other than the OTC Bulletin Board), or (ii) if the Common
Stock is not listed on a Trading Market (other than the OTC Bulletin Board), a
day on which the Common Stock is traded or quoted in the over-the-counter
market, as reported by the OTC Bulletin Board, or (iii) if the Common Stock is
not quoted on a Trading Market, a day on which the Common Stock is quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding to its functions
of reporting prices); provided, that in the event that the Common Stock is not
listed or quoted as set forth in (i), (ii) and (iii) hereof, then Trading Day
shall mean a Business Day.
"TRADING MARKET" means whichever of the New York Stock Exchange, the
American Stock Exchange, the NASDAQ National Market, the NASDAQ SmallCap Market
or OTC Bulletin Board on which the Common Stock is listed or quoted for trading
on the date in question.
"TRANSACTION DOCUMENTS" means this Agreement, the Registration
Rights Agreement, the Certificate of Designation, the Warrants, the Transfer
Agent Instructions, the Escrow Agreement and any other documents or agreements
executed in connection with the transactions contemplated hereunder.
"TRANSFER AGENT" means American Stock Transfer and Trust Company, or
any other transfer agent selected by the Company.
"TRANSFER AGENT INSTRUCTIONS" means the Irrevocable Transfer Agent
Instructions, in the form of Exhibit E, executed by the Company and delivered to
and acknowledged in writing by the Transfer Agent.
"UNDERLYING SHARES" means the shares of Common Stock issuable upon
conversion of the Shares.
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"WARRANTS" means the Common Stock purchase warrants in the form of
Exhibit C hereto issued or issuable to the Investors at the Closing.
"WARRANT SHARES" means the shares of Common Stock issuable upon
exercise of the Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1 Closing. Subject to the terms and conditions set forth in this
Agreement, at the Closing the Company shall issue and sell to each Investor, and
each Investor shall, severally and not jointly, purchase from the Company, such
number of Shares and a Warrant to purchase such number of Warrant Shares, each
as indicated below such Investor's signature on the signature page to this
Agreement. The Closing shall take place on the Closing Date at the offices of
▇▇▇▇▇ ▇▇▇▇ LLP, 1290 Avenue of the ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, or at
such other location as the parties may agree.
2.2 Closing Deliveries. (a) At the Closing, the Company shall deliver or
cause to be delivered to each Investor the following (collectively, the "COMPANY
DELIVERABLES"):
(i) this Agreement, duly executed by the Company;
(ii) one or more stock certificates, free and clear of all
restrictive and other legends (except as expressly provided in Section 4.1(b)
hereof), evidencing the number of Shares indicated below such Investor's
signature on the signature page to this Agreement, registered in the name of
such Investor;
(iii) a Warrant, registered in the name of such Investor,
pursuant to which such Investor shall have the right to acquire the number of
Warrant Shares equal to 50% of the number of Underlying Shares as would be
issuable upon a conversion in full of the Shares issuable to such Investor in
accordance with Section 2.2(a)(ii) without regard to any limitations on
conversion of the Shares, as indicated below such Investor's signature on the
signature page to this Agreement;
(iv) a copy of the executed, filed and effective Certificate
of Designation, accompanied by a certificate evidencing the acceptance thereof
by the Secretary of State of the State of Delaware;
(v) the legal opinion of Company Counsel, in the form of
Exhibit F hereto, addressed to the Investors;
(vi) the Registration Rights Agreement, duly executed by the
Company;
(vii) the Escrow Agreement, duly executed by all parties
thereto; and
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(viii) the Transfer Agent Instructions, duly executed by the
Company and acknowledged by the Transfer Agent.
(b) At the Closing, each Investor shall deliver or cause to be
delivered the following:
(i) to the Company, this Agreement and the Registration Rights
Agreement, each duly executed by such Investor; and
(ii) to the Escrow Agent in accordance with the Escrow
Agreement, such Investor's Investment Amount, in United States dollars and in
immediately available funds, by wire transfer to an account designated in
writing by the Escrow Agent for such purpose.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. The Company hereby
makes the following representations and warranties to each Investor as follows:
(a) Subsidiaries. The Company has no direct or indirect Subsidiaries
other than those listed in Schedule 3.1(a). Except as disclosed in Schedule
3.1(a), the Company owns, directly or indirectly, all of the capital stock or
comparable equity interests of each Subsidiary free and clear of any and all
Liens, and all the issued and outstanding shares of capital stock or comparable
equity interests of each Subsidiary are validly issued and are fully paid,
non-assessable and free of preemptive and similar rights.
(b) Organization and Qualification. The Company and each Subsidiary
are entities duly organized, validly existing and in good standing under the
laws of the jurisdiction of their respective organization, with the requisite
power and authority to own and use its respective properties and assets and to
carry on its respective businesses as currently conducted. Neither the Company
nor any Subsidiary is in violation of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational or
charter documents. The Company and each Subsidiary is duly qualified to conduct
business and is in good standing as a foreign corporation or other entity in
each jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to be
so qualified or in good standing, as the case may be, could not, individually or
in the aggregate, have or reasonably be expected to result in a Material Adverse
Effect.
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder. The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company and no further consent or action is
required by the Company, its Board of Directors or stockholders . Each
Transaction Document has been (or upon delivery will have been) duly executed by
the Company and, when delivered in accordance with the terms hereof, will
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constitute the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application.
(d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby do not and will not (i) conflict
with or violate any provision of the Company's or any Subsidiary's certificate
or articles of incorporation, bylaws or other organizational or charter
documents, or (ii) conflict with, or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation (with or
without notice, lapse of time or both) of, any agreement, credit facility, debt
or other instrument (evidencing a Company or Subsidiary debt or otherwise) or
other understanding to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound or
affected, or (iii) result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including federal and
state securities laws and regulations), or by which any property or asset of the
Company or a Subsidiary is bound or affected; except in the case of each of
clauses (ii) and (iii), such as could not, individually or in the aggregate,
have or reasonably be expected to result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. The Company is not required to
obtain any consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other federal, state, local
or other governmental authority or other Person in connection with the
execution, delivery and performance by the Company of the Transaction Documents,
other than (i) the filing with the Commission of one or more Registration
Statements in accordance with the requirements of the Registration Rights
Agreement, (ii) filings under state securities laws in accordance with the
requirements of the Registration Rights Agreement, which will be made prior to
the Effectiveness Date (as such term is defined in the Registration Rights
Agreement), (iii) the filings required in accordance with Section 4.7, (iv) the
filing of a Form D with the Commission, (v) the filing of the Certificate of
Designation with the Secretary of State of the State of Delaware and (vi) those
that have been made or obtained prior to the date of this Agreement.
(f) Issuance of the Securities. The Securities have been duly
authorized and, when issued and paid for in accordance with the Transaction
Documents, will be duly and validly issued, fully paid and nonassessable, free
and clear of all Liens and shall not be subject to preemptive or similar rights
of stockholders. The Company has reserved from its duly authorized capital stock
the maximum number of Underlying Shares and Warrants Shares issuable pursuant to
the Shares and the Warrants, as applicable.
(g) Capitalization. The number of shares and type of all authorized,
issued and outstanding capital stock of the Company, and all shares of Common
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Stock reserved for issuance under the Company's various option and incentive
plans, is set forth in Schedule 3.1(g). All outstanding shares of capital stock
are duly authorized, validly issued, fully paid and nonassessable and have been
issued in compliance with all applicable securities laws. No securities of the
Company are entitled to preemptive or similar rights, and no Person has any
right of first refusal, preemptive right, right of participation, or any similar
right to participate in the transactions contemplated by the Transaction
Documents. Except as a result of the purchase and sale of the Securities and
except as disclosed in Schedule 3.1(g) or the SEC Reports, there are no
outstanding options, warrants, scrip rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exchangeable or exercisable for, or giving any
Person any right to subscribe for or acquire, any shares of Common Stock, or
contracts, commitments, understandings or arrangements by which the Company or
any Subsidiary is or may become bound to issue additional shares of Common
Stock, or securities or rights convertible or exchangeable or exercisable into
shares of Common Stock. There are no anti-dilution or price adjustment
provisions contained in any security issued by the Company (or in any agreement
providing rights to security holders) and the issue and sale of the Securities
will not, immediately or with the passage of time, obligate the Company to issue
shares of Common Stock or other securities to any Person (other than the
Investors) and will not result in a right of any holder of securities of the
Company to adjust the exercise, conversion, exchange or reset price under such
securities. To the knowledge of the Company, except as specifically disclosed in
Schedule 3.1(g), no Person or group of related Persons beneficially owns (as
determined pursuant to Rule 13d-3 under the Exchange Act), or has the right to
acquire, by agreement with or by obligation binding upon the Company, beneficial
ownership of in excess of 5% of the outstanding Common Stock, ignoring for such
purposes any limitation on the number of shares of Common Stock that may be
owned at any single time.
(h) SEC Reports; Financial Statements. The Company has filed all
reports required to be filed by the Company under the Exchange Act since
November 13, 2003 (the foregoing materials being collectively referred to herein
as the `SEC REPORTS'). The Company has filed all SEC Reports on a timely basis
or has timely filed a valid extension of such time of filing and has filed any
such SEC Reports prior to the expiration of any such extension. As of their
respective dates, the SEC Reports complied in all material respects with the
requirements of the Securities Act and the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and none of the SEC
Reports, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. The financial statements of the Company
included in the SEC Reports were prepared in accordance with GAAP applied on a
consistent basis during the periods involved, except as may be otherwise
specified in such financial statements or the notes thereto, and fairly present
in all material respects the financial position of the Company and its
consolidated Subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal, year-end audit adjustments. All material
agreements to which the Company or any Subsidiary is a party or to which the
property or assets of the Company or any Subsidiary are subject are included as
part of or specifically identified in the SEC Reports.
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(i) Press Releases. The press releases disseminated by the Company
since November 13, 2003 taken as a whole do not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(j) Material Changes. Except as set forth in Schedule 3.1(j) and as
disclosed in the SEC Reports, since the date of the latest audited financial
statements included within the SEC Reports, (i) there has been no event,
occurrence or development that has had or that could reasonably be expected to
result in a Material Adverse Effect, (ii) the Company has not incurred any
liabilities (contingent or otherwise) other than (A) trade payables and accrued
expenses incurred in the ordinary course of business consistent with past
practice and (B) liabilities not required to be reflected in the Company's
financial statements pursuant to GAAP or required to be disclosed in filings
made with the Commission, (iii) the Company has not altered its method of
accounting or the identity of its auditors, (iv) the Company has not declared or
made any dividend or distribution of cash or other property to its stockholders
or purchased, redeemed or made any agreements to purchase or redeem any shares
of its capital stock, other than dividends paid in the ordinary course on
outstanding series of the Company's preferred stock, and (v) the Company has not
issued any equity securities to any officer, director or Affiliate, except
pursuant to existing Company stock option plans or executive compensation
arrangements. The Company does not have pending before the Commission any
request for confidential treatment of information.
(k) Litigation. There is no Action that (i) adversely affects or
challenges the legality, validity or enforceability of any of the Transaction
Documents or the Securities or (ii) except as set forth in the SEC Reports,
could, if there were an unfavorable decision, individually or in the aggregate,
have or reasonably be expected to result in a Material Adverse Effect. Except as
set forth in the SEC Reports, neither the Company nor any Subsidiary, nor any
presently serving director or officer thereof, is or has been during the period
from January 1, 1999 through the Closing Date the subject of any Action
involving a claim of violation of or liability under federal or state securities
laws or a claim of breach of fiduciary duty. There has not been, and to the
knowledge of the Company, there is not pending or contemplated, any
investigation by the Commission involving the Company or any current or former
director or officer of the Company. The Commission has not issued any stop order
or other order suspending the effectiveness of any registration statement filed
by the Company or any Subsidiary under the Exchange Act or the Securities Act.
(l) Labor Relations. No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees of
the Company.
(m) Compliance. Neither the Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default by
the Company or any Subsidiary under), nor has the Company or any Subsidiary
received notice of a claim that it is in default under or that it is in
violation of, any indenture, loan or credit agreement or any other agreement or
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instrument to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived), (ii) is in
violation of any order of any court, arbitrator or governmental body, or (iii)
is or has been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign, federal, state
and local laws relating to taxes, environmental protection, occupational health
and safety, product quality and safety and employment and labor matters, except
in each case as could not, individually or in the aggregate, have or reasonably
be expected to result in a Material Adverse Effect. The Company is in compliance
with the applicable requirements of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002, as amended,
and the rules and regulations thereunder, except where such noncompliance could
not have or reasonably be expected to result in a Material Adverse Effect.
(n) Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits would not, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect, and neither the
Company nor any Subsidiary has received any notice of proceedings relating to
the revocation or modification of any such permits.
(o) Title to Assets. The Company and the Subsidiaries do not own any
real property. The Company and the Subsidiaries have good and marketable title
in all personal property owned by them that is material to their respective
businesses, in each case free and clear of all Liens, except for Liens described
in the SEC Reports and Liens 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 the Subsidiaries. Any real property and
facilities held under lease by the Company and the Subsidiaries are held by them
under valid, subsisting and enforceable leases of which the Company and the
Subsidiaries are in compliance, except as could not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect.
(p) Patents and Trademarks. The Company and the Subsidiaries have,
or have rights to use, all Intellectual Property Rights that are necessary or
material for use in connection with their respective businesses as described in
the SEC Reports and which the failure to so have could, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect. Neither the Company nor any Subsidiary has received a written notice
that the Intellectual Property Rights used by the Company or any Subsidiary
violates or infringes upon the rights of any Person. Except as set forth in the
SEC Reports, to the knowledge, after due inquiry, of the Company, all such
Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights.
(q) Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which the
Company and the Subsidiaries are engaged. The Company has no reason to believe
that it or its Subsidiaries will not be able to renew its respective existing
insurance coverage as and when such coverage expires or to obtain similar
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coverage from similar insurers as may be necessary to continue its business
without a significant increase in cost.
(r) Transactions With Affiliates and Employees. Except as set forth
in the SEC Reports or Schedule 3.1(r), none of the officers or directors of the
Company and, to the knowledge, after due inquiry, of the Company, none of the
employees of the Company is presently a party to any transaction with the
Company or any Subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge, after due inquiry, of the
Company, any entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner.
(s) Internal Accounting Controls. The Company and the Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management's general
or specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences. The Company has established disclosure
controls and procedures (as defined in Rules 13a-15e and 15d-15e under the
Exchange Act) for the Company and designed such disclosure controls and
procedures to ensure that material information relating to the Company,
including its Subsidiaries, is made known to the certifying officers by others
within those entities.
(t) Solvency. Based on the financial condition of the Company as of
the Closing Date (and assuming that the Closing shall have occurred), (i) the
Company's fair saleable value of its assets exceeds the amount that will be
required to be paid on or in respect of the Company's existing debts and other
liabilities (including known contingent liabilities) as they mature; (ii) the
Company's assets do not constitute unreasonably small capital to carry on its
business for the current fiscal year as now conducted and as proposed to be
conducted including its capital needs taking into account the particular capital
requirements of the business conducted by the Company, and projected capital
requirements and capital availability thereof; and (iii) the current cash flow
of the Company, together with the proceeds the Company would receive, were it to
liquidate all of its assets, after taking into account all anticipated uses of
the cash, would be sufficient to pay all amounts on or in respect of its debt
when such amounts are required to be paid. The Company does not intend to incur
debts beyond its ability to pay such debts as they mature (taking into account
the timing and amounts of cash to be payable on or in respect of its debt).
(u) Certain Fees. Except as described in Schedule 3.1(u), no
brokerage or finder's fees or commissions are or will be payable by the Company
to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by this Agreement. The Investors shall have no obligation with
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respect to any fees or with respect to any claims made by or on behalf of other
Persons for fees of a type contemplated in this Section that may be due in
connection with the transactions contemplated by this Agreement.
(v) Certain Registration Matters. Assuming the accuracy of the
Investors' representations and warranties set forth in Section 3.2(b)-(e), no
registration under the Securities Act is required for the offer and sale of the
Securities by the Company to the Investors under the Transaction Documents.
Neither the Company nor any Person acting on the Company's behalf has sold or
offered to sell or solicited any offer to buy the Securities by means of any
form of general solicitation or advertising. Neither the Company nor any of its
Affiliates nor any Person acting on the Company's behalf has, directly or
indirectly, at any time within the past six months, made any offer or sale of
any security or solicitation of any offer to buy any security under
circumstances that would (i) eliminate the availability of the exemption from
registration under Regulation D under the Securities Act in connection with the
offer and sale of the Securities as contemplated hereby or (ii) cause the
offering of the Securities pursuant to the Transaction Documents to be
integrated with prior offerings by the Company for purposes of any applicable
law, regulation or stockholder approval provisions, including, without
limitation, under the rules and regulations of any Trading Market, that could
cause this transaction to require the approval of the Company's stockholders.
Except as described in Schedule 3.1(v), the Company has not granted or agreed to
grant to any Person any rights (including "piggy-back" registration rights) to
have any securities of the Company registered with the Commission or any other
governmental authority that have not been satisfied.
(w) Listing and Maintenance Requirements. Except as specified in the
SEC Reports, the Company has not received notice from any Trading Market to the
effect that the Company is not in compliance with the listing or maintenance
requirements thereof. The Company is, and has no reason to believe that it will
not in the foreseeable future continue to be, in compliance with the listing and
maintenance requirements for continued listing of the Common Stock on the
Trading Market. The issuance and sale of the Securities under the Transaction
Documents does not contravene the rules and regulations of the Trading Market on
which the Common Stock is currently listed or quoted.
(x) Investment Company. The Company is not, is not an Affiliate of,
and immediately upon the Closing will not become, an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
(y) Application of Takeover Protections. The Company has taken all
necessary action, if any, in order to render inapplicable any control share
acquisition, business combination, poison pill (including any distribution under
a rights agreement) or other similar anti-takeover provision under the Company's
Certificate of Incorporation (or similar charter documents) or the laws of its
state of incorporation that is or could become applicable to the Investors as a
result of the Investors and the Company fulfilling their obligations or
exercising their rights under the Transaction Documents, including, without
limitation, the Company's issuance of the Securities and the Investors'
ownership of the Securities.
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(z) No Additional Agreements. The Company does not have any
agreement or understanding with any Investor with respect to the transactions
contemplated by the Transaction Documents other than as specified in the
Transaction Documents.
(aa) Disclosure. Except as described in Schedule 3.1(aa) or as will
be disclosed in the 8-K Filing (as such term is defined herein), the Company
confirms that neither it nor any Person acting on its behalf has provided any of
the Investors or their agents or counsel with any information that the Company
believes constitutes material, non-public information. The Company understands
and confirms that the Investors will rely on the foregoing representations and
covenants in effecting transactions in securities of the Company. All disclosure
provided to the Investors regarding the Company, its business and the
transactions contemplated hereby, furnished by or on behalf of the Company
(including the Company's representations and warranties set forth in this
Agreement) are true and correct and do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading.
(bb) Acknowledgment Regarding Investors' Purchase of Securities. The
Company acknowledges and agrees that each of the Investors is acting solely in
the capacity of an arm's length purchaser with respect to the Transaction
Documents and the transactions contemplated hereby and thereby. The Company
further acknowledges that no Investor is acting as a financial advisor or
fiduciary of the Company or any other Investor (or in any similar capacity) with
respect to the Transaction Documents and the transactions contemplated hereby
and thereby and any advice given by any Investor or any of their respective
representatives or agents in connection with the Transaction Documents and the
transactions contemplated hereby and thereby is merely incidental to such
Investor's purchase of the Securities. The Company further represents to each
Investor that the Company's decision to enter into the Transaction Documents has
been based solely on the independent evaluation of the transactions contemplated
hereby by the Company and its representatives.
(cc) Form SB-2. In accordance with Commission's rules, the Company
is eligible to utilize Form SB-2 for the registration of the resale of its
securities.
3.2 Representations and Warranties of the Investors. Each Investor hereby,
for itself and for no other Investor, represents and warrants to the Company as
follows:
(a) Organization; Authority; Residency. Such Investor is an entity
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the applicable Transaction Documents and otherwise to carry out
its obligations hereunder and thereunder. The purchase by such Investor of the
Shares and the Warrants hereunder has been duly authorized by all necessary
action on the part of such Investor. Each of this Agreement and the Registration
Rights Agreement has been duly executed by such Investor, and when delivered by
13
such Investor in accordance with terms hereof, will constitute the valid and
legally binding obligation of such Investor, enforceable against it in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application.
Such Investor represents that, to the extent that he or she is an individual,
that he or she is a resident of the state set forth opposite his or her name on
its signature page to this Agreement, and, to the extent that it is an
organizational entity, it has been organized under the laws of the state or
country set forth opposite its name on its signature page to this Agreement.
(b) Investment Intent. Such Investor is acquiring the Securities as
principal for its own account for investment purposes only and not with a view
to or for distributing or reselling such Securities or any part thereof, without
prejudice, however, to such Investor's right at all times to sell or otherwise
dispose of all or any part of such Securities in compliance with applicable
federal and state securities laws. Nothing contained herein shall be deemed a
representation or warranty by such Investor to hold the Securities for any
period of time. Such Investor is acquiring the Securities hereunder in the
ordinary course of its business. Such Investor does not have any agreement or
understanding, directly or indirectly, with any Person to distribute any of the
Securities.
(c) Investor Status. Such Investor is an "accredited investor" as
defined in Rule 501(a) under the Securities Act, knowledgeable, sophisticated
and experienced in making, and is qualified to make, decisions with respect to
an investment decision like that involved in the purchase of the Securities.
Such Investor recognizes that an investment in the Securities involves a high
degree of risk, including a risk of total loss of such investment. Such Investor
understands, acknowledges and agrees that it must bear the economic risk of its
investment in the Securities for an indefinite period of time. Such Investor is
not a registered broker-dealer under Section 15 of the Exchange Act.
(d) General Solicitation. Such Investor is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper, magazine or
similar media or broadcast over television or radio or presented at any seminar
or any other general solicitation or general advertisement.
(e) Access to Information. Such Investor acknowledges that it has
reviewed the Disclosure Materials (including the information set forth under the
caption entitled "Risk Factors" contained in the Company's Current Report on
Form 8-K/A filed on January 26, 2004) and has been afforded (i) the opportunity
to ask such questions as it has deemed necessary of, and to receive answers
from, representatives of the Company concerning the terms and conditions of the
offering of the Shares and the merits and risks of investing in the Securities;
(ii) access to information about the Company and the Subsidiaries and their
respective financial condition, results of operations, business, properties,
management and prospects sufficient to enable it to evaluate its investment; and
(iii) the opportunity to obtain such information that the Company possesses or
can acquire without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the investment. Neither such
inquiries nor any other investigation conducted by or on behalf of such Investor
14
or its representatives or counsel shall modify, amend or affect such Investor's
right to rely on the truth, accuracy and completeness of the Disclosure
Materials and the Company's representations and warranties contained in the
Transaction Documents.
(f) Independent Investment Decision. Such Investor has independently
evaluated the merits of its decision to purchase Securities pursuant to this
Agreement, and such Investor confirms that it has not relied on the advice of
any other Investor's business and/or legal counsel in making such decision. If
such Investor is other than the Lead Investor, such Investor represents and
warrants that ▇▇▇▇▇ ▇▇▇▇ LLP has not acted as its legal counsel in connection
with the transactions contemplated by this Agreement.
The Company acknowledges and agrees that no Investor has made or makes any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 3.2.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Restrictions on Transfer. (a) Securities may only be disposed of in
compliance with state and federal securities laws. In connection with any
transfer of the Securities other than pursuant to an effective registration
statement, to the Company, to an Affiliate of an Investor or in connection with
a pledge as contemplated in Section 4.1(b), the Company may require the
transferor thereof to provide to the Company an opinion of counsel selected by
the transferor, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not require
registration of such transferred Securities under the Securities Act.
(b) Certificates evidencing the Securities will contain the
following legend, until such time as they are not required under Section 4.1(c):
[NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON
EXERCISE/CONVERSION OF THESE SECURITIES HAVE BEEN REGISTERED] [THESE
SECURITIES HAVE NOT BEEN REGISTERED] WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE
WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL
OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE
OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.
NOTWITHSTANDING THE FOREGOING, [THESE SECURITIES AND THE SECURITIES
ISSUABLE UPON EXERCISE/CONVERSION OF THESE SECURITIES] [THESE
SECURITIES] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
AGREEMENT OR ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED
BY SUCH SECURITIES.
15
The Company acknowledges and agrees that an Investor may from time
to time pledge, and/or grant a security interest in some or all of the
Securities pursuant to a bona fide margin agreement in connection with a bona
fide margin agreement or account or other loan or financing arrangement and, if
required under the terms of such agreement or account, loan or arrangement, such
Investor may transfer pledged or secured Securities to the pledgees or secured
parties. Such a pledge or transfer would not be subject to approval or consent
of the Company and no legal opinion of legal counsel to the pledgee, secured
party or pledgor shall be required in connection with the pledge, but such legal
opinion may be required in connection with a subsequent transfer following
default by the Investor transferee of the pledge. No notice shall be required of
such pledge. At the appropriate Investor's expense, the Company will execute and
deliver such reasonable documentation as a pledgee or secured party of
Securities may reasonably request in connection with a pledge or transfer of the
Securities including the preparation and filing of any required prospectus
supplement under Rule 424(b)(3) of the Securities Act or other applicable
provision of the Securities Act to appropriately amend the list of Selling
Stockholders thereunder.
(c) Certificates evidencing Underlying Shares and Warrant Shares
shall not contain any legend (including the legend set forth in Section 4.1(b)):
(i) if a Conversion Notice under the Certificate of Designation or Exercise
Notice under the Warrant (as the case may be) is delivered while a Registration
Statement is effective and the converting or exercising holder undertakes to
sell the Underlying Shares issuable in respect of such conversion or exercise
pursuant to the prospectus forming a part of the applicable Registration
Statement, or (ii) following a sale of such Shares pursuant to Rule 144, or
(iii) while such Shares are eligible for sale under Rule 144(k), or (iv) if such
legend is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the Staff of
the Commission). During such time as a Registration Statement is effective as to
the Underlying Shares or such other time as restrictive legends are not required
to be placed on certificates representing Underlying Shares or Warrant Shares,
the Company will, no later than three Trading Days following the delivery by an
Investor to the Company or the Transfer Agent of a certificate representing such
Underlying Shares or Warrant Shares that contain a restrictive legend, deliver
or cause to be delivered to such Investor certificates representing such
Underlying Shares and Warrant Shares that are free from all restrictive and
other legends, provided that the Staff of the Commission does not publicly state
removing the restrictive legend under such circumstances is against the law. The
Company may not make any notation on its records or give instructions to any
transfer agent of the Company that enlarge the restrictions on transfer set
forth in this Section. For so long as any Investor owns Securities, the Company
will not effect or publicly announce its intention to effect any exchange,
recapitalization or other transaction that effectively requires or rewards
physical delivery of certificates evidencing the Common Stock.
16
4.2 Furnishing of Information. As long as any Investor owns the Securities
that are not eligible for resale under Rule 144(k) promulgated under the
Securities Act, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. As long as any Investor owns Securities that are not eligible for
resale under Rule 144(k) promulgated under the Securities Act, if the Company is
not required to file reports pursuant to the Exchange Act, it will prepare and
furnish to the Investors and make publicly available in accordance with Rule
144(c) such information as is required for the Investors to sell the Shares
under Rule 144. The Company further covenants that it will take such further
action as any holder of Securities may reasonably request, all to the extent
required from time to time to enable such Person to sell such Shares without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144.
4.3 Integration. The Company shall not, and shall use its best efforts to
ensure that no Affiliate of the Company shall, sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Investors, or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market such that approval of the Company's
stockholders could be required to consummate the transactions contemplated
hereby.
4.4 Subsequent Registrations. Other than pursuant to the Registration
Statement, prior to the Effective Date, the Company may not file any
registration statement (other than on Form S-8) with the Commission with respect
to any securities of the Company.
4.5 Reservation of Securities. The Company shall maintain a reserve from
its duly authorized shares of Common Stock for issuance pursuant to the
Transaction Documents in such amount as may be required to fulfill its
obligations in full under the Transaction Documents. In the event that at any
time the then authorized shares of Common Stock are insufficient for the Company
to satisfy its obligations in full under the Transaction Documents, the Company
shall promptly take such actions as may be required to increase the number of
authorized shares.
4.6 Lockup; Subsequent Placements and Certain Securities Offerings. (a)
Subject to Section 4.6(d), except for the Securities issued or issuable to the
Investors pursuant to the Transaction Documents, the Company shall not offer,
issue, sell, or enter into agreements to offer, issue or sell, any shares of
Common Stock or any Common Stock Equivalents until the 180th day following the
Closing; plus one additional Trading Day for each Trading Day following the
earlier to occur of the Effective Date and the Effectiveness Date (as defined in
the Registration Rights Agreement) during which either (i) a Registration
Statement is not effective or (ii) the prospectus forming a portion of any such
Registration Statement is not available for the resale of all Registrable
Securities required to be covered thereby.
17
(b) Prior to the Closing, the Company shall cause its directors and
executive officers and any holder of 5% or more of its capital stock who is an
Affiliate of a director or officer to not offer, sell, contract to sell, pledge,
enter into any short sales (as defined in Rule 3b-3 promulgated under the
Exchange Act) or hedging transactions of any nature, or otherwise dispose of,
directly or indirectly, any shares of Common Stock or any Common Stock
Equivalents, until after the 180th Trading Day following the Closing; provided
that the 180-day period specified in the immediately preceding sentence shall be
extended by one Trading Day for each Trading Day following the earlier to occur
of the Effective Date and the Effectiveness Date during which either (i) a
Registration Statement is not effective or (ii) the prospectus forming a portion
of any such Registration Statement is not available for the resale of all
Registrable Securities required to be covered thereby. The Company shall provide
Investors with copies of the agreements evidencing the lockup required by this
Section in form reasonably satisfactory to the Lead Investor.
(c) Subject to Section 4.6(d), in the event the Company at any time
prior to the one year anniversary of the Closing Date, directly or indirectly,
offers, sells, grants any option to purchase, or otherwise disposes of (or
announces any offer, sale, grant or any option to purchase or other disposition
of) any of Common Stock or Common Stock Equivalents or any of its Subsidiaries'
equity or Common Stock Equivalents (such offer, sale, grant, disposition or
announcement being referred to as a "SUBSEQUENT PLACEMENT"), the Company shall
deliver to each Investor a written notice (each, a "SUBSEQUENT PLACEMENT
NOTICE") of its intention to effect such Subsequent Placement, which specifies
in reasonable detail all of the material terms of such Subsequent Placement, the
aggregate amount of proceeds intended to be raised thereunder, the names of the
investors (including the investment manager of such investors, if any) and the
investment bankers with whom such Subsequent Placement is proposed to be
effected, and attached to which shall be a term sheet or similar document. Each
Investor shall have until 5:30 p.m. (New York City time) on the fifth Trading
Day after its respective receipt of the Subsequent Placement Notice to notify
Company of its intention to provide, subject to completion of mutually
acceptable documentation, its pro rata portion of 50% of such financing on the
same terms as set forth in the Subsequent Placement Notice. In the event that
the Investors do not timely elect to provide financing subject to the Subsequent
Placement Notice and the Company shall not have consummated the portion of the
Subsequent Placement for which such elections shall not have been so made on the
terms and to the Persons specified in the Subsequent Placement Notice within 30
days following the expiration of the time to so elect, the Company shall provide
each Investor with a second Subsequent Placement Notice and each Investor will
again have the right of participation set forth in this Section. The one year
period specified in this sentence shall be extended by one Trading Day for each
Trading Day following the earlier to occur of the Effective Date and the
Effectiveness Date during which either (i) a Registration Statement is not
effective or (ii) the prospectus forming a portion of any such Registration
Statement is not available for the resale of all Registrable Securities required
to be covered thereby.
(d) The Company's obligations under Section 4.6(a) and (c) shall not
apply to any grant or issuance by the Company of any of the following: (i) the
issuance of securities upon the exercise or conversion of any Common Stock or
Common Stock Equivalents issued by the Company prior to the date hereof (but
18
will apply to any amendments, modifications and reissuances thereof), (ii) the
grant of options, warrants or other Common Stock Equivalents under any duly
authorized Company stock option, restricted stock plan or stock purchase plan
whether now existing or hereafter approved by the Company and its stockholders
in the future (but not as to any amendments or other modifications to the number
of Common Stock issuable thereunder, the terms set forth therein, or the
exercise price set forth therein, unless such amendments or other modifications
are approved by the Company's stockholders) and the issuance of Common Stock in
respect thereof, or (iii) securities granted or issued in connection with a
Strategic Transaction or as the purchase price for the acquisition of a third
party company or all or a portion of the assets of a third party company.
Notwithstanding anything to the contrary contained in Section 4.6(a), nothing
shall prohibit the Company from offering, selling or issuing any Common Stock
(i) in connection with a firm commitment underwritten public offering of Common
Stock resulting in net proceeds to the Company of not less than $15,000,000
(which shall not include equity lines of credit or takedowns off of shelf
registration statements or similar transactions); (ii) in connection with
equipment leases or the purchase of equipment in the ordinary course of its
business, provided such leases or equipment purchases are otherwise on customary
terms; or (iii) issued to the Company's primary lender in connection with the
Company's credit relationship therewith or any renewal, modification or
refinancing thereof; provided, that such transaction is not primarily an equity
capital raising transaction.
4.7 Securities Laws Disclosure; Publicity. By 9:00 a.m. (New York City
time) within two Trading Days following the date that this Agreement is executed
by the parties, the Company will issue a press release and file a Current Report
on Form 8-K to disclose the execution of this Agreement and the material terms
of the transactions contemplated by the Transaction Documents. On the Closing
Date, the Company shall file a Current Report on Form 8-K with the Commission
(the "8-K FILING") describing the terms of the transactions contemplated by the
Transaction Documents and including as exhibits to such Current Report on Form
8-K this Agreement and the form of Warrants, in the form required by the
Exchange Act. Thereafter, the Company shall timely file any filings and notices
required to be made by the Company by the Commission or applicable law with
respect to the transactions contemplated hereby. Except with respect to the 8-K
Filing and the press release referenced above (a copy of which will be provided
to the Investors for their review as early as practicable prior to its filing),
the Company shall, at least two Trading Days prior to the filing or
dissemination of any disclosure required by this paragraph, provide a copy
thereof to the Investors for their review. The Company and the Investors shall
consult with each other in issuing any press releases or otherwise making public
statements or filings and other communications with the Commission or any
regulatory agency or Trading Market with respect to the transactions
contemplated hereby, and neither party shall issue any such press release or
otherwise make any such public statement, filing or other communication without
the prior consent of the other, except if such disclosure is required by law, in
which case the disclosing party shall promptly provide the other party with
prior notice of such public statement, filing or other communication.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of any Investor, or include the name of any Investor in any filing with the
Commission (other than the Registration Statement and any exhibits to filings
made in respect of this transaction in accordance with periodic filing
requirements under the Exchange Act) or any regulatory agency or Trading Market,
19
without the prior written consent of such Investor, except to the extent such
disclosure is required by law or Trading Market regulations, in which case the
Company shall provide the Investors with prior notice of such disclosure. The
Company shall not, and shall cause each of its Subsidiaries and its and each of
their respective officers, directors, employees and agents not to, provide any
Investor with any material nonpublic information regarding the Company or any of
its Subsidiaries from and after the filing of the 8-K Filing without the express
written consent of such Investor. In the event of a breach of the foregoing
covenant by the Company, any of its Subsidiaries, or any of its or their
respective officers, directors, employees and agents, in addition to any other
remedy provided herein or in the Transaction Documents, an Investor shall have
the right to make a public disclosure, in the form of a press release, public
advertisement or otherwise, of such material nonpublic information without the
prior approval by the Company, its Subsidiaries, or any of its or their
respective officers, directors, employees or agents. No Investor shall have any
liability to the Company, its Subsidiaries, or any of its or their respective
officers, directors, employees, stockholders or agents for any such disclosure.
Subject to the foregoing, neither the Company nor any Investor shall issue any
press releases or any other public statements with respect to the transactions
contemplated hereby; provided, however, that the Company shall be entitled,
without the prior approval of any Investor, to make any press release or other
public disclosure with respect to such transactions (i) in substantial
conformity with the 8-K Filing and contemporaneously therewith and (ii) as is
required by applicable law and regulations (provided that in the case of clause
(i) each Investor shall be consulted by the Company in connection with any such
press release or other public disclosure prior to its release).
4.8 Limitation on Issuance of Future Priced Securities. During the six
months following the Closing Date, the Company shall not issue any security that
would be a "Future Priced Securities" as such term is described by NASD
IM-4350-1.
4.9 Reimbursement. If any Investor or any of its Affiliates or any
officer, director, partner, controlling Person, employee or agent of an Investor
or any of its Affiliates (a "RELATED PERSON") becomes involved in any capacity
in any Proceeding brought by or against any Person in connection with or as a
result of the transactions contemplated by the Transaction Documents, the
Company will indemnify and hold harmless such Investor or Related Person for its
reasonable legal and other expenses (including the costs of any investigation,
preparation and travel) and for any Losses incurred in connection therewith, as
such expenses or Losses are incurred, excluding only Losses that result directly
from such Investor's or Related Person's gross negligence or willful misconduct.
In addition, the Company shall indemnify and hold harmless each Investor and
Related Person from and against any and all Losses, as incurred, arising out of
or relating to any breach by the Company of any of the representations,
warranties or covenants made by the Company in this Agreement or any other
Transaction Document, or any allegation by a third party that, if true, would
constitute such a breach. The conduct of any Proceedings for which
indemnification is available under this paragraph shall be governed by Section
5(c) of the Registration Rights Agreement. The indemnification obligations of
the Company under this paragraph shall be in addition to any liability that the
Company may otherwise have and shall be binding upon and inure to the benefit of
any successors, assigns, heirs and personal representatives of the Investors and
any such Related Persons. The Company also agrees that neither the Investors nor
any Related Persons shall have any liability to the Company or any Person
20
asserting claims on behalf of or in right of the Company in connection with or
as a result of the transactions contemplated by the Transaction Documents,
except to the extent that any Losses incurred by the Company result from the
breach of any representation or warranty contained in this Agreement by the
applicable Investor or the gross negligence or willful misconduct of the
applicable Investor or Related Person in connection with such transactions. If
the Company breaches its obligations under any Transaction Document, then, in
addition to any other liabilities the Company may have under any Transaction
Document or applicable law, the Company shall pay or reimburse the Investors on
demand for all costs of collection and enforcement (including reasonable
attorneys fees and expenses). Without limiting the generality of the foregoing,
the Company specifically agrees to reimburse the Investors on demand for all
costs of enforcing the indemnification obligations in this paragraph.
4.10 Use of Proceeds. The Company shall use the net proceeds from the sale
of the Securities hereunder for working capital purposes, including, but not
limited to, the purchase of capital equipment, equipment installation, marketing
and market research and up to $600,000 of such net proceeds to fulfill
outstanding monetary obligations to certain of its Affiliates; and up to
$500,000 additional amount of such net proceeds to repay any bridge financing
disclosed in Schedule 3.1(l).
ARTICLE V.
CONDITIONS PRECEDENT TO CLOSING
5.1 Conditions Precedent to Obligations of the Investors. Each Investor's
obligation to purchase Securities at the Closing is subject to the satisfaction
or waiver by such Investor of the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company contained herein shall be true and correct in all
material respects as of the date when made and as of the Closing as though made
on and as of such date.
(b) Performance of Obligations. The Company shall have performed in
all material respects all agreements and covenants required to be performed by
it under this Agreement prior to the Closing Date.
(c) 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 the consummation of any of the transactions contemplated by the
Transaction Documents.
21
(d) No Material Adverse Effect. Between the execution of this
Agreement and the Closing, no event or series of events (other than stock price
fluctuations) shall have occurred which reasonably would be expected to have or
result in a Material Adverse Effect.
(e) Company Deliverables. The Company shall have delivered all of
the Company Deliverables for distribution at Closing.
(f) Minimum Subscriptions. The aggregate of all Investors'
Investment Amounts delivered to the Escrow Agent in accordance with Section 2.2
and the Escrow Agreement shall not be less than $10,000,000.
(g) Closing Date. The Closing shall have occurred by April 16, 2004.
5.2 Conditions Precedent to Obligations of the Company. The Company's
obligation to issue and sell the Shares to each Investor at the Closing is
subject to the satisfaction, or waiver by the Company, of the following
conditions:
(a) Representations and Warranties. The representations and
warranties of each Investor contained herein shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made on and as of such date.
(b) Performance of Obligations. Such Investor shall have performed
in all material respects all agreements and covenants required to be performed
by it under this Agreement prior to the Closing Date.
(c) 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 the consummation of any of the transactions contemplated by the
Transaction Documents.
(d) Minimum Subscriptions. The aggregate of all Investors'
Investment Amounts delivered to the Escrow Agent in accordance with Section 2.2
and the Escrow Agreement shall not be less than $10,000,000.
(e) Closing Date. The Closing shall have occurred by April 16, 2004.
ARTICLE VI.
MISCELLANEOUS
6.1 Termination. This Agreement may be terminated by the Company or the
Lead Investor, by written notice to the other parties, if the Closing has not
been consummated by the third Trading Day following the date of this Agreement;
provided that no such termination will affect the right of any party to ▇▇▇ for
any breach by the other party (or parties).
6.2 Fees and Expenses. At the Closing, the Company shall reimburse the
Lead Investor $30,000 in connection with its diligence and legal fees concerning
the transactions contemplated by the Transaction Documents (the Lead Investor
may deduct such amount from the Investment Amount deliverable to the Company at
Closing), it being understood that ▇▇▇▇▇ ▇▇▇▇ LLP, the attorneys for such
Investor, has not rendered any legal advice to the Company or to any other
Investor in connection with the transactions contemplated hereby and that the
Company and each other Investor has relied for such matters on the advice of its
own counsel. Except as specified in the immediately preceding sentence, each
party shall pay the fees and expenses of its advisers, counsel, accountants and
other experts, if any, and all other expenses incurred by such party incident to
22
the negotiation, preparation, execution, delivery and performance of the
Transaction Documents. The Company shall pay all stamp and other taxes and
duties levied in connection with the sale of the Securities.
6.3 Entire Agreement. The Transaction Documents, together with the
Exhibits and Schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
6.4 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified in this Section prior to 6:30 p.m. (New York City time) on a Trading
Day, (b) the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section on a day that is not a Trading Day or later than 6:30 p.m. (New
York City time) on any Trading Day, (c) the Trading Day following the date of
mailing, if sent by U.S. nationally recognized overnight courier service, or (d)
upon actual receipt by the party to whom such notice is required to be given.
The address for such notices and communications shall be as follows:
If to the Company: TNX TELEVISION HOLDINGS, INC.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: President
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to an Investor: To the address set forth under such Investor's name
on the signature pages hereof;
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
6.5 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Company and the Investors holding a majority of the Shares. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right.
23
6.6 Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party. This Agreement
shall be construed as if drafted jointly by the parties, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement or any of the Transaction
Documents.
6.7 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Investors. Any Investor may assign any
or all of its rights under this Agreement to any Person to whom such Investor
assigns or transfers any Securities, provided such transferee agrees in writing
to be bound, with respect to the transferred Securities, by the provisions
hereof that apply to the "Investors." Notwithstanding anything to the contrary
herein, Securities may be assigned to any Person in connection with a bona fide
margin agreement or account or other loan or financing arrangement secured by
such Company Securities.
6.8 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except that each Related Person is an intended third party
beneficiary of Section 4.8 and may enforce the provisions of such Section
directly against the parties with obligations thereunder.
6.9 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York (except for matters governed by corporate law in the State of Delaware),
without regard to the principles of conflicts of law thereof. Each party agrees
that all Proceedings concerning the interpretations, enforcement and defense of
the transactions contemplated by this Agreement and any other Transaction
Documents (whether brought against a party hereto or its respective Affiliates,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in The City of New York, Borough of Manhattan (the "NEW YORK
COURTS"). Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any Proceeding, any claim that it is not personally subject to the
jurisdiction of any such New York Court, or that such Proceeding has been
commenced in an improper or inconvenient forum. Each party hereto hereby
irrevocably waives personal service of process and consents to process being
served in any such Proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. Each party hereto hereby
24
irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or relating to
this Agreement or the transactions contemplated hereby. If either party shall
commence a Proceeding to enforce any provisions of a Transaction Document, then
the prevailing party in such Proceeding shall be reimbursed by the other party
for its attorney's fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such Proceeding.
6.10 Survival. The representations, warranties, agreements and covenants
contained herein shall survive the Closing and the delivery and/or conversion or
exercise of the Shares and the Warrants, as applicable.
6.11 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
6.12 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
6.13 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Investor exercises a right, election, demand
or option under a Transaction Document and the Company does not timely perform
its related obligations within the periods therein provided, then such Investor
may rescind or withdraw, in its sole discretion from time to time upon written
notice to the Company, any relevant notice, demand or election in whole or in
part without prejudice to its future actions and rights.
6.14 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities. If a replacement
certificate or instrument evidencing any Securities is requested due to a
mutilation thereof, the Company may require delivery of such mutilated
certificate or instrument as a condition precedent to any issuance of a
replacement.
6.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Investors and the Company will be entitled to specific performance under the
25
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
6.16 Payment Set Aside. To the extent that the Company makes a payment or
payments to any Investor pursuant to any Transaction Document or an Investor
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other Person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
6.17 Independent Nature of Investors' Obligations and Rights. The
obligations of each Investor under any Transaction Document are several and not
joint with the obligations of any other Investor, and no Investor shall be
responsible in any way for the performance of the obligations of any other
Investor under any Transaction Document. The decision of each Investor to
purchase Securities pursuant to the Transaction Documents has been made by such
Investor independently of any other Investor. Nothing contained herein or in any
Transaction Document, and no action taken by any Investor pursuant thereto,
shall be deemed to constitute the Investors as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Investors are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Investor acknowledges that no other Investor has acted as agent for such
Investor in connection with making its investment hereunder and that no Investor
will be acting as agent of such Investor in connection with monitoring its
investment in the Securities or enforcing its rights under the Transaction
Documents. Each Investor shall be entitled to independently protect and enforce
its rights, including without limitation the rights arising out of this
Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Investor to be joined as an additional party in any
proceeding for such purpose. The Company acknowledges that each of the Investors
has been provided with the same Transaction Documents for the purpose of closing
a transaction with multiple Investors and not because it was required or
requested to do so by any Investor.
6.18 Limitation of Liability. Notwithstanding anything herein to the
contrary, the Company acknowledges and agrees that the liability of an Investor
arising directly or indirectly, under any Transaction Document of any and every
nature whatsoever shall be satisfied solely out of the assets of such Investor,
and that no trustee, officer, other investment vehicle or any other Affiliate of
such Investor or any investor, shareholder or holder of shares of beneficial
interest of such a Investor shall be personally liable for any liabilities of
such Investor.
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SIGNATURE PAGES FOLLOW]
27
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.
TNX TELEVISION HOLDINGS, INC.
By:_________________________________
Name:
Title:
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOR INVESTORS FOLLOW]
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IN WITNESS WHEREOF, the parties have executed this Security Purchase
Agreement as of the date first written above.
NAME OF INVESTING ENTITY:
------------------------------------
By: Name:
Title:
Investment Amount: $
----------------
Number of Shares:
-----------------
Number of Warrants:
---------------
Tax ID No.:
------------------------
ADDRESS FOR NOTICE
c/o:
-------------------------------
Street:
----------------------------
City/State/Zip:
--------------------
Attention:
-------------------------
Tel:
---------------------------
Fax:
---------------------------
Email:
---------------------------
DELIVERY INSTRUCTIONS
(if different from above)
c/o:
-------------------------------
Street:
-----------------------------
City/State/Zip:
--------------------
Attention:
-------------------------
Tel:
---------------------------
Exhibit A
TERMS OF PREFERRED STOCK
Exhibit B
REGISTRATION RIGHTS AGREEMENT
Exhibit C
FORM OF WARRANT
Exhibit D
ESCROW AGREEMENT
Exhibit E
IRREVOCABLE TRANSFER AGENT INSTRUCTIONS