Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of November 30,
2004, by and among SpatiaLight, Inc., a New York corporation, with headquarters
located at ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ (the "COMPANY"),
and the investors listed on the Schedule of Buyers attached hereto
(individually, a "BUYER" and collectively, the "BUYERS").
WHEREAS:
A. The Company and each Buyer is executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Section
4(2) of the Securities Act of 1933, as amended (the "1933 ACT"), and Rule 506 of
Regulation D ("REGULATION D") as promulgated by the United States Securities and
Exchange Commission (the "SEC") under the 1933 Act.
B. The Company has authorized a new series of senior secured convertible
notes of the Company, which Notes shall be convertible into the Company's common
stock, $.01 par value per share (the "COMMON STOCK"), in accordance with the
terms thereof.
C. Each Buyer wishes to purchase, and the Company wishes to sell, upon the
terms and conditions stated in this Agreement, (i) that aggregate principal
amount of Notes, in substantially the form attached hereto as EXHIBIT A (as
amended or modified from time to time, collectively, the "INITIAL NOTES"), set
forth opposite such Buyer's name in column (3) on the Schedule of Buyers (which
aggregate amount for all Buyers shall be $10,000,000) (as converted,
collectively, the "INITIAL CONVERSION SHARES") and (ii) a right or obligation,
in substantially the form attached hereto as EXHIBIT B (the "ADDITIONAL
INVESTMENT RIGHTS"), to acquire up to that principal amount of additional Notes,
in substantially the form attached hereto as EXHIBIT C (as amended or modified
from time to time, collectively, the "ADDITIONAL NOTES" and together with the
Initial Notes and any senior secured convertible notes issued in replacement of
the Initial Notes or the Additional Notes in accordance with the terms thereof,
the "NOTES"), set forth opposite such Buyer's name in column (4) on the Schedule
of Buyers (such Additional Notes as converted, the "ADDITIONAL CONVERSION
SHARES" and together with the Initial Conversion Shares, the "CONVERSION
SHARES").
D. The Notes bear interest, which at the option of the Company, subject to
certain conditions, may be paid in shares of Common Stock (the "INTEREST
SHARES").
E. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
substantially in the form attached hereto as EXHIBIT D (as amended or modified
from time to time, the "REGISTRATION RIGHTS AGREEMENT"), pursuant to which the
Company has agreed to provide certain registration rights with respect to the
Conversion Shares and the Interest Shares under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.
F. The Notes, the Conversion Shares, the Interest Shares, and the
Additional Investment Rights collectively are referred to herein as the
"SECURITIES".
G. The Notes will be (i) senior to all other outstanding and future
indebtedness of the Company, other than the Permitted Bank Debt (which shall be
pari passu therewith), (ii) secured by a perfected security interest in all of
the assets of the Company and in all of the shares of capital stock and all
assets of all of the Company's current and future Subsidiaries (as hereinafter
defined), other than SpatiaLight Korea, Inc., as evidenced by the Pledge and
Security Agreement in favor of Portside Growth & Opportunity Fund, a company
organized under the laws of the Cayman Islands, in its capacity as collateral
agent (in such capacity, the "SENIOR AGENT") for the Buyers hereto and for the
other holders of the Securities, in the form attached hereto as EXHIBIT E (as
amended or modified from time to time, the "PLEDGE AND SECURITY AGREEMENT"),
which security interest shall be senior to all other security interests, except
those security interests in the Company's accounts receivable and inventory
securing Permitted Bank Debt (in accordance with the terms of the lien
subordination agreement referred to in CLAUSE (IV) of the definition of
"Permitted Liens" as defined in the Notes), and as otherwise agreed in writing
to by the Buyers, and (iii) guaranteed by the Guarantee of all of the Company's
current and future Subsidiaries, other than (A) SpatiaLight Korea, Inc. and (B)
so long it remains inactive or has no assets, income or operations, SpatiaLight
Technologies, Inc., in the form attached hereto as EXHIBIT F (such Guaranty,
together with the Pledge and Security Agreement, as each may amended or modified
from time to time, collectively, the "SECURITY DOCUMENTS").
NOW, THEREFORE, the Company and each Buyer hereby agree as follows:
1. PURCHASE AND SALE OF NOTES AND ADDITIONAL INVESTMENT RIGHTS.
(a) Purchase of Notes and Additional Investment Rights.
(i) Subject to the satisfaction (or waiver) of the conditions
set forth in Sections 6 and 7 below, the Company shall issue and sell to each
Buyer, and each Buyer severally, but not jointly, agrees to purchase from the
Company at the Closing (x) a principal amount of Notes as is set forth opposite
such Buyer's name in column (3) on the Schedule of Buyers, and (y) Additional
Investment Rights to acquire up to that principal amount of Additional Notes as
is set forth opposite such Buyer's name in column (4) on the Schedule of Buyers
(the "Closing").
(ii) CLOSING. The date and time of the Closing (the "CLOSING
DATE") shall be 10:00 a.m., New York City Time, on November 30, 2004 (or such
later date as is mutually agreed to by the Company and each Buyer) after
notification of satisfaction (or waiver) of the conditions to the Closing set
forth in Sections 6 and 7 below at the offices of ▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇ LLP, ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇.
(iii) PURCHASE PRICE. The aggregate purchase price for the
Notes and the Additional Investment Rights to be purchased by each Buyer at the
Closing (the "PURCHASE PRICE") shall be the amount set forth opposite such
Buyer's name in column (5) of the Schedule of Buyers. Each Buyer shall pay $1.00
for each $1.00 of principal amount of Initial Notes and related Additional
Investment Rights to be purchased by such Buyer at the Closing.
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(b) Form of Payment. On the Closing Date, (i) each Buyer shall pay
its Purchase Price to the Company for the Initial Notes and the Additional
Investment Rights to be issued and sold to such Buyer at the Closing, by wire
transfer of immediately available funds in accordance with the Company's written
wire instructions, and (ii) the Company shall deliver to each Buyer (A) an
Initial Note which such Buyer is then purchasing, and (B) an Additional
Investment Right as specified for such Buyer in column (4) on the Schedule of
Buyers, in each case duly executed on behalf of the Company and registered in
the name of such Buyer.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself that:
(a) No Public Sale or Distribution. Such Buyer is (i) acquiring the
Notes and the Additional Investment Rights (ii) upon exercise of the Additional
Investment Rights, will acquire the Additional Notes issuable upon exercise of
the Additional Investment Rights and (iii) upon conversion of the Notes, will
acquire the Conversion Shares issuable upon conversion of the Notes, in each
case, for its own account for investment purposes only and not with a view
towards, or for resale in connection with, the public sale or other distribution
thereof, except pursuant to sales registered or exempted under the 1933 Act;
provided, however, that by making the representations herein, such Buyer does
not agree to hold any of the Securities for any minimum or other specific term
and reserves the right to dispose of the Securities at any time in accordance
with or pursuant to a registration statement or an exemption under the 1933 Act
(subject to compliance with Section 2(g)). Such Buyer is acquiring the
Securities hereunder in the ordinary course of its business. Such Buyer does not
presently have any agreement or understanding, directly or indirectly, with any
Person to distribute any of the Securities.
(b) General Solicitation. Such Buyer is not purchasing the Notes and
the Additional Investment Rights 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.
(c) Broker-Dealer Status; Accredited Investor Status. Such Buyer is
not a registered broker-dealer under Section 15 of the Exchange Act. Such Buyer
is an "accredited investor" as that term is defined in Rule 501(a) of Regulation
D.
(d) Reliance on Exemptions. Such Buyer understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.
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(e) Information. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by such Buyer. Such Buyer and its advisors, if any,
have 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 Notes and Additional
Investment Rights and the merits and risks of investing in the Notes and
Additional Investment Rights; (ii) access to information about the Company and
the Subsidiaries and their respective financial condition, results of
operations, business, properties and management sufficient to enable it to
evaluate its investment; and (iii) the opportunity to obtain such additional
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. Notwithstanding anything contained in this Section
2(f), the Company has not supplied any Buyer with any material nonpublic
information. Neither such inquiries nor any other due diligence investigations
conducted by such Buyer or its advisors, if any, or its representatives shall
modify, amend or affect such Buyer's right to rely on the Company's
representations and warranties contained herein. Such Buyer understands that its
investment in the Securities involves a high degree of risk. Such Buyer has
sought such accounting, legal and tax advice as it has considered necessary to
make an informed investment decision with respect to its acquisition of the
Securities.
(f) No Governmental Review. Such Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
(g) Transfer or Resale. Such Buyer acknowledges that the Securities
may only be sold in compliance with state and federal securities laws. Such
Buyer understands that except as provided in the Registration Rights Agreement:
(i) the Securities have not been and are not being registered under the 1933 Act
or any state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (A) subsequently registered thereunder, (B) such Buyer shall
have delivered to the Company an opinion of counsel, in a generally acceptable
form, to the effect that such Securities to be sold, assigned or transferred may
be sold, assigned or transferred pursuant to an exemption from such
registration, or (C) such Buyer provides the Company with reasonable assurance
that such Securities can be sold, assigned or transferred pursuant to Rule 144
or Rule 144A promulgated under the 1933 Act, as amended, (or a successor rule
thereto) (collectively, "RULE 144") except that transfers under paragraph (k) of
Rule 144 must also be effectuated by an opinion of counsel reasonably acceptable
to the Company that such Buyer has satisfied the requirements of such paragraph
for the securities at issue; (ii) any sale of the Securities made in reliance on
Rule 144 may be made only in accordance with the terms of Rule 144 and further,
if Rule 144 is not applicable, any resale of the Securities under circumstances
in which the seller (or the Person (as defined in Section 3(s)) through whom the
sale is made) may be deemed to be an underwriter (as that term is defined in the
▇▇▇▇ ▇▇▇) may require compliance with some other exemption under the 1933 Act or
the rules and regulations of the SEC thereunder; and (iii) neither the Company
nor any other Person is under any obligation to register the Securities under
the 1933 Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder. Such Buyer agrees that a condition
precedent for any transfer other than pursuant to a registration statement or
Rule 144 will require that the transferee agree in writing to the Company to be
bound by the obligations of a Holder and Buyer under the Transaction Documents.
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(h) Legends. Such Buyer understands that the certificates or other
instruments representing the Notes and Additional Investment Rights and, until
such time as the resale of the Conversion Shares have been registered under the
1933 Act as contemplated by the Registration Rights Agreement, the stock
certificates representing the Conversion Shares, except as set forth below,
shall bear any legend as required by the "blue sky" laws of any state and a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such stock certificates):
[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED
BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [CONVERTIBLE][EXERCISABLE] HAVE BEEN][THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN]
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
(B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM,
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II)
UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED
IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the 1933 Act and such registration
statement is then available as to such Securities, (ii) in connection with a
sale, assignment or other transfer, such holder provides the Company with an
opinion of counsel, in a generally acceptable form, to the effect that such
sale, assignment or transfer of the Securities may be made without registration
under the applicable requirements of the 1933 Act, or (iii) such holder provides
the Company with reasonable assurance that the Securities can be sold, assigned
or transferred pursuant to Rule 144(k).
(i) Organization; Validity; Enforcement. Such Buyer 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 thereunder. This Agreement, the Registration Rights Agreement
and the Security Documents to which such Buyer is a party have been duly and
validly authorized, executed and delivered on behalf of such Buyer and shall
constitute the legal, valid and binding obligations of such Buyer enforceable
against such Buyer in accordance with their respective terms, except as such
enforceability may be limited by general principles of equity or to applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation and other
similar laws relating to, or affecting generally, the enforcement of applicable
creditors' rights and remedies.
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(j) No Conflicts. The execution, delivery and performance by such
Buyer of this Agreement, the Registration Rights Agreement and the Security
Documents to which such Buyer is a party and the consummation by such Buyer of
the transactions contemplated hereby and thereby will not (i) result in a
violation of the organizational documents of such Buyer or (ii) conflict with,
or constitute a default (or an event which 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 agreement, indenture or
instrument to which such Buyer is a party, or (iii) result in a violation of any
law, rule, regulation, order, judgment or decree (including federal and state
securities laws) applicable to such Buyer, except in the case of clauses (ii)
and (iii) above, for such conflicts, defaults, rights or violations which would
not, individually or in the aggregate, reasonably be expected to have a material
adverse effect on the ability of such Buyer to perform its obligations hereunder
or result in liability to the Company.
(k) Certain Trading Activities. Such Buyer nor its affiliates has
directly or indirectly, nor has any Person acting on behalf of or pursuant to
any understanding with such Buyer, traded in the securities of the Company,
including, without limitation, entering into any derivative security (as defined
in Rule 16a-1 of the Exchange Act) or any Short Sales (as defined below)
involving the Company's securities (each, a "PROHIBITED TRANSACTION") since the
time that such Buyer was first contacted by the Company regarding an investment
in the Company. Such Buyer covenants that neither it nor any Person acting on
its behalf or pursuant to any understanding with it will engage in any
Prohibited Transaction prior to the time that the transactions contemplated by
this Agreement are publicly disclosed. For purposes of this Agreement, "SHORT
SALES" shall have the meaning ascribed to such term in Rule 3b-3 of the Exchange
Act and Rule 200 promulgated under Regulation SHO under the Exchange Act and all
similar transactions through non-US broker dealers or foreign regulated brokers.
(l) Limited Ownership. The purchase by such Buyer of the Notes
(including the Conversion Shares that would be issuable upon the conversion of
such Notes) will not result in such Buyer (individually or together with other
Persons with whom such Buyer has identified, or will have identified, itself as
part of a "group" in a public filing made with the SEC involving the Company's
securities) acquiring, or obtaining the right to acquire, in excess of 19.999%
of the Common Stock or the voting power of the Company on a post transaction
basis (assuming that the Closing shall have occurred).
(m) Residency. Such Buyer is a resident of that jurisdiction
specified below its address on the Schedule of Buyers.
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3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that:
(a) Organization and Qualification. The Company and the
"SUBSIDIARIES" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns capital stock or holds an equity or
similar interest, including (without limitation) SpatiaLight Korea, Inc.,) set
forth on Schedule 3(a) are entities duly organized and validly existing in good
standing under the laws of the jurisdiction in which they are formed, and have
the requisite power and authorization to own their properties and to carry on
their business as now being conducted. Each of the Company and its Subsidiaries
is duly qualified as a foreign entity to do business and is in good standing in
every jurisdiction in which its ownership of property or the nature of the
business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not have
a Material Adverse Effect. As used in this Agreement, "MATERIAL ADVERSE EFFECT"
means any material adverse effect on the business, properties, assets,
operations, results of operations, condition (financial or otherwise) or
prospects of the Company and its Subsidiaries, taken as a whole, or on the
authority or ability of the Company to perform its obligations under the
Transaction Documents (as defined below). The Company has no Subsidiaries except
as set forth on Schedule 3(a).
(b) Authorization; Enforcement; Validity. The Company has the
requisite corporate power and authority to enter into and perform its
obligations under this Agreement, the Notes, the Additional Investment Rights,
the Registration Rights Agreement, the Security Documents, the Irrevocable
Transfer Agent Instructions (as defined in Section 5(b)), the Negative Pledge
Agreement, and each of the other agreements entered into by the parties hereto
in connection with the transactions contemplated by this Agreement
(collectively, the "TRANSACTION DOCUMENTS") and to issue the Securities in
accordance with the terms hereof and thereof. The execution and delivery of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby, including, without limitation, the
issuance of the Notes and the Additional Investment Rights, the reservation for
issuance and the issuance of the Conversion Shares issuable upon conversion of
the Notes and the granting of a security interest in the Collateral (as defined
in the Security Documents) have been duly authorized by the Company's Board of
Directors and (other than (i) the filing of appropriate UCC financing statements
with the appropriate states and other authorities pursuant to the Pledge and
Security Agreement, and (ii) the filing with the SEC of one or more Registration
Statements in accordance with the requirements of the Registration Rights
Agreement) no further filing, consent, or authorization is required by the
Company, its Board of Directors or its stockholders except as to such filings
the failure of which to timely file would not result in a Material Adverse
Effect. This Agreement and the other Transaction Documents of even date herewith
have been duly executed and delivered by the Company, and constitute the legal,
valid and binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of applicable creditors' rights and
remedies. As of the date of issuance of any Additional Notes, such Additional
Notes shall have been duly executed and delivered by the Company, and shall
constitute the legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of applicable creditor's
rights and remedies.
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(c) Issuance of Securities. The issuance of the Notes and the
Additional Investment Rights are duly authorized and are free from all taxes,
liens and charges with respect to the issue thereof. As of the Closing, a number
of shares of Common Stock shall have been duly authorized and reserved for
issuance which equals 100% of the maximum number of shares of Common Stock
issuable upon conversion of the Notes and 150% of the maximum number of shares
of Common Stock issuable as Interest Shares pursuant to the terms of the Notes.
Upon issuance or conversion in accordance with the Notes, the Interest Shares
and the Conversion Shares, respectively, will be validly issued, fully paid and
nonassessable and free from all preemptive or similar rights, taxes, liens and
charges with respect to the issue thereof, with the holders being entitled to
all rights accorded to a holder of Common Stock. Subject to the accuracy of the
Buyer's representations and warranties, the offer and issuance by the Company of
the Securities is exempt from registration under the 1933 Act.
(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 does not (i) result in a violation
of the Certificate of Incorporation (as defined in Section 3(r)) of the Company
or Bylaws (as defined in Section 3(r)) of the Company or any of its Subsidiaries
or (ii) conflict with, or constitute a default (or an event which 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
agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and the rules and regulations of The Nasdaq SmallCap Market
(the "PRINCIPAL MARKET")) applicable to the Company or any of its Subsidiaries
or by which any property or asset of the Company or any of its Subsidiaries is
bound or affected.
(e) Consents. The Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court,
governmental agency or any regulatory or self-regulatory agency or any other
Person in order for it to execute, deliver or perform any of its obligations
under or contemplated by the Transaction Documents, in each case in accordance
with the terms hereof or thereof. All consents, authorizations, orders, filings
and registrations which the Company is required to obtain pursuant to the
preceding sentence have been obtained or effected on or prior to the Closing
Date, and the Company and its Subsidiaries are unaware of any facts or
circumstances which might prevent the Company from obtaining or effecting any of
the registration, application or filings pursuant to the preceding sentence. The
Company is not in violation of the listing requirements of the Principal Market
and has no knowledge of any facts which would reasonably lead to delisting or
suspension of the Common Stock in the foreseeable future.
(f) Acknowledgment Regarding Buyer's Purchase of Securities. The
Company acknowledges and agrees that each Buyer is acting solely in the capacity
of arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and that, assuming the accuracy of
the Buyer's representations and warranties, no Buyer is (i) an officer or
director of the Company, (ii) an "affiliate" of the Company (as defined in Rule
144) or (iii) to the knowledge of the Company, a "beneficial owner" of more than
10% of the shares of Common Stock (as defined for purposes of Rule 13d-3 of the
Securities Exchange Act of 1934, as amended (the "1934 ACT")). The Company
further acknowledges that no Buyer is acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated hereby and thereby, and any advice
given by a Buyer or any of its representatives or agents in connection with the
Transaction Documents and the transactions contemplated hereby and thereby is
merely incidental to such Buyer's purchase of the Securities.
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(g) No General Solicitation; No Placement Agent's Fees. Neither the
Company, nor any of its affiliates, nor any Person engaged to act on its or
their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D) in connection with the offer or
sale of the Securities. The Company shall be responsible for the payment of any
placement agent's fees, financial advisory fees, or brokers' commissions (other
than for persons engaged by any Buyer or its investment advisor) relating to or
arising out of the transactions contemplated hereby. The Company shall pay, and
hold each Buyer harmless against, any liability, loss or expense (including,
without limitation, reasonable attorney's fees and out-of-pocket expenses)
arising in connection with any such claim. The Company has not engaged any
placement agent or other agent in connection with the sale of the Securities.
(h) No Integrated Offering. None of the Company, its Subsidiaries,
any of their affiliates, and any Person acting on their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation system on
which any of the securities of the Company are listed or designated. None of the
Company, its Subsidiaries, their affiliates and any Person acting on their
behalf will take any action or steps referred to in the preceding sentence that
would require registration of any of the Securities under the 1933 Act or cause
the offering of the Securities to be integrated with other offerings.
(i) Dilutive Effect. The Company understands and acknowledges that
the number of Conversion Shares issuable upon conversion of the Notes may
increase in certain limited specific circumstances set forth in the Notes. The
Company further acknowledges that its obligation to issue Conversion Shares upon
conversion of the Notes in accordance with this Agreement and the Notes is
absolute and unconditional regardless of the dilutive effect that such issuance
may have on the ownership interests of other stockholders of the Company.
(j) Application of Takeover Protections; Rights Agreement. The
Company and its Board of Directors have 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 Certificate of Incorporation
or the laws of the jurisdiction of its formation which is or could become
applicable to any Buyer as a result of the transactions contemplated by this
Agreement, including, without limitation, the Company's issuance of the
Securities and any Buyer's ownership of the Securities. The Company has not
adopted a stockholder rights plan or similar arrangement relating to
accumulations of beneficial ownership of Common Stock or a change in control of
the Company.
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(k) SEC Documents; Financial Statements. During the two (2) years
prior to the date hereof, the Company has filed all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC pursuant
to the reporting requirements of the 1934 Act (all of the foregoing filed prior
to the date hereof and all exhibits included therein and financial statements,
notes and schedules thereto and documents incorporated by reference therein
being hereinafter referred to as the "SEC DOCUMENTS"). The Company has delivered
to the Buyers or their respective representatives true, correct and complete
copies of the SEC Documents not available on the ▇▇▇▇▇ system. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, 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. As of
their respective dates, the financial statements of the Company included in the
SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may 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 its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Buyers which is not
included in the SEC Documents, including, without limitation, information
referred to in Section 2(d) of this Agreement, contains any untrue statement of
a material fact or omits to state any material fact necessary in order to make
the statements therein, in the light of the circumstance under which they are or
were made, not misleading.
(l) Absence of Certain Changes. Except as disclosed in Schedule
3(l), since September 30, 2004, there has been no material adverse change and no
material adverse development in the business, properties, operations, condition
(financial or otherwise), results of operations or prospects of the Company or
its Subsidiaries. Except as disclosed in Schedule 3(l), since September 30,
2004, the Company has not (i) declared or paid any dividends, (ii) sold any
assets, individually or in the aggregate, in excess of $100,000 outside of the
ordinary course of business or (iii) had capital expenditures, individually or
in the aggregate, in excess of $500,000. The Company has not taken any steps to
seek protection pursuant to any bankruptcy law nor does the Company have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings or any actual knowledge of any fact which would
reasonably lead a creditor to do so. The Company is not as of the date hereof,
and after giving effect to the transactions contemplated hereby to occur at the
Closing, will not be Insolvent (as defined below). For purposes of this Section
3(l), "INSOLVENT" means (i) the present fair saleable value of the Company's
assets is less than the amount required to pay the Company's total Indebtedness
(as defined in Section 3(s)), (ii) the Company is unable to pay its debts and
liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured, (iii) the Company intends to incur or
believes that it will incur debts that would be beyond its ability to pay as
such debts mature or (iv) the Company has unreasonably small capital with which
to conduct the business in which it is engaged as such business is now conducted
and is proposed to be conducted.
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(m) No Undisclosed Events, Liabilities, Developments or
Circumstances. No event, liability, development or circumstance has occurred or
exists with respect to the Company or its Subsidiaries or their respective
business, properties, prospects, operations or financial condition, that would
presently be required to be disclosed by the Company under applicable securities
laws on a registration statement on Form S-1 filed with the SEC relating to an
issuance and sale by the Company of its Common Stock and which has not been
publicly announced.
(n) Conduct of Business; Regulatory Permits. Neither the Company nor
its Subsidiaries is in violation of any term of or in default under its
Certificate of Incorporation or Bylaws or their organizational charter or
certificate of incorporation or bylaws, respectively. Neither the Company nor
any of its Subsidiaries is in violation of any judgment, decree or order or any
statute, ordinance, rule or regulation applicable to the Company or its
Subsidiaries, and neither the Company nor any of its Subsidiaries will conduct
its business in violation of any of the foregoing, except for possible or actual
violations which would not, individually or in the aggregate, have a Material
Adverse Effect. Except as disclosed in Schedule 3(n), the Company is not in
violation of any of the rules, regulations or requirements of the Principal
Market and has no knowledge of any facts or circumstances which would reasonably
lead to delisting or suspension of the Common Stock by the Principal Market in
the foreseeable future. Except as disclosed in Schedule 3(n), since December 31,
2003, (i) the Common Stock has been designated for quotation on the Principal
Market, (ii) trading in the Common Stock has not been suspended by the SEC or
the Principal Market and (iii) the Company has received no communication,
written or oral, from the SEC or the Principal Market regarding the suspension
or delisting of the Common Stock from the Principal Market. The Company and its
Subsidiaries possess all certificates, authorizations and permits issued by the
appropriate regulatory authorities necessary to conduct their respective
businesses, except where the failure to possess such certificates,
authorizations or permits would not have, individually or in the aggregate, a
Material Adverse Effect, and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.
(o) Foreign Corrupt Practices. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other Person acting
on behalf of the Company or any of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company (i) used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; (ii) made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds; (iii)
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.
(p) ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act. The Company is in compliance with any and
all applicable requirements of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 that are effective
as of the date hereof, and any and all applicable rules and regulations
promulgated by the SEC thereunder that are effective as of the date hereof,
except where such noncompliance would not have, individually or in the
aggregate, a Material Adverse Effect.
- 11 -
(q) Transactions With Affiliates. Except as set forth in the SEC
Documents filed at least ten days prior to the date hereof and other than the
grant of stock options disclosed on Schedule 3(q), none of the officers,
directors or employees of the Company is presently a party to any transaction
with the Company or any of its Subsidiaries (other than for ordinary course
services as employees, officers or 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 such officer, director or employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any such officer, director, or employee has a substantial interest or is
an officer, director, trustee or partner.
(r) Equity Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of 50,000,000 shares of Common Stock, of
which as of the date hereof, 35,241,405 are issued and outstanding, 7,000,000
shares are reserved for issuance pursuant to the Company's stock option and
purchase plans and 4,904,998 shares are reserved for issuance pursuant to
securities (other than the Notes) exercisable or exchangeable for, or
convertible into, shares of Common Stock. All of such outstanding shares have
been, or upon issuance will be, validly issued and are fully paid and
nonassessable. Except as disclosed in Schedule 3(r): (i) none of the Company's
share capital is subject to preemptive rights or any other similar rights; (ii)
there are no outstanding options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any share capital of the
Company or any of its Subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to issue additional share capital of the Company or any of its
Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any share capital of the
Company or any of its Subsidiaries; (iii) there are no outstanding debt
securities, notes, credit agreements, credit facilities or other agreements,
documents or instruments evidencing Indebtedness of the Company or any of its
Subsidiaries; (iv) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
their securities under the 1933 Act (except the Registration Rights Agreement);
(v) there are no outstanding securities or instruments of the Company or any of
its Subsidiaries which contain any redemption or similar provisions, and there
are no contracts, commitments, understandings or arrangements by which the
Company or any of its Subsidiaries is or may become bound to redeem a security
of the Company or any of its Subsidiaries; (vi) there are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Securities; (vii) the Company does not have any
stock appreciation rights or "phantom stock" plans or agreements or any similar
plan or agreement; and (viii) the Company and its Subsidiaries have no
liabilities or obligations required to be disclosed in the SEC Documents but not
so disclosed in the SEC Documents, other than those incurred in the ordinary
course of the Company's or its Subsidiaries' respective businesses and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect. The Company has furnished to the Buyer true, correct and complete copies
of the Company's Certificate of Incorporation, as amended and as in effect on
the date hereof (the "CERTIFICATE OF INCORPORATION"), and the Company's Bylaws,
as amended and as in effect on the date hereof (the "BYLAWS"), and the terms of
all securities convertible into, or exercisable or exchangeable for, shares of
Common Stock and the material rights of the holders thereof in respect thereto.
- 12 -
(s) Indebtedness and Other Contracts. Except as disclosed in
Schedule 3(s), neither the Company nor any of its Subsidiaries (i) has any
outstanding Indebtedness (as defined below), (ii) is a party to any contract,
agreement or instrument, the violation of which, or default under which, by the
other party(ies) to such contract, agreement or instrument would result in a
Material Adverse Effect, (iii) is in violation of any term of or in default
under any contract, agreement or instrument relating to any Indebtedness, except
where such violations and defaults would not result, individually or in the
aggregate, in a Material Adverse Effect, or (iv) is a party to any contract,
agreement or instrument relating to any Indebtedness, the performance of which,
in the judgment of the Company's officers, has or is expected to have a Material
Adverse Effect. For purposes of this Agreement: (x) "INDEBTEDNESS" of any Person
means, without duplication (A) all indebtedness for borrowed money, (B) all
obligations issued, undertaken or assumed as the deferred purchase price of
property or services (other than trade payables entered into in the ordinary
course of business), (C) all reimbursement or payment obligations with respect
to letters of credit, surety bonds and other similar instruments, (D) all
obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses, (E) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (F) all monetary obligations under any
leasing or similar arrangement which, in connection with generally accepted
accounting principles, consistently applied for the periods covered thereby, is
classified as a capital lease, (G) all indebtedness referred to in clauses (A)
through (F) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any mortgage,
lien, pledge, charge, security interest or other encumbrance upon or in any
property or assets (including accounts and contract rights) owned by any Person,
even though the Person which owns such assets or property has not assumed or
become liable for the payment of such indebtedness, and (H) all Contingent
Obligations in respect of indebtedness or obligations of others of the kinds
referred to in clauses (A) through (G) above; (y) "CONTINGENT OBLIGATION" means,
as to any Person, any direct or indirect liability, contingent or otherwise, of
that Person with respect to any indebtedness, lease, dividend or other
obligation of another Person if the primary purpose or intent of the Person
incurring such liability, or the primary effect thereof, is to provide assurance
to the obligee of such liability that such liability will be paid or discharged,
or that any agreements relating thereto will be complied with, or that the
holders of such liability will be protected (in whole or in part) against loss
with respect thereto; and (z) "PERSON" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
(t) Absence of Litigation. There is no material action, suit,
proceeding, inquiry or investigation before or by the Principal Market, any
court, public board, government agency, self-regulatory organization or body
pending or, to the knowledge of the Company, threatened against or affecting the
Company, the Common Stock or any of the Company's Subsidiaries or any of the
Company's or the Company's Subsidiaries' officers or directors in their
capacities as such, except as set forth in Schedule 3(t).
- 13 -
(u) Insurance. The Company and each of its Subsidiaries are insured
by insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent in the
businesses in which the Company and its Subsidiaries are engaged. Neither the
Company nor any such Subsidiary has been refused any insurance coverage sought
or applied for and neither the Company nor any such Subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a cost that would not have a
Material Adverse Effect.
(v) Employee Relations. (i) Except as disclosed in Schedule 3(v),
neither the Company nor any of its Subsidiaries is a party to any collective
bargaining agreement or, to the Company's knowledge, employs any member of a
union. The Company and its Subsidiaries believe that their relations with their
employees are good. Except as disclosed in Schedule 3(v), no executive officer
of the Company (as defined in Rule 501(f) of the ▇▇▇▇ ▇▇▇) has notified the
Company that such officer intends to leave the Company or otherwise terminate
such officer's employment with the Company. No executive officer of the Company,
to the knowledge of the Company, is, or is now expected to be, in violation of
any material term of any employment contract, confidentiality, disclosure or
proprietary information agreement, non-competition agreement, or any other
contract or agreement or any restrictive covenant, and the continued employment
of each such executive officer does not subject the Company or any of its
Subsidiaries to any liability with respect to any of the foregoing matters.
(ii) Except as disclosed in SCHEDULE 3(V), the Company and its
Subsidiaries are in compliance with all federal, state, local and foreign laws
and regulations respecting labor, employment and employment practices and
benefits, terms and conditions of employment and wages and hours, except where
failure to be in compliance would not, either individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
(w) Title. Except as disclosed in Schedule 3(w), the Company and its
Subsidiaries have good and marketable title in fee simple to all real property
and good and marketable title to all personal property owned by them which is
material to the business of the Company and its Subsidiaries, in each case free
and clear of all liens, encumbrances and defects except such as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company and any of its
Subsidiaries. Any real property and facilities held under lease by the Company
and any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
(x) Intellectual Property Rights. To the Company's knowledge, the
Company and its Subsidiaries own or possess adequate rights or licenses to use
all the trademarks, trade names, service marks, service ▇▇▇▇ registrations,
service names, patents, patent rights, copyrights, inventions, licenses,
approvals, governmental authorizations, trade secrets and other intellectual
property rights ("INTELLECTUAL PROPERTY RIGHTS") necessary to conduct their
respective businesses as now conducted. Except as set forth in Schedule 3(x),
none of the Company's Intellectual Property Rights have expired or terminated,
or are expected to expire or terminate, within three years from the date of this
Agreement. The Company does not have any knowledge of any infringement by the
Company or its Subsidiaries of Intellectual Property Rights of others. There is
no claim, action or proceeding being made or brought, or to the knowledge of the
Company, being threatened, against the Company or its Subsidiaries regarding its
Intellectual Property Rights. The Company is unaware of any facts or
circumstances that might give rise to any of the foregoing infringements or
claims, actions or proceedings. The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of all of their intellectual properties.
- 14 -
(y) Environmental Laws. Except as disclosed in Schedule 3(y), the
Company and its Subsidiaries (i) are in compliance with any and all
Environmental Laws (as hereinafter defined), (ii) have received all permits,
licenses or other approvals required of them under applicable Environmental Laws
to conduct their respective businesses and (iii) are in compliance with all
terms and conditions of any such permit, license or approval where, in each of
the foregoing clauses (i), (ii) and (iii), the failure to so comply could be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect. The term "ENVIRONMENTAL LAWS" means all federal, state, local or
foreign laws relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes
(collectively, "HAZARDOUS MATERIALS") into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
(z) Subsidiary Rights. Except as set forth in Schedule 3(z), the
Company or one of its Subsidiaries has the unrestricted right to vote, and
(subject to limitations imposed by applicable law) to receive dividends and
distributions on, all capital securities of its Subsidiaries as owned by the
Company or such Subsidiary.
(aa) Tax Status. Except as disclosed in Schedule 3(aa), the Company
and each of its Subsidiaries (i) has made or filed all foreign, federal and
state income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject, (ii) has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and (iii) has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any such
claim.
(bb) Internal Accounting Controls. Except as set forth on Schedule
(bb), The Company and each of its 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 and liability accountability, (iii)
access to assets or incurrence of liabilities is permitted only in accordance
with management's general or specific authorization and (iv) the recorded
accountability for assets and liabilities is compared with the existing assets
and liabilities at reasonable intervals and appropriate action is taken with
respect to any difference.
- 15 -
(cc) Ranking of Notes. Except as set forth on Schedule (cc), no
Indebtedness of the Company is senior to or ranks pari passu with the Notes in
right of payment, whether with respect of payment of redemptions, interest,
damages or upon liquidation or dissolution or otherwise.
(dd) Form S-3 Eligibility. The Company is eligible to register the
Conversion Shares and the Interest Shares for resale by the Buyers using Form
S-3 promulgated under the 1933 Act.
(ee) Manipulation of Price. Since December 31, 2003, the Company has
not, and to its knowledge no one acting on its behalf has, (i) taken, directly
or indirectly, any action designed to cause or to result in the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any
compensation for soliciting purchases of, any of the Securities, or (iii) paid
or agreed to pay to any person any compensation for soliciting another to
purchase any other securities of the Company.
(ff) Disclosure. The Company confirms that neither it nor any other
Person acting on its behalf has provided any of the Buyers or their agents or
counsel with any information that constitutes or could reasonably be expected to
constitute material, nonpublic information other than the existence and
negotiations with respect to the transactions contemplated by the Transaction
Documents. The Company understands and confirms that each of the Buyers will
rely on the foregoing representations in effecting transactions in securities of
the Company. All disclosure provided to the Buyers regarding the Company, its
business and the transactions contemplated hereby, including the Schedules to
this Agreement, furnished by or on behalf of the Company is true and correct and
does 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. The press
releases issued by the Company during the twelve (12) months preceding the date
of this Agreement did not at the time of release 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 are made, not misleading. No event or
circumstance has occurred or information exists with respect to the Company or
any of its Subsidiaries or its or their business, properties, prospects,
operations or financial conditions, which, under applicable law, rule or
regulation, requires public disclosure or announcement by the Company but which
has not been so publicly announced or disclosed.
4. COVENANTS.
(a) Best Efforts. Each party shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.
- 16 -
(b) Form D and Blue Sky. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for or to qualify the
Securities for sale to the Buyers at the Closing pursuant to this Agreement
under applicable securities or "Blue Sky" laws (or to obtain an exemption from
such qualification), and shall provide evidence of any such action so taken to
the Buyers on or prior to the Closing Date. To facilitate such filings, the
Buyers shall each provide the Company with such information as they reasonably
may request. The Company shall make all filings and reports relating to the
offer and sale of the Securities required under applicable securities or "Blue
Sky" laws following the Closing Date.
(c) Reporting Status. Until the date on which the Investors (as
defined in the Registration Rights Agreement) shall have sold all the Conversion
Shares and the Interest Shares and none of the Notes or the Additional
Investment Rights is outstanding (the "REPORTING PERIOD"), the Company shall
file all reports required to be filed with the SEC pursuant to the 1934 Act, and
the Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would otherwise permit such termination.
(d) Use of Proceeds. The Company will use the proceeds from the sale
of the Securities for working capital purposes and not for the (i) repayment of
any outstanding Indebtedness of the Company or any of its Subsidiaries (other
than trade payables incurred in the ordinary course of business) or (ii)
redemption or repurchase of any of its equity securities.
(e) Financial Information. The Company agrees to send the following
to each Investor during the Reporting Period (i) unless the following are filed
with the SEC through ▇▇▇▇▇ and are available to the public through the ▇▇▇▇▇
system, within one (1) Business Day after the filing thereof with the SEC, a
copy of its Annual Reports on Form 10-K or 10-KSB, any interim reports or any
consolidated balance sheets, income statements, stockholders' equity statements
and/or cash flow statements for any period other than annual, any Current
Reports on Form 8-K and any registration statements (other than on Form S-8) or
amendments filed pursuant to the 1933 Act, (ii) on the same day as the release
thereof, facsimile copies of all press releases issued by the Company or any of
its Subsidiaries, and (iii) copies of any notices and other information made
available or given to the stockholders of the Company generally,
contemporaneously with the making available or giving thereof to the
stockholders.
(f) Listing. The Company shall promptly secure the listing of all of
the Registrable Securities (as defined in the Registration Rights Agreement)
upon each national securities exchange and automated quotation system, if any,
upon which the Common Stock is then listed (subject to official notice of
issuance) and shall use its reasonable best efforts to maintain such listing of
all Registrable Securities from time to time issuable under the terms of the
Transaction Documents. The Company shall maintain the Common Stocks'
authorization for quotation on the Principal Market. Neither the Company nor any
of its Subsidiaries shall take any action which would be reasonably expected to
result in the delisting or suspension of the Common Stock on the Principal
Market. The Company shall pay all fees and expenses in connection with
satisfying its obligations under this Section 4(f).
- 17 -
(g) Fees. Subject to Section 8 below, at the Closing, the Company
shall pay an expense allowance of up to $100,000 in reasonable fees to Portside
Growth & Opportunity Fund (a Buyer) or its designee(s) (in addition to any other
expense amounts paid to any Buyer prior to the date of this Agreement), which
amount shall be withheld by such Buyer from its Purchase Price at the Closing.
The Company shall be responsible for the payment of any placement agent's fees,
financial advisory fees, or broker's commissions (other than for Persons engaged
by any Buyer) relating to or arising out of the transactions contemplated
hereby. The Company shall pay, and hold each Buyer harmless against, any
liability, loss or expense (including, without limitation, reasonable attorney's
fees and out-of-pocket expenses) arising in connection with any claim relating
to any such payment. Except as otherwise set forth in the Transaction Documents,
each party to this Agreement shall bear its own expenses in connection with the
sale of the Securities to the Buyers.
(h) Pledge of Securities. The Company acknowledges and agrees that
the Securities may be pledged by an Investor (as defined in the Registration
Rights Agreement) in connection with a bona fide margin agreement or other loan
or financing arrangement that is secured by the Securities. The initiation of
such a pledge of Securities shall not be deemed to be a transfer, sale or
assignment of the Securities hereunder, and no Investor effecting a pledge of
Securities shall be required to provide the Company with any notice thereof or
otherwise make any delivery to the Company pursuant to this Agreement or any
other Transaction Document, including, without limitation, Section 2(f) hereof;
provided that an Investor and its pledgee shall be required to comply with the
provisions of Section 2(f) hereof in order to effect a sale, transfer or
assignment of Securities to such pledgee. At the appropriate Buyer's expense,
the Company hereby agrees to execute and deliver such documentation as a pledgee
of the Securities may reasonably request in connection with a pledge of the
Securities to such pledgee.
(i) Disclosure of Transactions and Other Material Information. On or
before 8:30 a.m., New York Time, on December 6, 2004, the Company shall file a
Current Report on Form 8-K describing the terms of the transactions contemplated
by the Transaction Documents in the form required by the 1934 Act and attaching
the material Transaction Documents (including, without limitation, this
Agreement (and all schedules to this Agreement), the form of each of the Notes,
the form of Additional Investment Right, the Registration Rights Agreement and
the Security Documents) as exhibits to such filing (including all attachments,
the "8-K FILING"). From and after the filing of the 8-K Filing with the SEC, no
Buyer shall be in possession of any material, nonpublic information received
from the Company, any of its Subsidiaries or any of its respective officers,
directors, employees or agents, that is not disclosed in the 8-K Filing. 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
Buyer with any material, nonpublic information regarding the Company or any of
its Subsidiaries from and after the filing of the 8-K Filing with the SEC
without the express written consent of such Buyer; provided, further, that the
Company shall not be deemed to be in breach of Section 4(i) if the Company
delivers to Legal Counsel (as defined in the Registration Rights Agreement) any
information pursuant to the terms of any of the Transaction Documents and such
information is deemed by the Company to be material, nonpublic information.
Subject to the foregoing, neither the Company nor any Buyer 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 Buyer, 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 Buyer shall be consulted by the Company in connection with any such
press release or other public disclosure prior to its release).
- 18 -
(j) Restriction on Redemption and Cash Dividends. So long as any
Notes or Additional Investment Rights are outstanding, the Company shall not,
directly or indirectly, redeem, or declare or pay any cash dividend or
distribution on, the Common Stock without the prior express written consent of
the holders of Notes representing not less than a majority of the aggregate
principal amount of the then outstanding Notes.
(k) Additional Notes; Variable Securities. So long as any Buyer
beneficially owns any Securities, the Company will not issue any Notes other
than to the Buyers as contemplated hereby and the Company shall not issue any
other securities that would cause a breach or default under the Notes. For so
long as any Notes or Additional Investment Rights remain outstanding, the
Company shall not, in any manner, issue or sell any Common Stock Equivalents
(other than Common Stock Equivalents issued at or above the market price of the
Common Stock at the time of payment solely as interest or dividends on other
Common Stock Equivalents) with a conversion, exchange or exercise price which is
not fixed at the time of issuance or sale (or which may contain one or more
resets); provided, however, that the foregoing shall not restrict the Company
from issuing Common Stock Equivalents with a fixed conversion, exchange or
exercise price.
(l) Corporate Existence. So long as any Buyer beneficially owns any
Securities, the Company shall not be party to any Fundamental Transaction (as
defined in the Notes) unless the Company is in compliance with the applicable
provisions governing Fundamental Transactions set forth in the Notes and the
Additional Investment Rights.
(m) Reservation of Shares. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, after the Closing Date, 150% of the number of Interest Shares issuable
pursuant to the terms of the Notes and 100% of the shares of Common Stock
issuable upon conversion of all of the Notes (including the Additional Notes).
(n) Conduct of Business. The business of the Company and its
Subsidiaries shall not be conducted in violation of any law, ordinance or
regulation of any governmental entity, except where such violations would not
result, either individually or in the aggregate, in a Material Adverse Effect.
(o) Right of Participation in Additional Issuances of Securities.
(i) For purposes of this Section 4(o), the following
definitions shall apply.
(1) "CONVERTIBLE SECURITIES" means any stock or securities
(other than Options) convertible into or exercisable or exchangeable for shares
of Common Stock.
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(2) "OPTIONS" means any rights, warrants or options to
subscribe for or purchase shares of Common Stock or Convertible Securities.
(3) "COMMON STOCK EQUIVALENTS" means, collectively, Options
and Convertible Securities.
(ii) From the date hereof until the date that is 75 Trading
Days (as defined in the Notes) following the Effective Date (as defined in the
Registration Rights Agreement) (the "TRIGGER DATE"), the Company will not,
directly or indirectly, offer, sell, grant any option to purchase, or otherwise
dispose of (or announce any offer, sale, grant or any option to purchase or
other disposition of) any of its or its Subsidiaries' equity or equity
equivalent securities, including without limitation any debt, preferred stock or
other instrument or security that is, at any time during its life and under any
circumstances, convertible into or exchangeable or exercisable for shares of
Common Stock or Common Stock Equivalents (any such offer, sale, grant,
disposition or announcement being referred to as a "SUBSEQUENT PLACEMENT").
Notwithstanding the foregoing, a Subsequent Placement shall not include a
universal shelf registration statement that does not include any selling
securityholders filed by the Company no earlier than the registration statement
required to be filed pursuant to the Registration Rights Agreement so long as no
sales are made off such universal shelf registration statement.
(iii) From the Trigger Date until the earlier of (A) the two
(2) year anniversary thereof and (B) the date as of which each Holder no longer
holds any Notes or Additional Investment Rights , the Company will not, directly
or indirectly, effect any Subsequent Placement unless the Company shall have
first complied with this Section 4(o)(iii).
(1) The Company shall deliver to each Buyer a written notice
(the "OFFER NOTICE") of any proposed or intended issuance or sale or
exchange (the "OFFER") of the securities being offered (the "OFFERED
SECURITIES") in a Subsequent Placement, which Offer Notice shall (w)
identify and describe the Offered Securities, (x) describe the price
and other terms upon which they are to be issued, sold or exchanged,
and the number or amount of the Offered Securities to be issued,
sold or exchanged, (y) identify the persons or entities (if known)
to which or with which the Offered Securities are to be offered,
issued, sold or exchanged and (z) offer to issue and sell to or
exchange with such Buyers a pro rata portion of 30% of the Offered
Securities allocated among such Buyers (a) based on such Buyer's pro
rata portion of the aggregate principal amount of Notes purchased
hereunder (the "BASIC AMOUNT"), and (b) with respect to each Buyer
that elects to purchase its Basic Amount, any additional portion of
the Offered Securities attributable to the Basic Amounts of other
Buyers as such Buyer shall indicate it will purchase or acquire
should the other Buyers subscribe for less than their Basic Amounts
(the "UNDERSUBSCRIPTION AMOUNT").
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(2) To accept an Offer, in whole or in part, such Buyer must
deliver a written notice to the Company prior to the end of the
fifth (5th) Business Day after such Buyer's receipt of the Offer
Notice (the "OFFER PERIOD"), setting forth the portion of such
Buyer's Basic Amount that such Buyer elects to purchase and, if such
Buyer shall elect to purchase all of its Basic Amount, the
Undersubscription Amount, if any, that such Buyer elects to purchase
(in either case, the "NOTICE OF ACCEPTANCE"). If the Basic Amounts
subscribed for by all Buyers are less than the total of all of the
Basic Amounts, then each Buyer who has set forth an
Undersubscription Amount in its Notice of Acceptance shall be
entitled to purchase, in addition to the Basic Amounts subscribed
for, the Undersubscription Amount it has subscribed for; PROVIDED,
HOWEVER, that if the Undersubscription Amounts subscribed for exceed
the difference between the total of all the Basic Amounts and the
Basic Amounts subscribed for (the "AVAILABLE UNDERSUBSCRIPTION
AMOUNT"), each Buyer who has subscribed for any Undersubscription
Amount shall be entitled to purchase only that portion of the
Available Undersubscription Amount as the Basic Amount of such Buyer
bears to the total Basic Amounts of all Buyers that have subscribed
for Undersubscription Amounts, subject to rounding by the Company to
the extent its deems reasonably necessary.
(3) The Company shall have ten (10) Business Days from the
expiration of the Offer Period above to offer, issue, sell or
exchange all or any part of such Offered Securities as to which a
Notice of Acceptance has not been given by the Buyers (the "REFUSED
SECURITIES"), but only upon terms and conditions (including, without
limitation, unit prices and interest rates) that are not more
favorable to the acquiring person or persons or less favorable to
the Company than those set forth in the Offer Notice.
(4) In the event the Company shall propose to sell less than
all the Refused Securities (any such sale to be in the manner and on
the terms specified in Section 4(o)(iii)(3) above), then each Buyer
may, at its sole option and in its sole discretion, reduce the
number or amount of the Offered Securities specified in its Notice
of Acceptance to an amount that shall be not less than the number or
amount of the Offered Securities that such Buyer elected to purchase
pursuant to Section 4(o)(iii)(2) above multiplied by a fraction, (i)
the numerator of which shall be the number or amount of Offered
Securities the Company actually proposes to issue, sell or exchange
(including Offered Securities to be issued or sold to Buyers
pursuant to Section 4(o)(iii)(3) above prior to such reduction) and
(ii) the denominator of which shall be the original amount of the
Offered Securities. In the event that any Buyer so elects to reduce
the number or amount of Offered Securities specified in its Notice
of Acceptance, the Company may not issue, sell or exchange more than
the reduced number or amount of the Offered Securities unless and
until such securities have again been offered to the Buyers in
accordance with Section 4(o)(iii)(1) above.
(5) Upon the closing of the issuance, sale or exchange of all
or less than all of the Refused Securities, the Buyers shall acquire
from the Company, and the Company shall issue to the Buyers, the
number or amount of Offered Securities specified in the Notices of
Acceptance, as reduced pursuant to Section 4(o)(iii)(3) above if the
Buyers have so elected, upon the terms and conditions specified in
the Offer. The purchase by the Buyers of any Offered Securities is
subject in all cases to the preparation, execution and delivery by
the Company and the Buyers of a purchase agreement relating to such
Offered Securities reasonably satisfactory in form and substance to
the Buyers and their respective counsel.
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(6) Any Offered Securities not acquired by the Buyers or other
persons in accordance with Section 4(o)(iii)(3) above may not be
issued, sold or exchanged until they are again offered to the Buyers
under the procedures specified in this Agreement.
(iv) The restrictions contained in subsections (ii) and (iii)
of this Section 4(o) shall not apply in connection with the issuance of any
Excluded Securities (as defined in the Notes). Each Buyer, as a condition to its
receipt of any bona fide Offer Notice delivered by the Company in good faith,
hereby agrees that from the date of such Offer Notice through the first to occur
of (x) the closing of the Subsequent Placement described therein is publicly
disclosed, (y) the Subsequent Placement is abandoned and (z) the 20th Business
Day following the Offering Period, such Buyer shall not trade in Securities of
the Company, provided, that in the case of abandonment of the Subsequent
Placement, the Company shall give prompt notice of such abandonment to each
Buyer.
(p) Sales by Officers and Directors. Until the later of (i) the
Trigger Date and (ii) 180 Trading Days after the Closing Date, the Company shall
not, directly or indirectly, permit any officer or director of the Company or
any of its Subsidiaries to sell any Common Stock pursuant to a contract,
instruction or plan in accordance with Rule 10b5-1 of the Exchange Act.
(q) Employee Discounts. The Company agrees to make available to each
Buyer and to allow such Buyer (including only executive officers of such Buyer)
to participate in any employee purchase programs, including, without limitation,
programs providing discounts on the purchase of televisions, monitors and
similar products, on the same terms and conditions as that of the Company's
employees.
(r) SpatiaLight of California, Inc. The Company agrees to transfer
any patents or trademarks that are listed in the name of SpatiaLight of
California, Inc. in the patent and trademark office to the name of the Company
as soon as practicable, but in no event later than 120 days after the Closing
Date.
(s) Post-Closing Deliveries. On or before December 4, 2004, the
Company shall cause its Korean counsel to deliver to the Buyers a legal opinion
in the form attached hereto as Exhibit M. On or before December 9, 2004, the
Company shall deliver to the Collateral Agent (as defined in the Pledge and
Security Agreement) share certificates representing 65% of the common stock of
SpatiaLight Korea, Inc. pursuant to the terms of that certain Korean Pledge
Agreement, dated as of the date hereof by and among SpatiaLight Korea, Inc., the
Company and the Buyers.
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5. REGISTER; TRANSFER AGENT INSTRUCTIONS.
(a) Register. The Company shall maintain at its principal executive
offices (or such other office or agency of the Company as it may designate by
notice to each holder of Securities), a register for the Notes and the
Additional Investment Rights, in which the Company shall record the name and
address of the Person in whose name the Notes and Additional Investment Rights
have been issued (including the name and address of each transferee), the
principal amount of Notes held by such Person, the number of Interest Shares
issuable pursuant to the terms of the Notes, Conversion Shares issuable upon
conversion of the Notes held by such Person. The Company shall keep the register
open and available at all times during business hours for inspection of any
Buyer or its legal representatives, provided, that access shall not include
material non-public information.
(b) Transfer Agent Instructions. The Company shall issue irrevocable
instructions to its transfer agent, and any subsequent transfer agent, to issue
certificates or credit shares to the applicable balance accounts at The
Depository Trust Company ("DTC"), registered in the name of each Buyer or its
respective nominee(s), for the Conversion Shares, the Interest Shares, if any,
and upon conversion of the Notes in such amounts as specified from time to time
by each Buyer to the Company upon conversion of the Notes in the form of Exhibit
G attached hereto (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5(b), and stop transfer instructions to
give effect to Section 2(g) hereof, will be given by the Company to its transfer
agent, and that the Securities shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this Agreement
and the other Transaction Documents. If a Buyer effects a sale, assignment or
transfer of the Securities in accordance with Section 2(f), the Company shall
permit the transfer and shall promptly instruct its transfer agent to issue one
or more certificates or credit shares to the applicable balance accounts at DTC
in such name and in such denominations as specified by such Buyer to effect such
sale, transfer or assignment. In the event that such sale, assignment or
transfer involves Conversion Shares or Interest Shares sold, assigned or
transferred pursuant to an effective registration statement or pursuant to Rule
144, the Company shall use its best efforts to ensure that the transfer agent
issues such Securities to the Buyer, assignee or transferee, as the case may be,
without any restrictive legend. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to a Buyer. Accordingly,
the Company acknowledges that the remedy at law for a breach of its obligations
under this Section 5(b) will be inadequate and agrees, in the event of a breach
or threatened breach by the Company of the provisions of this Section 5(b), that
a Buyer shall be entitled, in addition to all other available remedies, to an
order and/or 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.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of the
Company hereunder to issue and sell the Notes and the related Additional
Investment Rights to each Buyer at the Closing is subject to the satisfaction,
at or before the Closing Date, of each of the following conditions, provided
that these conditions are for the Company's sole benefit and may be waived by
the Company at any time in its sole discretion by providing each Buyer with
prior written notice thereof:
(a) Such Buyer shall have executed each of the Transaction Documents
to which it is a party and delivered the same to the Company.
(b) Such Buyer and each other Buyer shall have delivered to the
Company the Purchase Price (less, in the case of Portside Growth & Opportunity
Fund, the amounts withheld pursuant to Section 4(g)) for the Notes and
Additional Investment Rights being purchased by such Buyer at the Closing by
wire transfer of immediately available funds pursuant to the wire instructions
provided by the Company.
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(c) The representations and warranties of such Buyer shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and such Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Buyer at or prior to the Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The obligation of
each Buyer hereunder to purchase the Notes and Additional Investment Rights at
the Closing is subject to the satisfaction, at or before the Closing Date, of
each of the following conditions, provided that these conditions are for each
Buyer's sole benefit and may be waived by such Buyer at any time in its sole
discretion by providing the Company with prior written notice thereof:
(a) The Company and, to the extent it is a party thereto, each of
its Subsidiaries, shall have executed and delivered to such Buyer (i) each of
the Transaction Documents, (ii) the Initial Notes (in such principal amounts as
such Buyer shall request) being purchased by such Buyer at the Closing pursuant
to this Agreement, and (iii) the Additional Investment Rights (in such amounts
as such Buyer shall request) being purchased by such Buyer at the Closing
pursuant to this Agreement.
(b) The Company shall have delivered to such Buyer a copy of the
Irrevocable Transfer Agent Instructions, in the form of Exhibit G attached
hereto, which instructions shall have been delivered to the Company's transfer
agent.
(c) Such Buyer shall have received the opinions of ▇▇▇▇▇ ▇▇▇▇ LLP,
the Company's outside counsel, dated as of the Closing Date, in substantially
the form of Exhibits H attached hereto.
(d) The Company shall have delivered to such Buyer a certificate
evidencing the formation and good standing of the Company and each of its
Subsidiaries, in such entity's jurisdiction of formation issued by the Secretary
of State (or comparable office) of such jurisdiction, as of a date within 10
days of the Closing Date.
(e) The Company shall have delivered to such Buyer a certificate
evidencing the Company's qualification as a foreign corporation and good
standing issued by the Secretary of State (or comparable office) of each
jurisdiction in which the Company conducts business, as of a date within 10 days
of the Closing Date.
(f) The Company shall have delivered to such Buyer a certified copy
of the Certificate of Incorporation as certified by the Secretary of State of
the State of New York.
(g) The Company shall have delivered to such Buyer a certificate,
executed by the Secretary of the Company and dated as of the Closing Date, as to
(i) the resolutions consistent with Section 3(b) as adopted by the Company's
Board of Directors in a form reasonably acceptable to such Buyer, (ii) the
Certificate of Incorporation and (iii) the Bylaws, each as in effect at the
Closing, in the form attached hereto as Exhibit I.
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(h) The representations and warranties of the Company shall be true
and correct as of the date when made and as of the Closing Date as though made
at that time (except for representations and warranties that speak as of a
specific date) and the Company shall have performed, satisfied and complied in
all respects 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 the Closing Date. Such Buyer shall have received a certificate,
executed by the Chief Executive Officer of the Company, dated as of the Closing
Date, to the foregoing effect and as to such other matters as may be reasonably
requested by such Buyer in the form attached hereto as Exhibit J.
(i) The Company shall have delivered to such Buyer a letter from the
Company's transfer agent certifying the number of shares of Common Stock
outstanding as of a date within five (5) days of the Closing Date.
(j) The Common Stock (i) shall be designated for quotation or listed
on the Principal Market and (ii) shall not have been suspended, as of the
Closing Date, by the SEC or the Principal Market from trading on the Principal
Market nor shall suspension by the SEC or the Principal Market have been
threatened, as of the Closing Date, either (1) in writing by the SEC or the
Principal Market or (2) by falling below the minimum listing maintenance
requirements of the Principal Market.
(k) The Company shall have obtained all governmental, regulatory or
third party consents and approvals, if any, necessary for the sale of the
Securities.
(l) In accordance with the terms of the Security Documents, the
Company and each of its Subsidiaries shall have delivered to the Agent (as
defined in the Pledge and Security Agreement) certificates representing all of
the Subsidiaries' outstanding shares of capital stock (except for the shares of
capital stock of SpatiaLight Korea, Inc., which shall be uncertificated and
shall be 65% of such outstanding shares), along with duly executed blank stock
powers. Within six (6) Business Days prior to the Closing, the Company shall
have delivered or caused to be delivered to each Buyer (A) certified copies of
UCC financing statement (or their equivalent in any foreign jurisdictions)
search results listing any and all effective financing statements in any
applicable jurisdiction that name the Company or any of its Subsidiaries
(including, without limitation, SpatiaLight Korea, Inc.) as a debtor to perfect
an interest in any of the assets thereof, together with copies of such financing
statements, none of which financing statements, except for any financing
statements filed with respect to the Argyle Notes (as hereinafter defined) and
as otherwise agreed to in writing by the Buyers, shall cover any of the
"COLLATERAL" (as defined in the Security Documents), and the results of searches
for any effective tax liens and judgment liens filed against any such Person or
its property in any applicable jurisdiction, which results, except as otherwise
agreed to in writing by the Buyers, shall not show any such effective tax liens
and judgment liens; and (B) a perfection certificate, duly completed and
executed by the Company and each of its Subsidiaries (including, without
limitation, SpatiaLight Korea, Inc.), in form and substance satisfactory to the
Buyers.
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(m) The Convertible Notes issued by the Company to Argyle Capital
Management Corporation (collectively, the "ARGYLE NOTES"), which are secured by
a Lien on substantially all of the assets of the Company, shall subordinated in
right of payment to the full payment of the Notes pursuant to the terms of the
Intercreditor and Subordination Agreement, duly executed and delivered Argyle
Capital Management Corporation in the form of Exhibit G annexed hereto (as
amended or modified from time to time, the "ARGYLE SUBORDINATION AGREEMENT"),
between the Senior Agent and Argyle Capital Management Corporation, with all
Liens securing the Argyle Notes subordinated in priority to the Liens securing
the Notes, pursuant to the terms of the Argyle Subordination Agreement. The
execution and delivery of the Argyle Subordination Agreement and the Pledge and
Security Agreement by the Senior Agent in the name and on behalf of the Buyers
is herby authorized and approved by the Buyers. All other Indebtedness of the
Company, other than the Permitted Bank Debt, shall be subordinated to the Notes
upon terms and conditions satisfactory to the Buyers.
(n) The Company shall have entered into an irrevocable commitment
letter from its CEO, ▇▇▇▇▇▇ ▇▇▇▇▇, and a Company stockholder, Greenpark Limited
in substantially the form attached hereto as Exhibit K.
(o) The Company shall have caused SpatiaLight Korea, Inc., to
execute and deliver the letter agreement in favor of the Buyers, in the form of
Exhibit L annexed hereto (the "NEGATIVE PLEDGE AGREEMENT").
(p) The Company shall have delivered to such Buyer such other
documents relating to the transactions contemplated by this Agreement as such
Buyer or its counsel may reasonably request in writing.
8. TERMINATION. In the event that the Closing shall not have occurred with
respect to a Buyer on or before five (5) Business Days from the date hereof due
to the Company's or such Buyer's failure to satisfy the conditions set forth in
Sections 6 and 7 above (and the nonbreaching party's failure to waive such
unsatisfied condition(s)), the nonbreaching party shall have the option to
terminate this Agreement with respect to such breaching party at the close of
business on such date without liability of any party to any other party;
provided, HOWEVER, this if this Agreement is terminated pursuant to this Section
8, the Company shall remain obligated to reimburse the non-breaching Buyers for
the expenses described in Section 4(g) above.
9. MISCELLANEOUS.
(a) Governing Law; Jurisdiction; Jury Trial. All questions
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by the internal laws of the State of New York,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York or any other jurisdictions) that would cause
the application of the laws of any jurisdictions other than the State of New
York. Each party hereby irrevocably submits to the exclusive jurisdiction of the
state and federal courts sitting in The City of New York, Borough of Manhattan,
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such 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 HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
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(b) Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which 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; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
(c) Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
(d) Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
(e) Entire Agreement; Amendments. This Agreement supersedes all
other prior oral or written agreements between the Buyers, the Company, their
affiliates and Persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended or waived other than by an instrument in writing signed
by the Company and the holders of at least a majority of the aggregate number of
Registrable Securities issued and issuable hereunder, and any amendment to this
Agreement made in conformity with the provisions of this Section 9(e) shall be
binding on all Buyers and holders of Securities, as applicable. No provision
hereof may be waived other than by an instrument in writing signed by the party
against whom enforcement is sought. No such amendment or waiver shall be
effective to the extent that it applies to less than all of the holders of the
applicable Securities then outstanding. No consideration shall be offered or
paid to any Person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration also
is offered to all of the parties to the Transaction Documents, holders of Notes
or holders of the Additional Investment Rights, as the case may be. The Company
has not, directly or indirectly, made any agreements with any Buyers relating to
the terms or conditions of the transactions contemplated by the Transaction
Documents except as set forth in the Transaction Documents.
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(f) Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one Business Day after deposit with
an overnight courier service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company:
SpatiaLight, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Copy to:
▇▇▇▇▇ ▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile:
Attention: ▇▇▇▇▇▇ ▇▇▇▇, Esq.
If to a Buyer, to its address and facsimile number set forth on the Schedule of
Buyers, with copies to such Buyer's representatives as set forth on the Schedule
of Buyers,
with a copy (for informational purposes only) to:
▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
or to such other address and/or facsimile number and/or to the attention of such
other Person as the recipient party has specified by written notice given to
each other party five (5) days prior to the effectiveness of such change.
Written confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or electronically
generated by the sender's facsimile machine containing the time, date, recipient
facsimile number and an image of the first page of such transmission or (C)
provided by an overnight courier service shall be rebuttable evidence of
personal service, receipt by facsimile or receipt from an overnight courier
service in accordance with clause (i), (ii) or (iii) above, respectively.
- 28 -
(g) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Notes or the Additional Investment Rights. The
Company shall not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the holders of at least a majority of the
aggregate number of Registrable Securities issued and issuable hereunder which
consent shall not be unreasonably withheld, including by way of a Fundamental
Transaction (unless the Company is in compliance with the applicable provisions
governing Fundamental Transactions set forth in the Notes and the Additional
Investment Rights). A Buyer may assign some or all of its rights hereunder
without the consent of the Company, in which event such assignee shall be deemed
to be a "Buyer" hereunder for all purposes with respect to such assigned rights.
(h) No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
(i) Survival. Unless this Agreement is terminated under Section 8,
the representations and warranties of the Company and the Buyers contained in
Sections 2 and 3 and the agreements and covenants set forth in Sections 4, 5 and
9 shall survive the Closing in accordance with their respective terms. Each
Buyer shall be responsible only for its own representations, warranties,
agreements and covenants hereunder.
(j) Further Assurances. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
any other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(k) Indemnification. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Buyer and each other holder of the Securities and all of their stockholders,
partners, members, officers, directors, employees and direct or indirect
investors and any of the foregoing Persons' agents or other representatives
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "INDEMNITEES")
from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in connection
therewith (irrespective of whether any such Indemnitee is a party to the action
for which indemnification hereunder is sought), and including reasonable
attorneys' fees and disbursements (the "INDEMNIFIED LIABILITIES"), incurred by
any Indemnitee as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
- 29 -
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby or
(c) any cause of action, suit or claim brought or made against such Indemnitee
by a third party (including for these purposes a derivative action brought on
behalf of the Company) and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, (iii) any
disclosure made by such Buyer pursuant to Section 4(i), or (iv) the status of
such Buyer or holder of the Securities as an investor in the Company pursuant to
the transactions contemplated by the Transaction Documents. To the extent that
the foregoing undertaking by the Company may be unenforceable for any reason,
the Company shall make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities which is permissible under applicable
law. Except as otherwise set forth herein, the mechanics and procedures with
respect to the rights and obligations under this Section 9(k) shall be the same
as those set forth in Section 6 of the Registration Rights Agreement.
(l) No Strict Construction. 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.
(m) Remedies. Each party hereto shall have all rights and remedies
set forth in the Transaction Documents and all rights and remedies which such
Persons have been granted at any time under any other agreement or contract and
all of the rights which such Persons have under any law. Any Person having any
rights under any provision of this Agreement shall be entitled to enforce such
rights specifically, to recover damages by reason of any breach of any provision
of this Agreement and to exercise all other rights granted by law. Furthermore,
the Company and each Buyer recognizes that in the event that either fails to
perform, observe, or discharge any or all of its obligations under the
Transaction Documents, any remedy at law may prove to be inadequate relief to
the Company or the Buyers, as the case may be. The Company and the Buyers
therefore agree that the Company and the Buyers shall be entitled to seek
temporary and permanent injunctive relief in any such case without the necessity
of proving actual damages and without posting a bond or other security.
(n) Payment Set Aside. To the extent that the Company makes a
payment or payments to the Buyers hereunder or pursuant to any of the other
Transaction Documents or the Buyers enforce or exercise their rights hereunder
or 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, foreign, 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.
- 30 -
(o) Independent Nature of Buyers' Obligations and Rights. The
obligations of each Buyer under any Transaction Document are several and not
joint with the obligations of any other Buyer, and no Buyer shall be responsible
in any way for the performance of the obligations of any other Buyer under any
Transaction Document. Nothing contained herein or in any other Transaction
Document, and no action taken by any Buyer pursuant hereto or thereto, shall be
deemed to constitute the Buyers as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the Buyers 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 Buyer confirms
that it has independently participated in the negotiation of the transaction
contemplated hereby with the advice of its own counsel and advisors. Each Buyer
shall be entitled to independently protect and enforce its rights, including,
without limitation, the rights arising out of this Agreement or out of any other
Transaction Documents, and it shall not be necessary for any other Buyer to be
joined as an additional party in any proceeding for such purpose.
[SIGNATURE PAGE FOLLOWS]
- 31 -
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.
COMPANY:
SPATIALIGHT, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Chief Executive Officer
[Signature Page to Securities Purchase Agreement]
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.
BUYERS:
PORTSIDE GROWTH & OPPORTUNITY FUND
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇
------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇
Title: Authorized Signatory
[Signature Page to Securities Purchase Agreement]
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.
BUYERS:
SMITHFIELD FIDUCIARY LLC
By: /s/ ▇▇▇▇ ▇. Chill
------------------------------
Name: ▇▇▇▇ ▇. Chill
Title: Authorized Signatory
[Signature Page to Securities Purchase Agreement]
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.
BUYERS:
BLUEGRASS GROWTH FUND, LP
BY: BLUEGRASS GROWTH FUND PARTNERS LLC,
ITS GENERAL PARTNER
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇
------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇
Title: Managing Member
[Signature Page to Securities Purchase Agreement]
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.
BUYERS:
BLUEGRASS GROWTH FUND, LTD
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇
------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇
Title: Director
[Signature Page to Securities Purchase Agreement]
SCHEDULE OF BUYERS
(1) (2) (3) (4) (5) (6)
MAXIMUM
AGGREGATE
AGGREGATE PRINCIPAL
PRINCIPAL AMOUNT OF
ADDRESS AND AMOUNT OF ADDITIONAL LEGAL REPRESENTATIVE'S
BUYER FACSIMILE NUMBER INITIAL NOTES NOTES PURCHASE PRICE ADDRESS AND FACSIMILE NUMBER
------------------------------------------------------------------------------------------------------------------------------------
Portside Growth & c/o Ramius Capital Group, L.L.C. $4,500,000 $2,250,000 $4,500,000 ▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇ LLP
Opportunity Fund ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇ Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇, Esq.
▇▇▇▇▇ ▇▇ Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇ Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Residence: Cayman Islands
Smithfield Fiduciary c/o Highbridge Capital $4,500,000 $2,250,000 $4,500,000
LLC Management, LLC
▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇ ▇. Chill
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Residence: Cayman Islands
Bluegrass Growth c/o Bluegrass Growth Fund $600,000 $300,000 $600,000
Fund, L.P. Partners LLC
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Residence: Delaware
Bluegrass Growth c/o Bluegrass Growth Fund $400,000 $200,000 $400,000
Fund, Ltd. Partners LLC
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Residence: Cayman Islands
EXHIBITS
--------
Exhibit A Form of Initial Notes
Exhibit B Form of Additional Investment Rights
Exhibit C Form of Additional Notes
Exhibit D Registration Rights Agreement
Exhibit E Form of Pledge and Security Agreement
Exhibit F Form of Guarantee
Exhibit G Irrevocable Transfer Agent Instructions
Exhibit H Form of Outside Company Counsel Opinion
Exhibit I Form of Secretary's Certificate
Exhibit J Form of Officer's Certificate
Exhibit K Form of Irrevocable Commitment Letter
Exhibit L Form of Letter Agreement
SCHEDULES
---------
Schedule 3(a) Subsidiaries
Schedule 3(l) Absence of Certain Changes
Schedule 3(q) Transactions with Affiliates
Schedule 3(r) Capitalization
Schedule 3(s) Indebtedness and Other Contracts
Schedule 3(t) Litigation
Schedule 3(v) Employee Relations
Schedule 3(w) Title
Schedule 3(x) Intellectual Property
Schedule 3(y) Environmental Laws
Schedule 3(z) Subsidiary Rights
Schedule 3(aa) Tax Status
Schedule 3(bb) Internal Accounting Controls
Schedule 3(cc) Ranking of Notes
SCHEDULE 3(a)
Subsidiaries
1. SpatiaLight Korea, Inc.
2. SpatiaLight Technologies, Inc.
SCHEDULE 3(l)
Absence of Certain Changes
Pretext - None
(i) None
(ii) None
(iii) The Company entered into a construction contract with Sung Do
Engineering in October 2004. See the Company's report on Form 8-K,
filed with the SEC on November 15, 2004, for material information
about such contract and a copy of the English version of the
executed contract.
2
SCHEDULE 3(n)
Conduct of Business; Regulatory Permits
Pretext - None
(i) None.
(ii) Trading of the Common Stock was suspended at the Company's request by the
Principal Market on July 21, 2004, for one hour and seventeen minutes, in
connection with the Company's press release announcing the Company entering into
an agreement with LG Electronics, Inc.
(iii) In February 2004, the Company received written correspondences from the
Principal Market regarding a previously established agreement between the
Company and the Principal Market for a fee payment schedule. The February 2004
correspondences made reference to delisting of the Common Stock in the event
that the Company did not abide by that previous agreement. The Company believed
that it was acting at all times in accordance with that agreement and with the
Principal Market's rules and regulations. Representatives of the Company and the
Principal Market had subsequent telephone correspondences during which a
complete resolution to the matter was achieved.
3
SCHEDULE 3(q)
Transactions With Affiliates.
None.
4
SCHEDULE 3(R)
Capitalization
(i) None.
(ii) Outstanding options to purchase 4,012,083 shares of Common Stock
under the Company's 1999 Stock Option Plan, as of September 30,
2004.
Outstanding options to purchase 1,700,000 shares of Common Stock
issued outside of the Company's 1999 Stock Option Plan, as of
September 30, 2004.
Outstanding warrants to purchase 970,445 shares of Common Stock, as
of September 30, 2004 (828,998 shares as of November 10, 2004).
2,376,000 shares of Common Stock issuable upon conversion of
convertible notes issued to Argyle Capital Management Corporation,
as of September 30, 2004.
(iii) $1,188,000 in convertible notes issued to Argyle Capital Management
Corporation, as described in the SEC Documents.
$869,055 Warrant Exercise Installment Agreement with Greenpark
Limited.
$127,500 Private Stock Purchase Installment Agreement with ▇▇▇▇▇
▇▇▇▇▇▇.
(iv) Outstanding warrants to purchase 250,000 shares and 125,000 shares
of Common Stock, respectively, have piggyback registration rights.
(v) None.
(vi) None.
(vii) None.
(viii) None.
5
SCHEDULE 3(s)
Indebtedness and Other Contracts
(i) The Argyle Notes.
(ii) Agreement with LG Electronics, Inc. described in the SEC documents.
(iii) None.
(iv) None.
6
SCHEDULE 3(t)
Litigation
None.
7
SCHEDULE 3(v)
Employee Relations
(i) None.
(ii) None.
8
SCHEDULE 3(w)
Title
None.
9
SCHEDULE 3(X)
Intellectual Property
None.
10
SCHEDULE 3(y)
Environmental Laws
None.
11
SCHEDULE 3(z)
Subsidiary Rights
None.
12
SCHEDULE 3(aa)
Tax Status
(i) - (iii) None.
13
SCHEDULE 3(bb)
Internal Accounting Controls
(i) - (iv) See Form 10Q of the Company filed November 15, 2004, Item 4.
Controls and Procedures, referencing a material weakness with
respect to our internal controls.
See Form 10K of the Company filed March 30, 2004, Item 9A. Controls
and Procedures, referencing a reportable condition with respect to
our internal controls.
14
SCHEDULE 3(cc)
Ranking of Notes
Prior to closing the carrying value of the Argyle notes is $1,171,500, which
includes the $1,188,000 principal balance net of the unamortized discount of
$16,500.
15