STRATEGIC INVESTMENT AGREEMENT
TABLE OF CONTENTS
ARTICLE INTERPRETATION 1
Section 1.1 Defined Terms. 7
Section 1.2 Headings, etc. 7
Section 1.3 Fully Diluted Basis. 7
Section 1.4 Certain Phrases, etc. 7
Section 1.5 Knowledge. 7
Section 1.6 Accounting Terms. 8
Section 1.7 Incorporation of Schedules. 8
ARTICLE PURCHASED SHARES AND PURCHASE PRICE 8
Section 2.1 Preferred Shares. 8
Section 2.2 Payment of Transfer Taxes. 8
ARTICLE REPRESENTATIONS AND WARRANTIES OF THE COMPANY 9
Section 3.1 Corporate Matters 9
Section 3.2 General Matters Relating to the Business 12
Section 3.3 Matters Relating to the Assets 13
Section 3.4 Financial Matters 16
Section 3.5 Particular Matters Relating to the Business 17
ARTICLE REPRESENTATIONS AND WARRANTIES OF Investor 20
Section 4.1 Representations and Warranties of Investor. 20
ARTICLE PRE-CLOSING COVENANTS OF THE PARTIES 22
Section 5.1 Conduct of Business Prior to the Closing. 22
Section 5.2 Access for Due Diligence. 24
Section 5.3 Actions to Satisfy Closing Conditions. 24
Section 5.4 Notice of Untrue Representation or Warranty. 24
Section 5.5 Use of Proceeds 25
Section 5.6 Closing Uses of Purchase Price 25
Section 5.7 Proof of Funds 25
Section 5.8 Use of Loan Proceeds 25
ARTICLE CONDITIONS OF CLOSING 25
Section 6.1 Conditions for the Benefit of Investor. 25
Section 6.2 Conditions for the Benefit of the Company. 27
ARTICLE CLOSING 29
Section 7.1 Date, Time and Place of Closing. 29
ARTICLE 8 POST CLOSING COVENANTS 29
Section 8.1 Further Assurances 29
Section 8.2 Announcements 29
Section 8.3 Conduct of the Company 29
ARTICLE 9 TERMINATION 30
Section 9.1 Termination Rights. 30
Section 9.2 Effect of Termination 31
ARTICLE INDEMNIFICATION 31
Section Survival. 31
Section Indemnification in Favor of Investor 31
Section Indemnification in Favor of the Company 31
Section Notification; Investor Indemnity Claims. 32
Section Procedure for Third Party Claims. 32
Section Alternative Remedies. 34
Section Exclusive Remedies 35
ARTICLE MISCELLANEOUS 35
Section Notices. 35
Section Time of the Essence. 35
Section Brokers. 36
Section Third Party Beneficiaries. 36
Section Expenses. 36
Section Independent Counsel. 36
Section Amendments. 36
Section Waiver. 37
Section Entire Agreement. 37
Section Successors and Assigns. 37
Section Severability. 38
Section Informal Dispute Resolution. 38
Section Governing Law. 38
Section Waiver of Jury Trial. 38
Section No Commitment for Additional Financing. 39
Section Counterparts. 39
Exhibit “A” Form of Certificate of Designation, Voting Powers and Preferences of Series A
Convertible Preferred Stock
Exhibit “B” Form of Release
STRATEGIC INVESTMENT AGREEMENT
This STRATEGIC INVESTMENT AGREEMENT (“Agreement”), dated as of
, is made by and between (the
“Company”), and (the “Investor”) on the other hand.
The Company and Investor are collectively referred to herein as the “Parties” or “parties.” This
Agreement is entered into with reference to the following:
A. The Company is and has been engaged in the business of
and has developed certain
Intellectual Property relating thereto.
B. Investor is engaged, inter alia, in developing and operating
and intends to use the Company and/or its Affiliates as the vehicle to conduct
C. The Company desires to sell to Investor and Investor desires to purchase from
the Company shares of the preferred stock of the Company on the terms and conditions set forth
D. Concurrently with the execution of this Agreement, Investor is loaning the
Company $ (the “Loan”) pursuant to a demand promissory note (the “Note”).
Section 1.1 Defined Terms.
As used in this Agreement, the following terms have the following meanings:
“Affiliate” means, with respect to any specified Person, (i) any other Person
who, directly or indirectly, owns or controls, is under common ownership or control with, or is
owned or controlled by, such specified Person, (ii) any other Person who is a director, officer,
partner or trustee of the specified Person or a Person described in clause (i) of this definition or
any spouse of the specified Person or any such other Person, (iii) any relative of the specified
Person or any other Person described in clause (ii) of this definition, or (iv) any Person of which
the specified Person and/or any one or more of the Persons specified in clause (i), (ii) or (iii) of
this definition, individually or in the aggregate, beneficially own 10% or more of any class of
“Agreement” means this Strategic Investment Agreement, all exhibits thereto,
and the Disclosure Schedules; and the expressions “Article” and “Section” followed by a number
mean and refer to the specified Article or Section of this Agreement.
“Ancillary Agreements” means the Note, Series A Certificate of Designation,
Voting Powers and Preferences of Series A Convertible Preferred Stock and any other
agreements referred to in this Agreement.
“Assets” means all of the assets, rights, intellectual property, interests and
other properties, real, personal and mixed, tangible and intangible, owned by the Company
“Authorization” means, with respect to any Person, the Business or any
matter, any order, permit, approval, waiver, license or similar authorization of any Governmental
Entity having jurisdiction over the Person, Business or matter.
“Balance Sheet Date” means .
“Books and Records” means all books of account, tax records, sales and
purchase records, customer and supplier lists, computer software, formulae, business reports,
plans and projections and all other documents, files, correspondence and other information of the
applicable Party (whether in written, printed, electronic or computer printout form).
“Business” means the business of .
“Business Day” means any day of the year, other than a Saturday, Sunday or
any day on which banks are required or authorized to close in Los Angeles,
“Closing” has the meaning set forth in Section 7.1.
“Closing Date” means the date of Closing.
“Code” means the U.S. Internal Revenue Code of 1986, as amended from
time to time, together with all rules and regulations promulgated thereunder.
“Common Stock” means the common stock of the Company.
“Company Group” means, collectively, the Company and its Subsidiaries.
“Company Intellectual Property” shall mean any and all Intellectual Property
and Intellectual Property Rights that are owned by any member of the Company Group in any
“Consent” means the consent of a contracting party to the transactions
contemplated herein, if required by the terms of any Contract.
“Contracts” means all agreements to which any member of the Company
Group is a party including all contracts, leases, mortgages, leases of personal property,
employment agreements, understandings, options, warrants, indentures, notes or other
obligations or commitments of any nature, written or oral, including the Material Contracts.
“Conversion Shares” has the meaning set forth in Section 3.1(c).
“Corporate Records” means the corporate records of all members of the
Company Group, including (i) all charter documents and by-laws, (ii) all minutes of meetings
and resolutions of stockholders and directors (and any committees), (iii) the stock certificate
books, securities register, register of transfers and register of directors, and (iv) any other
documents required to be kept by applicable Law.
“Damages” means any loss, liability, claim, damage (including incidental but
excluding consequential damages and lost profits (except to the extent arising from third party
claims)) or expense (including legal expenses) whether resulting from any action, suit,
proceeding, arbitration, claim or demand that is instituted or asserted by a third party or any
cause, matter, thing, act, omission or state of facts not involving a third party.
“Derivative Securities” has the meaning set forth in Section 3.1(i).
“Direct Claim” means any cause, matter, thing, act, omission or state of facts
not involving a Third Party Claim which entitles an Indemnified Person to make a claim for
indemnification under this Agreement.
“Disclosure Schedules” means those schedules attached hereto and delivered
by the Company to Investor, which shall be divided into sections containing the disclosure
information required in each such section by the terms of this Agreement.
“Employee Plans” means all the employee benefit, fringe benefit,
supplemental employment benefit, bonus, incentive, deferred compensation, profit sharing,
savings sharing, termination, change of control, pension, retirement, stock option, stock
purchase, phantom stock, severance, stock appreciation, health, welfare, medical, dental,
disability, life insurance and similar plans, programs, arrangements or practices relating to the
current or former employees, officers or directors of the Company Group maintained, sponsored
or funded by any member of the Company Group, whether written or oral, funded or unfunded,
insured or self-insured, registered or unregistered other than government-sponsored employment
insurance, workers compensation, health insurance and pension plans, including, without
limitation, all “employee benefit plans” as defined in Section 3(3) of the ERISA.
“ERISA” means the U.S. Employee Retirement Income Security Act of 1974,
as amended from time to time, the rules and regulations promulgated thereunder and any
“ERISA Affiliate” has the meaning set forth in Section 3.1.
“Financial Statements” means the audited and unaudited consolidated
financial statements of the Company for the fiscal years ended
“GAAP” means, at any time, accounting principles generally accepted in the
United States of America, at the relevant time applied on a consistent basis.
“Governmental Entity” means any (i) multinational, federal, state, provincial,
municipal, local or other governmental or public department, central bank, court, commission,
board, bureau, agency or instrumentality, domestic or foreign, (ii) any subdivision or authority of
any of the foregoing, or (iii) any quasi-governmental or private body exercising any regulatory,
expropriation or taxing authority under or for the account of any of the above and includes a
stock exchange or self-regulatory body.
“Indemnified Person” means a Person with indemnification rights or benefits
under Section 10.3 or 10.4 of this Agreement.
“Independent Director” has the meaning set forth in Section 6.1(e) as
modified by Section 10.4(5).
“Indemnifying Party” means a party against which a claim may be made for
indemnification under this Agreement.
“Intellectual Property” means any and all of the following: (i) proprietary and
non-public business information, including inventions (whether patentable or not), invention
disclosures, improvements, trade secrets, know-how, processes, designs, technology, technical
data, schematics and formulae, and documentation relating to any of the foregoing; (ii) works of
authorship, including computer programs, source code, and executable code, whether embodied
in software, firmware or otherwise, documentation, files, and records; (iii) copyrights, copyright
registrations and applications for copyright registration; (iv) trade names, business names,
corporate names, domain names, website names and world wide web addresses, registered and
unregistered trade-marks, trade-mark applications, trade dress and logos, service marks,
certification marks and the goodwill associated with any of the foregoing; and (v) proprietary
and confidential business information including know-how, inventions, discoveries,
improvements, concepts, ideas, methods, processes, designs, formulae, technical data, drawings,
specifications, research and development information and other proprietary and confidential
information, including customer lists, business plans and marketing plans, in each case to the
extent not included in the foregoing subparagraphs, but excluding any of the foregoing that is
generally known or available to the public (collectively, “Trade Secrets”).
“Interim Period” means the period between the date of this Agreement and the
“Laws” means any and all applicable laws including all domestic or foreign,
federal, state, provincial or local statutes, codes, ordinances, decrees, rules, regulations,
municipal by-laws, judicial or arbitral or administrative or ministerial or departmental or
regulatory judgments, orders, decisions, rulings or awards, policies, notices, guidelines,
including, without limitation, any and all by-laws, rules, regulations, policies, guidelines, orders,
decisions, rulings or awards, of any applicable stock exchanges and self-regulatory organizations
and general principles of common and civil law and equity, binding on or affecting the Person
referred to in the context in which the word is used.
“Liabilities” means with respect to any Person, any liability or obligation of
such Person of any kind, character or description, whether known or unknown, absolute or
contingent, accrued or unaccrued, disputed or undisputed, liquidated or unliquidated, secured or
unsecured, joint or several, due or to become due, vested or unvested, executory, determined,
determinable or otherwise, and whether or not the same is required to be set forth in the financial
statements of such Person.
“Lien” means any mortgage, charge, pledge, hypothecation, security interest,
assignment, lien (statutory or otherwise), charge, title retention agreement or arrangement,
restrictive covenant or other encumbrance of any nature or any other arrangement, deemed or
statutory trust, or condition which, in substance, secures payment or performance of an
obligation. Lien does not include securities law restrictions.
“Loan” has the meaning set forth in the Recitals.
“Material Adverse Effect” means a material adverse effect on the business,
assets (including intangible assets), liabilities, financial condition, property, or results of
operations of the Company Group, taken as a whole.
“Material Contracts” has the meaning set forth in Section 3.3(c).
“Note” has the meaning set forth in the Recitals
“Order” means any order, ruling, decree, directive, consent, approval,
injunction or other similar determination or finding by, before, or under the supervision of any
Governmental Authority, arbitrator or mediator and, in the case of a Regulatory Authority, a
memorandum of understanding or agreement entered into in the exercise of its supervisory
“Ordinary Course” means, with respect to an action taken by a Person, that
such action is taken in the ordinary course of the normal day-to-day operations of the Person.
“Outstanding Debts” means all obligations of the Company for borrowed
money and all obligations of the Company evidenced by bonds, debentures, notes, loan
agreements or other similar instruments.
“Parties” or “parties” means the Company and Investor and any other Person
who may become a party to this Agreement.
“Pension Plan” has the meaning set forth in Section 3.5(c).
“Person” means a natural person, partnership, limited partnership, limited
liability company or partnership, corporation, syndicate, sole proprietorship, company, joint
stock company, trust, trustee, executor, administrator or other legal representative,
unincorporated association, joint venture or other entity or Governmental Entity, and pronouns
have a similarly extended meaning.
“Preferred Shares” has the meaning set forth in Section 2.1.
“Public Statement” means any press release, public statement or
announcement with respect to the transactions contemplated by this Agreement.
“Purchase Price” has the meaning set forth in Section 2.1.
“Related Party” means in respect of any member of the Company Group: (i) a
Person which alone or in combination with others controlled by such Person holds a sufficient
number of securities of the Company Group or has contractual rights binding on the Company
sufficient to control any member of the Company Group, (ii) a Person in respect of which a
Person referred to in clause (i) above alone or in combination with others controlled by the
Person holds a sufficient number of securities or has contractual rights sufficient to control the
Person referred to in clause (i) above (but only if the Company knows of the control relationship
between the two Persons), (iii) a Person (other than employees of the Company Group) in respect
of which any member of the Company Group alone or in combination with others such member
controls holds a sufficient number of securities or has contractual rights sufficient to control such
Person, (iv) a Person who beneficially owns, directly or indirectly, voting securities of any
member of the Company Group or who is known by the Company to exercise control or
direction over voting securities of any member of the Company Group or a combination of both
carrying more than 10% of the voting rights attached to all voting securities of any member of
the Company Group for the time being outstanding, or (v) a director or officer of any member of
the Company Group or any Person known to be an immediate relative of such director or
“Series A Certificate of Designation” means the Certificate of Designation,
Voting Powers and Preferences of the Series A Convertible Preferred Stock of the Company,
which Certificate shall be in the form of Exhibit A or such other form that may be agreed to
between the Company and Investor.
“Series A Preferred Stock” means the preferred stock of the Company
designated as Series A Convertible Preferred Stock, which series of preferred stock will be
created prior to the Closing by the filing of the Series A Certificate of Designation.
“Stock Option” means any option to acquire shares in the capital of any
member of the Company Group.
“Subsidiary” means any corporation, partnership, joint venture or other legal
entity of which a Person (either alone or through or together with any other subsidiary), owns,
directly or indirectly, more than 50% of the stock or other equity interests the holders of which
are generally entitled to vote for the election of the board of directors or other governing body of
such corporation or other legal entity or has, directly or indirectly, the right to appoint a majority
of the board of directors or other governing body of such corporation or other legal entity.
“Suppliers” means the suppliers of the Company Group.
“Tax” or “Taxes” means (i) any federal, provincial, state, local or foreign tax,
duty, fee, excise, premium, assessment, impost, levy and all taxes, duties, fees, excises,
premiums, assessments, imposts, levies and other charges or assessments of any kind whatsoever
imposed by any Governmental Entity, whether computed on a separate, consolidated, unitary,
combined or other basis, including those levied on, or measured by, or described with respect to,
federal, state, local or foreign income, gross receipts, profits, gains, windfalls, capital, capital
stock, production, recapture, transfer, land transfer, license, gift, occupation, wealth,
environment, net worth, indebtedness, surplus, sales, goods and services, harmonized sales, use,
value-added, excise, special assessment, stamp, withholding, business, franchising, real or
personal property, health, employee health, payroll, workers’ compensation, employment or
unemployment, severance, social services, social security, education, utility, surtaxes, customs,
import or export, and including all license and registration fees and all employment insurance,
health insurance and government pension plan premiums or contributions; (ii) all interest,
penalties, fines additions to tax or other additional amounts imposed by any Governmental Entity
on or in respect of amounts of the type described in clause (i) above or this clause (ii); (iii) any
liability for the payment of any amounts of the type described in clauses (i) or (ii) as a result of
being a member of an affiliated, consolidated, combined or unitary group for any period; and (iv)
any liability for the payment of any amounts of the type described in clauses (i) or (ii) as a result
of any express or implied obligation to indemnify any other Person or as a result of being a
transferee or successor in interest to any party.
“Tax Return” means any return, declaration, report, election, notice,
designation, filing, claim for refund, or information return or statement relating to any Tax,
including any schedule or attachment thereto, and any amendment thereof.
“Third Party Claim” means any action, suit, proceeding, arbitration, claim or
demand that is instituted or asserted by a third party against an Indemnified Person which entitles
the Indemnified Person to make a claim for indemnification under this Agreement.
Section 1.2 Headings, etc.
The provision of a Table of Contents, the division of this Agreement into Articles and
Sections and the insertion of headings are for convenient reference only and are not to affect its
Section 1.3 Fully Diluted Basis.
Whenever ownership or holding of a number of shares of Common Stock is determined
under this Agreement, subject to the last sentence of Section 2.1, such determination will be
made on a fully diluted basis taking into account the issued and outstanding shares of Common
Stock and assuming conversion to or exercise for shares of all preferred shares, debentures,
options, warrants, convertible securities or other rights exercisable or convertible for shares of
Common Stock, including Stock Options whether vested or not.
Section 1.4 Certain Phrases, etc.
In this Agreement and any Ancillary Agreement (i) (a) the words “including” and
“includes” mean “including (or includes) without limitation”, and (b) the phrase “the aggregate
of”, “the total of”, “the sum of”, or a phrase of similar meaning means “the aggregate (or total or
sum), without duplication, of”, and (ii) in the computation of periods of time from a specified
date to a later specified date, unless otherwise expressly stated, the word “from” means “from
and including” and the words “to” and “until” each mean “to but excluding”.
Section 1.5 Knowledge.
Where any representation or warranty contained in this Agreement or any Ancillary
Agreement or in any other document delivered pursuant to this Agreement is expressly qualified
by reference to the knowledge of the Company or Investor, it shall be deemed to refer to the
actual knowledge of any and all of the directors and officers of the Company Group or Investor,
Section 1.6 Accounting Terms.
All accounting terms not specifically defined in this Agreement shall be interpreted in
accordance with GAAP.
Section 1.7 Incorporation of Schedules.
The schedules attached to this Agreement shall, for all purposes of this Agreement,
form an integral part of it.
PREFERRED SHARES AND PURCHASE PRICE
Section 2.1 Preferred Shares.
Subject to the terms and conditions of this Agreement, the Company agrees to issue and
sell to Investor and Investor agrees to subscribe for and purchase from the Company at the
Closing that number of shares of Series A Preferred Stock (the “Preferred Shares”) necessary for
Investor to hold on an as-converted basis, % of the issued and outstanding shares of
Common Stock of the Company as of the Closing Date, on a fully diluted basis, after giving
effect to shares issuable upon conversion of the Preferred Shares. The parties shall determine the
exact number of shares of Series A Preferred Stock to be issued pursuant to this Agreement prior
to Closing. The purchase price payable by Investor for the Preferred Shares shall be $
million (the “Purchase Price”) payable in cash on the Closing Date less any amount owing
pursuant to the Note as provided in Section 5.5. For avoidance of doubt, the Series A Certificate
of Designation shall provide that the amount of shares of Common Stock issuable upon
conversion on a cumulative basis shall equal % of the sum of (a) the issued and
outstanding shares as of the Closing, plus (b) any shares of Common Stock issued after the
Closing Date upon exercise or conversion of any Derivative Securities outstanding as of the
Closing Date, subject to any adjustment for stock splits, stock dividends, recapitalizations, etc.
and in all cases, after giving effect to shares issuable upon conversion of the Preferred Shares.
Section 2.2 Payment of Transfer Taxes.
Other than as set forth in this Agreement, all transfer, documentary, sales, use, stamp,
registration and other similar Taxes and fees (including any penalties, and interest) incurred in
connection with the issuance by the Company of the Preferred Shares under this Agreement,
shall be paid by the Company when due and the Company, will, at its own expense, prepare all
necessary Tax Returns and other documentation with respect to all such transfer, documentary,
sales, use, stamp, registration and other similar Taxes and fees, and, if required by applicable
Law, Investor will, and will cause its Affiliates to, join in the execution of any such Tax Returns
and other documentation.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants as follows to Investor as of the date hereof and
as of the Closing Date and acknowledges and confirms that Investor is relying on such
representations and warranties in connection with the purchase by Investor of the Preferred
Shares and the other transactions contemplated hereby (it being understood that no investigations
made by or on behalf of Investor shall have the effect of waiving, diminishing the scope of, or
otherwise affecting any such representations and warranties):
Section 3.1 Corporate Matters
(a) Incorporation and Qualification. The Disclosure Schedules set
forth all of the Subsidiaries of the Company and such other entities in which any member of the
Company Group has an equity interest. Each member of the Company Group is a corporation
incorporated, validly existing and in good standing under the laws of its jurisdiction of
incorporation and has the corporate power to own or lease and operate its property, carry on its
business and enter into and perform its obligations under this Agreement and each of the
Ancillary Agreements to which it is a party. The members of the Company Group are duly
qualified, licensed or registered to carry on busin