WAIVER, RESCISSION
AND
SETTLEMENT
AGREEMENT
This Waiver, Rescission and Settlement Agreement
(the “ Agreement ”), is made and entered into as
of April 24, 2007 by and between Spatialight, Inc., a New York
corporation (“ SpatiaLight ”), and each investor
identified on the signature pages hereto (referred to herein as the
“ Investors ,” whether one or more).
W I T N E S S E T H
:
WHEREAS , SpatiaLight, Bluegrass Growth Fund, L.P. and
Bluegrass Growth Fund, Ltd. are parties to a Securities Purchase
Agreement dated September 26, 2006 (the “ September 2006
Securities Purchase Agreement ”) pursuant to which
SpatiaLight issued to Bluegrass Growth Fund, L.P. and Bluegrass
Growth Fund, Ltd. an aggregate of 270,270 shares of its Common
Stock, $.01 par value per share (the “ Common Shares
”) and warrants to purchase 89,189 Common Shares for $2.25
per share until September 26, 2011 (the “ September 2006
Warrants ”); and a Registration Rights Agreement dated
September 26, 2006 (the “ September 2006 Registration
Rights Agreement ”) providing for the registration under
the Securities Act of 1933, as amended (the “ Securities
Act ”) of the Common Shares issued pursuant to the
September 2006 Securities Purchase Agreement and the Common Shares
issuable upon exercise of the September 2006 Warrants (the issuance
of shares and warrants and other obligations of the parties
pursuant to the September 2006 Securities Purchase Agreement, the
September 2006 Warrants, and the September 2006 Registration Rights
Agreement is sometimes referred to herein as the “
September 2006 Financing ”)
WHEREAS, SpatiaLight and Investors are parties to a
Securities Purchase Agreement dated November 29, 2006 (the “
November 2006 Securities Purchase Agreement ”)
pursuant to which SpatiaLight issued to Investors an aggregate of
2,400,000 Common Shares and warrants to purchase 4,800,000 Common
Shares for $1.75 per share until November 29, 2011 (the “
November 2006 Warrants ”); a Lockup Agreement dated
November 29, 2006 (the “ Lockup Agreement ”)
between SpatiaLight and its officers and directors, and a
Registration Rights Agreement dated November 29, 2006 (the “
November 2006 Registration Rights Agreement ”)
providing for the registration under the Securities Act of the
Common Shares issued pursuant to the November 2006 Securities
Purchase Agreement and the Common Shares issuable upon exercise of
the November 2006 Warrants (the issuance of shares and warrants and
other obligations of the parties pursuant to the November 2006
Securities Purchase Agreement, the November 2006 Warrants, the
Lockup Agreement and the November 2006 Registration Rights
Agreement is sometimes referred to herein as the “
November 2006 Financing ”); and
WHEREAS, in connection with the November 2006 Financing,
SpatiaLight, Bluegrass Growth Fund, L.P. and Bluegrass Growth Fund,
Ltd. entered into a Waiver dated December 4, 2006 (the “
First Waiver ”) under which SpatiaLight agreed to
issue warrants to purchase up to 250,000 Common Shares (the “
Waiver Warrants ”) in exchange for a waiver and
release of certain requirements under the September 2006 Financing;
and
WHEREAS, SpatiaLight and certain Investors are parties to
a Securities Purchase Agreement dated February 23, 2007 (the
“ February 2007 Securities Purchase Agreement ”)
pursuant to which SpatiaLight issued to Investors an aggregate of
2,190,476 Common Shares pursuant to a registration statement on
Form S-3 (File No. 333-137100) (the “ Registration
Statement ”) under the Securities Act (the issuance of
shares and other obligations of the parties pursuant to the
February 2007 Securities Purchase Agreement are sometimes referred
to herein as the “ February 2007 Financing ”);
and
WHEREAS , in connection with the February 2007
Financing, SpatiaLight and Investors executed a Waiver dated
February 23, 2007 (the “ February 2007 Waiver ”)
pursuant to which SpatiaLight issued to Investors an aggregate of
600,000 Common Shares pursuant to the Registration Statement in
exchange for the waiver and release of certain requirements under
the November 2006 Financing; and
WHEREAS , SpatiaLight, Bluegrass Growth Fund, L.P. and
Bluegrass Growth Fund, Ltd. entered into a Second Waiver dated
March 6, 2007 (the “ Second Waiver ”) under
which the obligation to issue the Waiver Warrants was deleted from
the First Waiver and a First Amendment to Registration Rights
Agreement dated March 6, 2007 (the “ First Amendment
”) under which certain obligations under the September 2006
Registration Rights Agreement were amended and accrued liquidated
damages were forgiven in exchange for the issuance of 500,000
Common Shares pursuant to the Registration Statement and the
application of the proceeds from the sale of such Common Shares to
outstanding obligations of SpatiaLight (such Second Waiver and
First Amendment are sometimes referred to herein as the “
March 2007 Amendments ”); and
WHEREAS, Investors claimed that the issuance of 500,000
Common Shares pursuant to the March 2007 Amendments is a breach of
the November 2006 Securities Purchase Agreement and is not within
the scope of the February 2007 Waiver; and
WHEREAS, SpatiaLight believes that the issuance of
500,000 Common Shares pursuant to the March 2007 Amendments are
permitted under the November 2006 Securities Purchase
Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings contained herein the parties agree as
follows:
1.
Rescission of November 2006
Financing. Subject
to the terms and conditions of this Agreement, except as provided
below, SpatiaLight and Investors agree to rescind and terminate
ab initio the November 2006 Financing, including without
limitation (a) the cancellation of any and all obligations under
the November 2006 Securities Purchase Agreement, the November 2006
Registration Rights Agreement and the Lockup Agreement; (b) subject
to the Escrow Agreement set forth below, the delivery into escrow
of the 2,400,000 Common Shares issued in the name of Investors
under the November 2006 Securities Purchase Agreement; and (c) the
return for cancellation of the November 2006 Warrants.
2.
Release and Settlement of
Claims. Each of
SpatiaLight and Investors agree to irrevocably and forever release,
acquit and discharge the other; their respective affiliated or
related partnerships, companies and corporations; and the past,
present and future partners, managers, principals, directors,
officers, employees, insurers, agents, attorneys and other
representatives, administrators, trustees, successors, heirs,
beneficiaries, servants, independent contractors and assigns of any
of them, of and from any and all claims, based upon, arising from
or relating to the November 2006 Financing or the execution,
delivery or performance of the March 2007 Amendments, including
claims for liquidated or exemplary damages. The foregoing release
is intended to be construed broadly and to include claims that are
presently known or unknown, accrued or accruing in the future, or
based on law or equity.
3.
Consideration. SpatiaLight will issue to Investors Common
Shares from time to time necessary for Investors to receive
aggregate gross proceeds from the sale of Common Shares acquired by
Investors in the November 2006 Financing, the February 2007
Financing, the February 2007 Waiver, and this Agreement equal to
Four Million Five Hundred Eighty-two Thousand One Hundred Six and
NO/100 United States Dollars ($4,582,106.00) (the “
Settlement Amount ”), subject to the
following:
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All Common
Shares issued to Investors shall be delivered to the Escrow Agent
(as defined in the Escrow Agreement, as hereinafter defined) in
escrow according to the terms of the Escrow Agreement in the form
attached to this Agreement as Exhibit A (the “ Escrow
Agreement ”) and delivered by the Escrow Agent to
Investors or their nominees as set forth in the Escrow
Agreement.
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The parties to
this Agreement acknowledge that it is their intent that such Common
Shares are not intended to be outstanding until they are
distributed by the Escrow Agent to the Investors according to the
terms of the Escrow Agreement and that no person shall be entitled
to any rights as a stockholder with respect to such Common Shares
until such distribution.
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All Common
Shares issued to Investors in accordance with this Agreement shall
be subject to and issued under the Registration Statement and
SpatiaLight shall provide Investors and the Escrow Agent with a
legal opinion from counsel acceptable to Investors relating to the
transferability of such shares.
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All proceeds
from the short sale of Common Shares which were or will be covered
with securities issued in the November 2006 Financing, the February
2007 Financing, the February 2007 Waiver and this Agreement shall
be deemed to be gross proceeds from the sale of securities issued
in such transactions.
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4.
Closing.
Simultaneously with the execution
and delivery of this Agreement;
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a.
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The parties
shall sign and deliver the Escrow Agreement;
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b.
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The parties
shall sign and deliver an Equity Credit Agreement in form
acceptable to the parties;
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c.
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Investors shall
deliver to SpatiaLight an accounting of all transactions in Common
Shares by Investors and all of their affiliates including the
monthly statements and the transaction confirmations of all
transactions since November 1, 2006 to the date of this
Agreement;
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d.
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Investors shall
deliver to the Escrow Agent to be held according to the Escrow
Agreement a certificate or certificates in 200,000 shares
increments representing all Common Shares then owned or controlled
by Investors that were acquired pursuant to the November 2006
Financing, the February 2007 Financing or the February 2007
Waiver;
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e.
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Investors shall
deliver to SpatiaLight for cancellation all November 2006
Warrants;
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f.
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SpatiaLight
shall deliver to the Escrow Agent to be held according to the
Escrow Agreement, a certificate or certificates representing the
number of Common Shares computed according to the Escrow Agreement
(the “ SpatiaLight Escrow Shares ”);
and
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g.
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SpatiaLight
shall deliver to Investors a legal opinion of Franklin, Cardwell
& Jones regarding the registration and transferability of the
SpatiaLight Escrow Shares.
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5.
Representations of
SpatiaLight. SpatiaLight represents to Investors
that:
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a.
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The SpatiaLight
Escrow Shares shall not bear a restricted legend under applicable
Federal and state securities laws.
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b.
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This Agreement
has been duly authorized, executed and delivered by SpatiaLight and
constitutes a legal, valid and binding obligation of SpatiaLight,
enforceable in accordance with its terms (subject, as to
enforceability, to applicable bankruptcy, insolvency,
reorganization or other similar laws and to general principles of
equity).
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c.
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SpatiaLight’s execution, delivery and
performance of this Agreement does not (i) violate or conflict
with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, result in the
creation of any lien upon any of the properties or assets of
SpatiaLight, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice,
lapse of time or both) of, any agreement, credit facility, debt or
other instrument or other understanding to which SpatiaLight is a
party or by which any property or asset of SpatiaLight is bound or
affected, (ii) conflict with SpatiaLight’s certificate of
incorporation or bylaws or (iii) conflict with or result in a
violation of any law, rule or regulation applicable to SpatiaLight,
or any order or judgment of any court or other agency of government
applicable to, or affecting SpatiaLight.
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d.
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SpatiaLight has
filed all forms, reports and documents (the “ SEC
Documents ”) required to be filed with the Securities and
Exchange Commission (the “ Commission ”)
pursuant to the Securities Act or the Securities Exchange Act of
1934, as amended (the “ Exchange Act ”), as the
case may be, and the rules and regulations of the Commission
thereunder during the 12 month period ending on the date of this
Agreement. Except as corrected by subsequent amendment, as of their
respective filing dates, the SEC Documents complied in all material
respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of
the Commission thereunder applicable to such SEC Documents, and
none of the SEC Documents 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 statements therein, in
light of the circumstances under which they were made, not
misleading. Except as corrected by subsequent amendment, as of
their respective filing dates, the financial statements of
SpatiaLight included in the SEC Documents complied as to form in
all material respects with the applicable accounting requirements
and the rules and regulations of the Commission thereunder and were
prepared in accordance with generally accepted accounting
principles and fairly presented, in all material respects, the
financial position of SpatiaLight as at the dates thereof and the
results of operations and cash flows of SpatiaLight for the periods
then ended (subject, in the case of unaudited statements, to
normal, recurring audit adjustments not material in scope or
amount).
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e.
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Neither the
Commission nor any state regulatory authority has issued
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