<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER: 1-6739
TEAM COMMUNICATIONS GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 95-4519215
- ------------------------------- -------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
12300 WILSHIRE BOULEVARD, SUITE 400
LOS ANGELES, CALIFORNIA 90025
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 442-3500
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
On AUGUST 13, 1999, the registrant had outstanding 5,085,904 shares
of Common Stock, no par value.
<PAGE> 2
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
June 30
1999
<S> <C>
Cash and cash equivalents $ 937,600
Trade receivables, less allowance for doubtful accounts of $337,000 7,481,600
Television programming costs, less accumulated amortization of $12,295,000 16,766,200
Due from officer 170,400
Fixed assets, net 30,000
Organizational costs and other assets 700,500
-----------
Total Assets $26,086,300
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, accrued expenses and other liabilities $ 6,313,800
Deferred revenue 85,600
Accrued participations 3,771,500
Bank line of credit 850,000
Notes payable 2,422,700
Accrued interest 596,000
Shareholder loan and note payable 450,000
-----------
Total Liabilities 14,489,600
-----------
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value; 10,000,000 shares authorized; no shares
issued and outstanding --
Common stock, no par value; 40,000,000 shares authorized; 4,350,509
issued and outstanding 1,000
Paid in capital 10,970,800
Treasury Stock --
Retained earnings 624,900
-----------
Total shareholders' equity 11,596,700
-----------
Total liabilities and shareholders' equity $26,086,300
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE> 3
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE 6 MONTHS FOR THE 6 MONTHS FOR THE 3 MONTHS FOR THE 3 MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 7,019,900 $ 3,215,900 $ 3,517,900 $ 1,642,500
Cost of Revenues 4,136,200 836,700 1,575,000 457,700
General and administrative expense 1,039,000 1,138,300 653,400 596,800
---------------------------------------------------------------------------
Earnings from operations 1,844,700 1,240,900 1,289,500 588,000
Interest expense 280,100 622,800 128,800 359,800
Interest income 69.600 91,500 37,700 43,500
Other income -- -- -- --
---------------------------------------------------------------------------
Earnings before income taxes 1,634,200 709,600 1,198,400 271,700
Provision for income taxes 581,700 70,000 494,700 70,000
---------------------------------------------------------------------------
Earnings before extraordinary item $ 1,052,500 $ 639,600 $ 703,700 $ 201,700
===========================================================================
Extraordinary loss from early
extinguishment of debt 248,200 -- 248,200 --
---------------------------------------------------------------------------
Net Earnings (loss) $ 804,300 $ 639,600 $ 455,500 $ 201,700
===========================================================================
Primary earnings (loss) per common share
Earnings before extraordinary item $ 0.29 $ 0.57 0.18 0.18
Extraordinary loss (0.07) -- (0.06) --
---------------------------------------------------------------------------
Net Earnings (loss) $ 0.22 $ 0.57 $ 0.11 0.18
===========================================================================
Weighted average number of shares
outstanding basic 3,577,593 1,131,344 4,005,718 1,131,344
===========================================================================
Fully-diluted earnings (loss) per share
Earnings before extraordinary item $ 0.22 $ 0.35 $ 0.13 $ 0.11
Extraordinary loss (0.05) -- (0.05) --
---------------------------------------------------------------------------
$ 0.17 $ 0.35 $ 0.09 $ 0.11
===========================================================================
Weighted average number of shares
outstanding diluted 4,762,511 1,821,800 5,334,870 1,821,800
===========================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE 6 MONTHS FOR THE 6 MONTHS
ENDED ENDED
JUNE 30, 1999 JUNE 30, 1998
-----------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 804,300 $ 639,600
Adjustments to reconcile net income to cash used
for operating activities:
Depreciation and amortization 6,000 6,900
Amortization of television programming costs 4,136,200 824,300
Allowance for doubtful accounts -- --
Amortization of notes payable discount 17,500 131,000
Changes in assets and liabilities:
Increase in trade receivables (2,744,900) (2,370,700)
Additions to television programming costs (9,883,700) (2,956,600)
Increase in other assets (617,800) (525,200)
Increase in accounts payable, accrued
expenses and other liabilities 4,634,400 2,306,200
Increase (decrease) in deferred revenue (387,300) 113,700
Increase (decrease) in accrued participations 745,700 (130,800)
Increase (decrease) in accrued interest 65,100 237,000
-----------------------------------
Net cash used for operating activities (3,224,500) (1,724,600)
-----------------------------------
INVESTING ACTIVITIES:
Purchase of fixed assets (19,600) --
Decrease (increase) in due from officer (25,000) 49,600
-----------------------------------
Net cash provided (used) for investing activities (44,600) 49,600
-----------------------------------
FINANCING ACTIVITIES:
Proceeds from issuance of notes payable and warrants 2,100,000 1,563,400
Payments on bank line of credit (264,000) --
Principal payment on loan due to shareholder (50,000) --
Issuance of common stock 3,358,100 --
Sale treasury stocks 34,600 --
Extraordinary charge for early retirement of debt 248,200 --
Principal payment of notes payable (2,247,900) (60,000)
-----------------------------------
Net cash provided by financing activities 3,179,000 1,503,400
-----------------------------------
Net change in cash (90,100) (171,600)
Cash at beginning of period 1,027,700 174,400
-----------------------------------
Cash at end of period $ 937,600 $ 2,800
===================================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE> 5
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
SUPPLEMENTAL SCHEDULE OF NON CASH ACTIVITIES
<TABLE>
<CAPTION>
FOR THE FOR THE
SIX MONTHS SIX MONTHS FOR THE FOR THE
ENDED ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31,
1999 1998 1998 1997
----------- ----------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Extinguishment of TPEG settlement payable by
assignment of the treasury stock receivable.... -- -- -- 178,000
Issuance of warrants in conjunction with notes
payable........................................ -- -- 62,500 286,600
Issuance of shares in connection with conversion
of notes payable............................... -- -- 53,600 --
Issuance of shares and warrants in connection
with services provided to the Company.......... 1,235,900 -- 58,000 --
Issuance of shares in connection with
extinguishment of debt......................... 1,146,300 -- 458,000 --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
---------------------
Retained
Earnings
Number Paid in Treasury Accumulated
of Shares Par Value Capital Stock (Deficit)
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998 2,816,135 $ 1,000 $ 7,612,700 $ (34,600) $ (179,400)
Net Income for the three months
ended March 31, 1999 -- -- -- -- 804,300
Sale of Treasury Stock 17,000 -- -- 34,600 --
Issuance of shares in connection
with conversion of debt 655,617 1,146,300 -- --
Issuance of stock for services 464,000 -- 1,032,400 -- --
Issuance of warrants -- -- 203,500 -- --
Issuance of debt with beneficial
conversion feature -- -- 185,000 -- --
Private placement of common stock 338,334 -- 765,300 -- --
Exercise of warrants 59,423 -- 25,600 -- --
----------- ----------- ----------- ----------- -----------
Balance at June 30, 1999 4,350,509 $ 1,000 $10,970,800 $ -- $ 624,900
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
6
<PAGE> 7
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PREPARATION-SIGNIFICANT ACCOUNTING POLICIES:
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial statements.
Accordingly, they do not include all of the information and disclosures required
for annual financial statements. These financial statements should be read in
conjunction with the financial statements and related footnotes for the year
ended December 31, 1998, included in the TEAM Communications Group, Inc.
("Company") financial report in the Company's 10-KSB.
In the opinion of the Company's management, all adjustments (consisting of
normal recurring accruals) necessary to present fairly the Company's financial
position as of June 30, 1999, and the results of operations and cash flows for
the six month period ended June 30, 1999 have been included. The results of
operations for the six period ended June 30, 1999, are not necessarily
indicative of the results to be expected for the full fiscal year. For further
information, refer to the financial statements and footnotes thereto included in
the Company's 10-KSB filed for the year ended December 31, 1998.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The Company recognizes revenues from licensing agreements covering entertainment
product when the product is available to the licensee for telecast, exhibition
or distribution, and other conditions of the licensing agreements have been met
in accordance with Statement of Financial Accounting Standards ("SFAS") No. 53,
"Financial Reporting by Producers and Distributors of Motion Picture Films."
The Company, as required by SFAS No. 53, values its film cost at the lower of
unamortized cost or net realizable value on an individual title basis. Film
costs represent those costs incurred in the development, production and
distribution of television projects. These costs
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<PAGE> 8
have been capitalized in accordance with SFAS No. 53. Amortization of film cost
is charged to expense and third party participation are accrued using the
individual film forecast method whereby expense is recognized in the proportion
that current period revenues bear to an estimate of ultimate revenues. These
estimates of revenues are prepared and reviewed periodically by management.
During the six months ended June 30, 1999, as the company increased its
activities related to film cost production, overhead was capitalized in
accordance with SFAS No. 53 based upon estimates of production related
activities as a percentage of anticipated film cost expenditures during 1999.
Management reviews the overhead rate throughout the year and will adjust the
overhead rate on a quarterly basis, if necessary. During the second quarter and
the six months ended June 30, 1999, overhead in the amount of approximately
$515,000 and $1,185,000 was capitalized to film production costs, respectively.
NOTE 2 -- ACCOUNTS RECEIVABLE:
Included in Accounts Receivable is $900,000 which is held as security by a
third-party for certain programming rights acquired by the Company. Upon
collection of this receivable the amounts will be placed in escrow and recorded
as cash, although the cash will be restricted as to withdrawal.
NOTE 3 -- TELEVISION PROGRAM COSTS:
Television program costs as of June 30, 1999, consist of the following:
<TABLE>
<S> <C>
In process and development $ 257,500
Released, less accumulated amortization 16,508,700
------------
Total television program costs $16,766,200
===========
</TABLE>
NOTE 4 -- LITIGATION AND CONTINGENCIES:
In the ordinary course of business, the Company has or may become involved in
disputes or litigation. On the basis of information available to it, management
believes such contingencies will not have a materially adverse impact on the
Company's financial position or results of operations.
8
<PAGE> 9
NOTE 5 -- LINE OF CREDIT -- BANK:
The Company maintains a revolving line of credit with Mercantile National Bank.
The credit line is up to $850,000. As of June 30, 1999, the outstanding balance
of the line of credit was $850,000. The line of credit is secured by an $860,000
certificate of deposit (included in cash and cash equivalents) which is
restricted as to withdrawal.
NOTE 6 -- NOTE PAYABLE:
Notes payable consists of the following at June 30, 1999, carrying value
approximates fair value:
<TABLE>
<S> <C>
Debentures:
8% secured convertible debentures, net discounts due 2002 $820,000
Private placements:
12% secured notes due August 1999 225,000
10% secured convertible notes due August 1999 277,800
10% secured convertible notes due August 1999 80,000
Promissory notes:
10% secured promissory note due August 1999 250,000
12% secured promissory note due April 1999, past due 150,000
11% unsecured promissory note past due 124,900
18% secured note past due 115,000
12% secured promissory notes due January 2000 100,000
16% secured note due August 1999 30,000
12% secured note due November 1999 250,000
----------
$2,422,700
==========
</TABLE>
9
<PAGE> 10
On January 30, 1999, the Company sold $850,000 principal amount of 8%
convertible debentures and 85,000 warrants. The conversion price for each
debenture will be the lesser of a) 90% of the average per share market value for
five consecutive days prior to the Initial Closing date or b) 85% of the per
share market value for the trading day having the lowest per share market value
during the five trading days prior to the conversion date. These departures were
converted to equity in May 1999. The Company recognized a $248,200 extraordinary
loss as a result of redemption of these notes. The extraordinary loss consisted
of the write-off of the associated debt discount.
NOTE 7 -- SUBSEQUENT EVENTS:
On August 5, 1999, the Company completed a $4 million financing in anticipation
of the Company's public offering in Germany this fall. The Note bears interest
at 12% per annum and matures November 30, 2002. The Note is subordinate to any
of the Company's bank financing or senior debt. All or part of the unpaid
principal amount may be converted into shares of Common Stock at the holder's
option any time after November 30, 1999. The conversion price is the lesser of
120% of the average per share market price for five consecutive trading days
prior to August 5, 1999 or 88% of the per share market price for the three days
with the lowest per share market price during the twenty-five days prior to
conversion. Connected with this financing, the Company issued 340,000 warrants
to purchase Team common stock at 105% of the five-day average closing price
prior to the closing of the financing, $7.00.
NOTE 8 -- GOING CONCERN:
The Company's financial statements for the three months and six months ended
June 30, 1999, have been prepared on a going concern basis which contemplates
the realization of assets and the settlement of liabilities and commitments in
the normal course of business. The Company expects to incur substantial
expenditures to produce television programs and/or acquire distribution rights
to television programs produced by third parties. The Company's working capital
plus limited revenue from the licensing of its current inventory of television
programs will not be sufficient to fund the Company's ongoing operations,
including maintaining the Company's current overhead and maintaining the
Company's current development and marketing activities for the next 12 months.
Further, even with the Company successfully raising additional financing, there
is no assurance the Company will achieve profitability or positive cash flow.
10
<PAGE> 11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS
OF OPERATIONS
This Management's Discussion and Analysis of Financial Conditions and Results of
Operations contains certain "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995. Such statements relating to
future events and financial performance are forward-looking statements involving
risks and uncertainties that are detailed from time to time in our various
Securities and Exchange Commission filings. Our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of uncontrollable factors. The following discussion should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this 10-QSB.
RESULTS OF OPERATIONS
For the three months ended June 30, 1999, the Company reported a net income of
approximately $455,500 on total revenues of approximately $3,517,900 compared to
net income of approximately $201,700 on total revenues of approximately
$1,642,500 for the same period ended June 30, 1998. Net income increased by
approximately $253,800 for the three months ended June 30, 1999, versus the
three months ended June 30, 1998, primarily due to the sale of certain rights of
a library of twenty-eight movie of the week titles. Revenue for the period ended
June 30, 1999 included approximately $3,300,000 on the sale of certain European
broadcast rights for twenty movies of the week included in the acquired library.
Revenue for the period ended June 30, 1998, included $882,000 from a sale of pay
television rights for Latin America to 63 episodes of "Water Rates" seasons
three and four.
Cost relating to revenues was $1,575,000 for the three months ended June 30,
1999 as compared to $457,700 for the three months ended June 30, 1998. The costs
relate to amortization of production or acquisition costs of television
programming for which revenue was recognized during the period. Gross profit
margin on sales of television programming for the three months end June 30, 1999
was 55 percent compared to 72 percent for the period ended June 30, 1998.
Included in cost of sales for 1999 is a charge of approximately $450,000 as the
Company wrote off development costs incurred on a project which has been and is
currently in development since 1995.
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<PAGE> 12
General and administrative expense increased to $653,400 for the three months
ended June 30, 1999 from $596,800 for the same period in 1998. Due to the
Company's increased activities related to film cost production approximately
$515,000 in general and administrative expense was capitalized to television
programming costs in accordance with SFAS No. 53. Increase in general and
administrative expenses, prior to capitalizing certain expenses, are a result of
an increase in expenses for staff and approximately $100,000 primarily for
production and development and approximately $300,000 in consulting fees.
The Company also incurred an extraordinary loss of $248,200 related to the
conversion of $850,000 in debt to common stock.
Interest expense was $128,800 for the three months ended June 30, 1999, as
compared to $359,800 for the three months ended June 30, 1998. The decrease is
due to the retirement of debt.
For the six months ended June 30, 1999, the Company reported a net income of
approximately $804,300 on total revenues of approximately $7,019,900 compared to
net income of approximately $639,600 on total revenues of approximately
$3,215,900 for the same period ended June 30, 1998. Net income increased by
approximately $164,700 for the six months ended June 30, 1999, versus the six
months ended June 30, 1998, primarily due to the sale of certain rights of a
library of twenty-eight movie of the week titles. Revenue for the period ended
June 30, 1999 included approximately $3,300,000 on the sale of certain European
broadcast rights for twenty movies of the week included in the acquired library.
Cost relating to revenues was $4,136,200 for the six months ended June 30,
1999 as compared to $836,700 for the six months ended June 30, 1998. The costs
relate to amortization of production costs of television programming for which
revenue was recognized during the period. Gross profit margin on sales of
television programming for the six months end June 30, 1999 was 41 percent
compared to 74 percent for the period ended June 30, 1998. The lower gross
profit margin for the six months ended June 30, 1999 was due to the Company
selling more expensive television drama programming produced and owned by the
Company and its partners as opposed to distributing reality based programming
and programming previously produced and acquired by the Company in the six
months ended June 30, 1998. Included in cost of sales for 1999 is a charge of
approximately $450,000 as the Company wrote off development costs incurred on a
project which has been and is currently in development since 1995.
General and administrative expense is $1,039,000 for the six months ended June
30, 1999 compared to $1,138,300 for the same period in 1998. The 1999 general
and administrative costs increased $315,000 due to consulting fees and the
increase in staff primarily in production and development. Due to the Company's
increased activities related to film cost production, approximately $1,185,000
overhead was capitalized to film product costs in accordance with SFAS No. 53.
The Company also incurred an extraordinary loss of $248,200 related to the
conversion of $850,000 in debt to common stock.
Interest expense was $280,100 for the six months ended June 30, 1999, as
compared to $622,800 for the six months ended June 30, 1998. The decrease is
due to the retirement of debt.
Receivables at June 30, 1999 were $7,481,600, all of which are from entities
domiciled outside the United States. These receivables represent approximately
29% of the total assets of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The entertainment industry is highly capital intensive. As of June 30, 1999, we
had a liquidity deficit of ($5,900,000). Liquidity deficit is defined as cash
and cash equivalents plus accounts receivables (net), and due from officer less
accounts payable, line of credit, notes payable, accrued expenses and other
liabilities, deferred revenue, accrued participation, shareholder loans and
notes payable, and accrued interest.
We continue to finance our operations from our own sales and production
activities, notes payables, lines of credit and loans from our shareholders.
Despite our public offering on July 29, 1998, our operations have been hurt by
ongoing capital shortages caused by a slowness in collecting receivables and the
inability to complete a long term banking relationship. We continue to address
our capital requirements by (i) completing in January and February 1999 a
placement of $1,850,000 convertible debt, all of which is now converted into
common stock, (ii) entering into a letter of intent to complete an offering of
our common stock on the Neuer Market in Germany, (iii) completing the issuance
of $4,550,000 of net proceeds in additional convertible debt in July and August
1999, and (iv) entering into an agreement with an investment banking firm to
provide up to $6,000,000 of additional financing ($2,000,000 by the sale of
500,000 shares of common stock at $4.00 and $4,000,000 in debt securities) also
as a bridge to the German Offering. On August 16th the sale of common stock was
completed and the company received $2,000,000. No assurance can be given that
the German public offering will be completed, or that the sale of $4,000,000
debt securities will be effectuated.
12
<PAGE> 13
As of August 13, 1999, we had cash and accounts receivable due to be collected
within one year of approximately $6,470,000. As of August 13, 1999 we had
indebtedness and related accrued interest of $8,453,680, including notes payable
of $6,557,680 of which all matures within one year, accrued interest of
$596,000, $850,000 outstanding on a revolving line of credit and $450,000
outstanding on a shareholder loan. Included is $349,900 of notes which have
matured and are currently in default. We are currently negotiating with these
noteholders and have not yet received any written action regarding the defaults
under these notes. We believe, however, that we will be able to cure these
defaults by either converting the notes to equity or repaying them. No
assurances can be given that we will be able to effectuate any of the foregoing
alternatives, or that if we seek to extend such obligations or refinance them,
that such extensions or refinancing alternatives will be on terms which are
financially advantageous to us.
As we continue to pursue and work toward financing alternatives and search for
additional capital as described above, we also continue to explore a variety of
other financial alternatives to increase our working capital, including
increasing the Company's line of credit with a commercial bank, or pursuing
other types of debt or equity financing. No assurance can be given that such
financing can ultimately be obtained or that it will be on reasonably attractive
terms.
Assuming the foregoing defaults are cured, we believe that without the German
offering but solely with our current resources of cash, accounts receivable and
available credit line will we be able to operate at current expenditure levels
through December 31, 1999. We further believe that our projected cash flow from
operations, with contemplated sales of certain acquired programming and
collections from those sales, will be sufficient to permit the Company to
conduct its operations as contemplated through March 31, 2000. Our belief is
based upon certain assumptions, including assumptions regarding the anticipated
level of operations and overhead, the anticipated sales of certain acquired
programming, and anticipated expenditures required for development and
production of programming. If sales do not materialize and financing is not
completed by these dates, we will have to limit our development and production
activities, reduce our overhead spending, restructure debt pay outs and take
other cost reduction measures. Further, even with if we successfully raising
additional financing, there is no assurance that we will continue to be
profitable or maintain positive cash flow.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 1998, Statement of Position 98-5 "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5") was issued. SOP 98-5 provides guidance on the financial
reporting of start-up
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<PAGE> 14
costs and organization costs. We have adopted this SOP and the adoption of this
statement did not materially effect our financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", effective for fiscal year beginning after
June 15, 1999. We anticipate that due to our limited use derivative instruments,
the adoption of SFAS No. 133 will not have a material effect on our financial
statements.
In October 1998, the FASB released an exposure draft of the proposed statement
on "Rescission of FASB Statement No. 53, Financial Reporting by Producers and
Distributors of Motion Picture Films." An entity that previously was subject to
the requirements of SFAS No. 53 would follow the guidance in a proposed
Statement of Position, "Accounting by Producers and Distributors of Films." This
proposed Statement of Position would be effective for financial statements for
fiscal years beginning after December 15, 1999 and could have a significant
impact on our results of operations and financial position depending on its
final outcome. We have not concluded on its impact given the preliminary stages
of the proposed Statement of Position.
YEAR 2000 COMPLIANCE
As has been widely reported, many computer systems process dates based on two
digits for the year of a transaction and are unable to process dates in the year
2000 and beyond. Since our formation in 1995, we have installed new information
systems which are year 2000 compliant. Although we do not expect year 2000 to
have a material adverse effect on our internal operations, it is possible that
year 2000 problems could have a significant adverse effect on our suppliers and
their ability to service us and to accurately process payments received.
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<PAGE> 15
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
In the ordinary course of business, the Company has or may become involved in
disputes or litigation. On the basis of information available to it, management
believes such contingencies will not have a materially adverse impact on the
Company's financial position or results of operations.
Item 6 - Exhibits and Reports on Form 8-K
Exhibits
4.23 Amendment to Securities Purchase Agreement with Austinvest Anstalt
Balzers, Esquire Trade & Finance Inc.; Amro International, S.A. and
Nesher Inc., dated June 28, 1999 (amends 4.19)
4.24 Securities Purchase Agreement between the Company and VMR Luxembourg,
S.A., dated as of February 25, 1999
4.25 VMR Debenture, dated as of February 25, 1999
4.26 VMR Warrant, dated as of February 25, 1999
4.27 VMR Registration Rights Agreement, dated as of February 25, 1999
4.28 Securities Purchase Agreement between the Company and VMR Luxembourg
S.A., dated July 26, 1999
4.29 VMR Debenture, dated as of July 26, 1999
4.30 VMR Security Agreement, dated as of July 26, 1999
4.31 VMR Registration Rights Agreement, dated as of July 26, 1999
4.32 Securities Purchase Agreement between the Company and Hudson
Investors LLC, dated as of August 5, 1999
4.33 Hudson Investors LLC Registration Rights Agreement, dated as of
August 5, 1999
4.34 Hudson Investors LLC Debenture, dated as of August 5, 1999
4.35 Hudson Investors LLC Warrant, dated as of August 5, 1999
10.23 Agreement with Film Libraries, Inc. dated June 25, 1999 and
Agreement with Film Brokers, Inc., dated June 25, 1999,
re: commission for purchase
10.24 Agreement with Renown Pictures, Ltd., dated as of June 28, 1999
27 Financial Data Schedule
Form 8-K
None
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Dated: August 19, 1999
TEAM COMMUNICATIONS GROUP, INC.
By: /s/ DREW S. LEVIN
------------------------------
Drew S. Levin
Chairman of the Board of
Directors and Chief Executive
Officer
By: /s/ TIMOTHY A. HILL
------------------------------
Timothy A. Hill
Chief Financial Officer
<PAGE> 1
EXHIBIT 4.23
FIRST AMENDMENT dated as of the 28th day of June 1999 (the "First
Amendment") among Team Communications Group, Inc., a California corporation
(the "Company"), Austinvest Anstalt Balzers ("Austinvest"), Esquire Trade &
Finance Inc. ("Esquire"). Amro International, S.A. ("Amro") and Nesher
Inc.("Nesher"). Austinvest, Esquire, Amro and Nesher are each referred to
herein as a "Purchaser" and are collectively referred to herein as the
"Purchasers."
WHEREAS, the Company and each of the Purchasers entered into the
Securities Purchase Agreement (the "Purchase Agreement") dated as of January
28, 1999 pursuant to which the Purchasers purchased from the Company 8%
Convertible Debentures due 2002 (the "Debentures") and warrants (the
"Warrants") to purchase shares of the Company's common stock, no par value per
share (the "Common Stock");
WHEREAS, the Company and each of the Purchasers entered into a
Registration Rights Agreement, dated the date of the Purchase Agreement (the
"Registration Rights Agreement"), pursuant to which the Company agreed to file
a registration statement (the "Registration Statement") with the Securities and
Exchange Commission (the "Commission") with respect to the shares of Common
Stock issuable upon the conversion of the Debentures and the exercise of the
Warrants; and
WHEREAS, the Company is terminating its obligation to sell additional
Debentures and Warrants and has instead agreed to issue and sell to the
Purchasers an aggregate of 175,000 shares of its Common Stock (the "News
Shares") for an aggregate purchase price of $700,000 and to include the New
Shares in the Registration Statement.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
set forth herein, the sufficiency of which is hereby acknowledged, the Company
and the Purchasers agree to amend the Purchase Agreement and the Registration
Rights Agreement as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1 Definitions and Interpretation.
(a) All capitalized terms used herein which are not otherwise
specifically defined herein shall have the respective meaning as ascribed
thereto in the Purchase Agreement or the Registration Agreement, respectively.
(b) Unless otherwise expressly indicated, all references contained herein
to SECTIONS or other subdivisions refer to the corresponding SECTIONS and other
subdivisions of the Purchase Agreement or the Registration Rights Agreement,
respectively.
(c) The sections and the headings in the sections in this First Amendment
are for convenience only. Said sections and headings shall not be deemed to be
part of this First Amendment and in no way define, limit, extend or describe
the scope or intent of its provisions.
<PAGE> 2
ARTICLE II
AMENDMENT TO THE REGISTRATION RIGHTS AGREEMENT
SECTION 2.1 Amendment to Section 1. The following definition set forth
in Section 1 of the Registration Rights Agreement are hereby amended as follows:
(a) "Effectiveness Date" is amended to mean the 90th day following the
Filing Date.
(b) "Filing Date" is amended to mean the 9th day of July, 1999.
(c) The definition of "Registrable Securities" is hereby amended in its
entirety to read as follows:
"Registrable Securities" means the shares of Common Stock issuable
upon conversion of the Debentures, the shares of Common Stock issuable upon
exercise of the Warrants and the New Shares. Such registered shares of
Common Stock shall be allocated among the Holders pro rata based on the
total number of Registrable Securities issued or issuable as of each date
that a Registration Statement, as amended, relating to the resale of the
Registrable Securities is declared effective by the Commission.
SECTION 2.2 Amendment to Section 7(e).
(a) Section 7(e) of the Registration Rights Agreement is hereby amended
by deleting the words "is not filed on or prior to the Filing Date, or" from
the text of clause (A) of the third sentence thereof.
(b) Section 7(e) of the Registration Rights Agreement is hereby further
amended by deleting clauses (I) through (IV) of the penultimate sentence
thereof and inserting in lieu thereof the following:
"3.0% of the aggregate principal amount of Debenture purchased by such
Holder the aggregate amount of the exercise price of the Warrants
purchased by such Holder, whether or not exercised, and the aggregate
purchase price of the New Shares purchased by such Holder, commencing on
the Event Date until the applicable event is cured."
ARTICLE III
WAIVER OF SUBSEQUENT SALES PROVISION
SECTION 3.1 Waiver of Subsequent Sales Provision. The Purchasers hereby
agree with the Company that, notwithstanding Section 3.12 of the Purchase
Agreement, the Company may offer, sell or grant any shares of Common Stock, any
option to purchase its Common Stock or
2
<PAGE> 3
equity equivalent securities or any securities convertible into shares of
Common Stock that permit the holder thereof to acquire Common Stock at a price
that is less than the market price of the Common Stock at the time of the
issuance of such security. For the avoidance of doubt, we may file a
registration statement at any times for such shares provided the filing date is
after the Filing Date.
ARTICLE IV
WAIVER OF PENALTIES
SECTION 4.1 Waiver of Penalties under Registration Rights Agreement. The
Purchasers hereby waive all penalties accrued as of the date hereof pursuant to
Section 7(e) of the Registration Rights Agreement.
ARTICLE V
AUTHORIZATION AND SALE OF NEW SHARES
SECTION 5.1 Authorization and Sale of the New Shares. The Company has
authorized the issuance and sale of the New Shares.
SECTION 5.2 Purchase and Sale. Subject to the terms and conditions hereof
and in reliance on the representations and warranties contained herein, in the
Purchase Agreement and the Registration Rights Agreement, the Company shall
issue and sell to each Purchaser, and such Purchaser will purchase from the
Company, on the Closing Date (as defined below) the number of New Shares set
forth opposite the name of such Purchaser on Schedule 1 attached hereto, for a
purchase price per New Share of $4.00, with the aggregate purchase price for
all the New Shares being $700,000.
SECTION 5.3 Closing. The closing of the purchase and sale of the New
Shares (the "Closing Date") will take place at the offices of Stroock & Stroock
& Lavan LLP, 180 Maiden Lane, New York, New York 10038-4982, immediately
following the execution hereof or such later date or different location as the
parties shall agree in writing.
On the Closing Date, the Company will deliver to each Purchaser a
certificate or certificates (in definitive form) in the denominations specified
in Schedule 1 and registered in the name of such Purchaser (or in the name of
such Purchaser's nominee) representing the New Shares to be purchased by such
Purchaser against payment to the Company of the purchase price of such New
Shares.
3
<PAGE> 4
ARTICLE VI
EFFECTIVE DATE OF FIRST AMENDMENT
SECTION 6.1 Effective Date. This First Amendment shall be effective only
upon the filing of the Registration Statement on or before July 9, 1999. If the
Registration Statement has not been filed on or prior to July 9, 1999, this
First Amendment shall be null and void ab initio.
ARTICLE VI
MISCELLANEOUS
SECTION 7.1 Representations and Warranties. To induce the Purchasers to
enter into this First Amendment, the Company represents and warrants to the
Purchasers:
(a) that the representations and warranties contained in the Purchase
Agreement will be, after giving effect to the amendments provided herein, true
and correct in all respects as if made on and as of the date hereof, and that
no Event of Default (as defined in the Debentures) or an event which with the
giving of notice or lapse of time, or both, would become an Event of Default
will have occurred or be continuing as of the date hereof; and
(b) the New Shares have been duly authorized and when issued, delivered
and paid for in the manner set forth in this First Amendment, will be validly
issued, fully paid and nonassessable and free and clear of all liens.
SECTION 7.2 Short Sales. After the date hereof, no Purchaser shall engage
in a short selling transaction with respect to shares of Common Stock, except
to the extent that such Purchaser has any short position on the date hereof.
SECTION 7.3 No Other Amendments. Except as expressly modified hereby, each
of the Purchase Agreement and the Registration Rights agreement shall continue
in full force and effect in accordance with its respective terms.
SECTION 7.4 Legal Fees and Expenses. The Company hereby agrees to pay all
attorneys' fees, expenses, costs and charges incurred in connection with the
preparation, negotiation and execution of this First Amendment and the other
documents contemplated hereby.
SECTION 7.5 Governing Law. The rights and obligations of the parties under
or pursuant to this First Amendment shall be governed by and construed in
accordance with the laws of the State of New York.
SECTION 7.6 Representation and Warranty. Each party hereto hereby
represents and warrants that this First Amendment is a legal, valid and binding
obligation of such party and is enforceable against such party in accordance
with its terms.
4
<PAGE> 5
SECTION 7.7 References to Purchase Agreement or Registration Rights
Agreement. Whenever in any certificate, letter, notice or other instrument
reference is made to the Purchase Agreement or the Registration Rights
Agreement, such reference without more shall include reference to this First
Amendment.
SECTION 7.8 Counterparts. This First Amendment may be executed
simultaneously in counterparts, each of which shall be deemed an original, and
it shall not be necessary in making proof of the contents of this First
Amendment to produce or account for more than one such counterpart.
5
<PAGE> 6
IN WITNESS WHEREOF this First Amendment has been executed by duly
authorized representatives of the parties hereto on the day, month and year
first above written.
TEAM COMMUNICATIONS GROUP, INC.
By:
----------------------------
Name:
Title:
AUSTINVEST ANSTALT BALZERS
By:
----------------------------
Name:
Title:
ESQUIRE TRADE & FINANCE INC.
By: /s/ ROLAND R. WINIGER
----------------------------
Name: Roland R. Winiger
Title: Director
AMRO INTERNATIONAL, S.A.
By:
----------------------------
Name:
Title:
NESHER INC.
By:
----------------------------
Name:
Title:
6
<PAGE> 7
IN WITNESS WHEREOF this First Amendment has been executed by duly
authorized representatives of the parties hereto on the day, month and year
first above written.
TEAM COMMUNICATIONS GROUP, INC.
By:
----------------------------
Name:
Title:
AUSTINVEST ANSTALT BALZERS
By: /s/ [Signature Illegible]
----------------------------
Name:
Title:
ESQUIRE TRADE & FINANCE INC.
By:
----------------------------
Name:
Title:
AMRO INTERNATIONAL, S.A.
By:
----------------------------
Name:
Title:
NESHER INC.
By:
----------------------------
Name:
Title:
6
<PAGE> 1
EXHIBIT 4.24
SECURITIES PURCHASE AGREEMENT
Among
TEAM COMMUNICATIONS GROUP, INC.,
and
VMR S.A. LUXEMBOURG
Dated as of February 25, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I PURCHASE AND SALE OF THE SECURITIES 4
1.1 Purchase and Sale 4
1.2 The Closings 4
ARTICLE II REPRESENTATIONS AND WARRANTIES 6
2.1 Representations, Warranties and Agreements of the Company 6
2.2 Representations and Warranties of the Purchasers 14
ARTICLE III OTHER AGREEMENTS OF THE PARTIES 15
3.1 Transfer Restrictions 15
3.2 Stop Transfer Orders; Suspension of Qualification 16
3.3 Furnishing of Information 16
3.4 Blue Sky Laws 17
3.5 Integration 17
3.6 Certain Agreements 17
3.7 Listing and Reservation of Underlying Shares and Warrant Shares;
Compliance with Law 17
3.8 Notice of Breaches 18
3.9 Conversion Obligations of the Company 19
3.10 Use of Proceeds 19
3.11 Indemnification 19
3.12 Subsequent Sales and Registrations 21
3.13 Shareholder Approval 21
3.14 Incorporation of the Debentures By Reference 22
3.15 Board of Directors 22
3.16 Additional Warrants 22
3.17 Short Sales 22
ARTICLE IV CONDITIONS 22
4.1 Conditions Precedent to Sale of the Initial Securities 22
4.2 Conditions Precedent to the Obligation of the Purchasers
to Purchase the Additional Securities 25
ARTICLE V MISCELLANEOUS 28
5.1 Fees and Expenses 28
5.2 Entire Agreement; Amendments 28
5.3 Notices 28
</TABLE>
-2-
<PAGE> 3
<TABLE>
<S> <C>
5.4 Amendments; Waivers 29
5.5 Headings 29
5.6 Successors and Assigns 29
5.7 No Third Party Beneficiaries 30
5.8 Governing Law 30
5.9 Survival 30
5.10 Execution 30
5.11 Publicity 30
5.12 Consent to Jurisdiction; Attorneys' Fees 30
5.13 Waiver of Jury Trial 32
5.14 Severability 32
5.15 Remedies 32
5.16 Independent Nature of Purchasers' Obligations and Rights 32
</TABLE>
-3-
<PAGE> 4
<TABLE>
<CAPTION>
Schedules and Exhibits
- ----------------------
<S> <C>
Schedule 1 - Purchasers of Securities
Schedule 2.1(a) - Organization and Qualification; Subsidiaries
Schedule 2.1(c)(i) - Capitalization; Rights to Acquire Capital Stock
Schedule 2.1(c)(ii) - Notice with Respect to Listing
Schedule 2.1(f) - Consents and Approvals
Schedule 2.1(g) - Litigation; Proceedings
Schedule 2.1(r) - Registration Rights, Rights of Participation
Schedule 2.1(s) - Title
Schedule 2.1(y) - Year 2000 Compliance
Schedule 3.10 - Use of Proceeds
Exhibit A - Debentures
Exhibit B - Warrants
Exhibit C - Registration Rights Agreement
Exhibit D - Transfer Agent Instructions
</TABLE>
-4-
<PAGE> 5
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of February 25,
1999, among Team Communications Group, Inc., a California corporation (the
"Company"), and VMR S.A. Luxembourg, Chateau Woltz, 34 Rue Neuve, Remich, L5560
Luxembourg, referred to herein as a "Purchaser" and are collectively referred to
herein as the "Purchasers."
WHEREAS, subject to the terms and conditions set forth in this Agreement,
the Company desires to issue and sell to the Purchasers, and the Purchasers
desire to acquire from the Company, up to $1,000,000 aggregate principal amount
of 8% Convertible Debentures due 2002 of the Company (the "Debentures") and
warrants (the "Warrants") to purchase shares of common stock, no par value per
share, of the Company (the "Common Stock").
NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the Company and each Purchaser agree as follows:
ARTICLE I
PURCHASE AND SALE OF THE SECURITIES
1.1 Purchase and Sale.
(a) Subject to the terms and conditions hereof and in reliance on the
representations and warranties contained herein, the Company shall issue and
sell to the Purchasers, and the Purchasers, severally and not jointly, shall
purchase from the Company (i) up to an aggregate principal amount of $700,000 of
Debentures and (ii) Warrants to purchase up to 70,000 shares of Common Stock.
(b) The Debentures shall be substantially in the form annexed hereto
as Exhibit A and the Warrants shall be in the form annexed hereto as Exhibit B.
1.2 The Closings.
(a) The Initial Closing.
(i) The closing of the purchase and sale of the Initial
Securities (as defined below) (the "Initial Closing") shall take place at the
offices of Freshman, Marantz, Orlanski, Cooper & Klein, 9100 Wilshire Boulevard,
8th Floor, East Tower, Beverly Hills, CA 90212, immediately following the
execution hereof or such later date or different location as the parties shall
agree in writing, but not prior to the date that the conditions set forth in
Section 4.1 have been satisfied or waived by the appropriate party. The date of
the Initial Closing is hereinafter referred to as the "Initial Closing Date." At
the Initial Closing, the Company shall sell and issue to the Purchasers, and the
Purchasers shall, severally and not jointly, purchase from the Company, an
aggregate principal amount of $500,000 of Debentures and Warrants to purchase up
to 50,000 shares of Common Stock (the "Initial Securities") for an aggregate
purchase price of $500,000 (the "Initial Purchase Price").
-5-
<PAGE> 6
(ii) At the Initial Closing (a) the Company shall deliver to each
Purchaser (1) Debentures (in definitive form) in the denominations specified on
Schedule 1 attached hereto, each registered in the name of such Purchaser, (2) a
warrant agreement representing the Warrants included in the Initial Securities
(the "Initial Warrants") purchased by such Purchaser as set forth next to such
Purchaser's name on Schedule 1 attached hereto, registered in the name of such
Purchaser, (3) and all other documents, instruments and writings required to
have been delivered at or prior to the Initial Closing by the Company pursuant
to this Agreement and the Registration Rights Agreement, dated the date hereof,
by and among the Company and the Purchasers, in the form of Exhibit C annexed
hereto (the "Registration Rights Agreement"), and (b) each Purchaser shall
deliver to the Company the portion of the Initial Purchase Price set forth next
to its name on Schedule 1, in United States dollars in immediately available
funds by wire transfer to an account designated in writing by the Company for
such purpose on or prior to the Initial Closing Date, and all documents,
instruments and writings required to have been delivered at or prior to the
Initial Closing by such Purchaser pursuant to this Agreement and the
Registration Rights Agreement.
(b) Subsequent Closings.
(i) Subsequent Closing. Beginning on the date on which the
initial Registration Statement (as defined in the Registration Rights Agreement)
is filed with the Securities and Exchange Commission (the "Commission"), the
Purchasers shall have the right to require the Company to sell to the Purchasers
an additional $500,000 aggregate principal amount of Debentures and Warrants to
purchase an additional 50,000 shares of Common Stock for an aggregate purchase
price of $500,000 (the "Additional Securities"). The closing of the purchase and
sale of the Additional Securities is hereinafter referred to as the "Subsequent
Closing," the date of the Subsequent Closing is hereinafter referred to as the
"Subsequent Closing Date" and the purchase price paid for the Additional
Securities is hereinafter referred to as the "Additional Securities Purchase
Price."
(ii) At the Subsequent Closings (a) the Company shall deliver to
each Purchaser and each Purchaser shall be obligated (subject to the terms and
conditions herein) to purchase such portion of such Debentures and Warrants (the
Second Tranche and the Optional Securities shall be collectively referred to
herein as the "Additional Securities") sold by the Company as equals such
Purchaser's pro rata portion of the purchase price for the Initial Securities
issued and sold at the Initial Closing. The Subsequent Closing shall take place
in the same manner as the Initial Closing; provided, however, that in no case
shall the Subsequent Closing take place unless and until the conditions listed
in Section 4.2 have been satisfied or waived by the appropriate party.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company. The Company
hereby makes the following representations and warranties to the Purchasers:
(a) Organization and Qualification; Subsidiaries. The Company is a
corporation, duly
-6-
<PAGE> 7
organized, validly existing and in good standing under the laws of the State of
California, with the requisite corporate power and authority to own and use its
properties and assets and to carry on its business as currently conducted. The
Company has no subsidiaries other than as set forth in Schedule 2.1(a)
(collectively, the "Subsidiaries"). Each of the Subsidiaries is a corporation,
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with the full
corporate power and authority to own and use its properties and assets and to
carry on its business as currently conducted. Each of the Company and the
Subsidiaries is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the case may be,
would not, individually or in the aggregate, (x) adversely affect the legality,
validity or enforceability of the Debentures or any of the other Transaction
Documents (as defined below), (y) have or result in a material adverse effect on
the results of operations, assets, prospects (insofar as such prospects may
reasonably be foreseen) or financial condition of the Company and the
Subsidiaries, taken as a whole or (z) adversely impair the Company's ability to
perform fully on a timely basis its obligations under any Transaction Document,
including, without limitation, the Company's obligations under Section 3.7
hereof (any of (x), (y) or (z), being a "Material Adverse Effect").
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by this Agreement and the other Transaction Documents, and
otherwise to carry out its obligations hereunder and thereunder. This Agreement,
the Registration Rights Agreement, the Debentures and the Warrants are
collectively referred to as the "Transaction Documents." The execution and
delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary action on the part of the Company and no
further action is required by the Company. Each of the Transaction Documents has
been duly executed by the Company and when delivered in accordance with the
terms hereof will constitute the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application. Neither the Company nor any
Subsidiary is in violation of any of the provisions of its respective articles
of incorporation, bylaws or other organizational documents.
(c) Capitalization; Rights to Acquire Capital Stock. On the date
hereof, the authorized capital of the Company consists of (i) 18,000,000 shares
of Common Stock, no par value, of which 3,456,092 are issued and outstanding and
(ii) 2,000,000 shares of preferred stock, no par value, none of which have been
issued. Schedule 2.1(c)(i) hereto sets forth the options, warrants and
convertible securities of the Company (the "Derivative Securities") which are
outstanding on the date hereof, including in each case (i) the name and class of
such Derivative Securities, (ii) the issue date of such Derivative Securities,
(iii) the number of shares of Common Stock of the Company into which such
Derivative Securities are convertible as of the date hereof, (iv) the conversion
or exercise price or prices of such Derivative Securities as of the date hereof
and (v) the expiration date of any conversion or exercise rights held by the
owners of such Derivative Securities. All issued and outstanding shares of
capital stock of the Company and each Subsidiary have been duly authorized and
validly issued and are fully paid and non-assessable. No shares of the capital
stock of the Company are entitled to preemptive or similar rights, nor is any
holder of the capital stock of the Company entitled to preemptive or similar
rights arising out of any agreement or understanding with the Company by virtue
of any
-7-
<PAGE> 8
of the Transaction Documents. To the best knowledge of the Company, no Person or
group of related Persons beneficially owns (as determined pursuant to Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) or has the right to acquire by agreement with or by obligation binding
upon the Company beneficial ownership of in excess of 5% of the Common Stock. A
"Person" means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind. The Common Stock is quoted and is listed for trading on The Nasdaq
Small-Cap Market. Except as described on Schedule 2.1(c)(ii), the Company has
received no notice, either oral or written, with respect to the continued
eligibility of the Common Stock for such listing, and the Company has maintained
all requirements for the continuation of such listing. After giving effect to
the transactions contemplated in this Agreement, the Company believes that it is
in compliance with all such maintenance requirements.
(d) Issuance of Securities. The Debentures have been duly authorized
for issuance, and when duly executed and delivered by the Company in accordance
with this Agreement, shall constitute legal, valid and binding obligations of
the Company, enforceable against the Company in accordance with their terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application. The Company has and, at the
Initial Closing Date and each Subsequent Closing Date (each, a "Closing Date"),
as the case may be, will have and at all times while the Debentures and the
Warrants are outstanding will maintain an adequate reserve of duly authorized
shares of Common Stock as may be necessary to effect conversion of the
Debentures and exercise of the Warrants. The shares of Common Stock issuable
upon conversion of , or in lieu of interest payments on, the Debentures are
referred to herein as the "Underlying Shares." When issued in accordance with
the Debentures, the Underlying Shares will be duly authorized, validly issued,
fully paid and nonassessable, free and clear of all liens. The shares of Common
Stock issuable upon exercise of the Warrants are referred to herein as the
"Warrant Shares." When issued and paid for in accordance with the Warrant, the
Warrant Shares will be duly authorized, validly issued, fully paid and
nonassessable, free and clear of all liens. The Debentures, the Warrants, the
Underlying Shares and the Warrant Shares are referred to herein as the
"Securities."
(e) No Conflicts. The execution, delivery and performance of this
Agreement and the other Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
do not and will not (i) conflict with or violate any provision of its articles
of incorporation, bylaws or other organizational documents (each as amended
through the date hereof) or (ii) subject to obtaining the consents referred to
in Section 2.1(e), 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 (evidencing a Company debt or otherwise)
to which the Company is a party or by which any property or asset of the Company
is bound or affected, (iii) result in a violation of any law, rule, regulation,
order, judgment, injunction, decree or other restriction of any court or
governmental authority to which the Company is subject (including Federal and
state securities laws and regulations), or by which any material property or
asset of the Company is bound or affected, or (iv) result in the creation of
imposition of a Lien upon any of the Securities or any of the assets of the
Company, or any of its Affiliates (as such term is defined under Rule 405
promulgated under the Securities Act of 1933, as amended (the "Securities
Act")), except in the case of each of clauses (ii) and (iii), such conflicts,
defaults, terminations, amendments, accelerations, cancellations and
-8-
<PAGE> 9
violations as would not, individually or in the aggregate, have or result in a
Material Adverse Effect. The business of the Company is not being conducted in
violation of any law, ordinance or regulation of any governmental authority
except for any such violation as would not, individually or in the aggregate,
have or result in a Material Adverse Effect.
(f) Consents and Approvals. Other than the consent of Libra Finance
S.A. (as well as each of Austinvest Anstalt Balzers ("Austinvest"), Esquire
Trade and Finance Inc. ("Esquire"), Amro International S.R. ("Amro") and Nesher
Inc (Nesher", and together with Austinvest and Esquire, the "Other Holders"),
the consent, if any shall be required, of National Securities Group (it being
acknowledged that the Company believes that National has previously given its
consent and that, in any event, that such consent is not required) and except as
specifically set forth in Schedule 2.1(f), neither the Company nor any
Subsidiary is required to obtain any consent, waiver, authorization or order of,
give any notice to, or make any filing or registration with, any court or other
federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filing of the Registration Statement
with the Commission, which shall be filed in accordance with and in the time
periods set forth in the Registration Rights Agreement, (ii) the application(s)
or any letter(s) acceptable to The Nasdaq Small-Cap Market for the listing of
the Underlying Shares and the Warrant Shares with The Nasdaq Small-Cap Market
(and with any other national securities exchange or market on which the Common
Stock is then listed), and (iv) any filings, notices or registrations under
applicable federal and state securities laws (together with the consents,
waivers, authorizations, orders, notices and filings referred to in Schedule
2.1(f), the "Required Approvals").
(g) Litigation; Proceedings. Except as specifically set forth in
Schedule 2.1(g), there is no action, suit, notice of violation, proceeding or
investigation pending or, to the knowledge of the Company, threatened against or
affecting the Company or any of the Subsidiaries or Affiliates or any of their
respective properties before or by any court, governmental or administrative
agency or regulatory authority (federal, state, county, local or foreign) which
(i) adversely affects or challenges the legality, validity or enforceability of
any of the Transaction Documents or the Securities or (ii) could reasonably be
expected to, individually or in the aggregate, have a Material Adverse Effect.
(h) No Default or Violation. Except as set forth in Schedule 2.1(h),
neither the Company nor any Subsidiary (i) is in default under or in violation
of any indenture, loan or credit agreement or any other agreement or instrument
to which it is a party or by which it or any of its properties is bound which
could reasonably be expected to, individually or in the aggregate, have a
Material Adverse Effect, (ii) is in violation of any order of any court,
arbitrator or governmental body applicable to it, or (iii) is in violation of
any statute, rule or regulation of any governmental authority to which it is
subject, which violation could reasonably be expected to, individually or in the
aggregate, have a Material Adverse Effect.
(i) Schedules. The Schedules to this Agreement furnished by or on
behalf of the Company do not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements made
therein not misleading.
(j) Private Offering. The Company and to the best of the Company's
knowledge, all Persons acting on its behalf have not made, and will not make,
offers or sales of the Debentures or the Warrants, and any securities that might
be integrated with offers and sales of the Debentures and the Warrants,
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<PAGE> 10
except to "accredited investors" (as defined in Regulation D ("Regulation D")
under the Securities Act) without any general solicitation or advertising and
otherwise in compliance with the conditions of Regulation D. The offer and sale
by the Company to the Purchasers of the Debentures and the Warrants and the
Underlying Shares and the Warrant Shares into which the Debentures and the
Warrants are convertible or exercisable, as the case may be, is exempt from the
registration requirements of the Securities Act.
(k) SEC Documents; Financial Statements; No Adverse Change. The
Company has filed all reports required to be filed by it under the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, (the foregoing materials
being collectively referred to herein as the "SEC Documents") on a timely basis
or received a valid extension of such time of filing and has filed any such SEC
Documents prior to the expiration of any such extension. As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the Exchange Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Documents, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. All material agreements to which the Company is a party or to which
the property or assets of the Company are subject have been filed as exhibits to
the SEC Documents as required; neither the Company nor any of the Subsidiaries
is in breach of any agreement where such breach could reasonably be expected to,
individually or in the aggregate, have a Material Adverse Effect. The financial
statements of the Company included in the SEC Documents comply in all material
respects with applicable accounting requirements and the rules and regulations
of the Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis during
the periods involved, except as may be otherwise specified in such financial
statements or the notes thereto, and fairly present in all material respects the
financial position of the Company as of and for the dates thereof and the
results of operations and cash flows for the periods then ended, subject, in the
case of unaudited statements, to normal year-end audit adjustments. Since the
date of the financial statements included in the Company's last filed Quarterly
Report on Form 10-Q for the period ended September 30, 1998, there has been no
event, occurrence or development that has had a or could reasonably be expected
to have a Material Adverse Effect which has not been specifically disclosed to
the Purchasers by the Company.
(l) Investment Company. The Company is not, and is not controlled by
or under common control with an affiliate of, an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
(m) Certain Fees. No fees or commissions will be payable by the
Company to any broker, financial advisor, finder, investment banker, or bank
with respect to the transactions contemplated by this Agreement. The Purchasers
shall have no obligation with respect to any fees or with respect to any claims
made by or on behalf of other Persons for fees of a type contemplated in this
Section 2.1(m) that may be due in connection with the transactions contemplated
by this Agreement. The Company shall indemnify and hold harmless each of the
Purchasers, its employees, officers, directors, agents, and partners, and their
respective Affiliates, from and against all claims, losses, damages, costs
(including the costs of preparation and attorney's fees) and expenses suffered
in respect of any such claimed or existing fees.
(n) Solicitation Materials. The Company has not distributed any
offering materials in connection with the offering and sale of the Securities.
The Company confirms that it has not provided the
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<PAGE> 11
Purchasers or their agents or counsel with any information that constitutes or
might constitute material non-public information. The Company understands and
confirms that the Purchasers shall be relying on the foregoing representations
in effecting transactions in securities of the Company.
(o) Exclusivity. The Company shall not issue and sell Debentures or
Warrants to any Person other than the Purchasers pursuant to this Agreement
other than with the prior written consent of each of the Purchasers.
(p) Patents and Trademarks. The Company has sufficient title and
ownership of all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and rights that
are necessary for use in connection with its business, as currently conducted
and as described in the SEC Documents, and such business does not and would not
conflict with or constitute an infringement on such rights of others.
(q) Acknowledgment of Dilution. The Company acknowledges that the
issuance of (i) the Underlying Shares upon conversion of the Debentures, (ii)
the Warrant Shares upon exercise of the Warrants may result in dilution of the
outstanding shares of Common Stock, which dilution may be substantial under
certain market conditions. The Company further acknowledges that its obligation
to issue (i) the Underlying Shares upon conversion of the Debentures and (ii)
the Warrant Shares upon exercise of the Warrants is unconditional and absolute
regardless of the effect of any such dilution.
(r) Registration Rights; Rights of Participation. Except as described
on Schedule 2.1(r) hereto, (A) the Company has not granted or agreed to grant to
any Person any rights (including "piggyback" registration rights) to have any
securities of the Company registered with the Commission or any other
governmental authority which has not been satisfied and (B) no Person,
including, but not limited to, current or former shareholders of the Company,
underwriters, brokers or agents, has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in the
transactions contemplated by this Agreement or any other Transaction Document.
(s) Title. Except as disclosed in Schedule 2.1(s), the Company and the
Subsidiaries have good and marketable title in fee simple to all real property
and personal property owned by them which is material to the business of the
Company or the Subsidiaries, in each case free and clear of all liens, except
for liens, claims or encumbrances that 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 or the Subsidiaries. Any real property and
facilities held under lease by the Company or the 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 or the Subsidiaries.
(t) Permits. The Company and the Subsidiaries possess all franchises,
certificates, licenses, authorizations and permits or similar authority
necessary to conduct their respective businesses as described in the SEC
Documents except where the failure to possess such permits would not,
individually or in the aggregate, have a Material Adverse Effect ("Material
Permits"), and neither the Company nor any such Subsidiary has received any
notice of proceedings relating to the revocation or modification of any Material
Permit.
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<PAGE> 12
(u) Employment Matters. The Company and each Subsidiary is in
compliance in all material respects with all presently applicable provisions of
the Employee Retirement Income Security Act of 1974, as amended, including the
regulations and published interpretations thereunder ("ERISA"); no "reportable
event" (as defined in ERISA) has occurred with respect to any "pension plan" (as
defined in ERISA) for which the Company or any Subsidiary would have any
liability; neither the Company nor any Subsidiary has incurred and expects to
incur liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal
Revenue Code of 1986, as amended, including the regulations and published
interpretations thereunder (the "Code"); and each "pension plan" for which the
Company or any Subsidiary would have any liability that is intended to be
qualified under Section 401(a) of the Code is so qualified in all material
respects and nothing has occurred, whether by action or by failure to act, which
would cause the loss of such qualification.
(v) Insurance. The Company and each Subsidiary maintains property and
casualty, general liability, workers' compensation, environmental hazard,
personal injury and other similar types of insurance with financially sound and
reputable insurers that is adequate, consistent with industry standards. Neither
the Company nor any Subsidiary has received notice from, and has any knowledge
of any threat by, any insurer (that has issued any insurance policy to the
Company or any Subsidiary) that such insurer intends to deny coverage under or
cancel, discontinue or not renew any insurance policy presently in force.
(w) Taxes. All applicable tax returns required to be filed by the
Company and each of the Subsidiaries have been filed, or if not yet filed have
been granted extensions of the filing dates which extensions have not expired,
and all taxes, assessments, fees and other governmental charges upon the
Company, the Subsidiaries, or upon any of their respective properties, income or
franchises, shown in such returns and on assessments received by the Company or
the Subsidiaries to be due and payable have been paid, or adequate reserves
therefor have been set up if any of such taxes are being contested in good
faith; or if any of such tax returns have not been filed or if any such taxes
have not been paid or so reserved for, the failure to so file or to pay would
not in the aggregate or individually have a Material Adverse Effect.
(x) No Integrated Offering. Neither the Company, nor any of its
Affiliates, nor any Person acting on its or their behalf, has directly or
indirectly made any offers or sales in any security or solicited any offers to
buy any securities under circumstances that would cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the Securities Act or any applicable shareholder
approval provisions, including, without limitation, under the rules and
regulations of The Nasdaq Stock Market, as applicable. The Company has not
conducted any offering that will be integrated with the issuance of the
Securities solely for purpose of Rule 4460(i) of The Nasdaq Stock Market, Inc.'s
Marketplace Rules.
(y) Year 2000 Compliance. The Company has initiated a review and
assessment of all areas within its and each Subsidiaries' business and
operations that could be adversely affected by the "Year 2000 Problem" (that is,
the risk that computer applications used by the Company or any of the
Subsidiaries may be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and any date after December 31,
1999). Based on the foregoing, except as set forth on Schedule 2.1(y), the
Company believes that the computer applications that are currently material to
its or any Subsidiaries' business and operations are reasonably expected to be
able to perform properly date-sensitive functions for all dates before and after
January 1, 2000, except to the extent that a failure to do so would not
reasonably be expected to have a Material Adverse Effect. For the avoidance of
doubt, this Section 2.1(y) applies only to the
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<PAGE> 13
Company and the Subsidiaries.
(z) Full Disclosure. The representations and warranties of the Company
set forth in this Agreement do not contain any untrue statement of a material
fact or omit any material fact necessary to make the statements contained
herein, in light of the circumstances under which they were made, not
misleading.
2.2 Representations and Warranties of the Purchasers. Each of the
Purchasers, severally and not jointly, hereby represents and warrants to the
Company as follows:
(a) Investment Intent. Such Purchaser is acquiring the Securities for
its own account for investment purposes only and not with a view to or for
distributing or reselling such Securities or any part thereof or interest
therein, without prejudice, however, to such Purchaser's right, at all times to
sell or otherwise dispose of all or any part of such Securities pursuant to an
effective registration statement under the Securities Act and in compliance with
applicable State securities laws or under an exemption from such registration
subject to the provisions of this Agreement and the Registration Rights
Agreement,.
(b) Purchaser Status. At the time such Purchaser was offered the
Securities, and at each Closing Date, (i) it was and will be, an "accredited
investor" (as defined in Regulation D), or (ii) such Purchaser either alone or
together with its representatives, had and will have such knowledge,
sophistication and experience in business and financial matters so as to be
capable of evaluating the merits and risks of the prospective investment in the
Securities, and had and will have so evaluated the merits and risks of such
investment. Such Purchaser has the authority and is duly and legally qualified
to purchase and own the Securities.
(c) Ability of Purchaser to Bear Risk of Investment. Such Purchaser is
able to bear the economic risk of an investment in the Securities and, at the
present time, is able to afford a complete loss of such investment.
(d) Reliance. Each Purchaser understands and acknowledges that (i) the
Securities are being offered and sold to the Purchaser without registration
under the Securities Act in a private placement that is exempt from the
registration provisions of the Securities Act under Section 4(2) of the
Securities Act or Regulation D promulgated thereunder and (ii) the availability
of such exemption, depends in part on, and the Company will rely upon the
accuracy and truthfulness of, the foregoing representations and such Purchaser
hereby consents to such reliance.
The Company acknowledges and agrees that the Purchasers make no
representations or warranties with respect to the transactions contemplated
hereby or the other Transaction Documents other than those specifically set
forth in this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions.
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<PAGE> 14
(a) If any Purchaser should decide to dispose of any Debentures (and
upon conversion thereof any of the Underlying Shares) or Warrants (and upon
exercise thereof any of the Warrant Shares) held by it, each Purchaser
understands and agrees that it may do so only pursuant to an effective
registration statement under the Securities Act, to the Company or pursuant to
an available exemption from the registration requirements of the Securities Act.
In connection with any transfer of any Securities other than pursuant to an
effective registration statement or to the Company, the Company may require the
transferor thereof to provide to the Company a written opinion of counsel, the
form and substance of which opinion shall be reasonably satisfactory to the
Company, to the effect that such transfer does not require registration of such
transferred securities under the Securities Act. Notwithstanding the foregoing,
the Company hereby consents to and agrees to register (i) any transfer of
Securities by one Purchaser to another Purchaser, and agrees that no
documentation other than executed transfer documents shall be required for any
such transfer, and (ii) any transfer by any Purchaser to an Affiliate of such
Purchaser or to an Affiliate of another Purchaser, or any transfer among any
such Affiliates, provided that transferee certifies in writing to the Company
that it is an "accredited investor" (as defined in Regulation D). Any such
transferee shall agree in writing to be bound by the terms of this Agreement and
shall have the rights of a Purchaser under this Agreement and the Registration
Rights Agreement.
(b) Each Purchaser agrees to the imprinting, so long as is required by
this Section 3.1(b), of the following legend on the Securities:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT.
The Underlying Shares issuable upon conversion of the Debentures and the
Warrant Shares issuable upon exercise of the Warrants shall not contain the
legend set forth above if such conversion or exercise occurs at any time while
the Registration Statement is effective under the Securities Act or in the event
there is not an effective Registration Statement at such time, if in the written
opinion of counsel to the Company (such opinion to be furnished at the sole
expenses of the Company at the request of a Purchaser) such legend is not
required under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission). The
Company agrees that it will provide each Purchaser, upon request, with a
certificate or certificates representing Underlying Shares and/or Warrant
Shares, free from such legend at such time as such legend is no longer required
hereunder.
(c) Each Purchaser further agrees that should it decide to dispose of
any Debentures, Underlying Shares, Warrants or Warrant Shares (collectively
referred to herein as the "Securities"), held by it, such Purchaser will dispose
of no more Securities per day in the aggregate than would equal the greater of
(i) 10% of the average per day trading volume for the five previous consecutive
Trading Days (as defined in the Debentures) and (ii) such number of Securities
having a value of $50,000 based on the previous Trading Day's Per Share Market
Value, provided, however, such restriction shall no longer apply if the Per
Share Market
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<PAGE> 15
Value (as defined in the Debentures) is at least $4.00 per share for five out of
any seven consecutive Trading Days, subject to adjustment for stock splits,
stock dividends, combinations and other similar recapitalizations, and so long
as the average daily trading volume during the preceding seven Trading Days is
at least 50,000 shares per day.
3.2 Stop Transfer Orders; Suspension of Qualification. The Company may not
make any notation on its records or give instructions to any transfer agent of
the Company which enlarge the restrictions of transfer set forth in Section 3.1.
The Company will advise the Purchasers, promptly after it receives notice of
issuance by the Commission, any state securities commission or any other
regulatory authority of any stop order or of any order preventing or suspending
the use of any offering of any securities of the Company, or of the suspension
of the qualification of the Common Stock for offering or sale in any
jurisdiction, or the initiation of any proceeding for any such purpose.
3.3 Furnishing of Information. As long as any Purchaser owns Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to Section 13(a) or 15(d) of the
Exchange Act and to promptly furnish the Purchasers with true and complete
copies of all such filings. As long as any Purchaser owns Securities, if the
Company is not required to file reports pursuant to Section 13(a) or 15(d) of
the Exchange Act, it will prepare and furnish to the Purchasers and make
publicly available in accordance with Rule 144(c) promulgated under the
Securities Act annual and quarterly financial statements, together with a
discussion and analysis of such financial statements in form and substance
substantially similar to those that would otherwise be required to be included
in reports required by Section 13(a) or 15(d) of the Exchange Act, as well as
any other information required thereby, in the time period that such filings
would have been required to have been made under the Exchange Act. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request, all to the extent required from time to time
to enable such Person to sell Underlying Shares and/or Warrant Shares without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144 promulgated under the Securities Act, including the legal
opinion referenced above in Section 3.1. Upon the request of any such Person,
the Company shall deliver to such Person a written certification of a duly
authorized officer as to whether it has complied with such requirements.
3.4 Blue Sky Laws. In accordance with the Registration Rights Agreement,
the Company shall qualify the Underlying Shares under the securities or Blue Sky
laws of such jurisdictions as the Purchasers may request and shall continue such
qualification at all times through the third anniversary of the last Closing
Date.
3.5 Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of any or all of such securities to any Purchaser.
3.6 Certain Agreements. As long as any Purchaser owns Debentures, the
Company shall not and shall cause the Subsidiaries not to, without the consent
of the holders of all of the Debentures then outstanding, (i) amend its articles
of incorporation, bylaws or other organizational documents so as to adversely
affect any rights of any Purchaser; (ii) declare, authorize, set aside or pay
any dividend or other distribution with respect
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<PAGE> 16
to the Common Stock as would adversely affect the rights of any Purchaser
hereunder or under the Debentures; (iii) repay, repurchase or offer to repay,
repurchase or otherwise acquire shares of its Common Stock in any manner; or
(iv) enter into any agreement with respect to any of the foregoing.
3.7 Listing and Reservation of Underlying Shares and Warrant Shares;
Compliance with Law.
(a) The Company shall (i) not later than the fifth Business Day
following the applicable Closing Date prepare and file with The Nasdaq Small-Cap
Market (as well as any other national securities exchange or market on which the
Common Stock is then listed) an additional shares listing application or a
letter acceptable to The Nasdaq Small-Cap Market covering and listing a
sufficient number of shares of Common Stock to cover the maximum number of
Underlying Shares and Warrant Shares then issuable, (ii) take all steps
necessary to cause the Underlying Shares and the Warrant Shares to be approved
for listing in The Nasdaq Small Cap Market (as well as on any other national
securities exchange or market on which the Common Stock is then listed) as soon
as possible thereafter, and (iii) provide to the Purchasers evidence of such
listing, and the Company shall maintain the listing of its Common Stock on such
market. As used herein, "Business Day" means any day except Saturday, Sunday and
any day which shall be a legal holiday or a day on which banking institutions in
the State of New York generally are authorized or required by law or other
government actions to close.
(b) The Company shall at all times have authorized and reserved for
issuance upon conversion of the Debentures and upon exercise of the Warrants a
sufficient number of shares of Common Stock to provided for the conversion of
the Debentures and exercise of the Warrants..
(c) The Company shall notify the Commission and NASD, in accordance
with their requirements, of the transactions contemplated by this Agreement, and
shall take all other necessary action and proceedings as may be required and
permitted by applicable law, rule and regulation, for the legal and valid
issuance of the Securities to the Purchasers and promptly provide copies thereof
to the Purchasers.
(d) Until at least two (2) years after the last of the Debentures has
been converted into Underlying Shares or the last of the Warrants has been
exercised for the Warrant Shares, (i) the Company will cause its Common Stock to
continue to be registered under Sections 12(b) or 12(g) of the Exchange Act,
will comply in all respects with its reporting and filing obligations under such
Exchange Act, will comply with all requirements related to any registration
statement filed pursuant to this Agreement or the Registration Rights Agreement
and will not take any action or file any document (whether or not permitted by
the Securities Act or the Exchange Act or the rules and regulations thereunder)
to terminate or suspend such registration or to terminate or suspend its
reporting and filing obligations under the Securities Act and Exchange Act,
except as permitted herein and (ii) the Company will take all action within its
power to continue the listing or trading of its Common Stock on The Nasdaq
Small-Cap Market and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the NASD and The
Nasdaq Stock Market.
3.8 Notice of Breaches.
(a) Each of the Company and each Purchaser shall give prompt written
notice to the other of any breach of any representation, warranty or other
agreement contained in this Agreement, the Debentures, the Warrants or the
Registration Rights Agreement, as well as any events or occurrences arising
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<PAGE> 17
after the date hereof and prior to any Closing Date, which would reasonably be
likely to cause any representation or warranty or other agreement of such party,
as the case may be, contained herein to be incorrect or breached as of such
Closing Date. However, no disclosure by any party pursuant to this Section 3.8
shall be deemed to cure any breach of any representation, warranty or other
agreement contained herein or in the Registration Rights Agreement.
(b) Notwithstanding the generality of Section 3.8(a), the Company
shall promptly notify each Purchaser of any notice or claim (written or oral)
that it receives from any lender of the Company to the effect that the
consummation of the transactions contemplated hereby, by the Debentures, by the
Warrants and by the Registration Rights Agreement violates or would violate any
written agreement or understanding between such lender and the Company, and the
Company shall promptly furnish by facsimile to each Purchaser a copy of any
written statement in support of or relating to such claim or notice.
(c) The default by any Purchaser of any of its obligations,
representations or warranties under any Transaction Document shall not be
imputed to, and shall have no effect upon, any other Purchaser or affect the
Company's obligations under the Transaction Documents to any non-defaulting
Purchaser with respect to any outstanding Debentures, Warrants, Underlying
Shares or Warrant Shares.
3.9 Conversion Obligations of the Company. The Company covenants to convert
Debentures and to deliver the Underlying Shares in accordance with the terms and
conditions and within the time period set forth in the Debentures.
3.10 Use of Proceeds. The Company shall use all of the proceeds from the
sale of the Securities for working capital and general corporate purposes and
not for the satisfaction of any portion of Company borrowings outside the normal
course of business, including, without limitation, any obligation or liability
of any kind whatsoever owed to a shareholder, officer or director of the
Company, or to redeem Company equity or equity-equivalent securities, except as
specifically set forth on Schedule 3.10 hereto. Pending application of the
proceeds of this placement in the manner permitted hereby, the Company will
invest such proceeds in interest bearing accounts and/or short-term, investment
grade interest bearing securities.
3.11 Indemnification. The Company also will indemnify and hold the
Purchasers harmless against any and all losses, claims, damages or liabilities
to any such Person (including, without limitation, in connection with any
action, proceeding or investigation brought by or against any such Person,
including by shareholders of the Company) in connection with or as a result of
any matter referred to in this Transaction Documents, including, without
limitation, for any misrepresentation by the Company, for breaches of
representations and warranties contained in any of the Transaction Documents,
and for any breach, non-compliance or nonfulfillment by the Company of any
covenant, agreement or undertaking to be complied with or performed by it
contained in or pursuant to the Transaction Documents. If for any reason the
foregoing indemnification is unavailable to such Purchaser or is insufficient to
hold such Person harmless, then the Company shall contribute to the amount paid
or payable by such Purchaser as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect the relative economic
interests of the Company and its shareholders on the one hand and the Purchasers
on the other hand in the matters contemplated by the Transaction Documents as
well as the relative fault of the Company and the Purchasers with respect to
such loss, claim, damage or liability and any other relevant equitable
considerations. The reimbursement, indemnity and contribution obligations of the
Company under this paragraph shall be in
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<PAGE> 18
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any affiliate of the Purchasers and the
partners, directors, agents, employees and controlling persons (if any), as the
case may be, of the Purchasers and any such affiliate, and shall be binding upon
and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers, any such affiliate and any such
Person. The Company also agrees that neither the Purchasers nor any of such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company in connection with or as a result of any matter referred
to in this Agreement except to the extent that any losses, claims, damages,
liabilities or expenses incurred by the Company result from the gross negligence
or bad faith of, or knowing breach of this Agreement by, the Purchasers.
Promptly after receipt by the Purchasers or any affiliate, partners, directors,
agents, employees and controlling persons, as the case may be, of notice of any
claim or other commencement of any action in respect of which indemnity may be
sought, such party will notify the Company in writing of the receipt or
commencement thereof and the Company shall have the right to assume the defense
of such claim or action (including the employment of counsel reasonably
satisfactory to the indemnified parties and the payment of fees and expenses of
such counsel). The indemnified party shall cooperate with the Company and the
Company's counsel in the defense of such claim or action. The Purchasers
understand that the Company shall not in connection with any one such claim or
action or separate but substantially similar related claims or actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate firm of
attorneys for all of the indemnified parties unless the defense of one
indemnified party is unique or separate from that of another indemnified party
or one or more legal defenses are available to an indemnified party but not to
other indemnified parties subject to the same claim or action. In the event the
Company does not promptly assume the defense of a claim or action, the
indemnified parties shall have the right to employ counsel reasonably
satisfactory to the Company, at the Company's expense, to defend such claim or
action. The indemnified party shall not admit any liability with respect to the
claim or action or settle, compromise, pay or discharge the same without the
prior written consent of the Company so long as the Company is reasonably
contesting or defending the same in good faith. The Company shall not
compromise, settle or discharge any claim or action without the Purchasers'
consent, as applicable, which consent will not be unreasonably withheld, unless
there is no finding or admission of any violation of any law against the
indemnified party and the sole relief is monetary damages paid in full by the
Company. The provisions of this Section 3.11 shall survive any termination or
completion of the Transaction Documents.
3.12 Subsequent Sales and Registrations. (a) Until the later of (i) 180
days after the Subsequent Closing, or if there is no Subsequent Closing Date,
after the Initial Closing Date and (ii) 60 days after all Underlying Shares and
Warrant Shares have been registered under the Securities Act pursuant to an
effective registration statement, the Company shall not, directly or indirectly,
without the prior written consent of the Purchasers, offer, sell, grant any
option to purchase, or otherwise dispose of (or announce any offer, sale, grant
of any option to purchase or other disposition) any of its or its Affiliates'
equity or equity-equivalent securities or any instrument that permits the holder
thereof to acquire Common Stock at a price that is less than the market price of
the Common Stock at the time of issuance of such security or instrument and, if
such security or instrument contains a conversion feature, at a conversion price
that is less than the market price of the Common Stock at the time of issuance
of such security or instrument, except (i) the granting of options or warrants
to employees, officers and directors, and the issuance of shares upon exercise
of options granted, under any stock option plan heretofore or hereinafter duly
adopted by the Company (including any stock options plans which are restated
after the date hereof), (ii) shares issued upon exercise of any currently
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outstanding warrants disclosed in Schedule 2.1(c)(i), and (iii) shares of Common
Stock issued upon conversion of Debentures or upon exercise of the Warrants.
(b) Other than Underlying Shares, Warrant Shares and other
"Registrable Securities" (as defined in the Registration Rights Agreement) to be
registered in accordance with the Registration Rights Agreement, the Company
shall not, for a period of not less than 90 Trading Days (as defined in the
Debentures) after the dates that any registration statement relating to the
Securities is declared effective by the Commission, without the prior written
consent of the Purchasers, (i) register for resale any securities of the
Company, except as set forth on Schedule 2.1(r), or (ii) issue or sell any of
its or any of its Affiliates' equity or equity-equivalent securities except for
(A) securities issued upon the exercise or conversion of the securities set
forth on Schedule 2.1(c)(i) or (B) securities sold pursuant to the Company's
employee benefit plans. Any days that any Purchaser is unable to sell Underlying
Shares or Warrant Shares under the Registration Statement shall be added to such
90 Trading Day period for the purposes of (i) and (ii) above.
3.13 Shareholder Approval. The Company shall, as promptly as possible, but
in no event later than 60 days after the Initial Closing Date, convene a
shareholders' meeting, held in accordance with the Company's Certificate of
Incorporation and bylaws, and use its best efforts to obtain the approval
("Shareholder Approval") by a majority of the total votes cast on the proposal
at such shareholders' meeting, in person or by proxy, of (i) the issuance of the
Underlying Shares as a consequence of the conversion of the Debentures and (ii)
the issuance of the Warrant Shares as a consequence of the exercise of the
Warrants, in each case in a number exceeding the maximum number of shares of
Common Stock issuable without shareholder approval at a price less than the
greater of the book or market value on the Original Issue Date (as defined in
the Debentures) as and to the extent required pursuant to Rule 4460(i) of The
Nasdaq Stock Market, Inc.'s Marketplace Rules (or any successor or replacement
provision thereof).
3.14 Incorporation of the Debentures By Reference. The Debentures are
hereby incorporated herein by reference and made a part hereof.
3.15 Board of Directors. While any of the Debentures remain outstanding,
the Purchasers shall have the right to approve the appointment of any new or
replacement member to the Board of Directors, such approval not to be
unreasonably withheld.
3.16 Additional Warrants. If, on the 90th day after the Registration
Statement is declared effective, the Holders have not converted more than 50% of
the principal amount of Debentures issued prior to such date, then the Company
shall issue to each Holder additional warrants, on the same terms as the
Warrants, to purchase such number of shares of Common Stock, equal to principal
amount of Debentures not yet converted by such Holder as of that date divided by
20.
3.17 Short Sales. At any time the Common Stock is trading below $3.00 per
share, no Purchaser shall engage in a short selling transaction.
3.18 Without prior written consent of the Purchaser, which consent may not
be unreasonably withheld, the Company will not incur any additional indebtedness
or issue any shares of its common stock prior to the conversion of the
Debentures; provided however (i) with respect to stock issuances, the foregoing
shall not affect (a) the contemplated offering on the Neuer Markt in Germany,
(b) the issuance of shares
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pursuant to the Company's stock option plan or other outstanding options and
warrants; and (c) the conversion of any existing debt into shares of common
stock at a price per share not less than average of the closing bid price of the
Company's Common Stock as quoted on the Nasdaq Small Cap Market for the five (5)
trading days prior to the date of issuance (and in connection therewith (A) such
holders shall the one-time right to have their shares registered in a demand
offering that does not interfere with this offering and (B) additional warrants
to be issued in connection with such conversion shall not exceed 20% of the
outstanding shares of Common Stock issued in connection with such conversion and
at an exercise price at 110% of the price of the Common Stock issued in
connection with such conversion, and (ii) with respect to indebtedness, the
foregoing shall not effect (a) a bridge financing of $2,000,000 associated with
the Neuer Markt transaction, (b) the issuance of any remaining 8% Debentures
pursuant to the terms substantially identical to those pursuant to which the
previous debentures were issued, or (c) any production financing indebtedness
incurred in the ordinary course.
ARTICLE IV
CONDITIONS
4.1 Conditions Precedent to Sale of the Initial Securities
(a) Conditions Precedent to the Obligation of the Company to Sell the
Initial Securities. The obligation of the Company to sell the Initial Securities
hereunder is subject to the satisfaction or waiver by the Company, at or before
the Initial Closing, of each of the following conditions:
(i) Accuracy of the Purchasers' Representations and Warranties.
The representations and warranties of each Purchaser shall be true and correct
in all material respects as of the date when made and as of the Initial Closing
Date, as though made on and as of such date;
(ii) Performance by the Purchasers. Each Purchaser shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Purchaser at or prior to the Initial Closing; and
(iii) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement or the Registration Rights Agreement.
(b) Conditions Precedent to the Obligation of the Purchasers to
Purchase the Initial Securities. The obligation of each Purchaser hereunder to
acquire and pay for the Initial Securities is subject to the satisfaction or
waiver by such Purchaser, at or before the Initial Closing, of each of the
following conditions:
(i) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company set forth in this Agreement and in
the Registration Rights Agreement shall be true and correct in all material
respects as of the date when made and as of
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the Initial Closing Date as though made on and as of such date;
(ii) Performance by the Company. The Company shall have
performed, satisfied and complied with in all material respects all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Initial Closing;
(iii) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement, the Certificate of Designation, the Warrants or
the Registration Rights Agreement;
(iv) Adverse Changes. Since the date of the financial statements
included in the SEC Document last filed prior to the date of this Agreement, no
event which had a Material Adverse Effect and no material adverse change in the
financial condition of the Company shall have occurred (for purposes hereof
changes in the market price of the Common Stock may be considered as a factor in
determining whether there has occurred an event which has had a Material Adverse
Effect or whether a material adverse change has occurred);
(v) No Suspensions of Trading in Common Stock. The trading in the
Common Stock shall not have been suspended by the Commission or on The Nasdaq
Small Cap Market which suspension shall remain in effect;
(vi) Listing of Common Stock. The Company shall have filed a
listing application to list the Underlying Shares and the Warrant Shares for
trading on The Nasdaq Small Cap Market;
(vii) Legal Opinion. The Company shall have delivered to the
Purchasers the opinion of Kelly Lytton Mintz & Vann LLP, outside counsel to the
Company, in substantially the form annexed hereto as Exhibit D;
(viii) Required Approvals. All Required Approvals shall have been
obtained;
(ix) Shares of Common Stock. On or prior to the Initial Closing
Date, the Company shall have duly reserved the number of Underlying Shares and
Warrant Shares required by the Transaction Documents to be reserved for issuance
upon conversion of the Debentures and upon exercise of the Warrants;
(x) Delivery of Debentures and Warrant Certificates. The Company
shall have delivered to each Purchaser or such Purchaser's designee, (i) the
Debentures representing the Initial Debentures, registered in the name of such
Purchaser, each in form satisfactory to the Purchaser and (ii) warrant
certificate(s) representing the Initial Warrants, registered in the name of such
Purchaser, in form satisfactory to the Purchaser;
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<PAGE> 22
(xi) Other Agreements. The Company shall have executed and
delivered the Registration Rights Agreement, the letter of intent to effectuate
the offering on the Neuer Markt, and the Letter of Intent to acquire Goldstar
Entertainment Media, Inc.;
(xii) Change of Control. No Change of Control shall have occurred
between the date hereof and the Initial Closing Date. "Change of Control" means
the occurrence of any of (i) an acquisition after the date hereof by an
individual or legal entity or "group" (as described in Rule 13d5(b)(1)
promulgated under the Exchange Act) of in excess of 50% of the voting securities
of the Company, (ii) a replacement of more than one-half of the members of the
Board of Directors which is not approved by those individuals who are members of
the Board of Directors on the date hereof in one or a series of related
transactions, (iii) the merger of the Company with or into another entity,
consolidation or sale of all or substantially all of the assets of the Company
in one or a series of related transactions or (iv) the execution by the Company
of an agreement to which the Company is a party or by which it is bound,
providing for any of the events set forth above in (i), (ii) or (iii);
(xiii)Transfer Agent Instructions. The Irrevocable Transfer Agent
Instructions, in the form of Exhibit E annexed hereto, shall have been delivered
to and acknowledged in writing by the Company's transfer agent; and
(xiv) Officer's Certificate. On the Initial Closing Date the
Company shall deliver to the Purchasers an Officer's Certificate dated the
Initial Closing Date and signed by an executive officer of the Company
confirming the accuracy of the Company's representations, warranties and
covenants as of such Closing Date and confirming the compliance by the Company
with the conditions precedent set forth in this Section 4.1 as of the Initial
Closing Date.
4.2 Conditions Precedent to the Obligation of the Purchasers to Purchase
the Additional Securities. The obligation of each Purchaser hereunder to acquire
and pay for the Additional Securities is subject to the satisfaction or waiver
by each Purchaser, at or before any Subsequent Closing, of each of the following
conditions:
(a) Initial Closing. The Initial Closing shall have occurred.
(b) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company contained herein and in the
Registration Rights Agreement shall be true and correct as of the date when made
and as of the Subsequent Closing Date, as though made on and as of such date,
except where the event causing such representation or warranty to be untrue or
incorrect would not result in a Material Adverse Effect;
(c) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement, the Debentures, the Warrants and the
Registration Rights Agreement to be performed, satisfied or complied with by the
Company at or prior to any Subsequent Closing Date;
(d) Registration Statements. With respect to the Optional Closing, the
Registration Statement with respect to the Underlying Shares issuable on
conversion of all Debentures and with respect to
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<PAGE> 23
the Warrant Shares issuable upon exercise of all Warrants shall have been
declared effective under the Securities Act by the Commission; and on the
Optional Closing Date such Registration Statement shall be effective, not
subject to any stop order and not be subject to any suspension pursuant to
Section 3(p) of the Registration Rights Agreement, and shall have been effective
and shall not have been subject to any stop order for the 30 Trading Days prior
to the Optional Closing Date and no stop order shall be pending or threatened as
of the Optional Closing Date;
(e) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court of governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement, the Debentures, the Warrants or the Registration Rights Agreement
relating to the issuance, conversion or exercise of any of the Securities;
(f) Litigation; Proceedings. No action, suit, notice of violation,
proceeding or investigation shall have been instituted or threatened against the
Company which could reasonably be expected to, individually or in the aggregate,
have a Material Adverse Effect;
(g) Management. In the reasonable judgment of each Purchaser, there
have been no substantial changes in the senior management of the Company, and
for changes which could not reasonably be expected to, individually or in the
aggregate, have a Material Adverse Effect;
(h) No Suspensions of Trading in Common Stock. The trading in the
Common Stock shall not have been suspended by the Commission or on The Nasdaq
Small-Cap Market (except for any suspension of trading of limited duration
solely to permit dissemination of material information regarding the Company);
(i) Listing of Common Stock. The Common Stock shall have been at all
times since the Initial Closing Date listed for trading on The Nasdaq Small-Cap
Market and the Company shall have no knowledge of any action or proceeding,
pending or threatened, that may result in the delisting of the Common Stock from
the Nasdaq Small-Cap Market;
(j) Change of Control. No Change of Control shall have occurred since
the Initial Closing Date;
(k) Legal Opinion. The Company shall have delivered to the Purchasers
the opinion of the Company's legal counsel, in substantially the form annexed
hereto as Exhibit D, dated the Subsequent Closing Date;
(l) Required Approvals. All Required Approvals shall have been
obtained;
(m) Shareholder Approval. The Company shall have obtained Shareholder
Approval, both as to the matters contemplated hereby and with respect to the
Other Holders.
(n) Shares of Common Stock. On any Subsequent Closing Date the Company
shall have duly reserved the number of Underlying Shares and Warrant Shares
required by this Agreement to be
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reserved for issuance upon conversion or exercise of any Additional Securities,
as applicable.
(o) Delivery of Securities. The Company shall have delivered to each
Purchaser or such Purchaser's designee the Additional Securities, registered in
the name of such Purchaser, and in form satisfactory to such Purchaser;
(q) Performance of Conversion/Exercise Obligations. The Company shall
have delivered Underlying Shares upon conversion of the Debentures and otherwise
performed its obligations in accordance with the terms, conditions and timing
requirements of each Debenture;
(r) Common Stock Price; Trading Volume. For each of the twenty
consecutive Trading Days immediately preceding any Subsequent Closing Date (i)
the Per Share Market Value (as defined in the Debentures) shall not have been
less than $1.75 and (ii) the trading volume of the Common Stock shall have been
at least 40,000 shares per day;
(s) Adverse Changes. During the period which is ten consecutive
Trading Days prior to any Subsequent Closing Date, the Per Share Market Value of
the Common Stock shall not have decreased by more than 50% from the highest Per
Share Market Value during such period; provided, however, that if the Per Share
Market Value shall have so decreased by more than 50%, but shall have
subsequently increased so that on such Subsequent Closing Date it has been, for
the three consecutive Trading Days immediately prior to such Subsequent Closing
Date, no more than 25% below the highest Per Share Market Value during such
period, then this condition shall be satisfied;
(t) Transfer Agent Instructions. The Irrevocable Transfer Agent
Instructions, in the form of Exhibit E annexed hereto, shall have been delivered
to and acknowledged in writing by the Company's transfer agent; and
(u) Officer's Certificate. On each Subsequent Closing Date the Company
shall deliver to the Purchasers an Officer's Certificate dated as of such
Subsequent Closing Date and signed by an executive officer of the Company
confirming the accuracy of the Company's representations, warranties and
covenants as of such Subsequent Closing Date and confirming the compliance by
the Company with the conditions precedent set forth in this Section 4.2 as of
such Subsequent Closing Date.
ARTICLE V
MISCELLANEOUS
5.1 Fees and Expenses.
(a) The Company shall pay the reasonable legal fees and expenses of
Freshman, Marantz, Orlanski Cooper & Klein, counsel for the Purchasers, incident
to the negotiation, preparation, execution, delivery and performance of this
Agreement and the other Transaction Documents, which legal fees shall not exceed
$15,000 in connection with the negotiation, preparation, execution and delivery
of this Agreement and the other Transaction Documents. The Company shall pay the
fees and expenses of its advisers, counsel, accountants and other experts, if
any, and all other expenses incurred by the Company incident to the negotiation,
preparation, execution, delivery and performance of this Agreement and the other
Transaction Documents. The Company shall pay all stamp and other taxes and
duties levied in
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connection with the issuance of the Securities pursuant to the Transaction
Documents.
(b) The Company shall pay Century City Securities, Inc. at the Initial
Closing and at each Subsequent Closing a fee equal to 8% of the aggregate
principal amount of Debentures sold at such closing. Century City Securities,
Inc. is an intended third-party beneficiary of this Section 5.1(b).
5.2 Entire Agreement; Amendments. This Agreement, together with the
Exhibits and Schedules hereto and the other Transaction Documents, contain the
entire understanding of the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings, oral or written, with
respect to such matters.
5.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earlier of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified for notice prior to 5:00 p.m., New York City time, on
a Business Day, (ii) the Business Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified for notice later than 5:00 p.m., New York City time, on any
date and earlier than 11:59 p.m., New York City time, on such date, (iii) the
Business Day following the date of mailing, if sent by nationally recognized
overnight courier service or (iv) actual receipt by the party to whom such
notice is required to be given. The addresses for such communications shall be
with respect to each Purchaser at its address set forth under its name on
Schedule 1 attached hereto, or with respect to the Company, addressed to:
Team Communications Group, Inc.
12300 Wilshire Boulevard, #400
Los Angeles, California 90025
Attention: Drew S. Levin
Telephone No.: (310) 442-3500
Facsimile No.: (310) 442-3501
or to such other address or addresses or facsimile number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice. Copies of notices to any Purchaser shall be sent to Freshman,
Marantz, Orlanski, Cooper & Klein, 9100 Wilshire Boulevard, 8th Floor, East
Tower, Beverly Hills, CA 90212, Attention: Thomas Poletti, Esq., Facsimile No.:
(310) 274-8357. Copies of notices to the Company shall be sent to Kelly Lytton
Mintz & Vann LLP, 1900 Avenue of the Stars, Suite 1450, Los Angeles, California
90067, Attention: Bruce Vann Esq., Facsimile No.: (310) 277-5953.
5.4 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
both the Company and the Purchasers; or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
either party to exercise any right hereunder in any manner impair the exercise
of any such right accruing to it thereafter. Notwithstanding the foregoing, no
such amendment shall be effective to the extent that it applies to less than all
of the holders of the Securities outstanding. The Company shall not offer or pay
any consideration to a Purchaser for consenting to such an amendment or waiver
unless the same
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consideration is offered to each Purchaser and the same consideration is paid to
each Purchaser which consents to such amendment or waiver.
5.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
5.6 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each of the Purchasers. The Purchasers may
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the Company, except that any assignee must make the
representations and warranties set forth in Section 2.2 and otherwise comply
with the terms of this Agreement otherwise applicable to its assignor. This
provision shall not limit a Purchaser's right to transfer securities or transfer
or assign rights under the Registration Rights Agreement.
5.7 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.
5.8 Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of California, without regard
to the principles of conflicts of law thereof.
5.9 Survival. The agreements, covenants, representations, warranties and
provisions contained in this Agreement shall survive the delivery of the
Securities pursuant to this Agreement and each Closing hereunder and any
conversion of the Debentures or exercise of the Warrants.
5.10 Execution. This Agreement may be executed in two or more counterparts,
all of which when taken together shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that all parties need not sign
the same counterpart. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature page were an original
thereof.
5.11 Publicity. The Company and each Purchaser shall consult with each
other in issuing any press releases or otherwise making public statements with
respect to the transactions contemplated hereby and neither party shall issue
any such press release or otherwise make any such public statement without the
prior written consent of the other, which consent shall not be unreasonably
withheld or delayed, except that no prior consent shall be required if such
disclosure is required by law, in which such case the disclosing party shall
provide the other Party with prior notice of such public statement. The Company
shall not publicly or otherwise disclose the names of any of the Purchasers
without each such Purchaser's prior written consent unless otherwise required by
law, in which case the Company shall inform such Purchaser of such disclosure in
writing prior to making such disclosure.
5.12 Consent to Jurisdiction; Attorneys' Fees (a) The Company (including,
but not limited to, its
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affiliates, subsidiaries, officers, directors and controlling persons) and each
Purchaser hereby (i) irrevocably submits to the exclusive jurisdiction of any
California State court or Federal court sitting in the County of Los Angeles,
The City of Los Angeles in any action related to, connected with or arising out
of, in whole or in part, the Transaction Documents, including, but not limited
to, transactions in the securities of the Company subsequent to the purchase by
such Purchaser or Persons claimed to be affiliated with such Purchaser, (ii)
agrees that all claims in such action shall be decided in such court, (iii)
waives, to the fullest extent it may effectively do so, the defense of
inconvenient forum and (iv) consents to the service of process by certified
mail, return receipt requested. Nothing herein shall affect the right of any
party to serve legal process in any manner permitted by law or affect its right
to bring any action in any other court.
(b) In connection with any dispute between the Company and any
Purchaser, related to, connected with or arising out of, in whole or in part,
the Transaction Documents including, but not limited to, transactions in the
securities of the Company subsequent to the purchase, by a Purchaser or Persons
claimed to be affiliated to a Purchaser, the prevailing party shall be awarded
all reasonable attorneys' fees and expenses incurred by it. In that connection
fees and expenses actually paid by a party in connection with the litigation of
any dispute shall be deemed presumably reasonable.
(c) In the event that any Purchaser or any Person claimed to be
affiliated or associated with such Purchaser becomes involved in any capacity in
any action, proceeding or investigation brought by or against any Person,
including shareholders of the Company, in connection with or as a result of any
matter referred to in the Transaction Documents, the Company will reimburse such
Purchaser and/or those claimed to be affiliated or associated with such
Purchaser for its legal fees and expenses and other expenses (including the cost
of any investigation and preparation) incurred in connection therewith, as those
fees and expenses are incurred; provided, however, that if at the conclusion of
such action, proceeding or investigation it shall be finally judicially
determined by a court of competent jurisdiction that indemnity for such fees and
expenses is contrary to law, or that such Purchaser is not the prevailing party
then in that event, such Purchaser and/or any other Person having received such
advances of fees and expenses shall reimburse the Company in full for the sums
advanced.
(d) The provisions of this Section 5.12 shall survive any termination
or completion of the Transaction Documents.
5.13 Waiver of Jury Trial (a) The parties hereto each waive their
respective rights to a trial by jury of any claim or cause of action based upon
or arising out of or related to the Transaction Documents, or the transactions
contemplated by the Transaction Documents, in any action, proceeding or other
litigation of any type brought by any of the parties against any other party or
parties, whether with respect to contract claims, tort claims, or otherwise. The
parties hereto each agree that any such claim or cause of action shall be tried
by a court trial without a jury. Without limiting the foregoing, the parties
further agree that their respective right to a trial by jury is waived by
operation of this Section 5.13 as to any action, counterclaim or other
proceeding which seeks, in whole or in part, to challenge the validity or
enforceability of any of the Transaction Documents or any provision hereof or
thereof. The waiver shall apply to any subsequent amendments, renewals,
supplements or modifications to any of the Transaction Documents.
(b) The provisions of this Section 5.13 shall survive any termination
or completion of the Transaction Documents.
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5.14 Severability. If any term, provision, covenant or restriction of this
Agreement is held to be invalid, illegal, void or unenforceable in any respect,
the remainder of the terms, provisions, covenants and restrictions set forth
herein shall remain in full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use their reasonable
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
5.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Purchasers
will be entitled to specific performance of the obligations of the Company under
the Transaction Documents and injunctive relief. Each of the Company and the
Purchasers (severally and not jointly) agree that monetary damages would not be
adequate compensation for any loss incurred by reason of any breach of its
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation or injunctive relief
the defense that a remedy at law would be adequate.
5.16 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser hereunder is several and not joint with the
obligations of the other Purchasers hereunder, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any Closing, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose.
-28-
<PAGE> 29
IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized persons as of the
date first indicated above.
TEAM COMMUNICATIONS GROUP, INC.
By: /s/ DREW S. LEVIN
--------------------------------------
Name: Drew S. Levin
Title: Chairman and CEO
-29-
<PAGE> 30
Schedule 1
<TABLE>
<CAPTION>
Principal Amount of Number of Warrants
Debentures Purchased Purchased in
Name of Investor ***in Initial Closing*** Initial Closing
<S> <C> <C>
VMR S.A. LUXEMBOURG $500,000.00 50,000
$
$
$
</TABLE>
-30-
<PAGE> 1
EXHIBIT 4.25
EXHIBIT A TO THE SECURITIES PURCHASE AGREEMENT
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT.
TEAM COMMUNICATIONS GROUP, INC.
(Incorporated in the State of California)
8% CONVERTIBLE DEBENTURE DUE 2002
No. _______________ Principal Amount U.S. $500,000.00
Original Issue Date: February 25, 1999
FOR VALUE RECEIVED, Team Communications Group, Inc., a corporation duly
incorporated and existing under the laws of the State of California (the
"Company"), hereby promises to pay to the order of VMR S.A. Luxembourg, Chateau
Woltz, 34 Rue Nueve, Remich, L5560, Luxembourg, or registered assigns
(hereinafter, the "Holder"), the principal sum of Five Hundred Dollars and no
cents ($500,000.00) United States Dollars on February 23, 2002 (the "Maturity
Date"), subject to earlier conversion or redemption as provided herein. The
Debentures will be convertible into common stock, no par value per share, of the
Company on the terms and subject to the conditions hereinafter set forth at any
time after the date hereof. Interest shall be paid on the unpaid principal
balance of this Debenture at the rate of 8% per annum from the date hereof,
payable, in the manner set forth below, upon conversion, redemption or maturity
of this Debenture to the person that is the Holder on the date of such event.
Interest hereon shall be calculated on the basis of a 360 day year consisting of
twelve 30-day months.
1. General. (a) This Debenture is one of a duly authorized issue of
Debentures of the Company in original aggregate principal amount of $3,000,000
designated as its 8% Convertible Debenture due 2002 (herein called the
"Debentures"), issued pursuant to the authorization of the Board of Directors of
the Company and issued pursuant to a Securities Purchase Agreement, dated
February 25, 1999, by and among the Company and the Purchasers identified
therein (the "Securities Purchase Agreement"). The Securities Purchase Agreement
contains certain additional terms that are binding upon the Company and each
Holder of the Debentures.
(b) The Debentures are issuable, without coupons, in principal
denominations of U.S. $10,000.00 and integral multiples thereof. The Debentures,
and transfers thereof, shall be in registered form as provided in Section 4
hereof. The registered holder of a Debenture shall (to the fullest extent
permitted by applicable law) be treated at all times, by all persons and for all
purposes as the absolute owner of such Debenture, regardless of any notice of
ownership, theft or loss or of any writing thereon.
2. Principal Payment. Payment of the principal of this Debenture shall
be made upon presentation of this Debenture at the Company's principal office
for surrender upon payment in full. The Company may not prepay all or any
portion of this Debenture.
3. Interest. Each Debenture shall be entitled to receive cumulative
interest at the rate of 8% per annum, compounded semi-annually, in cash, on the
principal amount thereof. Such interest shall be due and payable upon
conversion, redemption or maturity of this Debenture. Interest shall accrue from
the Original Issue Date (as defined herein), whether or not earned or declared,
until maturity or such time as the Debenture has been converted or redeemed as
herein provided. The interest so payable will be paid to the person in whose
name the Debentures (or one or more predecessor shares) are registered on the
records of the Company regarding registration and transfers of the Debentures;
provided, however, that the Company's obligation to a transferee of a Debenture
arises only if such transfer, sale or other disposition is made in accordance
with the terms and conditions hereof and
1
<PAGE> 2
the Securities Purchase Agreement.
4. Transfers. The Debentures have been issued subject to investment
representations of the original purchaser and may be transferred or exchanged
only in compliance with the Securities Act of 1933, as amended, and applicable
state securities laws. Prior to due presentment for transfer of each Debenture,
the Company may treat the Holder as the owner thereof for the purpose of
receiving payments as herein provided and all other purposes, and the Company
shall not be affected by any notice to the contrary.
5. Conversion at the Option of the Holder.
(a) (i) The Debentures shall be convertible into shares of
Common Stock (subject to Section 5(a)(ii) and Section 5(a)(iii)) at the
Conversion Ratio (as defined in Section 9) at the option of the Holder
in whole or in part at any time after the Issue Date. The Holders shall
effect conversions by surrendering the Debentures to be converted to
the Company, together with the form of conversion notice attached
hereto as Exhibit 1 (the "Conversion Notice"). The Conversion Notice
may be delivered by facsimile, with the Debenture to follow within
three Trading Days. Each Conversion Notice shall specify the principal
amount of Debentures to be converted. The date on which such conversion
is to be effected shall be the date the Holder delivers such Conversion
Notice by facsimile (the "Conversion Date"). Subject to Sections
5(a)(ii), 5(b) and 5(k) hereof, each Conversion Notice, once given,
shall be irrevocable. If the Holder is converting less than all of the
principal amount represented by the Debenture tendered by the Holder
with the Conversion Notice, or if a conversion hereunder cannot be
effected in full for any reason, the Company shall promptly deliver to
such Holder, at the expense of the Company, (in the manner and within
the time set forth in Section 5(b)) a new Debenture representing the
unconverted principal amount, to the same extent as if the Debenture
theretofore representing such unconverted principal amount had not been
surrendered on conversion.
(ii) If on the Conversion Date applicable to any
conversion, (A) the Common Stock is then listed for trading on the
Nasdaq National Market, the New York Stock Exchange, the American Stock
Exchange or The Nasdaq Small Cap Market, (B) the Conversion Price then
in effect is such that the aggregate number of shares of Common Stock
that would then be issuable upon conversion of all the outstanding
Debentures, together with any shares of Common Stock previously issued
upon conversion of Debentures, would equal or exceed 20% of the number
of shares of Common Stock outstanding on the Original Issue Date (the
"Issuable Maximum"), and (C) the Company has not previously obtained
(or attempted pursuant to clause (i) of this subsection to obtain)
Shareholder Approval (as defined below), then the Company shall issue
to any Holder so requesting conversion of Debentures its pro rata
portion of the Issuable Maximum in the same ratio that the principal
amount of Debentures held by any such Holder bears to the aggregate
principal amount of Debentures then outstanding and, with respect to
the aggregate principal amount of the Debentures that remains
outstanding after such issuance (the "Remaining Principal Amount"), the
Company shall at the Holder's request, (x) as promptly as possible but
in no event later than 60 days after such Conversion Date, convene a
meeting of the holders of the Common Stock and use its best efforts to
obtain the Shareholder Approval or a waiver of such approval from The
Nasdaq Stock Market or the appropriate exchange and (y) (1) as promptly
as possible from time to time, after a written request by the Holder,
issue shares of Common Stock at a Conversion Price equal to the Per
Share Market Value on the Trading Day immediately preceding the date of
such request for all or a portion of Remaining Principal Amount (plus
any accrued interest thereon) held by such Holder (whether or not
subject to the Conversion Notice specified above) or (2) as promptly as
possible but in any event within seven days after a request by the
Holder redeem all or a portion of the Remaining Principal Amount (plus
any accrued interest thereon) to which such Conversion Notice applies,
for an amount, paid in cash, equal to the greater of (A) the aggregate
principal amount of such Debentures, plus accrued and unpaid interest,
multiplied by 130%, or (B) the applicable Conversion Ratio as of the
Conversion Date multiplied by the average Per Share Market Value for
the five Trading Days immediately preceding the Conversion Date or the
date of payment, whichever is greater. If the Holder has requested that
the Company redeem Debentures pursuant to this Section and the Company
fails for any reason to pay the redemption price, as calculated
pursuant to the immediately preceding sentence, within seven days after
such notice is deemed delivered pursuant to the preceding sentence, the
Company will pay interest on the redemption price at a rate of 15% per
annum,
2
<PAGE> 3
in cash to such Holder, accruing from such seventh day until the
redemption price and any accrued interest thereon is paid in full
(which amount shall be paid as liquidated damages and not as a
penalty). "Shareholder Approval" means the approval by a majority of
the total votes cast on the proposal, in person or by proxy, at a
meeting of the shareholders of the Company held in accordance with the
Company's articles of incorporation and by-laws, of the issuance by the
Company of shares of Common Stock exceeding the Issuable Maximum as a
consequence of the conversion of the Debentures into Common Stock at a
price less than the greater of the book or market value on the Original
Issue Date as and to the extent required pursuant to Rule 4460(i) of
The Nasdaq Stock Market, Inc.'s Marketplace Rules (or any successor or
replacement provision thereof).
(iii) In no event shall a Holder be permitted to convert
in excess of such principal amount of Debentures upon the conversion of
which, (x) the number of shares of Common Stock owned by such Holder
(other than shares of Common Stock issuable upon conversion of
Debentures or upon exercise of the Warrants (as defined in the
Securities Purchase Agreement) plus (y) the number of shares of Common
Stock issuable upon such conversion of such Debentures, would be equal
to or exceed (z) 9.999% of the number of shares of Common Stock then
issued and outstanding, including shares issuable on conversion of the
Debentures held by such Holder after application of this Section
5(a)(iii). To the extent that the limitation contained in this Section
5(a)(iii) applies, the determination of whether Debentures are
convertible (in relation to other securities owned by a Holder) and of
which Debentures are convertible shall be in the sole discretion of
such Holder, and the submission of Debentures for conversion shall be
deemed to be such Holder's determination of whether such Debentures are
convertible (in relation to other securities owned by a Holder) and of
which Debentures are convertible, in each case subject to such
aggregate percentage limitation, and the Company shall have no
obligation to verify or confirm the accuracy of such determination.
Nothing contained herein shall be deemed to restrict the right of a
Holder to convert such Debentures at such time as such conversion will
not violate the provisions of this paragraph. The provisions of this
Section 5(a)(iii) may be waived by a Holder of Debentures as to itself
(and solely as to itself) upon not less than 60 days prior notice to
the Company, and the provisions of this Section 5(a)(iii) shall
continue to apply until such 60th day (or later, if stated in the
notice of waiver). No conversion in violation of this paragraph but
otherwise in accordance with this Debenture shall affect the status of
the securities issued upon such conversion as validly issued,
fully-paid and nonassessable.
(b) (i) Not later than three (3) Trading Days after any Conversion
Date, the Company will deliver to the applicable Holder by express courier (A) a
certificate or certificates which shall be free of restrictive legends and
trading restrictions (other than those required by Section 3.1(b) of the
Securities Purchase Agreement) representing the number of shares of Common Stock
being acquired upon the conversion of Debentures (subject to reduction pursuant
to Section 5(a)(ii) and Section 5(a)(iii)) and (B) a new Debenture representing
the unconverted principal amount. If in the case of any Conversion Notice such
Debenture or Debentures are not delivered to or as directed by the applicable
Holder by the seventh Trading Day after the Conversion Date (the "Delivery
Date"), the holder shall be entitled by written notice to the Company at any
time on or before its receipt of such Debenture or Debentures thereafter, to
rescind such conversion, in which event the Company shall immediately return the
Debentures tendered for conversion, whereupon the Company and the Holder shall
each be restored to their respective positions immediately prior to the delivery
of such notice of revocation, except that any amounts described in Sections
5(b)(ii) and (iii) shall be payable through the date notice of rescission is
given to the Company.
(ii) The Company understands that a delay in the delivery
of the shares of Common Stock upon conversion of Debentures and failure
to deliver a new Debenture representing the unconverted principal
amount beyond the Delivery Date could result in economic loss to the
Holder. If the Company fails to deliver to the Holder such certificate
or certificates pursuant to this Section hereunder by the Delivery Date
for any reason other than the failure to obtain Shareholder Approval as
provided in Section 5(a)(ii), the Company shall pay to such Holder, in
cash, an amount per Trading Day for each Trading Day until such
certificates are delivered, together with interest on such amount at a
rate of 15% per annum, accruing until such amount and any accrued
interest thereon is paid in full, equal to (i) 1% of the aggregate
principal amount of the
3
<PAGE> 4
Debentures, plus the accrued and unpaid interest thereon, requested to
be converted for the first four Trading Days after the Delivery Date
and (ii) 2% of the aggregate principal amount of the Debentures, plus
the accrued and unpaid interest thereon, requested to be converted for
each Trading Day thereafter (which amounts shall be paid as liquidated
damages and not as a penalty). If the Company fails to deliver to the
Holder such certificate or certificates pursuant to this Section prior
to the 15th Trading Day after the Conversion Date, the Company shall,
at the Holder's option, redeem in cash, from funds legally available
therefor at the time of such redemption, such principal amount of
Debentures then held by such Holder, plus the accrued and unpaid
interest thereon, as requested by such Holder, in cash. The redemption
price shall be equal to the aggregate principal amount of Debentures
then held by such Holder, plus accrued and unpaid interest thereon,
multiplied by the average Per Share Market Value for the five Trading
Days immediately preceding (A) the Conversion Date or (B) the date of
payment in full by the Company of such prepayment price, whichever is
greater, multiplied by the Conversion Ratio calculated on the
Conversion Date. If the Holder has requested that the Company redeem
Debentures pursuant to this Section and the Company fails for any
reason to pay the redemption price, as calculated pursuant to the
immediately preceding sentence, within seven days after such notice is
deemed delivered pursuant to Section 5(a)(i), the Company will pay
interest on the redemption price at a rate of 15% per annum, in cash to
such Holder, accruing from such seventh day until the redemption price
and any accrued interest thereon is paid in full (which amount shall be
paid as liquidated damages and not as a penalty). Nothing herein shall
limit a Holder's right to pursue actual damages for the Company's
failure to deliver certificates representing shares of Common Stock
upon conversion within the period specified herein (including, without
limitation, damages relating to any purchase of shares of Common Stock
by such Holder to make delivery on a sale effected in anticipation of
receiving certificates representing shares of Common Stock upon
conversion, such damages to be in an amount equal to (A) the aggregate
amount paid by such holder for the shares of Common Stock so purchased
minus (B) the aggregate amount of net proceeds, if any, received by
such Holder from the sale of the shares of Common Stock issued by the
Company pursuant to such conversion), and such Holder shall have the
right to pursue all remedies available to it at law or in equity
(including, without limitation, a decree of specific performance and/or
injunctive relief).
(iii) In addition to any other rights available to the
Holder, if the Company fails to deliver to the Holder such certificate
or certificates pursuant to Section 5(b)(i) by the Delivery Date and if
after the Delivery Date the Holder purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by such Holder of the Underlying Shares which
the Holder anticipated receiving upon such conversion (a "Buy-In"),
then the Company shall pay in cash to the Holder (in addition to any
remedies available to or elected by the Holder) the amount by which (A)
the Holder's total purchase price (including brokerage commissions, if
any) for the shares of Common Stock so purchased exceeds (B) the
aggregate principal amount of the Debentures for which such conversion
was not timely honored, together with interest thereon at a rate of 15%
per annum, accruing until such amount and any accrued interest thereon
is paid in full (which amount shall be paid as liquidated damages and
not as a penalty). For example, if the Holder purchases shares of
Common Stock having a total purchase price of $11,000 to cover a Buy-In
with respect to an attempted conversion of $10,000 aggregate principal
amount of the Debentures, the Company shall be required to pay the
Holder $1,000, plus interest. The Holder shall provide the Company
written notice indicating the amounts payable to the Holder in respect
of the Buy-In.
(c) (i) The conversion price for the Debentures (the "Conversion
Price") in effect on any Conversion Date shall be the lesser of (A) an amount
equal to 90% of the average Per Share Market Value for five consecutive Trading
Days immediately prior to the Original Issue Date and (B) an amount equal to 85%
of the Per Share Market Value for the Trading Day having the lowest Per Share
Market Value during the five Trading Days prior to the Conversion Date (the
"Look Back Period"), except that if during any period (a "Black-out Period"), a
Holder is unable to trade any Common Stock issued or issuable upon conversion of
Debentures immediately due to the postponement of filing or delay or suspension
of effectiveness of a registration statement or because the Company has
otherwise informed such Holder that an existing prospectus cannot be used at
that time in the sale or transfer of such Common Stock, such Holder shall have
the option but not the obligation on any Conversion Date within ten Trading Days
following the expiration of the Black-out Period of using the Conversion Price
applicable on such Conversion Date or any Conversion Price selected by such
Holder that would have been applicable had such Conversion Date been at any
earlier time during the Black-out Period or within the ten Trading Days
thereafter. Beginning on the 150th day following the Original Issue Date, the
number of Trading Days used in clause (B) above in calculating the Look Back
Period shall be increased by two Trading Days per month up to a maximum of 12
Trading Days.
4
<PAGE> 5
Notwithstanding the foregoing, if the Company has failed to file a
registration statement as required by the Registration Rights Agreement within
30 days after the date (the "Filing Date") it was required to file such
registration statement pursuant to the Registration Rights Agreement or if any
registration statement required to be filed by the Company pursuant to the
Registration Rights Agreement has not been declared effective by the Commission
within 30 days after the date it was required to be declared effective by the
Commission pursuant to the Registration Rights Agreement, or if the Company has
allowed any registration statement required to be filed pursuant to the
Registration Rights Agreement to lapse for a period of 30 consecutive days, then
the Conversion Price shall, immediately after such 30th day, as applicable, be
decreased by 3% and shall be further decreased by an additional 0.1% for each
subsequent day thereafter until such time as such registration statement is
filed, declared effective or had its effectiveness reinstated, as applicable;
provided, that if any such registration statement is not effective within 180
days after the Filing Date, then the Conversion Price shall be decreased by an
additional 1.25% for each seven calendar days following such 180th day and
continuing until any such registration statement is effective; provided further,
that the Conversion Price shall not be decreased by more than 50%. The
provisions of this Section are not exclusive and shall in no way limit the
Company's obligations under the Registration Rights Agreement.
(ii) If the Company, at any time while any Debentures are
outstanding, (a) shall pay a stock dividend or otherwise make a
distribution or distributions on shares of its Common Stock or any
other equity security payable in shares of Common Stock, (b) subdivide
outstanding shares of Common Stock into a larger number of shares, (c)
combine outstanding shares of Common Stock into a smaller number of
shares, or (d) issue by reclassification of shares of Common Stock any
shares of capital stock of the Company, the applicable Conversion Price
shall be multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock (excluding treasury shares, if any)
outstanding before such event and of which the denominator shall be the
number of shares of Common Stock outstanding after such event. Any
adjustment made pursuant to this Section 5(c)(ii) shall become
effective immediately after the record date for the determination of
shareholders entitled to receive such dividend or distribution and
shall become effective immediately after the effective date in the case
of a subdivision, combination or reclassification.
(iii) If the Company, at any time while Debentures are
outstanding, shall sell or issue additional shares of Common Stock or
rights or warrants to acquire shares of Common Stock at a price per
share less than the Per Share Market Value at the record date mentioned
below, excluding any rights of the holder of the Debentures or the
holders of the Warrants issued pursuant to the Securities Purchase
Agreement to acquire Common Stock, the applicable Conversion Price
shall be multiplied by a fraction, of which the denominator shall be
the number of shares of Common Stock (excluding treasury shares, if
any) outstanding on the date of issuance of such shares, rights or
warrants plus the number of additional shares of Common Stock offered
for subscription or purchase, and of which the numerator shall be the
number of shares of Common Stock (excluding treasury shares, if any)
outstanding on the date of issuance of such shares, rights or warrants
plus the number of shares which the aggregate offering price of the
total number of shares so offered would purchase at such Per Share
Market Value. Such adjustment shall be made whenever such shares,
rights or warrants are issued, and shall become effective immediately
after the issuance of such shares, rights or warrants or, if such
rights or warrants are issued to shareholders of the Company, the
record date for the determination of shareholders entitled to receive
such rights or warrants. However, upon the expiration of any right or
warrant to purchase Common Stock the issuance of which resulted in an
adjustment in the applicable Conversion Price pursuant to this Section
5(c)(iii), if any such right or warrant shall expire and shall not have
been exercised, the applicable Conversion Price shall immediately upon
such expiration be re-computed and effective immediately upon such
expiration be increased to the price which it would have been (but
reflecting any other adjustments in the applicable Conversion Price
made pursuant to the provisions of this Section 5 after the issuance of
such rights or warrants) had the adjustment of the applicable
Conversion Price made upon the issuance of such rights or warrants been
made on the basis of offering for subscription or purchase only that
number of shares of Common Stock actually purchased upon the exercise
of such rights or warrants actually exercised.
5
<PAGE> 6
(iv) If the Company, at any time while Debentures are
outstanding, shall distribute to all holders of Common Stock (and not
to holders of Debentures) evidences of its indebtedness or assets or
rights or warrants to subscribe for or purchase any security (excluding
those referred to in Sections 5(c)(ii) and (iii) above), then in each
such case the applicable Conversion Price at which the Debentures shall
thereafter be convertible shall be determined by multiplying the
Conversion Price in effect immediately prior to the record date fixed
for determination of shareholders entitled to receive such distribution
by a fraction of which the denominator shall be the Per Share Market
Value determined as of the record date mentioned above, and of which
the numerator shall be such Per Share Market Value on such record date
less the then fair market value at such record date of the portion of
such assets or evidence of indebtedness so distributed applicable to
one outstanding share of Common Stock as determined by the Board of
Directors in good faith; provided, however, that in the event of a
distribution exceeding ten percent of the net assets of the Company,
such fair market value shall be determined by an Independent Appraiser
(as defined below) selected in good faith by the holders of a majority
in interest of the principal amount of the Debentures then outstanding;
and provided, further, that the Company, after receipt of the
determination by such Independent Appraiser shall have the right to
select an additional Independent Appraiser, in good faith, in which
case the fair market value shall be equal to the average of the
determinations by each such Independent Appraiser. In either case the
adjustments shall be described in a statement provided to the holders
of Debentures of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of
Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the
record date mentioned above.
(v) All calculations under this Section 5 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case may be.
(vi) Whenever the applicable Conversion Price is adjusted
pursuant to Section 5(c)(ii),(iii) or (iv) (for purposes of this
Section 5(c)(vi), each an "adjustment"), the Company shall cause its
Chief Financial Officer to prepare and execute a certificate setting
forth, in reasonable detail, the event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment was
calculated (including a description of the basis on which the Board
made any determination hereunder), and the applicable Conversion Price
after giving effect to such adjustment, and shall cause copies of such
certificate to be delivered to each Holder promptly after each
adjustment. Any dispute between the Company and the Holders with
respect to the matters set forth in such certificate may at the option
of the Holders be submitted to one of the national accounting firms
currently known as the "big five" selected by the holders of a majority
in interest of the principal amount of the Debentures then outstanding,
provided that the Company shall have ten days after receipt of notice
from such Holders of their selection of such firm to object thereto, in
which case the holders of a majority in interest of the principal
amount of the Debentures then outstanding shall select another such
firm and the Company shall have no such right of objection. The firm
selected by the holders of a majority in interest of the principal
amount of the Debentures then outstanding as provided in the preceding
sentence shall be instructed to deliver a written opinion as to such
matters to the Company and the Holders within thirty days after
submission to it of such dispute. Such opinion shall be final and
binding on the parties hereto. The fees and expenses of such accounting
firm shall be paid by the Company.
(vii) In case the Company after the Original Issue Date
shall do any of the following (each, a "Triggering Event") (a)
consolidate with or merge into any other person and the Company shall
not be the continuing or surviving corporation of such consolidation or
merger, or (b) permit any other person to consolidate with or merge
into the Company and the Company shall be the continuing or surviving
person but, in connection with such consolidation or merger, any
capital stock of the Company shall be changed into or exchanged for
securities of any other person or cash or any other property, or (c)
transfer all or substantially all of its properties or assets to any
other person, or (d) effect a capital reorganization or
reclassification of its capital stock, the holders of the Debentures
then outstanding shall have the right thereafter to convert such shares
only into the shares of stock and other securities, cash and property
receivable upon or deemed to be held by holders of Common Stock
following such Triggering Event, and
6
<PAGE> 7
the holders of the Debentures shall be entitled upon such event to
receive such amount of securities, cash or property as the shares of
the Common Stock of the Company into which such Debentures could have
been converted immediately prior to such Triggering Event would have
been entitled; provided, however, that each Holder shall have the
option to require the Company to redeem, from funds legally available
therefor at the time of such redemption, such principal amount of its
Debentures at a price equal to the aggregate principal amount of
Debentures to be redeemed, plus accrued and unpaid interest thereon,
multiplied by the product of (i) the average Per Share Market Value for
the five Trading Days immediately preceding (1) the effective date, the
date of the closing or the date of the announcement, as the case may
be, of the Triggering Event triggering such redemption right or (2) the
date of payment in full by the Company of the redemption price
hereunder, whichever is greater, and (ii) the Conversion Ratio
calculated on the date of the closing or the effective date, as the
case may be, of the Triggering Event triggering such redemption right,
as the case may be. The entire redemption price shall be paid in cash.
If the Holder has requested that the Company redeem Debentures pursuant
to this Section and the Company fails for any reason to pay the
redemption price, as calculated pursuant to the immediately preceding
sentence, within seven days after such notice is deemed delivered
pursuant to the preceding sentence, the Company will pay interest on
the redemption price at a rate of 15% per annum, in cash to such
Holder, accruing from such seventh day until the redemption price and
any accrued interest thereon is paid in full (which amount shall be
paid as liquidated damages and not as a penalty). The terms of any such
Triggering Event shall include such terms so as to continue to give to
the holder of Debentures the right to receive the securities, cash or
property set forth in this Section 5(c)(vii) upon any conversion or
redemption following such Triggering Event. This provision shall
similarly apply to successive Triggering Events.
(viii) If:
A. the Company shall declare a dividend (or any
other distribution) on its Common Stock; or
B. the Company shall declare a special
nonrecurring cash dividend on or a
redemption of its Common Stock; or
C. the Company shall authorize the granting to
all holders of the Common Stock rights or
warrants to subscribe for or purchase any
shares of capital stock of any class or of
any rights; or
D. the approval of any shareholders of the
Company shall be required in connection with
any Triggering Event; or
E. the Company shall authorize the voluntary or
involuntary dissolution, liquidation or
winding up of the affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Debentures, and shall cause to be mailed to the
Holders of Debentures at their last addresses as they shall appear upon the
stock books of the Company, at least 30 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as
of which the holders of Common Stock of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be determined or (y) the
date on which such reclassification, consolidation, merger, sale, transfer or
share exchange is expected to become effective or close, and the date as of
which it is expected that holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer or
share exchange; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice. Holders are entitled
to convert Debentures during the 30-day period commencing the date of such
notice to the effective date of the event triggering such notice.
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<PAGE> 8
(d) If at any time conditions shall arise by reason of action taken by
the Company which in the opinion of the Board of Directors are not adequately
covered by the other provisions hereof and which might materially and adversely
affect the rights of the holders of Debentures (different than or distinguished
from the effect generally on rights of holders of any class of the Company's
capital stock) or if at any time any such conditions are expected to arise by
reason of any action contemplated by the Company, the Company shall mail a
written notice briefly describing the action contemplated and the material
adverse effects of such action on the rights of the holders of Debentures at
least 10 calendar days prior to the effective date of such action, and an
Independent Appraiser selected by the holders of majority in interest of the
principal amount of the Debentures then outstanding shall give its opinion as to
the adjustment, if any (not inconsistent with the standards established in this
Section 5), of the Conversion Price (including, if necessary, any adjustment as
to the securities into which Debentures may thereafter be convertible) and any
distribution which is or would be required to preserve without diluting the
rights of the holders of Debentures; provided, however, that the Company, after
receipt of the determination by such Independent Appraiser, shall have the right
to select an additional Independent Appraiser, in good faith, in which case the
adjustment shall be equal to the average of the adjustments recommended by each
such Independent Appraiser. The Board of Directors shall make the adjustment
recommended forthwith upon the receipt of such opinion or opinions or the taking
of any such action contemplated, as the case may be; provided, however, that no
such adjustment of the Conversion Price shall be made which in the opinion of
the Independent Appraiser(s) giving the aforesaid opinion or opinions would
result in an increase of the Conversion Price to more than the Conversion Price
then in effect.
(e) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued Common Stock solely for the purpose
of issuance upon conversion of Debentures free from preemptive rights or any
other actual contingent purchase rights of persons other than the holders of
Debentures, not less than such number of shares of Common Stock as shall
(subject to any additional requirements of the Company as to reservation of such
shares set forth in the Securities Purchase Agreement) be issuable (taking into
account the adjustments and restrictions of Section 5(c)) upon the conversion of
all outstanding Debentures. The Company covenants that all shares of Common
Stock that shall be so issuable shall, upon issue, be duly and validly
authorized, issued and fully paid, non-assessable and freely tradable.
(f) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of Common Stock, but
may if otherwise permitted, make a cash payment in respect of any final fraction
of a share based on the Per Share Market Value at such time. If the Company
elects not, or is unable, to make such a cash payment, the holder of a Debenture
shall be entitled to receive, in lieu of the final fraction of a share, one
whole share of Common Stock.
(g) The issuance of certificates for shares of Common Stock on
conversion of Debentures shall be made without charge to the holders thereof for
any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate.
(h) Debentures converted into Common Stock shall be canceled and
retired by the Company.
(i) Any and all notices or other communications or deliveries to be
provided by the holders of Debentures hereunder, including, without limitation,
any Conversion Notice, shall be in writing and delivered personally, by
facsimile or sent by a nationally recognized overnight courier service,
addressed to the attention of the President and to the Secretary of the Company
at the facsimile telephone number or address of the principal place of business
of the Company as set forth in the Securities Purchase Agreement. Any and all
notices or other communications or deliveries to be provided by the Company
hereunder shall be in writing and delivered personally, by facsimile or sent by
a nationally recognized overnight courier service, addressed to each Holder of
Debentures at the facsimile telephone number or address of such holder appearing
on the books of the Company, or if no such facsimile telephone number or address
appears, at the principal place of business of the Holder. Any notice or other
communication or deliveries hereunder shall be deemed given and effective on the
earlier of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section prior to 5:00 p.m., New York City time, (ii) the date after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section later than 5:00 p.m., New
York City time, on any date and earlier than 11:59 p.m., New York City time, on
such date,
8
<PAGE> 9
(iii) receipt, if sent by a nationally recognized overnight courier service, or
(iv) actual receipt by the party to whom such notice is required to be given.
(j) In the event a Holder shall elect to convert any Debentures as
provided herein, the Company cannot refuse conversion based on any claim that
such Holder or any one associated or affiliated with such Holder has been
engaged in any violation of law, unless, an injunction from a court, on notice,
restraining and or adjoining conversion of all or of said Debentures shall have
issued and the Company posts a surety bond for the benefit of such Holder in the
amount of the principal amount of Debentures sought to be converted, which bond
shall remain in effect until the completion of arbitration/litigation of the
dispute and the proceeds of which shall be payable to such Holder in the event
it obtains judgment.
(k) The Company may elect at any time or from time to time (but in no
event later than one day after receipt of a conversion notice, in lieu of
delivering the shares of Common Stock, to redeem, from funds legally available
therefor at the time of such redemption, such principal amount of Debentures
tendered by such Holder for Conversion, in cash. The redemption price shall be
equal to the aggregate principal amount of Debentures then held by such Holder,
plus accrued and unpaid interest thereon, multiplied by 115%. The Company shall
deliver written notice of its election to redeem Debentures pursuant to this
Section 5(k) providing for a redemption date of not less than five Trading Days
after the Conversion Date and not more than ten Trading Days after the
Conversion Date. If the Company fails for any reason to pay the redemption
price, as calculated pursuant to the immediately preceding sentence, on the
redemption date the Company will pay interest on the redemption price at a rate
of 15% per annum, in cash to such Holder, accruing from such seventh day until
the redemption price and any accrued interest thereon is paid in full (which
amount shall be paid as liquidated damages and not as a penalty). The Holder
shall be entitled by written notice to the Company at any time after receipt of
the redemption notice and prior to the redemption date, to rescind its
Conversion Notice, in which event the Company shall immediately return the
Debentures tendered for conversion, whereupon the Company and the Holder shall
each be restored to their respective positions immediately prior to the delivery
of such notice of revocation, except that any amounts described in Sections
5(b)(ii) and (iii) shall be payable through the date notice of rescission is
given to the Company
6. Mandatory Conversion. (a) From and after the date of effectiveness
of the Registration Statement (as defined in the Registration Rights Agreement)
and for so long as such Registration Statement remains effective, and in the
event that the Per Share Market Value is at least $4.00 per share and less than
$5.00 per share for five out of any seven consecutive Trading Days, subject to
adjustment for stock splits, stock dividends, combinations and other similar
recapitalizations, and so long as the average daily trading volume during the
preceding seven Trading Days is at least 50,000 shares per day, then the Company
shall have the right to cause the Holders to convert up to $1,000,000 principal
amount of Debentures, in the aggregate, into shares of Common Stock at the
applicable Conversion Price, in accordance with this Section 6 (such date being
referred to herein as the "Initial Mandatory Conversion Date"). Each Holder
shall be required to convert Debentures pursuant to this Section 6(a) in the
same ratio the aggregate principal amount of Debentures held by such Holder
bears to the aggregate amount of Debentures outstanding prior to such
conversion.
(b) From and after the date of effectiveness of the Registration
Statement (as defined in the Registration Rights Agreement) and for so long as
such Registration Statement remains effective, and in the event that the Per
Share Market Value is at least $5.00 per share for five out of any seven
consecutive Trading Days, subject to adjustment for stock splits, stock
dividends, combinations and other similar recapitalizations and so long as the
average daily trading volume during the preceding seven Trading Days is at least
50,000 shares per day, then the Company shall have the right to cause the
Holders to convert the remaining outstanding aggregate principal amount of
Debentures into shares of Common Stock at the applicable Conversion Price, in
accordance with this Section 6 (such date being referred to herein as the "Final
Mandatory Conversion Date", each of the Initial Mandatory Conversion Date and
the Final Mandatory Conversion Date collectively referred to herein as a
"Mandatory Conversion Date"). Each Holder shall be required to convert
Debentures pursuant to this Section 6(b) in the same ratio the aggregate
principal amount of Debentures held by such Holder bears to the aggregate amount
of Debentures outstanding prior to such conversion. For the avoidance of doubt,
the Company and each Holder understands (i) that the Per Share Market Value
referenced in sub-clause (a) above (at least $4.00 per share and less than $5.00
per share for five out of any seven consecutive Trading Days) may not occur and
(ii) the Company may choose not to exercise any of its rights under sub-clause
(a) above. In either case, once the conditions of this
9
<PAGE> 10
sub-clause (b) are met, the Company may exercise its right to cause the Holders
to convert all of the outstanding aggregate principal amount of Debentures
pursuant to the provisions of this sub-clause (b).
(c) The Company will send each Holder written notice of any Mandatory
Conversion Date and the place designated for mandatory conversion of the
Debentures pursuant to this Section 6 (the "Mandatory Conversion Notice"). The
Mandatory Conversion Notice need not be given in advance of the occurrence of
the Mandatory Conversion Date. The Mandatory Conversion Notice shall be sent by
facsimile to the facsimile number in the Securities Purchase Agreement or by
first class or registered mail, postage prepaid, to each Holder at the address
indicated in the Securities Purchase Agreement. Upon receipt of such notice,
each Holder shall surrender the Debentures subject to such conversion pursuant
to Section 6(a) or 6(b), as the case may be, to the Company at the place
designated in such notice, and shall thereafter receive certificates for the
number of shares of Common Stock to which such holder is entitled as a result of
such Mandatory Conversion. On the Mandatory Conversion Date, all rights with
respect to the Debentures so converted, including the rights, if any, to receive
notices and vote, will terminate, except only the rights of the holders thereof,
upon surrender of their certificate or certificates therefor, to receive
certificates for the number of shares of Common Stock into which the Debentures
have been converted. The Company shall deliver to such Holder a certificate or
certificates for the number of full shares of Common Stock into which the
Debentures have been converted and cash as provided herein with respect to any
fraction of a share of Common Stock, in accordance with Section 5(b)(i) hereof
as if such Mandatory Conversion Date were a Conversion Date.
(d) All Debentures that are required to be surrendered for conversion
in accordance with the provisions hereof shall, from and after the Mandatory
Conversion Date, be deemed to have been retired and canceled and the principal
amount of Debentures represented thereby converted into Common Stock for all
purposes, notwithstanding the failure of the Holder to surrender such Debentures
on or prior to such date.
7. Events of Default.
Each of the following shall constitute an event of default ("Event of
Default"), whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment or order of any court or any order, rule or regulation of any
administrative, governmental or non-governmental body or otherwise howsoever:
(a) the Company shall default in any payment of principal of, or
interest on, the Debentures or any other amounts due under the Transaction
Documents when and as due (whether at maturity, upon acceleration or otherwise);
or
(b) the Company shall fail duly to perform or observe any term,
covenant or agreement contained in any of the Debentures or in the Securities
Purchase Agreement or in the Registration Rights Agreement for a period of seven
days after the date on which written notice of such failure shall first have
been given to the Company; or
(c) a final judgment shall be entered by any court against the Company
for the payment of money which together with all other outstanding final
judgments against the Company exceeds $10,000 in the aggregate, or (ii) a
warrant of attachment or execution or similar process shall be issued or levied
against any of the Company's property which exceeds in value $10,000 in the
aggregate, and if, within 30 days after the entry, issue or levy thereof, such
judgment, warrant or process shall not have been paid or discharged; or
(d) a court having jurisdiction in the premises shall enter a decree or
order for relief in respect of the Company in an involuntary case or proceeding
under any applicable bankruptcy, insolvency, reorganization or other similar law
now or hereafter in effect, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or similar official) of the Company or for any
substantial part of the property of it or ordering the windingup or liquidation
of the affairs of it and such decree or order shall remain unstayed and in
effect for a period of 30 days; or
(e) the Company shall commence a voluntary case or proceeding under any
applicable bankruptcy, insolvency, reorganization or other similar law now or
hereafter in effect, or shall consent to the entry of an order for relief in an
involuntary case under any such law, or shall consent to the appointment of or
taking possession by a
10
<PAGE> 11
receiver, liquidator, assignee, trustee, custodian, sequestrator (or similar
official) of the Company or for any substantial part of its property, or shall
make any general assignment for the benefit of creditors, or shall admit in
writing its inability to pay its debts as they become due or shall take any
corporate action in furtherance of any of the foregoing; or
(f) an event of default, as defined in any indenture or instrument
evidencing or under which the Company shall have outstanding indebtedness for
borrowed money in excess of $10,000, inclusive of accrued interest, accrued
premium, if any, or any additional amounts payable, shall happen and be
continuing and such default shall involve the failure to pay the principal of
such indebtedness (or any part thereof), when due and payable after the
expiration of any applicable grace period with respect thereto, or such
indebtedness shall have been accelerated so that the same shall be or become due
and payable prior to the date on which the same would otherwise have become due
and payable, and failure to pay shall not have been cured by the Company within
30 days after such failure or such acceleration shall not be rescinded or
annulled within 30 days after notice thereof shall have first been given to the
Company; provided that if such event of default under such indenture or
instrument shall be remedied or cured by the Company or waived by the holders of
such indebtedness, then the Event of Default hereunder by reason thereof shall
be deemed likewise to have been thereupon remedied, cured or waived without
further action upon the part of any of the holders of Debentures; or
(g) the Common Stock is delisted from, or trading in the Common Stock
shall have been suspended for more than ten Trading Days on, The Nasdaq
Small-Cap Market or such other principal market or exchange on which the Common
Stock is listed for trading; or
(h) the Company fails to timely deliver the shares of Common Stock to
the Holder or a replacement Debenture representing any unconverted portion of
this Debenture pursuant to this Debenture; or
(i) the issuance by the Securities and Exchange Commission of any stop
order suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities (as defined in the Registration Rights
Agreement) or the initiation of any proceedings for that purpose.
With the exception of an Event of Default specified in clauses (d) or (e) above,
upon the occurrence and continuance of an Event of Default, the Holder may
declare the principal of and interest on the Debentures and all other amounts
owing under the Transaction Documents to be forthwith due and payable by giving
written notice thereof to the Company without presentment, demand, protest or
other notice of any kind, all of which are hereby expressly waived, anything in
the Transaction Documents to the contrary notwithstanding. Upon the occurrence
and continuance of an Event of Default specified in clauses (d) or (e) above,
such principal, interest and other amounts shall thereupon and concurrently
therewith become automatically due and payable all without any action by the
Holder and without presentment, demand, protest or other notice of any kind, all
of which are expressly waived, anything in the Transaction Documents to the
contrary notwithstanding.
Interest on overdue principal and interest (and other amounts, if any)
shall accrue from the date on which such principal and interest (and other
amounts, if any) were due and payable to the date such principal and interest
(and other amounts, if any) are paid or duly provided for, at a rate of 15% per
annum (to the extent payment of such interest shall be legally enforceable).
8. Definitions. For the purposes hereof, the following terms shall have
the following meanings:
"Common Stock" means the common stock, no par value per share, of the
Company and stock of any other class into which such shares may hereafter have
been reclassified or changed.
"Conversion Ratio" means the number of shares of Common Stock issuable
upon conversion of each Debentures determined by the application of the
following formula where "D" equals the accrued and unpaid interest on the
aggregate principal amount of Debentures so converted as of the Conversion Date:
PRINCIPAL AMOUNT TO BE CONVERTED + D
------------------------------------
CONVERSION PRICE
11
<PAGE> 12
"Independent Appraiser" means a nationally recognized or major regional
investment banking firm or firm of independent certified public accountants of
recognized standing (which may be the firm that regularly examines the financial
statements of the Company) that is regularly engaged in the business of
appraising the capital stock or assets of corporations or other entities as
going concerns, and which is not affiliated with either the Company or any
Holder.
"NASDAQ" means the National Association of Securities Dealers Automated
Quotation System.
"Original Issue Date" shall mean the date of the first issuance of any
Debentures regardless of the number of transfers of any particular Debentures
and regardless of the number of certificates which may be issued to evidence
such Debentures.
"Per Share Market Value" means on any particular date (a) the closing
bid price per share of the Common Stock on such date on The Nasdaq Small-Cap
Market, the Nasdaq National Market or other registered national stock exchange
on which the Common Stock is then listed or if there is no such price on such
date, then the closing bid price on such exchange or quotation system on the
date nearest preceding such date, or (b) if the Common Stock is not listed then
on The Nasdaq Small-Cap Market, the Nasdaq National Market or any registered
national stock exchange, the closing bid price for a share of Common Stock in
the over-the-counter market, as reported by NASDAQ or in the National Quotation
Bureau Incorporated or similar organization or agency succeeding to its
functions of reporting prices) at the close of business on such date, or (c) if
the Common Stock is not then reported by the National Quotation Bureau
Incorporated (or similar organization or agency succeeding to its functions of
reporting prices), then the average of the over-the-counter quotes on the
Electronic Bulletin Board of the National Association of Securities Dealers,
Inc. for the relevant conversion period, as determined in good faith by the
holder, or (d) if the Common Stock is not then publicly traded the fair market
value of a share of Common Stock as determined by an Independent Appraiser
selected in good faith by the holders of a majority in interest of the shares of
the Debentures; provided, however, that the Company, after receipt of the
determination by such Independent Appraiser, shall have the right to select an
additional Independent Appraiser, in which case, the fair market value shall be
equal to the average of the determinations by each such Independent Appraiser;
and provided, further that all determinations of the Per Share Market Value
shall be appropriately adjusted for any stock dividends, stock splits or other
similar transactions during such period. The determination of fair market value
by an Independent Appraiser shall be based upon the fair market value of the
Company determined on a going concern basis as between a willing buyer and a
willing seller and taking into account all relevant factors determinative of
value, and shall be final and binding on all parties. In determining the fair
market value of any shares of Common Stock, no consideration shall be given to
any restrictions on transfer of the Common Stock imposed by agreement or by
federal or state securities laws, or to the existence or absence of, or any
limitations on, voting rights.
"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or other entity of any kind.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Original Issue Date, by and among the Company and the
original Holders.
"Trading Day" means (a) a day on which the Common Stock is traded on
The Nasdaq Small-Cap Market, the Nasdaq National Market or other registered
national stock exchange on which the Common Stock has been listed, or (b) if the
Common Stock is not listed on The Nasdaq Small-Cap Market, the Nasdaq National
Market or any registered national stock exchange, a day or which the Common
Stock is traded in the over-the-counter market, as reported by the OTC Bulletin
Board, or (c) if the Common Stock is not quoted on the OTC Bulletin Board, a day
on which the Common Stock is quoted in the over-the-counter market as reported
by the National Quotation Bureau Incorporated (or any similar organization or
agency succeeding its functions of reporting prices); provided, however, that in
the event that the Common Stock is not listed or quoted as set forth in (a), (b)
and (c) hereof, then Trading Day shall mean any day except Saturday, Sunday and
any day which shall be a legal holiday or a day on which banking institutions in
the State of New York are authorized or required by law or other government
action to close.
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<PAGE> 13
"Underlying Shares" means the number of shares of Common Stock into
which the Debentures are convertible in accordance with the terms hereof and the
Securities Purchase Agreement.
9. Taxes. The Company shall pay any and all taxes attributable to the
issuance and delivery of Common Stock or other securities upon conversion of the
Debentures.
10. No Impairment. The Company shall not by any action including,
without limitation, amending the articles of incorporation or the by-laws of the
Company, or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other action, avoid or
seek to avoid the observance or performance of any of the terms of this
Debenture, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of the Holder hereof against dilution (to the
extent specifically provided herein) or impairment. Without limiting the
generality of the foregoing, the Company will (i) not permit the par value, if
any, of its Common Stock to exceed the then effective Conversion Price, (ii) not
amend or modify any provision of the articles of incorporation or by-laws of the
Company in any manner that would adversely affect in any way the powers,
preferences or relative participating, optional or other special rights of the
Common Stock or which would adversely affect the rights of the Holders of the
Debentures, (iii) take all such action as may be reasonably necessary in order
that the Company may validly and legally issue fully paid and nonassessable
shares of Common Stock, free and clear of any liens, claims, encumbrances and
restrictions (other than as provided herein) upon the exercise of this
Debentures, and (iv) use its best efforts to obtain all such authorizations,
exemptions or consents from any public regulatory body having jurisdiction
thereof as may be reasonably necessary to enable the Company to perform its
obligations under this Debenture.
11. Governing Law. The Debentures shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
principles of conflicts of law.
12. Countersignature and Registration. This Debenture shall not become
valid or obligatory for any purpose until the Debentures shall have been duly
executed by the Company and such signature attested to by an authorized Officer
thereof.
13. Warranty of the Company. The Company hereby certifies and warrants
that all acts, conditions and things required to be done and performed and to
have happened precedent to the creation and issuance of this Debenture, and to
constitute the same as legal, valid and binding obligations of the Company
enforceable in accordance with their terms, have been done and performed and
have happened in due and strict compliance with all applicable laws.
14. Descriptive Headings. The descriptive headings appearing herein are
for convenience of reference only and shall not alter, limit or define the
provisions hereof.
13
<PAGE> 14
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed in its corporate name by the manual or facsimile signature of a duly
authorized signatory, as attested to by another duly authorized signatory of the
Company.
Dated: February , 1999
-------------
TEAM COMMUNICATIONS GROUP, INC.
By: /s/ Drew S. Levin
------------------------------------
Name: Drew S. Levin
----------------------------------
Title: Chairman & CEO
---------------------------------
ATTEST:
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
14
<PAGE> 15
EXHIBIT 1
CONVERSION NOTICE
Reference is made to the debenture certificate (the "Debenture Certificate") of
Team Communications Group, Inc., a California corporation (the "Company"). In
accordance with and pursuant to the Debenture Certificate, the undersigned
hereby elects to have the Company convert the principal amount of 8% Convertible
Debentures due 2002 (the "Debentures"), of the Company, indicated below into
shares of Common Stock, no par value per share (the "Common Stock"), of the
Company, by tendering the certificate(s) representing the Debentures specified
below as of the date specified below.
Date of Conversion: ___________________________
Principal amount of Debentures to be converted: ___________________________
Certificate no(s). of Debentures to be converted: ___________________________
Please confirm the following information: ___________________________
Conversion Price: ___________________________
Please issue the Common Stock and, if applicable, any check drawn on an account
of the Company into which the Debentures are being converted in the following
name and to the following address:
Issue to: ___________________________
___________________________
___________________________
___________________________
___________________________
___________________________
___________________________
Facsimile Number: ___________________________
Authorization: ___________________________
By:________________________
Title:_____________________
Dated:_____________________
15
<PAGE> 1
EXHIBIT 4.26
EXHIBIT B TO THE SECURITIES PURCHASE AGREEMENT
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE
NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
TEAM COMMUNICATIONS GROUP, INC.
Expires February 23, 2002
No. W- Los Angeles, California
February 25, 1999
FOR VALUE RECEIVED, subject to the provisions hereinafter set forth, the
undersigned, TEAM COMMUNICATIONS GROUP, INC., a California corporation (together
with its successors and assigns, the "Issuer"), hereby certifies that VMR S.A
Luxembourg, Chateau Woltz, 34 Rue Neuve, Remich, L5560, Luxembourg, or its
registered assigns is entitled to subscribe for and purchase, during the period
specified in this Warrant, up to 50,000 shares (subject to adjustment as
hereinafter provided) of the duly authorized, validly issued, fully paid and
non-assessable Common Stock of the Issuer, at an exercise price per share equal
to the Warrant Price then in effect, subject, however, to the provisions and
upon the terms and conditions hereinafter set forth. Capitalized terms used in
this Warrant and not otherwise defined herein shall have the respective meanings
specified in Section 7 hereof.
1. Term. The right to subscribe for and purchase shares of Warrant Stock
represented hereby shall commence on the date of issuance of this Warrant and
shall expire at 5:00 p.m., Los Angeles City time, on February 23, 2002 (such
period being the "Term").
2. Method of Exercise Payment: Issuance of New Warrant: Transfer and
Exchange.
(a) Time of Exercise. The purchase rights represented by this Warrant may
be exercised in whole or in part at any time and from time to time during the
Term.
(b) Method of Exercise. The Holder hereof may exercise this Warrant, in
whole or in part, by the surrender of this Warrant (with the exercise form
attached hereto duly executed) at the principal office of the Issuer, and by the
payment to the Issuer of an amount of consideration therefor equal to the
Warrant Price in effect on the date of such exercise multiplied by the number of
shares of Warrant Stock with respect to which this Warrant is then being
exercised, payable at such Holder's election by certified or official bank
check.
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(c) Issuance of Stock Certificates. In the event of any exercise of the
rights represented by this Warrant in accordance with and subject to the terms
and conditions hereof, (i) certificates for the shares of Warrant Stock so
purchased shall be dated the date of such exercise and delivered to the Holder
hereof within a reasonable time, not exceeding three Trading Days after such
exercise, and the Holder hereof shall be deemed for all purposes to be the
Holder of the shares of Warrant Stock so purchased as of the date of such
exercise, and (ii) unless this Warrant has expired, a new Warrant representing
the number of shares of Warrant Stock, if any, with respect to which this
Warrant shall not then have been exercised (less any amount thereof which shall
have been cancelled in payment or partial payment of the Warrant Price as
here-in-above provided) shall also be issued to the Holder hereof at the
Issuer's expense within such time.
(d) Transferability of Warrant. Subject to the provisions of subsection
(e) of this Section 2, this Warrant may be transferred on the books of the
Issuer by the Holder hereof in person or by duly authorized attorney, upon
surrender of this Warrant at the principal office of the Issuer, properly
endorsed (by the Holder executing an assignment in the form attached hereto) and
upon payment of any necessary transfer tax or other governmental charge imposed
upon such transfer. This Warrant is exchangeable at the principal office of the
Issuer for Warrants for the purchase of the same aggregate number of shares of
Warrant Stock, each new Warrant to represent the right to purchase such number
of shares of Warrant Stock as the Holder hereof shall designate at the time of
such exchange. All Warrants issued on transfers or exchanges shall be dated the
Original Issue Date and shall be identical with this Warrant except as to the
number of shares of Warrant Stock issuable pursuant hereto.
(e) Compliance with Securities Laws.
(i) The Holder of this Warrant, by acceptance hereof, acknowledges
that this Warrant and the shares of Warrant Stock to be issued upon
exercise hereof are being acquired solely for the Holder's own account and
not as a nominee for any other party, and for investment, and that the
Holder will not offer, sell or otherwise dispose of this Warrant or any
shares of Warrant Stock to be issued upon exercise hereof except pursuant
to an effective registration statement, or an exemption from registration,
under the Securities Act and any applicable state securities laws.
(ii) Except as provided in paragraph (iii) below, this Warrant and
all certificates representing shares of Warrant Stock issued upon exercise
hereof shall be stamped or imprinted with a legend in substantially the
following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED
OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT.
(iii) The restrictions imposed by this subsection (e) upon the
transfer of this Warrant and the shares of Warrant Stock to be purchased
upon exercise hereof shall terminate (A) when such securities shall have
been effectively registered under the Securities Act, (B) upon the
Issuer's receipt of an opinion of counsel, in form and substance
reasonably satisfactory to the Issuer, addressed to the Issuer to the
effect that such restrictions are no longer required to ensure compliance
with the Securities Act or (C) upon the Issuer's receipt of other evidence
reasonably satisfactory to the Issuer that such registration is not
required. Whenever such restrictions shall cease and terminate as to any
such securities, the Holder thereof shall be entitled to receive from the
Issuer (or its transfer agent and registrar), without expense (other than
applicable transfer taxes, if any), new Warrants (or, in the case of
shares of Warrant Stock, new stock certificates) of like tenor not bearing
the applicable legends required by paragraph (ii) above relating to the
Securities Act and state securities laws.
(f) Continuing Rights of Holder. The Issuer will, at the time of or at any
time after each exercise of this
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Warrant, upon the request of the Holder hereof or of any shares of Warrant Stock
issued upon such exercise, acknowledge in writing the extent, if any, of its
continuing obligation to afford to such Holder all rights to which such Holder
shall continue to be entitled after such exercise in accordance with the terms
of this Warrant, provided that if any such Holder shall fail to make any such
request, the failure shall not affect the continuing obligation of the Issuer to
afford such rights to such Holder.
3. Stock Fully Paid: Reservation and Listing of Shares: Covenants.
(a) Stock Fully Paid. The Issuer represents, warrants, covenants and
agrees that all shares of Warrant Stock which may be issued upon the exercise of
this Warrant or otherwise hereunder will, upon issuance, be duly authorized,
validly issued, fully paid and non-assessable and free from all taxes, liens and
charges created by or through Issuer. The Issuer further covenants and agrees
that during the period within which this Warrant may be exercised, the Issuer
will at all times have authorized and reserved for the purpose of the issue upon
exercise of this Warrant a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant.
(b) Reservation. If any shares of Common Stock required to be reserved for
issuance upon exercise of this Warrant or as otherwise provided hereunder
require registration or qualification with any governmental authority under any
federal or state law before such shares may be so issued, the Issuer will in
good faith use its best efforts as expeditiously as possible at its expense to
cause such shares to be duly registered or qualified. If the Issuer shall list
any shares of Common Stock on any securities exchange or market it will, at its
expense, list thereon, maintain and increase when necessary such listing, of,
all shares of Warrant Stock from time to time issued upon exercise of this
Warrant or as otherwise provided hereunder, and, to the extent permissible under
the applicable securities exchange rules, all unissued shares of Warrant Stock
which are at any time issuable hereunder, so long as any shares of Common Stock
shall be so listed. The Issuer will also so list on each securities exchange or
market, and will maintain such listing of, any other securities which the Holder
of this Warrant shall be entitled to receive upon the exercise of this Warrant
if at the time any securities of the same class shall be listed on such
securities exchange or market by the Issuer.
(c) Covenants. The Issuer shall not by any action including, without
limitation, amending the Certificate of Incorporation or the by-laws of the
Issuer, or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other action, avoid or
seek to avoid the observance or performance of any of the terms of this Warrant,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such actions as may be necessary or appropriate to
protect the rights of the Holder hereof against dilution (to the extent
specifically provided herein) or impairment. Without limiting the generality of
the foregoing, the Issuer will (i) not permit the par value, if any, of its
Common Stock to exceed the then effective Warrant Price, (ii) not amend or
modify any provision of the Certificate of Incorporation or by-laws of the
Issuer in any manner that would adversely affect in any way the powers,
preferences or relative participating, optional or other special rights of the
Common Stock or which would adversely affect the rights of the Holders of the
Warrants, (iii) take all such action as may be reasonably necessary in order
that the Issuer may validly and legally issue fully paid and nonassessable
shares of Common Stock, free and clear of any liens, claims, encumbrances and
restrictions (other than as provided herein) upon the exercise of this Warrant,
and (iv) use its best efforts to obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
reasonably necessary to enable the Issuer to perform its obligations under this
Warrant.
(d) Loss, Theft, Destruction of Warrants. Upon receipt of evidence
satisfactory to the Issuer of the ownership of and the loss, theft, destruction
or mutilation of any Warrant and, in the case of any such loss, theft or
destruction, upon receipt of indemnity or security satisfactory to the Issuer
or, in the case of any such mutilation, upon surrender and cancellation of such
Warrant, the Issuer will make and deliver, in lieu of such lost, stolen,
destroyed or mutilated Warrant, a new Warrant of like tenor and representing the
right to purchase the same number of shares of Common Stock.
(e) Rights and Obligations under the Registration Rights Agreement. This
Warrant and the Warrant Stock are entitled to the benefits and subject to the
terms of the Registration Rights Agreement dated as of even date herewith
between the Issuer and the Holders listed on the signature pages thereof (as
amended from time to time, the "Registration
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Rights Agreement"). The Issuer shall keep or cause to be kept a copy of the
Registration Rights Agreement, and any amendments thereto, at its chief
executive office and shall furnish, without charge, copies thereof to the Holder
upon request.
4. Adjustment of Warrant Price and Warrant Share Number. The number and
kind of Securities purchasable upon the exercise of this Warrant and the Warrant
Price shall be subject to adjustment from time to time upon the happening of
certain events as follows:
(a) Recapitalization, Reorganization, Reclassification, Consolidation,
Merger or Sale. (i) In case the Issuer after the Original Issue Date shall do
any of the following (each, a "Triggering Event") (a) consolidate with or merge
into any other Person and the Issuer shall not be the continuing or surviving
corporation of such consolidation or merger, or (b) permit any other Person to
consolidate with or merge into the Issuer and the Issuer shall be the continuing
or surviving Person but, in connection with such consolidation or merger, any
Capital Stock of the Issuer shall be changed into or exchanged for Securities of
any other Person or cash or any other property, or (c) transfer all or
substantially all of its properties or assets to any other Person, or (d) effect
a capital reorganization or reclassification of its Capital Stock, then, and in
the case of each such Triggering Event, proper provision shall be made so that,
upon the basis and the terms and in the manner provided in this Warrant, the
Holder of this Warrant shall be entitled (x) upon the exercise hereof at any
time after the consummation of such Triggering Event, to the extent this Warrant
is not exercised prior to such Triggering Event, or is redeemed in connection
with such Triggering Event, to receive at the Warrant Price in effect at the
time immediately prior to the consummation of such Triggering Event in lieu of
the Common Stock issuable upon such exercise of this Warrant prior to such
Triggering Event, the Securities, cash and property to which such Holder would
have been entitled upon the consummation of such Triggering Event if such Holder
had exercised the rights represented by this Warrant immediately prior thereto,
subject to adjustments and increases (subsequent to such corporate action) as
nearly equivalent as possible to the adjustments provided for in Section 4
hereof or (y) to sell this Warrant (or, at such Holder's election, a portion
hereof) to the Person continuing after or surviving such Triggering Event, or to
the Issuer (if Issuer is the continuing or surviving Person) at a sales price
equal to the amount of cash, property and/or Securities to which a holder of the
number of shares of Common Stock which would otherwise have been delivered upon
the exercise of this Warrant would have been entitled upon the effective date or
closing of any such Triggering Event (the "Event Consideration"), less the
amount or portion of such Event Consideration having a fair value equal to the
aggregate Warrant Price applicable to this Warrant or the portion hereof so
sold.
(ii) Notwithstanding anything contained in this Warrant to the contrary,
the Issuer will not effect any Triggering Event unless, prior to the
consummation thereof, each Person (other than the Issuer) which may be required
to deliver any Securities, cash or property upon the exercise of this Warrant as
provided herein shall assume, by written instrument delivered to, and reasonably
satisfactory to, the Holder of this Warrant, (A) the obligations of the Issuer
under this Warrant (and if the Issuer shall survive the consummation of such
Triggering Event, such assumption shall be in addition to, and shall not release
the Issuer from, any continuing obligations of the Issuer under this Warrant)
and (B) the obligation to deliver to such Holder such shares of Securities, cash
or property as, in accordance with the foregoing provisions of this subsection
(a), such Holder shall be entitled to receive, and such Person shall have
similarly delivered to such Holder an opinion of counsel for such Person, which
counsel shall be reasonably satisfactory to such Holder, stating that this
Warrant shall thereafter continue in full force and effect and the terms hereof
(including, without limitation, all of the provisions of this subsection (a))
shall be applicable to the Securities, cash or property which such Person may be
required to deliver upon any exercise of this Warrant or the exercise of any
rights pursuant hereto.
(iii) If with respect to any Triggering Event, the Holder of this Warrant
has exercised its right as provided in clause (y) of subparagraph (i) of this
subsection (a) to sell this Warrant or a portion thereof, the Issuer agrees that
as a condition to the consummation of any such Triggering Event the Issuer shall
secure such right of Holder to sell this Warrant to the Person continuing after
or surviving such Triggering Event and the Issuer shall not effect any such
Triggering Event unless upon or prior to the consummation thereof the amounts of
cash, property and/or Securities required under such clause (y) are delivered to
the Holder of this Warrant. The obligation of the Issuer to secure such right of
the Holder to sell this Warrant shall be subject to such Holder's cooperation
with the Issuer, including, without limitation, the giving of customary
representations and warranties to the purchaser in connection with any such
sale. Prior notice of any Triggering Event shall be given to the Holder of this
Warrant in accordance with Section 11 hereof.
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(b) Subdivision or Combination of Shares. If the Issuer, at any time while
this Warrant is outstanding, shall subdivide or combine any shares of Common
Stock, (i) in case of subdivision of shares, the Warrant Price shall be
proportionately reduced (as at the effective date of such subdivision or, if the
Issuer shall take a record of Holders of its Common Stock for the purpose of so
subdividing, as at the applicable record date, whichever is earlier) to reflect
the increase in the total number of shares of Common Stock outstanding as a
result of such subdivision, or (ii) in the case of a combination of shares, the
Warrant Price shall be proportionately increased (as at the effective date of
such combination or, if the Issuer shall take a record of Holders of its Common
Stock for the purpose of so combining, as at the applicable record date,
whichever is earlier) to reflect the reduction in the total number of shares of
Common Stock outstanding as a result of such combination.
(c) Certain Dividends and Distributions. If the Issuer, at any time while
this Warrant is outstanding, shall:
(i) Stock Dividends. Pay a dividend in, or make any other
distribution to its stockholders (without consideration therefor) of,
shares of Common Stock, the Warrant Price shall be adjusted, as at the
date the Issuer shall take a record of the Holders of the Issuer's Capital
Stock for the purpose of receiving such dividend or other distribution (or
if no such record is taken, as at the date of such payment or other
distribution), to that price determined by multiplying the Warrant Price
in effect immediately prior to such record date (or if no such record is
taken, then immediately prior to such payment or other distribution), by a
fraction (1) the numerator of which shall be the total number of shares of
Common Stock outstanding immediately prior to such dividend or
distribution, and (2) the denominator of which shall be the total number
of shares of Common Stock outstanding immediately after such dividend or
distribution (plus in the event that the Issuer paid cash for fractional
shares, the number of additional shares which would have been outstanding
had the Issuer issued fractional shares in connection with said
dividends); or
(ii) Other Dividends. Pay a dividend on, or make any distribution of
its assets upon or with respect to (including, but not limited to, a
distribution of its property as a dividend in liquidation or partial
liquidation or by way of return of capital), the Common Stock (other than
as described in clause (i) of this subsection (c)), or in the event that
the Company shall offer options or rights to subscribe for shares of
Common Stock, or issue any Common Stock Equivalents, to all of its holders
of Common Stock, then on the record date for such payment, distribution or
offer or, in the absence of a record date, on the date of such payment,
distribution or offer, the Holder shall receive what the Holder would have
received had it exercised this Warrant in full immediately prior to the
record date of such payment, distribution or offer or, in the absence of a
record date, immediately prior to the date of such payment, distribution
or offer.
(d) Issuance of Additional Shares of Common Stock. If the Issuer, at any
time while this Warrant is outstanding, shall issue any Additional Shares of
Common Stock (otherwise than as provided in the foregoing subsections (a)
through (c) of this Section 4), at a price per share less than the Per Share
Market Value then in effect or without consideration, then the Warrant Price
upon each such issuance shall be adjusted to that price (rounded to the nearest
cent) determined by multiplying the Warrant Price then in effect by a fraction:
(i) the numerator of which shall be equal to the sum of (A) the
number of shares of Common Stock outstanding immediately prior to the
issuance of such Additional Shares of Common Stock plus (B) the number of
shares of Common Stock (rounded to the nearest whole share) which the
aggregate consideration for the total number of such Additional Shares of
Common Stock so issued would purchase at a price per share equal to the
Per Share Market Value then in effect, and
(ii) the denominator of which shall be equal to the number of shares
of Common Stock outstanding immediately after the issuance of such
Additional Shares of Common Stock.
The provisions of this subsection (d) shall not apply under any of the
circumstances for which an adjustment is provided in subsections (a), (b) or (c)
of this Section 4. No adjustment of the Warrant Price shall be made under this
subsection (d) upon the issuance of any Additional Shares of Common Stock which
are issued pursuant to any Common Stock
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Equivalent if upon the issuance of such Common Stock Equivalent (x) any
adjustment shall have been made pursuant to subsection (e) of this Section 4 or
(Y) no adjustment was required pursuant to subsection (e) of this Section 4. No
adjustment of the Warrant Price shall be made under this subsection (d) in an
amount less than $.01 per share, but any such lesser adjustment shall be carried
forward and shall be made at the time and together with the next subsequent
adjustment, if any, which together with any adjustments so carried forward shall
amount to $.01 per share or more, provided that upon any adjustment of the
Warrant Price as a result of any dividend or distribution payable in Common
Stock or Convertible Securities or the reclassification, subdivision or
combination of Common Stock into a greater or smaller number of shares, the
foregoing figure of $.01 per share (or such figure as last adjusted) shall be
adjusted (to the nearest one-half cent) in proportion to the adjustment in the
Warrant Price.
(e) Issuance of Common Stock Equivalents. If the Issuer, at any time while
this Warrant is outstanding, shall issue any Common Stock Equivalent and the
price per share for which Additional Shares of Common Stock may be issuable
thereafter pursuant to such Common Stock Equivalent shall be less than the
Warrant Price then in effect or less than the Per Share Market Value then in
effect, or if, after any such issuance of Common Stock Equivalents, the price
per share for which Additional Shares of Common Stock may be issuable thereafter
is amended or adjusted, and such price as so amended shall be less than the
Warrant Price or less than the Per Share Market Value in effect at the time of
such amendment, then the Warrant Price upon each such issuance or amendment
shall be adjusted as provided in the first sentence of subsection (d) of this
Section 4 on the basis that (1) the maximum number of Additional Shares of
Common Stock issuable pursuant to all such Common Stock Equivalents shall be
deemed to have been issued (whether or not such Common Stock Equivalents are
actually then exercisable, convertible or exchangeable in whole or in part) as
of the earlier of (A) the date on which the Issuer shall enter into a firm
contract for the issuance of such Common Stock Equivalent, or (B) the date of
actual issuance of such Common Stock Equivalent, and (2) the aggregate
consideration for such maximum number of Additional Shares of Common Stock shall
be deemed to be the minimum consideration received or receivable by the Issuer
for the issuance of such Additional Shares of Common Stock pursuant to such
Common Stock Equivalent. No adjustment of the Warrant Price shall be made under
this subsection (e) upon the issuance of any Convertible Security which is
issued pursuant to the exercise of any warrants or other subscription or
purchase rights therefor, if any adjustment shall previously have been made in
the Warrant Price then in effect upon the issuance of such warrants or other
rights pursuant to this subsection (e). If no adjustment is required under this
subsection (e) upon issuance of any Common Stock Equivalent or once an
adjustment is made under this subsection (e) based upon the Per Share Market
Value in effect on the date of such adjustment, no further adjustment shall be
made under this subsection (e) based solely upon a change in the Per Share
Market Value after such date.
(f) Purchase of Common Stock by the Issuer. If the Issuer at any time
while this Warrant is outstanding shall, directly or indirectly through a
Subsidiary or otherwise, purchase, redeem or otherwise acquire any shares of
Common Stock at a price per share greater than the Per Share Market Value then
in effect, then the Warrant Price upon each such purchase, redemption or
acquisition shall be adjusted to that price determined by multiplying such
Warrant Price by a fraction (i) the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such purchase,
redemption or acquisition minus the number of shares of Common Stock which the
aggregate consideration for the total number of such shares of Common Stock so
purchased, redeemed or acquired would purchase at the Per Share Market Value;
and (ii) the denominator of which shall be the number of shares of Common Stock
outstanding immediately after such purchase, redemption or acquisition. For the
purposes of this subsection (f), the date as of which the Per Share Market Value
shall be computed shall be the earlier of (x) the date on which the Issuer shall
enter into a firm contract for the purchase, redemption or acquisition of such
Common Stock, or (y) the date of actual purchase, redemption or acquisition of
such Common Stock. For the purposes of this subsection (f), a purchase,
redemption or acquisition of a Common Stock Equivalent shall be deemed to be a
purchase of the underlying Common Stock, and the computation herein required
shall be made on the basis of the full exercise, conversion or exchange of such
Common Stock Equivalent on the date as of which such computation is required
hereby to be made, whether or not such Common Stock Equivalent is actually
exercisable, convertible or exchangeable on such date.
(g) Other Provisions Applicable to Adjustments Under this Section 4. The
following provisions shall be applicable to the making of adjustments in the
Warrant Price hereinbefore provided in Section 4:
(i) Computation of Consideration. The consideration received by the
Issuer shall be deemed to be the following: to the extent that any
Additional Shares of Common Stock or any Common Stock
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Equivalents shall be issued for a cash consideration, the consideration
received by the Issuer therefor, or if such Additional Shares of Common
Stock or Common Stock Equivalents are offered by the Issuer for
subscription, the subscription price, or, if such Additional Shares of
Common Stock or Common Stock Equivalents are sold to underwriters or
dealers for public offering without a subscription offering, the public
offering price, in any such case excluding any amounts paid or receivable
for accrued interest or accrued dividends and without deduction of any
compensation, discounts, commissions, or expenses paid or incurred by the
Issuer for or in connection with the underwriting thereof or otherwise in
connection with the issue thereof; to the extent that such issuance shall
be for a consideration other than cash, then, except as herein otherwise
expressly provided, the fair market value of such consideration at the,
time of such issuance as determined in good faith by the Board. The
consideration for any Additional Shares of Common Stock issuable pursuant
to any Common Stock Equivalents shall be the consideration received by the
Issuer for issuing such Common Stock Equivalents, plus the additional
consideration payable to the Issuer upon the exercise, conversion or
exchange of such Common Stock Equivalents. In case of the issuance at any
time of any Additional Shares of Common Stock or Common Stock Equivalents
in payment or satisfaction of any dividend upon any class of Capital Stock
of the Issuer other than Common Stock, the Issuer shall be deemed to have
received for such Additional Shares of Common Stock or Common Stock
Equivalents a consideration equal to the amount of such dividend so paid
or satisfied. In any case in which the consideration to be received or
paid shall be other than cash, the Board shall notify the Holder of this
Warrant of its determination of the fair market value of such
consideration prior to payment or accepting receipt thereof. If, within
thirty days after receipt of said notice, the Majority Holders shall
notify the Board in writing of their objection to such determination, a
determination of the fair market value of such consideration shall be made
by an Independent Appraiser selected by the Majority Holders with the
approval of the Board (which approval shall not be unreasonably withheld),
whose fees and expenses shall be paid by the Issuer.
(ii) Readjustment of Warrant Price. Upon the expiration or
termination of the right to convert, exchange or exercise any Common Stock
Equivalent the issuance of which effected an adjustment in the Warrant
Price, if such Common Stock Equivalent shall not have been converted,
exercised or exchanged in its entirety, the number of shares of Common
Stock deemed to be issued and outstanding by reason of the fact that they
were issuable upon conversion, exchange or exercise of any such Common
Stock Equivalent shall no longer be computed as set forth above, and the
Warrant Price shall forthwith be readjusted and thereafter be the price
which it would have been (but reflecting any other adjustments in the
Warrant Price made pursuant to the provisions of this Section 4 after the
issuance of such Common Stock Equivalent) had the adjustment of the
Warrant Price been made in accordance with the issuance or sale of the
number of Additional Shares of Common Stock actually issued upon
conversion, exchange or issuance of such Common Stock Equivalent and
thereupon only the number of Additional Shares of Common Stock actually so
issued shall be deemed to have been issued and only the consideration
actually received by the Issuer (computed as in clause (i) of this
subsection (g)) shall be deemed to have been received by the Issuer.
(iii) Outstanding Common Stock. The number of shares of Common Stock
at any time outstanding shall (A) not include any shares thereof then
directly or indirectly owned or held by or for the account of the Issuer
or any of its Subsidiaries, and (B) be deemed to include all shares of
Common Stock then issuable upon conversion, exercise or exchange of any
then outstanding Common Stock Equivalents or any other evidences of
Indebtedness (including, without limitation, the Debentures), shares of
Capital Stock or other Securities which are or may be at any time
convertible into or exchangeable for shares of Common Stock or Other
Common Stock.
(h) Other Action Affecting Common Stock. In case after the Original Issue
Date the Issuer shall take any action affecting its Common Stock, other than an
action described in any of the foregoing subsections (a) through (g) of this
Section 4, inclusive, and the failure to make any adjustment would not fairly
protect the purchase rights represented by this Warrant in accordance with the
essential intent and principle of this Section 4, then the Warrant Price shall
be adjusted in such manner and at such time as the Board may in good faith
determine to be equitable in the circumstances.
(i) Adjustment of Warrant Share Number. Upon each adjustment in the
Warrant Price pursuant to any
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of the foregoing provisions of this Section 4, the Warrant Share Number shall be
adjusted, to the nearest one hundredth of a whole share, to the product obtained
by multiplying the Warrant Share Number immediately prior to such adjustment in
the Warrant Price by a fraction, the numerator of which shall be the Warrant
Price immediately before giving effect to such adjustment and the denominator of
which shall be the Warrant Price immediately after giving effect to such
adjustment. If the Issuer shall be in default under any provision contained in
Section 3 of this Warrant so that shares issued at the Warrant Price adjusted in
accordance with this Section 4 would not be validly issued, the adjustment of
the Warrant Share Number provided for in the foregoing sentence shall
nonetheless be made and the Holder of this Warrant shall be entitled to purchase
such greater number of shares at the lowest price at which such shares may then
be validly issued under applicable law. Such exercise shall not constitute a
waiver of any claim arising against the Issuer by reason of its default under
Section 3 of this Warrant.
(j) Form of Warrant after Adjustments. The form of this Warrant need not
be changed because of any adjustments in the Warrant Price or the number and
kind of Securities purchasable upon the exercise of this Warrant.
5. Notice of Adjustments. Whenever the Warrant Price or Warrant Share
Number shall be adjusted pursuant to Section 4 hereof (for purposes of this
Section 5, each an "adjustment"), the Issuer shall cause its Chief Financial
Officer to prepare and execute a certificate setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated (including a description of the
basis on which the Board made any determination hereunder), and the Warrant
Price and Warrant Share Number after giving effect to such adjustment, and shall
cause copies of such certificate to be delivered to the Holder of this Warrant
promptly after each adjustment. Any dispute between the Issuer and the Holder of
this Warrant with respect to the matters set forth in such certificate may at
the option of the Holder of this Warrant be submitted to one of the national
accounting firms currently known as the "big five" selected by the Holder,
provided that the Issuer shall have ten days after receipt of notice from such
Holder of its selection of such firm to object thereto, in which case such
Holder shall select another such firm and the Issuer shall have no such right of
objection. The firm selected by the Holder of this Warrant as provided in the
preceding sentence shall be instructed to deliver a written opinion as to such
matters to the Issuer and such Holder within thirty days after submission to it
of such dispute. Such opinion shall be final and binding on the parties hereto.
The fees and expenses of such accounting firm shall be paid by the Issuer.
6. Fractional Shares. No fractional shares of Warrant Stock will be issued
in connection with and exercise hereof, but in lieu of such fractional shares,
the Issuer shall make a cash payment therefor equal in amount to the product of
the applicable fraction multiplied by the Per Share Market Value then in effect.
7. Definitions. For the purposes of this Warrant, the following terms have
the following meanings:
"Additional Shares of Common Stock" means all shares of Common Stock
issued by the Issuer after the Original Issue Date, and all shares of
Other Common, if any, issued by the Issuer after the Original Issue Date,
except (i) Warrant Stock, (ii) any shares of Common Stock issuable upon
conversion of the Debentures and (iii) any shares of Common Stock issuable
upon exercise of the Stock Options.
"Board" shall mean the Board of Directors of the Issuer.
"Capital Stock" means and includes (i) any and all shares,
interests, participations or other equivalents of or interests in (however
designated) corporate stock, including, without limitation, shares of
preferred or preference stock, (ii) all partnership interests (whether
general or limited) in any Person which is a partnership, (iii) all
membership interests or limited liability company interests in any limited
liability company, and (iv) all equity or ownership interests in any
Person of any other type.
"Certificate of Incorporation" means the Certificate of
Incorporation of the Issuer as in effect on the Original Issue Date and as
hereafter from time to time amended, modified, supplemented or restated in
accordance with the terms hereof and thereof and pursuant to applicable
law.
8
<PAGE> 9
"Debenture" means any of the certificates representing $2,000,000
aggregate principal amount of 8% Convertible Debentures of the Issuer.
"Original Issue Date" means February 25, 1999.
"Common Stock" means the Common Stock, no par value, of the Issuer
and any other Capital Stock into which such stock may hereafter be
changed.
"Common Stock Equivalent" means any Convertible Security or warrant,
option or other right to subscribe for or purchase any Additional Shares
of Common Stock or any Convertible Security.
"Convertible Securities" means evidences of Indebtedness, shares of
Capital Stock or other Securities which are or may be at any time
convertible into or exchangeable for Additional Shares of Common Stock.
The term "Convertible Security" means one of the Convertible Securities.
"Governmental Authority" means any governmental, regulatory or
self-regulatory entity, department, body, official, authority, commission,
board, agency or instrumentality, whether federal, state or local, and
whether domestic or foreign.
"Holders" mean the Persons who shall from time to time own any
Warrant. The term "Holder" means one of the Holders.
"Independent Appraiser" means a nationally recognized or major
regional investment banking firm or firm of independent certified public
accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Issuer) that is regularly engaged
in the business of appraising the Capital Stock or assets of corporations
or other entities as going concerns, and which is not affiliated with
either the Issuer or the Holder of any Warrant.
"Issuer" means Team Communications Group, Inc., a California
corporation, and its successors.
"Majority Holders" means at any time the Holders of Warrants
exercisable for a majority of the shares of Warrant Stock issuable under
the Warrants at the time outstanding.
"NASDAQ" means the National Association of Securities Dealers
Automated Quotation System.
"Other Common" means any other Capital Stock of the Issuer of any
class which shall be authorized at any time after the date of this Warrant
(other than Common Stock) and which shall have the right to participate in
the distribution of earnings and assets of the Issuer without limitation
as to amount.
"Person" means an individual, corporation, limited liability
company, partnership, joint stock company, trust, unincorporated
organization, joint venture, Governmental Authority or other entity of
whatever nature.
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on The Nasdaq
Small-Cap Market, the Nasdaq National Market or other registered national
stock exchange on which the Common Stock is then listed or if there is no
such price on such date, then the closing bid price on such exchange or
quotation system on the date nearest preceding such date, or (b) if the
Common Stock is not listed then on The Nasdaq Small-Cap Market, the Nasdaq
National Market or any registered national stock exchange, the closing bid
price for a share of Common Stock in the overthecounter market, as
reported by NASDAQ or in the National Quotation Bureau Incorporated or
similar organization or agency succeeding to its functions of reporting
prices) at the close of business on such date, or (c) if the Common Stock
is not then reported by the National Quotation Bureau Incorporated (or
similar
9
<PAGE> 10
organization or agency succeeding to its functions of reporting prices),
then the average of the "Pink Sheet" quotes for the relevant conversion
period, as determined in good faith by the holder, or (d) if the Common
Stock is not then publicly traded the fair market value of a share of
Common Stock as determined by an Independent Appraiser selected in good
faith by the Majority Holders; provided, however, that the Issuer, after
receipt of the determination by such Independent Appraiser, shall have the
right to select an additional Independent Appraiser, in which case, the
fair market value shall be equal to the average of the determinations by
each such Independent Appraiser; and provided, further that all
determinations of the Per Share Market Value shall be appropriately
adjusted for any stock dividends, stock splits or other similar
transactions during such period. The determination of fair market value by
an Independent Appraiser shall be based upon the fair market value of the
Issuer determined on a going concern basis as between a willing buyer and
a willing seller and taking into account all relevant factors
determinative of value, and shall be final and binding on all parties. In
determining the fair market value of any shares of Common Stock, no
consideration shall be given to any restrictions on transfer of the Common
Stock imposed by agreement or by federal or state securities laws, or to
the existence or absence of, or any limitations on, voting rights.
"Registration Rights Agreement" has the meaning specified in Section
3(e) hereof.
"Securities" means any debt or equity securities of the Issuer,
whether now or hereafter authorized, any instrument convertible into or
exchangeable for Securities or a Security, and any option, warrant or
other right to purchase or acquire any Security. "Security" means one of
the Securities.
"Securities Act" means the Securities Act of 1933, as amended, or
any similar federal statute then in effect.
"Securities Purchase Agreement" means the Securities Purchase
Agreement dated as of February 25, 1999 among the Issuer and VMR S.A
Luxembourg, Chateau Woltz, 34 Rue Neuve, Remich, L5560, Luxembourg,.
"Stock Options" means options to purchase up to 375,000 shares of
Common Stock issued by the Issuer on the Original Issue Date to certain
members of the Issuer's senior management, as the same may from time to
time be amended, modified or supplemented in accordance with their terms,
provided however, such number may be increased or decreased, as the case
may be, upon the restatement of the Company's Stock Option Plan, as
approved by the shareholders of the Company.
"Subsidiary" means any corporation at least 50% of whose outstanding
Voting Stock shall at the time be owned directly or indirectly by the
Issuer or by one or more of its Subsidiaries, or by the Issuer and one or
more of its Subsidiaries.
"Trading Day" means (a) a day on which the Common Stock is traded on
The Nasdaq Small-Cap Market, the Nasdaq National Market or other
registered national stock exchange on which the Common Stock has been
listed, or (b) if the Common Stock is not listed on The Nasdaq Small-Cap
Market, the Nasdaq National Market or any registered national stock
exchange, a day or which the Common Stock is traded in the
over-the-counter market, as reported by the OTC Bulletin Board, or (c) if
the Common Stock is not quoted on the OTC Bulletin Board, a day on which
the Common Stock is quoted in the over-the-counter market as reported by
the National Quotation Bureau Incorporated (or any similar organization or
agency succeeding its functions of reporting prices); provided, however,
that in the event that the Common Stock is not listed or quoted as set
forth in (a), (b) and (c) hereof, then Trading Day shall mean any day
except Saturday, Sunday and any day which shall be a legal holiday or a
day on which banking institutions in the State of New York are authorized
or required by law or other government action to close.
"Term" has the meaning specified in Section 1 hereof.
"Voting Stock", as applied to the Capital Stock of any corporation,
means Capital Stock of any class
10
<PAGE> 11
or classes (however designated) having ordinary voting power for the
election of a majority of the members of the Board of Directors (or other
governing body) of such corporation, other than Capital Stock having such
power only by reason of the happening of a contingency.
"Warrants" means the Warrants issued and sold pursuant to the
Securities Purchase Agreement, including, without limitation, this
Warrant, and any other warrants of like tenor issued in substitution or
exchange for any thereof pursuant to the provisions of Section 2(c), 2(d)
or 2(e) hereof or of any of such other Warrants.
"Warrant Price" means initially an amount equal to 110% of the Per
Share Market Value as of the last Trading Day prior to the date of the
issuance of the Warrants, as such price may be adjusted from time to time
as shall result from the adjustments specified in Section 4 hereof.
"Warrant Share Number" means at any time the aggregate number of
shares of Warrant Stock which may at such time be purchased upon exercise
of this Warrant, after giving effect to all prior adjustments and
increases to such number made or required to be made under the terms
hereof.
"Warrant Stock" means Common Stock issuable upon exercise of any
Warrant or Warrants or otherwise issuable pursuant to any Warrant or
Warrants.
8. Other Notices. In case at any time:
(A) the Issuer shall make any distributions to the holders of
Common Stock; or
(B) the Issuer shall authorize the granting to all holders of its
Common Stock of rights to subscribe for or purchase any shares
of Capital Stock of any class or of any Common Stock
Equivalents or Convertible Securities or other rights; or
(C) there shall be any reclassification of the Capital Stock of
the Issuer; or
(D) there shall be any capital reorganization by the Issuer; or
(E) there shall be any (i) consolidation or merger involving the
Issuer or (ii) sale, transfer or other disposition of all or
substantially all of the Issuer's property, assets or business
(except a merger or other reorganization in which the Issuer
shall be the surviving corporation and its shares of Capital
Stock shall continue to be outstanding and unchanged and
except a consolidation, merger, sale, transfer or other
disposition involving a wholly-owned Subsidiary); or
(F) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Issuer or any partial
liquidation of the Issuer or distribution to holders of Common
Stock;
then, in each of such cases, the Issuer shall give written notice to the Holder
of the date on which (i) the books of the Issuer shall close or a record shall
be taken for such dividend, distribution or subscription rights or (ii) such
reorganization, reclassification, consolidation, merger, disposition,
dissolution, liquidation or winding-up, as the case may be, shall take place.
Such notice also shall specify the date as of which the holders of Common Stock
of record shall participate in such dividend, distribution or subscription
rights, or shall be entitled to exchange their certificates for Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation,
11
<PAGE> 12
merger, disposition, dissolution, liquidation or winding-up, as the case may be.
Such notice shall be given at least twenty days prior to the action in question
and not less than twenty days prior to the record date or the date on which the
Issuer's transfer books are closed in respect thereto. The Issuer shall give to
the Holder notice of all meetings and actions by written consent of its
stockholders, at the same time in the same manner as notice of any meetings of
stockholders is required to be given to stockholders who do not waive such
notice (or, if such requires no notice, then two Trading Days written notice
thereof describing the matters upon which action is to be taken). The Holder
shall have the right to send two representatives selected by it to each meeting,
who shall be permitted to attend, but not vote at, such meeting and any
adjournments thereof. This Warrant entitles the Holder to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Common Stock.
9. Amendment and Waiver. Any term, covenant, agreement or condition in
this Warrant may be amended, or compliance therewith may be waived (either
generally or in a particular instance and either retroactively or
prospectively), by a written instrument or written instruments executed by the
Issuer and the Majority Holders; provided, however, that no such amendment or
waiver shall reduce the Warrant Share umber, increase the Warrant Price, shorten
the period during which this Warrant may be exercised or modify any provision of
this Section 9 without the consent of the Holder of this Warrant.
10. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAW.
11. Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earlier of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified for notice prior to 5:00 p.m., Los Angeles time, on a
Business Day, (ii) the Business Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified for notice later than 5:00 p.m., Los Angeles time, on any date
and earlier than 11:59 p.m., Los Angeles time, on such date, (iii) the Business
Day following the date of mailing, if sent by nationally recognized overnight
courier service or (iv) actual receipt by the party to whom such notice is
required to be given. The addresses for such communications shall be with
respect to the Holder of this Warrant or of Warrant Stock issued pursuant
hereto, addressed to such Holder at its last known address or facsimile number
appearing on the books of the Issuer maintained for such purposes, or with
respect to the Issuer, addressed to:
Team Communications Group, Inc.
12300 Wilshire Boulevard, #400
Los Angeles, California 90025
Attention: Drew S. Levin
Telephone No.: (310) 442-3500
Facsimile No.: (310) 442-3501
or to such other address or addresses or facsimile number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice. Copies of notices to the Holder shall be sent to Freshman,
Marantz, Orlanski, Cooper & Klein, 9100 Wilshire Boulevard, 8th Floor, East
Tower, Beverly Hills, CA 90212, Attention: Thomas Poletti, Esq. Facsimile No.:
(310) 274-8357. Copies of notices to the Issuer shall be sent to Kelly Lytton
Mintz & Vann LLP, 1900 Avenue of the Stars, Suite 1450, Los Angeles, California
90067, Attention: Bruce Vann, Esq., Facsimile No.: (310) 277-5953.
12. Warrant Agent. The Issuer may, by written notice to each Holder of
this Warrant, appoint an agent having an office in New York, New York for the
purpose of issuing shares of Warrant Stock on the exercise of this Warrant
pursuant to subsection (b) of Section 2 hereof, exchanging this Warrant pursuant
to subsection (d) of Section 2 hereof or replacing this Warrant pursuant to
subsection (d) of Section 3 hereof, or any of the foregoing, and thereafter any
such issuance, exchange or replacement, as the case may be, shall be made at
such office by such agent.
12
<PAGE> 13
13. Remedies. The Issuer stipulates that the remedies at law of the Holder
of this Warrant in the event of any default or threatened default by the Issuer
in the performance of or compliance with any of the terms of this Warrant are
not and will not be adequate and that, to the fullest extent permitted by law,
such terms may be specifically enforced by a decree for the specific performance
of any agreement contained herein or by an injunction against a violation of any
of the terms hereof or otherwise.
14. Successors and Assigns. This Warrant and the rights evidenced hereby
shall inure to the benefit of and be binding upon the successors and assigns of
the Issuer, the Holder hereof and (to the extent provided herein) the Holders of
Warrant Stock issued pursuant hereto, and shall be enforceable by any such
Holder or Holder of Warrant Stock.
15. Modification and Severability. If, in any action before any court or
agency legally empowered to enforce any provision contained herein, any
provision hereof is found to be unenforceable, then such provision shall be
deemed modified to the extent necessary to make it enforceable by such court or
agency. If any such provision is not enforceable as set forth in the preceding
sentence, the unenforceability of such provision shall not affect the other
provisions of this Warrant, but this Warrant shall be construed as if such
unenforceable provision had never been contained herein.
16. Headings. The headings of the Sections of this Warrant are for
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
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<PAGE> 14
IN WITNESS WHEREOF, the Issuer has executed this Warrant as of the day and
year first above written.
TEAM COMMUNICATIONS GROUP, INC.
By: /s/ Drew S. Levin
-------------------------------------
Name: Drew S. Levin
------------------------------
Title: Chairman & CEO
------------------------------
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<PAGE> 15
EXERCISE FORM
TEAM COMMUNICATIONS GROUP, INC.
The undersigned _______________, pursuant to the provisions of the within
Warrant, hereby elects to purchase _____ shares of Common Stock of TEAM
COMMUNICATIONS GROUP, INC. covered by the within Warrant.
Dated: __________________ Signature: _______________________________________
Address: _______________________________________
_______________________________________
_______________________________________
_______________________________________
ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint _____________, attorney, to transfer the said
Warrant on the books of the within named corporation.
Dated: __________________ Signature: _______________________________________
Address: _______________________________________
_______________________________________
_______________________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the right to purchase _________ shares of Warrant Stock
evidenced by the within Warrant together with all rights therein, and does
irrevocably constitute and appoint ___________________, attorney, to transfer
that part of the said Warrant on the books of the within named corporation.
Dated: __________________ Signature: _______________________________________
Address: _______________________________________
_______________________________________
_______________________________________
FOR USE BY THE ISSUER ONLY:
This Warrant No. W-_____ cancelled (or transferred or exchanged) this _____ day
of ___________, _____, shares of Common Stock issued therefor in the name of
_______________, Warrant No. W-_____ issued for ____ shares of Common Stock in
the name of _______________.
15
<PAGE> 1
EXHIBIT 4.27
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of February 23, 1999, among Team Communications Group, Inc., a
California corporation (the "Company") and the individuals identified on
Schedule 1 hereto (each such individual is referred to herein as a "Purchaser"
and are collectively referred to herein as the "Purchasers.")
This Agreement is being entered into pursuant to the Securities Purchase
Agreement, dated as of the date hereof among the Company and the Purchasers (the
"Purchase Agreement").
The Company and the Purchasers hereby agree as follows:
1. DEFINITIONS.
Capitalized terms used and not otherwise defined herein shall have the
meanings given such terms in the Purchase Agreement. As used in this Agreement,
the following terms shall have the following meanings:
"Advice" shall have meaning set forth in Section 3(m).
"Affiliate" means, with respect to any Person, any other Person that directly or
indirectly controls or is controlled by or under common control with such
Person. For the purposes of this definition, "control," when used with respect
to any Person, means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms of "affiliated," "controlling" and "controlled" have meanings correlative
to the foregoing.
"Board" shall have meaning set forth in Section 3(n).
"Business Day" means any day except Saturday, Sunday and any day which shall be
a legal holiday or a day on which banking institutions in the state of New York
generally are authorized or required by law or other government actions to
close.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's Common Stock, no par value per share.
"Debentures" means the 5% Convertible Debentures due 2002 of the Company issued
to the Purchasers pursuant to the Purchase Agreement.
"Effectiveness Date" means with respect to the Registration Statement the 125th
day following the Initial Closing Date.
<PAGE> 2
"Effectiveness Period" shall have the meaning set forth in Section 2.
"Event" shall have the meaning set forth in Section 7(e)(i).
"Event Date" shall have the meaning set forth in Section 7(e)(i).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Filing Date" means the 75th day following the Initial Closing Date but in no
event later that March 31, 1999.
"Holder" or "Holders" means the holder or holders, as the case may be, from time
to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section 5(c).
"Indemnifying Party" shall have the meaning set forth in Section 5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"Person" means an individual or a corporation, partnership, trust, incorporated
or unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or political subdivision thereof) or
other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by the
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference in such Prospectus.
"Registrable Securities" means the shares of Common Stock issuable upon
conversion of the Debentures and the shares of Common Stock issuable upon
exercise of the Warrants; provided, however, that Registrable Securities shall
include (but not be limited to) a number of shares of Common Stock equal to no
less than 200% of the maximum number of shares of Common Stock which would be
issuable upon conversion of the Debentures and upon exercise of the Warrants,
assuming such conversion and exercise occurred either (i) on the Initial Closing
Date or (ii) the Filing Date, whichever date would produce a greater number of
Registrable Securities. Such registered shares of Common Stock shall be
allocated among the Holders pro rata based on the total number of Registrable
Securities issued or issuable as of each date that a Registration
<PAGE> 3
Statement, as amended, relating to the resale of the Registrable Securities is
declared effective by the Commission. Notwithstanding anything herein contained
to the contrary, if the actual number of shares of Common Stock issuable upon
conversion of the Debentures and upon exercise of the Warrants exceeds 200% of
the number of shares of Common Stock issuable upon conversion of the Debentures
and upon exercise of the Warrants based upon a computation as at the Initial
Closing Date or the Filing Date, the term "Registrable Securities" shall be
deemed to include such additional shares of Common Stock.
"Registration Statement" means the registration statements and any additional
registration statements contemplated by Section 2, including (in each case) the
Prospectus, amendments and supplements to such registration statement or
Prospectus, including pre- and post-effective amendments, all exhibits thereto,
and all material incorporated by reference in such registration statement.
"Rule 144" means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Rule 158" means Rule 158 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
"Special Counsel" means any special counsel to the Holders, for which the
Holders will be reimbursed by the Company pursuant to Section 4.
2. SHELF REGISTRATION.
On or prior to the Filing Date the Company shall prepare and file with
the Commission a "shelf" Registration Statement covering all Registrable
Securities for an offering to be made on a continuous basis pursuant to Rule
415. The Registration Statement shall be on Form SB-2 (or on Form S-3 if the
Company is then eligible to register for resale the Registrable Securities on
Form S-3). The Company shall (i) not permit any securities other than the
Registrable Securities to be included in the Registration Statement and (ii) use
its best efforts to cause the Registration Statement to be declared effective
under the Securities Act as promptly as possible after the filing thereof, but
in any event prior to the Effectiveness Date, and to keep such Registration
Statement continuously effective under the Securities Act until the date which
is five years after the date that such Registration Statement is declared
effective by the Commission or such earlier date when all Registrable Securities
covered by such Registration Statement have been sold or may be sold without any
restriction pursuant to Rule 144 as determined by the counsel to the
<PAGE> 4
Company pursuant to a written opinion letter, addressed to the Company's
transfer agent to such effect (the "Effectiveness Period"). If an additional
Registration Statement is required to be filed because the actual number of
shares of Common Stock into which the Debentures are convertible and the
Warrants are exercisable exceeds the number of shares of Common Stock initially
registered in respect of the Underlying Shares and the Warrant Shares based upon
the computation on the Initial Closing Date, the Company shall have fifteen (15)
Business Days to file such additional Registration Statement, and the Company
shall use its best efforts to cause such additional Registration Statement to be
declared effective by the Commission as soon as possible, but in no event later
than 60 days after filing.
3. REGISTRATION PROCEDURES.
In connection with the Company's registration obligations hereunder, the
Company shall:
(a) Prepare and file with the Commission on or prior to the Filing Date, a
Registration Statement on Form SB-2 (or on Form S-3 if the Company is then
eligible to register for resale the Registrable Securities on Form S-3) in
accordance with the method or methods of distribution thereof as specified by
the Holders (except if otherwise directed by the Holders), and cause the
Registration Statement to become effective and remain effective as provided
herein; provided, however, that not less than ten (10) Business Days prior to
the filing of the Registration Statement or any related Prospectus or any
amendment or supplement thereto (including any document that would be
incorporated therein by reference), the Company shall (i) furnish to the Holders
and any Special Counsel, copies of all such documents proposed to be filed,
which documents (other than those incorporated by reference) will be subject to
the review of such Holders and such Special Counsel, and (ii) cause its officers
and directors, counsel and independent certified public accountants to respond
to such inquiries as shall be necessary, in the reasonable opinion of respective
counsel to such Holders, to conduct a reasonable investigation within the
meaning of the Securities Act. The Company shall not file the Registration
Statement or any such Prospectus or any amendments or supplements thereto to
which the Holders of a majority of the Registrable Securities or any Special
Counsel, shall reasonably object in writing within seven (7) Business Days of
their receipt thereof.
(b) (i) Prepare and file with the Commission such amendments, including
post-effective amendments, to the Registration Statement as may be necessary to
keep the Registration Statement continuously effective as to the applicable
Registrable Securities for the Effectiveness Period and prepare and file with
the Commission such additional Registration Statements in order to register for
resale under the Securities Act all of the Registrable Securities; (ii) cause
the related Prospectus to be amended or supplemented by any required Prospectus
supplement, and as so supplemented or amended to be filed pursuant to Rule 424
(or any similar provisions then in force) promulgated under the Securities Act;
(iii) respond as promptly as possible to any comments received from the
Commission with respect to the Registration Statement or any amendment thereto
and as promptly as possible provide the Holders true and complete copies of all
correspondence from and to the Commission relating to the Registration
Statement; and (iv) comply in all material respects with the provisions of the
Securities Act and the Exchange Act with respect to the disposition of all
Registrable Securities covered by the Registration Statement
<PAGE> 5
during the applicable period in accordance with the intended methods of
disposition by the Holders thereof set forth in the Registration Statement as so
amended or in such Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold and any Special
Counsel as promptly as possible (and, in the case of (i)(A) below, not less than
five (5) days prior to such filing) and (if requested by any such Person)
confirm such notice in writing no later than one (1) Business Day following the
day (i)(A) when a Prospectus or any Prospectus supplement or post-effective
amendment to the Registration Statement is proposed to be filed; (B) when the
Commission notifies the Company whether there will be a "review" of such
Registration Statement and whenever the Commission comments in writing on such
Registration Statement and (C) with respect to the Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) if at any time any of the representations and warranties of the
Company contained in any agreement contemplated hereby ceases to be true and
correct in all material respects; (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (vi) of the occurrence of any event that makes any statement made
in the Registration Statement or Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
(d) Use its best efforts to avoid the issuance of, or, if issued, obtain the
withdrawal of, (i) any order suspending the effectiveness of the Registration
Statement or (ii) any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment.
(e) If requested by the Holders of a majority in interest of the Registrable
Securities, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment to the Registration Statement such information as the
Company reasonably agrees should be included therein and (ii) make all required
filings of such Prospectus supplement or such post-effective amendment as soon
as practicable after the Company has received notification of the matters to be
incorporated in such Prospectus supplement or post-effective amendment.
(f) Furnish to each Holder and any Special Counsel, without charge, at least one
conformed copy of each Registration Statement and each amendment thereto,
including financial statements and schedules, all documents incorporated or
deemed to be incorporated therein by reference,
<PAGE> 6
and all exhibits to the extent requested by such Person (including those
previously furnished or incorporated by reference) promptly after the filing of
such documents with the Commission.
(g) Promptly deliver to each Holder and any Special Counsel, without charge, as
many copies of the Prospectus or Prospectuses (including each form of
prospectus) and each amendment or supplement thereto as such Persons may
reasonably request; and the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders in connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities, use its best efforts
to register or qualify or cooperate with the selling Holders, and any Special
Counsel in connection with the registration or qualification (or exemption from
such registration or qualification) of such Registrable Securities for offer and
sale under the securities or Blue Sky laws of such jurisdictions within the
United States as any Holder requests in writing, to keep each such registration
or qualification (or exemption therefrom) effective during the Effectiveness
Period and to do any and all other acts or things necessary or advisable to
enable the disposition in such jurisdictions of the Registrable Securities
covered by a Registration Statement; provided, however, that the Company shall
not be required to qualify generally to do business in any jurisdiction where it
is not then so qualified or to take any action that would subject it to general
service of process in any such jurisdiction where it is not then so subject or
subject the Company to any material tax in any such jurisdiction where it is not
then so subject.
(i) Cooperate with the Holders to facilitate the timely preparation and delivery
of certificates representing Registrable Securities to be sold pursuant to a
Registration Statement, which certificates shall be free of all restrictive
legends, and to enable such Registrable Securities to be in such denominations
and registered in such names as any Holders may request at least two (2)
Business Days prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section 3(c)(vi), as
promptly as possible, prepare a supplement or amendment, including a
post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
(k) Use its best efforts to cause all Registrable Securities relating to such
Registration Statement to be listed on The Nasdaq Small-Cap Market and any other
securities exchange, quotation system, market or over-the-counter bulletin
board, if any, on which similar securities issued by the Company are then listed
as and when required pursuant to the Purchase Agreement.
(l) Comply in all material respects with all applicable rules and regulations
of the Commission and make generally available to its security holders earning
statements satisfying
<PAGE> 7
the provisions of Section 11(a) of the Securities Act and Rule 158 not later
than 45 days after the end of any 12-month period (or 90 days after the end of
any 12-month period if such period is a fiscal year) commencing on the first day
of the first fiscal quarter of the Company after the effective date of the
Registration Statement, which statement shall conform to the requirements of
Rule 158.
(m) The Company may require each selling Holder to furnish to the Company
information regarding such Holder and the distribution of such Registrable
Securities as is required by law to be disclosed in the Registration Statement,
and the Company may exclude from such registration the Registrable Securities of
any such Holder who unreasonably fails to furnish such information within a
reasonable time after receiving such request.
If the Registration Statement refers to any Holder by name or otherwise
as the holder of any securities of the Company, then such Holder shall have the
right to require (if such reference to such Holder by name or otherwise is not
required by the Securities Act or any similar federal statute then in force) the
deletion of the reference to such Holder in any amendment or supplement to the
Registration Statement filed or prepared subsequent to the time that such
reference ceases to be required.
Each Holder covenants and agrees that (i) it will not sell any
Registrable Securities under the Registration Statement until it has received
copies of the Prospectus as then amended or supplemented as contemplated in
Section 3(g) and notice from the Company that such Registration Statement and
any post-effective amendments thereto have become effective as contemplated by
Section 3(c) and (ii) it and its officers, directors or Affiliates, if any, will
comply with the prospectus delivery requirements of the Securities Act as
applicable to them in connection with sales of Registrable Securities pursuant
to the Registration Statement.
Each Holder agrees by its acquisition of such Registrable Securities
that, upon receipt of a notice from the Company of the occurrence of any event
of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v) or
3(c)(vi), such Holder will forthwith discontinue disposition of such Registrable
Securities under the Registration Statement until such Holder's receipt of the
copies of the supplemented Prospectus and/or amended Registration Statement
contemplated by Section 3(j), or until it is advised in writing (the "Advice")
by the Company that the use of the applicable Prospectus may be resumed, and, in
either case, has received copies of any additional or supplemental filings that
are incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement.
(n) If (i) there is material non-public information regarding the Company which
the Company's Board of Directors (the "Board") reasonably determines not to be
in the Company's best interest to disclose and which the Company is not
otherwise required to disclose, or (ii) there is a significant business
opportunity (including, but not limited to, the acquisition or disposition of
assets (other than in the ordinary course of business) or any merger,
consolidation, tender offer or other similar transaction) available to the
Company which the Board reasonably determines not to be in the Company's best
interest to disclose, then the Company may postpone or suspend filing or
effectiveness of a registration statement for a period not to exceed 20
consecutive days,
<PAGE> 8
provided that the Company may not postpone or suspend its obligation under this
Section 3(n) for more than 45 days in the aggregate during any 12 month period;
provided, however, that no such postponement or suspension shall be permitted
for consecutive 20 day periods, arising out of the same set of facts,
circumstances or transactions.
4. REGISTRATION EXPENSES.
All fees and expenses incident to the performance of or compliance with
this Agreement by the Company shall be borne by the Company whether or not the
Registration Statement is filed or becomes effective and whether or not any
Registrable Securities are sold pursuant to the Registration Statement. The fees
and expenses referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees (including, without limitation,
fees and expenses (A) with respect to filings required to be made with The
Nasdaq Small Cap Market and each other securities exchange or market on which
Registrable Securities are required hereunder to be listed, (B) with respect to
filings required to be made with the National Association of Securities Dealers,
Inc. and the NASD Regulation, Inc. and (C) in compliance with state securities
or Blue Sky laws (including, without limitation, fees and disbursements of
counsel for the Holders in connection with Blue Sky qualifications of the
Registrable Securities and determination of the eligibility of the Registrable
Securities for investment under the laws of such jurisdictions as Holders of a
majority of Registrable Securities may designate)), (ii) printing expenses
(including, without limitation, expenses of printing certificates for
Registrable Securities and of printing prospectuses if the printing of
prospectuses is requested the holders of a majority of the Registrable
Securities included in the Registration Statement), (iii) messenger, telephone
and delivery expenses, (iv) fees and disbursements of counsel for the Company
and Special Counsel for the Holders, in the case of the Special Counsel, to a
maximum amount of $5,000, (v) Securities Act liability insurance, if the Company
so desires such insurance, and (vi) fees and expenses of all other Persons
retained by the Company in connection with the consummation of the transactions
contemplated by this Agreement, including, without limitation, the Company's
independent public accountants (including the expenses of any comfort letters or
costs associated with the delivery by independent public accountants of a
comfort letter or comfort letters). In addition, the Company shall be
responsible for all of its internal expenses incurred in connection with the
consummation of the transactions contemplated by this Agreement (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, the
fees and expenses incurred in connection with the listing of the Registrable
Securities on any securities exchange as required hereunder.
5. INDEMNIFICATION.
(a) Indemnification by the Company. The Company shall, notwithstanding any
termination of this Agreement, indemnify and hold harmless each Holder, the
officers, directors, agents, brokers (including brokers who offer and sell
Registrable Securities as principal as a result of a pledge or any failure to
perform under a margin call of Common Stock), investment advisors and employees
of each of them, each Person who controls any such Holder (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) and the
officers, directors,
<PAGE> 9
agents and employees of each such controlling Person, to the fullest extent
permitted by applicable law, from and against any and all losses, claims,
damages, liabilities, costs (including, without limitation, costs of preparation
and attorneys' fees) and expenses (collectively, "Losses"), as incurred, arising
out of or relating to any untrue or alleged untrue statement of a material fact
contained in the Registration Statement, any Prospectus or any form of
prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or relating to any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in the light of the circumstances under which they were
made) not misleading, except to the extent, but only to the extent, that such
untrue statements or omissions are based solely upon information regarding such
Holder furnished in writing to the Company by such Holder expressly for use
therein, which information was reasonably relied on by the Company for use
therein or to the extent that such information relates to such Holder or such
Holder's proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in
the Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto. The Company shall notify the Holders promptly
of the institution, threat or assertion of any Proceeding of which the Company
is aware in connection with the transactions contemplated by this Agreement.
(b) Indemnification by Holders. Each Holder shall, severally and not jointly,
indemnify and hold harmless the Company, the directors, officers, agents and
employees, each Person who controls the Company (within the meaning of Section
15 of the Securities Act and Section 20 of the Exchange Act), and the directors,
officers, agents or employees of such controlling Persons, to the fullest extent
permitted by applicable law, from and against all Losses, as incurred, arising
solely out of or based solely upon any untrue statement of a material fact
contained in the Registration Statement, any Prospectus, or any form of
prospectus, or arising solely out of or based solely upon any omission of a
material fact required to be stated therein or necessary to make the statements
therein (in the case of any Prospectus or form of prospectus or supplement
thereto, in the light of the circumstances under which they were made) not
misleading, to the extent, but only to the extent, that such untrue statement or
omission is contained in any information so furnished in writing by such Holder
to the Company specifically for inclusion in the Registration Statement or such
Prospectus and that such information was reasonably relied upon by the Company
for use in the Registration Statement, such Prospectus or such form of
prospectus or to the extent that such information relates to such Holder or such
Holder's proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in
the Registration Statement, such Prospectus or such form of Prospectus.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall be brought
or asserted against any Person entitled to indemnity hereunder (an "Indemnified
Party"), such Indemnified Party promptly shall notify the Person from whom
indemnity is sought (the "Indemnifying Party) in writing, and the Indemnifying
Party shall assume the defense thereof, including the employment of counsel
reasonably satisfactory to the Indemnified Party and the payment of all fees and
expenses incurred in connection with defense thereof; provided, that the failure
of any
<PAGE> 10
Indemnified Party to give such notice shall not relieve the Indemnifying Party
of its obligations or liabilities pursuant to this Agreement, except (and only)
to the extent that it shall be finally determined by a court of competent
jurisdiction (which determination is not subject to appeal or further review)
that such failure shall have proximately and materially adversely prejudiced the
Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or Parties
unless: (1) the Indemnifying Party has agreed in writing to pay such fees and
expenses; or (2) the Indemnifying Party shall have failed promptly to assume the
defense of such Proceeding and to employ counsel reasonably satisfactory to such
Indemnified Party in any such Proceeding; or (3) the named parties to any such
Proceeding (including any impleaded parties) include both such Indemnified Party
and the Indemnifying Party, and such Indemnified Party shall have been advised
by counsel that a conflict of interest is likely to exist if the same counsel
were to represent such Indemnified Party and the Indemnifying Party (in which
case, if such Indemnified Party notifies the Indemnifying Party in writing that
it elects to employ separate counsel at the expense of the Indemnifying Party,
the Indemnifying Party shall not have the right to assume the defense thereof
and such counsel shall be at the expense of the Indemnifying Party). The
Indemnifying Party shall not be liable for any settlement of any such Proceeding
effected without its written consent, which consent shall not be unreasonably
withheld. No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any pending Proceeding in respect of
which any Indemnified Party is a party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability on claims
that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including reasonable fees and
expenses to the extent incurred in connection with investigating or preparing to
defend such Proceeding in a manner not inconsistent with this Section) shall be
paid to the Indemnified Party, as incurred, within ten (10) Business Days of
written notice thereof to the Indemnifying Party (regardless of whether it is
ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section 5(a) or 5(b) is
unavailable to an Indemnified Party because of a failure or refusal of a
governmental authority to enforce such indemnification in accordance with its
terms (by reason of public policy or otherwise), then each Indemnifying Party,
in lieu of indemnifying such Indemnified Party, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such Losses, in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Party in connection with the actions, statements or
omissions that resulted in such Losses as well as any other relevant equitable
considerations. The relative fault of such Indemnifying Party and Indemnified
Party shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission of a material fact, has been taken
or made by, or relates to information supplied
<PAGE> 11
by, such Indemnifying Party or Indemnified Party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such action, statement or omission. The amount paid or payable by a party as a
result of any Losses shall be deemed to include, subject to the limitations set
forth in Section 5(c), any reasonable attorneys' or other reasonable fees or
expenses incurred by such party in connection with any Proceeding to the extent
such party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party in
accordance with its terms.
The parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 5(d) were determined by pro rata allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the immediately preceding paragraph. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section are in
addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
6. RULE 144.
As long as any Holder owns Debentures, Underlying Shares, Warrants or
Warrant Shares, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to Section
13(a) or 15(d) of the Exchange Act and to promptly furnish the Holders with true
and complete copies of all such filings. As long as any Holder owns Debentures,
Underlying Shares, Warrants or Warrant Shares, if the Company is not required to
file reports pursuant to Section 13(a) or 15(d) of the Exchange Act, it will
prepare and furnish to the Holders and make publicly available in accordance
with Rule 144(c) promulgated under the Securities Act annual and quarterly
financial statements, together with a discussion and analysis of such financial
statements in form and substance substantially similar to those that would
otherwise be required to be included in reports required by Section 13(a) or
15(d) of the Exchange Act, as well as any other information required thereby, in
the time period that such filings would have been required to have been made
under the Exchange Act. The Company further covenants that it will take such
further action as any Holder may reasonably request, all to the extent required
from time to time to enable such Person to sell Underlying Shares and Warrant
Shares without registration under the Securities Act within the limitation of
the exemptions provided by Rule 144 promulgated under the Securities Act,
including providing any legal opinions referred to in the Purchase Agreement.
Upon the request of any Holder, the Company shall deliver to such Holder a
written certification of a duly authorized officer as to whether it has complied
with such requirements.
7. MISCELLANEOUS.
(a) Remedies. In the event of a breach by the Company or by a Holder, of any of
their obligations under this Agreement, each Holder or the Company, as the case
may be, in addition
<PAGE> 12
to being entitled to exercise all rights granted by law and under this
Agreement, including recovery of damages, will be entitled to specific
performance of its rights under this Agreement. The Company and each Holder
agree that monetary damages would not provide adequate compensation for any
losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any of its subsidiaries
has, as of the date hereof entered into and currently in effect, nor shall the
Company or any of its subsidiaries, on or after the date of this Agreement,
enter into any agreement with respect to its securities that is inconsistent
with the rights granted to the Holders in this Agreement or otherwise conflicts
with the provisions hereof. Except as disclosed in Schedule 2.1(p) of the
Purchase Agreement, neither the Company nor any of its subsidiaries has
previously entered into any agreement currently in effect granting any
registration rights with respect to any of its securities to any Person. Without
limiting the generality of the foregoing, without the written consent of the
Holders of a majority of the then outstanding Registrable Securities, the
Company shall not grant to any Person the right to request the Company to
register any securities of the Company under the Securities Act unless the
rights so granted are subject in all respects to the prior rights in full of the
Holders set forth herein, and are not otherwise in conflict with the provisions
of this Agreement.
(c) No Piggyback on Registrations. Except for up to an aggregate of up to
675,000 shares of Common Stock, as described in Schedule 3.12(b) of the Purchase
Agreement, neither the Company nor any of its security holders (other than the
Holders in such capacity pursuant hereto or as disclosed in Schedule 2.1(p) of
the Purchase Agreement) may include securities of the Company in the
Registration Statement, and the Company shall not after the date hereof enter
into any agreement providing such right to any of its securityholders, unless
the right so granted is subject in all respects to the prior rights in full of
the Holders set forth herein, and is not otherwise in conflict with the
provisions of this Agreement.
(d) Piggy-Back Registrations. If at any time when there is not an effective
Registration Statement covering (i) Underlying Shares or (ii) Warrant Shares,
the Company shall determine to prepare and file with the Commission a
registration statement relating to an offering for its own account or the
account of others under the Securities Act of any of its equity securities,
other than on Form S-4 or Form S-8 (each as promulgated under the Securities
Act) or their then equivalents relating to equity securities to be issued solely
in connection with any acquisition of any entity or business or equity
securities issuable in connection with stock option or other employee benefit
plans, the Company shall send to each holder of Registrable Securities written
notice of such determination and, if within thirty (30) days after receipt of
such notice, any such holder shall so request in writing, (which request shall
specify the Registrable Securities intended to be disposed of by the
Purchasers), the Company will cause the registration under the Securities Act of
all Registrable Securities which the Company has been so requested to register
by the holder, to the extent requisite to permit the disposition of the
Registrable Securities so to be registered, provided that if at any time after
giving written notice of its intention to register any securities and prior to
the effective date of the registration statement filed in connection with
<PAGE> 13
such registration, the Company shall determine for any reason not to register or
to delay registration of such securities, the Company may, at its election, give
written notice of such determination to such holder and, thereupon, (i) in the
case of a determination not to register, shall be relieved of its obligation to
register any Registrable Securities in connection with such registration (but
not from its obligation to pay expenses in accordance with Section 4 hereof),
and (ii) in the case of a determination to delay registering, shall be permitted
to delay registering any Registrable Securities being registered pursuant to
this Section 7(d) for the same period as the delay in registering such other
securities. The Company shall include in such registration statement all or any
part of such Registrable Securities such holder requests to be registered;
provided, however, that the Company shall not be required to register any
Registrable Securities pursuant to this Section 7(d) that are eligible for sale
pursuant to Rule 144(k) of the Securities Act. In the case of an underwritten
public offering, if the managing underwriter(s) should reasonably object to the
inclusion of the Registrable Securities in such registration statement, then if
the Company after consultation with the managing underwriter(s) should
reasonably determine that the inclusion of such Registrable Securities, would
materially adversely affect the offering contemplated in such registration
statement, and based on such determination recommends inclusion in such
registration statement of fewer or none of the Registrable Securities of the
Holders, then (x) the number of Registrable Securities of the Holders included
in such registration statement shall be reduced pro-rata among such Holders
(based upon the number of Registrable Securities requested to be included in the
registration), if the Company after consultation with the managing
underwriter(s) recommends the inclusion of fewer Registrable Securities, or (y)
none of the Registrable Securities of the Holders shall be included in such
registration statement, if the Company after consultation with the managing
underwriter(s) recommends the inclusion of none of such Registrable Securities;
provided, however, that if securities are being offered for the account of other
persons or entities as well as the Company, such reduction shall not represent a
greater fraction of the number of Registrable Securities intended to be offered
by the Holders than the fraction of similar reductions imposed on such other
persons or entities (other than the Company).
(e) Failure to File Registration Statement; Rights of Rescission. The Company
and the Purchasers agree that the Holders will suffer damages if the
Registration Statement is not filed on or prior to the Filing Date and not
declared effective by the Commission on or prior to the Effectiveness Date and
maintained in the manner contemplated herein during the Effectiveness Time or if
certain other events occur. The Company and the Holders further agree that it
would not be feasible to ascertain the extent of such damages with precision.
Accordingly, if (A) the Registration Statement is not filed on or prior to the
Filing Date, or is not declared effective by the Commission on or prior to the
Effectiveness Date (or in the event an additional Registration Statement is
filed because the actual number of shares of Common Stock into which the
Debentures are convertible and the Warrants are exercisable exceeds the number
of shares of Common Stock initially registered is not filed and declared
effective with the time periods set forth in Section 2), or (B) the Company
fails to file with the Commission a request for acceleration in accordance with
Rule 12dl-2 promulgated under the Exchange Act within five (5) Business Days of
the date that the Company is notified (orally or in writing, whichever is
earlier) by the Commission that a Registration Statement will not be "reviewed,"
or not subject to further review, or (C) the Registration Statement is filed
with and declared effective by the Commission
<PAGE> 14
but thereafter ceases to be effective as to all Registrable Securities at any
time prior to the expiration of the Effectiveness Period, without being
succeeded immediately by a subsequent Registration Statement filed with and
declared effective by the Commission, or (D) trading in the Common Stock shall
be suspended or if the Common Stock is delisted for any reason for more than
three Business Days in the aggregate, or (E) the conversion rights of the
Holders are suspended for any reason except as a result of Section 5(a)(ii) of
the Debentures, or (F) the Company breaches in a material respect any covenant
or other material term or condition to this Agreement, the Debentures, the
Purchase Agreement (other than a representation or warranty contained therein)
or any other agreement, document, certificate or other instrument delivered in
connection with the transactions contemplated hereby and thereby, and such
breach continues for a period of thirty days after written notice thereof to the
Company, or (G) the Company fails to convene a meeting of shareholders within
the time period specified in Section 3.13 of the Purchase Agreement or does so
convene a meeting of shareholders within such time period but fails to obtain
Shareholder Approval at such meeting, or (H) the Company has breached Section
3(n) or (i) the Registration is not declared effective with 90 days from the
date of its filing (any such failure or breach being referred to as an "Event,"
and for purposes of clauses (A) and (E) the date on which such Event occurs, or
for purposes of clause (B) the date on which such five day period is exceeded,
or for purposes of clause (C) after more than fifteen Business Days, or for
purposes of clause (D) the date on which such three Business Day period is
exceeded, or for clause (F) the date on which such thirty day period is
exceeded, being referred to as "Event Date"), the Company shall reduce the
Applicable Conversion Price (as defined in the form of Debenture) by 2% for each
30 day period (or pro-rata portion if less that 30 days) such Event has
occurred..
(f) Amendments and Waivers. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the same shall be in writing and signed by the Company and each of the
Holders. Notwithstanding the foregoing, a waiver or consent to depart from the
provisions hereof with respect to a matter that relates exclusively to the
rights of Holders and that does not directly or indirectly affect the rights of
other Holders may be given by Holders of at least a majority of the Registrable
Securities to which such waiver or consent relates; provided, however, that the
provisions of this sentence may not be amended, modified, or supplemented except
in accordance with the provisions of the immediately preceding sentence.
(g) Notices. Any and all notices or other communications or deliveries required
or permitted to be provided hereunder shall be in writing and shall be deemed
given and effective on the earlier of (i) the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified for notice prior to 5:00 p.m., Los Angeles City time, on a
Business Day, (ii) the Business Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified for notice later than 5:00 p.m., Los Angeles City time, on any
date and earlier than 11:59 p.m., Los Angeles City time, on such date, (iii) the
Business Day following the date of mailing, if sent by nationally recognized
overnight courier service or (iv) actual receipt by the party to whom such
notice is required to be given. The addresses for such communications shall be
with respect to each
<PAGE> 15
Holder at its address set forth under its name on Schedule 1 attached hereto, or
with respect to the Company, addressed to:
Team Communications Group, Inc.
12300 Wilshire Boulevard
Los Angeles, California 90025
Attention: Drew Levin
Telephone No.: (310) 442-3500
Facsimile No.: (310) 442-3501
or to such other address or addresses or facsimile number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice. Copies of notices to any Holder shall be sent to Freshman,
Marantz, Orlanski, Cooper & Klein 9100 Wilshire Blvd., 8th Floor Beverly Hills,
California Attention: Thomas J. Poletti, Esq., Facsimile (310) 273-1870. Copies
of notices to the Company shall be sent to Kelly Lytton Mintz & Vann LLP, 1900
Avenue of the Stars, Suite 1450, Los Angeles, California 90067, Attention: Bruce
Vann, Esq., Facsimile No.: (310) 277-5953.
(h) Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and permitted assigns and shall
inure to the benefit of each Holder and its successors and assigns. The Company
may not assign this Agreement or any of its rights or obligations hereunder
without the prior written consent of each Holder. Each Purchaser may assign its
rights hereunder in the manner and to the Persons as permitted under the
Purchase Agreement.
(i) Assignment of Registration Rights. The rights of each Holder hereunder,
including the right to have the Company register for resale Registrable
Securities in accordance with the terms of this Agreement, shall be
automatically assignable by each Holder to any Affiliate of such Holder, any
other Holder or Affiliate of any other Holder and up to four other assignees of
all or a portion of the Debentures or the Registrable Securities if: (i) the
Holder agrees in writing with the transferee or assignee to assign such rights,
and a copy of such agreement is furnished to the Company within a reasonable
time after such assignment, (ii) the Company is, within a reasonable time after
such transfer or assignment, furnished with written notice of (a) the name and
address of such transferee or assignee, and (b) the securities with respect to
which such registration rights are being transferred or assigned, (iii)
following such transfer or assignment the further disposition of such securities
by the transferee or assignees is restricted under the Securities Act and
applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this Section, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions of this Agreement, and (v) such transfer shall have been made in
accordance with the applicable requirements of the Purchase Agreement. The
rights to assignment shall apply to the Holders (and to subsequent) successors
and assigns.
<PAGE> 16
(j) Counterparts. This Agreement may be executed in any number of counterparts,
each of which when so executed shall be deemed to be an original and, all of
which taken together shall constitute one and the same Agreement. In the event
that any signature is delivered by facsimile transmission, such signature shall
create a valid binding obligation of the party executing (or on whose behalf
such signature is executed) the same with the same force and effect as if such
facsimile signature were the original thereof.
(k) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, without regard to
principles of conflicts of law thereof.
(l) Cumulative Remedies. The remedies provided herein are cumulative and not
exclusive of any remedies provided by law.
(m) Severability. If any term, provision, covenant or restriction of this
Agreement is held to be invalid, illegal, void or unenforceable in any respect,
the remainder of the terms, provisions, covenants and restrictions set forth
herein shall remain in full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use their reasonable
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(n) Headings. The headings herein are for convenience only, do not constitute a
part of this Agreement and shall not be deemed to limit or affect any of the
provisions hereof.
(o) Shares Held by the Company and its Affiliates. Whenever the consent or
approval of Holders of a specified percentage of Registrable Securities is
required hereunder, Registrable Securities held by the Company or its Affiliates
(other than any Holder or transferees or successors or assigns thereof if such
Holder is deemed to be an Affiliate solely by reason of its holdings of such
Registrable Securities) shall not be counted in determining whether such consent
or approval was given by the Holders of such required percentage.
IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be duly executed by their respective authorized persons as of the
date first indicated above.
TEAM COMMUNICATIONS GROUP, INC.
By: /s/ DREW S. LEVIN
------------------------------------
Name: DREW S. LEVIN
Title: CHAIRMAN & CEO
<PAGE> 17
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 4.28
SECURITIES PURCHASE AGREEMENT
AMONG
TEAM COMMUNICATIONS GROUP, INC.,
AND
VMR LUXEMBOURG S.A.
DATED AS OF JULY 26, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I PURCHASE AND SALE OF THE SECURITIES...........................................................................1
1.1 Purchase and Sale.......................................................................................................1
ARTICLE II REPRESENTATIONS AND WARRANTIES................................................................................2
2.1 Representations, Warranties and Agreements of the Company...............................................................2
2.2 Representations and Warranties of the Purchaser.........................................................................8
ARTICLE III OTHER AGREEMENTS OF THE PARTIES...............................................................................9
3.1 Transfer Restrictions...................................................................................................9
3.2 Stop Transfer Orders; Suspension of Qualification......................................................................10
3.3 Furnishing of Information..............................................................................................10
3.4 Blue Sky Laws..........................................................................................................11
3.5 Integration............................................................................................................11
3.6 Certain Agreements.....................................................................................................11
3.7 Listing and Reservation of Underlying Shares; Compliance with Law......................................................11
3.8 Notice of Breaches.....................................................................................................12
3.9 Conversion Obligations of the Company..................................................................................12
3.10 Use of Proceeds........................................................................................................12
3.11 Indemnification........................................................................................................12
3.12 Subsequent Sales and Registrations.....................................................................................14
3.13 Incorporation of the Debentures By Reference...........................................................................14
3.14 Prohibition Against Certain Securities Issuances.......................................................................14
ARTICLE IV CONDITIONS...................................................................................................15
4.1 Conditions Precedent to Sale of the Securities.........................................................................15
ARTICLE V MISCELLANEOUS................................................................................................17
5.1 Fees and Expenses......................................................................................................17
5.2 Entire Agreement; Amendments...........................................................................................17
5.3 Notices................................................................................................................18
5.4 Amendments; Waivers....................................................................................................18
5.5 Headings...............................................................................................................18
5.6 Successors and Assigns.................................................................................................18
5.7 No Third Party Beneficiaries...........................................................................................19
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
5.8 Governing Law..........................................................................................................19
5.9 Survival...............................................................................................................19
5.10 Execution..............................................................................................................19
5.11 Publicity..............................................................................................................19
5.12 Consent to Jurisdiction; Attorneys' Fees...............................................................................19
5.13 Waiver of Jury Trial...................................................................................................20
5.14 Severability...........................................................................................................20
5.15 Remedies...............................................................................................................21
</TABLE>
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<PAGE> 4
SCHEDULES AND EXHIBITS
Schedule 1 - Purchaser of Securities
Schedule 2.1(a) - Organization and Qualification; Subsidiaries
Schedule 2.1(c)(i) - Capitalization; Rights to Acquire Capital Stock
Schedule 2.1(c)(ii) - Notice with Respect to Listing
Schedule 2.1(f) - Consents and Approvals
Schedule 2.1(g) - Litigation; Proceedings
Schedule 2.1(r) - Registration Rights; Rights of Participation
Schedule 2.1(s) - Title
Schedule 2.1(y) - Year 2000 Compliance
Schedule 3.10 - Use of Proceeds
Exhibit A - Debentures
Exhibit B - Registration Rights Agreement
Exhibit C - Transfer Agents Instructions
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<PAGE> 5
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of
July 26, 1999, among Team Communications Group, Inc., a California corporation
(the "Company"), and VMR Luxembourg S.A., Chateau Woltz, 34 Rue Neuve, Remich,
L5560 Luxembourg, referred to herein as the "Purchaser."
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchaser, and the
Purchaser desires to acquire from the Company, up to $1,200,000 aggregate
principal amount of 12% Convertible Debentures due November 30, 1999 of the
Company (the "Debentures") convertible into shares (the "Underlying Shares") of
common stock, no par value per share, of the Company (the "Common Stock"). The
Debentures and the Underlying Shares are referred to herein as the "Securities."
NOW THEREFORE, in consideration of the mutual covenants contained
in this Agreement, the Company and the Purchaser agree as follows:
ARTICLE I
PURCHASE AND SALE OF THE SECURITIES
1.1 Purchase and Sale.
(a) Subject to the terms and conditions hereof and in
reliance on the representations and warranties contained herein, the Company
shall issue and sell to the Purchaser, and the Purchaser shall purchase from the
Company (i) up to an aggregate principal amount of $1,200,000 of Debentures.
(b) The Debentures shall be substantially in the form
annexed hereto as Exhibit A.
1.2 The Closing.
(i) The closing of the purchase and sale of the
Securities (as defined below) (the "Closing") shall take place at the
offices of Freshman, Marantz, Orlanski, Cooper & Klein, 9100 Wilshire
Boulevard, 8th Floor, East Tower, Beverly Hills, CA 90212, immediately
following the execution hereof or such later date or different location
as the parties shall agree in writing, but not prior to the date that
the conditions set forth in Section 4.1 have been satisfied or waived by
the appropriate party. The date of the Closing is hereinafter referred
to as the "Closing Date." At the Closing, the Company shall sell and
issue to the Purchaser, and the Purchaser shall purchase from the
Company, an aggregate principal amount of $1,200,000 of Debentures for
an aggregate purchase price of $1,200,000 (the "Purchase Price").
(ii) At the Closing (a) the Company shall deliver
to the Purchaser (1) Debentures (in definitive form) in the
denominations specified on Schedule 1 attached hereto, each registered
in the name of such Purchaser, and (2) all other documents,
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<PAGE> 6
instruments and writings required to have been delivered at or prior to
the Closing by the Company pursuant to this Agreement and the
Registration Rights Agreement, dated the date hereof, by and among the
Company and the Purchaser, in the form of Exhibit B annexed hereto (the
"Registration Rights Agreement"), and (b) the Purchaser shall deliver to
the Company the Purchase Price set forth next to its name on Schedule 1,
in United States dollars in immediately available funds by wire transfer
to an account designated in writing by the Company for such purpose on
or prior to the Closing Date, and all documents, instruments and
writings required to have been delivered at or prior to the Closing by
the Purchaser pursuant to this Agreement and the Registration Rights
Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company.
The Company hereby makes the following representations and warranties to the
Purchaser:
(a) Organization and Qualification; Subsidiaries. The
Company is a corporation, duly organized, validly existing and in good standing
under the laws of the State of California, with the requisite corporate power
and authority to own and use its properties and assets and to carry on its
business as currently conducted. The Company has no subsidiaries other than as
set forth in Schedule 2.1(a) (collectively, the "Subsidiaries"). Each of the
Subsidiaries is a corporation, duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
(as applicable), with the full corporate power and authority to own and use its
properties and assets and to carry on its business as currently conducted. Each
of the Company and the Subsidiaries is duly qualified to do business and is in
good standing as a foreign corporation in each jurisdiction in which the nature
of the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, would not, individually or in the aggregate, (x) adversely
affect the legality, validity or enforceability of the Debentures or any of the
other Transaction Documents (as defined below), (y) have or result in a material
adverse effect on the results of operations, assets, prospects (insofar as such
prospects may reasonably be foreseen) or financial condition of the Company and
the Subsidiaries, taken as a whole or (z) adversely impair the Company's ability
to perform fully on a timely basis its obligations under any Transaction
Document, including, without limitation, the Company's obligations under Section
3.7 hereof (any of (x), (y) or (z), being a "Material Adverse Effect").
(b) Authorization; Enforcement. The Company has the
requisite corporate power and authority to enter into and to consummate the
transactions contemplated by this Agreement and the other Transaction Documents,
and otherwise to carry out its obligations hereunder and thereunder. This
Agreement, the Registration Rights Agreement and the Debentures and the Security
Agreement (as defined below) are collectively referred to as the "Transaction
Documents." The execution and delivery of each of the Transaction Documents by
the Company and the consummation by it of the transactions contemplated hereby
and thereby have been duly authorized by all necessary action on the part of the
Company and no further action is required by the Company. Each of the
Transaction Documents has been duly executed by the Company and when delivered
in accordance with the terms hereof will constitute the legal, valid and binding
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<PAGE> 7
obligation of the Company, enforceable against the Company in accordance with
its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally the enforcement of, creditors' rights and
remedies or by other equitable principles of general application. Neither the
Company nor any Subsidiary is in violation of any of the provisions of its
respective articles of incorporation, bylaws or other organizational documents.
(c) Capitalization; Rights to Acquire Capital Stock. On
the date hereof, the authorized capital of the Company consists of (i)
18,000,000 shares of Common Stock, no par value, of which [________] are issued
and outstanding and (ii) 2,000,000 shares of preferred stock, no par value, none
of which have been issued. Schedule 2.1(c)(i) hereto sets forth the options,
warrants and convertible securities of the Company (the "Derivative Securities")
which are outstanding on the date hereof, including in each case (i) the name
and class of such Derivative Securities, (ii) the issue date of such Derivative
Securities, (iii) the number of shares of Common Stock of the Company into which
such Derivative Securities are convertible as of the date hereof, (iv) the
conversion or exercise price or prices of such Derivative Securities as of the
date hereof and (v) the expiration date of any conversion or exercise rights
held by the owners of such Derivative Securities. All issued and outstanding
shares of capital stock of the Company and each Subsidiary have been duly
authorized and validly issued and are fully paid and non-assessable. No shares
of the capital stock of the Company are entitled to preemptive or similar
rights, nor is any holder of the capital stock of the Company entitled to
preemptive or similar rights arising out of any agreement or understanding with
the Company by virtue of any of the Transaction Documents. To the best knowledge
of the Company, no Person or group of related Persons beneficially owns (as
determined pursuant to Rule 13d-3 promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) or has the right to acquire by
agreement with or by obligation binding upon the Company beneficial ownership of
in excess of 5% of the Common Stock. A "Person" means an individual or
corporation, partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind. The Common Stock is
quoted and is listed for trading on The Nasdaq Small-Cap Market. Except as
described on Schedule 2.1(c)(ii), the Company has received no notice, either
oral or written, with respect to the continued eligibility of the Common Stock
for such listing, and the Company has maintained all requirements for the
continuation of such listing. After giving effect to the transactions
contemplated in this Agreement, the Company believes that it is in compliance
with all such maintenance requirements.
(d) Issuance of Securities. The Debentures have been duly
authorized for issuance, and when duly executed and delivered by the Company in
accordance with this Agreement, shall constitute legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally the enforcement of, creditors' rights and
remedies or by other equitable principles of general application. The Company
has and, at the Closing Date will have and at all times while the Debentures are
outstanding will maintain an adequate reserve of duly authorized shares of
Common Stock as may be necessary to effect conversion of the Debentures. The
shares of Common Stock issuable upon conversion of the Debentures are referred
to herein as the "Underlying Shares." When issued in accordance with the
Debentures, the Underlying Shares will be duly authorized, validly issued, fully
paid and nonassessable, free and clear of all liens.
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<PAGE> 8
(e) No Conflicts. The execution, delivery and performance
of this Agreement and the other Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
do not and will not (i) conflict with or violate any provision of its articles
of incorporation, bylaws or other organizational documents (each as amended
through the date hereof) or (ii) subject to obtaining the consents referred to
in Section 2.1(e), 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 (evidencing a Company debt or otherwise)
to which the Company is a party or by which any property or asset of the Company
is bound or affected, (iii) result in a violation of any law, rule, regulation,
order, judgment, injunction, decree or other restriction of any court or
governmental authority to which the Company is subject (including Federal and
state securities laws and regulations), or by which any material property or
asset of the Company is bound or affected, or (iv) except as set forth in the
Security Agreement, result in the creation of imposition of a Lien upon any of
the Securities or any of the assets of the Company, or any of its Affiliates (as
such term is defined under Rule 405 promulgated under the Securities Act of
1933, as amended (the "Securities Act")), except in the case of each of clauses
(ii) and (iii), such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have or result in a Material Adverse Effect. The business of the
Company is not being conducted in violation of any law, ordinance or regulation
of any governmental authority except for any such violation as would not,
individually or in the aggregate, have or result in a Material Adverse Effect.
(f) Consents and Approvals. Except as specifically set
forth in Schedule 2.1(f), neither the Company nor any Subsidiary is required to
obtain any consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other federal, state, local
or other governmental authority or other Person in connection with the
execution, delivery and performance by the Company of the Transaction Documents,
other than (i) the filing of the Registration Statement with the Commission,
which shall be filed in accordance with and in the time periods set forth in the
Registration Rights Agreement, (ii) the application(s) or any letter(s)
acceptable to The Nasdaq Small-Cap Market for the listing of the Underlying
Shares with The Nasdaq Small-Cap Market (and with any other national securities
exchange or market on which the Common Stock is then listed), (iv) any filings,
notices or registrations under applicable federal and state securities laws
(together with the consents, waivers, authorizations, orders, notices and
filings referred to in Schedule 2.1(f), the "Required Approvals"), and (v) any
filings required pursuant to the Security Agreement.
(g) Litigation; Proceedings. Except as specifically set
forth in Schedule 2.1(g), there is no action, suit, notice of violation,
proceeding or investigation pending or, to the knowledge of the Company,
threatened against or affecting the Company or any of the Subsidiaries
or Affiliates or any of their respective properties before or by any court,
governmental or administrative agency or regulatory authority (federal, state,
county, local or foreign) which (i) adversely affects or challenges the
legality, validity or enforceability of any of the Transaction Documents or the
Securities or (ii) could reasonably be expected to, individually or in the
aggregate, have a Material Adverse Effect.
(h) No Default or Violation. Except as set forth in
Schedule 2.1(h), neither the Company nor any Subsidiary (i) is in default under
or in violation of any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any
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<PAGE> 9
of its properties is bound which could reasonably be expected to, individually
or in the aggregate, have a Material Adverse Effect, (ii) is in violation of any
order of any court, arbitrator or governmental body applicable to it, or (iii)
is in violation of any statute, rule or regulation of any governmental authority
to which it is subject, which violation could reasonably be expected to,
individually or in the aggregate, have a Material Adverse Effect.
(i) Schedules. The Schedules to this Agreement furnished
by or on behalf of the Company do not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements made therein not misleading.
(j) Private Offering. The Company and to the best of the
Company's knowledge, all Persons acting on its behalf have not made, and will
not make, offers or sales of the Debentures and any securities that might be
integrated with offers and sales of the Debentures and the Warrants, except to
"accredited investors" (as defined in Regulation D ("Regulation D") under the
Securities Act) without any general solicitation or advertising and otherwise in
compliance with the conditions of Regulation D. The offer and sale by the
Company to the Purchasers of the Debentures and the Underlying Shares, as the
case may be, is exempt from the registration requirements of the Securities Act.
(k) SEC Documents; Financial Statements; No Adverse
Change. The Company has filed all reports required to be filed by it under the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, (the
foregoing materials being collectively referred to herein as the "SEC
Documents") on a timely basis or received a valid extension of such time of
filing and has filed any such SEC Documents prior to the expiration of any such
extension. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and none of the SEC
Documents, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading. All material agreements to
which the Company is a party or to which the property or assets of the Company
are subject have been filed as exhibits to the SEC Documents as required;
neither the Company nor any of the Subsidiaries is in breach of any agreement
where such breach could reasonably be expected to, individually or in the
aggregate, have a Material Adverse Effect. The financial statements of the
Company included in the SEC Documents comply in all material respects with
applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis during
the periods involved, except as may be otherwise specified in such financial
statements or the notes thereto, and fairly present in all material respects the
financial position of the Company as of and for the dates thereof and the
results of operations and cash flows for the periods then ended, subject, in the
case of unaudited statements, to normal year-end audit adjustments. Since the
date of the financial statements included in the Company's last filed Quarterly
Report on Form 10-Q for the period ended March 31, 1999, there has been no
event, occurrence or development that has had a or could reasonably be expected
to have a Material Adverse Effect which has not been specifically disclosed to
the Purchaser by the Company.
(l) Investment Company. The Company is not, and is not
controlled by or under common control with an affiliate of, an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
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<PAGE> 10
(m) Certain Fees. No fees or commissions will be payable
by the Company to any broker, financial advisor, finder, investment banker, or
bank with respect to the transactions contemplated by this Agreement. The
Purchaser shall have no obligation with respect to any fees or with respect to
any claims made by or on behalf of other Persons for fees of a type contemplated
in this Section 2.1(m) that may be due in connection with the transactions
contemplated by this Agreement. The Company shall indemnify and hold harmless
each of the Purchaser, its employees, officers, directors, agents, and partners,
and its Affiliates, from and against all claims, losses, damages, costs
(including the costs of preparation and attorney's fees) and expenses suffered
in respect of any such claimed or existing fees.
(n) Solicitation Materials. The Company has not
distributed any offering materials in connection with the offering and sale of
the Securities. The Company confirms that it has not provided the Purchaser or
its agents or counsel with any information that constitutes or might constitute
material non-public information. The Company understands and confirms that the
Purchaser shall be relying on the foregoing representations in effecting
transactions in securities of the Company.
(o) Exclusivity. Other than as provided in Section 3.4
herein, the Company shall not issue and sell Debentures to any Person other than
the Purchaser pursuant to this Agreement other than with the prior written
consent of the Purchaser.
(p) Patents and Trademarks. The Company has sufficient
title and ownership of all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and rights that
are necessary for use in connection with its business, as currently conducted
and as described in the SEC Documents, and such business does not and would not
conflict with or constitute an infringement on such rights of others.
(q) Acknowledgment of Dilution. The Company acknowledges
that the issuance of the Underlying Shares upon conversion of the Debentures may
result in dilution of the outstanding shares of Common Stock; which dilution may
be substantial under certain market conditions. The Company further acknowledges
that its obligation to issue the Underlying Shares upon conversion of the
Debentures is unconditional and absolute regardless of the effect of any such
dilution.
(r) Registration Rights; Rights of Participation. Except
as described on Schedule 2.1(r) hereto, (A) the Company has not granted or
agreed to grant to any Person any rights (including "piggyback" registration
rights) to have any securities of the Company registered with the Commission or
any other governmental authority which has not been satisfied and (B) no Person,
including, but not limited to, current or former shareholders of the Company,
underwriters, brokers or agents, has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in the
transactions contemplated by this Agreement or any other Transaction Document.
(s) Title. Except as disclosed in Schedule 2.1(s), the
Company and the Subsidiaries have good and marketable title in fee simple to all
real property and personal property owned by them which is material to the
business of the Company or the Subsidiaries, in each case free and clear of all
liens, except for liens, claims or encumbrances that do not materially affect
the
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<PAGE> 11
value of such property and do not interfere with the use made and proposed to be
made of such property by the Company or the Subsidiaries. Any real property and
facilities held under lease by the Company or the 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 or the Subsidiaries.
(t) Security. The Security Agreement of even date
hereunder between Company and Purchaser (the "Security Agreement") has been
executed by Company and all filings, recordings and other actions which are
necessary to establish, preserve and perfect a first priority security interest
on all of the existing and future assets of Company (except as expressly set
forth therein) shall have occurred and evidence, satisfactory in form and
substance to Purchaser's special counsel, that all required filings and
recordings have been made and liens have been created in favor of Purchaser,
shall have been delivered to Purchaser, including UCC-1 Financing Statements for
filing in California.
(u) Solvency. As of the date hereof and giving effect to
the making of the loan referenced herein, Company (i) has capital sufficient to
carry on its business and transactions and all business and transactions in
which it is about to engage and is able to pay its debts as they mature, (ii)
owns property having a value, both at fair valuation and at present fair
saleable value, greater than the amount required to pay its probable liabilities
(including contingencies), and (iii) does not believe that it will incur debts
or liabilities beyond its ability to pay such debts or liabilities as they
mature.
(v) Permits. The Company and the Subsidiaries possess all
franchises, certificates, licenses, authorizations and permits or similar
authority necessary to conduct their respective businesses as described in the
SEC Documents except where the failure to possess such permits would not,
individually or in the aggregate, have a Material Adverse Effect ("Material
Permits"), and neither the Company nor any such Subsidiary has received any
notice of proceedings relating to the revocation or modification of any Material
Permit.
(w) Employment Matters. The Company and each Subsidiary
is in compliance in all material respects with all presently applicable
provisions of the Employee Retirement Income Security Act of 1974, as amended,
including the regulations and published interpretations thereunder ("ERISA"); no
"reportable event" (as defined in ERISA) has occurred with respect to any
"pension plan" (as defined in ERISA) for which the Company or any Subsidiary
would have any liability; neither the Company nor any Subsidiary has incurred
and expects to incur liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or
4971 of the Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and each "pension plan"
for which the Company or any Subsidiary would have any liability that is
intended to be qualified under Section 401(a) of the Code is so qualified in all
material respects and nothing has occurred, whether by action or by failure to
act, which would cause the loss of such qualification.
(x) Insurance. The Company and each Subsidiary maintains
property and casualty, general liability, workers' compensation, environmental
hazard, personal injury and other similar types of insurance with financially
sound and reputable insurers that is adequate, consistent with industry
standards. Neither the Company nor any Subsidiary has received notice from, and
has any knowledge of any threat by, any insurer (that has issued any insurance
policy to the Company
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or any Subsidiary) that such insurer intends to deny coverage under or cancel,
discontinue or not renew any insurance policy presently in force.
(y) Taxes. All applicable tax returns required to be
filed by the Company and each of the Subsidiaries have been filed, or if not yet
filed have been granted extensions of the filing dates which extensions have not
expired, and all taxes, assessments, fees and other governmental charges upon
the Company, the Subsidiaries, or upon any of their respective properties,
income or franchises, shown in such returns and on assessments received by the
Company or the Subsidiaries to be due and payable have been paid, or adequate
reserves therefor have been set up if any of such taxes are being contested in
good faith; or if any of such tax returns have not been filed or if any such
taxes have not been paid or so reserved for, the failure to so file or to pay
would not in the aggregate or individually have a Material Adverse Effect.
(z) No Integrated Offering. Neither the Company, nor any
of its Affiliates, nor any Person acting on its or their behalf, has directly or
indirectly made any offers or sales in any security or solicited any offers to
buy any securities under circumstances that would cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the Securities Act or any applicable shareholder
approval provisions, including, without limitation, under the rules and
regulations of The Nasdaq Stock Market, as applicable. The Company has not
conducted any offering that will be integrated with the issuance of the
Securities solely for purpose of Rule 4460(i) of The Nasdaq Stock Market, Inc.'s
Marketplace Rules.
(aa) Year 2000 Compliance. The Company has initiated a
review and assessment of all areas within its and each Subsidiaries' business
and operations that could be adversely affected by the "Year 2000 Problem" (that
is, the risk that computer applications used by the Company or any of the
Subsidiaries may be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and any date after December 31,
1999). Based on the foregoing, except as set forth on Schedule 2.1(aa), the
Company believes that the computer applications that are currently material to
its or any Subsidiaries' business and operations are reasonably expected to be
able to perform properly date-sensitive functions for all dates before and after
January 1, 2000, except to the extent that a failure to do so would not
reasonably be expected to have a Material Adverse Effect. For the avoidance of
doubt, this Section 2.1(aa) applies only to the Company and the Subsidiaries.
(bb) Full Disclosure. The representations and warranties
of the Company set forth in this Agreement do not contain any untrue statement
of a material fact or omit any material fact necessary to make the statements
contained herein, in light of the circumstances under which they were made, not
misleading.
2.2 Representations and Warranties of the Purchaser. The
Purchaser hereby represents and warrants to the Company as follows:
(a) Investment Intent. The Purchaser is acquiring the
Securities for its own account for investment purposes only and not with a view
to or for distributing or reselling such Securities or any part thereof or
interest therein, without prejudice, however, to the Purchaser's right, at all
times to sell or otherwise dispose of all or any part of such Securities
pursuant to an effective registration statement under the Securities Act and in
compliance with applicable State securities
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laws or under an exemption from such registration subject to the provisions of
this Agreement and the Registration Rights Agreement.
(b) Purchaser Status. At the time the Purchaser was
offered the Securities, and at the Closing Date, (i) it was and will be, an
"accredited investor" (as defined in Regulation D), or (ii) the Purchaser either
alone or together with its representatives, had and will have such knowledge,
sophistication and experience in business and financial matters so as to be
capable of evaluating the merits and risks of the prospective investment in the
Securities, and had and will have so evaluated the merits and risks of such
investment. The Purchaser has the authority and is duly and legally qualified to
purchase and own the Securities.
(c) Ability of Purchaser to Bear Risk of Investment. The
Purchaser is able to bear the economic risk of an investment in the Securities
and, at the present time, is able to afford a complete loss of such investment.
(d) Reliance. The Purchaser understands and acknowledges
that (i) the Securities are being offered and sold to the Purchaser without
registration under the Securities Act in a private placement that is exempt from
the registration provisions of the Securities Act under Section 4(2) of the
Securities Act or Regulation D promulgated thereunder and (ii) the availability
of such exemption, depends in part on, and the Company will rely upon the
accuracy and truthfulness of, the foregoing representations and the Purchaser
hereby consents to such reliance.
The Company acknowledges and agrees that the Purchasers
make no representations or warranties with respect to the transactions
contemplated hereby or the other Transaction Documents other than those
specifically set forth in this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions.
(a) If the Purchaser should decide to dispose of any
Debentures (and upon conversion thereof any of the Underlying Shares) held by
it, the Purchaser understands and agrees that it may do so only pursuant to an
effective registration statement under the Securities Act, to the Company or
pursuant to an available exemption from the registration requirements of the
Securities Act. In connection with any transfer of any Securities other than
pursuant to an effective registration statement or to the Company, the Company
may require the transferor thereof to provide to the Company a written opinion
of counsel, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not require
registration of such transferred securities under the Securities Act.
Notwithstanding the foregoing, the Company hereby consents to and agrees to
register any transfer by the Purchaser to an Affiliate of the Purchaser or any
transfer among any such Affiliates, provided that transferee certifies in
writing to the Company that it is an "accredited investor" (as defined in
Regulation D). Any such transferee shall agree in writing to be bound by the
terms of this Agreement and shall have the rights of the Purchaser under this
Agreement and the Registration Rights Agreement.
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(b) The Purchaser agrees to the imprinting, so long as is
required by this Section 3.1(b), of the following legend on the Securities:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT.
The Underlying Shares issuable upon conversion of the Debentures
shall not contain the legend set forth above if such conversion or exercise
occurs at any time while the Registration Statement is effective under the
Securities Act or in the event there is not an effective Registration Statement
at such time, if in the written opinion of counsel to the Company (such opinion
to be furnished at the sole expenses of the Company at the request of the
Purchaser) such legend is not required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements issued by
the staff of the Commission). The Company agrees that it will provide the
Purchaser, upon request, with a certificate or certificates representing
Underlying Shares free from such legend at such time as such legend is no longer
required hereunder.
3.2 Stop Transfer Orders; Suspension of Qualification. The
Company may not make any notation on its records or give instructions to any
transfer agent of the Company which enlarge the restrictions of transfer set
forth in Section 3.1. The Company will advise the Purchaser, promptly after it
receives notice of issuance by the Commission, any state securities commission
or any other regulatory authority of any stop order or of any order preventing
or suspending the use of any offering of any securities of the Company, or of
the suspension of the qualification of the Common Stock for offering or sale in
any jurisdiction, or the initiation of any proceeding for any such purpose.
3.3 Furnishing of Information. As long as the Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to Section
13(a) or 15(d) of the Exchange Act and to promptly furnish the Purchaser with
true and complete copies of all such filings. As long as the Purchaser owns
Securities, if the Company is not required to file reports pursuant to Section
13(a) or 15(d) of the Exchange Act, it will prepare and furnish to the Purchaser
and make publicly available in accordance with Rule 144(c) promulgated under the
Securities Act annual and quarterly financial statements, together with a
discussion and analysis of such financial statements in form and substance
substantially similar to those that would otherwise be required to be included
in reports required by Section 13(a) or 15(d) of the Exchange Act, as well as
any other information required thereby, in the time period that such filings
would have been required to have been made under the Exchange Act. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request, all to the extent required from time to time
to enable such Person to sell Underlying Shares without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act, including the legal opinion referenced
above in Section 3.1.
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Upon the request of any such Person, the Company shall deliver to such Person a
written certification of a duly authorized officer as to whether it has complied
with such requirements.
3.4 Blue Sky Laws. In accordance with the Registration Rights
Agreement, the Company shall qualify the Underlying Shares under the securities
or Blue Sky laws of such jurisdictions as the Purchaser may request and shall
continue such qualification at all times through the third anniversary of the
last Closing Date.
3.5 Integration. The Company shall not sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of any or all of such securities to the
Purchaser.
3.6 Certain Agreements. As long as the Purchaser owns Debentures,
the Company shall not and shall cause the Subsidiaries not to, without the
consent of the holders of all of the Debentures then outstanding, (i) amend its
articles of incorporation, bylaws or other organizational documents so as to
adversely affect any rights of the Purchaser; (ii) declare, authorize, set aside
or pay any dividend or other distribution with respect to the Common Stock as
would adversely affect the rights of the Purchaser hereunder or under the
Debentures; (iii) repay, repurchase or offer to repay, repurchase or otherwise
acquire shares of its Common Stock in any manner; or (iv) enter into any
agreement with respect to any of the foregoing.
3.7 Listing and Reservation of Underlying Shares; Compliance
with Law.
(a) The Company shall (i) not later than the fifth
Business Day following the Closing Date prepare and file with The Nasdaq
Small-Cap Market (as well as any other national securities exchange or market on
which the Common Stock is then listed) an additional shares listing application
or a letter acceptable to The Nasdaq Small-Cap Market covering and listing a
sufficient number of shares of Common Stock to cover the maximum number of
Underlying Shares issuable, (ii) take all steps necessary to cause the
Underlying Shares to be approved for listing in The Nasdaq Small Cap Market (as
well as on any other national securities exchange or market on which the Common
Stock is then listed) as soon as possible thereafter, and (iii) provide to the
Purchaser evidence of such listing, and the Company shall maintain the listing
of its Common Stock on such market. As used herein, "Business Day" means any day
except Saturday, Sunday and any day which shall be a legal holiday or a day on
which banking institutions in the State of New York generally are authorized or
required by law or other government actions to close.
(b) The Company shall at all times have authorized and
reserved for issuance upon conversion of the Debentures a sufficient number of
shares of Common Stock to provided for the conversion of the Debentures.
(c) The Company shall notify the Commission and NASD, in
accordance with their requirements, of the transactions contemplated by this
Agreement, and shall take all other necessary action and proceedings as may be
required and permitted by applicable law, rule and regulation, for the legal and
valid issuance of the Securities to the Purchaser and promptly provide copies
thereof to the Purchaser.
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(d) Until at least two (2) years after the last of the
Debentures has been converted into Underlying Shares (i) the Company will cause
its Common Stock to continue to be registered under Sections 12(b) or 12(g) of
the Exchange Act, will comply in all respects with its reporting and filing
obligations under such Exchange Act, will comply with all requirements related
to any registration statement filed pursuant to this Agreement or the
Registration Rights Agreement and will not take any action or file any document
(whether or not permitted by the Securities Act or the Exchange Act or the rules
and regulations thereunder) to terminate or suspend such registration or to
terminate or suspend its reporting and filing obligations under the Securities
Act and Exchange Act, except as permitted herein and (ii) the Company will take
all action within its power to continue the listing or trading of its Common
Stock on The Nasdaq Small-Cap Market and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the NASD and The Nasdaq Stock Market.
3.8 Notice of Breaches.
(a) Each of the Company and the Purchaser shall give
prompt written notice to the other of any breach of any representation, warranty
or other agreement contained in this Agreement, the Debentures or the
Registration Rights Agreement, as well as any events or occurrences arising
after the date hereof and prior to any Closing Date, which would reasonably be
likely to cause any representation or warranty or other agreement of such party,
as the case may be, contained herein to be incorrect or breached as of such
Closing Date. However, no disclosure by any party pursuant to this Section 3.8
shall be deemed to cure any breach of any representation, warranty or other
agreement contained herein or in the Registration Rights Agreement.
(b) Notwithstanding the generality of Section 3.8(a), the
Company shall promptly notify the Purchaser of any notice or claim (written or
oral) that it receives from any lender of the Company to the effect that the
consummation of the transactions contemplated hereby, by the Debentures, and by
the Registration Rights Agreement violates or would violate any written
agreement or understanding between such lender and the Company, and the Company
shall promptly furnish by facsimile to the Purchaser a copy of any written
statement in support of or relating to such claim or notice.
3.9 Conversion Obligations of the Company. The Company covenants
to convert Debentures and to deliver the Underlying Shares in accordance with
the terms and conditions and within the time period set forth in the Debentures.
3.10 Use of Proceeds. The Company shall use the proceeds from the
sale of the Securities primarily to finance the Company's obligations to the
Discovery Channel (or its affiliates) with respect to the "Call of the Wild"
television series. Any remaining balance will be used for working capital and
general corporate purposes and not for the satisfaction of any portion of
Company borrowings outside the normal course of business, including, without
limitation, any obligation or liability of any kind whatsoever owed to a
shareholder, officer or director of the Company, or to redeem Company equity or
equity-equivalent securities. Pending application of the proceeds of this
placement in the manner permitted hereby, the Company will invest such proceeds
in interest bearing accounts and/or short-term, investment grade interest
bearing securities.
3.11 Indemnification. The Company also will indemnify and hold
the Purchaser harmless against any and all losses, claims, damages or
liabilities to any such Person (including,
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without limitation, in connection with any action, proceeding or investigation
brought by or against any such Person, including by shareholders of the Company)
in connection with or as a result of any matter referred to in this Transaction
Documents, including, without limitation, for any misrepresentation by the
Company, for breaches of representations and warranties contained in any of the
Transaction Documents, and for any breach, non-compliance or nonfulfillment by
the Company of any covenant, agreement or undertaking to be complied with or
performed by it contained in or pursuant to the Transaction Documents. If for
any reason the foregoing indemnification is unavailable to the Purchaser or is
insufficient to hold such Person harmless, then the Company shall contribute to
the amount paid or payable by the Purchaser as a result of such loss, claim,
damage or liability in such proportion as is appropriate to reflect the relative
economic interests of the Company and its shareholders on the one hand and the
Purchaser on the other hand in the matters contemplated by the Transaction
Documents as well as the relative fault of the Company and the Purchaser with
respect to such loss, claim, damage or liability and any other relevant
equitable considerations. The reimbursement, indemnity and contribution
obligations of the Company under this paragraph shall be in addition to any
liability which the Company may otherwise have, shall extend upon the same terms
and conditions to any affiliate of the Purchaser and the partners, directors,
agents, employees and controlling persons (if any), as the case may be, of the
Purchaser and any such affiliate, and shall be binding upon and inure to the
benefit of any successors, assigns, heirs and personal representatives of the
Company, the Purchaser, any such affiliate and any such Person. The Company also
agrees that neither the Purchaser nor any of such Affiliates, partners,
directors, agents, employees or controlling persons shall have any liability to
the Company or any Person asserting claims on behalf of or in right of the
Company in connection with or as a result of any matter referred to in this
Agreement except to the extent that any losses, claims, damages, liabilities or
expenses incurred by the Company result from the gross negligence or bad faith
of, or knowing breach of this Agreement by, the Purchaser. Promptly after
receipt by the Purchaser or any affiliate, partners, directors, agents,
employees and controlling persons, as the case may be, of notice of any claim or
other commencement of any action in respect of which indemnity may be sought,
such party will notify the Company in writing of the receipt or commencement
thereof and the Company shall have the right to assume the defense of such claim
or action (including the employment of counsel reasonably satisfactory to the
indemnified parties and the payment of fees and expenses of such counsel). The
indemnified party shall cooperate with the Company and the Company's counsel in
the defense of such claim or action. The Purchaser understands that the Company
shall not in connection with any one such claim or action or separate but
substantially similar related claims or actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys for all
of the indemnified parties unless the defense of one indemnified party is unique
or separate from that of another indemnified party or one or more legal defenses
are available to an indemnified party but not to other indemnified parties
subject to the same claim or action. In the event the Company does not promptly
assume the defense of a claim or action, the indemnified parties shall have the
right to employ counsel reasonably satisfactory to the Company, at the Company's
expense, to defend such claim or action. The indemnified party shall not admit
any liability with respect to the claim or action or settle, compromise, pay or
discharge the same without the prior written consent of the Company so long as
the Company is reasonably contesting or defending the same in good faith. The
Company shall not compromise, settle or discharge any claim or action without
the Purchaser's consent, as applicable, which consent will not be unreasonably
withheld, unless there is no finding or admission of any violation of any law
against the indemnified party and the sole relief is monetary damages paid in
full by the Company. The
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provisions of this Section 3.11 shall survive any termination or completion of
the Transaction Documents.
3.12 Subsequent Sales and Registrations.
(a) Until the later of (i) 180 days after the Closing
Date and (ii) 60 days after all Underlying Shares have been registered under the
Securities Act pursuant to an effective registration statement, the Company
shall not, directly or indirectly, without the prior written consent of the
Purchaser, offer, sell, grant any option to purchase, or otherwise dispose of
(or announce any offer, sale, grant of any option to purchase or other
disposition) any of its or its Affiliates' equity or equity-equivalent
securities or any instrument that permits the holder thereof to acquire Common
Stock at a price that is less than the market price of the Common Stock at the
time of issuance of such security or instrument and, if such security or
instrument contains a conversion feature, at a conversion price that is less
than the market price of the Common Stock at the time of issuance of such
security or instrument, except (i) the granting of options or warrants to
employees, officers and directors, and the issuance of shares upon exercise of
options granted, under any stock option plan heretofore or hereinafter duly
adopted by the Company (including any stock options plans which are restated
after the date hereof), (ii) shares issued upon exercise of any currently
outstanding warrants disclosed in Schedule 2.1(c)(i), and (iii) shares of Common
Stock issued upon conversion of Debentures.
(b) Other than Underlying Shares and other "Registrable
Securities" (as defined in the Registration Rights Agreement) to be registered
in accordance with the Registration Rights Agreement, the Company shall not, for
a period of not less than 90 Trading Days (as defined in the Debentures) after
the dates that any registration statement relating to the Securities is declared
effective by the Commission, without the prior written consent of the Purchaser,
register for resale any of its Affiliates' equity or equity-equivalent
securities, except for securities sold pursuant to the Company's employee
benefit plans. Any days that the Purchaser is unable to sell Underlying Shares
under the Registration Statement shall be added to such 90 Trading Day period
for the purposes of (i) and (ii) above.
3.13 Incorporation of the Debentures By Reference. The Debentures
are hereby incorporated herein by reference and made a part hereof.
3.14 Prohibition Against Certain Securities Issuances. Without
prior written consent of the Purchaser, which consent may not be unreasonably
withheld, the Company will not incur any additional indebtedness or issue any
shares of its common stock prior to the conversion of the Debentures; provided
however (i) with respect to stock issuances, the foregoing shall not affect (a)
the contemplated offering on the Neuer Market in Germany, (b) the issuance of
shares pursuant to the Company's stock option plan or other outstanding options
and warrants; and (c) the conversion of any existing debt into shares of common
stock at a price per share not less than average of the closing bid price of the
Company's Common Stock as quoted on the Nasdaq Small Cap Market for the five (5)
trading days prior to the date of issuance (and in connection therewith such
holders shall have the one-time right to have their shares registered in a
demand offering that does not interfere with this offering, (c) any production
financing indebtedness incurred in the ordinary course. All proceeds from any
issue of any debt or equity, other production financing or equity which is being
issued as a result of a previously-issued convertible security, shall be first
used to repay the principal amount of the Debentures, plus any accrued and
unpaid interest.
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ARTICLE IV
CONDITIONS
4.1 Conditions Precedent to Sale of the Securities.
(a) Conditions Precedent to the Obligation of the Company
to Sell the Securities. The obligation of the Company to sell the Securities
hereunder is subject to the satisfaction or waiver by the Company, at or before
the Closing, of each of the following conditions:
(i) Accuracy of the Purchaser's Representations
and Warranties. The representations and warranties of the Purchaser
shall be true and correct in all material respects as of the date when
made and as of the Closing Date, as though made on and as of such date;
(ii) Performance by the Purchaser. The Purchaser
shall have performed, satisfied and complied in all material respects
with all covenants, agreements and conditions required by this Agreement
to be performed, satisfied or complied with by such Purchaser at or
prior to the Closing; and
(iii) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted,
entered, promulgated or endorsed by any court or governmental authority
of competent jurisdiction which prohibits the consummation of any of the
transactions contemplated by this Agreement or the Registration Rights
Agreement.
(b) Conditions Precedent to the Obligation of the
Purchaser to Purchase the Securities. The obligation of each Purchaser hereunder
to acquire and pay for the Securities is subject to the satisfaction or waiver
by the Purchaser, at or before the Closing, of each of the following conditions:
(i) Accuracy of the Company's Representations and
Warranties. The representations and warranties of the Company set forth
in this Agreement and in the Registration Rights Agreement shall be true
and correct in all material respects as of the date when made and as of
the Closing Date as though made on and as of such date;
(ii) Performance by the Company. The Company shall
have performed, satisfied and complied with in all material respects all
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the
Closing;
(iii) No Injunction. No statute, rule,
regulation, executive order, decree, ruling or injunction shall have
been enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement,
the Debentures or the Registration Rights Agreement;
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(iv) Adverse Changes. Since the date of the
financial statements included in the SEC Document last filed prior to
the date of this Agreement, no event which had a Material Adverse Effect
and no material adverse change in the financial condition of the Company
shall have occurred (for purposes hereof changes in the market price of
the Common Stock may be considered as a factor in determining whether
there has occurred an event which has had a Material Adverse Effect or
whether a material adverse change has occurred);
(v) No Suspensions of Trading in Common Stock. The
trading in the Common Stock shall not have been suspended by the
Commission or on The Nasdaq Small Cap Market which suspension shall
remain in effect;
(vi) Listing of Common Stock. The Company shall
have filed a listing application to list the Underlying Shares for
trading on The Nasdaq Small Cap Market;
(vii) Legal Opinion. The Company shall have
delivered to the Purchaser the opinion of Kelly Lytton Mintz & Vann LLP,
outside counsel to the Company, in substantially the form annexed hereto
as Exhibit C;
(viii) Required Approvals. All Required Approvals
shall have been obtained;
(ix) UCC-1. The Company shall deliver to Purchaser
an executed UCC-1 Financing Statement for filing with the Secretary of
State of California (and an additional executed UCC-1 Financing
Statement for filing with the County of Los Angeles, California, if
required), granting Purchaser with a first lien over all of the tangible
and intangible assets of the Company as security for repayment of the
Debenture. The Purchaser hereby consents to allow the Company to grant a
superior lien to future project finance lenders over those specific
properties which are the subject of that project finance, provided that
upon the satisfaction of such project finance lien, Purchaser's lien
will be extended to cover such properties.
(x) Shares of Common Stock. On or prior to the
Closing Date, the Company shall have duly reserved the number of
Underlying Shares required by the Transaction Documents to be reserved
for issuance upon conversion of the Debentures;
(xi) Delivery of Debentures. The Company shall
have delivered to the Purchaser or such Purchaser's designee, the
Debentures registered in the name of the Purchaser, each in form
satisfactory to the Purchaser;
(xii) Other Agreements. The Company shall have
executed and delivered the Registration Rights Agreement, the Debenture
and the Security Agreement, and shall have performed all obligations
required to be performed by it as of the Closing Date;
(xiii) Change of Control. No Change of Control
shall have occurred between the date hereof and the Closing Date.
"Change of Control" means the
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occurrence of any of (i) an acquisition after the date hereof by an
individual or legal entity or "group" (as described in Rule 13d5(b)(1)
promulgated under the Exchange Act) of in excess of 50% of the voting
securities of the Company, (ii) a replacement of more than one-half of
the members of the Board of Directors which is not approved by those
individuals who are members of the Board of Directors on the date hereof
in one or a series of related transactions, (iii) the merger of the
Company with or into another entity, consolidation or sale of all or
substantially all of the assets of the Company in one or a series of
related transactions or (iv) the execution by the Company of an
agreement to which the Company is a party or by which it is bound,
providing for any of the events set forth above in (i), (ii) or (iii);
(xiv) Transfer Agent Instructions. The Irrevocable
Transfer Agent Instructions, in the form of Exhibit D annexed hereto,
shall have been delivered to and acknowledged in writing by the
Company's transfer agent; and
(xv) Officer's Certificate. On the Closing Date
the Company shall deliver to the Purchaser an Officer's Certificate
dated the Closing Date and signed by an executive officer of the Company
confirming the accuracy of the Company's representations, warranties and
covenants as of such Closing Date and confirming the compliance by the
Company with the conditions precedent set forth in this Section 4.1 as
of the Closing Date.
ARTICLE V
MISCELLANEOUS
5.1 Fees and Expenses.
(a) Out of the proceeds hereto, the Company shall pay the
reasonable legal fees and expenses of Freshman, Marantz, Orlanski Cooper &
Klein, counsel for the Purchaser, incident to the negotiation, preparation,
execution, delivery and performance of this Agreement and the other Transaction
Documents, which legal fees shall not exceed $10,000 in connection with the
negotiation, preparation, execution and delivery of this Agreement and the other
Transaction Documents. The Company shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by the Company incident to the negotiation, preparation, execution,
delivery and performance of this Agreement and the other Transaction Documents.
The Company shall pay all stamp and other taxes and duties levied in connection
with the issuance of the Securities pursuant to the Transaction Documents.
(b) Out of the proceeds hereto, the Company shall pay
Value Management and Research, A.G. at the Closing a fee equal to 5.5% of the
aggregate principal amount of Debentures sold at such closing, of which 1.5%
shall be paid on behalf of Century City Securities, Inc. Value Management and
Research, A.G. is an intended third-party beneficiary of this Section 5.1(b).
5.2 Entire Agreement; Amendments. This Agreement, together with
the Exhibits and Schedules hereto and the other Transaction Documents, contain
the entire understanding of the
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<PAGE> 22
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, with respect to such matters.
5.3 Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earlier of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified for notice prior to 5:00 p.m., Los Angeles
time, on a Business Day, (ii) the Business Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
telephone number specified for notice later than 5:00 p.m., Los Angeles time, on
any date and earlier than 11:59 p.m., Los Angeles time, on such date, (iii) the
Business Day following the date of mailing, if sent by nationally recognized
overnight courier service or (iv) actual receipt by the party to whom such
notice is required to be given. The addresses for such communications shall be
with respect to the Purchaser at its address set forth under its name on
Schedule 1 attached hereto, or with respect to the Company, addressed to:
Team Communications Group, Inc.
12300 Wilshire Boulevard, #400
Los Angeles, California 90025
Attention: Drew S. Levin
Telephone No.: (310) 442-3500
Facsimile No.: (310) 442-3501
or to such other address or addresses or facsimile number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice. Copies of notices to the Purchaser shall be sent to Freshman,
Marantz, Orlanski, Cooper & Klein, 9100 Wilshire Boulevard, 8th Floor, East
Tower, Beverly Hills, CA 90212, Attention: Thomas Poletti, Esq., Facsimile No.:
(310) 274-8357. Copies of notices to the Company shall be sent to Kelly Lytton
Mintz & Vann LLP, 1900 Avenue of the Stars, Suite 1450, Los Angeles, California
90067, Attention: Bruce Vann Esq., Facsimile No.: (310) 277-5953.
5.4 Amendments; Waivers. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by both the Company and the Purchaser; or, in the case of a waiver,
by the party against whom enforcement of any such waiver is sought. No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter. Notwithstanding the
foregoing, no such amendment shall be effective to the extent that it applies to
less than all of the holders of the Securities outstanding. The Company shall
not offer or pay any consideration to a Purchaser for consenting to such an
amendment or waiver unless the same consideration is offered to each Purchaser
and the same consideration is paid to the Purchaser which consents to such
amendment or waiver.
5.5 Headings. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
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<PAGE> 23
5.6 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or obligations
hereunder without the prior written consent of the Purchaser. The Purchaser may
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the Company, except that any assignee must make the
representations and warranties set forth in Section 2.2 and otherwise comply
with the terms of this Agreement otherwise applicable to its assignor. This
provision shall not limit the Purchaser's right to transfer securities or
transfer or assign rights under the Registration Rights Agreement.
5.7 No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and Value Management Research, A.G. 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.
5.8 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of California,
without regard to the principles of conflicts of law thereof.
5.9 Survival. The agreements, covenants, representations,
warranties and provisions contained in this Agreement shall survive the delivery
of the Securities pursuant to this Agreement and the Closing hereunder and any
conversion of the Debentures.
5.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that all
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
5.11 Publicity. The Company and the Purchaser shall consult with
each other in issuing any press releases or otherwise making public statements
with respect to the transactions contemplated hereby and neither party shall
issue any such press release or otherwise make any such public statement without
the prior written consent of the other, which consent shall not be unreasonably
withheld or delayed, except that no prior consent shall be required if such
disclosure is required by law, in which such case the disclosing party shall
provide the other Party with prior notice of such public statement. The Company
shall not publicly or otherwise disclose the names of the Purchaser without the
Purchaser's prior written consent unless otherwise required by law, in which
case the Company shall inform the Purchaser of such disclosure in writing prior
to making such disclosure.
5.12 Consent to Jurisdiction; Attorneys' Fees.
(a) The Company (including, but not limited to, its
affiliates, subsidiaries, officers, directors and controlling persons) and the
Purchaser hereby (i) irrevocably submits to the exclusive jurisdiction of any
California State court or Federal court sitting in the County of Los Angeles,
The City of Los Angeles in any action related to, connected with or arising out
of, in whole or in part, the Transaction Documents, including, but not limited
to, transactions in the securities of
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<PAGE> 24
the Company subsequent to the purchase by the Purchaser or Persons claimed to be
affiliated with the Purchaser, (ii) agrees that all claims in such action shall
be decided in such court, (iii) waives, to the fullest extent it may effectively
do so, the defense of inconvenient forum and (iv) consents to the service of
process by certified mail, return receipt requested. Nothing herein shall affect
the right of any party to serve legal process in any manner permitted by law or
affect its right to bring any action in any other court.
(b) In connection with any dispute between the Company
and the Purchaser, related to, connected with or arising out of, in whole or in
part, the Transaction Documents including, but not limited to, transactions in
the securities of the Company subsequent to the purchase, by the Purchaser or
Persons claimed to be affiliated to a Purchaser, the prevailing party shall be
awarded all reasonable attorneys' fees and expenses incurred by it. In that
connection fees and expenses actually paid by a party in connection with the
litigation of any dispute shall be deemed presumably reasonable.
(c) In the event that the Purchaser or any Person claimed
to be affiliated or associated with the Purchaser becomes involved in any
capacity in any action, proceeding or investigation brought by or against any
Person, including shareholders of the Company, in connection with or as a result
of any matter referred to in the Transaction Documents, the Company will
reimburse the Purchaser and/or those claimed to be affiliated or associated with
the Purchaser for its legal fees and expenses and other expenses (including the
cost of any investigation and preparation) incurred in connection therewith, as
those fees and expenses are incurred; provided, however, that if at the
conclusion of such action, proceeding or investigation it shall be finally
judicially determined by a court of competent jurisdiction that indemnity for
such fees and expenses is contrary to law, or that the Purchaser is not the
prevailing party then in that event, the Purchaser and/or any other Person
having received such advances of fees and expenses shall reimburse the Company
in full for the sums advanced.
(d) The provisions of this Section 5.12 shall survive any
termination or completion of the Transaction Documents.
5.13 Waiver of Jury Trial.
(a) The parties hereto each waive their respective rights
to a trial by jury of any claim or cause of action based upon or arising out of
or related to the Transaction Documents, or the transactions contemplated by the
Transaction Documents, in any action, proceeding or other litigation of any type
brought by any of the parties against any other party or parties, whether with
respect to contract claims, tort claims, or otherwise. The parties hereto each
agree that any such claim or cause of action shall be tried by a court trial
without a jury. Without limiting the foregoing, the parties further agree that
their respective right to a trial by jury is waived by operation of this Section
5.13 as to any action, counterclaim or other proceeding which seeks, in whole or
in part, to challenge the validity or enforceability of any of the Transaction
Documents or any provision hereof or thereof. The waiver shall apply to any
subsequent amendments, renewals, supplements or modifications to any of the
Transaction Documents.
(b) The provisions of this Section 5.13 shall survive any
termination or completion of the Transaction Documents.
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<PAGE> 25
5.14 Severability. If any term, provision, covenant or
restriction of this Agreement is held to be invalid, illegal, void or
unenforceable in any respect, the remainder of the terms, provisions, covenants
and restrictions set forth herein shall remain in full force and effect and
shall in no way be affected, impaired or invalidated, and the parties hereto
shall use their reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
5.15 Remedies. In addition to being entitled to exercise all
rights provided herein or granted by law, including recovery of damages, the
Purchaser will be entitled to specific performance of the obligations of the
Company under the Transaction Documents and injunctive relief. Each of the
Company and the Purchaser (severally and not jointly) agree that monetary
damages would not be adequate compensation for any loss incurred by reason of
any breach of its obligations described in the foregoing sentence and hereby
agrees to waive in any action for specific performance of any such obligation or
injunctive relief the defense that a remedy at law would be adequate.
IN WITNESS WHEREOF, the parties hereto have caused this
Securities Purchase Agreement to be duly executed by their respective authorized
persons as of the date first indicated above.
TEAM COMMUNICATIONS GROUP, INC.
By /s/ DREW S. LEVIN
--------------------------------------
Name: Drew S. Levin
---------------------------------
Title: CEO
--------------------------------
VMR LUXEMBOURG S.A.
By /s/ FLORIAN HOMM
--------------------------------------
Name: Florian Homm
---------------------------------
Title:
--------------------------------
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<PAGE> 26
SCHEDULE 1
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
DEBENTURES PURCHASED
NAME OF INVESTOR IN INITIAL CLOSING
- --------------------------------- --------------------------------
<S> <C>
VMR Luxembourg S.A. $ 1,200,000
</TABLE>
-22-
<PAGE> 1
EXHIBIT 4.29
EXHIBIT A TO THE SECURITIES PURCHASE AGREEMENT
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT.
TEAM COMMUNICATIONS GROUP, INC.
(Incorporated in the State of California)
12% CONVERTIBLE DEBENTURE DUE NOVEMBER 30, 1999
No. _______________ Principal Amount U.S. $1,200,000.00
Original Issue Date: July 26, 1999
FOR VALUE RECEIVED, Team Communications Group, Inc., a
corporation duly incorporated and existing under the laws of the State of
California (the "Company"), hereby promises to pay to the order of VMR
Luxembourg S.A., Chateau Woltz, 34 Rue Nueve, Remich, L5560, Luxembourg, or
registered assigns (hereinafter, the "Holder"), the principal sum of One Million
Two Hundred Thousand Dollars and no cents ($1,200,000.00) United States Dollars
on November 30, 1999 (the "Maturity Date"), subject to earlier conversion or
redemption as provided herein. The Debentures will be convertible into common
stock, no par value per share, of the Company on the terms and subject to the
conditions hereinafter set forth at any time after the date hereof. Interest
shall be paid on the unpaid principal balance of this Debenture at the rate of
12% per annum from the date hereof, payable, in the manner set forth below, upon
conversion, redemption or maturity of this Debenture to the person that is the
Holder on the date of such event. Interest hereon shall be calculated on the
basis of a 360 day year consisting of twelve 30-day months.
1. General.
(a) This Debenture is one of a duly authorized issue of
Debentures of the Company in original aggregate principal amount of $1,200,000
designated as its 12% Convertible Debenture due November 30, 1999 (herein called
the "Debentures"), issued pursuant to the authorization of the Board of
Directors of the Company and issued pursuant to a Securities Purchase Agreement,
dated July 26, 1999, by and among the Company and the Purchasers identified
therein (the "Securities Purchase Agreement"). The Securities Purchase Agreement
contains certain additional terms that are binding upon the Company and each
Holder of the Debentures.
(b) The Debentures are issuable, without coupons, in
principal denominations of U.S. $10,000.00 and integral multiples thereof. The
Debentures, and transfers thereof, shall be in registered form as provided in
Section 4 hereof. The registered holder of a Debenture shall (to the fullest
extent permitted by applicable law) be treated at all times, by all persons and
for all purposes as the absolute owner of such Debenture, regardless of any
notice of ownership, theft or loss or of any writing thereon.
2. Principal Payment. Payment of the principal of this Debenture
shall be made upon presentation of this Debenture at the Company's principal
office for surrender upon payment in full. The Company may not prepay all or any
portion of this Debenture.
3. Interest. Each Debenture shall be entitled to receive
cumulative interest at the rate of 10% per annum, compounded monthly, in cash,
on the principal amount thereof. Such interest shall be due and payable monthly
on maturity. Interest shall accrue from the Original Issue Date (as defined
herein), whether or not earned or declared, until maturity or such time as the
Debenture has been converted or redeemed as herein provided. The interest so
payable will be paid to the person in whose name the Debentures (or one or more
predecessor shares) are registered on the records of the Company regarding
registration and transfers of the Debentures; provided, however, that the
Company's obligation to a transferee of a Debenture arises only if such
transfer, sale or other disposition is made in accordance with the terms and
conditions hereof and the Securities Purchase Agreement.
4. Transfers. The Debentures have been issued subject to
investment representations of the original purchaser and may be transferred or
exchanged only in compliance with the Securities Act of 1933, as amended, and
applicable state securities laws. Prior to due presentment for transfer of each
Debenture, the Company may treat
<PAGE> 2
the Holder as the owner thereof for the purpose of receiving payments as herein
provided and all other purposes, and the Company shall not be affected by any
notice to the contrary.
5. Conversion at the Option of the Holder.
(a) (i) The Debentures shall be convertible into shares of
Common Stock (subject to Section 5(a)(ii) and Section 5(a)(iii)) at the
Conversion Ratio (as defined in Section 9) at the option of the Holder
in whole or in part at any time after such date as the closing sales
price of the Company's common stock as reported on the Nasdaq Small Cap
Market (or Nasdaq Market if so listed) equals or exceeds $12.00. The
Holders shall effect conversions by surrendering the Debentures to be
converted to the Company, together with the form of conversion notice
attached hereto as Exhibit 1 (the "Conversion Notice"). The Conversion
Notice may be delivered by facsimile, with the Debenture to follow
within three Trading Days. Each Conversion Notice shall specify the
principal amount of Debentures to be converted. The date on which such
conversion is to be effected shall be the date the Holder delivers such
Conversion Notice by facsimile (the "Conversion Date"). Subject to
Sections 5(a)(ii), 5(b) and 5(k) hereof, each Conversion Notice, once
given, shall be irrevocable. If the Holder is converting less than all
of the principal amount represented by the Debenture tendered by the
Holder with the Conversion Notice, or if a conversion hereunder cannot
be effected in full for any reason, the Company shall promptly deliver
to such Holder, at the expense of the Company, (in the manner and within
the time set forth in Section 5(b)) a new Debenture representing the
unconverted principal amount, to the same extent as if the Debenture
theretofore representing such unconverted principal amount had not been
surrendered on conversion.
(ii) If on the Conversion Date applicable to any
conversion, (A) the Common Stock is then listed for trading on the
Nasdaq National Market, the New York Stock Exchange, the American Stock
Exchange or The Nasdaq Small Cap Market, (B) the Conversion Price then
in effect is such that the aggregate number of shares of Common Stock
that would then be issuable upon conversion of all the outstanding
Debentures, together with any shares of Common Stock previously issued
upon conversion of Debentures, would equal or exceed 20% of the number
of shares of Common Stock outstanding on the Original Issue Date (the
"Issuable Maximum"), and (C) the Company has not previously obtained (or
attempted pursuant to clause (i) of this subsection to obtain)
Shareholder Approval (as defined below), then the Company shall issue to
any Holder so requesting conversion of Debentures its pro rata portion
of the Issuable Maximum in the same ratio that the principal amount of
Debentures held by any such Holder bears to the aggregate principal
amount of Debentures then outstanding and, with respect to the aggregate
principal amount of the Debentures that remains outstanding after such
issuance (the "Remaining Principal Amount"), the Company shall at the
Holder's request, (x) as promptly as possible but in no event later than
60 days after such Conversion Date, convene a meeting of the holders of
the Common Stock and use its best efforts to obtain the Shareholder
Approval or a waiver of such approval from The Nasdaq Stock Market or
the appropriate exchange and (y) (1) as promptly as possible from time
to time, after a written request by the Holder, issue shares of Common
Stock at a Conversion Price equal to the Per Share Market Value on the
Trading Day immediately preceding the date of such request for all or a
portion of Remaining Principal Amount (plus any accrued interest
thereon) held by such Holder (whether or not subject to the Conversion
Notice specified above) or (2) as promptly as possible but in any event
within seven days after a request by the Holder redeem all or a portion
of the Remaining Principal Amount (plus any accrued interest thereon) to
which such Conversion Notice applies, for an amount, paid in cash, equal
to the greater of (A) the aggregate principal amount of such Debentures,
plus accrued and unpaid interest, multiplied by 130%, or (B) the
applicable Conversion Ratio as of the Conversion Date multiplied by the
average Per Share Market Value for the five Trading Days immediately
preceding the Conversion Date or the date of payment, whichever is
greater. If the Holder has requested that the Company redeem Debentures
pursuant to this Section and the Company fails for any reason to pay the
redemption price, as calculated pursuant to the immediately preceding
sentence, within seven days after such notice is deemed delivered
pursuant to the preceding sentence, the Company will pay interest on the
redemption price at a rate of 15% per annum, in cash to such Holder,
accruing from such seventh day until the redemption price and any
accrued interest thereon is paid in full (which amount shall be
paid as liquidated damages and not as a penalty). "Shareholder Approval"
means the approval by a majority of the total votes cast on the
proposal, in person or by proxy, at a meeting of the shareholders of the
Company held in accordance with the Company's articles of incorporation
and by-laws, of the issuance by the Company of shares of Common Stock
exceeding the Issuable Maximum as a consequence of the conversion of the
Debentures into Common Stock at a price less than the greater of the
book or market value on the Original
-2-
<PAGE> 3
Issue Date as and to the extent required pursuant to Rule 4460(i) of The
Nasdaq Stock Market, Inc.'s Marketplace Rules (or any successor or
replacement provision thereof).
(iii) In no event shall a Holder be permitted to
convert in excess of such principal amount of Debentures upon the
conversion of which, (x) the number of shares of Common Stock owned by
such Holder (other than shares of Common Stock issuable upon conversion
of Debentures, plus (y) the number of shares of Common Stock issuable
upon such conversion of such Debentures, would be equal to or exceed (z)
9.999% of the number of shares of Common Stock then issued and
outstanding, including shares issuable on conversion of the Debentures
held by such Holder after application of this Section 5(a)(iii). To the
extent that the limitation contained in this Section 5(a)(iii) applies,
the determination of whether Debentures are convertible (in relation to
other securities owned by a Holder) and of which Debentures are
convertible shall be in the sole discretion of such Holder, and the
submission of Debentures for conversion shall be deemed to be such
Holder's determination of whether such Debentures are convertible (in
relation to other securities owned by a Holder) and of which Debentures
are convertible, in each case subject to such aggregate percentage
limitation, and the Company shall have no obligation to verify or
confirm the accuracy of such determination. Nothing contained herein
shall be deemed to restrict the right of a Holder to convert such
Debentures at such time as such conversion will not violate the
provisions of this paragraph. The provisions of this Section 5(a)(iii)
may be waived by a Holder of Debentures as to itself (and solely as to
itself) upon not less than 60 days prior notice to the Company, and the
provisions of this Section 5(a)(iii) shall continue to apply until such
60th day (or later, if stated in the notice of waiver). No conversion in
violation of this paragraph but otherwise in accordance with this
Debenture shall affect the status of the securities issued upon such
conversion as validly issued, fully-paid and nonassessable.
(b) (i) Not later than three (3) Trading Days after any
Conversion Date, the Company will deliver to the applicable Holder by
express courier (A) a certificate or certificates which shall be free of
restrictive legends and trading restrictions (other than those required
by Section 3.1(b) of the Securities Purchase Agreement) representing the
number of shares of Common Stock being acquired upon the conversion of
Debentures (subject to reduction pursuant to Section 5(a)(ii) and
Section 5(a)(iii)) and (B) a new Debenture representing the unconverted
principal amount. If in the case of any Conversion Notice such Debenture
or Debentures are not delivered to or as directed by the applicable
Holder by the seventh Trading Day after the Conversion Date (the
"Delivery Date"), the holder shall be entitled by written notice to the
Company at any time on or before its receipt of such Debenture or
Debentures thereafter, to rescind such conversion, in which event the
Company shall immediately return the Debentures tendered for conversion,
whereupon the Company and the Holder shall each be restored to their
respective positions immediately prior to the delivery of such notice of
revocation, except that any amounts described in Sections 5(b)(ii) and
(iii) shall be payable through the date notice of rescission is given to
the Company.
(ii) The Company understands that a delay in the
delivery of the shares of Common Stock upon conversion of Debentures and
failure to deliver a new Debenture representing the unconverted
principal amount beyond the Delivery Date could result in economic loss
to the Holder. If the Company fails to deliver to the Holder such
certificate or certificates pursuant to this Section hereunder by the
Delivery Date for any reason other than the failure to obtain
Shareholder Approval as provided in Section 5(a)(ii), the Company shall
pay to such Holder, in cash, an amount per Trading Day for each Trading
Day until such certificates are delivered, together with interest on
such amount at a rate of 15% per annum, accruing until such amount and
any accrued interest thereon is paid in full, equal to (i) 1% of the
aggregate principal amount of the Debentures, plus the accrued and
unpaid interest thereon, requested to be converted for the first four
Trading Days after the Delivery Date and (ii) 2% of the aggregate
principal amount of the Debentures, plus the accrued and unpaid interest
thereon, requested to be converted for each Trading Day thereafter
(which amounts shall be paid as liquidated damages and not as a
penalty). If the Company fails to deliver to the Holder such certificate
or certificates pursuant to this Section prior to the 15th Trading Day
after the Conversion Date, the Company shall, at the Holder's option,
redeem in cash, from funds legally available therefor at the time of
such redemption, such principal amount of Debentures then held by such
Holder, plus the accrued and unpaid interest thereon, as requested by
such Holder, in cash. The redemption price shall be equal to the
aggregate principal amount of Debentures then held by such Holder, plus
accrued and unpaid interest thereon, multiplied by the average Per Share
Market Value for the five Trading Days immediately preceding (A) the
Conversion Date or (B) the date of payment in full by the Company of
such prepayment price, whichever is greater, multiplied by the
Conversion Ratio calculated on the Conversion Date. If the Holder has
requested that the Company redeem Debentures pursuant to this Section
and the Company fails for
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<PAGE> 4
any reason to pay the redemption price, as calculated pursuant to the
immediately preceding sentence, within seven days after such notice is
deemed delivered pursuant to Section 5(a)(i), the Company will pay
interest on the redemption price at a rate of 15% per annum, in cash to
such Holder, accruing from such seventh day until the redemption price
and any accrued interest thereon is paid in full (which amount shall be
paid as liquidated damages and not as a penalty). Nothing herein shall
limit a Holder's right to pursue actual damages for the Company's
failure to deliver certificates representing shares of Common Stock upon
conversion within the period specified herein (including, without
limitation, damages relating to any purchase of shares of Common Stock
by such Holder to make delivery on a sale effected in anticipation of
receiving certificates representing shares of Common Stock upon
conversion, such damages to be in an amount equal to (A) the aggregate
amount paid by such holder for the shares of Common Stock so purchased
minus (B) the aggregate amount of net proceeds, if any, received by such
Holder from the sale of the shares of Common Stock issued by the Company
pursuant to such conversion), and such Holder shall have the right to
pursue all remedies available to it at law or in equity (including,
without limitation, a decree of specific performance and/or injunctive
relief).
(iii) In addition to any other rights available to
the Holder, if the Company fails to deliver to the Holder such
certificate or certificates pursuant to Section 5(b)(i) by the Delivery
Date and if after the Delivery Date the Holder purchases (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by such Holder of the Underlying Shares which the
Holder anticipated receiving upon such conversion (a "Buy-In"), then the
Company shall pay in cash to the Holder (in addition to any remedies
available to or elected by the Holder) the amount by which (A) the
Holder's total purchase price (including brokerage commissions, if any)
for the shares of Common Stock so purchased exceeds (B) the aggregate
principal amount of the Debentures for which such conversion was not
timely honored, together with interest thereon at a rate of 15% per
annum, accruing until such amount and any accrued interest thereon is
paid in full (which amount shall be paid as liquidated damages and not
as a penalty). For example, if the Holder purchases shares of Common
Stock having a total purchase price of $11,000 to cover a Buy-In with
respect to an attempted conversion of $10,000 aggregate principal amount
of the Debentures, the Company shall be required to pay the Holder
$1,000, plus interest. The Holder shall provide the Company written
notice indicating the amounts payable to the Holder in respect of the
Buy-In.
(c) (i) The conversion price for the Debentures (the
"Conversion Price") in effect on any Conversion Date shall be the lesser
of (A) an amount equal the average Per Share Market Value for five
consecutive Trading Days immediately prior to the Original Issue Date
and (B) an amount equal to 93% of the Per Share Market Value for the
Trading Day having the lowest Per Share Market Value during the five
Trading Days prior to the Conversion Date (the "Look Back Period"),
except that if during any period (a "Black-out Period"), a Holder is
unable to trade any Common Stock issued or issuable upon conversion of
Debentures immediately due to the postponement of filing or delay or
suspension of effectiveness of a registration statement or because the
Company has otherwise informed such Holder that an existing prospectus
cannot be used at that time in the sale or transfer of such Common
Stock, such Holder shall have the option but not the obligation on any
Conversion Date within ten Trading Days following the expiration of the
Black-out Period of using the Conversion Price applicable on such
Conversion Date or any Conversion Price selected by such Holder that
would have been applicable had such Conversion Date been at any earlier
time during the Black-out Period or within the ten Trading Days
thereafter. Beginning on the 150th day following the Original Issue
Date, the number of Trading Days used in clause (B) above in calculating
the Look Back Period shall be increased by two Trading Days per month up
to a maximum of 12 Trading Days.
Notwithstanding the foregoing, if the Company has failed to file
a registration statement as required by the Registration Rights Agreement within
30 days after the date (the "Filing Date") it was required to file such
registration statement pursuant to the Registration Rights Agreement or if any
registration statement required to be filed by the Company pursuant to the
Registration Rights Agreement has not been declared effective by the Commission
within 30 days after the date it was required to be declared effective by the
Commission pursuant to the Registration Rights Agreement, or if the Company has
allowed any registration statement required to be filed pursuant to the
Registration Rights Agreement to lapse for a period of 30 consecutive days, then
the Conversion Price shall, immediately after such 30th day, as applicable, be
decreased by 3% and shall be further decreased by an additional 0.1% for each
subsequent day thereafter until such time as such registration statement is
filed, declared effective or had its effectiveness reinstated, as applicable;
provided, that if any such registration statement is not effective within 180
days after the Filing Date, then the Conversion Price shall be decreased by an
additional 1.25% for each seven calendar days following such 180th day and
continuing until any such registration statement is effective; provided further,
that the
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<PAGE> 5
Conversion Price shall not be decreased by more than 50%. The provisions of this
Section are not exclusive and shall in no way limit the Company's obligations
under the Registration Rights Agreement.
(ii) If the Company, at any time while any
Debentures are outstanding, (a) shall pay a stock dividend or otherwise
make a distribution or distributions on shares of its Common Stock or
any other equity security payable in shares of Common Stock, (b)
subdivide outstanding shares of Common Stock into a larger number of
shares, (c) combine outstanding shares of Common Stock into a smaller
number of shares, or (d) issue by reclassification of shares of Common
Stock any shares of capital stock of the Company, the applicable
Conversion Price shall be multiplied by a fraction of which the
numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding before such event and of which the
denominator shall be the number of shares of Common Stock outstanding
after such event. Any adjustment made pursuant to this Section 5(c)(ii)
shall become effective immediately after the record date for the
determination of shareholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective
date in the case of a subdivision, combination or reclassification.
(iii) If the Company, at any time while Debentures
are outstanding, shall sell or issue additional shares of Common Stock
or rights or warrants to acquire shares of Common Stock at a price per
share less than the Per Share Market Value at the record date mentioned
below, excluding any rights of the holder of the Debentures or the
holders of the Warrants issued pursuant to the Securities Purchase
Agreement to acquire Common Stock, the applicable Conversion Price shall
be multiplied by a fraction, of which the denominator shall be the
number of shares of Common Stock (excluding treasury shares, if any)
outstanding on the date of issuance of such shares, rights or warrants
plus the number of additional shares of Common Stock offered for
subscription or purchase, and of which the numerator shall be the number
of shares of Common Stock (excluding treasury shares, if any)
outstanding on the date of issuance of such shares, rights or warrants
plus the number of shares which the aggregate offering price of the
total number of shares so offered would purchase at such Per Share
Market Value. Such adjustment shall be made whenever such shares, rights
or warrants are issued, and shall become effective immediately after the
issuance of such shares, rights or warrants or, if such rights or
warrants are issued to shareholders of the Company, the record date for
the determination of shareholders entitled to receive such rights or
warrants. However, upon the expiration of any right or warrant to
purchase Common Stock the issuance of which resulted in an adjustment in
the applicable Conversion Price pursuant to this Section 5(c)(iii), if
any such right or warrant shall expire and shall not have been
exercised, the applicable Conversion Price shall immediately upon such
expiration be re-computed and effective immediately upon such expiration
be increased to the price which it would have been (but reflecting any
other adjustments in the applicable Conversion Price made pursuant to
the provisions of this Section 5 after the issuance of such rights or
warrants) had the adjustment of the applicable Conversion Price made
upon the issuance of such rights or warrants been made on the basis of
offering for subscription or purchase only that number of shares of
Common Stock actually purchased upon the exercise of such rights or
warrants actually exercised.
(iv) If the Company, at any time while Debentures
are outstanding, shall distribute to all holders of Common Stock (and
not to holders of Debentures) evidences of its indebtedness or assets or
rights or warrants to subscribe for or purchase any security (excluding
those referred to in Sections 5(c)(ii) and (iii) above), then in each
such case the applicable Conversion Price at which the Debentures shall
thereafter be convertible shall be determined by multiplying the
Conversion Price in effect immediately prior to the record date fixed
for determination of shareholders entitled to receive such distribution
by a fraction of which the denominator shall be the Per Share Market
Value determined as of the record date mentioned above, and of which the
numerator shall be such Per Share Market Value on such record date less
the then fair market value at such record date of the portion of such
assets or evidence of indebtedness so distributed applicable to one
outstanding share of Common Stock as determined by the Board of
Directors in good faith; provided, however, that in the event of a
distribution exceeding ten percent of the net assets of the Company,
such fair market value shall be determined by an Independent Appraiser
(as defined below) selected in good faith by the holders of a majority
in interest of the principal amount of the Debentures then outstanding;
and provided, further, that the Company, after receipt of the
determination by such Independent Appraiser shall have the right to
select an additional Independent Appraiser, in good faith, in which case
the fair market value shall be equal to the average of the
determinations by each such Independent Appraiser. In either case the
adjustments shall be described in a statement provided to the holders of
Debentures of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of
Common Stock. Such
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<PAGE> 6
adjustment shall be made whenever any such distribution is made and
shall become effective immediately after the record date mentioned
above.
(v) All calculations under this Section 5 shall be
made to the nearest cent or the nearest 1/100th of a share, as the case
may be.
(vi) Whenever the applicable Conversion Price is
adjusted pursuant to Section 5(c)(ii),(iii) or (iv) (for purposes of
this Section 5(c)(vi), each an "adjustment"), the Company shall cause
its Chief Financial Officer to prepare and execute a certificate setting
forth, in reasonable detail, the event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment was
calculated (including a description of the basis on which the Board made
any determination hereunder), and the applicable Conversion Price after
giving effect to such adjustment, and shall cause copies of such
certificate to be delivered to each Holder promptly after each
adjustment. Any dispute between the Company and the Holders with respect
to the matters set forth in such certificate may at the option of the
Holders be submitted to one of the national accounting firms currently
known as the "big five" selected by the holders of a majority in
interest of the principal amount of the Debentures then outstanding,
provided that the Company shall have ten days after receipt of notice
from such Holders of their selection of such firm to object thereto, in
which case the holders of a majority in interest of the principal amount
of the Debentures then outstanding shall select another such firm and
the Company shall have no such right of objection. The firm selected by
the holders of a majority in interest of the principal amount of the
Debentures then outstanding as provided in the preceding sentence shall
be instructed to deliver a written opinion as to such matters to the
Company and the Holders within 30 days after submission to it of such
dispute. Such opinion shall be final and binding on the parties hereto.
The fees and expenses of such accounting firm shall be paid by the
Company.
(vii) In case the Company after the Original Issue
Date shall do any of the following (each, a "Triggering Event") (a)
consolidate with or merge into any other person and the Company shall
not be the continuing or surviving corporation of such consolidation or
merger, or (b) permit any other person to consolidate with or merge into
the Company and the Company shall be the continuing or surviving person
but, in connection with such consolidation or merger, any capital stock
of the Company shall be changed into or exchanged for securities of any
other person or cash or any other property, or (c) transfer all or
substantially all of its properties or assets to any other person, or
(d) effect a capital reorganization or reclassification of its capital
stock, the holders of the Debentures then outstanding shall have the
right thereafter to convert such shares only into the shares of stock
and other securities, cash and property receivable upon or deemed to be
held by holders of Common Stock following such Triggering Event, and the
holders of the Debentures shall be entitled upon such event to receive
such amount of securities, cash or property as the shares of the Common
Stock of the Company into which such Debentures could have been
converted immediately prior to such Triggering Event would have been
entitled; provided, however, that each Holder shall have the option to
require the Company to redeem, from funds legally available therefor at
the time of such redemption, such principal amount of its Debentures at
a price equal to the aggregate principal amount of Debentures to be
redeemed, plus accrued and unpaid interest thereon, multiplied by the
product of (i) the average Per Share Market Value for the five Trading
Days immediately preceding (1) the effective date, the date of the
closing or the date of the announcement, as the case may be, of the
Triggering Event triggering such redemption right or (2) the date of
payment in full by the Company of the redemption price hereunder,
whichever is greater, and (ii) the Conversion Ratio calculated on the
date of the closing or the effective date, as the case may be, of the
Triggering Event triggering such redemption right, as the case may be.
The entire redemption price shall be paid in cash. If the Holder has
requested that the Company redeem Debentures pursuant to this Section
and the Company fails for any reason to pay the redemption price, as
calculated pursuant to the immediately preceding sentence, within seven
days after such notice is deemed delivered pursuant to the preceding
sentence, the Company will pay interest on the redemption price at a
rate of 15% per annum, in cash to such Holder, accruing from such
seventh day until the redemption price and any accrued interest thereon
is paid in full (which amount shall be paid as liquidated damages and
not as a penalty). The terms of any such Triggering Event shall include
such terms so as to continue to give to the holder of Debentures the
right to receive the securities, cash or property set forth in this
Section 5(c)(vii) upon any conversion or redemption following such
Triggering Event. This provision shall similarly apply to successive
Triggering Events.
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<PAGE> 7
(viii) If:
A. the Company shall declare a dividend (or
any other distribution) on its Common
Stock; or
B. the Company shall declare a special
nonrecurring cash dividend on or a
redemption of its Common Stock; or
C. the Company shall authorize the granting
to all holders of the Common Stock
rights or warrants to subscribe for or
purchase any shares of capital stock of
any class or of any rights; or
D. the approval of any shareholders of the
Company shall be required in connection
with any Triggering Event; or
E. the Company shall authorize the
voluntary or involuntary dissolution,
liquidation or winding up of the affairs
of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Debentures, and shall cause to be mailed to the
Holders of Debentures at their last addresses as they shall appear upon the
stock books of the Company, at least 30 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as
of which the holders of Common Stock of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be determined or (y) the
date on which such reclassification, consolidation, merger, sale, transfer or
share exchange is expected to become effective or close, and the date as of
which it is expected that holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer or
share exchange; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice. Holders are entitled
to convert Debentures during the 30-day period commencing the date of such
notice to the effective date of the event triggering such notice.
(d) If at any time conditions shall arise by reason of
action taken by the Company which in the opinion of the Board of Directors are
not adequately covered by the other provisions hereof and which might materially
and adversely affect the rights of the holders of Debentures (different than or
distinguished from the effect generally on rights of holders of any class of the
Company's capital stock) or if at any time any such conditions are expected to
arise by reason of any action contemplated by the Company, the Company shall
mail a written notice briefly describing the action contemplated and the
material adverse effects of such action on the rights of the holders of
Debentures at least 10 calendar days prior to the effective date of such action,
and an Independent Appraiser selected by the holders of majority in interest of
the principal amount of the Debentures then outstanding shall give its opinion
as to the adjustment, if any (not inconsistent with the standards established in
this Section 5), of the Conversion Price (including, if necessary, any
adjustment as to the securities into which Debentures may thereafter be
convertible) and any distribution which is or would be required to preserve
without diluting the rights of the holders of Debentures; provided, however,
that the Company, after receipt of the determination by such Independent
Appraiser, shall have the right to select an additional Independent Appraiser,
in good faith, in which case the adjustment shall be equal to the average of the
adjustments recommended by each such Independent Appraiser. The Board of
Directors shall make the adjustment recommended forthwith upon the receipt of
such opinion or opinions or the taking of any such action contemplated, as the
case may be; provided, however, that no such adjustment of the Conversion Price
shall be made which in the opinion of the Independent Appraiser(s) giving the
aforesaid opinion or opinions would result in an increase of the Conversion
Price to more than the Conversion Price then in effect.
(e) The Company covenants that it will at all times
reserve and keep available out of its authorized and unissued Common Stock
solely for the purpose of issuance upon conversion of Debentures free from
preemptive rights or any other actual contingent purchase rights of persons
other than the holders of Debentures, not less than such number of shares of
Common Stock as shall (subject to any additional requirements of the Company as
to reservation of such shares set forth in the Securities Purchase Agreement) be
issuable (taking into account the adjustments and restrictions of Section 5(c))
upon the conversion of all outstanding Debentures. The Company
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<PAGE> 8
covenants that all shares of Common Stock that shall be so issuable shall, upon
issue, be duly and validly authorized, issued and fully paid, non-assessable and
freely tradable.
(f) Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of shares of Common
Stock, but may if otherwise permitted, make a cash payment in respect of any
final fraction of a share based on the Per Share Market Value at such time. If
the Company elects not, or is unable, to make such a cash payment, the holder of
a Debenture shall be entitled to receive, in lieu of the final fraction of a
share, one whole share of Common Stock.
(g) The issuance of certificates for shares of Common
Stock on conversion of Debentures shall be made without charge to the holders
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate.
(h) Debentures converted into Common Stock shall be
canceled and retired by the Company.
(i) Any and all notices or other communications or
deliveries to be provided by the holders of Debentures hereunder, including,
without limitation, any Conversion Notice, shall be in writing and delivered
personally, by facsimile or sent by a nationally recognized overnight courier
service, addressed to the attention of the President and to the Secretary of the
Company at the facsimile telephone number or address of the principal place of
business of the Company as set forth in the Securities Purchase Agreement. Any
and all notices or other communications or deliveries to be provided by the
Company hereunder shall be in writing and delivered personally, by facsimile or
sent by a nationally recognized overnight courier service, addressed to each
Holder of Debentures at the facsimile telephone number or address of such holder
appearing on the books of the Company, or if no such facsimile telephone number
or address appears, at the principal place of business of the Holder. Any notice
or other communication or deliveries hereunder shall be deemed given and
effective on the earlier of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section prior to 5:00 p.m., New York City time, (ii) the date
after the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section later than
5:00 p.m., New York City time, on any date and earlier than 11:59 p.m., New York
City time, on such date, (iii) receipt, if sent by a nationally recognized
overnight courier service, or (iv) actual receipt by the party to whom such
notice is required to be given.
(j) In the event a Holder shall elect to convert any
Debentures as provided herein, the Company cannot refuse conversion based on any
claim that such Holder or any one associated or affiliated with such Holder has
been engaged in any violation of law, unless, an injunction from a court, on
notice, restraining and or adjoining conversion of all or of said Debentures
shall have issued and the Company posts a surety bond for the benefit of such
Holder in the amount of the principal amount of Debentures sought to be
converted, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Holder in the event it obtains judgment.
(k) The Company may elect at any time or from time to time
(but in no event later than one day after receipt of a conversion notice, in
lieu of delivering the shares of Common Stock, to redeem, from funds legally
available therefor at the time of such redemption, such principal amount of
Debentures tendered by such Holder for Conversion, in cash. The redemption price
shall be equal to the aggregate principal amount of Debentures then held by such
Holder, plus accrued and unpaid interest thereon, multiplied by 115%. The
Company shall deliver written notice of its election to redeem Debentures
pursuant to this Section 5(k) providing for a redemption date of not less than
five Trading Days after the Conversion Date and not more than ten Trading Days
after the Conversion Date. If the Company fails for any reason to pay the
redemption price, as calculated pursuant to the immediately preceding sentence,
on the redemption date the Company will pay interest on the redemption price at
a rate of 15% per annum, in cash to such Holder, accruing from such seventh day
until the redemption price and any accrued interest thereon is paid in full
(which amount shall be paid as liquidated damages and not as a penalty). The
Holder shall be entitled by written notice to the Company at any time after
receipt of the redemption notice and prior to the redemption date, to rescind
its Conversion Notice, in which event the Company shall immediately return the
Debentures tendered for conversion, whereupon the Company and the Holder shall
each be restored to their respective positions immediately prior to the delivery
of such notice of revocation, except that any amounts described in Sections
5(b)(ii) and (iii) shall be payable through the date notice of rescission is
given to the Company.
6. Events of Default. Each of the following shall constitute an
event of default ("Event of Default"), whatever the reason for such Event of
Default and whether it shall be voluntary or involuntary or be effected
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<PAGE> 9
by operation of law or pursuant to any judgment or order of any court or any
order, rule or regulation of any administrative, governmental or
non-governmental body or otherwise howsoever:
(a) The Company shall default in any payment of principal
of, or interest on, the Debentures or any other amounts due under the
Transaction Documents when and as due (whether at maturity, upon acceleration or
otherwise); or
(b) The Company shall fail duly to perform or observe any
term, covenant or agreement contained in any of the Debentures or in the
Securities Purchase Agreement or in the Registration Rights Agreement or in the
Security Agreement for a period of seven days after the date on which written
notice of such failure shall first have been given to the Company; or
(c) A final judgment shall be entered by any court against
the Company for the payment of money which together with all other outstanding
final judgments against the Company exceeds $10,000 in the aggregate, or (ii) a
warrant of attachment or execution or similar process shall be issued or levied
against any of the Company's property which exceeds in value $10,000 in the
aggregate, and if, within 30 days after the entry, issue or levy thereof, such
judgment, warrant or process shall not have been paid or discharged; or
(d) A court having jurisdiction in the premises shall
enter a decree or order for relief in respect of the Company in an involuntary
case or proceeding under any applicable bankruptcy, insolvency, reorganization
or other similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar official) of
the Company or for any substantial part of the property of it or ordering the
winding-up or liquidation of the affairs of it and such decree or order shall
remain unstayed and in effect for a period of 30 days; or
(e) The Company shall commence a voluntary case or
proceeding under any applicable bankruptcy, insolvency, reorganization or other
similar law now or hereafter in effect, or shall consent to the entry of an
order for relief in an involuntary case under any such law, or shall consent to
the appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator (or similar official) of the Company or for any
substantial part of its property, or shall make any general assignment for the
benefit of creditors, or shall admit in writing its inability to pay its debts
as they become due or shall take any corporate action in furtherance of any of
the foregoing; or
(f) An event of default, as defined in any indenture or
instrument evidencing or under which the Company shall have outstanding
indebtedness for borrowed money in excess of $10,000, inclusive of accrued
interest, accrued premium, if any, or any additional amounts payable, shall
happen and be continuing and such default shall involve the failure to pay the
principal of such indebtedness (or any part thereof), when due and payable after
the expiration of any applicable grace period with respect thereto, or such
indebtedness shall have been accelerated so that the same shall be or become due
and payable prior to the date on which the same would otherwise have become due
and payable, and failure to pay shall not have been cured by the Company within
30 days after such failure or such acceleration shall not be rescinded or
annulled within 30 days after notice thereof shall have first been given to the
Company; provided that if such event of default under such indenture or
instrument shall be remedied or cured by the Company or waived by the holders of
such indebtedness, then the Event of Default hereunder by reason thereof shall
be deemed likewise to have been thereupon remedied, cured or waived without
further action upon the part of any of the holders of Debentures; or
(g) The Common Stock is delisted from, or trading in the
Common Stock shall have been suspended for more than ten Trading Days on, The
Nasdaq Small-Cap Market or such other principal market or exchange on which the
Common Stock is listed for trading; or
(h) The Company fails to timely deliver the shares of
Common Stock to the Holder or a replacement Debenture representing any
unconverted portion of this Debenture pursuant to this Debenture; or
(i) The issuance by the Securities and Exchange Commission
of any stop order suspending the effectiveness of the Registration Statement
covering any or all of the Registrable Securities (as defined in the
Registration Rights Agreement) or the initiation of any proceedings for that
purpose.
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<PAGE> 10
With the exception of an Event of Default specified in clauses (d) or (e) above,
upon the occurrence and continuance of an Event of Default, the Holder may
declare the principal of and interest on the Debentures and all other amounts
owing under the Transaction Documents to be forthwith due and payable by giving
written notice thereof to the Company without presentment, demand, protest or
other notice of any kind, all of which are hereby expressly waived, anything in
the Transaction Documents to the contrary notwithstanding. Upon the occurrence
and continuance of an Event of Default specified in clauses (d) or (e) above,
such principal, interest and other amounts shall thereupon and concurrently
therewith become automatically due and payable all without any action by the
Holder and without presentment, demand, protest or other notice of any kind, all
of which are expressly waived, anything in the Transaction Documents to the
contrary notwithstanding.
Interest on overdue principal and interest (and other amounts, if
any) shall accrue from the date on which such principal and interest (and other
amounts, if any) were due and payable to the date such principal and interest
(and other amounts, if any) are paid or duly provided for, at a rate of 15% per
annum (to the extent payment of such interest shall be legally enforceable).
7. Definitions. For the purposes hereof, the following terms
shall have the following meanings:
"Common Stock" means the common stock, no par value per share, of
the Company and stock of any other class into which such shares may hereafter
have been reclassified or changed.
"Conversion Ratio" means the number of shares of Common Stock
issuable upon conversion of each Debentures determined by the application of the
following formula where "D" equals the accrued and unpaid interest on the
aggregate principal amount of Debentures so converted as of the Conversion Date:
_________Principal Amount to be Converted + D_________
Conversion Price
"Independent Appraiser" means a nationally recognized or major
regional investment banking firm or firm of independent certified public
accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Company) that is regularly engaged in
the business of appraising the capital stock or assets of corporations or other
entities as going concerns, and which is not affiliated with either the Company
or any Holder.
"NASDAQ" means the National Association of Securities Dealers
Automated Quotation System.
"Original Issue Date" shall mean the date of the first issuance
of any Debentures regardless of the number of transfers of any particular
Debentures and regardless of the number of certificates which may be issued to
evidence such Debentures.
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on The Nasdaq
Small-Cap Market, the Nasdaq National Market or other registered national stock
exchange on which the Common Stock is then listed or if there is no such price
on such date, then the closing bid price on such exchange or quotation system on
the date nearest preceding such date, or (b) if the Common Stock is not listed
then on The Nasdaq Small-Cap Market, the Nasdaq National Market or any
registered national stock exchange, the closing bid price for a share of Common
Stock in the over-the-counter market, as reported by NASDAQ or in the National
Quotation Bureau Incorporated or similar organization or agency succeeding to
its functions of reporting prices) at the close of business on such date, or (c)
if the Common Stock is not then reported by the National Quotation Bureau
Incorporated (or similar organization or agency succeeding to its functions of
reporting prices), then the average of the over-the-counter quotes on the
Electronic Bulletin Board of the National Association of Securities Dealers,
Inc. for the relevant conversion period, as determined in good faith by the
holder, or (d) if the Common Stock is not then publicly traded the fair market
value of a share of Common Stock as determined by an Independent Appraiser
selected in good faith by the holders of a majority in interest of the shares of
the Debentures; provided, however, that the Company, after receipt of the
determination by such Independent Appraiser, shall have the right to select an
additional Independent Appraiser, in which case, the fair market value shall be
equal to the average of the determinations by each such Independent Appraiser;
and provided, further that all determinations of the Per Share Market Value
shall be appropriately adjusted for any stock dividends, stock splits or other
similar transactions during such period. The determination of fair market value
by an Independent Appraiser shall be based upon the fair market value of the
Company determined on a going concern basis as between a willing buyer and a
willing seller and taking into account all relevant factors determinative of
value, and shall be final and binding on all parties. In determining the fair
market
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<PAGE> 11
value of any shares of Common Stock, no consideration shall be given to any
restrictions on transfer of the Common Stock imposed by agreement or by federal
or state securities laws, or to the existence or absence of, or any limitations
on, voting rights.
"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or other entity of any kind.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Original Issue Date, by and among the Company and the
original Holders.
"Trading Day" means (a) a day on which the Common Stock is traded
on The Nasdaq Small-Cap Market, the Nasdaq National Market or other registered
national stock exchange on which the Common Stock has been listed, or (b) if the
Common Stock is not listed on The Nasdaq Small-Cap Market, the Nasdaq National
Market or any registered national stock exchange, a day or which the Common
Stock is traded in the over-the-counter market, as reported by the OTC Bulletin
Board, or (c) if the Common Stock is not quoted on the OTC Bulletin Board, a day
on which the Common Stock is quoted in the over-the-counter market as reported
by the National Quotation Bureau Incorporated (or any similar organization or
agency succeeding its functions of reporting prices); provided, however, that in
the event that the Common Stock is not listed or quoted as set forth in (a), (b)
and (c) hereof, then Trading Day shall mean any day except Saturday, Sunday and
any day which shall be a legal holiday or a day on which banking institutions in
the State of New York are authorized or required by law or other government
action to close.
"Underlying Shares" means the number of shares of Common Stock
into which the Debentures are convertible in accordance with the terms hereof
and the Securities Purchase Agreement.
8. Taxes. The Company shall pay any and all taxes attributable to
the issuance and delivery of Common Stock or other securities upon conversion of
the Debentures.
9. No Impairment. The Company shall not by any action including,
without limitation, amending the articles of incorporation or the by-laws of the
Company, or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other action, avoid or
seek to avoid the observance or performance of any of the terms of this
Debenture, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of the Holder hereof against dilution (to the
extent specifically provided herein) or impairment. Without limiting the
generality of the foregoing, the Company will (i) not permit the par value, if
any, of its Common Stock to exceed the then effective Conversion Price, (ii) not
amend or modify any provision of the articles of incorporation or by-laws of the
Company in any manner that would adversely affect in any way the powers,
preferences or relative participating, optional or other special rights of the
Common Stock or which would adversely affect the rights of the Holders of the
Debentures, (iii) take all such action as may be reasonably necessary in order
that the Company may validly and legally issue fully paid and nonassessable
shares of Common Stock, free and clear of any liens, claims, encumbrances and
restrictions (other than as provided herein) upon the exercise of this
Debentures, and (iv) use its best efforts to obtain all such authorizations,
exemptions or consents from any public regulatory body having jurisdiction
thereof as may be reasonably necessary to enable the Company to perform its
obligations under this Debenture.
10. Governing Law. The Debentures shall be governed by and
construed in accordance with the laws of the State of California, without giving
effect to principles of conflicts of law.
11. Countersignature and Registration. This Debenture shall not
become valid or obligatory for any purpose until the Debentures shall have been
duly executed by the Company and such signature attested to by an authorized
Officer thereof.
12. Warranty of the Company. The Company hereby certifies and
warrants that all acts, conditions and things required to be done and performed
and to have happened precedent to the creation and issuance of this Debenture,
and to constitute the same as legal, valid and binding obligations of the
Company enforceable in accordance with their terms, have been done and performed
and have happened in due and strict compliance with all applicable laws.
-11-
<PAGE> 12
13. Descriptive Headings. The descriptive headings appearing
herein are for convenience of reference only and shall not alter, limit or
define the provisions hereof.
IN WITNESS WHEREOF, the Company has caused this Debenture to be
duly executed in its corporate name by the manual or facsimile signature of a
duly authorized signatory, as attested to by another duly authorized signatory
of the Company.
Dated: July 26, 1999
TEAM COMMUNICATIONS GROUP, INC.
By /s/ DREW S. LEVIN
------------------------------------------
Name Drew S. Levin
-------------------------------------
Title CEO
------------------------------------
ATTEST:
By:
----------------------------------
Name:
-----------------------------
Title:
----------------------------
-12-
<PAGE> 13
EXHIBIT 1
CONVERSION NOTICE
Reference is made to the debenture certificate (the "Debenture Certificate") of
Team Communications Group, Inc., a California corporation (the "Company"). In
accordance with and pursuant to the Debenture Certificate, the undersigned
hereby elects to have the Company convert the principal amount of 10%
Convertible Debentures due 1999(the "Debentures"), of the Company, indicated
below into shares of Common Stock, no par value per share (the "Common Stock"),
of the Company, by tendering the certificate(s) representing the Debentures
specified below as of the date specified below.
Date of Conversion:
-----------------------------
Principal amount of Debentures to be converted:
-----------------------------
Certificate no(s). of Debentures to be converted:
-----------------------------
Please confirm the following information:
Conversion Price:
-----------------------------
Please issue the Common Stock and, if applicable, any check drawn on an account
of the Company into which the Debentures are being converted in the following
name and to the following address:
Issue:
-----------------------------
-----------------------------
-----------------------------
-----------------------------
Facsimile Number:
-----------------------------
Authorization: By
--------------------------
Title
--------------------
Dated:
--------------------
-13-
<PAGE> 1
EXHIBIT 4.30
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of July 26, 1999 , made by Team
Communications Group, Inc., a California corporation ("Company" or "Debtor"), in
favor of VMR Luxembourg, S.A., Chateau Woltz, 34 Rue Neuve, Remich, L5560
Luxembourg ("VMR" or "Secured Party").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Securities Purchase Agreement,
dated as of the date hereof, as well as the related Convertible Note and
Registration Rights Agreement(as the same may from time to time be amended,
modified or supplemented) (collectively the "Financing Agreement"), Secured
Party has agreed to advance to the Company certain funds in respect of its
development and production activities, and to make available certain overhead
sums (collectively, such sums are referred to herein as the "Advances"); and
WHEREAS, VMR is willing to make the Advances but only upon the
condition, among others, that Company shall have executed and delivered to VMR,
for its benefit, this Security Agreement.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants herein contained and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Defined Terms. Unless otherwise defined herein, terms defined
in the note are used herein as therein defined, and the following terms shall
have the following meanings (such meanings being equally applicable to both the
singular and plural forms of the terms defined):
"Affiliated Person" shall mean any Person which directly or indirectly
controls, is controlled by or is under common control with Company. For the
purposes of this definition, "control" (including with corresponding meanings,
the terms "controlled by" and "under common control with"), as applied to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of that Person, whether
through the ownership of voting securities, by contract or otherwise.
"Collateral" shall have the meaning assigned to such term in Section 2
of this Security Agreement.
"Collateral Documents" shall mean all present and future notes
(including, without limitation, the notes), security agreements, mortgages,
deeds of trust, assignments, pledge agreements, financial agreements, consents
and other documents granting liens or other security interests to Debtor and/or
the Secured Party pursuant to this Security Agreement including, without
limitation, Copyright Mortgages, financing statements, mortgages, subordination
agreements, Laboratory Pledgeholder Agreements, consents and/or waivers to be
delivered pursuant to the various Sections of Article V.
<PAGE> 2
"Copyrights" shall mean all of Debtor's now owned or hereafter acquired
copyrights, copyright applications, copyright registrations and copyrightable
works and all renewals thereof and income, royalties, damages and payments
payable under or with respect thereto; together with any agreement granting any
right to use any copyright, copyright application, copyright registration or
copyrightable work.
"Copyright Mortgages" shall mean the instruments of transfer pursuant to
which the Debtor (to the extent that Debtor is a copyright proprietor or owns
any rights under copyright) grants to Secured Party a copyright mortgage and/or
security interest in its interest in the United States, Canadian and/or
worldwide copyrights (including, but not limited to, the video cassette
distribution rights) to any Film Asset, substantially in the form of Exhibit A
attached hereto
"Equipment" shall have the meaning set forth in Section 2(a) hereof.
"Event of Default" shall have the meaning set forth in Section 7.
"Film" shall mean any and every existing motion picture, television
series or television episode, or development project or other recording (or
proposed recording) of moving images by any means, manner, process or device now
known or hereafter devised.
"Film Assets" shall mean all rights and interests granted to/acquired or
retained by Debtor in connection with or related to the distribution or
exploitation of, or otherwise respecting, any Film, owned by Debtor to be
designated pursuant to the Financing Agreement, but excluding all rights and
interests in connection with or related to the distribution or exploitation of,
or otherwise respecting any such Film outside of the Licensed Territory (as such
term is defined in the Financing Agreement), including, but not limited to: any
distribution rights, license rights, and rights as a sub-distributor or
sub-licensee; all rights to distribute, sub-license, copy, exhibit, transmit,
broadcast, package, edit, reformat, advertise or exploit a Film, in any and all
media, and any syndication, television or cable television rights; all of
Debtor's copyrights or interests in any copyright on or relating to such Film;
and any of Debtor's collateral, allied, subsidiary or merchandising rights
appurtenant or related to any Film, including but not limited to the following
specific rights:
(a) all scenarios, screenplays and/or scripts at every stage of
the development of the Films;
(b) all common law and statutory copyright and other rights in
all literary and other properties ("Literary Properties") that form the basis of
the Films or which are or will be incorporated into the Films, all component
parts of the same Films consisting of the Literary Properties and other
properties, all motion picture rights in and to the story, all treatments of
said story and other literary material, together with all preliminary and final
screenplays used and to be used in connection with the Films, and all other
literary material upon which the Films are based or from which it is adapted;
(c) all motion picture rights in and to all music and musical
compositions connected with the Films, including, without limitation, all rights
to record, re-record, produce,
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<PAGE> 3
reproduce, or synchronize all of said music and musical compositions in and in
connection with motion pictures;
(d) all exposed and/or delivered negative film, sound tracks,
positive prints, cutouts and trims connected with the Films, whether or not in
completed form or in some state of completion;
(e) all collateral, allied, subsidiary and merchandising rights
appurtenant or related to the Films now or hereafter owned or controlled by
Debtor, including, without limitation, the following rights: Literary
Properties, or the text or any part of the Literary Properties; all rights
throughout the world to broadcast, transmit and/or reproduce by means of
television (including, without limitation, free, commercially sponsored,
sustaining, subscription, cable and pay television) or by any process analogous
thereto, now known or hereafter devised, the Films; all rights to produce
primarily for television or similar use, by use of film or any other medium now
known or hereafter devised, a motion picture or series of motion pictures based
upon the Films, the Literary Properties, or any part thereof, including, without
limitation, any script, scenario or the like used in the Films; all
merchandising rights including, without limitation, all rights to use, exploit,
and license others to use and exploit any commercial tie-ups of any kind arising
out of or connected with the Literary Properties, the Films, the title or titles
of the Films, the characters of the Films or the Literary Properties, or the
names or characteristics of such characters and including further, without
limitation, any commercial exploitation in connection with or related to the
Films or the Literary Properties;
(f) all statutory copyrights, domestic and foreign, obtained or
to be obtained on the Films, together with any and all copyrights obtained or to
be obtained in connection with the Films or any underlying or component elements
of the Films, including, without limitation, all copyrights on the property
described in subparagraphs (a) through (e) of this definition, together with the
right to register for copyright, and all rights to renew or extend such
registration and the right to sue in the name of Debtor or in Secured Party's
name for past, present, or future infringements of copyrights;
(g) all insurance policies connected with the Films and all
proceeds which may be derived therefrom;
(h) all right to, and otherwise exploit and turn to account the
Films, the negatives, sound tracks, prints, and motion picture rights in and to
the Literary Properties, other literary material upon which the Films are based
or from which they are adapted, and such music and musical compositions used or
to be used in the Films;
(i) any and all sums, proceeds, money, products, profits, or
increases, and money profits or increases (as those terms are used in the
Uniform Commercial Code or otherwise) or other property obtained or to be
obtained from the distribution, exhibition, sale, or other uses or dispositions
of the Films or any part of the Films, including, without limitation, all
proceeds, profits, products, and increases, whether in money or otherwise, from
the sale, rental, or licensing of the Films and/or any of the elements of the
Films, including collateral, allied, subsidiary, and merchandising rights;
3
<PAGE> 4
(j) the dramatic, non-dramatic, stage, television, radio, and
publishing rights, title and interests in and to the Films, to the extent owned
by Debtor, and the rights to register for copyrights and renewals of same
therein;
(k) the title of the Films to the extent of Debtor's right to use
thereof, including, without limitation, rights protected pursuant to any
trademark, service mark, or unfair competition law, and/or the rules and
principles of law related to any other applicable statute, common law decision,
or other rule or principle of law;
(l) all of Debtor's rights which grant to any person any right to
acquire, produce, develop, reacquire, finance, release, sell, distribute, lease,
sublease, market, license, sublicense, exhibit, broadcast, transmit, reproduce,
publicize or otherwise exploit the Films or any rights in the Films including,
without limitation, all such rights pursuant to the any distribution agreement
or license agreement;
(m) with respect to the Films, all accounts and/or other rights
to payment which Debtor presently owns or which may arise in favor of Debtor in
the future, including, without limitation, any refund under a completion
guarantee, all accounts and/or rights to payment due from exhibitors in
connection with the distribution of the Films, and all accounts and/or rights to
payment arising from exploitation of any and all of the collateral, allied,
subsidiary, merchandising, and other rights in connection with the Films;
(n) any and all "general intangibles" (as that term is defined in
the Uniform Commercial Code) of Debtor in connection with the Films not
elsewhere included in this definition, including, without limitation, any and
all general intangibles consisting of any right to payment which may arise in
the distribution or exploitation of any of the rights set out herein, and any
and all general intangible rights in favor of Debtor or Secured Party in
connection with the Films for services or other performances by any third
parties, including actors, writers, directors, individual producers, and/or any
and all other performing or non-performing parties or artists in any way
connected with the Films, any and all general intangible rights in favor of
Debtor or Secured Party relating to licenses of sound or other equipment in
connection with the Films, and licenses for photographic or other processes, and
any and all general intangibles related to the exhibition, distribution or
exploitation of the Films including general intangibles related to or which grow
out of the exhibition of the Films and the exploitation of any and all other
rights in the Films set out in this definition;
(o) any and all goods including inventory (as that term is
defined in the Uniform Commercial Code) which may arise in connection with the
creation, production, or delivery of the Films and which goods, pursuant to any
production or distribution agreement or otherwise, are owned by Debtor;
(p) each and all of the rights, regardless of denomination, which
arise in connection with the creation, production, completion of production,
delivery, distribution, or other exploitation of the Films, including, without
limitation, any and all rights in favor of Debtor and/or Secured Party, the
ownership or control of which are or may become necessary or desirable, in the
opinion of Secured Party, in order to complete production of the Films in the
event that Secured
4
<PAGE> 5
Party exercises any rights it may have to take over and complete production of
the Films (which shall be subject to the rights to take over and complete
production of the Films as Debtor may grant to other parties);
(q) any and all documents issued by any pledgeholder or bailee
with respect to the Films or with respect to any negatives, sound tracks or
prints (whether or not in completed form) connected therewith; and
(r) any and all rights of Debtor under contracts relating to the
production of the Films, including but not limited to all contracts which have
been delivered to Secured Party pursuant to this Security Agreement.
"General Intangibles" shall have the meaning set forth in Section
2(a)(viii).
"hereby," "herein," "hereof," "hereunder" and words of similar import
refer to this Security Agreement as a whole and not merely to the specific
section, paragraph or clause in which the respective word appears.
"Permitted Liens" shall mean each of the following:
(i) Liens for taxes, assessments or governmental charges or
claims the payment of which is not at the time required;
(ii) Statutory liens of landlords and liens of carriers,
warehousemen, mechanics, materialmen, film laboratories, sound studios and other
liens imposed by law incurred in the ordinary course of business for sums not
yet delinquent or being contested in good faith;
(iii) Liens (other than any lien imposed by ERISA) incurred or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security, or to
secure the performance of tenders, statutory obligations, surety and appeal
bonds, bids, leases, government contracts, performance and return-of-money bonds
and other similar obligations (exclusive of obligations for the payment of
borrowed money);
(iv) Any attachment or judgment Lien, unless the judgment it
secures shall, within 45 days after the entry thereof, have been discharged or
execution thereof stayed pending appeal, or shall have been discharged within 45
days after the expiration of any such stay;
(v) Leases or subleases granted to others not interfering with
the ordinary conduct of the business of Company; and
(vi) Easements, rights-of-way, restrictions and other similar
charges or encumbrances not interfering with the ordinary conduct of the
business of Company.
5
<PAGE> 6
"Person" shall mean any entity, corporation, company, association,
partnership, joint venture, joint stock company, unincorporated organization,
trust, individual (including personal representatives, executors and heirs of a
deceased individual), nation, state, government (including governmental
agencies, departments, bureaus, boards, divisions and instrumentalities
thereof), trustee, receiver or liquidator.
"Proceeds" shall mean "proceeds," as such term is defined in section
9-306(1) of the UCC and, in any event, shall include, without limitation, (i)
any and all proceeds of any insurance, indemnity, warranty or guaranty payable
to Company from time to time with respect to any of the Collateral, (ii) any and
all payments (in any form whatsoever) made or due and payable to Company from
time to time in connection with any requisition, confiscation, condemnation,
seizure or forfeiture of all or any part of the Collateral by any governmental
body, authority, bureau or agency (or any person acting under color of
governmental authority), (iii) any claim of Company against third parties (A)
for past, present or future infringement of any Patent or Patent License in
connection with the Collateral, or (B) for past, present or future infringement
or dilution of any Trademark or Trademark License in connection with the
Collateral, or for injury to the goodwill associated with any Trademark,
Trademark registration or Trademark licensed under any Trademark License in
connection with the Collateral, and (iv) any and all other amounts from time to
time paid or payable under or in connection with any of the Collateral.
"Secured Obligations" shall mean all of the unpaid principal amount of,
and accrued interest on, amounts owing by Company to VMR under the Financing
Agreement or this Security Agreement.
"Security Agreement" shall mean this Security Agreement, as the same may
from time to time be amended, modified or supplemented and shall refer to this
Security Agreement as in effect as of the date such reference becomes operative.
"Trademarks" shall mean all of the following now owned or hereafter
acquired by Company: (i) all trademarks, trade names, corporate names, business
names, trade styles, service marks, logos, other source or business identifiers,
prints and labels on which any of the foregoing have appeared or appear, designs
and general intangibles of like nature, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all applications in
connection therewith, including, without limitation, registrations, recordings
and applications in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any State thereof or any other
country or any political subdivision thereof, and (ii) all reissues, extensions
or renewals thereof.
"UCC" shall mean the Uniform Commercial Code as the same may, from time
to time, be in effect in the State of California; provided, however, in the
event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of VMR's security interest in any Collateral
is governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of California, the term "UCC" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such attachment, perfection or priority and for purposes of
definitions related to such provisions.
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<PAGE> 7
2. Grant of Security Interest. As collateral security for the
prompt and complete payment and performance when due (whether at stated
maturity, by acceleration or otherwise) of all the Secured Obligations and to
induce VMR to enter into the Financing Agreement and to make the Advances (as
that term is defined in the Financing Agreement) in accordance with the terms
thereof, to the extent necessary to enable VMR to exercise its rights under the
Financing Agreement, Company hereby assigns, conveys, mortgages, pledges,
hypothecates and transfers to VMR, for its benefit, and hereby grants to VMR,
for its benefit, a security interest in, all of Company's right, title and
interest in, to and under the following (all of which being hereinafter
collectively called the "Collateral"):
(a) shall mean all of the assets and property of every kind of
the Debtor, including all assets and property now owned and hereafter acquired
by the Debtor, whether tangible or intangible, wherever located or situated,
whether or not in possession of the Debtor, including but not limited to: all of
the Debtor's right, title and interest in and to every Film Asset now owned or
hereafter acquired, and all other assets and property whether now owned or
hereafter at any time acquired relating to any Film or any Film Assets,
including, but not limited to, all goods, accounts, contract rights, general
intangibles, equipment, ancillary rights, Copyrights, Physical Properties, and
the products thereof, proceeds thereon or income therefrom; all common or
preferred stock certificates, bonds or securities of every kind and nature
whatsoever owned by Debtor; all properties, rights and things of value
pertaining to any and all of the foregoing, and all products and proceeds of and
replacements for any and all of the foregoing, whether now in existence or
hereafter existing, made, acquired or produced; and further including, without
limitation, each and all of the following particular rights, assets and
properties of the Debtor:
(i) All machinery, electrical and electronic components,
equipment, fixtures, furniture, office machinery, vehicles,
trailers, implements and other tangible personal property of
every kind and description now owned or hereafter acquired by
Debtor (including without limitation, all video recording,
transposition, duplication, viewing and other electronic
equipment used in the Debtor's business, all cameras and other
photographic, sound recording and editing equipment, projectors,
film developing equipment and machinery), and all goods of like
kind or type hereafter acquired by Debtor in substitution or
replacement thereof, and all additions and accessions thereto
(collectively hereinafter referred to as the "Equipment"), and
all rents, proceeds and products on or of the Equipment,
including without limitation, the rights to insurance proceeds
covering the Equipment;
(ii) The following personal property, whether now owned or
hereafter acquired: all inventions, processes, formulae,
licenses, patents, patent rights, trademarks, trademark rights,
service marks, service mark rights, trade names, trade name
rights, logos, indicia, corporate and company names, business
source or business identifiers and renewals and extensions
thereof, domestic and foreign, whether now owned or hereafter
used, acquired or developed, and the accompanying good will and
other like business property rights relating to any aspect of the
Debtor's business, and the right (but not the obligation) to
register claim under trademark or
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<PAGE> 8
patent and to renew and extend such trademarks or patents and the
right (but not the obligation) to sue in the names of the Debtor
(or any of them) and/or in the name(s) of the Secured Party for
past, present or future infringement of trademark or patent (the
foregoing being referred to as "Intellectual Property");
(iii) All inventory of the Debtor, including, without
limitation all merchandise, raw materials, components, parts,
supplies, work-in-process, finished products intended for sale,
lease or other disposition, and packing and shipping materials of
every kind, nature and description, wherever any of the same may
be located and whether now owned or hereafter developed,
manufactured or acquired by the Debtor;
(iv) All deposits, cash and cash equivalents of the
Debtor, and all drafts, checks, certificates of deposit, notes,
bills of exchange and other writings which evidence a right to
the payment of money;
(v) All leasehold interests and other rights and interests
of the Debtor respecting the use or ownership of, or title to any
real property, including fee interests, easements, licenses, all
other rights and interests of any kind;
(vi) All Film Assets, all of the Debtor's right title and
interest in and to Physical Properties and all contract rights
relating to any Film Assets, any and all sums, proceeds, money,
products, profits or increases, including money profits or
increases (as those terms are used in the Uniform Commercial Code
or otherwise) or other property obtained or to be obtained from
the exploitation of any Film Assets, rights and interests in and
to Physical Properties, and any other collateral, allied,
subsidiary and merchandising rights relating to any Film; and any
and all documents and the rights of the Debtor's thereunder
issued by any pledgeholder or bailee with respect to any Physical
Properties;
(vii) All insurance policies on which the Debtor is named
as an insured or additional insured or loss payee and all
proceeds which may be derived therefrom;
(viii) All contracts and accounts and/or other rights to
payment which the Debtor presently owns or which may arise in
favor of the Debtor in the future, including, without limitation,
any refund of the fees, advances or royalties paid or prepaid,
all accounts and/or rights to payment due from third parties in
connection with the distribution of videocassette and from
exploitation of any and all of the Film Assets, including but not
limited to all contracts and accounts; and
(ix) Any and all "General Intangibles" (as that term is
defined in the applicable Uniform Commercial Codes) not elsewhere
included in this definition, including, without limitation, any
and all general intangibles consisting of any right to payment of
the Debtor which may arise in the distribution or exploitation of
any of the rights set out herein, and any and all general
intangible rights in favor of the
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<PAGE> 9
Debtor or the Secured Party for services or other performances
by any third parties. all of Company's right, title, and
interest in and to the Film Assets and further including but not
limited to related goods, accounts, contract rights, general
intangibles, equipment, copyrights, trademarks, and any proceeds
thereof or income therefrom. The foregoing shall include, to the
extent they are owned by Company (it being understood that this
definition does not constitute a representation that each and
all the various rights listed are owned by Company), without
limitation, the scenario, screenplay or script upon which the
Films are based, all of the properties thereof, tangible and
intangible, whether now in existence or hereafter to be made or
produced and whether or not in possession of Company, and any
rights therein and thereto, of every kind and character,
including, without limiting the foregoing language, each and all
of the following particular rights and properties:
(b) To the extent granted under the Financing Agreement, the
following personal property, whether now owned or hereafter acquired,: (i) all
of Company's rights in and to the title of the Film Assets and the exclusive use
thereof including, without limitation, any and all rights protected pursuant to
trademark, service mark, unfair competition and/or other laws, rules or
principles of law or equity and (ii) all inventions, processes, formulae,
licenses, patents, patent rights, trademarks, trademark rights, service marks,
service mark rights, trade names, trade name rights, logos, indicia, corporate
and company names, business source or business identifiers and renewals and
extensions thereof, domestic and foreign, relating to the Film Assets, whether
now owned or hereafter acquired, and the accompanying good will and other like
business property rights, and the right (but not the obligation) to register
claim under trademark or patent and to renew and extend such trademarks or
patents and the right, but not the obligation, to sue in the name(s) of Company
or the Secured Party or both for past, present or future infringement of
trademark or patent; and
(c) To the extent granted under the Financing Agreement, all cash
and cash equivalents of Company derived from or relating to the Film Assets and
all drafts, checks, certificates of deposit, bills of exchange and other
writings relating to the Film Assets which evidence a right to the payment of
money and are not themselves security agreements or leases and are of a type
which is in the ordinary course of business transferred by delivery with any
necessary endorsement or assignment whether now owned or hereafter acquired.
3. Representations and Warranties
The Company hereby represents and warrants that:
(a) Except for the security interest granted to VMR pursuant to
this Security Agreement and other Permitted Liens, Company is the owner of
the Collateral in which it purports to grant a security interest
hereunder, having good and marketable title thereto, free and clear of any
and all Liens.
(b) No effective security agreement, financing statement,
equivalent security or lien instrument or continuation statement covering
all or any part of the Collateral is on file
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<PAGE> 10
or of record in any public office, except such as may have been filed by
Company in favor of VMR, pursuant to this Security Agreement or such as
relate to other Permitted Liens.
(c) Provided that appropriate financing statements are properly
filed in all jurisdictions in which the Collateral is located, this
Security Agreement is effective to create a valid and continuing first
priority lien on and first priority perfected security interest in the
Collateral with respect to which a security interest may be perfected by
filing pursuant to the UCC in favor of VMR, prior to all other Liens
except Permitted Liens, and is enforceable as such as against creditors of
and purchasers from Company. All action necessary or desirable to protect
and perfect such security interest in each item of the Collateral has been
duly taken.
(d) Company's principal place of business and the place where its
records concerning the Collateral are kept is located at the address of
Company set forth in Section 11 below, and Company will not change such
principal place of business or remove such records without notifying VMR
in advance, by prior written notice.
4. Covenants. Company covenants and agrees with VMR that from and
after the date of this Security Agreement and until the Secured Obligations are
fully satisfied:
(a) Financing Statements and Further Documentation. Company
will join with VMR in the execution and filing of such financing
statement or statements in the form and content reasonably
required by VMR. VMR will advance (and recoup as distribution
expenses) all costs of filing any financing, continuation or
termination statements with respect to the security interest
created by this Agreement, together with costs and expenses of any
lien search reasonably required by VMR, during the term hereof. At
any time and from time to time, upon the written request of VMR,
Company will promptly and duly execute and deliver any and all
such further instruments and documents and take such further
action as VMR may reasonably deem desirable to obtain the full
benefits of this Security Agreement and of the rights and powers
herein granted, including, without limitation, using its
reasonable best efforts to secure all consents and approvals
necessary or appropriate for the assignment to VMR, of any License
or Contract held by Company or in which Company has any rights not
heretofore assigned, and the filing of any financing or
continuation statements under the UCC with respect to the liens
and security interests granted hereby. Company also hereby
authorizes VMR to file any such financing or continuation
statement without the signature of Company to the extent permitted
by applicable law.
(b) Maintenance of Records. Company will keep and maintain
at its own cost and expense satisfactory and complete records of
the Collateral, including, without limitation, a record of all
payments received and all credits granted with respect to the
Collateral and all other dealings with the Collateral. Prior to
the occurrence of an Event of Default and upon reasonable notice
from VMR, Company shall permit any representative of VMR to
inspect such books and records during
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<PAGE> 11
normal business hours and will provide photocopies thereof to VMR
at VMR's expense.
(c) Indemnification. In any suit, proceeding or action
brought by VMR relating to the Collateral, Company will save,
indemnify and keep VMR harmless from and against all expense, loss
or damage suffered by reason of any defense, set off, counterclaim,
recoupment or reduction of liability whatsoever of the obligor with
respect thereto, arising out of a breach by Company of any material
obligation with respect thereto, and all such obligations of
Company shall be and remain enforceable against and only against
Company and shall not be enforceable against VMR.
(d) Compliance with Laws, etc. Company will comply, in all
material respects, with all acts, rules, regulations, orders,
decrees and directions of any governmental authority, applicable to
the Collateral or any part thereof or to the operation of Company's
business; provided, however, that Company may contest any act,
regulation, order, decree or direction in any reasonable manner
which shall not in the reasonable opinion of VMR, adversely affect
VMR's rights hereunder or adversely affect the first priority of
its security interest in the Collateral.
(e) Payment of Obligations. Company will pay promptly when
due all charges imposed upon the Collateral or in respect of its
income or profits therefrom and all claims of any kind (including,
without limitation, claims for labor, material and supplies) except
as otherwise provided in the Financing Agreement.
(f) Compliance with Terms of Accounts, etc. In all material
respects, Company will perform and comply with all obligations in
respect of Accounts Receivable, Chattel Paper, Contracts and
Licenses and all other agreements to which it is a party or by
which it is bound.
(g) Limitation on Liens on Collateral. Company will not
create, permit or suffer to exist, and will defend the Collateral
against and take such other action as is necessary to remove, any
Lien on the Collateral except Permitted Liens.
(h) Limitations on Disposition. Company will not sell,
lease, transfer or otherwise dispose of any of the Collateral, or
attempt or contract to do so except in the ordinary course of
business.
(i) Continuous Perfection. Consistent with the terms of the
Financing Agreement, Company will not change its name, identity or
corporate structure in any manner which might make any financing or
continuation statement filed in connection herewith seriously
misleading within the meaning of section 9-402(7) of the UCC (or
any other then applicable provision of the UCC) unless Company
shall have given VMR at least thirty (30) days' prior written
notice thereof and shall have taken all action (or made
arrangements to take such action substantially simultaneously with
such change if it is impossible to take such action in advance)
necessary or reasonably
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<PAGE> 12
requested by VMR to amend such financing statement or continuation
statement so that it is not seriously misleading.
5. VMR's Appointment as Attorney-in-Fact.
(a) Subject to Paragraph (b) below, Company hereby irrevocably
constitutes and appoints VMR and any officer or agent thereof, with full
power of substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of Company and in
the name of Company or in its own name, from time to time in VMR's
discretion, for the purpose of carrying out the terms of this Security
Agreement, to take any and all appropriate action and to execute and
deliver any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of this Security Agreement and,
without limiting the generality of the foregoing, hereby gives VMR the
power and right, upon the occurrence of an Event of Default not otherwise
cured, on behalf of Company, without notice to or assent by Company to do
the following:
(i) to ask, demand, collect, receive and give acquittances
and receipts for any and all moneys due and to become due with
respect to the Collateral and, in the name of Company or its own
name or otherwise, to take possession of and endorse and collect
any checks, drafts, acceptances or other instruments for the
payment of moneys due with respect to the Collateral and to file
any claim or to take any other action or proceeding in any court of
law or equity or otherwise deemed reasonably appropriate by VMR for
the purpose of collecting any and all such moneys due under any
Collateral whenever payable and to file any claim or to take any
other action or proceeding in any court of law or equity or
otherwise deemed reasonably appropriate by VMR for the purpose of
collecting any and all such moneys due under any Collateral
whenever payable;
(ii) to pay or discharge taxes, liens, security interests
or other encumbrances levied or placed on or threatened against
the Collateral, to effect any insurance called for by the terms of
this Security Agreement and to pay all or any part of the premiums
therefor and the costs thereof; and
(iii)(A) to direct any party liable for any payment under
any of the Collateral to make payment of any and all moneys due,
and to become due thereunder, directly to VMR or as VMR shall
direct (but only to the extent of sums due to VMR from Company);
(B) to receive payment of and receipt for any and all moneys,
claims and other amounts due, and to become due at any time, in
respect of or arising out of any Collateral; (C) to sign and
indorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors,
assignments, verifications and notices in connection with accounts
and other Documents constituting or relating to the Collateral;
(D) to commence and prosecute any suits, actions or proceedings at
law or in equity in any court of competent jurisdiction to collect
the Collateral or any part thereof and to enforce any other right
in respect of any Collateral; (E) to defend any suit, action or
proceeding brought against Company with respect to any Collateral;
(F)
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<PAGE> 13
to settle, compromise or adjust any suit, action or proceeding
described above and, in connection therewith, to give such
discharges or releases as VMR may deem reasonably appropriate; (G)
subject to the Financing Agreement, to license or, to the extent
permitted by an applicable license, sublicense, whether general,
special or otherwise, and whether on an exclusive or non-exclusive
basis, any Patent or Trademark pertaining to the Collateral, on
such conditions, and in such manner, as VMR shall in its
discretion determine; and (H) generally to sell, transfer, pledge,
make any agreement with respect to or otherwise deal with any of
the Collateral as fully and completely as though VMR were the
absolute owner thereof for all purposes, and to do, at VMR's
option and Company's expense, at any time, or from time to time,
all acts and things which VMR reasonably deems necessary to
protect, preserve or realize upon the Collateral and VMR's Lien
therein, in order to effect the intent of this Security Agreement,
all as fully and effectively as Company might do.
(b) VMR agrees that, except upon the occurrence and during the
continuation of an Event of Default which is not otherwise cured, it will
not exercise the power of attorney or any rights granted to VMR pursuant
to this Section 5. Subject to the foregoing sentence, Company hereby
ratifies, to the extent permitted by law, all that said attorneys shall
lawfully do or cause to be done by virtue hereof. The power of attorney
granted pursuant to this Section 5 is a power coupled with an interest and
shall be irrevocable until the Secured Obligations are indefeasibly paid
in full.
(c) The powers conferred on VMR hereunder are solely to protect
VMR's interests in the Collateral and shall not impose any duty upon it to
exercise any such powers. VMR shall be accountable only for amounts that
it actually receives as a result of the exercise of such powers and
neither it nor any of its officers, directors, employees or agents shall
be responsible to Company for any act or failure to act, except for its
own gross negligence or willful misconduct.
(d) Company also authorizes VMR, at any time and from time to time
upon the occurrence and during the continuation of any Event of Default
which is not cured, to communicate in its own name with any party to any
contract relating to the Collateral with regard to the assignment of the
right, title and interest of Company in and under any such contract
hereunder and other matters relating thereto.
6. Performance by VMR of Company's Obligation. If Company fails to
materially perform or comply with any of its agreements contained herein (and
fails to so cure after notice thereof) and VMR, as provided for by the terms of
this Security Agreement, shall itself perform or comply, or otherwise cause
performance or compliance, with such agreement, the reasonable expenses of VMR
incurred in connection with such performance or compliance, together with
interest thereon at the rate then in effect in respect of the Advances, shall be
payable by Company to VMR on demand and shall constitute Secured Obligations
secured hereby.
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<PAGE> 14
7. Events of Default. Except as otherwise expressly provided under the
Financing Agreement or this Security Agreement, as the case may be, the
following conditions or events shall constitute an Event of Default:
(a) The rejection, termination or disaffirmance or the attempted
rejection, termination or disaffirmance by Company (or any person or
entity acting on Company's behalf or in Company's place and stead) of the
Financing Agreement or this Security Agreement; or
(b) Any representation or warranty which materially adversely
affects the rights of VMR in connection with this Security Agreement or
the Financing Agreement shall be false in any material respect on the date
as of which made; or
(c) Company shall fail, breach or default in the performance of any
of the Secured Obligations which failure, breach or default materially
adversely affects VMR's rights therein (subject to any additional express
cure rights provided for in the Financing Agreement); or
(d) (i) A court having jurisdiction in the premises shall enter a
decree or order for relief in respect of Company in an involuntary
case under any applicable bankruptcy, insolvency or any other
similar law now or hereafter in effect, which decree or order is
not stayed; or any other similar relief shall be granted under any
applicable federal or state law; or
(ii) An involuntary case shall be commenced against Company
under any applicable bankruptcy, insolvency or similar law now or
hereafter in effect; or a decree or order of any court having
jurisdiction in the premises for the appointment of a receiver,
liquidator, sequestrator, trustee, custodian or other officer
having similar powers over Company or over all or over a
substantial part of its property, shall have been entered; or there
shall have been an involuntary appointment of an interim receiver,
trustee or other custodian of Company for all or a substantial part
of its property; or there shall have been issued a warrant of
attachment, execution or similar process against any substantial
part of the property of Company and any such event in this clause
(ii) shall have continued for thirty (30) days unless dismissed,
bonded or discharged; or
(e) Company shall have an order for relief entered with respect to
it or commence a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or shall
consent to the entry of an order for relief in an involuntary case, or to
the conversion of an involuntary case to a voluntary case, under any such
law, or shall consent to the appointment of or taking possession by a
receiver or other custodian for all or a substantial part of its property;
or Company shall make any assignment for the benefit of creditors; or
Company shall fail or be unable or shall admit in writing its inability to
pay its debts as such debts become due; or the Board of Directors of
Company (or any committee thereof) shall adopt any resolution or
otherwise authorize any action to approve any of the foregoing; or
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<PAGE> 15
(f) Company shall be dissolved or shall file a petition for
dissolution, unless Company's successor executes and delivers to VMR a
security agreement substantially similar in all respects to this Security
Agreement.
8. Remedies, Rights Upon Default.
(a) If any Event of Default shall occur and be continuing and not
otherwise timely cured, VMR may exercise in addition to all other rights
and remedies granted to it in this Security Agreement and in any other
instrument or agreement securing, evidencing or relating to the Secured
Obligations, all rights and remedies of a secured party under the UCC.
Without limiting the generality of the foregoing, Company expressly agrees
that in any such event VMR, without demand of performance or other demand,
advertisement or notice of any kind (except the notice specified below of
time and place of public or private sale) to or upon Company or any other
person (all and each of which demands, advertisements and/or notices are
hereby expressly waived to the maximum extent permitted by the UCC and
other applicable law), may forthwith collect, receive, appropriate and
realize upon the Collateral, or any part thereof, and/or may forthwith
sell, lease, assign, give an option or options to purchase, or sell or
otherwise dispose of and deliver said Collateral (or contract to do so),
or any part thereof, in one or more parcels at public or private sale or
sales, at any exchange or broker's board or at any of VMR's offices or
elsewhere at such prices as it may deem best, for cash or on credit or for
future delivery without assumption of any credit risk. VMR shall have the
right upon any such public sale or sales, and, to the extent permitted by
law, upon any such private sale or sales, to purchase the whole or any
part of said Collateral so sold, free of any right or equity of
redemption, which equity of redemption Company hereby releases. Company
further agrees, at VMR's request, to assemble the Collateral and make it
available to VMR at places which VMR shall reasonably select, whether at
Company's premises or elsewhere. VMR shall apply the net proceeds of any
such collection, recovery, receipt, appropriation, realization or sale, as
provided in Section 8(d) hereof, Company remaining liable, as expressly
provided in the Financing Agreement only, for any deficiency remaining
unpaid after such application, and only after so paying over such net
proceeds and after the payment by VMR of any other amount required by any
provision of law, including Section 9-504(1)(c) of the UCC, need VMR
account for the surplus, if any, to Company. To the maximum extent
permitted by applicable law, Company waives all claims, damages, and
demands against VMR arising out of the repossession, retention or sale of
the Collateral except such as arise out of the gross negligence or wilful
misconduct of VMR. Company agrees that VMR need not give more than ten
(10) days' notice (which notification shall be deemed given when mailed or
delivered on an overnight basis, postage prepaid, addressed to Company at
its address referred to in Section 12 hereof) of the time and place of any
public sale or of the time after which a private sale may take place and
that such notice is reasonable notification of such matters. Company shall
remain liable, as expressly provided in the Financing Agreement only, for
any deficiency if the proceeds of any sale or disposition of the
Collateral are insufficient to pay all amounts to which VMR is entitled,
Company also being liable, as expressly provided in the Financing
Agreement only, for the reasonable fees of any attorneys employed by VMR
to collect such deficiency.
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<PAGE> 16
(b) Company also agrees to pay all costs of VMR, including, without
limitation, reasonable attorneys' fees, incurred in connection with the
enforcement of any of its rights and remedies hereunder to the extent VMR
is adjudicated to be entitled to such enforcement.
(c) Company hereby waives presentment, demand, protest or any
notice (to the maximum extent permitted by applicable law) of any kind in
connection with this Security Agreement or any Collateral.
(d) The Proceeds of any sale, disposition or other realization upon
all or any part of the Collateral shall be distributed by VMR in the
following order of priorities:
first, to VMR in an amount sufficient to pay in full the
reasonable expenses of VMR in connection with such sale,
disposition or other realization, including all expenses,
liabilities and advances incurred or made by VMR in connection
therewith, including, without limitation, reasonable attorney's
fees;
second, to VMR in an amount equal to the then unpaid
principal of and accrued interest and prepayment premiums, if any,
expressly due pursuant to the Financing Agreement; and
finally, upon payment in full of all of the obligations
outstanding and expressly due pursuant to the Financing Agreement,
to pay to Company, or its representatives or as a court of
competent jurisdiction may direct, any surplus then remaining from
such Proceeds.
9. Limitation on VMR's Duty in Respect of Collateral. VMR shall use
reasonable care with respect to the Collateral in its possession or under its
control. VMR shall not have any other duty as to any Collateral in its
possession or control or in the possession or control of any agent or nominee of
it or any income thereon or as to the preservation of rights against prior
parties or any other rights pertaining thereto. VMR shall account for any moneys
or other property or rights received by it in respect of any foreclosure on or
disposition of the Collateral.
10. Reinstatement. This Agreement shall remain in full force and
effect and continue to be effective should any petition be filed by or against
Company for liquidation or reorganization, should Company become insolvent or
make an assignment for the benefit of creditors or should a receiver or trustee
be appointed for all or any significant part of Company's assets, and shall
continue to be effective or be reinstated, as the case may be, if at any time
payment and performance of the Secured Obligations, or any part thereof, is,
pursuant to applicable law, rescinded or reduced in amount, or must otherwise be
restored or returned by any obligee of the Secured Obligations, whether as a
"voidable preference", "fraudulent conveyance", or otherwise, all as though such
payment or performance had not been made. In the event that any payment, or any
part thereof, is rescinded, reduced, restored or returned, the Secured
Obligations shall be reinstated and deemed reduced only by such amount paid and
not so rescinded, reduced, restored or returned.
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<PAGE> 17
11. Notices. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon any of the
parties by any other party, or whenever any of the parties desires to give or
serve upon any other communication with respect to this Security Agreement, each
such notice, demand, request, consent, approval, declaration or other
communication shall be in writing and shall be delivered in person with receipt
acknowledged, or telecopied and confirmed immediately in writing by a copy
mailed by registered or certified mail, return receipt requested, postage
prepaid, addressed as hereafter set forth, or mailed by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
(a) If to VMR, at
VMR Luxembourg, S.A.,
Chateau Woltz, 34 Rue Neuve, Remich,
L5560 Luxembourg
With a copy to:
Freshman, Marantz, Orlanski, Cooper & Klein
9100 Wilshire Blvd., 8th Floor
Beverly Hills, California
Attention: Thomas J. Poletti, Esq.,
Fax (310) 273-1870
(b) If to the Company:
Team Communications Group, Inc.
12300 Wilshire Boulevard Suite 400,
Los Angeles, California 90025
Attn: Chief Financial Officer
Fax: (310) 442-3501
With a copy to
Kelly Lytton Mintz & Vann LLP
1900 Avenue of the Stars, Suite 1450
Los Angeles, California 90067
Attn: Bruce P. Vann, Esq.
Fax: (310) 277 5953
The giving of any notice required hereunder may be waived in
writing by the party entitled to receive such notice. Every notice,
demand, request, consent, approval,
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<PAGE> 18
declaration or other communication hereunder shall be deemed to
have been duly given or served on the date on which personally
delivered, with receipt acknowledged, or the date of the telecopy
transmission, or three (3) Business Days after the same shall have
been deposited in the United States mail. Failure or delay in
delivering copies of any notice, demand, request, consent,
approval, declaration or other communication to the persons
designated above to receive copies shall in no way adversely
affect the effectiveness of such notice, demand, request, consent,
approval, declaration or other communication.
12. Severability. Any provision of this Security Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
13. No Waiver; Cumulative Remedies. VMR shall not by any act,
delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing, signed by
VMR and then only to the extent therein set forth. A waiver by VMR of any right
or remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which VMR would otherwise have had on any future occasion. No
failure to exercise nor any delay in exercising on the part of VMR, any right,
power or privilege hereunder, shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
any other or future exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies hereunder provided are cumulative and may
be exercised singly or concurrently, and are not exclusive of any rights and
remedies provided by law. None of the terms or provisions of this Security
Agreement may be waived, altered, modified or amended except by an instrument in
writing, duly executed by VMR and, where applicable by Company. For the
avoidance of doubt, the foregoing rights and remedies are all subject to the
terms and provisions of the Financing Agreement.
14. Successor and Assigns. This Security Agreement and all
obligations of Company hereunder shall be binding upon the successors and
assigns of Company, and shall, together with the rights and remedies of VMR
hereunder, inure to the benefit of VMR, and all future holders of instruments or
agreements evidencing the Secured Obligations and their respective successors
and assigns. No sales of participation, other sales, assignments, transfers or
other dispositions of any agreement governing or instrument evidencing the
Secured Obligations or any portion thereof or interest therein shall in any
manner affect the security interest granted to VMR hereunder.
15. GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF
THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE, THIS SECURITY AGREEMENT AND THE OBLIGATIONS ARISING
HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS MADE AND PERFORMED
IN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICT OF
LAWS, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. SECURED PARTY AND
COMPANY AGREE TO SUBMIT TO PERSONAL JURISDICTION AND TO WAIVE ANY OBJECTION AS
TO VENUE IN THE COUNTY OF LOS ANGELES, STATE OF
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CALIFORNIA. SERVICE OF PROCESS ON COMPANY OR SECURED PARTY IN ANY ACTION ARISING
OUT OF OR RELATING TO THIS SECURITY AGREEMENT SHALL BE EFFECTIVE IF MAILED TO
SUCH PARTY AT THE ADDRESS LISTED IN SECTION 11 HEREOF AND IN THE MANNER PROVIDED
THEREUNDER. EACH PARTY AGREES NOTHING HEREIN SHALL PRECLUDE THE OTHER FROM
BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION.
16. Conflict of Terms. Except as otherwise explicitly provided in
this Security Agreement, a conflict or inconsistency, if any, between the terms
and provisions of this Security Agreement and the terms and provisions of the
Financing Agreement shall be controlled by the terms and provisions of the
Financing Agreement to the extent of such conflict or inconsistency.
17. Use and Protection of Patent and Trademark Collateral.
Notwithstanding anything to the contrary contained herein, unless an Event of
Default has occurred and is continuing and shall remain uncured, VMR shall from
time to time execute and deliver, upon the written request of Company, any and
all instruments, certificates or other documents, in the form so requested,
necessary or appropriate in the judgment of Company to permit Company to
continue to exploit, license, use, enjoy and protect the Patents and Trademarks
relating to the Collateral.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Security Agreement to be executed and delivered by its duly authorized officer
on the date first set forth above.
TEAM COMMUNICATIONS GROUP, INC.
By: /s/ DREW S. LEVIN
----------------------------------------
Name: Drew S. Levin
------------------------------------
Title: CEO
-------------------------------------
Accepted and acknowledged by:
VMR LUXEMBOURG, S.A.
By: /s/ FLORIAN HOMM
--------------------------------
Name: Florian Homm
----------------------------
Title:
---------------------------
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<PAGE> 1
EXHIBIT 4.31
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made
and entered into as of July 26, 1999, among Team Communications Group, Inc., a
California corporation (the "Company") and the Persons identified on Schedule 1
hereto (each such individual is referred to herein as a "Purchaser" and are
collectively referred to herein as the "Purchasers").
This Agreement is being entered into pursuant to the
Securities Purchase Agreement, dated as of the date hereof among the Company and
the Purchasers (the "Purchase Agreement").
The Company and the Purchasers hereby agree as follows:
1. DEFINITIONS.
Capitalized terms used and not otherwise defined herein shall
have the meanings given such terms in the Purchase Agreement. As used in this
Agreement, the following terms shall have the following meanings:
"Advice" shall have meaning set forth in Section 3(m).
"Affiliate" means, with respect to any Person, any other
Person that directly or indirectly controls or is controlled by or under common
control with such Person. For the purposes of this definition, "control," when
used with respect to any Person, means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms of "affiliated," "controlling" and "controlled" have
meanings correlative to the foregoing.
"Board" shall have meaning set forth in Section 3(n).
"Business Day" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
state of New York generally are authorized or required by law or other
government actions to close.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's Common Stock, no par value
per share.
"Debentures" means the 12% Convertible Debentures due 1999 of
the Company issued to the Purchasers pursuant to the Purchase Agreement.
"Effectiveness Date" means with respect to the Registration
Statement the 90th day following the Initial Closing Date.
"Effectiveness Period" shall have the meaning set forth in
Section 2. "Event" shall have the meaning set forth in Section 7(e)(i).
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<PAGE> 2
"Event Date" shall have the meaning set forth in Section
7(e)(i).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Filing Date" means the earlier of (i) November 1, 1999 or
(ii) the first business day after the declaration of effectiveness of that Form
SB-2 Registration Statement filed by the Company on July 19, 1999.
"Holder" or "Holders" means the holder or holders, as the case
may be, from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in
Section 5(c).
"Indemnifying Party" shall have the meaning set forth in
Section 5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"Person" means an individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference in such Prospectus.
"Registrable Securities" means the shares of Common Stock
issuable upon conversion of the Debentures; provided, however, that Registrable
Securities shall include (but not be limited to) a number of shares of Common
Stock equal to no less than 200% of the maximum number of shares of Common Stock
which would be issuable upon conversion of the Debentures, assuming such
conversion occurred either (i) on the Initial Closing Date or (ii) the Filing
Date, whichever date would produce a greater number of Registrable Securities.
Such registered shares of Common Stock shall be allocated among the Holders pro
rata based on the total number of Registrable Securities issued or issuable as
of each date that a Registration Statement, as amended, relating to the resale
of the Registrable Securities is declared effective by the Commission.
Notwithstanding anything herein contained to the contrary, if the actual number
of shares of Common Stock issuable upon conversion of the Debentures exceeds
200% of the number of shares of Common Stock issuable upon conversion of the
Debentures based upon a computation as at the Initial Closing Date or the Filing
Date, the term "Registrable Securities" shall be deemed to include such
additional shares of Common Stock.
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"Registration Statement" means the registration statements and
any additional registration statements contemplated by Section 2, including (in
each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference in such
registration statement.
"Rule 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 158" means Rule 158 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
"Special Counsel" means any special counsel to the Holders,
for which the Holders will be reimbursed by the Company pursuant to Section 4.
2. SHELF REGISTRATION.
On or prior to the Filing Date the Company shall prepare and
file with the Commission a "shelf" Registration Statement covering all
Registrable Securities for an offering to be made on a continuous basis pursuant
to Rule 415. The Registration Statement shall be on Form SB-2 (or on Form S-3 if
the Company is then eligible to register for resale of the Registrable
Securities on Form S-3). The Company shall (i) not permit any securities other
than the Registrable Securities to be included in the Registration Statement and
(ii) use its best efforts to cause the Registration Statement to be declared
effective under the Securities Act as promptly as possible after the filing
thereof, but in any event prior to the Effectiveness Date, and to keep such
Registration Statement continuously effective under the Securities Act until the
date which is five years after the date that such Registration Statement is
declared effective by the Commission or such earlier date when all Registrable
Securities covered by such Registration Statement have been sold or may be sold
without any restriction pursuant to Rule 144 as determined by the counsel to the
Company pursuant to a written opinion letter, addressed to the Company's
transfer agent to such effect (the "Effectiveness Period"). If an additional
Registration Statement is required to be filed because the actual number of
shares of Common Stock into which the Debentures are convertible exceeds the
number of shares of Common Stock initially registered in respect of the
Underlying Shares based upon the computation on the Initial Closing Date, the
Company shall have fifteen (15) Business Days to file such additional
Registration Statement, and the Company shall use its best efforts to cause such
additional Registration Statement to be declared effective by the Commission as
soon as possible, but in no event later than 60 days after filing.
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3. REGISTRATION PROCEDURES.
In connection with the Company's registration obligations
hereunder, the Company shall:
(a) Prepare and file with the Commission on or prior to the
Filing Date, a Registration Statement on Form SB-2 (or on Form S-3 if the
Company is then eligible to register for resale the Registrable Securities on
Form S-3) in accordance with the method or methods of distribution thereof as
specified by the Holders (except if otherwise directed by the Holders), and
cause the Registration Statement to become effective and remain effective as
provided herein; provided, however, that not less than ten (10) Business Days
prior to the filing of the Registration Statement or any related Prospectus or
any amendment or supplement thereto (including any document that would be
incorporated therein by reference), the Company shall (i) furnish to the Holders
and any Special Counsel, copies of all such documents proposed to be filed,
which documents (other than those incorporated by reference) will be subject to
the review of such Holders and such Special Counsel, and (ii) cause its officers
and directors, counsel and independent certified public accountants to respond
to such inquiries as shall be necessary, in the reasonable opinion of respective
counsel to such Holders, to conduct a reasonable investigation within the
meaning of the Securities Act. The Company shall not file the Registration
Statement or any such Prospectus or any amendments or supplements thereto to
which the Holders of a majority of the Registrable Securities or any Special
Counsel, shall reasonably object in writing within seven (7) Business Days of
their receipt thereof.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement as may be
necessary to keep the Registration Statement continuously effective as to the
applicable Registrable Securities for the Effectiveness Period and prepare and
file with the Commission such additional Registration Statements in order to
register for resale under the Securities Act all of the Registrable Securities;
(ii) cause the related Prospectus to be amended or supplemented by any required
Prospectus supplement, and as so supplemented or amended to be filed pursuant to
Rule 424 (or any similar provisions then in force) promulgated under the
Securities Act; (iii) respond as promptly as possible to any comments received
from the Commission with respect to the Registration Statement or any amendment
thereto and as promptly as possible provide the Holders true and complete copies
of all correspondence from and to the Commission relating to the Registration
Statement; and (iv) comply in all material respects with the provisions of the
Securities Act and the Exchange Act with respect to the disposition of all
Registrable Securities covered by the Registration Statement during the
applicable period in accordance with the intended methods of disposition by the
Holders thereof set forth in the Registration Statement as so amended or in such
Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold
and any Special Counsel as promptly as possible (and, in the case of (i)(A)
below, not less than five (5) days prior to such filing) and (if requested by
any such Person) confirm such notice in writing no later than one (1) Business
Day following the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to the Registration Statement is proposed to be filed;
(B) when the Commission notifies the Company whether there will be a "review" of
such Registration Statement and whenever the Commission comments in writing on
such Registration Statement and (C) with respect to the Registration Statement
or any post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
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<PAGE> 5
for amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) if at any time any of the representations and warranties of the
Company contained in any agreement contemplated hereby ceases to be true and
correct in all material respects; (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (vi) of the occurrence of any event that makes any statement made
in the Registration Statement or Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
(d) Use its best efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of, (i) any order suspending the effectiveness of
the Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.
(e) If requested by the Holders of a majority in interest of
the Registrable Securities, (i) promptly incorporate in a Prospectus supplement
or post-effective amendment to the Registration Statement such information as
the Company reasonably agrees should be included therein and (ii) make all
required filings of such Prospectus supplement or such post-effective amendment
as soon as practicable after the Company has received notification of the
matters to be incorporated in such Prospectus supplement or post-effective
amendment.
(f) Furnish to each Holder and any Special Counsel, without
charge, at least one conformed copy of each Registration Statement and each
amendment thereto, including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference, and all exhibits
to the extent requested by such Person (including those previously furnished or
incorporated by reference) promptly after the filing of such documents with the
Commission.
(g) Promptly deliver to each Holder and any Special Counsel,
without charge, as many copies of the Prospectus or Prospectuses (including each
form of prospectus) and each amendment or supplement thereto as such Persons may
reasonably request; and the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders in connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities,
use its best efforts to register or qualify or cooperate with the selling
Holders, and any Special Counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky laws
of such jurisdictions within the United States as any Holder requests in
writing, to keep each such registration or qualification (or exemption
therefrom) effective during the Effectiveness Period and to do any and
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<PAGE> 6
all other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Registrable Securities covered by a Registration
Statement; provided, however, that the Company shall not be required to qualify
generally to do business in any jurisdiction where it is not then so qualified
or to take any action that would subject it to general service of process in any
such jurisdiction where it is not then so subject or subject the Company to any
material tax in any such jurisdiction where it is not then so subject.
(i) Cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold pursuant to a Registration Statement, which certificates shall be free
of all restrictive legends, and to enable such Registrable Securities to be in
such denominations and registered in such names as any Holders may request at
least two (2) Business Days prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section
3(c)(vi), as promptly as possible, prepare a supplement or amendment, including
a post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
(k) Use its best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on The Nasdaq Small-Cap
Market and any other securities exchange, quotation system, market or
over-the-counter bulletin board, if any, on which similar securities issued by
the Company are then listed as and when required pursuant to the Purchase
Agreement.
(l) Comply in all material respects with all applicable rules
and regulations of the Commission and make generally available to its security
holders earning statements satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 not later than 45 days after the end of any 12-month
period (or 90 days after the end of any 12-month period if such period is a
fiscal year) commencing on the first day of the first fiscal quarter of the
Company after the effective date of the Registration Statement, which statement
shall conform to the requirements of Rule 158.
(m) The Company may require each selling Holder to furnish to
the Company information regarding such Holder and the distribution of such
Registrable Securities as is required by law to be disclosed in the Registration
Statement, and the Company may exclude from such registration the Registrable
Securities of any such Holder who unreasonably fails to furnish such information
within a reasonable time after receiving such request.
If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (if such reference to such Holder by name or otherwise
is not required by the Securities Act or any similar federal statute then in
force) the deletion of the reference to such Holder in any amendment or
supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.
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<PAGE> 7
Each Holder covenants and agrees that (i) it will not sell any
Registrable Securities under the Registration Statement until it has received
copies of the Prospectus as then amended or supplemented as contemplated in
Section 3(g) and notice from the Company that such Registration Statement and
any post-effective amendments thereto have become effective as contemplated by
Section 3(c) and (ii) it and its officers, directors or Affiliates, if any, will
comply with the prospectus delivery requirements of the Securities Act as
applicable to them in connection with sales of Registrable Securities pursuant
to the Registration Statement.
Each Holder agrees by its acquisition of such Registrable
Securities that, upon receipt of a notice from the Company of the occurrence of
any event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv),
3(c)(v) or 3(c)(vi), such Holder will forthwith discontinue disposition of such
Registrable Securities under the Registration Statement until such Holder's
receipt of the copies of the supplemented Prospectus and/or amended Registration
Statement contemplated by Section 3(j), or until it is advised in writing (the
"Advice") by the Company that the use of the applicable Prospectus may be
resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus or Registration Statement.
(n) If (i) there is material non-public information regarding
the Company which the Company's Board of Directors (the "Board") reasonably
determines not to be in the Company's best interest to disclose and which the
Company is not otherwise required to disclose, or (ii) there is a significant
business opportunity (including, but not limited to, the acquisition or
disposition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer or other similar transaction) available to
the Company which the Board reasonably determines not to be in the Company's
best interest to disclose, then the Company may postpone or suspend filing or
effectiveness of a registration statement for a period not to exceed 20
consecutive days, provided that the Company may not postpone or suspend its
obligation under this Section 3(n) for more than 45 days in the aggregate during
any 12 month period; provided, however, that no such postponement or suspension
shall be permitted for consecutive 20 day periods, arising out of the same set
of facts, circumstances or transactions.
4. REGISTRATION EXPENSES.
All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall be borne by the Company
whether or not the Registration Statement is filed or becomes effective and
whether or not any Registrable Securities are sold pursuant to the Registration
Statement. The fees and expenses referred to in the foregoing sentence shall
include, without limitation, (i) all registration and filing fees (including,
without limitation, fees and expenses (A) with respect to filings required to be
made with The Nasdaq Small Cap Market and each other securities exchange or
market on which Registrable Securities are required hereunder to be listed, (B)
with respect to filings required to be made with the National Association of
Securities Dealers, Inc. and the NASD Regulation, Inc. and (C) in compliance
with state securities or Blue Sky laws (including, without limitation, fees and
disbursements of counsel for the Holders in connection with Blue Sky
qualifications of the Registrable Securities and determination of the
eligibility of the Registrable Securities for investment under the laws of such
jurisdictions as Holders of a majority of Registrable Securities may
designate)), (ii) printing expenses (including, without limitation, expenses of
printing certificates for Registrable Securities and of printing prospectuses if
the printing of prospectuses is requested the holders of a majority of the
Registrable Securities included in the
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<PAGE> 8
Registration Statement), (iii) messenger, telephone and delivery expenses, (iv)
fees and disbursements of counsel for the Company and Special Counsel for the
Holders, in the case of the Special Counsel, to a maximum amount of $5,000, (v)
Securities Act liability insurance, if the Company so desires such insurance,
and (vi) fees and expenses of all other Persons retained by the Company in
connection with the consummation of the transactions contemplated by this
Agreement, including, without limitation, the Company's independent public
accountants (including the expenses of any comfort letters or costs associated
with the delivery by independent public accountants of a comfort letter or
comfort letters). In addition, the Company shall be responsible for all of its
internal expenses incurred in connection with the consummation of the
transactions contemplated by this Agreement (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit, the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder.
5. INDEMNIFICATION.
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents, brokers (including brokers who
offer and sell Registrable Securities as principal as a result of a pledge or
any failure to perform under a margin call of Common Stock), investment advisors
and employees of each of them, each Person who controls any such Holder (within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act) and the officers, directors, agents and employees of each such controlling
Person, to the fullest extent permitted by applicable law, from and against any
and all losses, claims, damages, liabilities, costs (including, without
limitation, costs of preparation and attorneys' fees) and expenses
(collectively, "Losses"), as incurred, arising out of or relating to any untrue
or alleged untrue statement of a material fact contained in the Registration
Statement, any Prospectus or any form of prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or
relating to any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in the light of the
circumstances under which they were made) not misleading, except to the extent,
but only to the extent, that such untrue statements or omissions are based
solely upon information regarding such Holder furnished in writing to the
Company by such Holder expressly for use therein, which information was
reasonably relied on by the Company for use therein or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in the Registration Statement, such
Prospectus or such form of Prospectus or in any amendment or supplement thereto.
The Company shall notify the Holders promptly of the institution, threat or
assertion of any Proceeding of which the Company is aware in connection with the
transactions contemplated by this Agreement.
(b) Indemnification by Holders. Each Holder shall, severally
and not jointly, indemnify and hold harmless the Company, the directors,
officers, agents and employees, each Person who controls the Company (within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act),
and the directors, officers, agents or employees of such controlling Persons, to
the fullest extent permitted by applicable law, from and against all Losses, as
incurred, arising solely out of or based solely upon any untrue statement of a
material fact contained in the Registration Statement, any Prospectus, or any
form of prospectus, or arising solely out of or based
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<PAGE> 9
solely upon any omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus or form
of prospectus or supplement thereto, in the light of the circumstances under
which they were made) not misleading, to the extent, but only to the extent,
that such untrue statement or omission is contained in any information so
furnished in writing by such Holder to the Company specifically for inclusion in
the Registration Statement or such Prospectus and that such information was
reasonably relied upon by the Company for use in the Registration Statement,
such Prospectus or such form of prospectus or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in the Registration Statement, such
Prospectus or such form of Prospectus.
(c) Conduct of Indemnification Proceedings. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity hereunder
(an "Indemnified Party"), such Indemnified Party promptly shall notify the
Person from whom indemnity is sought (the "Indemnifying Party) in writing, and
the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the
payment of all fees and expenses incurred in connection with defense thereof;
provided, that the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations or liabilities pursuant to
this Agreement, except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have proximately
and materially adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in
writing to pay such fees and expenses; or (2) the Indemnifying Party shall have
failed promptly to assume the defense of such Proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3)
the named parties to any such Proceeding (including any impleaded parties)
include both such Indemnified Party and the Indemnifying Party, and such
Indemnified Party shall have been advised by counsel that a conflict of interest
is likely to exist if the same counsel were to represent such Indemnified Party
and the Indemnifying Party (in which case, if such Indemnified Party notifies
the Indemnifying Party in writing that it elects to employ separate counsel at
the expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within ten (10) Business Days of written notice thereof to the
Indemnifying Party (regardless of whether it is ultimately determined that an
Indemnified Party is not entitled to indemnification hereunder; provided, that
the Indemnifying Party may require such Indemnified
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<PAGE> 10
Party to undertake to reimburse all such fees and expenses to the extent it is
finally judicially determined that such Indemnified Party is not entitled to
indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section
5(a) or 5(b) is unavailable to an Indemnified Party because of a failure or
refusal of a governmental authority to enforce such indemnification in
accordance with its terms (by reason of public policy or otherwise), then each
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Losses, in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party and Indemnified Party in connection with the
actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such Indemnifying
Party and Indemnified Party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission of a material fact,
has been taken or made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a result
of any Losses shall be deemed to include, subject to the limitations set forth
in Section 5(c), any reasonable attorneys' or other reasonable fees or expenses
incurred by such party in connection with any Proceeding to the extent such
party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party in
accordance with its terms.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 5(d) were determined by pro
rata allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this
Section are in addition to any liability that the Indemnifying Parties may have
to the Indemnified Parties.
6. RULE 144.
As long as any Holder owns Debentures or Underlying Shares,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to Section 13(a) or 15(d) of the
Exchange Act and to promptly furnish the Holders with true and complete copies
of all such filings. As long as any Holder owns Debentures or Underlying Shares,
if the Company is not required to file reports pursuant to Section 13(a) or
15(d) of the Exchange Act, it will prepare and furnish to the Holders and make
publicly available in accordance with Rule 144(c) promulgated under the
Securities Act annual and quarterly financial statements, together with a
discussion and analysis of such financial statements in form and substance
substantially similar to those that would otherwise be required to be included
in reports required by Section 13(a) or 15(d) of the Exchange Act, as well as
any other information required thereby, in the time period that such filings
would have been required to have been made under the Exchange Act. The Company
further covenants that it will take such further action as any Holder may
reasonably request, all to the extent required from time to time to enable such
Person to sell Underlying Shares without registration under the
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<PAGE> 11
Securities Act within the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act, including providing any legal opinions
referred to in the Purchase Agreement. Upon the request of any Holder, the
Company shall deliver to such Holder a written certification of a duly
authorized officer as to whether it has complied with such requirements.
7. MISCELLANEOUS.
(a) Remedies. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company and each Holder agree that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any of
its subsidiaries has, as of the date hereof entered into and currently in
effect, nor shall the Company or any of its subsidiaries, on or after the date
of this Agreement, enter into any agreement with respect to its securities that
is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. Except as disclosed in Schedule
2.1(p) of the Purchase Agreement, neither the Company nor any of its
subsidiaries has previously entered into any agreement currently in effect
granting any registration rights with respect to any of its securities to any
Person. Without limiting the generality of the foregoing, without the written
consent of the Holders of a majority of the then outstanding Registrable
Securities, the Company shall not grant to any Person the right to request the
Company to register any securities of the Company under the Securities Act
unless the rights so granted are subject in all respects to the prior rights in
full of the Holders set forth herein, and are not otherwise in conflict with the
provisions of this Agreement.
(c) No Piggyback on Registrations. Neither the Company nor any
of its security holders (other than the Holders in such capacity pursuant hereto
or as disclosed in Schedule 2.1(p) of the Purchase Agreement) may include
securities of the Company in the Registration Statement, and the Company shall
not after the date hereof enter into any agreement providing such right to any
of its securityholders, unless the right so granted is subject in all respects
to the prior rights in full of the Holders set forth herein, and is not
otherwise in conflict with the provisions of this Agreement.
(d) Piggy-Back Registrations. If at any time when there is not
an effective Registration Statement covering the Underlying Shares, the Company
shall determine to prepare and file with the Commission a registration statement
relating to an offering for its own account or the account of others under the
Securities Act of any of its equity securities, other than on Form S-4 or Form
S-8 (each as promulgated under the Securities Act) or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, the Company shall
send to each holder of Registrable Securities written notice of such
determination and, if within thirty (30) days after receipt of such notice, any
such holder shall so request in writing, (which request shall specify the
Registrable Securities intended to be disposed of by the Purchasers), the
Company will cause the registration under the Securities Act of all Registrable
Securities which the Company has been so requested to register by the holder, to
the extent requisite to permit the
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disposition of the Registrable Securities so to be registered, provided that if
at any time after giving written notice of its intention to register any
securities and prior to the effective date of the registration statement filed
in connection with such registration, the Company shall determine for any reason
not to register or to delay registration of such securities, the Company may, at
its election, give written notice of such determination to such holder and,
thereupon, (i) in the case of a determination not to register, shall be relieved
of its obligation to register any Registrable Securities in connection with such
registration (but not from its obligation to pay expenses in accordance with
Section 4 hereof), and (ii) in the case of a determination to delay registering,
shall be permitted to delay registering any Registrable Securities being
registered pursuant to this Section 7(d) for the same period as the delay in
registering such other securities. The Company shall include in such
registration statement all or any part of such Registrable Securities such
holder requests to be registered; provided, however, that the Company shall not
be required to register any Registrable Securities pursuant to this Section 7(d)
that are eligible for sale pursuant to Rule 144(k) of the Securities Act. In the
case of an underwritten public offering, if the managing underwriter(s) should
reasonably object to the inclusion of the Registrable Securities in such
registration statement, then if the Company after consultation with the managing
underwriter(s) should reasonably determine that the inclusion of such
Registrable Securities, would materially adversely affect the offering
contemplated in such registration statement, and based on such determination
recommends inclusion in such registration statement of fewer or none of the
Registrable Securities of the Holders, then (x) the number of Registrable
Securities of the Holders included in such registration statement shall be
reduced pro-rata among such Holders (based upon the number of Registrable
Securities requested to be included in the registration), if the Company after
consultation with the managing underwriter(s) recommends the inclusion of fewer
Registrable Securities, or (y) none of the Registrable Securities of the Holders
shall be included in such registration statement, if the Company after
consultation with the managing underwriter(s) recommends the inclusion of none
of such Registrable Securities; provided, however, that if securities are being
offered for the account of other persons or entities as well as the Company,
such reduction shall not represent a greater fraction of the number of
Registrable Securities intended to be offered by the Holders than the fraction
of similar reductions imposed on such other persons or entities (other than the
Company).
(e) Failure to File Registration Statement; Rights of
Rescission. The Company and the Purchasers agree that the Holders will suffer
damages if the Registration Statement is not filed on or prior to the Filing
Date and not declared effective by the Commission on or prior to the
Effectiveness Date and maintained in the manner contemplated herein during the
Effectiveness Time or if certain other events occur. The Company and the Holders
further agree that it would not be feasible to ascertain the extent of such
damages with precision. Accordingly, if (A) the Registration Statement is not
filed on or prior to the Filing Date, or is not declared effective by the
Commission on or prior to the Effectiveness Date (or in the event an additional
Registration Statement is filed because the actual number of shares of Common
Stock into which the Debentures are convertible exceeds the number of shares of
Common Stock initially registered is not filed and declared effective with the
time periods set forth in Section 2), or (B) the Company fails to file with the
Commission a request for acceleration in accordance with Rule 12dl-2 promulgated
under the Exchange Act within five (5) Business Days of the date that the
Company is notified (orally or in writing, whichever is earlier) by the
Commission that a Registration Statement will not be "reviewed," or not subject
to further review, or (C) the Registration Statement is filed with and declared
effective by the Commission but thereafter ceases to be effective as to all
Registrable Securities at any time prior to the expiration of the Effectiveness
Period, without being succeeded immediately by a subsequent Registration
Statement filed with and declared effective by the Commission, or (D) trading in
the
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<PAGE> 13
Common Stock shall be suspended or if the Common Stock is de-listed for any
reason for more than three Business Days in the aggregate, or (E) the conversion
rights of the Holders are suspended for any reason except as a result of Section
5(a)(ii) of the Debentures, or (F) the Company breaches in a material respect
any covenant or other material term or condition to this Agreement, the
Debentures, the Purchase Agreement (other than a representation or warranty
contained therein) or any other agreement, document, certificate or other
instrument delivered in connection with the transactions contemplated hereby and
thereby, and such breach continues for a period of 30 days after written notice
thereof to the Company, or (G) the Company fails to convene a meeting of
shareholders within the time period specified in Section 3.13 of the Purchase
Agreement or does so convene a meeting of shareholders within such time period
but fails to obtain Shareholder Approval at such meeting, or (H) the Company has
breached Section 3(n) or (i) and the Registration is not declared effective with
90 days from the date of its filing (any such failure or breach being referred
to as an "Event," and for purposes of clauses (A) and (E) the date on which such
Event occurs, or for purposes of clause (B) the date on which such five day
period is exceeded, or for purposes of clause (C) after more than 15 Business
Days, or for purposes of clause (D) the date on which such three Business Day
period is exceeded, or for clause (F) the date on which such 30 day period is
exceeded, being referred to as "Event Date"), the Company shall reduce the
Applicable Conversion Price (as defined in the form of Debenture) by 2% for each
30 day period (or pro rata portion if less that 30 days) such Event has
occurred.
(f) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and each of the Holders. Notwithstanding the foregoing, a waiver or consent to
depart from the provisions hereof with respect to a matter that relates
exclusively to the rights of Holders and that does not directly or indirectly
affect the rights of other Holders may be given by Holders of at least a
majority of the Registrable Securities to which such waiver or consent relates;
provided, however, that the provisions of this sentence may not be amended,
modified, or supplemented except in accordance with the provisions of the
immediately preceding sentence.
(g) Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earlier of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified for notice prior to 5:00 p.m., Los Angeles
City time, on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified for notice later than 5:00 p.m., Los
Angeles City time, on any date and earlier than 11:59 p.m., Los Angeles City
time, on such date, (iii) the Business Day following the date of mailing, if
sent by nationally recognized overnight courier service or (iv) actual receipt
by the party to whom such notice is required to be given. The addresses for such
communications shall be with respect to each Holder at its address set forth
under its name on Schedule 1 attached hereto, or with respect to the Company,
addressed to:
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<PAGE> 14
Team Communications Group, Inc.
12300 Wilshire Boulevard
Los Angeles, California 90025
Attention: Drew Levin
Telephone No.: (310) 442-3500
Facsimile No.: (310) 442-3501
or to such other address or addresses or facsimile number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice. Copies of notices to any Holder shall be sent to Freshman,
Marantz, Orlanski, Cooper & Klein 9100 Wilshire Blvd., Suite 800-E, Beverly
Hills, California, Attention: Thomas J. Poletti, Esq., Facsimile (310) 274-8357.
Copies of notices to the Company shall be sent to Kelly Lytton Mintz & Vann LLP,
1900 Avenue of the Stars, Suite 1450, Los Angeles, California 90067, Attention:
Bruce Vann, Esq., Facsimile No.: (310) 277-5953.
(h) Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and permitted
assigns and shall inure to the benefit of each Holder and its successors and
assigns. The Company may not assign this Agreement or any of its rights or
obligations hereunder without the prior written consent of each Holder. Each
Purchaser may assign its rights hereunder in the manner and to the Persons as
permitted under the Purchase Agreement.
(i) Assignment of Registration Rights. The rights of each Holder
hereunder, including the right to have the Company register for resale
Registrable Securities in accordance with the terms of this Agreement, shall be
automatically assignable by each Holder to any Affiliate of such Holder, any
other Holder or Affiliate of any other Holder and up to four other assignees of
all or a portion of the Debentures or the Registrable Securities if: (i) the
Holder agrees in writing with the transferee or assignee to assign such rights,
and a copy of such agreement is furnished to the Company within a reasonable
time after such assignment, (ii) the Company is, within a reasonable time after
such transfer or assignment, furnished with written notice of (a) the name and
address of such transferee or assignee, and (b) the securities with respect to
which such registration rights are being transferred or assigned, (iii)
following such transfer or assignment the further disposition of such securities
by the transferee or assignees is restricted under the Securities Act and
applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this Section, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions of this Agreement, and (v) such transfer shall have been made in
accordance with the applicable requirements of the Purchase Agreement. The
rights to assignment shall apply to the Holders (and to subsequent) successors
and assigns.
(j) Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.
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<PAGE> 15
(j) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, without regard
to principles of conflicts of law thereof.
(k) Cumulative Remedies. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
(l) Severability. If any term, provision, covenant or restriction
of this Agreement is held to be invalid, illegal, void or unenforceable in any
respect, the remainder of the terms, provisions, covenants and restrictions set
forth herein shall remain in full force and effect and shall in no way be
affected, impaired or invalidated, and the parties hereto shall use their
reasonable efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(m) Headings. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
(n) Shares Held by the Company and its Affiliates. Whenever the
consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its Affiliates (other than any Holder or transferees or successors or assigns
thereof if such Holder is deemed to be an Affiliate solely by reason of its
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
IN WITNESS WHEREOF, the parties hereto have caused this
Registration Rights Agreement to be duly executed by their respective authorized
persons as of the date first indicated above.
TEAM COMMUNICATIONS GROUP, INC.
By: /s/ DREW S. LEVIN
---------------------------------------
Name: Drew S. Levin
Title: CEO
VMR LUXEMBOURG S.A.
By: /s/ FLORIAN HOMM
---------------------------------------
Name: Florian Homm
Title:
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<PAGE> 16
SCHEDULE 1
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
DEBENTURES PURCHASED
NAME OF INVESTOR IN INITIAL CLOSING
- --------------------------------- --------------------------------
<S> <C>
VMR Luxembourg S.A. $ 1,200,000
</TABLE>
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<PAGE> 1
EXHIBIT 4.32
SECURITIES PURCHASE AGREEMENT
Among
TEAM COMMUNICATIONS GROUP, INC.,
and
HUDSON INVESTORS LLC
Dated as of August 5, 1999
<PAGE> 2
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of August 5,
1999, among Team Communications Group, Inc., a California corporation (the
"Company"), and Hudson Investors LLC. Hudson Investors LLC is referred to herein
as a "Purchaser" or as the "Purchasers."
WHEREAS, subject to the terms and conditions set forth in this Agreement,
the Company desires to issue and sell to the Purchasers, and the Purchasers
desire to acquire from the Company, $4,000,000 aggregate principal amount of 12%
Convertible Debentures due 2002 of the Company (the "Debentures") and warrants
(the "Warrants") to purchase 340,000 shares of common stock, no par value per
share, of the Company (the "Common Stock").
NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the Company and each Purchaser agree as follows:
ARTICLE I
PURCHASE AND SALE OF THE SECURITIES
1.1 Purchase and Sale.
(a) Subject to the terms and conditions hereof and in reliance on
the representations and warranties contained herein, the Company shall issue and
sell to the Purchasers, and the Purchasers, severally and not jointly, shall
purchase from the Company (i) an aggregate principal amount of $4,000,000 of
Debentures and (ii) Warrants to purchase 340,000 shares of Common Stock.
(b) The Debentures shall be substantially in the form annexed hereto
as Exhibit A and the Warrants shall be in the form annexed hereto as Exhibit B.
1.2 The Closing.
(a) The closing of the purchase and sale of the Securities (as
defined below) (the "Closing") shall take place at the offices of Kronish Lieb
Weiner & Hellman, LLP, 1114 Avenue of the Americas, New York, New York
10036-7798, immediately following the execution hereof or such later date or
different location as the parties shall agree in writing, but not prior to the
date that the conditions set forth in Section 4.1 have been satisfied or waived
by the appropriate party. The date of the Closing is hereinafter referred to as
the "Closing Date." At the Closing, the Company shall sell and issue to the
Purchasers, and the Purchasers shall, severally and not jointly, purchase from
the Company, an aggregate principal amount of
2
<PAGE> 3
$4,000,000 of Debentures and Warrants to purchase up to 340,000 shares of Common
Stock for an aggregate purchase price of $4,000,000 (the "Purchase Price").
(b) At the Closing (a) the Company shall deliver to each Purchaser
(1) Debentures (in definitive form) in the denominations specified on Schedule 1
attached hereto, each registered in the name of such Purchaser, (2) a warrant
agreement representing the Warrants purchased by such Purchaser as set forth
next to such Purchaser's name on Schedule 1 attached hereto, registered in the
name of such Purchaser, (3) and all other documents, instruments and writings
required to have been delivered at or prior to the Closing by the Company
pursuant to this Agreement and the Registration Rights Agreement, dated the date
hereof, by and among the Company and the Purchasers, in the form of Exhibit C
annexed hereto (the "Registration Rights Agreement"), and (b) each Purchaser
shall deliver to the Company the portion of the Purchase Price set forth next to
its name on Schedule 1, in United States dollars in immediately available funds
by wire transfer to an account designated in writing by the Company for such
purpose on or prior to the Closing Date, and all documents, instruments and
writings required to have been delivered at or prior to the Closing by such
Purchaser pursuant to this Agreement and the Registration Rights Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company. The Company
hereby makes the following representations and warranties to the Purchasers:
(a) Organization and Qualification; Subsidiaries. The Company is a
corporation, duly organized, validly existing and in good standing under the
laws of the State of California, with the requisite corporate power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. The Company has no subsidiaries other than as set forth
in Schedule 2.1(a) (collectively, the "Subsidiaries"). Each of the Subsidiaries
is a corporation, duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or organization (as
applicable), with the full corporate power and authority to own and use its
properties and assets and to carry on its business as currently conducted. Each
of the Company and the Subsidiaries is duly qualified to do business and is in
good standing as a foreign corporation in each jurisdiction in which the nature
of the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, would not, individually or in the aggregate, (x) adversely
affect the legality, validity or enforceability of the Debentures or any of the
other Transaction Documents (as defined below), (y) have or result in a material
adverse effect on the results of operations, assets, prospects (insofar as such
prospects may reasonably be foreseen) or financial condition of the Company and
the Subsidiaries, taken as a whole or (z) adversely impair the Company's ability
to perform fully on a timely basis its obligations under
3
<PAGE> 4
any Transaction Document, including, without limitation, the Company's
obligations under Section 3.7 hereof (any of (x), (y) or (z), being a "Material
Adverse Effect").
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by this Agreement and the other Transaction Documents, and
otherwise to carry out its obligations hereunder and thereunder. This Agreement,
the Registration Rights Agreement, the Debentures and the Warrants are
collectively referred to as the "Transaction Documents." The execution and
delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary action on the part of the Company and no
further action is required by the Company. Each of the Transaction Documents has
been duly executed by the Company and when delivered in accordance with the
terms hereof will constitute the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application. Neither the Company nor any
Subsidiary is in violation of any of the provisions of its respective articles
of incorporation, bylaws or other organizational documents.
(c) Capitalization; Rights to Acquire Capital Stock. On the date
hereof, the authorized capital of the Company consists of (i) 40,000,000 shares
of Common Stock, no par value, of which 5,085,705 are issued and outstanding and
(ii) 10,000,000 shares of preferred stock, no par value, none of which have been
issued. Included in the 5,085,705 shares of Common Stock outstanding are
1,130,404 shares of Common Stock not yet physically issued, the issuance of
which has been authorized by the Company's board of directors and with respect
to which there are contractual obligations to issue such shares. Such 1,130,404
shares are to be issued upon completion of customary documentation with the
Company's transfer agent. The 5,085,705 shares of outstanding Common Stock do
not include any shares which could be issued pursuant to any outstanding
options, warrants and convertible securities of the Company (the "Derivative
Securities") which are outstanding on the date hereof, which Derivative
Securities are listed on Schedule 2.1.c, including in each case (i) the name and
class of such Derivative Securities, (ii) the issue date of such Derivative
Securities, (iii) the number of shares of Common Stock of the Company into which
such Derivative Securities are convertible as of the date hereof, (iv) the
conversion or exercise price or prices of such Derivative Securities as of the
date hereof and (v) the expiration date of any conversion or exercise rights
held by the owners of such Derivative Securities. All issued and outstanding
shares of capital stock of the Company and each Subsidiary have been duly
authorized and validly issued and are fully paid and non-assessable. No shares
of the capital stock of the Company are entitled to preemptive or similar
rights, nor is any holder of the capital stock of the Company entitled to
preemptive or similar rights arising out of any agreement or understanding with
the Company by virtue of any of the Transaction Documents. To the best knowledge
of the Company, no Person or group of related Persons beneficially owns (as
determined pursuant to Rule 13d-3 promulgated under the
4
<PAGE> 5
Securities Exchange Act of 1934, as amended (the "Exchange Act")) or has the
right to acquire by agreement with or by obligation binding upon the Company
beneficial ownership of in excess of 5% of the Common Stock other than as set
forth in the SEC Documents (as defined below). A "Person" means an individual or
corporation, partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind. The Common Stock is
quoted and is listed for trading on The Nasdaq Small-Cap Market. The Company has
received no notice, either oral or written, with respect to the continued
eligibility of the Common Stock for such listing, and the Company has maintained
all requirements for the continuation of such listing. After giving effect to
the transactions contemplated in this Agreement, the Company believes that it is
in compliance with all such maintenance requirements other than requests for
additional listing for securities issued by the Company subsequent to the
initial public offering of its shares of Common Stock in August 1998 (the
"IPO").
(d) Issuance of Securities. The Debentures and the Warrants have
been duly authorized for issuance, and when duly executed and delivered by the
Company in accordance with this Agreement, shall constitute legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application. The
Company has and, at the Closing Date, will have and at all times while the
Debentures and the Warrants are outstanding will maintain an adequate reserve of
duly authorized shares of Common Stock as may be necessary to effect conversion
of the Debentures and exercise of the Warrants. The shares of Common Stock
issuable upon conversion of, or in lieu of interest payments on, the Debentures
are referred to herein as the "Underlying Shares." When issued in accordance
with the Debentures, the Underlying Shares will be duly authorized, validly
issued, fully paid and nonassessable, free and clear of all liens. The shares of
Common Stock issuable upon exercise of the Warrants are referred to herein as
the "Warrant Shares." When issued and paid for in accordance with the Warrant,
the Warrant Shares will be duly authorized, validly issued, fully paid and
nonassessable, free and clear of all liens. The Debentures, the Warrants, the
Underlying Shares and the Warrant Shares are referred to herein as the
"Securities."
(e) No Conflicts. The execution, delivery and performance of this
Agreement and the other Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
do not and will not (i) conflict with or violate any provision of its articles
of incorporation, bylaws or other organizational documents (each as amended
through the date hereof) or (ii) subject to obtaining the consents referred to
in Schedule 2.1(e), 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 (evidencing a Company debt or debt of any
subsidiary or otherwise) to which the Company or any of its Subsidiaries is a
party or by which any property or asset of the Company or any of its
Subsidiaries is bound or
5
<PAGE> 6
affected, (iii) result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company or any of its Subsidiaries is subject (including
Federal and state securities laws and regulations), or by which any material
property or asset of the Company or any of its Subsidiaries is bound or
affected, or (iv) result in the creation or imposition of a lien upon any of the
Securities or any of the assets of the Company, or any of its Affiliates (as
such term is defined under Rule 405 promulgated under the Securities Act of
1933, as amended (the "Securities Act")), except in the case of each of clauses
(ii) and (iii), such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have or result in a Material Adverse Effect. The business of the
Company is not being conducted in violation of any law, ordinance or regulation
of any governmental authority except for any such violation as would not,
individually or in the aggregate, have or result in a Material Adverse Effect.
(f) Consents and Approvals. Other than the consent, if any shall be
required, of National Securities Group (it being acknowledged that the Company
believes that National has previously given its consent and that, in any event,
that such consent is not required) and except as specifically set forth in
Schedule 2.1(f), neither the Company nor any Subsidiary is required to obtain
any consent, waiver, authorization or order of, give any notice to, or make any
filing or registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other than
(i) the filing of the Registration Statement (as defined in the Registration
Rights Agreement) with the Commission, which shall be filed in accordance with
and in the time periods set forth in the Registration Rights Agreement, (ii) the
application(s) or any letter(s) acceptable to The Nasdaq Small-Cap Market for
the listing of the Underlying Shares and the Warrant Shares with The Nasdaq
Small-Cap Market (and with any other national securities exchange or market on
which the Common Stock is then listed), and (iii) any filings, notices or
registrations under applicable federal and state securities laws (together with
the consents, waivers, authorizations, orders, notices and filings referred to
in Schedule 2.1(f), the "Required Approvals").
(g) Litigation; Proceedings. Except as specifically set forth in
Schedule 2.1(g), there is no action, suit, notice of violation, proceeding or
investigation pending or, to the knowledge of the Company, threatened against or
affecting the Company or any of the Subsidiaries or Affiliates or any of their
respective properties before or by any court, governmental or administrative
agency or regulatory authority (federal, state, county, local or foreign) which
(i) adversely affects or challenges the legality, validity or enforceability of
any of the Transaction Documents or the Securities or (ii) could reasonably be
expected to, individually or in the aggregate, have a Material Adverse Effect.
(h) No Default or Violation. Except as set forth in Schedule 2.1(h),
neither the Company nor any Subsidiary (i) is in default under or in violation
of any indenture, loan or credit agreement or any other agreement or instrument
to which it is a party or by which it or any of its properties is bound which
could reasonably be expected to, individually or in the aggregate, have
6
<PAGE> 7
a Material Adverse Effect, (ii) is in violation of any order of any court,
arbitrator or governmental body applicable to it, or (iii) is in violation of
any statute, rule or regulation of any governmental authority to which it is
subject, which violation could reasonably be expected to, individually or in the
aggregate, have a Material Adverse Effect.
(i) Schedules. The Schedules to this Agreement furnished by or on
behalf of the Company do not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements made
therein not misleading.
(j) Private Offering. The Company and to the best of the Company's
knowledge, all Persons acting on its behalf have not made, and will not make,
offers or sales of the Debentures or the Warrants, and any securities that might
be integrated with offers and sales of the Debentures and the Warrants, except
to "accredited investors" (as defined in Regulation D ("Regulation D") under the
Securities Act) without any general solicitation or advertising and otherwise in
compliance with the conditions of Regulation D. The offer and sale by the
Company to the Purchasers of the Debentures and the Warrants and the Underlying
Shares and the Warrant Shares into which the Debentures and the Warrants are
convertible or exercisable, as the case may be, is exempt from the registration
requirements of the Securities Act.
(k) SEC Documents; Financial Statements; No Adverse Change. The
Company has filed all reports required to be filed by it under the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, (the foregoing materials
being collectively referred to herein as the "34 Act Filings", and together with
the final registration statement filed with respect to the IPO, the "SEC
Documents") on a timely basis or received a valid extension of such time of
filing and has filed any such SEC Documents prior to the expiration of any such
extension. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and none of the SEC
Documents, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading. All material agreements to
which the Company or any of its Subsidiaries is a party or to which the property
or assets of the Company or any of its Subsidiaries are subject have been filed
as exhibits to the SEC Documents as required; neither the Company nor any of the
Subsidiaries is in breach of any agreement where such breach could reasonably be
expected to, individually or in the aggregate, have a Material Adverse Effect.
The financial statements of the Company included in the SEC Documents comply in
all material respects with applicable accounting requirements and the rules and
regulations of the Commission with respect thereto as in effect at the time of
filing. Such financial statements have been prepared in accordance with United
States generally accepted accounting principles applied on a consistent basis
during the periods involved, except as may be otherwise specified in such
financial statements or the notes thereto, and fairly present in all material
respects the financial position of the Company as of and for the dates thereof
and the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal year-end audit
adjustments. Since the date of the financial statements included in the
Company's last filed
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Quarterly Report on Form 10-Q for the period ended June 30, 1999, there has been
no event, occurrence or development that has had a or could reasonably be
expected to have a Material Adverse Effect which has not been specifically
disclosed to the Purchasers by the Company.
(l) Investment Company. The Company is not, and is not controlled by
or under common control with an affiliate of, an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
(m) Certain Fees. No fees or commissions will be payable by the
Company to any broker, financial advisor, finder, investment banker or bank with
respect to the transactions contemplated by this Agreement other than a
commission of 5.0% payable to EBI Securities. The Purchasers shall have no
obligation with respect to any fees or with respect to any claims made by or on
behalf of other Persons for fees of a type contemplated in this Section 2.1(m)
that may be due in connection with the transactions contemplated by this
Agreement. The Company shall indemnify and hold harmless each of the Purchasers,
its employees, officers, directors, agents, and partners, and their respective
Affiliates, from and against all claims, losses, damages, costs (including the
costs of preparation and attorney's fees) and expenses suffered in respect of
any such claimed or existing fees.
(n) Solicitation Materials. The Company has not distributed any
offering materials in connection with the offering and sale of the Securities.
The Company confirms that it has not provided the Purchasers or their agents or
counsel with any information that constitutes or might constitute material
non-public information. The Company understands and confirms that the Purchasers
shall be relying on the foregoing representations in effecting transactions in
securities of the Company.
(o) Exclusivity. The Company shall not issue and sell Debentures or
Warrants to any Person other than the Purchasers pursuant to this Agreement
other than with the prior written consent of each of the Purchasers.
(p) Patents and Trademarks. The Company and each of its Subsidiaries
has sufficient title and ownership of all patents, patent applications,
trademarks, trademark applications, service marks, trade names, copyrights,
licenses and rights that are necessary for use in connection with its business,
as currently conducted and as described in the SEC Documents, and such business
does not and would not conflict with or constitute an infringement on such
rights of others.
(q) Acknowledgment of Dilution. The Company acknowledges that the
issuance of (i) the Underlying Shares upon conversion of the Debentures, (ii)
the Warrant Shares upon exercise of the Warrants may result in dilution of the
outstanding shares of Common Stock, which dilution may be substantial under
certain market conditions. The Company further acknowledges that its obligation
to issue (i) the Underlying Shares upon conversion of the Debentures and (ii)
the Warrant Shares upon exercise of the Warrants is unconditional and
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absolute regardless of the effect of any such dilution.
(r) Registration Rights; Rights of Participation. Except as
described on Schedule 2.1(r) hereto, (A) the Company has not granted or agreed
to grant to any Person any rights (including "piggyback" registration rights) to
have any securities of the Company registered with the Commission or any other
governmental authority which has not been satisfied and (B) no Person,
including, but not limited to, current or former shareholders of the Company,
underwriters, brokers or agents, has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in the
transactions contemplated by this Agreement or any other Transaction Document.
(s) Title. Except as disclosed in Schedule 2.1(s), the Company and
the Subsidiaries have good and marketable title in fee simple to all real
property and personal property owned by them which is material to the business
of the Company or the Subsidiaries, in each case free and clear of all liens,
except for liens, claims or encumbrances that 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 or the Subsidiaries. Any real property and
facilities held under lease by the Company or the 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 or the Subsidiaries.
(t) Permits. The Company and the Subsidiaries possess all
franchises, certificates, licenses, authorizations and permits or similar
authority necessary to conduct their respective businesses as described in the
SEC Documents except where the failure to possess such permits would not,
individually or in the aggregate, have a Material Adverse Effect ("Material
Permits"), and neither the Company nor any such Subsidiary has received any
notice of proceedings relating to the revocation or modification of any Material
Permit.
(u) Employment Matters. The Company and each Subsidiary is in
compliance in all material respects with all presently applicable provisions of
the Employee Retirement Income Security Act of 1974, as amended, including the
regulations and published interpretations thereunder ("ERISA"); no "reportable
event" (as defined in ERISA) has occurred with respect to any "pension plan" (as
defined in ERISA) for which the Company or any Subsidiary would have any
liability; neither the Company nor any Subsidiary has incurred and expects to
incur liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal
Revenue Code of 1986, as amended, including the regulations and published
interpretations thereunder (the "Code"); and each "pension plan" for which the
Company or any Subsidiary would have any liability that is intended to be
qualified under Section 401(a) of the Code is so qualified in all material
respects and nothing has occurred, whether by action or by failure to act, which
would cause the loss of such qualification.
(v) Insurance. The Company and each Subsidiary maintains property
and
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casualty, general liability, workers' compensation, environmental hazard,
personal injury and other similar types of insurance with financially sound and
reputable insurers that is adequate, consistent with industry standards. Neither
the Company nor any Subsidiary has received notice from, and has any knowledge
of any threat by, any insurer (that has issued any insurance policy to the
Company or any Subsidiary) that such insurer intends to deny coverage under or
cancel, discontinue or not renew any insurance policy presently in force.
(w) Taxes. All applicable tax returns required to be filed by the
Company and each of the Subsidiaries have been filed, or if not yet filed have
been granted extensions of the filing dates which extensions have not expired,
and all taxes, assessments, fees and other governmental charges upon the
Company, the Subsidiaries, or upon any of their respective properties, income or
franchises, shown in such returns and on assessments received by the Company or
the Subsidiaries to be due and payable have been paid, or adequate reserves
therefor have been set up if any of such taxes are being contested in good
faith; or if any of such tax returns have not been filed or if any such taxes
have not been paid or so reserved for, the failure to so file or to pay would
not in the aggregate or individually have a Material Adverse Effect.
(x) No Integrated Offering. Neither the Company, nor any of its
Affiliates, nor any Person acting on its or their behalf, has directly or
indirectly made any offers or sales in any security or solicited any offers to
buy any securities under circumstances that would cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the Securities Act or any applicable shareholder
approval provisions, including, without limitation, under the rules and
regulations of The Nasdaq Stock Market, as applicable. The Company has not
conducted any offering that will be integrated with the issuance of the
Securities solely for purpose of Rule 4460(i) of The Nasdaq Stock Market, Inc.'s
Marketplace Rules.
(y) Year 2000 Compliance. The Company has initiated a review and
assessment of all areas within its and each Subsidiaries' business and
operations that could be adversely affected by the "Year 2000 Problem" (that is,
the risk that computer applications used by the Company or any of the
Subsidiaries may be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and any date after December 31,
1999). Based on the foregoing, except as set forth on Schedule 2.1(y), the
Company believes that the computer applications that are currently material to
its or any Subsidiaries' business and operations are reasonably expected to be
able to perform properly date-sensitive functions for all dates before and after
January 1, 2000, except to the extent that a failure to do so would not
reasonably be expected to have a Material Adverse Effect. For the avoidance of
doubt, this Section 2.1(y) applies only to the Company and the Subsidiaries.
(z) Full Disclosure. The representations and warranties of the
Company set forth in this Agreement do not contain any untrue statement of a
material fact or omit any material fact necessary to make the statements
contained herein, in light of the circumstances under which they were made, not
misleading.
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2.2 Representations and Warranties of the Purchasers. Each of the
Purchasers, severally and not jointly, hereby represents and warrants to the
Company as follows:
(a) Investment Intent. Such Purchaser is acquiring the Securities
for its own account for investment purposes only and not with a view to or for
distributing or reselling such Securities or any part thereof or interest
therein, without prejudice, however, to such Purchaser's right, at all times to
sell or otherwise dispose of all or any part of such Securities pursuant to an
effective registration statement under the Securities Act and in compliance with
applicable State securities laws or under an exemption from such registration
subject to the provisions of this Agreement and the Registration Rights
Agreement.
(b) Purchaser Status. At the time such Purchaser was offered the
Securities, and at the Closing Date, (i) it was and will be, an "accredited
investor" (as defined in Regulation D), or (ii) such Purchaser either alone or
together with its representatives, had and will have such knowledge,
sophistication and experience in business and financial matters so as to be
capable of evaluating the merits and risks of the prospective investment in the
Securities, and had and will have so evaluated the merits and risks of such
investment. Such Purchaser has the authority and is duly and legally qualified
to purchase and own the Securities.
(c) Ability of Purchaser to Bear Risk of Investment. Such Purchaser
is able to bear the economic risk of an investment in the Securities and, at the
present time, is able to afford a complete loss of such investment.
(d) Reliance. Each Purchaser understands and acknowledges that (i)
the Securities are being offered and sold to the Purchaser without registration
under the Securities Act in a private placement that is exempt from the
registration provisions of the Securities Act under Section 4(2) of the
Securities Act or Regulation D promulgated thereunder and (ii) the availability
of such exemption, depends in part on, and the Company will rely upon the
accuracy and truthfulness of, the foregoing representations and such Purchaser
hereby consents to such reliance.
The Company acknowledges and agrees that the Purchasers make no
representations or warranties with respect to the transactions contemplated
hereby or by the other Transaction Documents other than those specifically set
forth in this Section 2.2.
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ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions.
(a) If any Purchaser should decide to dispose of any Debentures (and
upon conversion thereof any of the Underlying Shares) or Warrants (and upon
exercise thereof any of the Warrant Shares) held by it, each Purchaser
understands and agrees that it may do so only pursuant to an effective
registration statement under the Securities Act, to the Company or pursuant to
an available exemption from the registration requirements of the Securities Act.
In connection with any transfer of any Securities other than pursuant to an
effective registration statement or to the Company, the Company may require the
transferor thereof to provide to the Company a written opinion of counsel, the
form and substance of which opinion shall be reasonably satisfactory to the
Company, to the effect that such transfer does not require registration of such
transferred securities under the Securities Act. Notwithstanding the foregoing,
the Company hereby consents to and agrees to register (i) any transfer of
Securities by one Purchaser to another Purchaser, and agrees that no
documentation other than executed transfer documents shall be required for any
such transfer, and (ii) any transfer by any Purchaser to an Affiliate of such
Purchaser or to an Affiliate of another Purchaser, or any transfer among any
such Affiliates, provided that transferee certifies in writing to the Company
that it is an "accredited investor" (as defined in Regulation D). Any such
transferee shall agree in writing to be bound by the terms of this Agreement and
shall have the rights of a Purchaser under this Agreement and the Registration
Rights Agreement.
(b) Each Purchaser agrees to the imprinting, so long as is required
by this Section 3.1(b), of the following legend on the Securities:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
The Underlying Shares issuable upon conversion of the Debentures and the
Warrant Shares issuable upon exercise of the Warrants shall not contain the
legend set forth above if such conversion or exercise occurs at any time while a
registration statement is effective under the Securities Act or in the event
there is not an effective registration statement at such time, if in the written
opinion of counsel to the Company (such opinion to be furnished at the sole
expenses of
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the Company at the request of a Purchaser) such legend is not required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission). The
Company agrees that it will provide each Purchaser, upon request, with a
certificate or certificates representing Underlying Shares and/or Warrant
Shares, free from such legend at such time as such legend is no longer required
hereunder.
(c) Each Purchaser further agrees that should it decide to dispose
of any Debentures, Underlying Shares, Warrants or Warrant Shares, held by it,
such Purchaser will dispose of no more Securities per day in the aggregate than
would equal the greater of (i) 10% of the average per day trading volume for the
five previous consecutive Trading Days (as defined in the Debentures) and (ii)
such number of Securities having a value of $50,000 based on the previous
Trading Day's Per Share Market Value, provided, however, such restriction shall
no longer apply if the Per Share Market Value (as defined in the Debentures) is
at least $4.00 per share for five out of any seven consecutive Trading Days,
subject to adjustment for stock splits, stock dividends, combinations and other
similar recapitalizations, and so long as the average daily trading volume
during the preceding seven Trading Days is at least 50,000 shares per day.
3.2 Stop Transfer Orders; Suspension of Qualification. The Company may not
make any notation on its records or give instructions to any transfer agent of
the Company which enlarge the restrictions of transfer set forth in Section 3.1.
The Company will advise the Purchasers, promptly after it receives notice of
issuance by the Commission, any state securities commission or any other
regulatory authority of any stop order or of any order preventing or suspending
the use of any offering of any securities of the Company, or of the suspension
of the qualification of the Common Stock for offering or sale in any
jurisdiction, or the initiation of any proceeding for any such purpose.
3.3 Furnishing of Information. As long as any Purchaser owns Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to Section 13(a) or 15(d) of the
Exchange Act and to promptly furnish the Purchasers with true and complete
copies of all such filings. As long as any Purchaser owns Securities, if the
Company is not required to file reports pursuant to Section 13(a) or 15(d) of
the Exchange Act, it will prepare and furnish to the Purchasers and make
publicly available in accordance with Rule 144(c) promulgated under the
Securities Act annual and quarterly financial statements, together with a
discussion and analysis of such financial statements in form and substance
substantially similar to those that would otherwise be required to be included
in reports required by Section 13(a) or 15(d) of the Exchange Act, as well as
any other information required thereby, in the time period that such filings
would have been required to have been made under the Exchange Act. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request, all to the extent required from time to time
to enable such Person to sell Underlying Shares and/or Warrant Shares without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144 promulgated under the Securities Act, including the legal
opinion referenced above in Section 3.1. Upon the request of
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any such Person, the Company shall deliver to such Person a written
certification of a duly authorized officer as to whether it has complied with
such requirements.
3.4 Blue Sky Laws. In accordance with the Registration Rights Agreement,
the Company shall qualify the Underlying Shares and Warrant Shares under the
securities or Blue Sky laws of such jurisdictions as the Purchasers may request
and shall continue such qualification at all times through the third anniversary
of the Closing Date.
3.5 Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of any or all of such securities to any Purchaser.
3.6 Certain Agreements. As long as any Purchaser owns Debentures, the
Company shall not and shall cause the Subsidiaries not to, without the consent
of the holders of all of the Debentures then outstanding, (i) amend its articles
of incorporation, bylaws or other organizational documents so as to adversely
affect any rights of any Purchaser; (ii) declare, authorize, set aside or pay
any dividend or other distribution with respect to the Common Stock as would
adversely affect the rights of any Purchaser hereunder or under the Debentures;
(iii) repay, repurchase or offer to repay, repurchase or otherwise acquire
shares of its Common Stock in any manner; or (iv) enter into any agreement with
respect to any of the foregoing.
3.7 Listing and Reservation of Underlying Shares and Warrant Shares;
Compliance with Law.
(a) The Company shall (i) not later than the fifth Business Day
following the Closing Date prepare and file with The Nasdaq Small-Cap Market (as
well as any other national securities exchange or market on which the Common
Stock is then listed) an additional shares listing application or a letter
acceptable to The Nasdaq Small-Cap Market covering and listing a sufficient
number of shares of Common Stock to cover the maximum number of Underlying
Shares and Warrant Shares then issuable, (ii) take all steps necessary to cause
the Underlying Shares and the Warrant Shares to be approved for listing in The
Nasdaq Small Cap Market (as well as on any other national securities exchange or
market on which the Common Stock is then listed) as soon as possible thereafter,
and (iii) provide to the Purchasers evidence of such listing, and the Company
shall maintain the listing of its Common Stock on such market. As used herein,
"Business Day" means any day except Saturday, Sunday and any day which shall be
a legal holiday or a day on which banking institutions in the State of New York
generally are authorized or required by law or other government actions to
close.
(b) The Company shall at all times have authorized and reserved for
issuance upon conversion of the Debentures and upon exercise of the Warrants a
sufficient number of shares of Common Stock to provide for the conversion of the
Debentures and exercise of the Warrants.
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(c) The Company shall notify the Commission and NASD, in accordance
with their requirements, of the transactions contemplated by this Agreement, and
shall take all other necessary action and proceedings as may be required and
permitted by applicable law, rule and regulation, for the legal and valid
issuance of the Securities to the Purchasers and promptly provide copies thereof
to the Purchasers.
(d) Until at least two (2) years after the last of the Debentures
has been converted into Underlying Shares or the last of the Warrants has been
exercised for the Warrant Shares, (i) the Company will cause its Common Stock to
continue to be registered under Sections 12(b) or 12(g) of the Exchange Act,
will comply in all respects with its reporting and filing obligations under such
Exchange Act, will comply with all requirements related to any registration
statement filed pursuant to this Agreement or the Registration Rights Agreement
and will not take any action or file any document (whether or not permitted by
the Securities Act or the Exchange Act or the rules and regulations thereunder)
to terminate or suspend such registration or to terminate or suspend its
reporting and filing obligations under the Securities Act and Exchange Act,
except as permitted herein and (ii) the Company will take all action within its
power to continue the listing or trading of its Common Stock on The Nasdaq
Small-Cap Market and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the NASD and The
Nasdaq Stock Market.
3.8 Notice of Breaches.
(a) Each of the Company and each Purchaser shall give prompt written
notice to the other of any breach of any representation, warranty or other
agreement contained in this Agreement, the Debentures, the Warrants or the
Registration Rights Agreement, as well as any events or occurrences arising
after the date hereof and prior to the Closing Date, which would reasonably be
likely to cause any representation or warranty or other agreement of such party,
as the case may be, contained herein to be incorrect or breached as of the
Closing Date. However, no disclosure by any party pursuant to this Section 3.8
shall be deemed to cure any breach of any representation, warranty or other
agreement contained herein or in the Registration Rights Agreement.
(b) Notwithstanding the generality of Section 3.8(a), the Company
shall promptly notify each Purchaser of any notice or claim (written or oral)
that it receives from any lender of the Company to the effect that the
consummation of the transactions contemplated hereby, by the Debentures, by the
Warrants and by the Registration Rights Agreement violates or would violate any
written agreement or understanding between such lender and the Company, and the
Company shall promptly furnish by facsimile to each Purchaser a copy of any
written statement in support of or relating to such claim or notice.
(c) The default by any Purchaser of any of its obligations,
representations or warranties under any Transaction Document shall not be
imputed to, and shall have no effect upon, any other Purchaser or affect the
Company's obligations under the Transaction Documents
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to any non-defaulting Purchaser with respect to any outstanding Debentures,
Warrants, Underlying Shares or Warrant Shares.
3.9 Conversion Obligations of the Company. The Company covenants to
convert Debentures and accept the exercise of the Warrants and to deliver the
Underlying Shares and the Warrant Shares in accordance with the terms and
conditions and within the time period set forth in the Debentures and the
Warrants.
3.10 Use of Proceeds. The Company shall use all of the proceeds from the
sale of the Securities for working capital and general corporate purposes and
not for the satisfaction of any portion of Company borrowings outside the normal
course of business, including, without limitation, any obligation or liability
of any kind whatsoever owed to a shareholder, officer or director of the
Company, or to redeem Company equity or equity-equivalent securities, except as
specifically set forth on Schedule 3.10 hereto. Pending application of the
proceeds of this placement in the manner permitted hereby, the Company will
invest such proceeds in interest bearing accounts and/or short-term, investment
grade interest bearing securities.
3.11 Indemnification. The Company also will indemnify and hold the
Purchasers harmless against any and all losses, claims, damages or liabilities
to any such Person (including, without limitation, in connection with any
action, proceeding or investigation brought by or against any such Person,
including by shareholders of the Company) in connection with or as a result of
any matter referred to in the Transaction Documents, including, without
limitation, for any misrepresentation by the Company, for breaches of
representations and warranties contained in any of the Transaction Documents,
and for any breach, non-compliance or nonfulfillment by the Company of any
covenant, agreement or undertaking to be complied with or performed by it
contained in or pursuant to the Transaction Documents. If for any reason the
foregoing indemnification is unavailable to such Purchaser or is insufficient to
hold such Person harmless, then the Company shall contribute to the amount paid
or payable by such Purchaser as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect the relative economic
interests of the Company and its shareholders on the one hand and the Purchasers
on the other hand in the matters contemplated by the Transaction Documents as
well as the relative fault of the Company and the Purchasers with respect to
such loss, claim, damage or liability and any other relevant equitable
considerations. The reimbursement, indemnity and contribution obligations of the
Company under this paragraph shall be in addition to any liability which the
Company may otherwise have, shall extend upon the same terms and conditions to
any affiliate of the Purchasers and the partners, directors, agents, employees
and controlling persons (if any), as the case may be, of the Purchasers and any
such affiliate, and shall be binding upon and inure to the benefit of any
successors, assigns, heirs and personal representatives of the Company, the
Purchasers, any such Affiliate and any such Person. The Company also agrees that
neither the Purchasers nor any of such Affiliates, partners, directors, agents,
employees or controlling persons of the Purchases shall have any liability to
the Company or any Person asserting claims on behalf of or in right of the
Company in connection with or as a result of any matter referred to in this
Agreement except to the extent that any losses, claims, damages, liabilities or
expenses
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incurred by the Company result from the gross negligence or bad faith of, or
knowing breach of this Agreement by, the Purchasers. Promptly after receipt by
the Purchasers or any Affiliate, partners, directors, agents, employees and
controlling persons of the Purchases, as the case may be, of notice of any claim
or other commencement of any action in respect of which indemnity may be sought,
such party will notify the Company in writing of the receipt or commencement
thereof and the Company shall have the right to assume the defense of such claim
or action (including the employment of counsel reasonably satisfactory to the
indemnified parties and the payment of fees and expenses of such counsel). The
indemnified party shall cooperate with the Company and the Company's counsel in
the defense of such claim or action. The Purchasers understand that the Company
shall not in connection with any one such claim or action or separate but
substantially similar related claims or actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys for all
of the indemnified parties unless the defense of one indemnified party is unique
or separate from that of another indemnified party or one or more legal defenses
are available to an indemnified party but not to other indemnified parties
subject to the same claim or action. In the event the Company does not promptly
assume the defense of a claim or action, the indemnified parties shall have the
right to employ counsel reasonably satisfactory to the Company, at the Company's
expense, to defend such claim or action. The indemnified party shall not admit
any liability with respect to the claim or action or settle, compromise, pay or
discharge the same without the prior written consent of the Company so long as
the Company is reasonably contesting or defending the same in good faith. The
Company shall not compromise, settle or discharge any claim or action without
the Purchasers' consent, as applicable, which consent will not be unreasonably
withheld, unless there is no finding or admission of any violation of any law
against the indemnified party and the sole relief is monetary damages paid in
full by the Company. The provisions of this Section 3.11 shall survive any
termination or completion of the Transaction Documents.
3.12 Subsequent Sales and Registrations. (a) Until 60 days after all
Underlying Shares and Warrant Shares have been registered under the Securities
Act pursuant to an effective registration statement, the Company shall not,
directly or indirectly, without the prior written consent of the Purchasers,
offer, sell, grant any option to purchase, or otherwise dispose of (or announce
any offer, sale, grant of any option to purchase or other disposition) any of
its or its Affiliates' equity or equity equivalent securities or any instrument
that permits the holder thereof to acquire Common Stock at a price that is less
than the market price of the Common Stock at the time of issuance of such
security or instrument and, if such security or instrument contains a conversion
feature, at a conversion price that is less than the market price of the Common
Stock at the time of conversion of such security or instrument, except (i) the
granting of options or warrants to employees, officers and directors, and the
issuance of shares upon exercise of options granted, under any stock option plan
heretofore or hereinafter duly adopted by the Company (including any stock
options plans which are restated after the date hereof), (ii) shares issued upon
exercise of any currently outstanding warrants disclosed in Schedule 2.1(c)(i),
and (iii) shares of Common Stock issued upon conversion of Debentures or upon
exercise of the Warrants.
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(b) Other than Underlying Shares, Warrant Shares and other "Registrable
Securities" (as defined in the Registration Rights Agreement) to be registered
in accordance with the Registration Rights Agreement, the Company shall not, for
a period of not less than 90 Trading Days (as defined in the Debentures) after
the dates that any registration statement relating to the Securities is declared
effective by the Commission, without the prior written consent of the
Purchasers, (i) register for resale any securities of the Company, except as set
forth on Schedule 2.1(r), or (ii) issue or sell any of its or any of its
Affiliates' equity or equity-equivalent securities except with respect to this
clause (ii) for (A) securities issued upon the exercise or conversion of the
securities set forth on Schedule 2.1(c)(i), (B) securities sold pursuant to the
Company's employee benefit plans, (C) Securities sold pursuant to the Company's
currently contemplated offering on the German Bourse Market and 500,000 shares
at a price of $4.00 per share which are to be sold to an affiliate of the
underwriter of the German offering, or (D) private sales of shares of Common
Stock; provided that with respect to clause D the purchasers of such Common
Stock are not granted rights to have such shares registered under the Securities
Act until at least 90 Trading Days (as defined in the Debentures) after the
dates that any registration statement relating to the Securities is declared
effective by the Commission. Any days that any Purchaser is unable to sell
Underlying Shares or Warrant Shares under the Registration Statement shall be
added to such 90 Trading Day period for the purposes of (i) and (ii) above.
3.13 Shareholder Approval. The Company shall, as promptly as possible, but
in no event later than 60 days after the Closing Date, convene a shareholders'
meeting, held in accordance with the Company's Certificate of Incorporation and
bylaws, and use its best efforts to obtain the approval ("Shareholder Approval")
by a majority of the total votes cast on the proposal at such shareholders'
meeting, in person or by proxy, of (i) the issuance of the Underlying Shares as
a consequence of the conversion of the Debentures and (ii) the issuance of the
Warrant Shares as a consequence of the exercise of the Warrants, in each case in
a number exceeding the maximum number of shares of Common Stock issuable without
shareholder approval at a price less than the greater of the book or market
value on the Original Issue Date (as defined in the Debentures) as and to the
extent required pursuant to Rule 4460(i) of The Nasdaq Stock Market, Inc.'s
Marketplace Rules (or any successor or replacement provision thereof).
3.14 Incorporation of the Debentures By Reference. The Debentures are
hereby incorporated herein by reference and made a part hereof.
ARTICLE IV
CONDITIONS
4.1 Conditions Precedent to Sale of the Securities.
(a) Conditions Precedent to the Obligation of the Company to Sell
the Securities. The obligation of the Company to sell the Securities hereunder
is subject to the
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<PAGE> 19
satisfaction or waiver by the Company, at or before the Closing, of each of the
following conditions:
(i) Accuracy of the Purchasers' Representations and
Warranties. The representations and warranties of each Purchaser shall be true
and correct in all material respects as of the date when made and as of the
Closing Date, as though made on and as of such date;
(ii) Performance by the Purchasers. Each Purchaser shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Purchaser at or prior to the Closing; and
(iii) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by the Transaction Documents.
(b) Conditions Precedent to the Obligation of the Purchasers to
Purchase the Securities. The obligation of each Purchaser hereunder to acquire
and pay for the Securities is subject to the satisfaction or waiver by such
Purchaser, at or before the Closing, of each of the following conditions:
(i) Accuracy of the Company's Representations and Warranties.
The representations and warranties of the Company set forth in this Agreement
and in the Registration Rights Agreement shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made on and as of such date;
(ii) Performance by the Company. The Company shall have
performed, satisfied and complied with in all material respects all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing;
(iii) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by the Transaction Documents;
(iv) Litigation; Proceedings. No action, suit, notice of
violation, proceeding or investigation shall have been instituted or threatened
against the Company which could reasonably be expected to, individually or in
the aggregate, have a Material Adverse Effect;
(v) Adverse Changes. Since the date of the financial
statements included in the SEC Document last filed prior to the date of this
Agreement, no event which had
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<PAGE> 20
or could reasonably be expected to have a Material Adverse Effect and no
material adverse change in the financial condition of the Company shall have
occurred (for purposes hereof changes in the market price of the Common Stock
may be considered as a factor in determining whether there has occurred an event
which has had a Material Adverse Effect or whether a material adverse change has
occurred);
(vi) No Suspensions of Trading in Common Stock. The trading in
the Common Stock shall not have been suspended by the Commission or on The
Nasdaq Small Cap Market which suspension shall remain in effect and the Company
shall have no knowledge of any action or proceeding, pending or threatened, that
may result in the delisting of the Common Stock from the Nasdaq Small Cap
Market;
(vii) Listing of Common Stock. The Company shall have filed a
listing application to list the Underlying Shares and the Warrant Shares for
trading on The Nasdaq Small Cap Market;
(viii) Legal Opinion. The Company shall have delivered to the
Purchasers the opinion of Kelly Lytton Mintz & Vann LLP, outside counsel to the
Company, in substantially the form annexed hereto as Exhibit D;
(ix) Required Approvals. All Required Approvals shall have
been obtained;
(x) Shares of Common Stock. On or prior to the Closing Date,
the Company shall have duly reserved the number of Underlying Shares and Warrant
Shares required by the Transaction Documents to be reserved for issuance upon
conversion of the Debentures and upon exercise of the Warrants;
(xi) Delivery of Debentures and Warrant Certificates. The
Company shall have delivered to each Purchaser or such Purchaser's designee, (i)
the Debentures registered in the name of such Purchaser, each in form
satisfactory to the Purchaser and in the amount specified opposite such
Purchaser's name on Schedule 1 hereto, and (ii) warrant certificate(s)
representing the Warrants, registered in the name of such Purchaser, in form
satisfactory to the Purchaser and in the amount specified opposite such
Purchaser's name on Schedule 1 hereto;
(xii) Registration Rights Agreement. The Company shall have
executed and delivered the Registration Rights Agreement;
(xiii) Change of Control. No Change of Control shall have
occurred between the date hereof and the Closing Date. "Change of Control" means
the occurrence of any of (i) an acquisition after the date hereof by an
individual or legal entity or "group" (as described in Rule 13d5(b)(1)
promulgated under the Exchange Act) of in excess of 50% of the voting
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<PAGE> 21
securities of the Company, (ii) a replacement of more than one-half of the
members of the Board of Directors on the date hereof in one or a series of
related transactions which is not approved by those individuals who are members
of the Board of Directors on the date hereof, (iii) the merger of the Company
with or into another entity, consolidation or sale of all or substantially all
of the assets of the Company in one or a series of related transactions or (iv)
the execution by the Company of an agreement to which the Company is a party or
by which it is bound, providing for any of the events set forth above in (i),
(ii) or (iii);
(xiv) Transfer Agent Instructions. Irrevocable instructions to
the Transfer Agent, in a form reasonably acceptable to the Purchasers, shall
have been delivered to and acknowledged in writing by the Company's transfer
agent; and
(xv) Officer's Certificate. On the Closing Date the Company
shall deliver to the Purchasers an Officer's Certificate dated the Closing Date
and signed by an executive officer of the Company confirming the accuracy of the
Company's representations, warranties and covenants as of such Closing Date and
confirming the compliance by the Company with the conditions precedent set forth
in this Section 4.1 as of the Closing Date.
ARTICLE V
MISCELLANEOUS
5.1 Fees and Expenses.
(a) The Company shall pay the reasonable legal fees and expenses of
Kronish Lieb Weiner & Hellman, LLP, counsel for the Purchasers, incident to the
negotiation, preparation, execution, delivery and performance of this Agreement
and the other Transaction Documents, which legal fees shall not exceed $15,000
in connection with the negotiation, preparation, execution and delivery of this
Agreement and the other Transaction Documents. The Company shall pay the fees
and expenses of its advisers, counsel, accountants and other experts, if any,
and all other expenses incurred by the Company incident to the negotiation,
preparation, execution, delivery and performance of this Agreement and the other
Transaction Documents. The Company shall pay all stamp and other taxes and
duties levied in connection with the issuance of the Securities pursuant to the
Transaction Documents.
(b) The Company shall pay EBI Securities, Inc. ("EBI") at the
Closing a fee equal to 5% of the aggregate principal amount of Debentures sold
at such closing. EBI is an intended third-party beneficiary of this Section
5.1(b).
5.2 Entire Agreement; Amendments. This Agreement, together with the
Exhibits and Schedules hereto and the other Transaction Documents, contain the
entire understanding of the parties with respect to the subject matter hereof
and supersede all prior agreements and
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<PAGE> 22
understandings, oral or written, with respect to such matters.
5.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earlier of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified for notice prior to 5:00 p.m., New York City time, on
a Business Day, (ii) the Business Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified for notice later than 5:00 p.m., New York City time, on any
date and earlier than 11:59 p.m., New York City time, on such date, (iii) the
Business Day following the date of mailing, if sent by nationally recognized
overnight courier service or (iv) actual receipt by the party to whom such
notice is required to be given. The addresses for such communications shall be
with respect to each Purchaser at its address set forth under its name on
Schedule 1 attached hereto, or with respect to the Company, addressed to:
Team Communications Group, Inc.
12300 Wilshire Boulevard, #400
Los Angeles, California 90025
Attention: Drew S. Levin
Telephone No.: (310) 442-3500
Facsimile No.: (310) 442-3501
or to such other address or addresses or facsimile number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice. Copies of notices to any Purchaser shall be sent to Kronish Lieb
Weiner & Hellman LLP, 1114 Avenue of the Americas, New York, New York 10036,
Attention: Steven Huttler, Esq. , fax: (212) 479- 6725. Copies of notices to the
Company shall be sent to Kelly Lytton Mintz & Vann LLP, 1900 Avenue of the
Stars, Suite 1450, Los Angeles, California 90067, Attention: Bruce P. Vann Esq.,
Facsimile No.: (310) 277-5953.
5.4 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
both the Company and the Purchasers; or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
either party to exercise any right hereunder in any manner impair the exercise
of any such right accruing to it thereafter. Notwithstanding the foregoing, no
such amendment shall be effective to the extent that it applies to less than all
of the holders of the Securities outstanding. The Company shall not offer or pay
any consideration to a Purchaser for consenting to such an amendment or waiver
unless the same consideration is offered to each Purchaser and the same
consideration is paid to each Purchaser which consents to such amendment or
waiver.
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<PAGE> 23
5.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
5.6 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each of the Purchasers. The Purchasers may
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the Company, except that any assignee must make the
representations and warranties set forth in Section 2.2 and otherwise comply
with the terms of this Agreement otherwise applicable to its assignor. This
provision shall not limit a Purchaser's right to transfer securities or transfer
or assign rights under the Registration Rights Agreement.
5.7 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.
5.8 Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York, without regard to
the principles of conflicts of law thereof.
5.9 Survival. The agreements, covenants, representations, warranties and
provisions contained in this Agreement shall survive the delivery of the
Securities pursuant to this Agreement and the Closing hereunder and any
conversion of the Debentures or exercise of the Warrants.
5.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that all
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
5.11 Publicity. The Company and each Purchaser shall consult with each
other in issuing any press releases or otherwise making public statements with
respect to the transactions contemplated hereby and neither party shall issue
any such press release or otherwise make any such public statement without the
prior written consent of the other, which consent shall not be unreasonably
withheld or delayed, except that no prior consent shall be required if such
disclosure is required by law, in which such case the disclosing party shall
provide the other Party with prior notice of such public statement. The Company
shall not publicly or otherwise disclose the names of any of the Purchasers
without each such Purchaser's prior written consent unless otherwise required by
law, in which case the Company shall inform such Purchaser of such disclosure in
writing prior to making such disclosure.
23
<PAGE> 24
5.12 Consent to Jurisdiction; Attorneys' Fees.
(a) The Company (including, but not limited to, its affiliates,
subsidiaries, officers, directors and controlling persons) and each Purchaser
hereby (i) irrevocably submits to the exclusive jurisdiction of any New York
State court or Federal court sitting in the Borough of Manhattan, The City of
New York in any action related to, connected with or arising out of, in whole or
in part, the Transaction Documents, including, but not limited to, transactions
in the securities of the Company subsequent to the purchase by such Purchaser or
Persons claimed to be affiliated with such Purchaser, (ii) agrees that all
claims in such action shall be decided in such court, (iii) waives, to the
fullest extent it may effectively do so, the defense of inconvenient forum and
(iv) consents to the service of process by certified mail, return receipt
requested. Nothing herein shall affect the right of any party to serve legal
process in any manner permitted by law or affect its right to bring any action
in any other court.
(b) In connection with any dispute between the Company and any
Purchaser, related to, connected with or arising out of, in whole or in part,
the Transaction Documents including, but not limited to, transactions in the
securities of the Company subsequent to the purchase, by a Purchaser or Persons
claimed to be affiliated to a Purchaser, the prevailing party shall be awarded
all reasonable attorneys' fees and expenses incurred by it. In that connection
fees and expenses actually paid by a party in connection with the litigation of
any dispute shall be deemed presumably reasonable.
(c) In the event that any Purchaser or any Person claimed to be
affiliated or associated with such Purchaser becomes involved in any capacity in
any action, proceeding or investigation brought by or against any Person,
including shareholders of the Company, in connection with or as a result of any
matter referred to in the Transaction Documents, the Company will reimburse such
Purchaser and/or those claimed to be affiliated or associated with such
Purchaser for its legal fees and expenses and other expenses (including the cost
of any investigation and preparation) incurred in connection therewith, as those
fees and expenses are incurred; provided, however, that if at the conclusion of
such action, proceeding or investigation it shall be finally judicially
determined by a court of competent jurisdiction that indemnity for such fees and
expenses is contrary to law, or that such Purchaser is not the prevailing party
then in that event, such Purchaser and/or any other Person having received such
advances of fees and expenses shall reimburse the Company in full for the sums
advanced.
(d) The provisions of this Section 5.12 shall survive any
termination or completion of the Transaction Documents.
5.13 Waiver of Jury Trial (a) The parties hereto each waive their
respective rights to a trial by jury of any claim or cause of action based upon
or arising out of or related to the Transaction Documents, or the transactions
contemplated by the Transaction Documents, in any action, proceeding or other
litigation of any type brought by any of the parties against any other party or
parties, whether with respect to contract claims, tort claims, or otherwise. The
parties
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<PAGE> 25
hereto each agree that any such claim or cause of action shall be tried by a
court trial without a jury. Without limiting the foregoing, the parties further
agree that their respective right to a trial by jury is waived by operation of
this Section 5.13 as to any action, counterclaim or other proceeding which
seeks, in whole or in part, to challenge the validity or enforceability of any
of the Transaction Documents or any provision hereof or thereof. The waiver
shall apply to any subsequent amendments, renewals, supplements or modifications
to any of the Transaction Documents.
(b) The provisions of this Section 5.13 shall survive any
termination or completion of the Transaction Documents.
5.14 Severability. If any term, provision, covenant or restriction of this
Agreement is held to be invalid, illegal, void or unenforceable in any respect,
the remainder of the terms, provisions, covenants and restrictions set forth
herein shall remain in full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use their reasonable
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
5.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Purchasers
will be entitled to specific performance of the obligations of the Company under
the Transaction Documents and injunctive relief. Each of the Company and the
Purchasers (severally and not jointly) agree that monetary damages would not be
adequate compensation for any loss incurred by reason of any breach of its
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation or injunctive relief
the defense that a remedy at law would be adequate.
5.16 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser hereunder is several and not joint with the
obligations of the other Purchasers hereunder, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any Closing, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose.
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<PAGE> 26
IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized persons as of the
date first indicated above.
TEAM COMMUNICATIONS GROUP, INC.
By: /s/ JONATHAN D. SHAPIRO
----------------------------------
Name: Jonathan D. Shapiro
----------------------------------
Title: President and COO
----------------------------------
HUDSON INVESTORS LLC
By: WEC Asset Management LLC
By: /s/ DANIEL SAKS
----------------------------------
Name: Daniel Saks
----------------------------------
Title: Managing Director
----------------------------------
26
<PAGE> 27
Schedule 1
<TABLE>
<CAPTION>
Principal Amount of Number of Warrants
Name of Investor Debentures Purchased Purchased
- ---------------- --------------------- ------------------
<S> <C> <C>
Hudson Investors LLC $4,000,000 340,000
</TABLE>
27
<PAGE> 28
SCHEDULE 2.1(a) -- SUBSIDIARIES
Amazing Tails, Inc.
Longform Entertainment, Inc.
Simply Style Productions, Inc.
Mary Lou's Flip Flop Shop, Inc.
<PAGE> 29
SCHEDULE 2.1(c)(i)
Listing of Outstanding Warrants, Options and Other Stock Derivatives
<TABLE>
<CAPTION>
Warrant and Options Number of Exercise
Issued To Warrants Price
- ------------------- ---------- --------
<S> <C> <C>
Various 313,432 $ .43
Various 193,870 .97
Various 135,000 1.00
Various 20,000 1.07
Various 231,000 1.62
Various 26,250 1.65
Various 40,000 2.00
Various 85,000 2.16
Various 200,000 2.20
Various 20,000 2.45
Various 30,000 2.50
Various 32,000 2.75
Various 75,000 3.00
Various 25,000 3.25
Various 5,000 3.50
Various 12,500 5.50
Various 150,000 7.43
35,000 7.61
---------- -----
TOTAL WARRANTS & OPTIONS 1,629,852
OTHER CONVERTIBLE SECURITIES
$296,000 secured convertible
notes(a) 118,400 $2.50
----------
$1,200,000 secured convertible
note to VMR Luxembourg, S.A.(c)
TOTAL 1,798,252(b)
</TABLE>
(a) Convertible after July 29, 1999, one year after the Initial Public
Offering.
(b) The Company is contractually obligated to issue, but the Board of
Directors has not yet approved the issuance of, options to purchase
105,000 shares of Common Stock at a purchase price between $1.98 and $3.00
per share. The Company has already recorded compensation expense for these
shares.
(c) $1,000,000 of which is to be repaid from the proceeds of this transaction.
The note is convertible as per formula attached to this Schedule.
<PAGE> 30
4. Transfers. The Debentures have been issued subject to
investment representations of the original purchaser and may be transferred or
exchanged only in compliance with the Securities Act of 1933, as amended, and
applicable state securities laws. Prior to due presentment for transfer of each
Debenture, the Company may treat the Holder as the owner thereof for the purpose
of receiving payments as herein provided and all other purposes, and the Company
shall not be affected by any notice to the contrary.
5. Conversion at the Option of the Holder.
(a) (i) The Debentures shall be convertible into shares of
Common Stock (subject to Section 5(a)(ii) and Section 5(a)(iii)) at the
Conversion Ratio (as defined in Section 9) at the option of the Holder
in whole or in part at any time after such date as the closing sales
price of the Company's common stock as reported on the Nasdaq Small Cap
Market (or Nasdaq Market if so listed) equals or exceeds $12.00. The
Holders shall effect conversions by surrendering the Debentures to be
converted to the Company, together with the form of conversion notice
attached hereto as Exhibit 1 (the "Conversion Notice"). The Conversion
Notice may be delivered by facsimile, with the Debenture to follow
within three Trading Days. Each Conversion Notice shall specify the
principal amount of Debentures to be converted. The date on which such
conversion is to be effected shall be the date the Holder delivers such
Conversion Notice by facsimile (the "Conversion Date"). Subject to
Sections 5(a)(ii), 5(b) and 5(k) hereof, each Conversion Notice, once
given, shall be irrevocable. If the Holder is converting less than all
of the principal amount represented by the Debenture tendered by the
Holder with the Conversion Notice, or if a conversion hereunder cannot
be effected in full for any reason, the Company shall promptly deliver
to such Holder, at the expense of the Company, (in the manner and within
the time set forth in Section 5(b)) a new Debenture representing the
unconverted principal amount, to the same extent as if the Debenture
theretofore representing such unconverted principal amount had not been
surrendered on conversion.
(ii) If on the Conversion Date applicable to any
conversion, (A) the Common Stock is then listed for trading on the
Nasdaq National Market, the New York Stock Exchange, the American Stock
Exchange or The Nasdaq Small Cap Market, (B) the Conversion Price then
in effect is such that the aggregate number of shares of Common Stock
that would then be issuable upon conversion of all the outstanding
Debentures, together with any shares of Common Stock previously issued
upon conversion of Debentures, would equal or exceed 20% of the number
of shares of Common Stock outstanding on the Original Issue Date (the
"Issuable Maximum"), and (C) the Company has not previously obtained (or
attempted pursuant to clause (i) of this subsection to obtain)
Shareholder Approval (as defined below), then the Company shall issue to
any Holder so requesting conversion of Debentures its pro rata portion
of the Issuable Maximum in the same ratio that the principal amount of
Debentures held by any such Holder bears to the aggregate principal
amount of Debentures then outstanding and, with respect to the aggregate
principal amount of the Debentures that remains outstanding after such
issuance (the "Remaining Principal Amount"), the Company shall at the
Holder's request, (x) as promptly as possible but in no event later than
60 days after such Conversion Date, convene a meeting of the holders of
the Common Stock and use its best efforts to obtain the Shareholder
Approval or a waiver of such approval from The Nasdaq Stock Market or
the appropriate exchange and (y) (1) as promptly as possible from time
to time, after a written request by the Holder, issue shares of Common
Stock at a Conversion Price equal to the Per Share Market Value on the
Trading Day immediately preceding the date of such request for all or a
portion of Remaining Principal Amount (plus any accrued interest
thereon) held by such Holder (whether or not subject to the Conversion
Notice specified above) or (2) as promptly as possible but in any event
within seven days after a request by the Holder redeem all or a portion
of the Remaining Principal Amount (plus any accrued interest thereon) to
which such Conversion Notice applies, for an amount, paid in cash, equal
to the greater of (A) the aggregate principal amount of such Debentures,
plus accrued and unpaid interest, multiplied by 130%, or (B) the
applicable Conversion Ratio as of the Conversion Date multiplied by the
average Per Share Market Value for the five Trading Days immediately
preceding the Conversion Date or the date of payment, whichever is
greater. If the Holder has requested that the Company redeem Debentures
pursuant to this Section and the Company fails for any reason to pay the
redemption price, as calculated pursuant to the immediately preceding
sentence, within seven days after such notice is deemed delivered
pursuant to the preceding sentence, the Company will pay interest on the
redemption price at a rate of 15% per annum, in cash to such Holder,
accruing from such seventh day until the redemption price and any
accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). "Shareholder Approval" means
the approval by a majority of the total votes cast on the proposal, in
person or
-2-
<PAGE> 31
by proxy, at a meeting of the shareholders of the Company held in
accordance with the Company's articles of incorporation and by-laws, of
the issuance by the Company of shares of Common Stock exceeding the
Issuable Maximum as a consequence of the conversion of the Debentures
into Common Stock at a price less than the greater of the book or market
value on the Original Issue Date as and to the extent required pursuant
to Rule 4460(i) of The Nasdaq Stock Market, Inc.'s Marketplace Rules (or
any successor or replacement provision thereof).
(iii) In no event shall a Holder be permitted to convert
in excess of such principal amount of Debentures upon the conversion of
which, (x) the number of shares of Common Stock owned by such Holder
(other than shares of Common Stock issuable upon conversion of
Debentures, plus (y) the number of shares of Common Stock issuable upon
such conversion of such Debentures, would be equal to or exceed (z)
9.999% of the number of shares of Common Stock then issued and
outstanding, including shares issuable on conversion of the Debentures
held by such Holder after application of this Section 5(a)(iii). To the
extent that the limitation contained in this Section 5(a)(iii) applies,
the determination of whether Debentures are convertible (in relation to
other securities owned by a Holder) and of which Debentures are
convertible shall be in the sole discretion of such Holder, and the
submission of Debentures for conversion shall be deemed to be such
Holder's determination of whether such Debentures are convertible (in
relation to other securities owned by a Holder) and of which Debentures
are convertible, in each case subject to such aggregate percentage
limitation, and the Company shall have no obligation to verify or
confirm the accuracy of such determination. Nothing contained herein
shall be deemed to restrict the right of a Holder to convert such
Debentures at such time as such conversion will not violate the
provisions of this paragraph. The provisions of this Section 5(a)(iii)
may be waived by a Holder of Debentures as to itself (and solely as to
itself) upon not less than 60 days prior notice to the Company, and the
provisions of this Section 5(a)(iii) shall continue to apply until such
60th day (or later, if stated in the notice of waiver). No conversion in
violation of this paragraph but otherwise in accordance with this
Debenture shall affect the status of the securities issued upon such
conversion as validly issued, fully-paid and nonassessable.
(b) (i) Not later than three (3) Trading Days after any
Conversion Date, the Company will deliver to the applicable Holder by
express courier (A) a certificate or certificates which shall be free of
restrictive legends and trading restrictions (other than those required
by Section 3.1(b) of the Securities Purchase Agreement) representing the
number of shares of Common Stock being acquired upon the conversion of
Debentures (subject to reduction pursuant to Section 5(a)(ii) and
Section 5(a)(iii)) and (B) a new Debenture representing the unconverted
principal amount. If in the case of any Conversion Notice such Debenture
or Debentures are not delivered to or as directed by the applicable
Holder by the seventh Trading Day after the Conversion Date (the
"Delivery Date"), the holder shall be entitled by written notice to the
Company at any time on or before its receipt of such Debenture or
Debentures thereafter, to rescind such conversion, in which event the
Company shall immediately return the Debentures tendered for conversion,
whereupon the Company and the Holder shall each be restored to their
respective positions immediately prior to the delivery of such notice of
revocation, except that any amounts described in Sections 5(b)(ii) and
(iii) shall be payable through the date notice of rescission is given to
the Company.
(ii) The Company understands that a delay in the delivery
of the shares of Common Stock upon conversion of Debentures and failure
to deliver a new Debenture representing the unconverted principal amount
beyond the Delivery Date could result in economic loss to the Holder. If
the Company fails to deliver to the Holder such certificate or
certificates pursuant to this Section hereunder by the Delivery Date for
any reason other than the failure to obtain Shareholder Approval as
provided in Section 5(a)(ii), the Company shall pay to such Holder, in
cash, an amount per Trading Day for each Trading Day until such
certificates are delivered, together with interest on such amount at a
rate of 15% per annum, accruing until such amount and any accrued
interest thereon is paid in full, equal to (i) 1% of the aggregate
principal amount of the Debentures, plus the accrued and unpaid interest
thereon, requested to be converted for the first four Trading Days after
the Delivery Date and (ii) 2% of the aggregate principal amount of the
Debentures, plus the accrued and unpaid interest thereon, requested to
be converted for each Trading Day thereafter (which amounts shall be
paid as liquidated damages and not as a penalty). If the Company fails
to deliver to the Holder such certificate or certificates pursuant to
this Section prior to the 15th Trading Day after the Conversion Date,
the Company shall, at the Holder's option, redeem in cash, from funds
legally available therefor at the time of such redemption, such
principal amount of Debentures then held by such Holder, plus the
accrued and unpaid interest
-3-
<PAGE> 32
thereon, as requested by such Holder, in cash. The redemption price
shall be equal to the aggregate principal amount of Debentures then held
by such Holder, plus accrued and unpaid interest thereon, multiplied by
the average Per Share Market Value for the five Trading Days immediately
preceding (A) the Conversion Date or (B) the date of payment in full by
the Company of such prepayment price, whichever is greater, multiplied
by the Conversion Ratio calculated on the Conversion Date. If the Holder
has requested that the Company redeem Debentures pursuant to this
Section and the Company fails for any reason to pay the redemption
price, as calculated pursuant to the immediately preceding sentence,
within seven days after such notice is deemed delivered pursuant to
Section 5(a)(i), the Company will pay interest on the redemption price
at a rate of 15% per annum, in cash to such Holder, accruing from such
seventh day until the redemption price and any accrued interest thereon
is paid in full (which amount shall be paid as liquidated damages and
not as a penalty). Nothing herein shall limit a Holder's right to pursue
actual damages for the Company's failure to deliver certificates
representing shares of Common Stock upon conversion within the period
specified herein (including, without limitation, damages relating to any
purchase of shares of Common Stock by such Holder to make delivery on a
sale effected in anticipation of receiving certificates representing
shares of Common Stock upon conversion, such damages to be in an amount
equal to (A) the aggregate amount paid by such holder for the shares of
Common Stock so purchased minus (B) the aggregate amount of net
proceeds, if any, received by such Holder from the sale of the shares of
Common Stock issued by the Company pursuant to such conversion), and
such Holder shall have the right to pursue all remedies available to it
at law or in equity (including, without limitation, a decree of specific
performance and/or injunctive relief).
(iii) In addition to any other rights available to the
Holder, if the Company fails to deliver to the Holder such certificate
or certificates pursuant to Section 5(b)(i) by the Delivery Date and if
after the Delivery Date the Holder purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by such Holder of the Underlying Shares which the
Holder anticipated receiving upon such conversion (a "Buy-In"), then the
Company shall pay in cash to the Holder (in addition to any remedies
available to or elected by the Holder) the amount by which (A) the
Holder's total purchase price (including brokerage commissions, if any)
for the shares of Common Stock so purchased exceeds (B) the aggregate
principal amount of the Debentures for which such conversion was not
timely honored, together with interest thereon at a rate of 15% per
annum, accruing until such amount and any accrued interest thereon is
paid in full (which amount shall be paid as liquidated damages and not
as a penalty). For example, if the Holder purchases shares of Common
Stock having a total purchase price of $11,000 to cover a Buy-In with
respect to an attempted conversion of $10,000 aggregate principal amount
of the Debentures, the Company shall be required to pay the Holder
$1,000, plus interest. The Holder shall provide the Company written
notice indicating the amounts payable to the Holder in respect of the
Buy-In.
(c) (i) The conversion price for the Debentures (the "Conversion
Price") in effect on any Conversion Date shall be the lesser of (A) an
amount equal the average Per Share Market Value for five consecutive
Trading Days immediately prior to the Original Issue Date and (B) an
amount equal to 93% of the Per Share Market Value for the Trading Day
having the lowest Per Share Market Value during the five Trading Days
prior to the Conversion Date (the "Look Back Period"), except that if
during any period (a "Black-out Period"), a Holder is unable to trade
any Common Stock issued or issuable upon conversion of Debentures
immediately due to the postponement of filing or delay or suspension of
effectiveness of a registration statement or because the Company has
otherwise informed such Holder that an existing prospectus cannot be
used at that time in the sale or transfer of such Common Stock, such
Holder shall have the option but not the obligation on any Conversion
Date within ten Trading Days following the expiration of the Black-out
Period of using the Conversion Price applicable on such Conversion Date
or any Conversion Price selected by such Holder that would have been
applicable had such Conversion Date been at any earlier time during the
Black-out Period or within the ten Trading Days thereafter. Beginning on
the 150th day following the Original Issue Date, the number of Trading
Days used in clause (B) above in calculating the Look Back Period shall
be increased by two Trading Days per month up to a maximum of 12 Trading
Days.
Notwithstanding the foregoing, if the Company has failed to file
a registration statement as required by the Registration Rights Agreement within
30 days after the date (the "Filing Date") it was required to file such
registration statement pursuant to the Registration Rights Agreement or if any
registration statement required to be filed by the Company pursuant to the
Registration Rights Agreement has not been declared effective by the Commission
within 30 days after the date it was required to be declared effective by the
Commission pursuant to the Registration Rights
-4-
<PAGE> 33
deemed likewise to have been thereupon remedied, cured or waived without further
action upon the part of any of the holders of Debentures; or
(g) The Common Stock is delisted from, or trading in the Common
Stock shall have been suspended for more than ten Trading Days on, The Nasdaq
Small-Cap Market or such other principal market or exchange on which the Common
Stock is listed for trading; or
(h) The Company fails to timely deliver the shares of Common
Stock to the Holder or a replacement Debenture representing any unconverted
portion of this Debenture pursuant to this Debenture; or
(i) The issuance by the Securities and Exchange Commission of any
stop order suspending the effectiveness of the Registration Statement covering
any or all of the Registrable Securities (as defined in the Registration Rights
Agreement) or the initiation of any proceedings for that purpose.
With the exception of an Event of Default specified in clauses (d) or (e) above,
upon the occurrence and continuance of an Event of Default, the Holder may
declare the principal of and interest on the Debentures and all other amounts
owing under the Transaction Documents to be forthwith due and payable by giving
written notice thereof to the Company without presentment, demand, protest or
other notice of any kind, all of which are hereby expressly waived, anything in
the Transaction Documents to the contrary notwithstanding. Upon the occurrence
and continuance of an Event of Default specified in clauses (d) or (e) above,
such principal, interest and other amounts shall thereupon and concurrently
therewith become automatically due and payable all without any action by the
Holder and without presentment, demand, protest or other notice of any kind, all
of which are expressly waived, anything in the Transaction Documents to the
contrary notwithstanding.
Interest on overdue principal and interest (and other amounts, if
any) shall accrue from the date on which such principal and interest (and other
amounts, if any) were due and payable to the date such principal and interest
(and other amounts, if any) are paid or duly provided for, at a rate of 15% per
annum (to the extent payment of such interest shall be legally enforceable).
7. Definitions. For the purposes hereof, the following terms
shall have the following meanings:
"Common Stock" means the common stock, no par value per share, of
the Company and stock of any other class into which such shares may hereafter
have been reclassified or changed.
"Conversion Ratio" means the number of shares of Common Stock
issuable upon conversion of each Debentures determined by the application of the
following formula where "D" equals the accrued and unpaid interest on the
aggregate principal amount of Debentures so converted as of the Conversion Date:
_________Principal Amount to be Converted + D_________
Conversion Price
"Independent Appraiser" means a nationally recognized or major
regional investment banking firm or firm of independent certified public
accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Company) that is regularly engaged in
the business of appraising the capital stock or assets of corporations or other
entities as going concerns, and which is not affiliated with either the Company
or any Holder.
"NASDAQ" means the National Association of Securities Dealers
Automated Quotation System.
"Original Issue Date" shall mean the date of the first issuance
of any Debentures regardless of the number of transfers of any particular
Debentures and regardless of the number of certificates which may be issued to
evidence such Debentures.
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on The Nasdaq
Small-Cap Market, the Nasdaq National Market or other registered national stock
exchange on which the Common Stock is then listed or if there is no such price
on such date, then the closing bid
-10-
<PAGE> 34
SCHEDULE 2.1(f) - REQUIRED CONSENTS
Consent of National Securities Corporation pursuant to that certain
Underwriting Agreement dated July 29, 1998.
Consent of Austinvest Anstalt Balzers, Esquire Trade & Finance Inc., Amro
International, S.A. and Nesher Inc., pursuant to that certain Securities
Purchase Agreement dated as of January 28, 1999.
Consent of VMR Luxembourg, S.A., pursuant to that certain Securities
Purchase Agreement dated Marcy 19, 1999.
<PAGE> 35
SCHEDULE 2.1 (g) - LITIGATION PROCEEDINGS AND OTHER MATTERS
In January 1999, the Company was served with a complaint in a matter
styled Mel Giniger & Associates vs. Team Communications Group, Inc., et al filed
in the Superior Court of the County of Los Angeles. In the complaint, the
Plaintiff, an individual who served and continues to serve as a sales agent for
the company, alleges that he is owed commissions for sales of certain of the
Company's programming and that the Company has failed to pay in full the amounts
Plaintiff alleges are owed to him. The complaint seeks damages for breach of
contract, services rendered, account stated and for payment of value for
services rendered. A bond has been posted for $100,000 in respect of a pre-trial
writ of attachment which was granted against the Company in this action. The
Company has filed an answer and intends to vigorously defend itself.
In March 1999, the Company was served with a notice of a Demand for
Arbitration in a matter styled Venture Management Consultants, LLC and TEAM
Communications Group, Inc., et al. with the American Arbitration Association.
The demand stems from a dispute between the parties concerning a consulting
agreement to provide investment banking services. The Company intends to file an
answer and to vigorously defend itself. In August 1999, Venture Management
Consultants, LLC filed an additional Superior Court action alleging their right
to additional shares of the Company's stock in consideration for an extension of
the due date of a promissory note between Venture Management Consultants, LLC
and the Company. The underlying note and its accrued interest has been paid in
full. The Company intends to file an answer and vigorously defend itself.
At this time, the outcome of any of the above matters cannot be determined
by the Company with any certainty.
The Company is currently in technical default with respect to obligations
under various notes. As of July 31, 1999, the principal amount of notes in
default is $464,500.
<PAGE> 36
SCHEDULE 2.1(r)
<TABLE>
<S> <C>
Chun Sing Investment Limited 11,250
Stellar Group, Inc. 7,500
Danny T. T. Chan 6,250
Michael Berlin, M.D 12,500
Swan Alley (Nominees) Limited 20,000
Van Moer Santerre & Cie 112,534
Mansion House International 22,000
Hedblom Partners 5,000
Glenn Michael Financial 200,000
Investor Relations Services 5,000
Amber Capital 5,000
Affiliated Services 5,000
Ralph Olson 10,000
Aurora Holdings 5,000
Arab International Trust Company 68,400
</TABLE>
If the Company's Registration Statement (Registration Number: 333-83127) is not
declared effective by the Securities and Exchange Commission, the Selling
Shareholders, as such term is defined in the Registration Statement, will all
have registration rights for the shares set forth opposite their names in the
Registration Statement. The pages from the Registration Statement listing the
Selling Shareholders and their respective shares are attached to this Schedule
2.1(r), are incorporated herein and made a part hereof.
<PAGE> 37
SELLING SHAREHOLDERS
The following table sets forth certain information with respect to the
Selling Shareholders.
We will not receive any proceeds from the market sales of the Selling
Shareholders shares, although we will receive the proceeds from the exercise of
the Warrants held by the Selling Shareholders. We are paying all costs and
expenses of registering the Selling Shareholders shares. Sales of the Selling
Shareholders shares or the potential of such sales could have an adverse effect
on the market price of our common stock. See "Risk Factors -- Shares Eligible
for Future Sale."
The Selling Shareholders and the number of shares they each hold are listed
below.
<TABLE>
<CAPTION>
SELLING SHAREHOLDERS SHARES OWNED
- -------------------- ------------
<S> <C>
Austin Vest Amstolt Blazms.................................. 212,960
Esquire Trade & Finance..................................... 296,647
Nesher Inc.................................................. 46,323
Amro International.......................................... 185,316
VMR Luxembourg, S.A......................................... 599,879
Alan Parnes................................................. 5,000
Arab International Trust Co................................. 10,000
Duck Partners, LP........................................... 20,000
Gary & Paula Wayton......................................... 10,000
Michael Rosenbaum........................................... 20,000
RMK Financial LLC........................................... 15,000
Robert Bain................................................. 20,000
Robert Frankel.............................................. 7,470
Roger Triemstra............................................. 10,000
Roland McAbee............................................... 6,400
Swan Alley (Nominees) Limited............................... 20,000
Van Moer Santerre & Cie..................................... 50,000
Mathew & Barbara Geisser.................................... 3,204
Central Scale Co............................................ 9,613
Vijaya Rani Rekhala/Vijay-Kumar Rekhala, M.D................ 6,408
United Congregation Mesorah................................. 6,408
Samuel F. Marinelli......................................... 3,204
Mildred J. Geiss............................................ 3,204
Jon G. Kastnendieck......................................... 6,408
Cooperative Holding Corporation............................. 12,817
Aaron Wolfson............................................... 72,783
Abraham Wolfson............................................. 66,374
Arielle Wolfson............................................. 6,408
Eli Levitin................................................. 19,850
Morris Wolfson Family Limited Partnership................... 59,966
Levpol...................................................... 6,408
Wellington Corporation, N.V................................. 4,272
Crescent Capital Company, LLC............................... 8,544
Arthur Steinberg IRA Rollover............................... 2,136
Robert Steinberg IRA Rollover............................... 2,136
Robert Sam Steinberg -- A Partnership....................... 2,136
Von Graffenried AG.......................................... 4,272
Third World Trust Company LTD............................... 4,272
</TABLE>
32
<PAGE> 38
<TABLE>
<CAPTION>
SELLING SHAREHOLDERS SHARES OWNED
- -------------------- ------------
<S> <C>
Alpha Ventures.............................................. 8,544
Tuch Family Trust........................................... 2,136
Alfred Ross................................................. 4,272
Fred Chanowski.............................................. 2,136
Allen Goodman............................................... 4,272
Felix D. Paige.............................................. 8,544
Andrew G. Rogal............................................. 4,272
Mark J. Levine.............................................. 2,136
Joseph Sullivan............................................. 4,272
Robert Gopen................................................ 2,136
Colony Financial Services................................... 2,136
John Carberry............................................... 2,136
Daniel & Thalia Federbush................................... 4,272
Michael S. Berlin, M.D...................................... 4,272
Phillip Tewel............................................... 29,191
Joe Cayre................................................... 48,743
South Ferry #2.............................................. 29,906
ACA Equities................................................ 4,700
D&M Investment Corp......................................... 8,545
Gilbert Karsenty............................................ 1,709
Chana Sasha................................................. 6,408
Affida Bank................................................. 60,950
Bill Nesmith................................................ 681
Mike Sposato................................................ 681
Bob Dorfman................................................. 2,349
Bristol Capital............................................. 20,934
Venture Management Consultants, LLC......................... 20,000
Infusion Capital............................................ 283,000
Marathon Consulting......................................... 50,000
Claudio Nessi............................................... 31,000
Dr. Michael Berlin.......................................... 1,000
DMT Technologies............................................ 100,000
Affida Bank................................................. 45,000
-----------
Total....................................................... 2,646,151
===========
</TABLE>
PLAN OF DISTRIBUTION
The shares of common stock subject to this prospectus may be sold from
time to time by the Selling Shareholders or their successors, assigns or
transferees in private transactions for their own accounts. The Selling
Shareholders may offer and sell the shares from time to time in transactions on
The Nasdaq SmallCap Market on terms to be determined at the time of such sales.
The Selling Shareholders may also make private transfers directly or through a
broker or brokers. Alternatively, the Selling Shareholders may from time to time
offer shares of common stock offered hereby to or through underwriters, dealers
or agents, who may
33
<PAGE> 39
SCHEDULE 2.1(s) Liens
1. A financing statement and copyright mortgage in favor of Miramax Film
Corporation encumbering 12% of the Company's interest in "Total Recall."
2. A financing statement in favor of Copelco, a leasing company, encumbering the
Company's leased photocopier.
3. An unperfected blanket financing statement in favor of Value Management &
Research A.G. on all of the Company's assets and unfiled copyright mortgages on
the Company's interests in "Total Recall" and "Amazing Tails."
<PAGE> 40
SCHEDULE 2.1(y) -- YEAR 2000 COMPLIANCE
As has been widely reported, many computer systems process dates based on
two digits for the year of a transaction and are unable to process dates in the
year 2000 compliant. Although we do not expect year 2000 to have a material
adverse effect on our internal operations, it is possible that year 2000
problems could have a significant adverse effect on our suppliers and their
ability to service us and to accurately process payments received.
<PAGE> 41
SCHEDULE 3.10
Use of Proceeds
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
- ----------- ----------
<S> <C>
Fees and Expenses Related to the Financing $ 250,000
Working Capital and General Corporate 200,000
Repayment of Company Borrowings 1,500,000
Acquisition of Film Library 1,000,000
Television and Film Development, Acquisition and Production 1,050,000
----------
TOTAL AMOUNT OF FINANCING $4,000,000
</TABLE>
<PAGE> 1
EXHIBIT 4.33
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of August 5, 1999, among Team Communications Group, Inc., a
California corporation (the "Company") and Hudson Investors LLC. Hudson
Investors LLC is referred to herein as a "Purchaser" or as the "Purchasers."
This Agreement is being entered into pursuant to the Securities
Purchase Agreement, dated as of the date hereof among the Company and the
Purchasers (the "Securities Purchase Agreement").
The Company and the Purchasers hereby agree as follows:
1. DEFINITIONS.
Capitalized terms used and not otherwise defined herein shall have the
meanings given such terms in the Securities Purchase Agreement. As used in this
Agreement, the following terms shall have the following meanings:
"Advice" shall have meaning set forth in Section 3(m).
"Affiliate" means, with respect to any Person, any other Person that directly or
indirectly controls or is controlled by or under common control with such
Person. For the purposes of this definition, "control," when used with respect
to any Person, means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms of "affiliated," "controlling" and "controlled" have meanings correlative
to the foregoing.
"Board" shall have meaning set forth in Section 3(n).
"Business Day" means any day except Saturday, Sunday and any day which shall be
a legal holiday or a day on which banking institutions in the state of New York
generally are authorized or required by law or other government actions to
close.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's Common Stock, no par value per share.
"Debentures" means the 12% Convertible Debentures due August 5, 2002 of the
Company issued to the Purchasers pursuant to the Securities Purchase Agreement.
1
<PAGE> 2
"Effectiveness Date" means November 30, 1999.
"Effectiveness Period" shall have the meaning set forth in Section 2.
"Event" shall have the meaning set forth in Section 7(e)(i).
"Event Date" shall have the meaning set forth in Section 7(e)(i).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Filing Date" means October 30, 1999 or such earlier date as a shelf
registration statement filed by the Company relating to any other securities is
filed, amended or declared effective.
"Holder" or "Holders" means the holder or holders, as the case may be, from time
to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section 5(c).
"Indemnifying Party" shall have the meaning set forth in Section 5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"Person" means an individual or a corporation, partnership, trust, incorporated
or unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or political subdivision thereof) or
other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by the
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference in such Prospectus.
"Registrable Securities" means the shares of Common Stock issuable upon
conversion of the Debentures and the shares of Common Stock issuable upon
exercise of the Warrants; provided, however, that Registrable Securities shall
include (but not be limited to) a number of shares of Common Stock equal to no
less than 200% of the maximum number of shares of Common Stock which would be
issuable upon conversion of the Debentures and upon exercise of the Warrants,
2
<PAGE> 3
assuming such conversion and exercise occurred either (i) on the Closing Date or
(ii) the Filing Date, whichever date would produce a greater number of
Registrable Securities. Such registered shares of Common Stock shall be
allocated among the Holders pro rata based on the total number of Registrable
Securities issued or issuable as of each date that a Registration Statement, as
amended, relating to the resale of the Registrable Securities is declared
effective by the Commission. Notwithstanding anything herein contained to the
contrary, if the actual number of shares of Common Stock issuable upon
conversion of the Debentures and upon exercise of the Warrants exceeds 200% of
the number of shares of Common Stock issuable upon conversion of the Debentures
and upon exercise of the Warrants based upon a computation as at the Closing
Date or the Filing Date, the term "Registrable Securities" shall be deemed to
include such additional shares of Common Stock.
"Registration Statement" means the registration statements and any additional
registration statements contemplated by Section 2, including (in each case) the
Prospectus, amendments and supplements to such registration statement or
Prospectus, including pre- and post-effective amendments, all exhibits thereto,
and all material incorporated by reference in such registration statement.
"Rule 144" means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Rule 158" means Rule 158 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
"Special Counsel" means any special counsel to the Holders, for which the
Holders will be reimbursed by the Company pursuant to Section 4.
2. SHELF REGISTRATION.
On or prior to the Filing Date the Company shall prepare and file with
the Commission a "shelf" Registration Statement covering all Registrable
Securities for an offering to be made on a continuous basis pursuant to Rule
415. The Registration Statement shall be on Form SB-2 (or on Form S-3 if the
Company is then eligible to register for resale the Registrable Securities on
Form S-3). The Company shall (i) not permit any securities other than the
Registrable Securities to be included in the Registration Statement; provided
however, if the Registration Statement is a
3
<PAGE> 4
"shelf registration" for the sale of the Company's Common Stock on the German
Bourse Market, the shares of Common Stock to be sold in such offering may be
included; and provided further, in any event, the shares of Common Stock listed
on Schedule 2.1.r of the Securities Purchase Agreement can be included; and (ii)
use its best efforts to cause the Registration Statement to be declared
effective under the Securities Act as promptly as possible after the filing
thereof, but in any event prior to the Effectiveness Date, and to keep such
Registration Statement continuously effective under the Securities Act until the
date which is five years after the date that such Registration Statement is
declared effective by the Commission or such earlier date when all Registrable
Securities covered by such Registration Statement have been sold or may be sold
without any restriction pursuant to Rule 144(k), as determined by the counsel to
the Company pursuant to a written opinion letter, addressed to the Company's
transfer agent to such effect (the "Effectiveness Period"). If an additional
Registration Statement is required to be filed because the actual number of
shares of Common Stock into which the Debentures are convertible and the
Warrants are exercisable exceeds the number of shares of Common Stock initially
registered in respect of the Underlying Shares and the Warrant Shares based upon
the computation on the Closing Date, the Company shall have fifteen (15)
Business Days to file such additional Registration Statement, and the Company
shall use its best efforts to cause such additional Registration Statement to be
declared effective by the Commission as soon as possible, but in no event later
than 60 days after filing.
3. REGISTRATION PROCEDURES.
In connection with the Company's registration obligations hereunder,
the Company shall:
(a) Prepare and file with the Commission on or prior to the Filing Date, a
Registration Statement on Form SB-2 (or on Form S-3 if the Company is then
eligible to register for resale the Registrable Securities on Form S-3) in
accordance with the method or methods of distribution thereof as specified by
the Holders (except if otherwise directed by the Holders), and cause the
Registration Statement to become effective and remain effective as provided
herein; provided, however, that not less than ten (10) Business Days prior to
the filing of the Registration Statement or any related Prospectus or any
amendment or supplement thereto (including any document that would be
incorporated therein by reference), the Company shall (i) furnish to the Holders
and any Special Counsel, copies of all such documents proposed to be filed,
which documents will be subject to the review of such Holders and such Special
Counsel, and (ii) cause its officers and directors, counsel and independent
certified public accountants to respond to such inquiries as shall be necessary,
in the reasonable opinion of respective counsel to such Holders, to conduct a
reasonable investigation within the meaning of the Securities Act. The Company
shall not file the Registration Statement or any such Prospectus or any
amendments or supplements thereto to which the Holders of a majority of the
Registrable Securities or any Special Counsel, shall reasonably object in
writing within seven (7) Business Days of their receipt thereof.
(b) (i) Prepare and file with the Commission such amendments, including
post-effective
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amendments, to the Registration Statement as may be necessary to keep the
Registration Statement continuously effective for the Effectiveness Period and
prepare and file with the Commission such additional Registration Statements in
order to register for resale under the Securities Act all of the Registrable
Securities; (ii) cause the related Prospectus to be amended or supplemented by
any required Prospectus supplement, and as so supplemented or amended to be
filed pursuant to Rule 424 (or any similar provisions then in force) promulgated
under the Securities Act; (iii) respond as promptly as possible to any comments
received from the Commission with respect to the Registration Statement or any
amendment thereto and as promptly as possible provide the Holders true and
complete copies of all correspondence from and to the Commission relating to the
Registration Statement; and (iv) comply in all material respects with the
provisions of the Securities Act and the Exchange Act with respect to the
disposition of all Registrable Securities covered by the Registration Statement
in accordance with the intended methods of disposition by the Holders thereof
set forth in the Registration Statement as so amended or in such Prospectus as
so supplemented.
(c) Notify the Holders of Registrable Securities to be sold and any Special
Counsel as promptly as possible (and, in the case of (i)(A) below, not less than
five (5) days prior to such filing) and (if requested by any such Person)
confirm such notice in writing no later than one (1) Business Day following the
day (i)(A) when a Prospectus or any Prospectus supplement or post-effective
amendment to the Registration Statement is proposed to be filed; (B) when the
Commission notifies the Company whether there will be a "review" of such
Registration Statement and whenever the Commission comments in writing on such
Registration Statement and (C) with respect to the Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) if at any time any of the representations and warranties of the
Company contained in any Transaction Documents hereby cease to be true and
correct in all material respects; (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (vi) of the occurrence of any event that makes any statement made
in the Registration Statement or Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
(d) Use its best efforts to avoid the issuance of, or, if issued, obtain the
withdrawal of, (i) any order suspending the effectiveness of the Registration
Statement or (ii) any suspension of the
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<PAGE> 6
qualification (or exemption from qualification) of any of the Registrable
Securities for sale in any jurisdiction, at the earliest practicable moment.
(e) If requested by the Holders of a majority in interest of the Registrable
Securities, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment to the Registration Statement such information as the
Company reasonably agrees should be included therein and (ii) make all required
filings of such Prospectus supplement or such post-effective amendment as soon
as practicable after the Company has received notification of the matters to be
incorporated in such Prospectus supplement or post-effective amendment.
(f) Furnish to each Holder and any Special Counsel, without charge, at least one
conformed copy of each Registration Statement and each amendment thereto,
including financial statements and schedules, all documents incorporated or
deemed to be incorporated therein by reference, and all exhibits to the extent
requested by such Person (including those previously furnished or incorporated
by reference) promptly after the filing of such documents with the Commission.
(g) Promptly deliver to each Holder and any Special Counsel, without charge, as
many copies of the Prospectus or Prospectuses (including each form of
prospectus) and each amendment or supplement thereto as such Persons may
reasonably request; and the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders in connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities, use its best efforts
to register or qualify or cooperate with the selling Holders, and any Special
Counsel in connection with the registration or qualification (or exemption from
such registration or qualification) of such Registrable Securities for offer and
sale under the securities or Blue Sky laws of such jurisdictions within the
United States as any Holder requests in writing, to keep each such registration
or qualification (or exemption therefrom) effective during the Effectiveness
Period and to do any and all other acts or things necessary or advisable to
enable the disposition in such jurisdictions of the Registrable Securities
covered by a Registration Statement; provided, however, that the Company shall
not be required to qualify generally to do business in any jurisdiction where it
is not then so qualified or to take any action that would subject it to general
service of process in any such jurisdiction where it is not then so subject or
subject the Company to any material tax in any such jurisdiction where it is not
then so subject.
(i) Cooperate with the Holders to facilitate the timely preparation and delivery
of certificates representing Registrable Securities to be sold pursuant to a
Registration Statement, which certificates shall be free of all restrictive
legends, and to enable such Registrable Securities to be in such denominations
and registered in such names as any Holders may request at least two (2)
Business Days prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section 3(c)(vi), as
promptly as
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<PAGE> 7
possible, prepare a supplement or amendment, including a post-effective
amendment, to the Registration Statement or a supplement to the related
Prospectus or any document incorporated or deemed to be incorporated therein by
reference, and file any other required document so that, as thereafter
delivered, neither the Registration Statement nor such Prospectus will contain
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
(k) Use its best efforts to cause all Registrable Securities relating to such
Registration Statement to be listed on The Nasdaq Small-Cap Market and any other
securities exchange, quotation system, market or over-the-counter bulletin
board, if any, on which similar securities issued by the Company are then listed
as and when required pursuant to the Securities Purchase Agreement.
(l) Comply in all material respects with all applicable rules and regulations
of the Commission and make generally available to its security holders earning
statements satisfying the provisions of Section 11(a) of the Securities Act and
Rule 158 not later than 45 days after the end of any 12-month period (or 90 days
after the end of any 12-month period if such period is a fiscal year) commencing
on the first day of the first fiscal quarter of the Company after the effective
date of the Registration Statement, which statement shall conform to the
requirements of Rule 158.
(m) The Company may require each selling Holder to furnish to the Company
information regarding such Holder and the distribution of such Registrable
Securities as is required by law to be disclosed in the Registration Statement,
and the Company may exclude from such registration the Registrable Securities of
any such Holder who unreasonably fails to furnish such information within a
reasonable time after receiving such request.
If the Registration Statement refers to any Holder by name or otherwise
as the holder of any securities of the Company, then such Holder shall have the
right to require (if such reference to such Holder by name or otherwise is not
required by the Securities Act or any similar federal statute then in force) the
deletion of the reference to such Holder in any amendment or supplement to the
Registration Statement filed or prepared subsequent to the time that such
reference ceases to be required.
Each Holder covenants and agrees that (i) it will not sell any
Registrable Securities under the Registration Statement until it has received
copies of the Prospectus as then amended or supplemented as contemplated in
Section 3(g) and notice from the Company that such Registration Statement and
any post-effective amendments thereto have become effective as contemplated by
Section 3(c) and (ii) it and its officers, directors or Affiliates, if any, will
comply with the prospectus delivery requirements of the Securities Act as
applicable to them in connection with sales of Registrable Securities pursuant
to the Registration Statement.
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Each Holder agrees by its acquisition of such Registrable Securities
that, upon receipt of a notice from the Company of the occurrence of any event
of the kind described in Section 3(c)(ii), 3(c)(iii), or 3(c)(vi), such Holder
will forthwith discontinue disposition of such Registrable Securities under the
Registration Statement until such Holder's receipt of the copies of the
supplemented Prospectus and/or amended Registration Statement contemplated by
Section 3(j), or until it is advised in writing (the "Advice") by the Company
that the use of the applicable Prospectus may be resumed, and, in either case,
has received copies of any additional or supplemental filings that are
incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement.
(n) If (i) there is material non-public information regarding the Company which
the Company's Board of Directors (the "Board") reasonably determines not to be
in the Company's best interest to disclose and which the Company is not
otherwise required to disclose, or (ii) there is a significant business
opportunity (including, but not limited to, the acquisition or disposition of
assets (other than in the ordinary course of business) or any merger,
consolidation, tender offer or other similar transaction) available to the
Company which the Board reasonably determines not to be in the Company's best
interest to disclose, then the Company may postpone or suspend filing or
effectiveness of a registration statement for a period not to exceed 20
consecutive days, provided that the Company may not postpone or suspend its
obligation under this Section 3(n) for more than 45 days in the aggregate during
any 12 month period; provided, however, that no such postponement or suspension
shall be permitted for consecutive 20 day periods, arising out of the same set
of facts, circumstances or transactions.
4. REGISTRATION EXPENSES.
All fees and expenses incident to the performance of or compliance with
this Agreement by the Company shall be borne by the Company whether or not the
Registration Statement is filed or becomes effective and whether or not any
Registrable Securities are sold pursuant to the Registration Statement. The fees
and expenses referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees (including, without limitation,
fees and expenses (A) with respect to filings required to be made with The
Nasdaq Small Cap Market and each other securities exchange or market on which
Registrable Securities are required hereunder to be listed, (B) with respect to
filings required to be made with the National Association of Securities Dealers,
Inc. and the NASD Regulation, Inc. and (C) in compliance with state securities
or Blue Sky laws (including, without limitation, fees and disbursements of
counsel for the Holders in connection with Blue Sky qualifications of the
Registrable Securities and determination of the eligibility of the Registrable
Securities for investment under the laws of such jurisdictions as Holders of a
majority of Registrable Securities may designate)), (ii) printing expenses
(including, without limitation, expenses of printing certificates for
Registrable Securities and of printing prospectuses if the printing of
prospectuses is requested by the holders of a majority of the Registrable
Securities included in the Registration Statement), (iii) messenger, telephone
and delivery expenses, (iv) fees and disbursements of counsel for the Company
and Special Counsel for the Holders, in the case of the Special Counsel, to a
maximum
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<PAGE> 9
amount of $5,000, (v) Securities Act liability insurance, if the Company so
desires such insurance, and (vi) fees and expenses of all other Persons retained
by the Company in connection with the consummation of the transactions
contemplated by this Agreement, including, without limitation, the Company's
independent public accountants (including the expenses of any comfort letters or
costs associated with the delivery by independent public accountants of a
comfort letter or comfort letters). In addition, the Company shall be
responsible for all of its internal expenses incurred in connection with the
consummation of the transactions contemplated by this Agreement (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, the
fees and expenses incurred in connection with the listing of the Registrable
Securities on any securities exchange as required hereunder.
5. INDEMNIFICATION.
(a) Indemnification by the Company. The Company shall, notwithstanding any
termination of this Agreement, indemnify and hold harmless each Holder, the
officers, directors, agents, brokers (including brokers who offer and sell
Registrable Securities as principal as a result of a pledge or any failure to
perform under a margin call of Common Stock), investment advisors and employees
of each of them, each Person who controls any such Holder (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) and the
officers, directors, agents and employees of each such controlling Person, to
the fullest extent permitted by applicable law, from and against any and all
losses, claims, damages, liabilities, costs (including, without limitation,
costs of preparation and attorneys' fees) and expenses (collectively, "Losses"),
as incurred, arising out of or relating to any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
Prospectus or any form of prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, or arising out of or relating to any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus or form
of prospectus or supplement thereto, in the light of the circumstances under
which they were made) not misleading, except to the extent, but only to the
extent, that such untrue statements or omissions are based solely upon
information regarding such Holder furnished in writing to the Company by such
Holder expressly for use therein, which information was reasonably relied on by
the Company for use therein or to the extent that such information relates to
such Holder or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in the Registration Statement, such Prospectus or such form of
Prospectus or in any amendment or supplement thereto. The Company shall notify
the Holders promptly of the institution, threat or assertion of any Proceeding
of which the Company is aware in connection with the transactions contemplated
by this Agreement.
(b) Indemnification by Holders. Each Holder shall, severally and not jointly,
indemnify and hold harmless the Company, the directors, officers, agents and
employees, each Person who controls the Company (within the meaning of Section
15 of the Securities Act and Section 20 of the Exchange Act), and the directors,
officers, agents or employees of such controlling Persons,
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<PAGE> 10
to the fullest extent permitted by applicable law, from and against all Losses,
as incurred, arising solely out of or based solely upon any untrue statement of
a material fact contained in the Registration Statement, any Prospectus, or any
form of prospectus, or arising solely out of or based solely upon any omission
of a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in the light of the circumstances under which they were
made) not misleading, to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing by
such Holder to the Company specifically for inclusion in the Registration
Statement or such Prospectus and that such information was reasonably relied
upon by the Company for use in the Registration Statement, such Prospectus or
such form of prospectus or to the extent that such information relates to such
Holder or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in the Registration Statement, such Prospectus or such form of
Prospectus; provided, however, no Holder shall be liable for any claims
hereunder in excess of the amount of net proceeds received by such Holder from
the sale of Registrable Securities pursuant to such Registration Statement.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall be brought
or asserted against any Person entitled to indemnity hereunder (an "Indemnified
Party"), such Indemnified Party promptly shall notify the Person from whom
indemnity is sought (the "Indemnifying Party") in writing, and the Indemnifying
Party shall assume the defense thereof, including the employment of counsel
reasonably satisfactory to the Indemnified Party and the payment of all fees and
expenses incurred in connection with defense thereof; provided, that the failure
of any Indemnified Party to give such notice shall not relieve the Indemnifying
Party of its obligations or liabilities pursuant to this Agreement, except (and
only) to the extent that it shall be finally determined by a court of competent
jurisdiction (which determination is not subject to appeal or further review)
that such failure shall have proximately and materially adversely prejudiced the
Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or Parties
unless: (1) the Indemnifying Party has agreed in writing to pay such fees and
expenses; or (2) the Indemnifying Party shall have failed promptly to assume the
defense of such Proceeding and to employ counsel reasonably satisfactory to such
Indemnified Party in any such Proceeding; or (3) the named parties to any such
Proceeding (including any impleaded parties) include both such Indemnified Party
and the Indemnifying Party, and such Indemnified Party shall have been advised
by counsel that a conflict of interest is likely to exist if the same counsel
were to represent such Indemnified Party and the Indemnifying Party (in which
case, if such Indemnified Party notifies the Indemnifying Party in writing that
it elects to employ separate counsel at the expense of the Indemnifying Party,
the Indemnifying Party shall not have the right to assume the defense thereof
and such counsel shall be at the expense of the Indemnifying Party). The
Indemnifying Party shall not be liable for any settlement of any such Proceeding
effected without its written consent, which consent shall not
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<PAGE> 11
be unreasonably withheld. No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, effect any settlement of any pending
Proceeding in respect of which any Indemnified Party is a party, unless such
settlement includes an unconditional release of such Indemnified Party from all
liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including reasonable fees and
expenses to the extent incurred in connection with investigating or preparing to
defend such Proceeding in a manner not inconsistent with this Section) shall be
paid to the Indemnified Party, as incurred, within ten (10) Business Days of
written notice thereof to the Indemnifying Party (regardless of whether it is
ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section 5(a) or 5(b) is
unavailable to an Indemnified Party because of a failure or refusal of a
governmental authority to enforce such indemnification in accordance with its
terms (by reason of public policy or otherwise), then each Indemnifying Party,
in lieu of indemnifying such Indemnified Party, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such Losses, in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Party in connection with the actions, statements or
omissions that resulted in such Losses as well as any other relevant equitable
considerations; provided, however, in no event shall any Holder be obligated
pursuant to this Section 5(c) to contribute an amount in excess of the amount of
net proceeds received by such Holder from the sale of Registrable Securities
pursuant to such Registration Statement. The relative fault of such Indemnifying
Party and Indemnified Party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission of a material fact,
has been taken or made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a result
of any Losses shall be deemed to include, subject to the limitations set forth
in Section 5(c), any reasonable attorneys' or other reasonable fees or expenses
incurred by such party in connection with any Proceeding to the extent such
party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party in
accordance with its terms.
The parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 5(d) were determined by pro rata allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the immediately preceding paragraph. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
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The indemnity and contribution agreements contained in this Section are in
addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
6. RULE 144.
As long as any Holder owns Debentures, Underlying Shares, Warrants or
Warrant Shares, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to Section
13(a) or 15(d) of the Exchange Act and to promptly furnish the Holders with true
and complete copies of all such filings. As long as any Holder owns Debentures,
Underlying Shares, Warrants or Warrant Shares, if the Company is not required to
file reports pursuant to Section 13(a) or 15(d) of the Exchange Act, it will
prepare and furnish to the Holders and make publicly available in accordance
with Rule 144(c) promulgated under the Securities Act annual and quarterly
financial statements, together with a discussion and analysis of such financial
statements in form and substance substantially similar to those that would
otherwise be required to be included in reports required by Section 13(a) or
15(d) of the Exchange Act, as well as any other information required thereby, in
the time period that such filings would have been required to have been made
under the Exchange Act. The Company further covenants that it will take such
further action as any Holder may reasonably request, all to the extent required
from time to time to enable such Person to sell Underlying Shares and Warrant
Shares without registration under the Securities Act within the limitation of
the exemptions provided by Rule 144 promulgated under the Securities Act,
including providing any legal opinions referred to in the Securities Purchase
Agreement. Upon the request of any Holder, the Company shall deliver to such
Holder a written certification of a duly authorized officer as to whether it has
complied with such requirements.
7. MISCELLANEOUS.
(a) Remedies. In the event of a breach by the Company or by a Holder, of any of
their obligations under this Agreement, each Holder or the Company, as the case
may be, in addition to being entitled to exercise all rights granted by law and
under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company and each
Holder agree that monetary damages would not provide adequate compensation for
any losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any of its subsidiaries
has, as of the date hereof entered into and currently in effect, nor shall the
Company or any of its subsidiaries, on or after the date of this Agreement,
enter into any agreement with respect to its securities that is inconsistent
with the rights granted to the Holders in this Agreement or otherwise conflicts
with the provisions hereof. Except as disclosed in Schedule 2.1(r) of the
Securities Purchase Agreement, neither the Company nor any of its subsidiaries
has previously
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entered into any agreement currently in effect granting any registration rights
with respect to any of its securities to any Person. Without limiting the
generality of the foregoing, without the written consent of the Holders of a
majority of the then outstanding Registrable Securities, the Company shall not
grant to any Person the right to request the Company to register any securities
of the Company under the Securities Act unless the rights so granted are subject
in all respects to the prior rights in full of the Holders set forth herein, and
are not otherwise in conflict with the provisions of this Agreement.
(c) No Piggyback on Registrations. Except for up to an aggregate of up to
495,434 shares of Common Stock, as described in Schedule 2.1(r) of the
Securities Purchase Agreement, neither the Company nor any of its security
holders (other than the Holders in such capacity pursuant hereto or as disclosed
in Schedule 2.1(r) of the Securities Purchase Agreement) may include securities
of the Company in the Registration Statement, and the Company shall not after
the date hereof enter into any agreement providing such right to any of its
securityholders, unless the right so granted is subject in all respects to the
prior rights in full of the Holders set forth herein, and is not otherwise in
conflict with the provisions of this Agreement.
(d) Piggy-Back Registrations. If at any time when there is not an effective
Registration Statement covering (i) Underlying Shares or (ii) Warrant Shares,
the Company shall determine to prepare and file with the Commission a
registration statement relating to an offering for its own account or the
account of others under the Securities Act of any of its equity securities,
other than on Form S-4 or Form S-8 (each as promulgated under the Securities
Act) or their then equivalents relating to equity securities to be issued solely
in connection with any acquisition of any entity or business or equity
securities issuable in connection with stock option or other employee benefit
plans, the Company shall send to each holder of Registrable Securities written
notice of such determination and, if within thirty (30) days after receipt of
such notice, any such holder shall so request in writing, (which request shall
specify the Registrable Securities intended to be disposed of by the
Purchasers), the Company will cause the registration under the Securities Act of
all Registrable Securities which the Company has been so requested to register
by the holder, to the extent requisite to permit the disposition of the
Registrable Securities so to be registered, provided that if at any time after
giving written notice of its intention to register any securities and prior to
the effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register or to
delay registration of such securities, the Company may, at its election, give
written notice of such determination to such holder and, thereupon, (i) in the
case of a determination not to register, shall be relieved of its obligation to
register any Registrable Securities in connection with such registration (but
not from its obligation to pay expenses in accordance with Section 4 hereof),
and (ii) in the case of a determination to delay registering, shall be permitted
to delay registering any Registrable Securities being registered pursuant to
this Section 7(d) for the same period as the delay in registering such other
securities. The Company shall include in such registration statement all or any
part of such Registrable Securities such holder requests to be registered;
provided, however, that the Company shall not be required to register any
Registrable Securities pursuant to this Section 7(d) that are eligible for sale
pursuant to Rule 144(k) of the Securities
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Act. In the case of an underwritten public offering, if the managing
underwriter(s) should reasonably object to the inclusion of the Registrable
Securities in such registration statement, then if the Company after
consultation with the managing underwriter(s) should reasonably determine that
the inclusion of such Registrable Securities, would materially adversely affect
the offering contemplated in such registration statement, and based on such
determination recommends inclusion in such registration statement of fewer or
none of the Registrable Securities of the Holders, then (x) the number of
Registrable Securities of the Holders included in such registration statement
shall be reduced pro-rata among such Holders (based upon the number of
Registrable Securities requested to be included in the registration), if the
Company after consultation with the managing underwriter(s) recommends the
inclusion of fewer Registrable Securities, or (y) none of the Registrable
Securities of the Holders shall be included in such registration statement, if
the Company after consultation with the managing underwriter(s) recommends the
inclusion of none of such Registrable Securities; provided, however, that if
securities are being offered for the account of other persons or entities as
well as the Company, such reduction shall not represent a greater fraction of
the number of Registrable Securities intended to be offered by the Holders than
the fraction of similar reductions imposed on such other persons or entities
(other than the Company).
(e) Failure to File Registration Statement. The Company and the Purchasers agree
that the Holders will suffer damages if the Registration Statement is not filed
on or prior to the Filing Date and not declared effective by the Commission on
or prior to the Effectiveness Date and maintained in the manner contemplated
herein during the Effectiveness Time or if certain other events occur. The
Company and the Holders further agree that it would not be feasible to ascertain
the extent of such damages with precision. Accordingly, if (A) the Registration
Statement is not filed on or prior to the Filing Date, or is not declared
effective by the Commission on or prior to the Effectiveness Date (or in the
event an additional Registration Statement is required to be filed because the
actual number of shares of Common Stock into which the Debentures are
convertible and the Warrants are exercisable exceeds the number of shares of
Common Stock initially registered is not filed and declared effective with the
time periods set forth in Section 2), or (B) the Company fails to file with the
Commission a request for acceleration in accordance with Rule 12dl-2 promulgated
under the Exchange Act within five (5) Business Days of the date that the
Company is notified (orally or in writing, whichever is earlier) by the
Commission that a Registration Statement will not be "reviewed," or not subject
to further review, or (C) the Registration Statement is filed with and declared
effective by the Commission but thereafter ceases to be effective as to all
Registrable Securities at any time prior to the expiration of the Effectiveness
Period, without being succeeded immediately by a subsequent Registration
Statement filed with and declared effective by the Commission, or (D) trading in
the Common Stock shall be suspended or if the Common Stock is delisted for any
reason for more than three Business Days in the aggregate, or (E) the rights of
the Holders to convert the Debentures or exercise the warrants are unavailable
for any reason except if the right to convert the Debenture is unavailable as a
result of Section 5(a)(ii) of the Debentures, or (F) the Company breaches in a
material respect any covenant or other material term or condition to this
Agreement, the Debentures, the Securities Purchase Agreement (other than a
representation or
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<PAGE> 15
warranty contained therein) or any other agreement, document, certificate or
other instrument delivered in connection with the transactions contemplated
hereby and thereby, and such breach continues for a period of thirty days after
written notice thereof to the Company, or (G) the Company fails to convene a
meeting of shareholders within the time period specified in Section 3.13 of the
Securities Purchase Agreement or does so convene a meeting of shareholders
within such time period but fails to obtain Shareholder Approval at such
meeting, or the Company fails to reserve sufficient shares to cover the exercise
of the Warrants or the conversion of the Debentures, or (H) the Company has
breached Section 3(n) hereof (any such failure or breach being referred to as an
"Event," and for purposes of clauses (A), (E), (G) and (H) the date on which
such Event occurs, or for purposes of clause (B) the date on which such five day
period is exceeded, or for purposes of clause (C) after more than fifteen
Business Days, or for purposes of clause (D) the date on which such three
Business Day period is exceeded, or for clause (F) the date on which such thirty
day period is exceeded, being referred to as "Event Date"), the Company shall
pay in cash as liquidated damages to each Holder an amount equal to 2.0% of the
aggregate principal amount of Debentures purchased by such Holder and the
aggregate amount of the exercise price of the Warrants purchased by such Holder,
whether or not exercised, for each 30 day period, or portion hereof, commencing
on the Event Date until the applicable Event is cured. Payments to be made
pursuant to this Section 7(e) shall be due and payable immediately upon demand
in immediately available funds.
(f) Amendments and Waivers. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the same shall be in writing and signed by the Company and each of the
Holders. Notwithstanding the foregoing, a waiver or consent to depart from the
provisions hereof with respect to a matter that relates exclusively to the
rights of Holders and that does not directly or indirectly affect the rights of
other Holders may be given by Holders of at least a majority of the Registrable
Securities to which such waiver or consent relates; provided, however, that the
provisions of this sentence may not be amended, modified, or supplemented except
in accordance with the provisions of the immediately preceding sentence.
(g) Notices. Any and all notices or other communications or deliveries required
or permitted to be provided hereunder shall be in writing and shall be deemed
given and effective on the earlier of (i) the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified for notice prior to 5:00 p.m., New York City time, on a
Business Day, (ii) the Business Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified for notice later than 5:00 p.m., New York City time, on any
date and earlier than 11:59 p.m., New York City time, on such date, (iii) the
Business Day following the date of mailing, if sent by nationally recognized
overnight courier service or (iv) actual receipt by the party to whom such
notice is required to be given. The addresses for such communications shall be
with respect to each Holder at its address set forth under its name on Schedule
1 attached hereto, or with respect to the Company, addressed to:
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<PAGE> 16
Team Communications Group, Inc.
12300 Wilshire Boulevard
Los Angeles, California 90025
Attention: Drew Levin
Telephone No.: (310) 442-3500
Facsimile No.: (310) 442-3501
or to such other address or addresses or facsimile number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice. Copies of notices to any Holder shall be sent to Kronish Lieb
Weiner & Hellman LLP, 1114 Avenue of the Americas, New York, New York 10036,
Attention: Steven Huttler, Esq., Facsimile (212) 479- 6275. Copies of notices to
the Company shall be sent to Kelly Lytton Mintz & Vann LLP, 1900 Avenue of the
Stars, Suite 1450, Los Angeles, California 90067, Attention: Bruce Vann, Esq.,
Facsimile No.: (310) 277-5953.
(h) Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and permitted assigns and shall
inure to the benefit of each Holder and its successors and assigns. The Company
may not assign this Agreement or any of its rights or obligations hereunder
without the prior written consent of each Holder. Each Purchaser may assign its
rights hereunder in the manner and to the Persons as permitted under the
Securities Purchase Agreement.
(i) Assignment of Registration Rights. The rights of each Holder hereunder,
including the right to have the Company register for resale Registrable
Securities in accordance with the terms of this Agreement, shall be
automatically assignable by each Holder to any Affiliate of such Holder, any
other Holder or Affiliate of any other Holder and up to four other assignees of
all or a portion of the Debentures or the Registrable Securities if: (i) the
Holder agrees in writing with the transferee or assignee to assign such rights,
and a copy of such agreement is furnished to the Company within a reasonable
time after such assignment, (ii) the Company is, within a reasonable time after
such transfer or assignment, furnished with written notice of (a) the name and
address of such transferee or assignee, and (b) the securities with respect to
which such registration rights are being transferred or assigned, (iii)
following such transfer or assignment the further disposition of such securities
by the transferee or assignees is restricted under the Securities Act and
applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this Section, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions of this Agreement, and (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement. The rights to assignment shall apply to the Holders (and to
subsequent) successors and assigns.
(j) Counterparts. This Agreement may be executed in any number of counterparts,
each of which when so executed shall be deemed to be an original and, all of
which taken together shall constitute one and the same Agreement. In the event
that any signature is delivered by facsimile
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<PAGE> 17
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.
(k) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
of conflicts of law thereof.
(l) Cumulative Remedies. The remedies provided herein are cumulative and not
exclusive of any remedies provided by law.
(m) Severability. If any term, provision, covenant or restriction of this
Agreement is held to be invalid, illegal, void or unenforceable in any respect,
the remainder of the terms, provisions, covenants and restrictions set forth
herein shall remain in full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use their reasonable
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(n) Headings. The headings herein are for convenience only, do not constitute a
part of this Agreement and shall not be deemed to limit or affect any of the
provisions hereof.
(o) Shares Held by the Company and its Affiliates. Whenever the consent or
approval of Holders of a specified percentage of Registrable Securities is
required hereunder, Registrable Securities held by the Company or its Affiliates
(other than any Holder or transferees or successors or assigns thereof if such
Holder is deemed to be an Affiliate solely by reason of its holdings of such
Registrable Securities) shall not be counted in determining whether such consent
or approval was given by the Holders of such required percentage.
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<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be duly executed by their respective authorized persons as of the
date first indicated above.
TEAM COMMUNICATIONS GROUP, INC.
By: /s/ Jonathan D. Shapiro
-----------------------------
Name: Jonathan D. Shapiro
Title: President & COO
HUDSON INVESTORS LLC
By: WEC Asset Management LLC
By: /s/ Daniel Saks
-----------------------------
Name: Daniel Saks
Title: Managing Director
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<PAGE> 1
EXHIBIT 4.34
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT.
TEAM COMMUNICATIONS GROUP, INC.
(Incorporated in the State of California)
12% CONVERTIBLE DEBENTURES DUE 2002
No. CD-1 Principal Amount U.S. $4,000,000
Original Issue Date: August 5, 1999
FOR VALUE RECEIVED, Team Communications Group, Inc., a corporation duly
incorporated and existing under the laws of the State of California (the
"Company"), hereby promises to pay to the order of Hudson Investors LLC, or
registered assigns (hereinafter, the "Holder"), the principal sum of Four
Million Dollars ($4,000,000) United States Dollars on November 30, 2002 (the
"Maturity Date"), subject to earlier conversion or redemption as provided
herein. The Debentures will be convertible into common stock, no par value per
share, of the Company on the terms and subject to the conditions hereinafter set
forth at any time after the date hereof. Interest shall be paid on the unpaid
principal balance of this Debenture at the rate of 12% per annum from the date
hereof, payable, in the manner set forth below, upon conversion, redemption or
maturity of this Debenture to the person that is the Holder on the date of such
event. Interest hereon shall be calculated on the basis of a 360 day year
consisting of twelve 30-day months.
1. General.
(a) This Debenture is one of a duly authorized issue of Debentures of
the Company in original aggregate principal amount of $4,000,000 designated as
its 12% Convertible Debentures due November 30, 2002 (herein called the
"Debentures"), issued pursuant to the authorization of the Board of Directors of
the Company and issued pursuant to a Securities Purchase Agreement, dated August
, 1999, by and among the Company and the Purchasers identified therein (the
"Securities Purchase Agreement"). The Securities Purchase Agreement contains
certain additional terms that are binding upon the Company and each Holder of
the Debentures.
(b) The Debentures are issuable, without coupons, in principal
denominations of U.S. $100,000.00 and integral multiples thereof. The
Debentures, and transfers thereof, shall be in registered form as provided in
Section 4 hereof. The registered holder of a Debenture shall (to the fullest
extent permitted by applicable law) be treated at all times, by all persons and
for all purposes as the absolute owner of such Debenture, regardless of any
notice of ownership, theft or loss or of any writing thereon.
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<PAGE> 2
2. Principal Payment; Redemption. Payment of the principal of this
Debenture shall be made upon presentation of this Debenture at the Company's
principal office for surrender upon payment in full. The Company may not prepay
all or any portion of this Debenture; provided, however, if the Company
consummates an offering of equity securities prior to November 30, 1999, the
Company shall promptly notify the Holder in writing and the Holder may, within
three Trading Days of receipt of such notice (or, if such notice is not
received, upon such Holder becoming aware of the consummation of an offering),
require the Company to redeem the Debentures for an amount equal to the
principal amount of the Debentures plus accrued and unpaid interest thereon
through the date of redemption.
3. Interest. Each Debenture shall be entitled to receive cumulative
interest at the rate of 12% per annum, compounded semi-annually, in cash, on the
principal amount thereof. Such interest shall be due and payable upon
conversion, redemption or maturity of this Debenture. Interest shall accrue from
the Original Issue Date (as defined herein), whether or not earned or declared,
until maturity or such time as the Debenture has been converted or redeemed as
herein provided. The interest so payable will be paid to the person in whose
name the Debentures (or one or more predecessor debentures) are registered on
the records of the Company regarding registration and transfers of the
Debentures; provided, however, that the Company's obligation to a transferee of
a Debenture arises only if such transfer, sale or other disposition is made in
accordance with the terms and conditions hereof and the Securities Purchase
Agreement.
4. Transfers. The Debentures have been issued subject to investment
representations of the original purchaser and may be transferred or exchanged
only in compliance with the Securities Act of 1933, as amended, and applicable
state securities laws. Prior to due presentment for transfer of each Debenture,
the Company may treat the Holder as the owner thereof for the purpose of
receiving payments as herein provided and all other purposes, and the Company
shall not be affected by any notice to the contrary.
5. Conversion at the Option of the Holder.
(a) (i) All or any part of the unpaid principal amount of this
Debenture may be converted into shares of Common Stock (subject to Section
5(a)(ii) and Section 5(a)(iii)) at the Conversion Ratio (as defined in Section
8) at the option of the Holder in whole or in part at any time on and after
November 30, 1999. The Holders shall effect conversions by surrendering the
Debentures to be converted to the Company, together with the form of conversion
notice attached hereto as Exhibit 1 (the "Conversion Notice"). The Conversion
Notice may be delivered by facsimile, with the Debenture to follow within three
Trading Days. Each Conversion Notice shall specify the principal amount of
Debentures to be converted. The date on which such conversion is to be effected
shall be the date the Holder delivers such Conversion Notice by facsimile (the
"Conversion Date"). Subject to Sections 5(a)(ii), 5(b) and 5(k) hereof, each
Conversion Notice, once given, shall be irrevocable. If the Holder is converting
less than all of the principal amount represented by the Debenture tendered by
the Holder with the Conversion Notice, or if a conversion hereunder cannot be
effected in full for any reason, the Company shall promptly deliver to such
Holder, at the expense of the Company, (in the manner and within the time set
forth in Section 5(b)) a new Debenture representing the unconverted principal
amount, to
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<PAGE> 3
the same extent as if the Debenture theretofore representing such unconverted
principal amount had not been surrendered on conversion.
(ii) If on the Conversion Date applicable to any conversion, (A) the
Common Stock is then listed for trading on the Nasdaq National Market, the New
York Stock Exchange, the American Stock Exchange or The Nasdaq Small Cap Market,
(B) the Conversion Price then in effect is such that the aggregate number of
shares of Common Stock that would then be issuable upon conversion of all the
outstanding Debentures, together with any shares of Common Stock previously
issued upon conversion of Debentures, would equal or exceed 20% of the number of
shares of Common Stock outstanding on the Original Issue Date (the "Issuable
Maximum"), and (C) the Company has not previously obtained (or attempted
pursuant to clause (i) of this subsection to obtain) Shareholder Approval (as
defined below), then the Company shall issue to any Holder so requesting
conversion of Debentures its pro rata portion of the Issuable Maximum in the
same ratio that the principal amount of Debentures held by any such Holder bears
to the aggregate principal amount of Debentures then outstanding and, with
respect to the aggregate principal amount of the Debentures that remains
outstanding after such issuance (the "Remaining Principal Amount"), the Company
shall at the Holder's request, (x) as promptly as possible but in no event later
than 60 days after such Conversion Date, convene a meeting of the holders of the
Common Stock and use its best efforts to obtain the Shareholder Approval or a
waiver of such approval from The Nasdaq Stock Market or the appropriate exchange
and (y) (1) as promptly as possible from time to time, after a written request
by the Holder, issue shares of Common Stock at a Conversion Price equal to the
Per Share Market Value on the Trading Day immediately preceding the date of such
request for all or a portion of Remaining Principal Amount (plus any accrued
interest thereon) held by such Holder (whether or not subject to the Conversion
Notice specified above) or (2) as promptly as possible but in any event within
seven days after a request by the Holder redeem all or a portion of the
Remaining Principal Amount (plus any accrued interest thereon) to which such
Conversion Notice applies, for an amount, paid in cash, equal to the greater of
(A) the aggregate principal amount of such Debentures, plus accrued and unpaid
interest, multiplied by 130%, or (B) the applicable Conversion Ratio as of the
Conversion Date multiplied by the average Per Share Market Value for the five
Trading Days immediately preceding the Conversion Date or the date of payment,
whichever is greater. If the Holder has requested that the Company redeem
Debentures pursuant to this Section and the Company fails for any reason to pay
the redemption price, as calculated pursuant to the immediately preceding
sentence, within seven days after such notice is deemed delivered pursuant to
the preceding sentence, the Company will pay interest on the redemption price at
a rate of 15% per annum, in cash to such Holder, accruing from such seventh day
until the redemption price and any accrued interest thereon is paid in full
(which amount shall be paid as liquidated damages and not as a penalty).
"Shareholder Approval" means the approval by a majority of the total votes cast
on the proposal, in person or by proxy, at a meeting of the shareholders of the
Company held in accordance with the Company's articles of incorporation and
by-laws, of the issuance by the Company of shares of Common Stock exceeding the
Issuable Maximum as a consequence of the conversion of the Debentures into
Common Stock at a price less than the greater of the book or market value on the
Original Issue Date as and to the extent required pursuant to Rule 4460(i) of
The Nasdaq Stock Market, Inc.'s Marketplace Rules (or any successor or
replacement provision thereof).
(iii) In no event shall a Holder be permitted to convert in excess of
such principal amount of Debentures upon the conversion of which, (x) the number
of shares of Common Stock
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<PAGE> 4
owned by such Holder (other than shares of Common Stock issuable upon conversion
of Debentures or upon exercise of the Warrants (as defined in the Securities
Purchase Agreement) plus (y) the number of shares of Common Stock issuable upon
such conversion of such Debentures, would be equal to or exceed (z) 9.999% of
the number of shares of Common Stock then issued and outstanding, including
shares issuable on conversion of the Debentures held by such Holder after
application of this Section 5(a)(iii). To the extent that the limitation
contained in this Section 5(a)(iii) applies, the determination of whether
Debentures are convertible (in relation to other securities owned by a Holder)
and of which Debentures are convertible shall be in the sole discretion of such
Holder, and the submission of Debentures for conversion shall be deemed to be
such Holder's determination of whether such Debentures are convertible (in
relation to other securities owned by a Holder) and of which Debentures are
convertible, in each case subject to such aggregate percentage limitation, and
the Company shall have no obligation to verify or confirm the accuracy of such
determination. Nothing contained herein shall be deemed to restrict the right of
a Holder to convert such Debentures at such time as such conversion will not
violate the provisions of this paragraph. The provisions of this Section
5(a)(iii) may be waived by a Holder of Debentures as to itself (and solely as to
itself) upon not less than 60 days prior notice to the Company, and the
provisions of this Section 5(a)(iii) shall continue to apply until such 60th day
(or later, if stated in the notice of waiver). No conversion in violation of
this paragraph but otherwise in accordance with this Debenture shall affect the
status of the securities issued upon such conversion as validly issued,
fully-paid and nonassessable.
(b) (i) Not later than three (3) Trading Days after any Conversion
Date, the Company will deliver to the applicable Holder by express courier (A) a
certificate or certificates which shall be free of restrictive legends and
trading restrictions (other than those required by Section 3.1(b) of the
Securities Purchase Agreement) representing the number of shares of Common Stock
being acquired upon the conversion of Debentures (subject to reduction pursuant
to Section 5(a)(ii) and Section 5(a)(iii)) and (B) a new Debenture representing
the unconverted principal amount. If in the case of any Conversion Notice such
Debenture or Debentures are not delivered to or as directed by the applicable
Holder by the seventh Trading Day after the Conversion Date (the "Delivery
Date"), the holder shall be entitled by written notice to the Company at any
time on or before its receipt of such Debenture or Debentures thereafter, to
rescind such conversion, in which event the Company shall immediately return the
Debentures tendered for conversion, whereupon the Company and the Holder shall
each be restored to their respective positions immediately prior to the delivery
of such notice of revocation, except that any amounts described in Sections
5(b)(ii) and (iii) shall be payable through the date notice of rescission is
given to the Company.
(ii) The Company understands that a delay in the delivery of the shares
of Common Stock upon conversion of Debentures and failure to deliver a new
Debenture representing the unconverted principal amount beyond the Delivery Date
could result in economic loss to the Holder. If the Company fails to deliver to
the Holder such certificate or certificates pursuant to this Section hereunder
by the Delivery Date for any reason other than the failure to obtain Shareholder
Approval as provided in Section 5(a)(ii), the Company shall pay to such Holder,
in cash, an amount per Trading Day for each Trading Day until such certificates
are delivered, together with interest on such amount at a rate of 15% per annum,
accruing until such amount and any accrued interest thereon is paid in full,
equal to (i) 1% of the aggregate principal amount of the Debentures, plus the
accrued and
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<PAGE> 5
unpaid interest thereon, requested to be converted for the first four
Trading Days after the Delivery Date and (ii) 2% of the aggregate principal
amount of the Debentures, plus the accrued and unpaid interest thereon,
requested to be converted for each Trading Day thereafter (which amounts shall
be paid as liquidated damages and not as a penalty). If the Company fails to
deliver to the Holder such certificate or certificates pursuant to this Section
prior to the 15th Trading Day after the Conversion Date, the Company shall, at
the Holder's option, redeem in cash, from funds legally available therefor at
the time of such redemption, such principal amount of Debentures then held by
such Holder, plus the accrued and unpaid interest thereon, as requested by such
Holder, in cash. The redemption price shall be equal to the aggregate principal
amount of Debentures then held by such Holder, plus accrued and unpaid interest
thereon, multiplied by the average Per Share Market Value for the five Trading
Days immediately preceding (A) the proposed Conversion Date or (B) the date of
payment in full by the Company of such prepayment price, whichever is greater,
multiplied by the Conversion Ratio calculated on the Conversion Date. If the
Holder has requested that the Company redeem Debentures pursuant to this Section
and the Company fails for any reason to pay the redemption price, as calculated
pursuant to the immediately preceding sentence, within seven days after such
notice is deemed delivered pursuant to Section 5(a)(i), the Company will pay
interest on the redemption price at a rate of 15% per annum, in cash to such
Holder, accruing from such seventh day until the redemption price and any
accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). Nothing herein shall limit a Holder's
right to pursue actual damages for the Company's failure to deliver certificates
representing shares of Common Stock upon conversion within the period specified
herein (including, without limitation, damages relating to any purchase of
shares of Common Stock by such Holder to make delivery on a sale effected in
anticipation of receiving certificates representing shares of Common Stock upon
conversion, such damages to be in an amount equal to (A) the aggregate amount
paid by such holder for the shares of Common Stock so purchased minus (B) the
aggregate amount of net proceeds, if any, received by such Holder from the sale
of the shares of Common Stock issued by the Company pursuant to such
conversion), and such Holder shall have the right to pursue all remedies
available to it at law or in equity (including, without limitation, a decree of
specific performance and/or injunctive relief).
(iii) In addition to any other rights available to the Holder, if the
Company fails to deliver to the Holder such certificate or certificates pursuant
to Section 5(b)(i) by the Delivery Date and if after the Delivery Date the
Holder purchases (in an open market transaction or otherwise) shares of Common
Stock to deliver in satisfaction of a sale by such Holder of the Underlying
Shares which the Holder anticipated receiving upon such conversion (a "Buy-In"),
then the Company shall pay in cash to the Holder (in addition to any remedies
available to or elected by the Holder) the amount by which (A) the Holder's
total purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (B) the aggregate principal amount of the
Debentures for which such conversion was not timely honored, together with
interest thereon at a rate of 15% per annum, accruing until such amount and any
accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). For example, if the Holder purchases
shares of Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted conversion of $10,000 aggregate principal
amount of the Debentures, the Company shall be required to pay the Holder
$1,000, plus interest. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In.
(c) (i) The conversion price for the Debentures (the "Conversion
Price") in effect on any Conversion Date shall be the lesser of (A) an amount
equal to 120% of the average Per Share Market Value for five consecutive Trading
Days immediately prior to the Original Issue Date and (B)
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<PAGE> 6
an amount equal to 88% of the Per Share Market Value for the three (3) Trading
Days having the lowest Per Share Market Value during the twenty-five (25)
Trading Days prior to the Conversion Date (the "Look Back Period"), except that
if during any period (a "Black-out Period"), a Holder is unable to trade any
Common Stock issued or issuable upon conversion of Debentures immediately due to
the postponement of filing or delay or suspension of effectiveness of a
registration statement or because the Company has otherwise informed such Holder
that an existing prospectus cannot be used at that time in the sale or transfer
of such Common Stock, such Holder shall have the option but not the obligation
on any Conversion Date within ten Trading Days following the expiration of the
Blackout Period of using the Conversion Price applicable on such Conversion Date
or any Conversion Price selected by such Holder that would have been applicable
had such Conversion Date been at any earlier time during the Black-out Period or
within the ten Trading Days thereafter. Beginning on the 150th day following the
Original Issue Date, the number of Trading Days used in clause (B) above in
calculating the Look Back Period shall be increased by two Trading Days per
month up to a maximum of an additional 12 Trading Days.
Notwithstanding the foregoing, if the Company has failed to file a
registration statement as required by the Registration Rights Agreement within
15 days after the Filing Date (as such term is defined in the Registration
Rights Agreement), or if any registration statement required to be filed by the
Company pursuant to the Registration Rights Agreement has not been declared
effective within sixty (60) days after the Filing Date, or if the Company has
allowed any registration statement required to be filed pursuant to the
Registration Rights Agreement to lapse for a period of 30 consecutive days, then
the Conversion Price shall, immediately after such 15th or 30th or 60th day, as
applicable, be decreased by 3% and shall be further decreased by an additional
0.1% for each subsequent day thereafter until such time as such registration
statement is filed, declared effective or had its effectiveness reinstated, as
applicable; provided, that if any such registration statement is not effective
within 120 days after the Filing Date, then the Conversion Price shall be
decreased by an additional 1.25% for each seven calendar days following such
120th day and continuing until any such registration statement is effective;
provided further, that the Conversion Price shall not be decreased by more than
50%. The provisions of this Section are not exclusive and shall in no way limit
the Company's obligations under the Registration Rights Agreement.
(ii) If the Company, at any time while any Debentures are outstanding,
(a) shall pay a stock dividend or otherwise make a distribution or distributions
on shares of its Common Stock or any other equity security payable in shares of
Common Stock, (b) subdivide outstanding shares of Common Stock into a larger
number of shares, (c) combine outstanding shares of Common Stock into a smaller
number of shares, or (d) issue by reclassification of shares of Common Stock any
shares of capital stock of the Company, the applicable Conversion Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding before such event
and of which the denominator shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to this Section
5(c)(ii) shall become effective immediately after the record date for the
determination of shareholders entitled to receive such dividend or distribution
in the case of clause (a) of this paragraph, and shall become effective
immediately after the effective date in the case of clauses (b), (c) and (d) of
this paragraph.
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(iii) If the Company, at any time while Debentures are outstanding,
shall sell or issue additional shares of Common Stock or rights or warrants to
acquire shares of Common Stock at a price per share less than the Per Share
Market Value at the record date mentioned below, excluding any rights of the
holder of the Debentures or the holders of the Warrants issued pursuant to the
Securities Purchase Agreement to acquire Common Stock, the applicable Conversion
Price shall be multiplied by a fraction, of which the denominator shall be the
number of shares of Common Stock (excluding treasury shares, if any) outstanding
on the date of issuance of such shares, rights or warrants plus the number of
additional shares of Common Stock offered for subscription or purchase, and of
which the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding on the date of issuance of such shares,
rights or warrants plus the number of shares which the aggregate offering price
of the total number of shares so offered would purchase at such Per Share Market
Value. Such adjustment shall be made whenever such shares, rights or warrants
are issued, and shall become effective immediately after the issuance of such
shares, rights or warrants or, if such rights or warrants are issued to
shareholders of the Company, the record date for the determination of
shareholders entitled to receive such rights or warrants. However, upon the
expiration of any right or warrant to purchase Common Stock the issuance of
which resulted in an adjustment in the applicable Conversion Price pursuant to
this Section 5(c)(iii), if any such right or warrant shall expire and shall not
have been exercised, the applicable Conversion Price shall immediately upon such
expiration be re-computed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting any other
adjustments in the applicable Conversion Price made pursuant to the provisions
of this Section 5 after the issuance of such rights or warrants) had the
adjustment of the applicable Conversion Price made upon the issuance of such
rights or warrants been made on the basis of offering for subscription or
purchase only that number of shares of Common Stock actually purchased upon the
exercise of such rights or warrants actually exercised.
(iv) If the Company, at any time while Debentures are outstanding,
shall distribute to all holders of Common Stock (and not to holders of
Debentures) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security (excluding those referred to in Sections
5(c)(ii) and (iii) above), then in each such case the applicable Conversion
Price at which the Debentures shall thereafter be convertible shall be
determined by multiplying the Conversion Price in effect immediately prior to
the record date fixed for determination of shareholders entitled to receive such
distribution by a fraction of which the denominator shall be the Per Share
Market Value determined as of the record date mentioned above, and of which the
numerator shall be such Per Share Market Value on such record date less the then
fair market value at such record date of the portion of such assets or evidence
of indebtedness so distributed applicable to one outstanding share of Common
Stock as determined by the Board of Directors in good faith; provided, however,
that in the event of a distribution exceeding ten percent of the net assets of
the Company, such fair market value shall be determined by an Independent
Appraiser (as defined below) selected in good faith by the holders of a majority
in interest of the principal amount of the Debentures then outstanding; and
provided, further, that the Company, after receipt of the determination by such
Independent Appraiser shall have the right to select an additional Independent
Appraiser, in good faith, in which case the fair market value shall be equal to
the average of the determinations by each such Independent Appraiser. In either
case the adjustments shall be described in a statement provided to the holders
of Debentures of the portion of assets or evidences of indebtedness so
distributed or such subscription rights
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<PAGE> 8
applicable to one share of Common Stock. Such adjustment shall be made whenever
any such distribution is made and shall become effective immediately after the
record date mentioned above.
(v) All calculations under this Section 5 shall be made to the nearest
cent or the nearest 1/100th of a share, as the case may be.
(vi) Whenever the applicable Conversion Price is adjusted pursuant to
Section 5(c)(ii),(iii) or (iv) (for purposes of this Section 5(c)(vi), each an
"adjustment"), the Company shall cause its Chief Financial Officer to prepare
and execute a certificate setting forth, in reasonable detail, the event
requiring the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated (including a description of the basis on which the
Board made any determination hereunder), and the applicable Conversion Price
after giving effect to such adjustment, and shall cause copies of such
certificate to be delivered to each Holder promptly after each adjustment. Any
dispute between the Company and the Holders with respect to the matters set
forth in such certificate may at the option of the Holders be submitted to one
of the national accounting firms currently known as the "big five" selected by
the holders of a majority in interest of the principal amount of the Debentures
then outstanding, provided that the Company shall have ten days after receipt of
notice from such Holders of their selection of such firm to object thereto, in
which case the holders of a majority in interest of the principal amount of the
Debentures then outstanding shall select another such firm and the Company shall
have no such right of objection. The firm selected by the holders of a majority
in interest of the principal amount of the Debentures then outstanding as
provided in the preceding sentence shall be instructed to deliver a written
opinion as to such matters to the Company and the Holders within thirty days
after submission to it of such dispute. Such opinion shall be final and binding
on the parties hereto. The fees and expenses of such accounting firm shall be
paid by the Company.
(vii) In case the Company after the Original Issue Date shall do any of
the following (each, a "Triggering Event") (a) consolidate with or merge into
any other person and the Company shall not be the continuing or surviving
corporation of such consolidation or merger, or (b) permit any other person to
consolidate with or merge into the Company and the Company shall be the
continuing or surviving person but, in connection with such consolidation or
merger, any capital stock of the Company shall be changed into or exchanged for
securities of any other person or cash or any other property, or (c) transfer
all or substantially all of its properties or assets to any other person, or (d)
effect a capital reorganization or reclassification of its capital stock, the
holders of the Debentures then outstanding shall have the right thereafter to
convert such shares only into the shares of stock and other securities, cash and
property receivable upon or deemed to be held by holders of Common Stock
following such Triggering Event, and the holders of the Debentures shall be
entitled upon such event to receive such amount of securities, cash or property
as the shares of the Common Stock of the Company into which such Debentures
could have been converted immediately prior to such Triggering Event would have
been entitled; provided, however, that each Holder shall have the option to
require the Company to redeem, from funds legally available therefor at the time
of such redemption, any principal amount of its Debentures at a price equal to
the aggregate principal amount of Debentures to be redeemed, plus accrued and
unpaid interest thereon, multiplied by the product of (i) the average Per Share
Market Value for the five Trading Days immediately preceding (1) the effective
date, the date of the closing or the date of the announcement, as the case may
be, of the Triggering Event triggering such redemption right or (2) the date of
payment in full by the Company
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<PAGE> 9
of the redemption price hereunder, whichever is greater, and (ii) the Conversion
Ratio calculated on the date of the closing or the effective date or the date of
announcement, as the case may be, of the Triggering Event triggering such
redemption right, as the case may be. The entire redemption price shall be paid
in cash. If the Holder has requested that the Company redeem Debentures pursuant
to this Section and the Company fails for any reason to pay the redemption
price, as calculated pursuant to the immediately preceding sentence, within
seven days after such notice is deemed delivered pursuant to the preceding
sentence, the Company will pay interest on the redemption price at a rate of 15%
per annum, in cash to such Holder, accruing from such seventh day until the
redemption price and any accrued interest thereon is paid in full (which amount
shall be paid as liquidated damages and not as a penalty). The terms of any such
Triggering Event shall include such terms so as to continue to give to the
holder of Debentures the right to receive the securities, cash or property set
forth in this Section 5(c)(vii) upon any conversion or redemption following such
Triggering Event. This provision shall similarly apply to successive Triggering
Events.
(viii) If:
A. the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
B. the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or
C. the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital stock
of any class or of any rights; or
D. the approval of any shareholders of the Company shall
be required in connection with any Triggering Event;
or
E. the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of
the affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Debentures, and shall cause to be mailed to the
Holders of Debentures at their last addresses as they shall appear upon the
stock books of the Company, at least 30 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as
of which the holders of Common Stock of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be determined or (y) the
date on which such reclassification, consolidation, merger, sale, transfer or
share exchange is expected to become effective or close, and the date as of
which it is expected that holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer or
share exchange; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such
9
<PAGE> 10
notice. Holders are entitled to convert Debentures during the 30-day period
commencing the date of such notice to the effective date of the event triggering
such notice.
(d) If at any time conditions shall arise by reason of action taken by
the Company which in the opinion of the Board of Directors are not adequately
covered by the other provisions hereof and which might materially and adversely
affect the rights of the holders of Debentures (different than or distinguished
from the effect generally on rights of holders of any class of the Company's
capital stock) or if at any time any such conditions are expected to arise by
reason of any action contemplated by the Company, the Company shall mail a
written notice briefly describing the action contemplated and the material
adverse effects of such action on the rights of the holders of Debentures at
least 10 calendar days prior to the effective date of such action, and an
Independent Appraiser selected by the holders of majority in interest of the
principal amount of the Debentures then outstanding shall give its opinion as to
the adjustment, if any (not inconsistent with the standards established in this
Section 5), of the Conversion Price (including, if necessary, any adjustment as
to the securities into which Debentures may thereafter be convertible) and any
distribution which is or would be required to preserve without diluting the
rights of the holders of Debentures; provided, however, that the Company, after
receipt of the determination by such Independent Appraiser, shall have the right
to select an additional Independent Appraiser, in good faith, in which case the
adjustment shall be equal to the average of the adjustments recommended by each
such Independent Appraiser. The Board of Directors shall make the adjustment
recommended forthwith upon the receipt of such opinion or opinions or the taking
of any such action contemplated, as the case may be; provided, however, that no
such adjustment of the Conversion Price shall be made which in the opinion of
the Independent Appraiser(s) giving the aforesaid opinion or opinions would
result in an increase of the Conversion Price to more than the Conversion Price
then in effect.
(e) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued Common Stock solely for the purpose
of issuance upon conversion of Debentures free from preemptive rights or any
other actual contingent purchase rights of persons other than the holders of
Debentures, not less than such number of shares of Common Stock as shall
(subject to any additional requirements of the Company as to reservation of such
shares set forth in the Securities Purchase Agreement) be issuable (taking into
account the adjustments and restrictions of Section 5(c)) upon the conversion of
all outstanding Debentures. The Company covenants that all shares of Common
Stock that shall be so issuable shall, upon issue, be duly and validly
authorized, issued and fully paid, nonassessable and freely tradable.
(f) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of Common Stock, but
may if otherwise permitted, make a cash payment in respect of any final fraction
of a share based on the Per Share Market Value at such time. If the Company
elects not, or is unable, to make such a cash payment, the holder of a Debenture
shall be entitled to receive, in lieu of the final fraction of a share, one
whole share of Common Stock.
(g) The issuance of certificates for shares of Common Stock on
conversion of Debentures shall be made without charge to the holders thereof for
any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate.
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<PAGE> 11
(h) Debentures converted into Common Stock shall be canceled and
retired by the Company.
(i) Any and all notices or other communications or deliveries to be
provided by the holders of Debentures hereunder, including, without limitation,
any Conversion Notice, shall be in writing and delivered personally, by
facsimile or sent by a nationally recognized overnight courier service,
addressed to the attention of the President and to the Secretary of the Company
at the facsimile telephone number or address of the principal place of business
of the Company as set forth in the Securities Purchase Agreement. Any and all
notices or other communications or deliveries to be provided by the Company
hereunder shall be in writing and delivered personally, by facsimile or sent by
a nationally recognized overnight courier service, addressed to each Holder of
Debentures at the facsimile telephone number or address of such holder appearing
on the books of the Company, or if no such facsimile telephone number or address
appears, at the principal place of business of the Holder. Any notice or other
communication or deliveries hereunder shall be deemed given and effective on the
earlier of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section prior to 5:00 p.m., West Coast City time, (ii) the date after the date
of transmission, if such notice or communication is delivered via facsimile at
the facsimile telephone number specified in this Section later than 5:00 p.m.,
West Coast City time, on any date and earlier than 11:59 p.m., West Coast City
time, on such date, (iii) receipt, if sent by a nationally recognized overnight
courier service, or (iv) actual receipt by the party to whom such notice is
required to be given.
(j) In the event a Holder shall elect to convert any Debentures as
provided herein, the Company cannot refuse conversion based on any claim that
such Holder or any one associated or affiliated with such Holder has been
engaged in any violation of law, unless, an injunction from a court, on notice,
restraining and or adjoining conversion of all or any portion of said Debentures
shall have issued and the Company posts a surety bond for the benefit of such
Holder in the amount of the principal amount of Debentures sought to be
converted, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Holder in the event it obtains judgment.
6. Events of Default.
Each of the following shall constitute an event of default ("Event of
Default"), whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment or order of any court or any order, rule or regulation of any
administrative, governmental or non-governmental body or otherwise howsoever:
(a) the Company shall default in any payment of principal of, or
interest on, the Debentures or any other amounts due under the Transaction
Documents when and as due (whether at maturity, upon acceleration or otherwise);
or
(b) the Company shall fail duly to perform or observe any term,
covenant or agreement contained in any of the Debentures or in the Securities
Purchase Agreement or in the
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<PAGE> 12
Registration Rights Agreement for a period of seven days after the date on which
written notice of such failure shall first have been given to the Company; or
(c) (i) a final judgment shall be entered by any court against the
Company for the payment of money which together with all other outstanding final
judgments against the Company exceeds $10,000 in the aggregate, or (ii) a
warrant of attachment or execution or similar process shall be issued or levied
against any of the Company's property which exceeds in value $10,000 in the
aggregate, and if, within 30 days after the entry, issue or levy thereof, such
judgment, warrant or process shall not have been paid or discharged; or
(d) a court having jurisdiction in the premises shall enter a decree or
order for relief in respect of the Company in an involuntary case or proceeding
under any applicable bankruptcy, insolvency, reorganization or other similar law
now or hereafter in effect, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or similar official) of the Company or for any
substantial part of the property of it or ordering the winding-up or liquidation
of the affairs of it and such decree or order shall remain unstayed and in
effect for a period of 30 days; or
(e) the Company shall commence a voluntary case or proceeding under any
applicable bankruptcy, insolvency, reorganization or other similar law now or
hereafter in effect, or shall consent to the entry of an order for relief in an
involuntary case under any such law, or shall consent to the appointment of or
taking possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or similar official) of the Company or for any substantial part of
its property, or shall make any general assignment for the benefit of creditors,
or shall admit in writing its inability to pay its debts as they become due or
shall take any corporate action in furtherance of any of the foregoing; or
(f) an event of default, as defined in any indenture or instrument
evidencing or under which the Company shall have outstanding indebtedness for
borrowed money in excess of $10,000, inclusive of accrued interest, accrued
premium, if any, or any additional amounts payable, shall happen and be
continuing and such default shall involve the failure to pay the principal of
such indebtedness (or any part thereof), when due and payable after the
expiration of any applicable grace period with respect thereto, or such
indebtedness shall have been accelerated so that the same shall be or become due
and payable prior to the date on which the same would otherwise have become due
and payable, and such failure to pay shall not have been cured by the Company
within 30 days after such failure or such acceleration shall not be rescinded or
annulled within 30 days after notice thereof shall have first been given to the
Company; provided that if such event of default under such indenture or
instrument shall be remedied or cured by the Company or waived by the holders of
such indebtedness, then the Event of Default hereunder by reason thereof shall
be deemed likewise to have been thereupon remedied, cured or waived without
further action upon the part of any of the holders of Debentures; or
(g) the Common Stock is delisted from, or trading in the Common Stock
shall have been suspended for more than ten Trading Days on, The Nasdaq
Small-Cap Market or such other principal market or exchange on which the Common
Stock is listed for trading; or
12
<PAGE> 13
(h) the Company fails to timely deliver the shares of Common Stock to
the Holder or a replacement Debenture representing any unconverted portion of
this Debenture pursuant to this Debenture; or
(i) the issuance by the Securities and Exchange Commission of any stop
order suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities (as defined in the Registration Rights
Agreement) or the initiation of any proceedings for that purpose.
With the exception of an Event of Default specified in clauses (d) or
(e) above, upon the occurrence and continuance of an Event of Default, the
Holder may declare the principal of and interest on the Debentures and all other
amounts owing under the Transaction Documents to be forthwith due and payable by
giving written notice thereof to the Company without presentment, demand,
protest or other notice of any kind, all of which are hereby expressly waived,
anything in the Transaction Documents to the contrary notwithstanding. Upon the
occurrence and continuance of an Event of Default specified in clauses (d) or
(e) above, such principal, interest and other amounts shall thereupon and
concurrently therewith become automatically due and payable all without any
action by the Holder and without presentment, demand, protest or other notice of
any kind, all of which are expressly waived, anything in the Transaction
Documents to the contrary notwithstanding.
Interest on overdue principal and interest (and other amounts, if any)
shall accrue from the date on which such principal and interest (and other
amounts, if any) were due and payable to the date such principal and interest
(and other amounts, if any) are paid or duly provided for, at a rate of 15% per
annum (to the extent payment of such interest shall be legally enforceable).
7. Definitions. For the purposes hereof, the following terms shall have the
following meanings:
"Bloomberg" shall mean Bloomberg L.P.
"Common Stock" means the common stock, no par value per share, of the Company
and stock of any other class into which such shares may hereafter have been
reclassified or changed.
"Conversion Ratio" means the number of shares of Common Stock issuable
upon conversion of each Debentures determined by the application of the
following formula where "D" equals the accrued and unpaid interest on the
aggregate principal amount of Debentures so converted as of the Conversion Date:
Principal Amount to be Converted + D
------------------------------------
Conversion Price
"Independent Appraiser" means a nationally recognized or major regional
investment banking firm or firm of independent certified public accountants of
recognized standing (which may be the firm that regularly examines the financial
statements of the Company) that is
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<PAGE> 14
regularly engaged in the business of appraising the capital stock or assets of
corporations or other entities as going concerns, and which is not affiliated
with either the Company or any Holder.
"NASDAQ" means the National Association of Securities Dealers Automated
Quotation System.
"Original Issue Date" shall mean the date of the first issuance of any
Debentures regardless of the number of transfers of any particular Debentures
and regardless of the number of certificates which may be issued to evidence
such Debentures.
"Per Share Market Value" means on any particular date (a) the closing
bid price per share of the Common Stock on such date on The Nasdaq Small-Cap
Market, the Nasdaq National Market or other registered national stock exchange
on which the Common Stock is then listed or if there is no such price on such
date, as reported by Bloomberg, then the closing bid price on such exchange or
quotation system on the date nearest preceding such date, as reported by
Bloomberg, or (b) if the Common Stock is not listed then on The Nasdaq Small-Cap
Market, the Nasdaq National Market or any registered national stock exchange,
the closing bid price for a share of Common Stock in the over-the-counter market
as reported by Bloomberg (or, if such prices are not reported by Bloomberg, then
such prices as reported by NASDAQ or in the National Quotation Bureau
Incorporated or similar organization or agency succeeding to its functions of
reporting prices) at the close of business on such date, or (c) if the Common
Stock is not then reported by the National Quotation Bureau Incorporated (or
similar organization or agency succeeding to its functions of reporting prices),
then the average of the over-the-counter quotes on the Electronic Bulletin Board
of the National Association of Securities Dealers, Inc. for the relevant
conversion period, as determined in good faith by the holder, or (d) if the
Common Stock is not then publicly traded, the fair market value of a share of
Common Stock as determined by an Independent Appraiser selected in good faith by
the holders of a majority in interest of the shares of the Debentures; provided,
however, that the Company, after receipt of the determination by such
Independent Appraiser, shall have the right to select an additional Independent
Appraiser, in which case, the fair market value shall be equal to the average of
the determinations by each such Independent Appraiser; and provided, further
that all determinations of the Per Share Market Value shall be appropriately
adjusted for any stock dividends, stock splits or other similar transactions
during such period. The determination of fair market value by an Independent
Appraiser shall be based upon the fair market value of the Company determined on
a going concern basis as between a willing buyer and a willing seller and taking
into account all relevant factors determinative of value, and shall be final and
binding on all parties. In determining the fair market value of any shares of
Common Stock, no consideration shall be given to any restrictions on transfer of
the Common Stock imposed by agreement or by federal or state securities laws, or
to the existence or absence of, or any limitations on, voting rights.
"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or other entity of any kind.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Original Issue Date, by and among the Company and the
original Holders.
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<PAGE> 15
"Trading Day" means (a) a day on which the Common Stock is traded on
The Nasdaq Small-Cap Market, the Nasdaq National Market or other registered
national stock exchange or quotation system on which the Common Stock has been
listed, or (b) if the Common Stock is not listed on The Nasdaq Small-Cap Market,
the Nasdaq National Market or any registered national stock exchange or
quotation system, a day or which the Common Stock is traded in the
over-the-counter market, as reported by the OTC Bulletin Board, or (c) if the
Common Stock is not quoted on the OTC Bulletin Board, a day on which the Common
Stock is quoted in the over-the-counter market as reported by the National
Quotation Bureau Incorporated (or any similar organization or agency succeeding
its functions of reporting prices); provided, however, that in the event that
the Common Stock is not listed or quoted as set forth in (a), (b) and (c)
hereof, then Trading Day shall mean any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.
"Underlying Shares" means the number of shares of Common Stock into
which the Debentures are convertible in accordance with the terms hereof and the
Securities Purchase Agreement.
9. Taxes. The Company shall pay any and all taxes attributable to the
issuance and delivery of Common Stock or other securities upon conversion of the
Debentures.
10. No Impairment. The Company shall not by any action including,
without limitation, amending the articles of incorporation or the by-laws of the
Company, or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other action, avoid or
seek to avoid the observance or performance of any of the terms of this
Debenture, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of the Holder hereof against dilution (to the
extent specifically provided herein) or impairment. Without limiting the
generality of the foregoing, the Company will (i) not permit the par value, if
any, of its Common Stock to exceed the then effective Conversion Price, (ii) not
amend or modify any provision of the articles of incorporation or by-laws of the
Company in any manner that would adversely affect in any way the powers,
preferences or relative participating, optional or other special rights of the
Common Stock or which would adversely affect the rights of the Holders of the
Debentures, (iii) take all such action as may be reasonably necessary in order
that the Company may validly and legally issue fully paid and nonassessable
shares of Common Stock, free and clear of any liens, claims, encumbrances and
restrictions (other than as provided herein) upon the exercise of this
Debentures, and (iv) use its best efforts to obtain all such authorizations,
exemptions or consents from any public regulatory body having jurisdiction
thereof as may be reasonably necessary to enable the Company to perform its
obligations under this Debenture.
11. Governing Law. The Debentures shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
principles of conflicts of law.
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<PAGE> 16
12. Countersignature and Registration. This Debenture shall not become
valid or obligatory for any purpose until the Debentures shall have been duly
executed by the Company and such signature attested to by an authorized Officer
thereof.
13. Warranty of the Company. The Company hereby certifies and warrants
that all acts, conditions and things required to be done and performed and to
have happened precedent to the creation and issuance of this Debenture, and to
constitute the same as legal, valid and binding obligations of the Company
enforceable in accordance with their terms, have been done and performed and
have happened in due and strict compliance with all applicable laws.
14. Descriptive Headings. The descriptive headings appearing herein are
for convenience of reference only and shall not alter, limit or define the
provisions hereof.
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<PAGE> 17
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed in its corporate name by the manual or facsimile signature of a duly
authorized signatory, as attested to by another duly authorized signatory of the
Company.
Dated: August 5, 1999
TEAM COMMUNICATIONS GROUP, INC.
By: /s/ Jonathan D. Shapiro
------------------------------------
Name: Jonathan D. Shapiro
----------------------------------
Title: President & COO
---------------------------------
ATTEST:
By: /s/ Eric Elias
------------------------------------
Name: Eric Elias
----------------------------------
Title: Sr. V.P.
---------------------------------
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EXHIBIT 1
CONVERSION NOTICE
Reference is made to the debenture certificate (the "Debenture Certificate") of
Team Communications Group, Inc., a California corporation (the "Company"). In
accordance with and pursuant to the Debenture Certificate, the undersigned
hereby elects to have the Company convert the principal amount of 12%
Convertible Debentures due 2002 (the "Debentures"), of the Company, indicated
below into shares of Common Stock, no par value per share (the "Common Stock"),
of the Company, by tendering the certificate(s) representing the Debentures
specified below as of the date specified below.
Date of Conversion: ___________________________
Principal amount of Debentures to be converted: ___________________________
Certificate no(s). of Debentures to be converted: ___________________________
Please confirm the following information:
Conversion Price: ___________________________
Please issue the Common Stock and, if applicable, any check drawn on an account
of the Company into which the Debentures are being converted in the following
name and to the following address:
Issue to: ___________________________
___________________________
___________________________
___________________________
Facsimile Number: ___________________________
Authorization: ___________________________
By:________________________
Title:_____________________
Dated: ___________________________
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<PAGE> 1
EXHIBIT 4.35
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE
NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
TEAM COMMUNICATIONS GROUP, INC.
Expires August 5, 2002
No. W-1 New York, New York
August 5, 1999
FOR VALUE RECEIVED, subject to the provisions hereinafter set forth, the
undersigned, TEAM COMMUNICATIONS GROUP, INC., a California corporation (together
with its successors and assigns, the "Issuer"), hereby certifies that Hudson
Investors LLC or its registered assigns is entitled to subscribe for and
purchase, during the period specified in this Warrant, up to 340,00 shares
(subject to adjustment as hereinafter provided) of the duly authorized, validly
issued, fully paid and non-assessable Common Stock of the Issuer, at an exercise
price per share equal to the Warrant Price then in effect, subject, however, to
the provisions and upon the terms and conditions hereinafter set forth.
Capitalized terms used in this Warrant and not otherwise defined herein shall
have the respective meanings specified in Section 7 hereof.
1. Term. The right to subscribe for and purchase shares of Warrant Stock
represented hereby shall commence on the date of issuance of this Warrant and
shall expire at 5:00 p.m., New York City time, on August 5, 2002 (such period
being the "Term").
2. Method of Exercise Payment: Issuance of New Warrant: Transfer and
Exchange.
(a) Time of Exercise. The purchase rights represented by this Warrant
may be exercised in whole or in part at any time and from time to time during
the Term.
(b) Method of Exercise. The Holder hereof may exercise this Warrant, in
whole or in part, by the surrender of this Warrant (with the exercise form
attached hereto duly executed) at
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the principal office of the Issuer, and by the payment to the Issuer of an
amount of consideration therefor equal to the Warrant Price in effect on the
date of such exercise multiplied by the number of shares of Warrant Stock with
respect to which this Warrant is then being exercised, payable at such Holder's
election by certified or official bank check or by wire transfer to an account
specified by the Issuer.
(c) Issuance of Stock Certificates. In the event of any exercise of the
rights represented by this Warrant in accordance with and subject to the terms
and conditions hereof, (i) certificates for the shares of Warrant Stock so
purchased shall be dated the date of such exercise and delivered to the Holder
hereof within a reasonable time, not exceeding three Trading Days after such
exercise, and the Holder hereof shall be deemed for all purposes to be the
Holder of the shares of Warrant Stock so purchased as of the date of such
exercise, and (ii) unless this Warrant has expired, a new Warrant representing
the number of shares of Warrant Stock, if any, with respect to which this
Warrant shall not then have been exercised (less any amount thereof which shall
have been canceled in payment or partial payment of the Warrant Price as
hereinabove provided) shall also be issued to the Holder hereof at the Issuer's
expense within such time.
(d) Transferability of Warrant. Subject to the provisions of subsection
(e) of this Section 2, this Warrant may be transferred on the books of the
Issuer by the Holder hereof in person or by duly authorized attorney, upon
surrender of this Warrant at the principal office of the Issuer, properly
endorsed (by the Holder executing an assignment in the form attached hereto) and
upon payment of any necessary transfer tax or other governmental charge imposed
upon such transfer. This Warrant is exchangeable at the principal office of the
Issuer for Warrants for the purchase of the same aggregate number of shares of
Warrant Stock, each new Warrant to represent the right to purchase such number
of shares of Warrant Stock as the Holder hereof shall designate at the time of
such exchange. All Warrants issued on transfers or exchanges shall be dated the
Original Issue Date and shall be identical with this Warrant except as to the
number of shares of Warrant Stock issuable pursuant hereto.
(e) Compliance with Securities Laws.
(i) The Holder of this Warrant, by acceptance hereof,
acknowledges that this Warrant and the shares of Warrant Stock to be issued upon
exercise hereof are being acquired solely for the Holder's own account and not
as a nominee for any other party, and for investment, and that the Holder will
not offer, sell or otherwise dispose of this Warrant or any shares of Warrant
Stock to be issued upon exercise hereof except pursuant to an effective
registration statement, or an exemption from registration, under the Securities
Act and any applicable state securities laws.
(ii) Except as provided in paragraph (iii) below, this Warrant
and all certificates representing shares of Warrant Stock issued upon exercise
hereof shall be stamped or imprinted with a legend in substantially the
following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
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<PAGE> 3
IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT.
(iii) The restrictions imposed by this subsection (e) upon the
transfer of this Warrant and the shares of Warrant Stock to be purchased upon
exercise hereof shall terminate (A) when such securities shall have been
effectively registered under the Securities Act, (B) upon the Issuer's receipt
of an opinion of counsel, in form and substance reasonably satisfactory to the
Issuer, addressed to the Issuer to the effect that such restrictions are no
longer required to ensure compliance with the Securities Act or (C) upon the
Issuer's receipt of other evidence reasonably satisfactory to the Issuer that
such registration is not required. Whenever such restrictions shall cease and
terminate as to any such securities, the Holder thereof shall be entitled to
receive from the Issuer (or its transfer agent and registrar), without expense
(other than applicable transfer taxes, if any), new Warrants (or, in the case of
shares of Warrant Stock, new stock certificates) of like tenor not bearing the
applicable legends required by paragraph (ii) above relating to the Securities
Act and state securities laws.
(f) Continuing Rights of Holder. The Issuer will, at the time of or at
any time after each exercise of this Warrant, upon the request of the Holder
hereof or of any shares of Warrant Stock issued upon such exercise, acknowledge
in writing the extent, if any, of its continuing obligation to afford to such
Holder all rights to which such Holder shall continue to be entitled after such
exercise in accordance with the terms of this Warrant, provided that if any such
Holder shall fail to make any such request, the failure shall not affect the
continuing obligation of the Issuer to afford such rights to such Holder.
3. Stock Fully Paid: Reservation and Listing of Shares: Covenants.
(a) Stock Fully Paid. The Issuer represents, warrants, covenants and
agrees that all shares of Warrant Stock which may be issued upon the exercise of
this Warrant or otherwise hereunder will, upon issuance, be duly authorized,
validly issued, fully paid and non-assessable and free from all taxes, liens and
charges created by or through Issuer. The Issuer further covenants and agrees
that during the period within which this Warrant may be exercised, the Issuer
will at all times have authorized and reserved for the purpose of the issue upon
exercise of this Warrant a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant.
(b) Reservation. If any shares of Common Stock required to be reserved
for issuance upon exercise of this Warrant or as otherwise provided hereunder
require registration or qualification with any governmental authority under any
federal or state law before such shares may be so issued, the Issuer will in
good faith use its best efforts as expeditiously as possible at its expense to
cause such shares to be duly registered or qualified. If the Issuer shall list
any shares of Common Stock on any securities exchange or market it will, at its
expense, list thereon,
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<PAGE> 4
maintain and increase when necessary such listing, of, all shares of Warrant
Stock from time to time issued upon exercise of this Warrant or as otherwise
provided hereunder, and, to the extent permissible under the applicable
securities exchange rules, all unissued shares of Warrant Stock which are at any
time issuable hereunder, so long as any shares of Common Stock shall be so
listed. The Issuer will also so list on each securities exchange or market, and
will maintain such listing of, any other securities which the Holder of this
Warrant shall be entitled to receive upon the exercise of this Warrant if at the
time any securities of the same class shall be listed on such securities
exchange or market by the Issuer.
(c) Covenants. The Issuer shall not by any action including, without
limitation, amending the Certificate of Incorporation or the by-laws of the
Issuer, or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other action, avoid or
seek to avoid the observance or performance of any of the terms of this Warrant,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such actions as may be necessary or appropriate to
protect the rights of the Holder hereof against dilution (to the extent
specifically provided herein) or impairment. Without limiting the generality of
the foregoing, the Issuer will (i) not permit the par value, if any, of its
Common Stock to exceed the then effective Warrant Price, (ii) not amend or
modify any provision of the Certificate of Incorporation or by-laws of the
Issuer in any manner that would adversely affect in any way the powers,
preferences or relative participating, optional or other special rights of the
Common Stock or which would adversely affect the rights of the Holders of the
Warrants, (iii) take all such action as may be reasonably necessary in order
that the Issuer may validly and legally issue fully paid and nonassessable
shares of Common Stock, free and clear of any liens, claims, encumbrances and
restrictions (other than as provided herein) upon the exercise of this Warrant,
and (iv) use its best efforts to obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
reasonably necessary to enable the Issuer to perform its obligations under this
Warrant.
(d) Loss, Theft, Destruction of Warrants. Upon receipt of evidence
satisfactory to the Issuer of the ownership of and the loss, theft, destruction
or mutilation of any Warrant and, in the case of any such loss, theft or
destruction, upon receipt of indemnity or security satisfactory to the Issuer
or, in the case of any such mutilation, upon surrender and cancellation of such
Warrant, the Issuer will make and deliver, in lieu of such lost, stolen,
destroyed or mutilated Warrant, a new Warrant of like tenor and representing the
right to purchase the same number of shares of Common Stock.
(e) Rights and Obligations under the Registration Rights Agreement. This
Warrant and the Warrant Stock are entitled to the benefits and subject to the
terms of the Registration Rights Agreement dated as of even date herewith
between the Issuer and the Holders listed on the signature pages thereof (as
amended from time to time, the "Registration Rights Agreement"). The Issuer
shall keep or cause to be kept a copy of the Registration Rights Agreement, and
any amendments thereto, at its chief executive office and shall furnish, without
charge, copies thereof to the Holder upon request.
4. Adjustment of Warrant Price and Warrant Share Number. The number and
kind of Securities purchasable upon the exercise of this Warrant and the Warrant
Price shall be subject
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<PAGE> 5
to adjustment from time to time upon the happening of certain events as follows:
(a) Recapitalization, Reorganization, Reclassification, Consolidation,
Merger or Sale.
(i) In case the Issuer after the Original Issue Date shall do any
of the following (each, a "Triggering Event") (a) consolidate with or merge into
any other Person and the Issuer shall not be the continuing or surviving
corporation of such consolidation or merger, or (b) permit any other Person to
consolidate with or merge into the Issuer and the Issuer shall be the continuing
or surviving Person but, in connection with such consolidation or merger, any
Capital Stock of the Issuer shall be changed into or exchanged for Securities of
any other Person or cash or any other property, or (c) transfer all or
substantially all of its properties or assets to any other Person, or (d) effect
a capital reorganization or reclassification of its Capital Stock, then, and in
the case of each such Triggering Event, proper provision shall be made so that,
upon the basis and the terms and in the manner provided in this Warrant, the
Holder of this Warrant shall be entitled (x) upon the exercise hereof at any
time after the consummation of such Triggering Event, to the extent this Warrant
is not exercised prior to such Triggering Event or redeemed in connection with
such Triggering Event, to receive at the Warrant Price in effect at the time
immediately prior to the consummation of such Triggering Event in lieu of the
Common Stock issuable upon such exercise of this Warrant prior to such
Triggering Event, the Securities, cash and property to which such Holder would
have been entitled upon the consummation of such Triggering Event if such Holder
had exercised the rights represented by this Warrant immediately prior thereto,
subject to adjustments and increases (subsequent to such corporate action) as
nearly equivalent as possible to the adjustments provided for in Section 4
hereof or (y) to sell this Warrant (or, at such Holder's election, a portion
hereof) to the Person continuing after or surviving such Triggering Event, or to
the Issuer (if Issuer is the continuing or surviving Person) at a sales price
equal to the amount of cash, property and/or Securities to which a holder of the
number of shares of Common Stock which would otherwise have been delivered upon
the exercise of this Warrant would have been entitled upon the effective date or
closing of any such Triggering Event (the "Event Consideration"), less the
amount or portion of such Event Consideration having a fair value equal to the
aggregate Warrant Price applicable to this Warrant or the portion hereof so
sold.
(ii) Notwithstanding anything contained in this Warrant to the
contrary, the Issuer will not effect any Triggering Event unless, prior to the
consummation thereof, each Person (other than the Issuer) which may be required
to deliver any Securities, cash or property upon the exercise of this Warrant as
provided herein shall assume, by written instrument delivered to, and reasonably
satisfactory to, the Holder of this Warrant, (A) the obligations of the Issuer
under this Warrant (and if the Issuer shall survive the consummation of such
Triggering Event, such assumption shall be in addition to, and shall not release
the Issuer from, any continuing obligations of the Issuer under this Warrant)
and (B) the obligation to deliver to such Holder such shares of Securities, cash
or property as, in accordance with the foregoing provisions of this subsection
(a), such Holder shall be entitled to receive, and such Person shall have
similarly delivered to such Holder an opinion of counsel for such Person, which
counsel shall be reasonably satisfactory to such Holder, stating that this
Warrant shall thereafter continue in full force and effect and the terms hereof
(including, without limitation, all of the provisions of this subsection (a))
shall be applicable to the Securities, cash or property which such Person may be
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<PAGE> 6
required to deliver upon any exercise of this Warrant or the exercise of any
rights pursuant hereto.
(iii) If with respect to any Triggering Event, the Holder of this
Warrant has exercised its right as provided in clause (y) of subparagraph (i) of
this subsection (a) to sell this Warrant or a portion thereof, the Issuer agrees
that as a condition to the consummation of any such Triggering Event the Issuer
shall secure such right of Holder to sell this Warrant to the Person continuing
after or surviving such Triggering Event and the Issuer shall not effect any
such Triggering Event unless upon or prior to the consummation thereof the
amounts of cash, property and/or Securities required under such clause (y) are
delivered to the Holder of this Warrant. The obligation of the Issuer to secure
such right of the Holder to sell this Warrant shall be subject to such Holder's
cooperation with the Issuer, including, without limitation, the giving of
customary representations and warranties to the purchaser in connection with any
such sale. Prior notice of any Triggering Event shall be given to the Holder of
this Warrant in accordance with Section 11 hereof.
(b) Subdivision or Combination of Shares. If the Issuer, at any time
while this Warrant is outstanding, shall subdivide or combine any shares of
Common Stock, (i) in case of subdivision of shares, the Warrant Price shall be
proportionately reduced (as at the effective date of such subdivision or, if the
Issuer shall take a record of Holders of its Common Stock for the purpose of so
subdividing, as at the applicable record date, whichever is earlier) to reflect
the increase in the total number of shares of Common Stock outstanding as a
result of such subdivision, or (ii) in the case of a combination of shares, the
Warrant Price shall be proportionately increased (as at the effective date of
such combination or, if the Issuer shall take a record of Holders of its Common
Stock for the purpose of so combining, as at the applicable record date,
whichever is earlier) to reflect the reduction in the total number of shares of
Common Stock outstanding as a result of such combination.
(c) Certain Dividends and Distributions. If the Issuer, at any time
while this Warrant is outstanding, shall:
(i) Stock Dividends. Pay a dividend in, or make any other
distribution to its stockholders (without consideration therefor) of, shares of
Common Stock, the Warrant Price shall be adjusted, as at the date the Issuer
shall take a record of the Holders of the Issuer's Capital Stock for the purpose
of receiving such dividend or other distribution (or if no such record is taken,
as at the date of such payment or other distribution), to that price determined
by multiplying the Warrant Price in effect immediately prior to such record date
(or if no such record is taken, then immediately prior to such payment or other
distribution), by a fraction (1) the numerator of which shall be the total
number of shares of Common Stock outstanding immediately prior to such dividend
or distribution, and (2) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after such dividend or
distribution (plus in the event that the Issuer paid cash for fractional shares,
the number of additional shares which would have been outstanding had the Issuer
issued fractional shares in connection with said dividends); or
(ii) Other Dividends. Pay a dividend on, or make any distribution
of its assets
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<PAGE> 7
upon or with respect to (including, but not limited to, a distribution of its
property as a dividend in liquidation or partial liquidation or by way of return
of capital), the Common Stock (other than as described in clause (i) of this
subsection (c)), or in the event that the Company shall offer options or rights
to subscribe for shares of Common Stock, or issue any Common Stock Equivalents,
to all of its holders of Common Stock, then on the record date for such payment,
distribution or offer or, in the absence of a record date, on the date of such
payment, distribution or offer, the Holder shall receive what the Holder would
have received had it exercised this Warrant in full immediately prior to the
record date of such payment, distribution or offer or, in the absence of a
record date, immediately prior to the date of such payment, distribution or
offer.
(d) Issuance of Additional Shares of Common Stock. If the Issuer, at any
time while this Warrant is outstanding, shall issue any Additional Shares of
Common Stock (otherwise than as provided in the foregoing subsections (a)
through (c) of this Section 4), at a price per share less than the Per Share
Market Value then in effect or without consideration, then the Warrant Price
upon each such issuance shall be adjusted to that price (rounded to the nearest
cent) determined by multiplying the Warrant Price then in effect by a fraction:
(i) the numerator of which shall be equal to the sum of (A) the
number of shares of Common Stock outstanding immediately prior to the issuance
of such Additional Shares of Common Stock plus (B) the number of shares of
Common Stock (rounded to the nearest whole share) which the aggregate
consideration for the total number of such Additional Shares of Common Stock so
issued would purchase at a price per share equal to the Per Share Market Value
then in effect, and
(ii) the denominator of which shall be equal to the number of
shares of Common Stock outstanding immediately after the issuance of such
Additional Shares of Common Stock.
The provisions of this subsection (d) shall not apply under any of the
circumstances for which an adjustment is provided in subsections (a), (b) or (c)
of this Section 4. No adjustment of the Warrant Price shall be made under this
subsection (d) upon the issuance of any Additional Shares of Common Stock which
are issued pursuant to any Common Stock Equivalent if upon the issuance of such
Common Stock Equivalent (x) any adjustment shall have been made pursuant to
subsection (e) of this Section 4 or (Y) no adjustment was required pursuant to
subsection (e) of this Section 4. No adjustment of the Warrant Price shall be
made under this subsection (d) in an amount less than $.01 per share, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment, if any, which together with
any adjustments so carried forward shall amount to $.01 per share or more,
provided that upon any adjustment of the Warrant Price as a result of any
dividend or distribution payable in Common Stock or Convertible Securities or
the reclassification, subdivision or combination of Common Stock into a greater
or smaller number of shares, the foregoing figure of $.01 per share (or such
figure as last adjusted) shall be adjusted (to the nearest one-half cent) in
proportion to the adjustment in the Warrant Price.
(e) Issuance of Common Stock Equivalents. If the Issuer, at any time
while this Warrant is outstanding, shall issue any Common Stock Equivalent and
the price per share for
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<PAGE> 8
which Additional Shares of Common Stock may be issuable thereafter pursuant to
such Common Stock Equivalent shall be less than the Warrant Price then in effect
or less than the Per Share Market Value then in effect, or if, after any such
issuance of Common Stock Equivalents, the price per share for which Additional
Shares of Common Stock may be issuable thereafter is amended or adjusted, and
such price as so amended shall be less than the Warrant Price or less than the
Per Share Market Value in effect at the time of such amendment, then the Warrant
Price upon each such issuance or amendment shall be adjusted as provided in the
first sentence of subsection (d) of this Section 4 on the basis that (1) the
maximum number of Additional Shares of Common Stock issuable pursuant to all
such Common Stock Equivalents shall be deemed to have been issued (whether or
not such Common Stock Equivalents are actually then exercisable, convertible or
exchangeable in whole or in part) as of the earlier of (A) the date on which the
Issuer shall enter into a firm contract for the issuance of such Common Stock
Equivalent, or (B) the date of actual issuance of such Common Stock Equivalent,
and (2) the aggregate consideration for such maximum number of Additional Shares
of Common Stock shall be deemed to be the minimum consideration received or
receivable by the Issuer for the issuance of such Additional Shares of Common
Stock pursuant to such Common Stock Equivalent. No adjustment of the Warrant
Price shall be made under this subsection (e) upon the issuance of any
Convertible Security which is issued pursuant to the exercise of any warrants or
other subscription or purchase rights therefor, if any adjustment shall
previously have been made in the Warrant Price then in effect upon the issuance
of such warrants or other rights pursuant to this subsection (e). If no
adjustment is required under this subsection (e) upon issuance of any Common
Stock Equivalent or once an adjustment is made under this subsection (e) based
upon the Per Share Market Value in effect on the date of such adjustment, no
further adjustment shall be made under this subsection (e) based solely upon a
change in the Per Share Market Value after such date.
(f) Purchase of Common Stock by the Issuer. If the Issuer at any time
while this Warrant is outstanding shall, directly or indirectly through a
Subsidiary or otherwise, purchase, redeem or otherwise acquire any shares of
Common Stock at a price per share greater than the Per Share Market Value then
in effect, then the Warrant Price upon each such purchase, redemption or
acquisition shall be adjusted to that price determined by multiplying such
Warrant Price by a fraction (i) the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such purchase,
redemption or acquisition minus the number of shares of Common Stock which the
aggregate consideration for the total number of such shares of Common Stock so
purchased, redeemed or acquired would purchase at the Per Share Market Value;
and (ii) the denominator of which shall be the number of shares of Common Stock
outstanding immediately after such purchase, redemption or acquisition. For the
purposes of this subsection (f), the date as of which the Per Share Market Value
shall be computed shall be the earlier of (x) the date on which the Issuer shall
enter into a firm contract for the purchase, redemption or acquisition of such
Common Stock, or (y) the date of actual purchase, redemption or acquisition of
such Common Stock. For the purposes of this subsection (f), a purchase,
redemption or acquisition of a Common Stock Equivalent shall be deemed to be a
purchase of the underlying Common Stock, and the computation herein required
shall be made on the basis of the full exercise, conversion or exchange of such
Common Stock Equivalent on the date as of which such computation is required
hereby to be made, whether or not such Common Stock Equivalent is actually
exercisable, convertible or exchangeable on such date.
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<PAGE> 9
(g) Other Provisions Applicable to Adjustments Under this Section 4. The
following provisions shall be applicable to the making of adjustments in the
Warrant Price hereinbefore provided in Section 4:
(i) Computation of Consideration. The consideration received by
the Issuer shall be deemed to be the following: to the extent that any
Additional Shares of Common Stock or any Common Stock Equivalents shall be
issued for a cash consideration, the consideration received by the Issuer
therefor, or if such Additional Shares of Common Stock or Common Stock
Equivalents are offered by the Issuer for subscription, the subscription price,
or, if such Additional Shares of Common Stock or Common Stock Equivalents are
sold to underwriters or dealers for public offering without a subscription
offering, the public offering price, in any such case excluding any amounts paid
or receivable for accrued interest or accrued dividends and without deduction of
any compensation, discounts, commissions, or expenses paid or incurred by the
Issuer for or in connection with the underwriting thereof or otherwise in
connection with the issue thereof; to the extent that such issuance shall be for
a consideration other than cash, then, except as herein otherwise expressly
provided, the fair market value of such consideration at the, time of such
issuance as determined in good faith by the Board. The consideration for any
Additional Shares of Common Stock issuable pursuant to any Common Stock
Equivalents shall be the consideration received by the Issuer for issuing such
Common Stock Equivalents, plus the additional consideration payable to the
Issuer upon the exercise, conversion or exchange of such Common Stock
Equivalents. In case of the issuance at any time of any Additional Shares of
Common Stock or Common Stock Equivalents in payment or satisfaction of any
dividend upon any class of Capital Stock of the Issuer other than Common Stock,
the Issuer shall be deemed to have received for such Additional Shares of Common
Stock or Common Stock Equivalents a consideration equal to the amount of such
dividend so paid or satisfied. In any case in which the consideration to be
received or paid shall be other than cash, the Board shall notify the Holder of
this Warrant of its determination of the fair market value of such consideration
prior to payment or accepting receipt thereof. If, within thirty days after
receipt of said notice, the Majority Holders shall notify the Board in writing
of their objection to such determination, a determination of the fair market
value of such consideration shall be made by an Independent Appraiser selected
by the Majority Holders with the approval of the Board (which approval shall not
be unreasonably withheld), whose fees and expenses shall be paid by the Issuer.
(ii) Readjustment of Warrant Price. Upon the expiration or
termination of the right to convert, exchange or exercise any Common Stock
Equivalent the issuance of which effected an adjustment in the Warrant Price, if
such Common Stock Equivalent shall not have been converted, exercised or
exchanged in its entirety, the number of shares of Common Stock deemed to be
issued and outstanding by reason of the fact that they were issuable upon
conversion, exchange or exercise of any such Common Stock Equivalent shall no
longer be computed as set forth above, and the Warrant Price shall forthwith be
readjusted and thereafter be the price which it would have been (but reflecting
any other adjustments in the Warrant Price made pursuant to the provisions of
this Section 4 after the issuance of such Common Stock Equivalent) had the
adjustment of the Warrant Price been made in accordance with the issuance or
sale of the number of
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Additional Shares of Common Stock actually issued upon conversion, exchange or
issuance of such Common Stock Equivalent and thereupon only the number of
Additional Shares of Common Stock actually so issued shall be deemed to have
been issued and only the consideration actually received by the Issuer (computed
as in clause (i) of this subsection (g)) shall be deemed to have been received
by the Issuer.
(iii) Outstanding Common Stock. The number of shares of Common
Stock at any time outstanding shall (A) not include any shares thereof then
directly or indirectly owned or held by or for the account of the Issuer or any
of its Subsidiaries, and (B) be deemed to include all shares of Common Stock
then issuable upon conversion, exercise or exchange of any then outstanding
Common Stock Equivalents or any other evidences of indebtedness (including,
without limitation, the Debentures), shares of Capital Stock or other Securities
which are or may be at any time convertible into or exchangeable for shares of
Common Stock or Other Common Stock.
(h) Other Action Affecting Common Stock. In case after the Original
Issue Date the Issuer shall take any action affecting its Common Stock, other
than an action described in any of the foregoing subsections (a) through (g) of
this Section 4, inclusive, and the failure to make any adjustment would not
fairly protect the purchase rights represented by this Warrant in accordance
with the essential intent and principle of this Section 4, then the Warrant
Price shall be adjusted in such manner and at such time as the Board may in good
faith determine to be equitable in the circumstances.
(i) Adjustment of Warrant Share Number. Upon each adjustment in the
Warrant Price pursuant to any of the foregoing provisions of this Section 4, the
Warrant Share Number shall be adjusted, to the nearest one hundredth of a whole
share, to the product obtained by multiplying the Warrant Share Number
immediately prior to such adjustment in the Warrant Price by a fraction, the
numerator of which shall be the Warrant Price immediately before giving effect
to such adjustment and the denominator of which shall be the Warrant Price
immediately after giving effect to such adjustment. If the Issuer shall be in
default under any provision contained in Section 3 of this Warrant so that
shares issued at the Warrant Price adjusted in accordance with this Section 4
would not be validly issued, the adjustment of the Warrant Share Number provided
for in the foregoing sentence shall nonetheless be made and the Holder of this
Warrant shall be entitled to purchase such greater number of shares at the
lowest price at which such shares may then be validly issued under applicable
law. Such exercise shall not constitute a waiver of any claim arising against
the Issuer by reason of its default under Section 3 of this Warrant.
(j) Form of Warrant after Adjustments. The form of this Warrant need not
be changed because of any adjustments in the Warrant Price or the number and
kind of Securities purchasable upon the exercise of this Warrant.
5. Notice of Adjustments. Whenever the Warrant Price or Warrant Share
Number shall be adjusted pursuant to Section 4 hereof (for purposes of this
Section 5, each an "adjustment"), the Issuer shall cause its Chief Financial
Officer to prepare and execute a certificate setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated (including a description of the
basis on which the Board made any determination hereunder), and the Warrant
Price and Warrant
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<PAGE> 11
Share Number after giving effect to such adjustment, and shall cause copies of
such certificate to be delivered to the Holder of this Warrant promptly after
each adjustment. Any dispute between the Issuer and the Holder of this Warrant
with respect to the matters set forth in such certificate may at the option of
the Holder of this Warrant be submitted to one of the national accounting firms
currently known as the "big five" selected by the Holder, provided that the
Issuer shall have ten days after receipt of notice from such Holder of its
selection of such firm to object thereto, in which case such Holder shall select
another such firm and the Issuer shall have no such right of objection. The firm
selected by the Holder of this Warrant as provided in the preceding sentence
shall be instructed to deliver a written opinion as to such matters to the
Issuer and such Holder within thirty days after submission to it of such
dispute. Such opinion shall be final and binding on the parties hereto. The fees
and expenses of such accounting firm shall be paid by the Issuer.
6. Fractional Shares. No fractional shares of Warrant Stock will be
issued in connection with and exercise hereof, but in lieu of such fractional
shares, the Issuer shall make a cash payment therefor equal in amount to the
product of the applicable fraction multiplied by the Per Share Market Value then
in effect.
7. Definitions. For the purposes of this Warrant, the following terms
have the following meanings:
"Additional Shares of Common Stock" means all shares of Common
Stock issued by the Issuer after the Original Issue Date, and all shares
of Other Common, if any, issued by the Issuer after the Original Issue
Date, except (i) Warrant Stock, (ii) any shares of Common Stock issuable
upon conversion of the Debentures, (iii) any shares of Common Stock
issuable upon exercise of the Stock Options provided that the number of
shares excluded by reason of this clause (iii) shall be limited to those
issuable under the 1999 Team Communications Group, Inc. Stock Option
Plan, Deferred Stock and Restricted Stock Plan as in effect on the date
hereof (the "1999 Plan"), (iv) shares of Common Stock to be issued in
connection with the Company's contemplated offering in the German Bourse
Market, (v) up to 500,000 shares of Common Stock issued to an affiliate
of the underwriter of the German Offering, such stock to be issued at a
price of $4.00 per share; and (vi) the conversion of any existing debt
held by noteholders, provided that such holders do not have registration
rights which would permit them to sell any such securities prior to the
Warrant Shares or the shares issuable upon conversion of the Debentures.
"Bloomberg" shall mean Bloomberg L.P.
"Board" shall mean the Board of Directors of the Issuer.
"Capital Stock" means and includes (i) any and all shares,
interests, participations or other equivalents of or interests in
(however designated) corporate stock, including, without limitation,
shares of preferred or preference stock, (ii) all partnership interests
(whether general or limited) in any Person which is a partnership, (iii)
all membership interests or limited liability company interests in any
limited liability company, and (iv) all equity or ownership interests in
any Person of any other type.
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<PAGE> 12
"Certificate of Incorporation" means the Certificate of
Incorporation of the Issuer as in effect on the Original Issue Date and
as hereafter from time to time amended, modified, supplemented or
restated in accordance with the terms hereof and thereof and pursuant to
applicable law.
"Debenture" means any of the certificates representing
$4,000,000 aggregate principal amount of 12% Convertible Debentures due
2002 of the Issuer.
"Original Issue Date" means August 5, 1999.
"Common Stock" means the Common Stock, no par value, of the
Issuer and any other Capital Stock into which such stock may hereafter
be changed.
"Common Stock Equivalent" means any Convertible Security or
warrant, option or other right to subscribe for or purchase any
Additional Shares of Common Stock or any Convertible Security.
"Convertible Securities" means evidences of indebtedness, shares
of Capital Stock or other Securities which are or may be at any time
convertible into or exchangeable for Additional Shares of Common Stock.
The term "Convertible Security" means one of the Convertible Securities.
"Governmental Authority" means any governmental, regulatory or
self-regulatory entity, department, body, official, authority,
commission, board, agency or instrumentality, whether federal, state or
local, and whether domestic or foreign.
"Holders" mean the Persons who shall from time to time own any
Warrant. The term "Holder" means one of the Holders.
"Independent Appraiser" means a nationally recognized or major
regional investment banking firm or firm of independent certified public
accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Issuer) that is regularly
engaged in the business of appraising the Capital Stock or assets of
corporations or other entities as going concerns, and which is not
affiliated with either the Issuer or the Holder of any Warrant.
"Issuer" means Team Communications Group, Inc., a California
corporation, and its successors.
"Majority Holders" means at any time the Holders of Warrants
exercisable for a majority of the shares of Warrant Stock issuable under
the Warrants at the time outstanding.
"NASDAQ" means the National Association of Securities Dealers
Automated Quotation System.
12
<PAGE> 13
"Other Common" means any other Capital Stock of the Issuer of
any class which shall be authorized at any time after the date of this
Warrant (other than Common Stock) and which shall have the right to
participate in the distribution of earnings and assets of the Issuer
without limitation as to amount.
"Person" means an individual, corporation, limited liability
company, partnership, joint stock company, trust, unincorporated
organization, joint venture, Governmental Authority or other entity of
whatever nature.
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on The
Nasdaq Small-Cap Market, the Nasdaq National Market or other registered
national stock exchange on which the Common Stock is then listed or if
there is no such price on such date, as reported by Bloomberg, then the
closing bid price on such exchange or quotation system on the date
nearest preceding such date, as reported by Bloomberg, or (b) if the
Common Stock is not listed then on The Nasdaq Small-Cap Market, the
Nasdaq National Market or any registered national stock exchange, the
closing bid price for a share of Common Stock in the over-the-counter
market, as reported by Bloomberg (or, if such prices are not reported by
Bloomberg, then such prices as reported by NASDAQ or in the National
Quotation Bureau Incorporated or similar organization or agency
succeeding to its functions of reporting prices) at the close of
business on such date, or (c) if the Common Stock is not then reported
by the National Quotation Bureau Incorporated (or similar organization
or agency succeeding to its functions of reporting prices), then the
average of the "Pink Sheet" quotes for such date, or (d) if the Common
Stock is not then publicly traded, the fair market value of a share of
Common Stock as determined by an Independent Appraiser selected in good
faith by the Majority Holders; provided, however, that the Issuer, after
receipt of the determination by such Independent Appraiser, shall have
the right to select an additional Independent Appraiser, in which case,
the fair market value shall be equal to the average of the
determinations by each such Independent Appraiser; and provided, further
that all determinations of the Per Share Market Value shall be
appropriately adjusted for any stock dividends, stock splits or other
similar transactions during such period. The determination of fair
market value by an Independent Appraiser shall be based upon the fair
market value of the Issuer determined on a going concern basis as
between a willing buyer and a willing seller and taking into account all
relevant factors determinative of value, and shall be final and binding
on all parties. In determining the fair market value of any shares of
Common Stock, no consideration shall be given to any restrictions on
transfer of the Common Stock imposed by agreement or by federal or state
securities laws, or to the existence or absence of, or any limitations
on, voting rights.
"Registration Rights Agreement" has the meaning specified in
Section 3(e) hereof.
"Securities" means any debt or equity securities of the Issuer,
whether now or hereafter authorized, any instrument convertible into or
exchangeable for Securities or a Security, and any option, warrant or
other right to purchase or acquire any Security.
13
<PAGE> 14
"Security" means one of the Securities.
"Securities Act" means the Securities Act of 1933, as amended,
or any similar federal statute then in effect.
"Securities Purchase Agreement" means the Securities Purchase
Agreement dated as of August 5, 1999 among the Issuer and Hudson
Investors LLC.
"Stock Options" means options to purchase shares of Common Stock
issued under the 1999 Plan, as the same may from time to time be
amended, modified or supplemented in accordance with their terms.
"Subsidiary" means any corporation at least 50% of whose
outstanding Voting Stock shall at the time be owned directly or
indirectly by the Issuer or by one or more of its Subsidiaries, or by
the Issuer and one or more of its Subsidiaries.
"Trading Day" means (a) a day on which the Common Stock is
traded on The Nasdaq Small-Cap Market, the Nasdaq National Market or
other registered national stock exchange or quotation system on which
the Common Stock has been listed, or (b) if the Common Stock is not
listed on The Nasdaq Small-Cap Market, the Nasdaq National Market or any
registered national stock exchange or quotation system, a day or which
the Common Stock is traded in the over-the-counter market, as reported
by the OTC Bulletin Board, or (c) if the Common Stock is not quoted on
the OTC Bulletin Board, a day on which the Common Stock is quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its
functions of reporting prices); provided, however, that in the event
that the Common Stock is not listed or quoted as set forth in (a), (b)
and (c) hereof, then Trading Day shall mean any day except Saturday,
Sunday and any day which shall be a legal holiday or a day on which
banking institutions in the State of New York are authorized or required
by law or other government action to close.
"Term" has the meaning specified in Section 1 hereof.
"Voting Stock", as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however
designated) having ordinary voting power for the election of a majority
of the members of the Board of Directors (or other governing body) of
such corporation, other than Capital Stock having such power only by
reason of the happening of a contingency.
"Warrants" means the Warrants issued and sold pursuant to the
Securities Purchase Agreement, including, without limitation, this
Warrant, and any other warrants of like tenor issued in substitution or
exchange for any thereof pursuant to the provisions of Section 2(c),
2(d) or 2(e) hereof or of any of such other Warrants.
"Warrant Price" means initially an amount equal to 110% of the
average Per Share Market Value for the five (5) Trading Days prior to
the date of the issuance of the
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<PAGE> 15
Warrants, as such price may be adjusted from time to time as shall
result from the adjustments specified in Section 4 hereof.
"Warrant Share Number" means at any time the aggregate number of
shares of Warrant Stock which may at such time be purchased upon
exercise of this Warrant, after giving effect to all prior adjustments
and increases to such number made or required to be made under the terms
hereof.
"Warrant Stock" means Common Stock issuable upon exercise of any
Warrant or Warrants or otherwise issuable pursuant to any Warrant or
Warrants.
8. Other Notices. In case at any time:
(A) the Issuer shall make any distributions to the holders
of Common Stock; or
(B) the Issuer shall authorize the granting to all holders
of its Common Stock of rights to subscribe for or
purchase any shares of Capital Stock of any class or of
any Common Stock Equivalents or Convertible Securities
or other rights; or
(C) there shall be any reclassification of the Capital Stock
of the Issuer; or
(D) there shall be any capital reorganization by the Issuer;
or
(E) there shall be any (i) consolidation or merger involving
the Issuer or (ii) sale, transfer or other disposition
of all or substantially all of the Issuer's property,
assets or business (except a merger or other
reorganization in which the Issuer shall be the
surviving corporation and its shares of Capital Stock
shall continue to be outstanding and unchanged and
except a consolidation, merger, sale, transfer or other
disposition involving a wholly-owned Subsidiary); or
(F) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Issuer or any partial
liquidation of the Issuer or distribution to holders of
Common Stock;
then, in each of such cases, the Issuer shall give written notice to the Holder
of the date on which (i) the books of the Issuer shall close or a record shall
be taken for such dividend, distribution or subscription rights or (ii) such
reorganization, reclassification, consolidation, merger, disposition,
dissolution, liquidation or winding-up, as the case may be, shall take place.
Such notice also shall specify the date as of which the holders of Common Stock
of record shall participate in such dividend, distribution or subscription
rights, or shall be entitled to exchange their certificates for Common Stock for
securities or other property deliverable upon such
15
<PAGE> 16
reorganization, reclassification, consolidation, merger, disposition,
dissolution, liquidation or winding-up, as the case may be. Such notice shall be
given at least twenty days prior to the action in question and not less than
twenty days prior to the record date or the date on which the Issuer's transfer
books are closed in respect thereto. The Issuer shall give to the Holder notice
of all meetings and actions by written consent of its stockholders, at the same
time in the same manner as notice of any meetings of stockholders is required to
be given to stockholders who do not waive such notice (or, if such requires no
notice, then two Trading Days written notice thereof describing the matters upon
which action is to be taken). The Holder shall have the right to send two
representatives selected by it to each meeting, who shall be permitted to
attend, but not vote at, such meeting and any adjournments thereof. This Warrant
entitles the Holder to receive copies of all financial and other information
distributed or required to be distributed to the holders of the Common Stock.
9. Amendment and Waiver. Any term, covenant, agreement or condition in
this Warrant may be amended, or compliance therewith may be waived (either
generally or in a particular instance and either retroactively or
prospectively), by a written instrument or written instruments executed by the
Issuer and the Majority Holders; provided, however, that no such amendment or
waiver shall reduce the Warrant Share Number, increase the Warrant Price,
shorten the period during which this Warrant may be exercised or modify any
provision of this Section 9 without the consent of the Holder of this Warrant.
10. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAW.
11. Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earlier of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified for notice prior to 5:00 p.m., New York City time, on
a Business Day, (ii) the Business Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified for notice later than 5:00 p.m., New York City time, on any
date and earlier than 11:59 p.m., New York City time, on such date, (iii) the
Business Day following the date of mailing, if sent by nationally recognized
overnight courier service or (iv) actual receipt by the party to whom such
notice is required to be given. The addresses for such communications shall be
with respect to the Holder of this Warrant or of Warrant Stock issued pursuant
hereto, addressed to such Holder at its last known address or facsimile number
appearing on the books of the Issuer maintained for such purposes, or with
respect to the Issuer, addressed to:
Team Communications Group, Inc.
12300 Wilshire Boulevard
Los Angeles, California 90025
Attention: Drew Levin
Telephone No.: (310) 442-3500
Facsimile No.: (310) 442-3501
16
<PAGE> 17
or to such other address or addresses or facsimile number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice. Copies of notices to the Holder shall be sent to Kronish Lieb
Weiner & Hellman LLP, 1114 Avenue of the Americas, New York New York 10036
Attention: Steven Huttler, Esq. facsimile 212 479 6275. Copies of notices to the
Issuer shall be sent to Kelly Lytton Mintz & Vann LLP, 1900 Avenue of the Stars,
Suite 1450, Los Angeles, California 90067, Attention: Bruce Vann, Esq.,
facsimile no.: (310) 277-5953.
12. Warrant Agent. The Issuer may, by written notice to each Holder of
this Warrant, appoint an agent having an office in New York, New York for the
purpose of issuing shares of Warrant Stock on the exercise of this Warrant
pursuant to subsection (b) of Section 2 hereof, exchanging this Warrant pursuant
to subsection (d) of Section 2 hereof or replacing this Warrant pursuant to
subsection (d) of Section 3 hereof, or any of the foregoing, and thereafter any
such issuance, exchange or replacement, as the case may be, shall be made at
such office by such agent.
13. Remedies. The Issuer stipulates that the remedies at law of the
Holder of this Warrant in the event of any default or threatened default by the
Issuer in the performance of or compliance with any of the terms of this Warrant
are not and will not be adequate and that, to the fullest extent permitted by
law, such terms may be specifically enforced by a decree for the specific
performance of any agreement contained herein or by an injunction against a
violation of any of the terms hereof or otherwise.
14. Successors and Assigns. This Warrant and the rights evidenced hereby
shall inure to the benefit of and be binding upon the successors and assigns of
the Issuer, the Holder hereof and (to the extent provided herein) the Holders of
Warrant Stock issued pursuant hereto, and shall be enforceable by any such
Holder or Holder of Warrant Stock.
15. Modification and Severability. If, in any action before any court or
agency legally empowered to enforce any provision contained herein, any
provision hereof is found to be unenforceable, then such provision shall be
deemed modified to the extent necessary to make it enforceable by such court or
agency. If any such provision is not enforceable as set forth in the preceding
sentence, the unenforceability of such provision shall not affect the other
provisions of this Warrant, but this Warrant shall be construed as if such
unenforceable provision had never been contained herein.
16. Headings. The headings of the Sections of this Warrant are for
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
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<PAGE> 18
IN WITNESS WHEREOF, the Issuer has executed this Warrant as of the day
and year first above written.
TEAM COMMUNICATIONS GROUP, INC.
By: /s/ JONATHAN D. SHAPIO
-------------------------------
Name: Jonathan D. Shapio
Title: President and COO
18
<PAGE> 19
EXERCISE FORM
TEAM COMMUNICATIONS GROUP, INC.
The undersigned _______________, pursuant to the provisions of the within
Warrant, hereby elects to purchase _____ shares of Common Stock of TEAM
COMMUNICATIONS GROUP, INC. covered by the within Warrant.
Dated: _________________ Signature ___________________________
Address ___________________________
___________________________
19
<PAGE> 20
ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint _____________, attorney, to transfer the said
Warrant on the books of the within named corporation.
Dated: _________________ Signature ___________________________
Address ___________________________
___________________________
20
<PAGE> 21
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the right to purchase _________ shares of Warrant Stock
evidenced by the within Warrant together with all rights therein, and does
irrevocably constitute and appoint ___________________, attorney, to transfer
that part of the said Warrant on the books of the within named corporation.
Dated: _________________ Signature ___________________________
Address ___________________________
___________________________
21
<PAGE> 22
FOR USE BY THE ISSUER ONLY:
This Warrant No. W-_____ cancelled (or transferred or exchanged) this _____ day
of ___________, ____ shares of Common Stock issued therefor in the name of
_______________, Warrant No. W-_____ issued for ____ shares of Common Stock in
the name of _______________.
22
<PAGE> 1
EXHIBIT 10.23
[TEAM ENTERTAINMENT GROUP LOGO]
________________________________________________________________________________
JONATHAN D. (JODY) SHAPIRO
PRESIDENT AND CHIEF OPERATING OFFICER
June 25, 1999
Mr. David Black
Film Recoveries, Inc.
7069 So. Highland Drive, #250
Salt Lake City, UT 84121
RE: FILM LIBRARY
Dear Mr. Black:
Team Communications Group, Inc. ("TEAM") hereby makes the following firm
offer to acquire the Film Library as specified below:
1. Film Library: The 28 Films referenced on Exhibit 1.
2. Purchase price: $1.9 Million.
3. Rights to be acquired. All rights, title and interest in the
Library worldwide currently owned or controlled by Film Libraries,
Inc. ("FLI"), without limitation and as specified on Exhibit 1.
4. Purchase Allocation: $1.9 Million will be payable as follows:
$1,000,000 in cash and $900,000 payable in TEAM Common Stock, subject
only to any allocable reduction in the purchase price pursuant to the
delivery and acceptance provisions of Paragraph 5 below. The cash
portion of the Purchase Price shall be payable to the Film Recoveries
Trust Account at Brighten Bank (Account No. 41020645, ABA No.
124302503). The purchase price will be payable as follows:
a. Ten percent (10%) of the cash portion of the purchase price in
the amount of One Hundred Thousand Dollars ($100,000) shall be
placed into a mutually acceptable escrow upon execution of this
deal memo, such escrowed funds to be released to FLI pursuant to
the delivery provisions referenced below in Paragraph 5.
b. The balance of the cash portion of Nine Hundred Thousand Dollars
________________________________________________________________________________
12300 WILSHIRE BLVD. SUITE 400 - LOS ANGELES, CA 90025 -
(310) 442-3500 - FAX (310) 442-3501
<PAGE> 2
Mr. David Black
June 25, 1999
Page 2
($900,000) shall be payable pursuant to the delivery and acceptance
provisions referenced in Paragraph 5 below.
c. Certificates representing the stock portion of the purchase price
shall be placed in an escrow account in accordance with the provisions
of Paragraph 5. The value of each share representing the stock portion
shall be calculated based on the average bid price at closing for the
previous ten (10) trading days preceding the execution day of this
Agreement. TEAM agrees that all certificates of stock placed in the
escrow account shall be registered no later than six months following
the date on which such were placed in the escrow account.
5. Delivery, Acceptance and Payment: During the 30 day period commencing on
July 1, 1999 and ending on July 31, 1999 (the "Initial Delivery Period"), FLI
shall have the obligation to provide TEAM with (1) documentation of title
pursuant to Subparagraph 5 (a) below, and (2) access to Elements which meet the
standards set forth in Subparagraph 5(b) below. On the last day of the Initial
Delivery Period, all Films for which FLI has provided the necessary title
documents as well as Elements which meet the criteria of Subparagraph 5(b)
below shall be deemed accepted by TEAM. At such time during the Initial
Acceptance Period that two or more Films have been accepted, the $100,000
placed in the escrow account referenced above shall be released to FLI and
shall be applied against the purchase of said Films. The escrow account shall
contain strict instructions for the release of the funds upon acceptance of two
or more titles. All other Films which are accepted during the Initial Delivery
Period, shall be paid for by TEAM first in cash and than in stock, at a rate of
$76,000 per Film (after deducting any escrow funds released to Film Recoveries,
Inc.), with the cash portion to be wired directly to Film Recoveries, Inc. by
no later than the close of business on August 1, 1999 and the stock portion to
be placed in the escrow account to be established pursuant to Paragraph 4
(assuming that more than 12 Films have been accepted).
During the period commencing August 1, 1999 and ending August 31, 1999 (the
"Delivery Cure Period"), FLI shall provide TEAM with access to any additional
Elements and title documents which (1) were not supplied by FLI during the
Initial Delivery Period or (2) which would render a Film (which was rejected
during the Initial Delivery Period) acceptable. On September 1, 1999, TEAM
shall wire transfer a payment to Film Recoveries, Inc. for all additional Films
which have been accepted during the Delivery Cure Period. TEAM acknowledges
that there are 28 Films referenced on Exhibit 1 and hereby agrees that it shall
not have the right to reduce the Purchase Price unless less than 25 of the
Films are delivered. In the event less than 12 Films have been accepted during
the Initial Delivery Period and the Cure Delivery Period, the cash portion of
the purchase price will be reduced by $76,000 for each Film not accepted and
all stock certificates placed in the escrow account referenced above shall be
released to TEAM without further
<PAGE> 3
Mr. David Black
June 25, 1999
Page 3
obligation to FLI. In the event that more than 12, but less than 25 Films
have been accepted during the Initial Delivery Period and the Delivery Cure
Period, then TEAM shall be entitled to reduce the stock portion of the
purchase price by $76,000 for each said Film which was not accepted. All
expenses related to the laboratories examining the Elements shall be borne
by TEAM, provided that FLI shall pay all shipping costs to said
laboratories.
The criteria by which a Film will be judged acceptable are as follows:
a. Title: FLI shall have the obligation to provide TEAM with
documentation which establishes FLI's ownership or
control of the rights being granted to TEAM, as well as
the existence of any substantial encumbrances which
will affect the future marketability. Residual or
producer's share payments which will be triggered by
future exploitation of the Films shall not be
considered an encumbrance to a Film, provided that FLI
shall represent and warrant that all such payments
which may have been triggered in the past are its sole
responsibility. The parties hereby acknowledge that the
United States Bankruptcy Court has adjudicated and
deposed of various issues related to the Film Library,
and that both parties have reviewed the terms and
conditions of said bankruptcy documents and hereby
accept the judgment of the Court in connection with all
issues adjudicated by such.
b. Elements: With regard to the videotape masters and underlying
film elements (the "Elements") to be purchased by TEAM
with regard to the Film Library, TEAM and FLI hereby
agree that during the Initial Delivery Period, FLI
shall be responsible for shipping the Elements for each
Film to one of the film or video laboratories listed on
Exhibit 2 to this agreement. TEAM shall instruct each
laboratory to immediately commence a quality check on
the applicable Elements upon their receipt by the
laboratory. Delivery of a Film shall be deemed complete
at such time as FLI has provided access to either a
usable video master pursuant to the following provision
or has provided access to a print or film negatives
which meet the following criteria. The standard by
which the quality of the Elements shall be are as
follows:
i. Videotape Masters: A videotape master shall be
deemed acceptable and delivered if it lacks excessive
audio or video defects which would render it unusable
for "broadcast rerun" purposes in
<PAGE> 4
Mr. David Black
June 25, 1999
Page 4
either the United States or the United Kingdom. Minor defects which are
correctable at a reasonable cost shall not render a video master
unacceptable.
ii. Film Elements: Print and/or negative material for a Film shall be
deemed acceptable if the applicable Element lacks excessive scratches,
tears and audio problems which would render it unusable for creating a
video master. Film Elements which can be corrected by standard processes
such as wet-gate printing or manipulation of audio tracks shall be
deemed acceptable and delivered by TEAM. In the event usable visuals are
available on one Element and the audio is usable on another, the
combination of the two shall represent an accepted and delivered
Element, provided that the cost of combining such is not excessive. TEAM
and FLI acknowledge that foreign language tracks and M&E tracks are
available for a substantial number of the Films. TEAM agrees that said
Elements are to be transferred on an as-is basis with no reduction to
the purchase price based on existence or condition.
6. a. If at any time during the period commencing on the issuance of the stock
pursuant to this Agreement and ending on the one year anniversary of such
issuance ("Stock Escrow Period"), the value of the stock certificates placed
in the escrow account has dropped more than 25% below its $900,000 value for
a period of 10 consecutive trading days (based upon the value of the stock of
the stock on the execution day of this Agreement), TEAM shall have the choice
of immediately wiring a cash payment to FLI which represents the difference
in value, or to add additional registered stock to the escrow account to
bring the total value to $900,000, provided that TEAM shall only be obligated
to make said cash payment or add additional shares one time during the
initial six (6) months of the Stock Escrow Period and once during the second
six (6) month period. Notwithstanding the foregoing, in the event that at any
time during the Stock Escrow Period the stock value drops more than 50%, then
TEAM shall immediately wire said cash payment or add said additional
registered stock, at it's option. At anytime during the Stock Escrow Period,
TEAM shall have the right to purchase all shares and pay to FLI $900,000. In
the event that TEAM does not so purchase the shares, the shares will be
released to FLI from the escrow account on the first trading day following
the end of the Stock Escrow Period and the value of the each share
representing the stock portion of the Purchase Price shall be calculated
based on the average bid price at closing for the previous ten (10) trading
days. In the event the value of the shares is less than the original
<PAGE> 5
Mr. David Black
June 25, 1999
Page 5
$900,000, TEAM shall immediately wire said cash payment or add
additional registered and free trading stock, at it's option.
b. In the event that TEAM elects to provide FLI with any additional
shares of stock pursuant to section 6.a. above, and TEAM does not elect
to purchase any of the Stock and FLI ultimately sells such stock, any
portion of proceeds received by FLI in excess of $900,000 shall be due
and payable to TEAM upon receipt by FLI of such excess amount.
c. FLI and its assigns, successors and affiliates shall not engage is
any short selling transaction with respect to any of the Stock acquired
hereunder.
d. Film Libraries shall maintain a security interest in all of the
Films, licenses of the Films and proceeds such licenses, provided that
to such TEAM shall have the right to retain the first $1,350,000 in
revenue which it collects from any such licenses entered into during the
commencing upon execution of this Agreement and ending on the one year
anniversary date of the stock issuance. All revenue which TEAM collects
during this period which is in excess of $1,350,000 shall be received in
trust for the benefit of FLI and immediately placed in an escrow account
for Film Libraries benefit or, at TEAM's option, paid to Film Libraries
in cash to reduce the stock portion of the Purchase Price. Film
Libraries security in these revenues shall be secured by a letter(s) of
assignment which reflects TEAM's right to retain the first $1,350,000 in
revenue. In no event shall TEAM be required to place more than $900,000
in revenue collected from said licenses into the escrow account.
7. In the event TEAM violates any of the terms and conditions set out herein
and fails to cure such violation within fifteen (15) business days from the
date on which it receives written notice of said violation, Film Libraries
shall have the immediate right to declare the entire unpaid balance due and
payable, provided that TEAM shall be limited to a three (3) day cure period
with regard to the payments due at the end of the Initial Delivery Period
and the Delivery Cure Period. In the event that TEAM fails to cure a
violation within the applicable cure period, Film Libraries shall either
have the right to sell the library without court order or judicial
foreclosure of any kind and thereafter obtain ownership of all of the film
sold at public sale. Such sale shall take place in Salt Lake City, Utah.
Film Libraries shall be required, prior to the sale, to advertise the sale
for two consecutive weeks in the New York Times, The Los Angeles Times and
the Daily Variety. Libraries shall be entitled to make credit bid at the
sale. The proceeds of the sale shall first be applied to the unpaid balance
of Film Libraries, together with costs of the
<PAGE> 6
Mr. David Black
June 25, 1999
Page 6
sale and a reasonable attorneys fees, with the remainder payable to
TEAM. TEAM shall have the right to designate the order in which the
films shall be sold at the sale.
8. The parties further agree that in the event there is a dispute over
the terms and conditions contained herein, that said dispute will be
litigated in Third Judicial District Court in and for Salt Lake
County, State of Utah, and the parties specifically consent to the
jurisdiction of said court. Each of the parties agree to sign all
additional documents which are required to effectuate the terms and
conditions of this Agreement.
While the parties anticipate entering into a more formal purchase
agreement, this short form Agreement represents the agreement by TEAM to
purchase FLI's ownership and control of the Film Library and FLI's agreement to
sell such in accordance with the terms and conditions incorporated herein.
Thank you.
Sincerely,
/s/ JONATHAN D. SHAPIRO
Jonathan D. (Jody) Shapiro
President and Chief Operating Officer
Agreed to and accepted: 7-1-99
Film Libraries, Inc.
Subject to approval by Film Libraries, Inc. Partners
By:
/s/ JOHN L. HUELER
--------------------------------------------
John L. Hueler
President, on behalf of Film Libraries, Inc.
<PAGE> 7
- VIA FACSIMILE -
M E M O R A N D U M
TO: DAVID BLACK, FILM RECOVERIES, INC.
FROM: JOHN HEULER, FILM LIBRARY, INC.
RE: TEAM COMMUNICATIONS GROUP, INC.
Please be advised that Film Library, Inc. has obtained approval from their
partners to accept the offer dated June 25, 1999 from TEAM. Film Library, Inc.
removes the subject to restrictions indicated on the signature page of the
offer.
Film Library, Inc.
/s/ JOHN L. HEULER
- ----------------------------------
By: John L. Heuler
President
<PAGE> 8
[TEAM LETTERHEAD]
June 25, 1999
Messrs. Jesse Weatherby and Lance Thompson
Film Brokers, Inc.
3708 Barham Boulevard, Suite 109
Los Angeles, CA 90068
Re: Film Library
Dear Messrs. Weatherby and Thompson:
Reference is hereby made to the Purchase Agreement of even date herewith made
by Team Communications Group, Inc. ("TEAM") and Film Libraries, Inc. ("FLI"),
whereby TEAM is acquiring the rights in the above-referenced Film Library. This
letter represents the agreement between TEAM and you in connection with
commissions to be paid to you in connection with TEAM's purchase of the Film
Library. This Agreement shall become binding upon TEAM and you at such time as
the Purchase Agreement is executed between TEAM and Film Libraries, Inc. The
Purchase Agreement which is attached as Schedule 1, is incorporated into this
agreement by this reference. Terms defined in the Purchase Agreement shall have
the same meaning when used herein.
1. Commission total amount: $300,000.00
2. Payable: $200,000 in cash, $100,000 in TEAM Common Stock. The cash
portion of the commission shall be wire transferred to a bank account
to be designated by you.
3. Payment Terms: $300,000 will be payable as follows:
a. Ten percent (10%) of the cash portion of the commission in the amount
of Twenty Thousand Dollars ($20,000) shall be placed into a mutually
acceptable escrow upon Film Libraries' execution of the Purchase
Agreement. At such time during the Initial Acceptance Period that
two or more Films have been accepted, the $20,000 placed in the
escrow account referenced above shall immediately be released to you
and shall be applied against the commission due to you on the
purchase of said Films. The escrow account shall contain strict
instructions for the release of the funds upon acceptance of two or
more titles.
b. The balance of the cash portion of One Hundred Eighty Thousand Dollars
($180,000) shall be payable in two installments, with the first
payment of One Hundred Thousand Dollars
<PAGE> 9
Messrs. Jesse Weatherby and Lance Thompson
June 25, 1999
Page 2
($100,000) on August 1, 1999 and the remaining Eighty Thousand Dollars
($80,000) due on September 1, 1999, subject only to the reduction
provisions on Paragraph 5 below.
c. Certification representing the stock portion of the purchase price
shall be placed in a mutually acceptable escrow account, subject only
to the provisions of Paragraph 5. The value of each share representing
the stock portion shall be calculated based on the average bid price
at closing for the previous ten (10) trading days preceding the
execution day of this Agreement. TEAM agrees that all certificates of
stock placed in the escrow account shall be registered no later than
six months following the date on which such certificates were placed
in the escrow account. Until such time as such shares are registered
and become free trading, you shall retain a security interest in the
Film Library for the value of the stock. In the event that TEAM is
successful in raising in excess of $25,000,000 in any stock offering
during the one year period following the placement of the stock
certificates in the escrow account, TEAM shall immediately purchase
all stocks from you and wire $100,000 to your bank account, subject
only to any reduction pursuant to Paragraph 5. If at any time during
the period commencing on the issuance of the stock certificates
pursuant to this Agreement and ending on the one year anniversary of
such issuance ("Stock Escrow Period"), the value of the stock
certificates placed in the escrow account has dropped more than 25%
below it $100,000 value for a period of 10 consecutive trading days
(based upon the value of the stock on the execution day of this
Agreement), TEAM shall have the choice of immediately wiring a cash
payment to you which represents the difference in value, or to add
additional registered stock to the escrow account to bring the total
value to $100,000, provided that TEAM shall only be obligated to make
said cash payment or add additional shares one time during the initial
six (6) month period following the issuance of the stock and once
during the second six (6) month period. Notwithstanding the foregoing,
in the event that at any time during the Stock Escrow Period the stock
value drops more than 50%, then TEAM shall immediately wire said cash
payment or add said additional registered stock, at its option. At
anytime during the Stock Escrow Period, TEAM shall have the right to
purchase all shares and pay to you $100,000. In the event that TEAM
does not so purchase the shares, the shares will be released to you
from the escrow account on the first trading day following the end of
the Stock Escrow Period and the value of each share representing the
stock portion of the Purchase Price shall be calculated based on the
average bid prices at closing for the previous ten (10) trading days.
In the event the value of the shares is less than the original
$100,000, TEAM shall immediately wire said cash payment or add
additional registered and free trading stock, at its option.
d. In the event that TEAM elects to provide you with any additional
shares of stock pursuant to section a. above, and TEAM does not elect
to purchase any of the Stock and you ultimately sell such stock, any
portion of proceeds received by you in excess of $100,000 shall be due
and payable to TEAM upon receipt by you of such excess amount.
e. You and your assigns, successors and affiliates shall not engage in
any short selling transaction with respect to any of the Stock
acquired hereunder.
<PAGE> 10
Messrs. Jesse Weatherby and Lance Thompson
June 25, 1999
Page 3
4. Commission Reduction: TEAM hereby agrees that it shall not have the
right to reduce your commissions, unless FLI delivers less than 23
Films. In the event that less than 23 Films are delivered, TEAM shall
have the right to reduce your commissions by $12,000 for each Film
which FLI fails to deliver under 23. Reductions in your commissions
shall first be deducted from the stock portion of your commission and
shall only reduce the cash portion in the event that the stock portion
is reduced to a zero balance.
5. In the event that TEAM violates any of the terms and conditions set
out herein and fails to cure such violation within fifteen (15)
business days from the date on which it receives written notice of
said violation, you shall have the immediate right to declare the
entire unpaid balance due and payable, provided that TEAM shall be
limited to a three (3) day cure period with regard to the payments due
at the end of the Initial Delivery Period and the Delivery Cure
Period, as well as the $20,000 to be escrowed upon execution of the
Purchase Agreement with FLI. In the event that TEAM fails to cure a
violation within the applicable cure period and Film Libraries forces
a public sale of the Films, you shall receive any commissions owed to
you prior to TEAM collection and retaining any proceeds of the sale.
While the parties anticipate entering in to a more formal purchase
agreement, this short form Agreement represents the agreement by TEAM to pay
you the commission herein. Each of the parties agree to sign all additional
documents necessary to effectuate the terms and conditions of this Agreement.
Thank you.
Sincerely,
/s/ JONATHAN D. SHAPIRO
Jonathan D. (Jody) Shapiro
President and Chief Operating Officer
Agreed to and accepted:
Film Brokers, Inc.
By: /s/ JESSE WEATHERBY 7/2/99 /s/ LANCE THOMPSON
-------------------------- ------------------
Jesse Weatherby Lance Thompson
Any dispute that arises in connection with this agreement, will be submitted by
the applicable parties to the American Arbitration Association, whose judgement
shall be deemed final.
<PAGE> 1
EXHIBIT 10.24
AFMA(R) INTERNATIONAL
FREE TV LICENSE AGREEMENT
This International Free TV License Agreement is made as of June 28,
1999 between TEAM Entertainment Group("Licensor") of 12300 Wilshire Boulevard,
Suite 400, Los Angeles CA 90025 [tel/fax:] (310) 442-3500/(310) 442-3501 and
Renown Pictures, Ltd.. - or order ("Licensee") of 5 Churchill Court, 58 Station
Road, North Harrow, Middlesex, England HA2 7SA [tel/fax] (44) 181 863 1888/(44)
181 863 0463.
This Agreement is: [X] A new agreement;
[ ] A long form that replaces the deal memo regarding
the Programs;
[ ] An amendment to an existing agreement dated _______
Subject to timely payment of all monies due Licensor and Licensee's
full performance under this Agreement, Licensor licenses to Licensee, and
Licensee accepts from Licensor, the Licensed Rights in the Programs throughout
the Territory for the Term in the Authorized Languages subject to the Hold backs
as identified below on all the terms and conditions of this Agreement.
This Agreement consists of the following parts: this Cover Page; Table
of Contents; Deal Terms; Standard Terms; Schedule of Definitions; and the
following Attachment(s): [ ] Schedule of Programs;[ ] Access Letter;[ ]
Guaranty; and
-----------------------------------------------------
IN WITNESS WHEREOF, Licensor and Licensee have executed this Agreement
as of the date first written above to constitute a binding contract between
them.
LICENSOR LICENSEE
By: /s/ DREW S. LEVIN By: /s/ B. SMITH
------------------------- ----------------------------
Its: Chairman/CEO Its: Operations Manager
------------------------ ---------------------------
<PAGE> 2
TABLE OF CONTENTS
Section
Paragraph
DEAL TERMS
Program(s) A.
Territory B.
Authorized Language(s) C.
Term And License Period D.
Licensed Station E.
Free TV Rights F.
Exclusivity G.
Licensor's Hold backs H.
License Fee I.
Payment J.
Delivery Terms K.
Additional Terms L.
STANDARD TERMS AND CONDITIONS
Definitions And Usage 1.
Program And Versions 2.
Licensed Rights And Reserved Rights 3.
Allied Rights 4.
Territory, Holdback Region And Licensed Station 5.
Term And License Period 6.
Payment Requirements 7.
Delivery And Return 8.
Telecast Obligations 9.
Music 10.
Suspension And Withdrawal 11.
Default And Termination 12.
Anti-Piracy Provisions 13.
Licensor's Warranties 14.
Licensee's Warranties 15.
Indemnities 16.
Assignment And Sublicensing 17.
Miscellaneous Provisions 18.
SCHEDULE OF LICENSING DEFINITIONS
Free TV Rights Definitions A.
Additional Definitions B.
<PAGE> 3
AFMA(R) INTERNATIONAL
FREE TV LICENSE AGREEMENT
DEAL TERMS
Mention in these Deal Terms of any right not specifically licensed to
Licensee in the Licensed Rights Deal Terms does not grant to Licensee
expressly or by implication any right not specifically licensed to
Licensee in the Licensed Rights Deal Terms.
A. PROGRAM(S):
[ ] ____ ( ) commercial ( ) (hour) episodes, of the series entitled
"_____________"
[X] As set forth on attached Schedule of Programs.
B. TERRITORY: U.K., Scandinavia, Benelux, Spain, Middle East, Africa, South
Africa.
C. AUTHORIZED LANGUAGE(S): For each Program
[ ] Original Language; [X] Official Language(s) in Territory; [ ] as
needed to service territories
[ ] Dubbed Only [ ] Subtitled Only [ ] Dubbed and Subtitled
D. TERM AND LICENSE PERIOD:
Subject to Paragraph 6.1. of the Standard Terms:
1. Term: The Term starts on June 28, 1999 and ends on:
a. The last Licensed Telecast of all Program(s), or
b. _________________, or
c. [5] years from
[X] the date of this Agreement
[ ] the first Licensed Telecast of any Program.
2. License Period: The period during which Licensee may
exploit the Licensed Right(s) in each Program starts on the
Availability Date for the Program and ends on the earlier of
the last Licensed Telecast for the Program or end of the Term.
<PAGE> 4
E. LICENSED STATION:
In accordance with Paragraph 5.4. of the Standard Terms:
[X] All broadcasters for the licensed Free TV Rights in the Territory; or
[ ] Licensee
F. PAY AND FREE TV RIGHTS: For each Program
<TABLE>
<CAPTION>
LICENSED RUNS PLAY DATES AVAILABILITY DATE
<S> <C> <C> <C>
Terrestrial [X] Yes [ ]No ____ [ ] To be advised (see Standard Terms P. 6.3.); or
[ ] as set forth on attached Schedule of Programs
Cable [X] Yes [ ]No ____ [ ] To be advised (see Standard Terms P. 6.3.); or
[ ] as set forth on attached Schedule of Programs
Satellite [X] Yes [ ]No ____ [ ] To be advised (see Standard Terms P. 6.3.); or
[ ] as set forth on attached Schedule of Programs
</TABLE>
The Availability Date for each Program is subject to Availability
Coordination within the Region in accordance with Paragraph 6.4. of the
Standard Terms.
G. EXCLUSIVITY:
The Licensed Rights, as defined in Paragraph 3.1. of the Standard Terms,
are:
[X] Exclusive except _______________________________________
[ ] Non-Exclusive except ___________________________________
H. LICENSOR'S HOLD BACKS:
In accordance with Paragraph 6.5. of the Standard Terms, the Hold backs
on Licensor's exploitation of any Reserved Rights in each Program will
be:
[X] None.
[ ] As set forth on the Schedule of Programs.
[ ] All Free TV in the Authorized Languages per Paragraph 6.5.1. of the
Standard Terms.
[ ] All Pay TV in the Authorized Languages per Paragraph 6.5.2. of the
Standard Terms.
[ ] __________________________________________________________________.
I. LICENSE FEE: US$3,300,000.00 (Total for all Programs)
The License Fee is a minimum net sum and no taxes or charges may be
deducted from it.
1. ALLOCATED:
[ ] As set forth on the attached Schedule of Programs, or
[X] US$165,000.00 [ ] per Run\Play date or [X] per Program
2. PAYABLE:
a. [X] US$400,000.00 within 45 days of execution of this Agreement;
<PAGE> 5
b. [X] US$3,900,000.00 in (four) (4) equal quarterly
installments of US$725,000.00, on September 30, 1999;
December 30,1999; March 30, 2000; June 30, 2000
c. [ ] Balance on delivery of broadcast material.
J. PAYMENT:
Licensee will pay the License Fee and any other payments due Licensor
as follows:
1. WT - WIRE TRANSFER [Check as appropriate]
[X] License Fee Installments: [X]I.2.a; [X]I.2.b; [ ]I.2.c; [ ] Materials
Charges (Section K.4) Licensee will pay the indicated installments of the
License Fee or other payments by wire transfer of unencumbered funds,
free of any transmission charges, to the following account:
As indicated on invoices to follow
2. LC - LETTER OF CREDIT [Check as appropriate]
[ ] License Fee Installments: [ ]I.2.a; [ ]I.2.b; [ ]I.2.c; [ ] Materials
Charges (Section K.4)
Issued By: ___________ Open Until: ________ Renewable For: ____________.
Licensee will pay the indicated installments of the License Fee or other
payments by an irrevocable Letter of Credit which meets the requirements
of Paragraph 7.2. of the Standard Terms. The Letter of Credit will be
issued by and remain open until the dates indicated above. The Letter of
Credit will be payable on presentation to Licensor's corresponding bank
of:
[Check all that apply]
[ ] SIGHT DRAFT in usual commercial form indicating payment due.
[ ] INVOICE for payments then due.
[ ] BILL OF LADING, such as an air waybill, evidencing shipment
to Licensee of the applicable Delivery Materials.
[ ] ACCESS LETTER substantially in the form attached for applicable
Delivery Materials.
3. OTHER:
[ ] License Fee Installments: [ ]I.2.a; [ ]I.2.b; [ ]I.2.c; [ ] Materials
Charges (Section K.4) Licensee will pay the indicated installments of the
License Fee or other payments as follows:
K. DELIVERY TERMS:
1. PHYSICAL MATERIALS:
For each Program Licensor will make Delivery of the Physical Materials:
[ ] As specified in Licensor's Delivery Notice per Paragraph 8.1.; or
[X] By Delivering the following indicated items for the original
language version:
Item Delivery Method (Para. 8.1., Standard Terms)
FEATURE LOW CONTRAST PRINT [ ]Physical [ ]Access [ ]Loan [ ]Satellite
[ ]35mm [ ]16mm
TRAILER LOW CONTRAST PRINT [ ]Physical [ ]Access [ ]Loan [ ]Satellite
[ ]35mm [ ]16mm
<PAGE> 6
PRINT MASTER (2 TRACK) [ ]Physical [ ]Access [ ]Loan [ ]Satellite
[ ]35mm [ ]Stereo [ ]Mono
[ ]16mm [ ]Stereo [ ]Mono
NTSC (525) [ ]Physical [ ]Access [ ]Loan [ ]Satellite
[ ]1" [ ]D1 [ ]D2 [ ]D3 [ ]3/4" [X] Betacam SP
PAL (625) [ ]Physical [ ]Access [ ]Loan [ ]Satellite
[ ]1" [ ]D1 [ ]D2 [ ]D3 [ ]3/4" [ ] Betacam SP
2. SUPPORT MATERIALS:
For each Program Licensor will make Delivery of the Support Materials:
[X] As available
[ ] As specified in Licensor's Delivery Notice per Paragraph 8.1.; or
[ ] By Delivering the following items:
[ ] Feature Spotting List [ ] Press Book
[ ] Trailer Spotting List [ ] Electronic Press Kit
[ ] Feature Continuity [ ] Synopsis
[ ] Trailer Continuity [ ] Radio Spots (No.__)
[ ] Main & End Credits [ ] B&W Stills (No.__)
[ ] Paid Ad Credit [ ] Color Stills (No.__)
[ ] Dub/Sub Restrictions [ ] Color Slides (No.__)
[ ] Music Cue Sheets [ ] TV Spots (No.____)
[ ] As-Broadcast Scripts
3. DATE FOR DELIVERY NOTICE:
Licensor will give Licensee a Delivery Notice for each Program no later
than:
[ ] Before its Availability Date; or
[X] All material available as of the date of this agreement
4. MATERIALS PAYMENT INSTRUCTIONS:
Licensee will pay for all Materials:
[ ] As specified in Licensor's Delivery Notice per Paragraph 8.1.;
[X] As follows: Licensee will pay US$100.00 per episode for masters
[ ] Materials on loan for fourteen (14) days, to be returned thereafter
5. MATERIALS SHIPPING INSTRUCTIONS:
Licensor will ship all Materials to Licensee:
[ ] As specified in Licensor's Delivery Notice per Paragraph 8.1.;
[X] As follows: Freight prepaid
L. ADDITIONAL TERMS:
1. GOVERNING LAW:
[X] California or [ ] _____________________________________
<PAGE> 7
2. FORUM:
[X] Los Angeles County or [ ] _____________________________
3. ADDITIONAL DEAL TERMS:
None.
<PAGE> 8
"Schedule A"
Programs
1. Avenging
2. Billions for Boris
3. Confessions of a married man
4. Emergency Room
5. Getting it on
6. Goldrunner
7. Legs
8. New Girl
9. One Dark Night
10. Ordeal Of Bill Carney
11. Private Sessions
12. Remembrance of Love
13. Sampson and Delila
14. Seduced
15. Snowballing
16. Sourdough
17. The Imposters
18. The Execution
19. This Wife For Hire
20. Valentine Magic On Love Island
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 1999 AND FOR THE
THREE MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 937,600
<SECURITIES> 0
<RECEIVABLES> 7,481,600
<ALLOWANCES> 337,000
<INVENTORY> 16,766,200
<CURRENT-ASSETS> 870,900
<PP&E> 30,000
<DEPRECIATION> 54,800
<TOTAL-ASSETS> 20,086,300
<CURRENT-LIABILITIES> 14,489,500
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> 11,595,700
<TOTAL-LIABILITY-AND-EQUITY> 20,086,300
<SALES> 7,019,900
<TOTAL-REVENUES> 7,019,900
<CGS> 4,136,200
<TOTAL-COSTS> 5,175,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 280,100
<INCOME-PRETAX> 1,634,200
<INCOME-TAX> 581,700
<INCOME-CONTINUING> 1,052,500
<DISCONTINUED> 0
<EXTRAORDINARY> 248,200
<CHANGES> 0
<NET-INCOME> 804,300
<EPS-BASIC> .22
<EPS-DILUTED> .17
</TABLE>
