EXHIBIT 10.1
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EXECUTION COPY
COMMON STOCK INVESTMENT AGREEMENT
COMMON STOCK INVESTMENT AGREEMENT ("AGREEMENT") dated as of
August 22, 2000 among HOLLYWOOD.COM, INC., a Florida corporation (the
"COMPANY"), ELLIOTT ASSOCIATES, L.P., a Delaware limited partnership
("ELLIOTT"), and WESTGATE INTERNNATIONAL, L.P., a Cayman Islands limited
partnership ("WESTGATE", together with Elliott, the "INVESTORS").
W I T N E S S E T H:
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WHEREAS, the Company desires to sell and issue to the
Investors, and the Investors wish to purchase from the Company, an aggregate of
358,423 shares of the Company's Common Stock, $.01 par value ("COMMON STOCK")
(all of such shares of Common Stock being the "INITIAL SHARES"), three (3) year
warrant, in the form attached hereto as Annex A, to purchase 60,000 shares of
Common Stock at an initial exercise price of $10.00 per share (the "INITIAL
WARRANTS"), and a warrant, in the form attached hereto as Annex B, to purchase a
number of shares of Common Stock calculated pursuant to a formula set forth
therein (the "ADJUSTMENT WARRANTS"; together with the Initial Warrants, the
"WARRANTS"), all on the terms and conditions described below; and
WHEREAS, the Initial Shares, the shares of Common Stock
underlying the Initial Warrants (the "WARRANT SHARES") and the shares of Common
Stock underlying the Adjustment Warrants (the "Adjustment Shares"; the Initial
Shares, the Warrant Shares and the Adjustment Shares collectively being the
"REGISTRABLE SHARES") will carry registration rights, pursuant to the terms of
that certain Registration Rights Agreement to be entered into between the
Company and the Investors substantially in the form annexed hereto (the
"REGISTRATION RIGHTS Agreement").
NOW, THEREFORE, in consideration of the foregoing premises and
the covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES AND WARRANTS
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Section 1.1 Issuance of Initial Shares and Warrants. Upon the following
terms and conditions, the Company shall issue and sell to the Investors, and the
Investors shall purchase from the Company, the number of Initial Shares and
Warrants indicated next to the Investors' names on Schedule I attached hereto.
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(a) Purchase Price. The aggregate purchase price for the
Initial Shares and Warrants to be acquired by each Investor (the "AGGREGATE
PURCHASE PRICE") shall be the Aggregate Purchase Price set forth next to each
such Investor's name on Schedule I. The purchase price per share of Common Stock
(the "SHARE PURCHASE PRICE") shall equal 105% of the average of the two (2)
lowest VWAP's (as defined below) during the five (5) consecutive trading days
ending on and including August 21, 2000, or $8.37.
(b) The Closing.
(i) The closing of the purchase and sale of the
Initial Shares and Warrants (the "CLOSING") shall take place
at the offices of Kleinberg, Kaplan, Wolff & Cohen, P.C.
("KKWC"), on the date hereof (the "CLOSING DATE").
(ii) On the Closing Date, the Company shall deliver
to the Investors stock certificates (with the number of and
denomination of such certificates requested by each Investor)
representing the Initial Shares and the Warrants purchased
hereunder, each registered in the name of each such Investor
or its nominee. The delivery of payment by wire transfer, to
an account designated in writing by the Company, by each
Investor of the Purchase Price applicable to it as set forth
in Section 1.1 and Schedule I shall constitute a payment
delivered to the Company in full satisfaction of the
Investor's obligation to pay the Aggregate Purchase Price
hereunder. In addition, each party shall deliver all
documents, instruments and writings required to be delivered
by such party pursuant to this Agreement at or prior to the
Closing.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
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Section 2.1 Representations and Warranties of the Company. The Company
hereby makes the following representations and warranties to the Investors as of
the date hereof, on the Closing Date and on the date of any Fill-up Closing:
(a) Organization and Qualification; Material Adverse Effect.
The Company is a corporation duly incorporated and existing in good standing
under the laws of the State of Florida and has the requisite corporate power to
own its properties and to carry on its business as now being conducted. The
Company does not have any subsidiaries other than the subsidiaries listed on
Schedule 2.1(a) attached hereto ("SUBSIDIARIES"). Except where specifically
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indicated to the contrary, all references in this Agreement to Subsidiaries
shall be deemed to refer to all direct and indirect subsidiaries of the Company.
The Company is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, other than
those in which the failure so to qualify would not have a Material Adverse
Effect. "MATERIAL ADVERSE EFFECT" means any adverse effect(s) on the business,
operations, properties, prospects or financial condition of the Company and its
Subsidiaries, if any, and which is material to the Company and its Subsidiaries,
if any, taken as a whole.
(b) Authorization; Enforcement. (i) The Company has all
requisite corporate power and authority to enter into and perform this
Agreement, the Warrants and the Registration Rights Agreement ("TRANSACTION
DOCUMENTS") and to issue the Initial Shares, Adjustment Shares, Warrants and
Warrant Shares (collectively, the "SECURITIES") in accordance with the terms
hereof, (ii) the execution and delivery 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 corporate action, and no
further consent or authorization of the Company or its Board of Directors (or
any committee or subcommittee thereof) or stockholders is required, (iii) the
Transaction Documents have been duly executed and delivered by the Company, (iv)
the Transaction Documents constitute valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
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, and (v) the Securities have
been duly authorized and, upon issuance thereof and payment therefor in
accordance with the terms of this Agreement, will be validly issued, fully paid
and non-assessable, free and clear of any and all liens, claims and
encumbrances.
(c) Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of (i) 100,000,000 shares of Common Stock,
of which as of the date hereof, 23,505,441 shares are issued and outstanding,
3,100,000 shares are issuable and reserved for issuance pursuant to the
Company's stock option and purchase plans and no more than 4,207,010 shares are
issuable and reserved for issuance pursuant to securities exercisable or
exchangeable for, or convertible into, shares of Common Stock, and (ii)
1,000,000 shares of preferred stock, of which as of the date hereof, no shares
were issued and outstanding. All of such outstanding shares have been, or upon
issuance will be, validly issued, fully paid and nonassessable. As of the date
hereof, except as contemplated by this Agreement or as disclosed in Schedule
2.1(c), (i) no shares of the Company's capital stock are subject to preemptive
rights or any other similar rights or any liens or encumbrances suffered or
permitted by the Company, (ii) there are no outstanding debt securities, (iii)
there are no outstanding options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by which
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the Company or any of its Subsidiaries is or may become bound to issue
Adjustment Shares of capital stock of the Company or any of its Subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its Subsidiaries, (iv) there
are no agreements or arrangements (except the Registration Rights Agreement)
under which the Company or any of its Subsidiaries is obligated to register the
sale of any of their securities under the Securities Act of 1933, as amended
("SECURITIES ACT" or "1933 ACT"), (v) there are no outstanding securities of the
Company or any of its Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to redeem a security of the Company or any of its Subsidiaries, (vi) there
are no securities or instruments containing anti-dilution or similar provisions
that will be triggered by the issuance of Common Stock as required by this
Agreement and (vii) the Company does not have any stock appreciation rights or
"phantom stock" plans or agreements or any similar plan or agreement. The
Company has furnished to the Investors true and correct copies of the Company's
Articles of Incorporation, as amended and as in effect on the date hereof (the
"ARTICLES OF INCORPORATION"), and the Company's By-laws, as in effect on the
date hereof (the "BY-LAWS"). The Company and its Subsidiaries have no securities
convertible into or exercisable for Common Stock at a floating price or
resettable price.
(d) No Conflicts. Except as disclosed in Schedule 2.1(d), the
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated hereby and
thereby will not (i) result in a violation of the Article of Incorporation or
the By-laws; (ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both reasonably could be expected to become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its Subsidiaries is a party, or (iii) result in a
violation of any law, rule, regulation, order, judgment or decree (including
United States federal and state securities laws and regulations and the rules
and regulations of the Principal Market) applicable to the Company or any of its
Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected. Except as disclosed in Schedule 2.1(d),
neither the Company nor its Subsidiaries is in violation of any term of, or in
default under, (x) its Article of Incorporation or By-laws or their
organizational charter or by-laws, respectively, (y) any material contract,
agreement, mortgage, indebtedness, indenture, instrument, or (z) any judgment,
decree or order or any statute, rule or regulation applicable to the Company or
its Subsidiaries. Except as specifically contemplated by this Agreement and as
required under the 1933 Act, the Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court,
governmental agency or any regulatory or self-regulatory agency in order for it
to execute, deliver or perform any of its obligations under, or contemplated by,
the Transaction Documents in accordance with the terms hereof or thereof. Except
as disclosed in Schedule 2.1(d), all consents, authorizations, orders, filings
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and registrations which the Company is required to obtain pursuant to the
preceding sentence have been obtained or effected on or prior to the date
hereof. The Company complies with and is not in violation of the listing
requirements of the Principal Market, and no notice of any non-compliance or
violation has been received in the previous 12 months.
(e) Principal Market The Principal Market for the Common Stock
is, and for the forseeable future is anticipated to be, the Nasdaq National
Market System.
(f) SEC Documents; Financial Statements. Since December 31,
1997, the Company has timely filed all reports, schedules, forms, statements and
other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the 1934 Act (all of the foregoing filed prior to the
date hereof and financial statements and schedules thereto being hereinafter
referred to as the "SEC DOCUMENTS"). As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the 1934
Act and the rules and regulations of the SEC promulgated thereunder applicable
to the SEC Documents, and none of the SEC Documents, at the time they were filed
with the SEC, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. As of their respective dates, the financial statements of
the Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). Neither the Company nor any of its Subsidiaries or any of their
officers, directors, employees or agents have provided the Investor with any
material, nonpublic information which was not publicly disclosed prior to the
date provided.
(g) Absence of Certain Changes. Except as disclosed in
Schedule 2.1(g) or the SEC Documents filed at least five (5) days prior to the
date hereof, since December 31, 1997, no event, liability, development or
circumstances has occurred and there has been no adverse change or adverse
development in the business, properties, assets, operations, financial
condition, liabilities or results of operations of the Company or its
Subsidiaries which either has had or, to the knowledge of the Company or its
Subsidiaries, is reasonably likely to have a Material Adverse Effect or which
would be required to be disclosed in an SEC registration statement for the
Common Stock. The Company has not taken any steps, and does not currently expect
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to take any steps, to seek protection pursuant to any bankruptcy law nor does
the Company or its Subsidiaries have any knowledge or reason to believe that its
creditors intend to initiate involuntary bankruptcy proceedings.
(h) Absence of Litigation. There is no action, suit,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened against or
affecting the Company, the Common Stock or any of the Company's Subsidiaries or
any of the Company's or the Company's Subsidiaries' officers or directors in
their capacities as such, (i) except as set forth in Schedule 2.1(h) or the SEC
documents filed at least five (5) days prior to the date hereof, and (ii) except
which individually and in the aggregate, respectively, would be reasonably
likely to result in liability to the Company of less than $50,000 and $100,000,
respectively. (i) Acknowledgment Regarding Investors' Purchase of Shares. The
Company acknowledges and agrees that the Investors are acting solely in the
capacity of arm's length purchasers with respect to the Transaction Documents
and the transactions contemplated hereby and thereby. The Company further
acknowledges that the Investors are not acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to the
Transaction Documents and that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.
(j) No Integrated Offering. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would cause any offering of
Securities to the Investors to be integrated with prior offerings by the Company
for purposes of the 1933 Act or any applicable shareholder approval provisions,
including, without limitation, under the rules and regulations of the Principal
Market, nor will the Company or any of its Subsidiaries take any action or steps
in the future that would cause any offering of the Securities to be integrated
with other offerings.
(k) Employee Relations. Neither the Company nor any of its
Subsidiaries is involved in any labor dispute nor, to the knowledge of the
Company or any of its Subsidiaries, is any such dispute threatened. Neither the
Company nor any of its Subsidiaries is a party to a collective bargaining
agreement. The Company is not the subject of any union organizing campaign and,
to its knowledge, no such campaign is threatened. No executive officer (as
defined in Rule 501(f) of the 1933 Act) whose departure would be adverse to the
Company has notified the Company that such officer intends to leave the Company
or otherwise terminate such officer's employment with the Company.
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(l) Intellectual Property Rights. The Company and its
Subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service mark registrations, service names, patents,
patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. The Company and its Subsidiaries do not have any
knowledge of any infringement by the Company or its Subsidiaries of trademark,
trade name rights, patents, patent rights, copyrights, inventions, licenses,
service names, service marks, service mark registrations, trade secret or other
similar rights of others. Except as set forth on Schedule 2.1(l), there is no
claim, action or proceeding being made or brought against, or to the Company's
knowledge, being threatened against, the Company or its Subsidiaries regarding
trademarks, trade name rights, patents, patent rights, inventions, copyrights,
licenses, service names, service marks, service mark registrations, trade
secrets or other infringement. The Company and its Subsidiaries believes they
have taken reasonable security measures to protect the secrecy, confidentiality
and value of all of their intellectual properties.
(m) Environmental Laws. The Company and its Subsidiaries (i)
are in compliance with all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all material terms
and conditions of any such permits, licenses or approvals.
(n) Title. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 2.1(n). Any
real property and facilities held under lease by the Company or any of its
Subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
Subsidiaries.
(o) Insurance. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company reasonably believes
to be prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged.
(p) Regulatory Permits. The Company and its Subsidiaries
possess all material certificates, authorizations and permits issued by the
appropriate federal, state or foreign regulatory authorities, necessary to
conduct their respective businesses, and neither the Company nor any such
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Subsidiary has received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit.
(q) Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(r) Foreign Corrupt Practices Act. Neither the Company, nor
any director, officer, agent, employee or other person acting on behalf of the
Company or any Subsidiary has, in the course of acting for, or on behalf of, the
Company, directly or indirectly used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; directly or indirectly made any direct or indirect unlawful
payment to any foreign or domestic government or party official or employee from
corporate funds; violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended, or any similar treaties of
the United States; or directly or indirectly made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government or party official or employee.
(s) Tax Status. The Company and each of its Subsidiaries has
made or filed all United States federal and state income and all other tax
returns, reports and declarations required by any jurisdiction to which it is
subject (unless and only to the extent that the Company and each of its
Subsidiaries has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the Company is not aware of any basis for any such claim.
(t) Certain Transactions. Except as set forth on Schedule
2.1(t) and in the SEC Documents filed at least five (5) trading days prior to
the date hereof, and other than the grant of stock options disclosed on Schedule
2.1(c), none of the officers, directors or employees of the Company is presently
a party to any material transaction with the Company or any of its Subsidiaries
(other than for services as employees, officers and directors), including any
material contract, material agreement or other material arrangement providing
for the furnishing of services to or by, providing for rental of real or
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personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director
or any such employee has a substantial interest or is an officer, director,
trustee or partner.
(u) Dilutive Effect. The Company understands and acknowledges
that the number of Shares of Common Stock issuable pursuant to this Agreement
will increase in certain circumstances. The Company further acknowledges that,
subject to such limitations as are expressly set forth in the Transaction
Documents, its obligation to issue Warrant Shares and Adjustment Shares and
perform its other obligations pursuant to this Agreement is absolute and
unconditional regardless of the dilutive effect that any such issuance may have
on the ownership interests of other shareholders of the Company.
(v) Application of Takeover Protections. The Company and its
board of directors have taken all necessary action, if any, in order to render
inapplicable anti-takeover provision contained in the Company's Article of
Incorporation or By-Laws or Florida law which is or could become applicable to
the Investors as a result of the transactions contemplated by this Agreement,
including, without limitation, the Company's issuance of the Common Stock and
the Investors' ownership of Common Stock.
(w) Rights Plan. Other than the Rights Agreement dated as of
August 23, 1996 and most recently amended as of October 1, 1999 (the "PLAN"),
neither the Company nor any of its Subsidiaries has adopted a shareholder rights
plan or similar arrangement relating to accumulations of beneficial ownership of
Common Stock or a change in control of the Company. The Company confirms that no
provision of the Plan will, under any present or future circumstances, delay,
prevent or interfere with the performance of any of the Company's obligations
under the Transaction Documents and the Plan will not be "triggered" by such
performance.
(x) Form S-3. The Company is eligible to file the Registration
Statement (as defined in the Registration Rights Agreement) for secondary
offerings on Form S-3 (as in effect on the date of this Agreement) under the
1933 Act and rules promulgated thereunder.
(y) Brokers. Except for its obligations to Trinity Capital,
the Company has taken no action which would give rise to any claim by any person
for brokerage commissions, finder's fees or similar payments by the Company or
the Investor relating to this Agreement or the transactions contemplated hereby.
All obligations to Trinity Capital are the exclusive responsibility of the
Company.
Section 2.2 Representations and Warranties of the Investors. Each
Investor hereby makes the following representations and warranties to the
Company as of the date hereof as to itself, on the Closing Date and on the date
of any Fill-up Closing required by such Investor:
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(a) Accredited Investor Status; Sophisticated Investor. The
Investor is an "accredited investor" as that term is defined in Rule 501(a) of
Regulation D under the 1933 Act. The Investor has such knowledge and experience
in financial and business matters that it is capable of evaluating the merits
and risks of investment in the Common Stock.
(b) Information. The Investor and its advisors, if any, have
been furnished with all materials relating to the business, finances and
operations of the Company which have been requested and materials relating to
the offer and sale of the Initial Shares and Warrants (and the other shares of
Common Stock issuable hereunder) which have been requested by the Investor. The
Investor and its advisors, if any, have been afforded the opportunity to ask
questions of the Company. Neither such inquiries nor any other due diligence
investigations conducted by the Investor or its advisors, if any, or its
representatives shall modify, amend or affect the Investor's right to rely on
the Company's representations and warranties contained in Section 2.1 above. The
Investor understands that its investment in the Common Stock and the Warrants
involves a high degree of risk. The Investor has sought such accounting, legal
and tax advice as it has considered necessary to make an informed investment
decision with respect to its acquisition thereof.
(c) No Governmental Review. The Investor understands that no
United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the Common
Stock or the fairness or suitability of the investment in Common Stock nor have
such authorities passed upon or endorsed the merits of the offering of the
Common Stock or Warrants hereunder.
(d) Authorization; Enforcement. This Agreement and the
Registration Rights Agreement have been duly and validly authorized, executed
and delivered on behalf of the Investor and each is a valid and binding
agreement of the Investor enforceable against the Investor in accordance with
their terms, subject as to enforceability to general principles of equity and to
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies. The Investor has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the Registration Rights Agreement and each other agreement
entered into by the parties hereto in connection with the transactions
contemplated by this Agreement.
(e) Residency. Each Investor is a resident of the jurisdiction
indicated on Schedule 1.
(f) No Conflicts. The execution, delivery and performance of
this Agreement and the Registration Rights Agreement by the Investor and the
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consummation by the Investor of the transactions contemplated hereby and thereby
will not result in a violation of the partnership agreement or other documents
of organization of the Investor.
(g) Regulatory Status. The Investor is not itself a registered
broker-dealer.
(h) Investment Representation. The Investor is purchasing the
Initial Shares and the Warrants for its own account and not with a view to
distribution in violation of any securities laws. The Investor has been advised
and understands that none of the Initial Shares or the Warrants or other
Securities have been registered under the 1933 Act or under the "blue sky" laws
of any jurisdiction and may be resold only if registered pursuant to the
provisions of the 1933 Act or if an exemption from registration is available,
except under circumstances where neither such registration nor such an exemption
is required by law. The Investor has been advised and understands that the
Company is issuing the Initial Shares, Warrants and, to the extent issued, other
Securities in reliance upon, among other things, the representations and
warranties of the Investor contained in this Section 2.2 in concluding that such
issuance is a "private offering" and is exempt from the registration provisions
of the 1933 Act.
(i) Brokers. The Investor has taken no action which would give
rise to any claim by any person for brokerage commissions, finder's fees or
similar payments by the Company or the Investor relating to this Agreement or
the transactions contemplated hereby.
ARTICLE III
COVENANTS
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Section 3.1 Registration and Listing; Effective Registration. Until the
earliest of (1) such time as no Securities are outstanding or (2) the date that
is two years after the Closing Date, the Company will cause the Common Stock to
continue at all times to be registered under Sections 12(b) or (g) of the
Exchange Act, will comply in all material respects with its reporting and filing
obligations under the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT"), and will not take any action or file any document (whether or not
permitted by the Exchange Act or the rules thereunder) to terminate or suspend
such reporting and filing obligations. Until such time as no Securities are
outstanding, the Company shall use its best efforts to continue the listing or
trading of the Common Stock on the Nasdaq National Market, Nasdaq SmallCap
Market, New York Stock Exchange or American Stock Exchange (each, an "APPROVED
MARKET") and shall comply in all material respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the Approved Market on
which the Common Stock is listed. Section 3.2 Replacement Certificates. The
certificate(s) representing the Securities held by any Investor (or then holder)
may be exchanged by the Investor (or such holder) at any time and from time to
time for certificates with different denominations representing an equal
aggregate number of Securities as requested by the Investor (or such holder)
upon surrendering the same. The Company will deliver such substitute
certificates within three trading days. No service charge will be made for such
registration or transfer or exchange.
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Section 3.3 Securities Compliance. The Company shall notify the SEC and
the Principal Market, in accordance with their requirements, of the transactions
contemplated by this Agreement, the Warrants and the Registration Rights
Agreement, and shall take all other necessary action and proceedings as may be
required by applicable law, rule and regulation, for the legal and valid
issuance of the Securities.
Section 3.4 Use of Proceeds. The Company agrees that the net proceeds
received by the Company from the sale of the Securities hereunder shall be used
for legally permitted purposes.
Section 3.5 Reservation of Common Stock.
---------------------------
(a) The Company shall reserve all authorized but unissued
Securities for issuance to the Investor pursuant to the terms of this Agreement.
(b) For the purpose of effecting the issuance of Adjustment
Shares and the exercise of Warrants, the Company initially shall reserve and
keep available 1,950,000 shares of Common Stock, and thereafter shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock the number of its shares of Common Stock (but never reduce below
1,950,000) as shall from time to time be sufficient to effect any such issuances
and exercises, and if at any time the number of authorized but unissued shares
of Common Stock shall not be sufficient, the Company will take such corporate
action as may, in the reasonable opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose, including without limitation
engaging in best efforts to obtain the requisite shareholder approval. If at any
time the number of authorized but unissued Adjustment Shares is not sufficient
to effect such exercises and sales in full, the Investors shall be entitled to,
inter alia, the redemption rights provided in the Registration Rights Agreement.
Section 3.6 Form D; Blue Sky Laws. The Company agrees to file a Form D
with respect to the Securities, as required under Regulation D and to provide a
copy thereof to the Investors promptly after such filing. The Company shall, on
or before the Closing Date, take such action as the Company shall have
reasonably determined is necessary to qualify the Securities for sale to the
Investors under applicable securities or "blue sky" laws of the states of the
United States (or to obtain an exemption from such qualification), and shall
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provide evidence of any such action so taken to the Investors on or prior to the
Closing Date; provided, however, that the Company shall not be required in
connection therewith to register or qualify as a foreign corporation in any
jurisdiction where it is not now so qualified or to take any action that would
subject it to service of process in suits or taxation, in each case, in any
jurisdiction where it is not now so subject.
Section 3.7 Publicity. The Company shall, within 5 business days after
the Closing, file a Form 8-K or issue a press release with respect to this
Agreement, in a form which has been reviewed by and is reasonably acceptable to
the Investors and which specifically discloses the existence and nature of the
Adjustment Warrants.
Section 3.8 No Inside Information. The Company shall not, and shall
cause its agents not to, provide an Investor with any material non-public
information. Any information received by an Investor may be publicly disclosed
by such Investor without liability.
Section 3.9 Financial Information. The Company agrees to send the
following to the Investors for 12 months after the Closing Date: (i) promptly
upon the release thereof, facsimile or e-mail copies of all press releases
issued by the Company or any of its Subsidiaries; and (ii) copies of any notices
and other information made available or given to the shareholders of the Company
generally, contemporaneously with the making available or giving thereof to the
shareholders.
Section 3.10 Prospectus Delivery Requirements. Each Investor will
comply with the prospectus delivery requirements imposed by applicable
securities laws when selling its Registrable Shares.
Section 3.11 Overall Limit on Common Stock Issuable. Notwithstanding
anything contained herein to the contrary, the number of shares of Common Stock
issuable by the Company and acquirable by the Investors hereunder and under the
Warrants shall not exceed 4,635,000 shares of Common Stock, subject to
appropriate adjustment for stock splits, stock dividends, or other similar
recapitalizations affecting the Common Stock (the "MAXIMUM COMMON STOCK
ISSUANCE"), unless the issuance of shares hereunder in excess of the Maximum
Common Stock Issuance shall first be approved by the Company's shareholders in
accordance with applicable law and the By-laws and Articles of Incorporation of
the Company. If such shareholders' approval becomes required but is diligently
sought and duly obtained within ninety (90) days, the inability of the Company
to reserve or issue shares of Common Stock to the Investors as a result of this
Section 3.11 shall not be deemed an "Exercise Deficiency" under the Registration
Rights Agreement. The parties understand and agree that the Company's failure to
seek or obtain such shareholder approval shall in no way adversely affect the
validity and due authorization of this Agreement and issuance and sale of
Securities hereunder, and that such approval pertains only to the applicability
of the Maximum Common Stock Issuance limitation provided in this Section. The
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parties further agree that if an event constituting a Maximum Common Stock
Issuance occurs during an Adjustment Period, the Investors shall have the right
but not the obligation to treat such Adjustment Period as "tolled" under Section
1.2(c)(ii)(x).
Section 3.12 Certain Sales.
-------------
(a) The Investors shall not enter into a short position for
more than 358,423 shares of Common Stock, which number will be subject to
adjustment for stock splits, reverse stock splits, stock dividends,
recapitalizations and the like. During the first forty-five (45) calendar days
following the Closing, the Investors shall not enter into a short position for
any shares of Common Stock. Between the forty-sixth (46th) calendar day after
Closing and the earlier of (x) the 100th calendar day after Closing or (y) the
Effective Date (as defined below), the Investors shall not enter into a short
position on any single trading day in respect of more than fifty percent (50%)
of the shares of Common Stock permitted to be sold pursuant to Section 3.13 on
such trading day. After the date which is the earlier of (x) or (y) above, the
Investors shall not enter into a short position (calculated on a daily basis) in
respect of more than 100% of the shares of Common Stock permitted to be sold
pursuant to Section 3.13. Notwithstanding the foregoing, at no time will there
be any limits upon the number of shares of Common Stock in respect of which the
Investors may enter into short positions at a price of $18 or above (as such
price may be adjusted for stock splits, reverse stock splits, recapitalizations,
etc.) (the "THRESHOLD PRICE"). Short sales entered into at or above the
Threshold Price will not count against any restrictions or limits under this
Section 3.12.
(b) Each Investor agrees it shall not engage in any short
sales of the Common Stock with the intention of reducing the price of the Common
Stock on the Principal Market. Notwithstanding the foregoing, the Company
acknowledges that there is no presumption, nor will there be deemed to be a
presumption, that any sales by an Investor (including short sales) are made with
the intent of reducing the price of the Common Stock on the Principal Market,
even if the price of the Common Stock on the Principal Market falls during the
period in which such sales are occurring. Nothing in this Section 3.12 shall
prohibit an Investor from at any time entering into, inter alia, option or
derivative contracts with respect to the Securities, including puts and calls in
which shares of Common Stock are delivered or deliverable in satisfaction of any
exercised options.
(c) This Section 3.12 shall automatically terminate and the
Investors shall have no obligations hereunder if the Company shall have
materially breached the Transaction Documents and not cured such material breach
with seven (7) trading days of an Investor delivering written notice thereof, if
there shall occur any Interfering Event (as defined in the Registration Rights
Agreement), or if the Company delivers a Share Redemption Notice or a Warrant
Redemption Notice (each as defined below).
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Section 3.13 Resale Limitations. On any single trading day, no Investor
shall sell (including by way of a short sale) on the Principal Market a number
of shares of Common Stock equal to or greater than the greater of (a) 20% of the
average daily volume of the Common Stock on the Principal Market during the
prior 30 trading days or (b) 20% of the trading volume on such single trading
day. This Section 3.13 automatically shall terminate and the Investors shall
have no obligations hereunder (i) if the Company shall have materially breached
the Transaction Documents and not cured such material breach with seven (7)
trading days of an Investor delivering written notice thereof, or (ii) if the
Company delivers a Share Redemption Notice (as defined below) or Warrant
Redemption Notice (as defined in the Initial Warrant). Notwithstanding the
foregoing, no Investor shall be restricted from selling (including by way of
short sales) shares of Common Stock at or above the Threshold Price. Nothing in
this Section 3.13 shall prohibit an Investor from at any time entering into,
inter alia, option or derivative contracts with respect to the Securities,
including puts and calls in which shares of Common Stock are delivered or
deliverable in satisfaction of any exercised options.
Section 3.14 Reporting Lack of Effective Registration. The Company
shall promptly notify each Investor in writing if there shall ever be a lack of
Effective Registration, as well as when Effective Registration is
re-established.
Section 3.15 Optional Redemption of Initial Shares.
-------------------------------------
(a) At any time after the date on which Initial Shares are
first declared effective by the SEC (the "EFFECTIVE DATE"), the Company may
elect, upon forty-one (41) trading days' prior written notice to all but not
fewer than all the Investors (such notice, in respect of redemptions after the
Effective Date pursuant to this subsection (a), or before the Effective Date
pursuant to subsection (b) below, shall be the "SHARE REDEMPTION NOTICE"), to
redeem all but not less than all the Initial Shares still held of record as of
the Share Redemption Date by such Investors at the price specified in the next
sentence; provided that the Investors shall have no obligation to resell their
remaining Initial Shares to the Company on the forty-first (41st) trading day
following the date they receive the Share Redemption Notice (the "SHARE
REDEMPTION DATE"; for purposes of subsection (b) below, the Share Redemption
Date shall be the sixteenth (16th) trading day following the date the Investors
receive the Share Redemption Notice) unless on each of the forty (40) trading
days prior to the Share Redemption Date there shall have been Effective
Registration. The redemption price for each remaining Initial Share shall be
120%, 130% or 140%, of the Share Purchase Price, as applicable, for Share
Redemption Notices received by the Investors during the first three (3) month
period, second three (3) month period, and all subsequent periods, respectively,
following the Effective Date.
(b) At any time prior to the Effective Date, the Company may
elect, by delivery of a Share Redemption Notice, to redeem all but not less than
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all the Initial Shares still held as of the applicable Share Redemption Date by
such Investors at a price per share equal to the greater of:
(i) 115% of the Share Purchase Price, or
(ii) the highest single traded price for a share
of Common Stock on the Principal Market
during the period starting on the fifteenth
(15th) trading day prior to and ending on
the fifteenth (15th) trading day following
the date the Investors receive the
applicable Share Redemption Notice.
; provided, the Company's rights under this subsection (b) shall terminate and
be of no effect if the Company fails to comply with its registration obligations
under the Registration Rights Agreement.
(c) All such amounts shall be paid in immediately available
funds from the Company to the Investors on the applicable Shares Redemption
Date. Nothing shall prohibit the Investors from selling Initial Shares after
receiving the Shares Redemption Notice but before the Share Redemption Date. The
Share Redemption Notice shall be irrevocable, and if the Company does not redeem
the Investors' Initial Shares as and when provided by this Section 3.15, its
rights under Section 3.15 automatically and permanently shall expire and
terminate.
Section 3.16 Reports Under The 1934 Act.
--------------------------
With a view to making available to the Investors the benefits
of Rule 144 promulgated under the 1933 Act or any other similar rule or
regulation of the SEC that may at any time permit the Investors to sell
securities of the Company to the public without registration ("Rule 144"), the
Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements and the filing of such reports
and other documents is required for the applicable provisions of Rule 144; and
(c) furnish to each Investor so long as such Investor owns
Registrable Shares, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
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Company, and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
ARTICLE IV
TRANSFER AGENT INSTRUCTIONS.
----------------------------
The Company shall issue irrevocable instructions to its
transfer agent, and any subsequent transfer agent, to issue certificates,
registered in the name of the Investors or their respective nominee(s), for
Common Stock in such amounts as specified from time to time by the Investor to
the Company (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). The Company
warrants that no instruction relating to the Common Stock other than the
Irrevocable Transfer Agent Instructions referred to in this Article IV will be
given by the Company to its transfer agent and that the Common Stock issued to
the Investors shall be freely transferable on the books and records of the
Company as contemplated by Article VI below when the legend referred to therein
may be removed. The Company shall instruct its transfer agent to issue one or
more certificates in such name and in such denominations as specified by the
Investors and, upon transfer as contemplated by Article VI, without any
restrictive legends. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Investors by vitiating
the intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Section will be inadequate and agrees, in the event of a breach by
the Company of the provisions of this Section, that each affected Investor shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer without any
bond or other security being required.
ARTICLE V
CONDITIONS TO CLOSINGS
----------------------
Section 5.1 Conditions Precedent to the Obligation of the Company to
Sell. The obligation hereunder of the Company to issue and/or sell the Initial
Shares and Warrants to the Investors at the Closing is subject to the
satisfaction, at or before the Closing, as the case may be, of each of the
applicable conditions set forth below. These conditions are for the Company's
sole benefit and may be waived by the Company at any time in its sole
discretion.
(a) Accuracy of the Investors' Representations and Warranties.
The representations and warranties of the Investors will be true and correct in
all material respects as of the date when made and as of the Closing Date.
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(b) Performance by the Investors. The Investors shall have
performed all agreements and satisfied all conditions required to be performed
or satisfied by the Investors at or prior to the Closing, including payment of
the applicable purchase price.
(c) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by the Transaction Documents.
Section 5.2 Conditions Precedent to the Obligation of the Investors to
Purchase. The obligation hereunder of the Investors to acquire and pay for the
Initial Shares and Warrants at the Closing, is subject to the satisfaction, at
or before the Closing, of each of the applicable conditions set forth below.
These conditions are for the Investors' benefit and may be waived by the
Investors at any time in their sole discretion.
(a) Accuracy of the Company's Representations and Warranties.
The representations and warranties of the Company shall be true and correct in
all material respects as of the date when made and as of the applicable closing
date as though made at that time (except for representations and warranties
expressly as of an earlier date, which shall be true and correct in all material
respects as of such date).
(b) Performance by the Company. The Company shall have
performed all agreements and satisfied all conditions required to be performed
or satisfied by the Company at or prior to the applicable closing, including,
without limitation, delivery of certificates representing the Securities and the
Warrants, as applicable.
(c) Nasdaq Trading. Trading in the Company's Common Stock
shall not have been suspended by the SEC and trading in securities generally as
reported by the Principal Market (or other Approved Market) shall not have been
suspended or limited, and the Common Stock shall be listed on an Approved
Market.
(d) 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 Transaction Documents. The NASD shall not have objected or
indicated that it may object to the consummation of any of the transactions
contemplated by this Agreement.
(e) Opinion of Counsel. The Investors shall have received an
opinion of counsel to the Company in the applicable form attached hereto as
Exhibit 5.2(e).
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(f) Registration Rights Agreement. The Company and the
Investors shall have executed and delivered the Registration Rights Agreement in
the form and substance of Exhibit 5.2(f) attached hereto.
(g) Officer's Certificate. The Company shall have delivered to
the Investors a certificate in form and substance satisfactory to the Investors
and the Investors' counsel, executed by an officer of the Company, certifying as
to satisfaction of applicable closing conditions, incumbency of signing
officers, and the true, correct and complete nature of the Article of
Incorporation, By-laws, good standing and authorizing resolutions of the
Company.
(h) Miscellaneous. The Company shall have delivered to the
Investors such other documents relating to the transactions contemplated by this
Agreement as the Investors or their counsel may reasonably request.
Section 5.3 Closing Date Deliveries.
-----------------------
(a) On the Closing Date, the Company shall deliver to the
Investor:
(i) Certificates representing the Initial Shares;
(ii) Warrants in the form attached as Annex A;
(iii) The certificate referred to in Section 5.2(g)
above;
(iv) The evidence of any necessary blue sky filing
required by Section 3.6;
(v) The executed Registration Rights Agreement; and
(vi) The opinion of counsel referred to in Section
5.2(e) above.
(b) On the Closing Date, the Investors shall deliver to the
Company:
(i) The Purchase Price set forth on Schedule I
hereto; and
(ii) The executed Registration Rights Agreement.
Section 5.4 Company Deliveries at Fill-up Closing. On the date of each
Fill-up Closing, the Company shall deliver to the Investor:
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(i) Certificates representing the applicable
Adjustment Shares issuable to the Investors;
(ii) The certificate referred to in Section 5.2(g)
above;
(iii) A current, deliverable prospectus that may be
used to resell the Adjustment Shares; and
(iv) Evidence of any necessary blue sky filings
required by Section 3.6.
ARTICLE VI
LEGEND AND STOCK
----------------
Each certificate representing the Common Stock issued
hereunder shall be stamped or otherwise imprinted with a legend substantially in
the following form:
These Securities Have Not Been Registered For Offer or Sale
Under The Securities Act Of 1933 Or Any State securities laws. They May Not Be
Sold Or Offered For Sale Except Pursuant To An Effective Registration Statement
Under Said Act And Any Applicable State Securities Law Or An Applicable
Exemption From Such Registration Requirements.
The Company agrees to reissue within 3 trading days
certificates for Common Stock without the legend set forth above at such time as
such Common Stock (i) is sold to a purchaser or purchasers who (in the opinion
of counsel to the seller or such purchaser(s), in form and substance reasonably
satisfactory to the Company and its counsel) are able to dispose of such shares
publicly without registration under the Act, (ii) are registered pursuant to an
effective registration statement, or (iii) may be sold pursuant to Rule 144(k).
Any Common Stock issued pursuant to exercise of Warrants shall
bear a legend in the same form as the legend indicated above; provided that such
legend shall be removed from the Common Stock and the Company shall issue new
certificates without such legend if such Common Stock is registered for resale
under the 1933 Act, or (iii) such Common Stock is sold to a purchaser or
purchasers who (in the opinion of counsel to the seller or such purchaser(s), in
form and substance reasonably satisfactory to the Company and it counsel) are
able to dispose of such shares publicly without registration under the 1933 Act.
Upon the applicable trade date of each such sale, the Company agrees to issue
within 3 trading days new certificates representing such Common Stock without
such legend. The Investor agrees to sell the Common Stock represented by the new
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certificates in accordance with the applicable prospectus delivery requirements
(if copies of a current prospectus are provided to the Investors by the Company)
or in accordance with an exemption from the registration requirements of the
1933 Act.
Nothing herein shall limit the right of any holder to pledge
these securities pursuant to a bona fide margin account or lending arrangement
entered into in compliance with law, including applicable securities laws.
ARTICLE VII
INDEMNIFICATION
---------------
In consideration of the Investors' execution and delivery of
this Agreement, the Warrants and the Registration Rights Agreement and in
addition to all of the Company's other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless the
Investors and all of their partners, officers, directors, employees, members and
direct or indirect investors and any of the foregoing persons' agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"INDEMNITEES") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "INDEMNIFIED LIABILITIES"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in the Transaction Documents or any other
certificate or document contemplated hereby or thereby, (c) any cause of action,
suit or claim brought or made against such Indemnitee by a third party and
arising out of or resulting from (i) the execution, delivery, performance,
breach by the Company or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities or (iii) the
status of the Investor or holder of the Securities or Warrants as investors in
the Company, and (d) the enforcement of this Article VII. Notwithstanding the
foregoing, Indemnified Liabilities shall not include any liability of any
Indemnitee to the extent arising out of such Indemnitee's willful misconduct or
fraudulent action(s). To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. Except as otherwise set
forth herein, the mechanics and procedures with respect to the rights and
obligations under this Article VIII shall be the same as those set forth in
Section 6 (other than Section 6(b)) of the Registration Rights Agreement,
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including, without limitation, those procedures with respect to the settlement
of claims and Company's right to assume the defense of claims.
ARTICLE VIII
9.99% LIMITATION.
-----------------
Section 8.1 Limitation
----------
(a) Notwithstanding anything to the contrary contained herein,
the number of shares of Common Stock that may be acquired by the Investor upon
the exercise or issuance of Securities shall not exceed a number that, when
added to the total number of shares of Common Stock deemed beneficially owned by
such holder (other than by virtue of the ownership of securities or rights to
acquire securities that have limitations on the Investor's right to convert,
exercise or purchase similar to the limitation set forth herein (the "EXCLUDED
SHARES")), together with all shares of Common Stock deemed beneficially owned
(not counting such affiliate's Excluded Shares) by the Investor's "AFFILIATES"
(as defined in Rule 144 of the Act) ("AGGREGATION PARTIES") that would be
aggregated for purposes of determining whether a group under Section 13(d) of
the Securities Exchange Act of 1934 as amended, exists, would exceed 9.99% of
the total issued and outstanding shares of the Common Stock (the "RESTRICTED
OWNERSHIP PERCENTAGE"). Each Investor shall have the right (w) at any time and
from time to time to reduce its Restricted Ownership Percentage immediately upon
notice to the Company and (x) (subject to waiver) at any time and from time to
time, to increase its Restricted Ownership Percentage immediately in the
announcement of event of:
(i) any consolidation or merger of the Company with or
into any other corporation or other entity or person
(whether or not the Company is the surviving
corporation), or any other corporate reorganization
or transaction or series of related transactions in
which in excess of 50% of the Company's voting power
is transferred through a merger, consolidation,
tender offer or similar transaction,
(ii) any person (as defined in Section 13(d) of the
Securities Exchange Act of 1934, as amended (the
"Exchange Act")), together with its affiliates and
associates (as such terms are defined in Rule 405
under the 1933 Act), beneficially owns or is deemed
to beneficially own (as described in Rule 13d-3 under
the Exchange Act without regard to the 60-day
exercise period) in excess of 50% of the Company's
voting power,
(iii) there is a replacement of more than one-half of the
members of the Company's Board of Directors which is
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not approved by those individuals who are members of
the Company's Board of Directors on the date thereof,
in one or a series of related transactions or
(iv) a sale or transfer of all or substantially all of the
assets of the Company, determined on a consolidated
basis (each, a "MAJOR TRANSACTION").
(b) The Investor covenants at all times on each day (each such
day being referred to as a "Covenant Day") as follows: During the balance of
such Covenant Day and the succeeding sixty-one (61) days (the balance of such
Covenant Day and the succeeding 61 days being referred to as the "Covenant
Period") such Investor will not acquire shares of Common Stock pursuant to any
right existing at the commencement of the Covenant Period to the extent the
number of shares so acquired by such Investor and its Aggregation Parties
(ignoring all dispositions) would exceed:
(x) the Restricted Ownership Percentage of the total
number of shares of Common Stock outstanding at the
commencement of the Covenant Period,
minus
-----
(y) the number of shares of Common Stock owned by such
Investor and its Aggregation Parties at the
commencement of the Covenant Period.
A new and independent covenant will be deemed to be
given by the Investor as of each moment of each
Covenant Day. No covenant will terminate, diminish or
modify any other covenant. The holder agrees to
comply with each such covenant. This Section 8
controls in the case of any conflict with any other
provision of the Transaction Documents.
(i) The Company's obligation to issue Common Shares
which would exceed such limits referred to in this Section
5(i) shall be suspended to the extent necessary until such
time, if any, as shares of Common Stock may be issued in
compliance with such restrictions.
ARTICLE IX
GOVERNING LAW; MISCELLANEOUS.
-----------------------------
Section 9.1 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY
AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE
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TO CONTRACTS TO BE EXECUTED AND PERFORMED EXCLUSIVELY IN NEW YORK. EACH PARTY
HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND
FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN, FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR WITH ANY
TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN, AND HEREBY IRREVOCABLY
WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM
THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, THAT
SUCH SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE
VENUE OF SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH PARTY HEREBY
IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING
SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF TO SUCH
PARTY AT THE ADDRESS FOR SUCH NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT
SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE
THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT
TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW. IF ANY PROVISION OF THIS
AGREEMENT SHALL BE INVALID OR UNENFORCEABLE IN ANY JURISDICTION, SUCH INVALIDITY
OR UNENFORCEABILITY SHALL NOT AFFECT THE VALIDITY OR ENFORCEABILITY OF THE
REMAINDER OF THIS AGREEMENT IN THAT JURISDICTION OR THE VALIDITY OR
ENFORCEABILITY OF ANY PROVISION OF THIS AGREEMENT IN ANY OTHER JURISDICTION.
Section 9.2 Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
Section 9.3 Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
Section 9.4 Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
Section 9.5 Entire Agreement; Amendments; Waivers.
-------------------------------------
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(a) This Agreement supersedes all other prior oral or written
agreements between the Investors, the Company, their affiliates and persons
acting on their behalf with respect to the matters discussed herein, and this
Agreement and the instruments referenced herein (including the other Transaction
Documents) contain the entire understanding of the parties with respect to the
matters covered herein and therein and, except as specifically set forth herein
or therein, neither the Company nor the Investors make any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be amended other than by an instrument in writing signed by
the Company and the Investor, and no provision hereof may be waived other than
by an instrument in writing signed by the party against whom enforcement is
sought.
(b) The Investors may at any time elect, by notice to the
Company, to waive (whether permanently or temporarily, and subject to such
conditions, if any, as the Investors may specify in such notice) any of their
respective rights (but not obligations) under any of the Transaction Documents
to acquire shares of Common Stock from the Company, in which event such waiver
shall be binding against the Investors in accordance with its terms.
Section 9.6 Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing, must be delivered by (i) courier, mail or hand
delivery or (ii) facsimile, and will be deemed to have been delivered upon
receipt. The addresses and facsimile numbers for such communications shall be:
If to the Company:
Hollywood.com, Inc.
2255 Glades Road
Boca, Raton, Florida 33431
Telephone: (561) 998-8000, ext. 250
Facsimile: (561) 998-2974
Attention: General Counsel
If to the Transfer Agent:
American Stock Transfer and Trust Company
40 Wall Street
New York, NY 10005
Telephone: (718) 921-8256
Facsimile: (718) 921-8327
Attention: Mr. Joe Comito
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<PAGE>
If to the Investors:
Elliott Associates, L.P.
712 Fifth Avenue, 36th Floor
New York, New York 10019
Telephone: (212) 974-6000
Facsimile: (212) 586-9457
Attention: Mr. Brett Cohen
and
---
Westgate International, L.P.
712 Fifth Avenue, 36th Floor
New York, New York 10019
Telephone: (212) 506-2999
Facsimile: (212) 586-9467
Attention: Mr. Brett Cohen
With a copy to:
Kleinberg, Kaplan, Wolff & Cohen, P.C.
551 Fifth Avenue, 18th Floor
New York, New York 10176
Telephone: 212-986-6000
Facsimile: 212-986-8866
Attention: Christopher P. Davis, Esq.
Each party shall provide five (5) days prior written notice to
the other party of any change in address, telephone number or facsimile number.
Written confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or electronically
generated by the sender's facsimile machine containing the time, date, recipient
facsimile number and an image of the first page of such transmission or (C)
provided by a nationally recognized overnight delivery service shall be
rebuttable evidence of personal service, receipt by facsimile or receipt from a
nationally recognized overnight delivery service in accordance with clause (i),
(ii) or (iii) above, respectively.
Section 9.7 Successors and Assigns. Except as otherwise provided
herein, this Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns, including any Permitted
Assignee (as defined below). The Company shall not assign this Agreement or any
rights or obligations hereunder without the prior written consent of the
Investor. The Investors may assign some or all of their rights hereunder to the
other Investor, to an affiliate of either Investor or to an entity or fund which
has the same principal investment adviser as either Investor, without the
consent of the Company, and to others, with the written consent of the Company
(in each case, a "PERMITTED ASSIGNEE"); provided, however, that any such
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<PAGE>
assignment shall not release the Investors from their obligations hereunder
unless such obligations are assumed by such assignee and the Company has
consented to such assignment and assumption. Notwithstanding anything to the
contrary contained in the Transaction Documents, the Investor shall be entitled
to pledge the Securities or Warrants in connection with a bona fide margin
account. In the event of any Major Transaction in which the Company does not
remain an independent company with publicly registered shares, the surviving or
acquiring entity in any Major Transaction (as a precondition of consummating
such Major Transaction) will pay the Investors an amount in cash or freely
tradeable publicly registered shares of the acquiror (at the option of such
acquiror) with a value per Initial Share (excluding Initial Shares in respect of
which an Adjustment Period (as defined in the Adjustment Warrant) has been
completed if the Adjustment Shares issuable in connection therewith, if any,
have been delivered to the Investors) equal to the amount by which 115% of the
Share Purchase Price (as such amount would be adjusted by the mechanisms set
forth in the Initial Warrants) exceeds the per share consideration paid in such
Major Transaction.
Section 9.8 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.
Section 9.9 Survival. The representations, warranties and agreements of
the Company and the Investors contained in the Agreement shall survive each of
the Closing and to the extent applicable, each Fill-up Closing and each Closing,
in each case for a period which expires on the second anniversary of the Closing
Date.
Section 9.10 Further Assurances. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
Section 9.11 Remedies. Each Investor and each Permitted Assignee shall
have all rights and remedies set forth in this Agreement, the Warrants and the
Registration Rights Agreement and all rights and remedies which such holders
have been granted at any time under any other agreement or contract and all of
the rights which such holders have under any law. Any person having any rights
under any provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law. Each Investor and each Permitted Assignee without
prejudice may withdraw, revoke or suspend its pursuit of any remedy at any time
prior to its complete recovery as a result of such remedy.
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<PAGE>
Section 9.12 Days. Unless the context refers to "business days" or
"trading days," all references herein to "days" shall mean calendar days.
Section 9.13 Rescission and Withdrawal Right. Notwithstanding anything
to the contrary contained in (and without limiting any similar provisions of)
the Transaction Documents, wherever the Investors exercise a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then the
Investors may rescind or withdraw, in their sole discretion from time to time
upon written notice to the Company, any relevant notice, demand or election in
whole or in part without prejudice to its future actions and rights.
Section 9.14 Obligations Absolute. The Company's obligations under the
Transaction Documents are unconditional and absolute and not subject to any
right of set off, counterclaim, delay or reduction.
* * * * *
[Signature Page Follows]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Common
Stock Investment Agreement to be duly executed as of the date and year first
above written.
HOLLYWOOD.COM, INC.
By: /s/ Mitchell Rubenstein
---------------------------
Name: Mitchell Rubenstein
Title: Chairman and CEO
INVESTORS:
ELLIOTT ASSOCIATES, L.P.
By: /s/ Paul E. Singer
----------------------
Name: Paul E. Singer
Title: General Partner
WESTGATE INTERNATIONAL, L.P.
By: ELLIOTT INTERNATIONAL CAPITAL
ADVISORS INC.
Attorney-in-Fact
By: /s/ Paul E. Singer
----------------------
Name: Paul E. Singer
Title: President
Signature page to Common Stock Investment Agreement
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<PAGE>
LIST OF SCHEDULES
-----------------
Schedule 1 Investments
Schedule 2.1(a) Organization and Qualification
Schedule 2.1(c) Capitalization
Schedule 2.1(d) No Conflicts
Schedule 2.1(g) Absence of Certain Changes
Schedule 2.1(h) Absence of Litigation
Schedule 2.1(l) Intellectual Property Rights
Schedule 2.1(n) Title
Schedule 2.1(t) Certain Transactions
LIST OF EXHIBITS
----------------
Exhibit 5.2(e) Opinion of Counsel
Exhibit 5.2(f) Registration Rights Agreement
Exhibit 5.2(g) Officers' Certificate
ANNEXES
-------
Annex A Initial Warrant
Annex B Adjustment Warrant
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SCHEDULE 1
----------
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
INVESTOR RESIDENCE INITIAL SHARES INITIAL WARRANTS PURCHASE PRICE
-------- --------- -------------- ---------------- --------------
<S> <C> <C> <C> <C>
Elliott Associates, L.P. New York 179,212 30,000 $1,500,000
Westgate International, L.P. Cayman Islands 179,211 30,000 $1,500,000
</TABLE>
