Document:

EXHIBIT

10.1

 

STANDBY INVESTMENT AGREEMENT

 

This STANDBY

INVESTMENT AGREEMENT (this “Agreement”) is made and entered into as of

June 10, 2002 by and between CenterSpan Communications Corporation, an

Oregon corporation (the “Company”) and Peter R. Kellogg, a resident of the

state of New Jersey (“Investor”).

 

In consideration

of the mutual covenants and agreements contained herein, and for other good and

valuable consideration, the receipt and sufficiency of which are hereby

acknowledged, the parties hereto agree as follows:

 

Section

1.              Commitment; Purchases

 

1.1          Commitment

 

Subject to the

terms and conditions of this Agreement, the Company shall have the right to

demand, from time to time between July 1, 2002 and December 31, 2002,

that Investor purchase (a “Purchase”) up to an aggregate of 833,333 shares of

the Company’s Common Stock (“Common Stock”) at a purchase price of $6.00 per

share (the “Purchased Shares”) for an aggregate purchase price of up to

$4,999,998.

 

1.2          Purchases

 

Within five

(5) business days after receipt by Investor of a written request from the

Company to purchase Common Stock, Investor shall wire transfer immediately

available funds in an amount equal to the product of the number of shares to be

purchased and $6.00 to the account of the Company indicated in the written

notice.  The notice shall be executed by

a responsible officer of the Company and shall be in the form attached as Exhibit A.  The Company shall promptly deliver

certificates for the number of shares of Common Stock purchased.

 

Section

2.              Warrant

 

The Company will

issue warrants to Investor to purchase Common Stock at a price of

$10.67 per share, for a term of three years from the date of issuance, in

substantially the form attached hereto as Exhibit B (the

“Warrants”) as follows:

 

(a)           Upon execution of this Agreement and

the Standstill Agreement dated as of the date hereof by and between the parties

hereto, the Company will issue to Investor a Warrant to purchase

100,000 shares of Common Stock.

 

 

(b)           Upon any purchase of Common Stock by

Investor pursuant to Section 1 hereof, the Company will issue to Investor a

Warrant to purchase one share of Common Stock for each share of Common Stock

purchased hereunder in excess of 100,000 shares.

 

Section 3.              Representations and Warranties of the Company

 

The Company hereby represents and warrants to Investor

that, except as set forth on a Schedule of Exceptions attached hereto as

Schedule A:

 

3.1          Organization and Qualification

 

The Company is a corporation duly organized and

validly existing under the laws of the State of Oregon.  The Company is duly qualified to transact

business and is in good standing in each jurisdiction in which the failure to

so qualify would have a material adverse effect on the assets, condition

(financial or other), prospects or business of the Company (a “Company Material

Adverse Effect”).

 

3.2          Enforceability

 

The Company has the requisite corporate power and

authority to execute, deliver and perform its obligations under this Agreement

and each of the certificates, instruments and documents executed or delivered

by it pursuant to the terms of this Agreement. 

All corporate action on the part of the Company necessary for the

authorization, execution and delivery of this Agreement and the performance of

all of its obligations under this Agreement has been taken.  This Agreement has been duly executed and

delivered by the Company, and this Agreement is a legal, valid and binding

obligation of the Company, enforceable against the Company in accordance with

its terms, except as to the effect, if any, of (a) applicable bankruptcy

and other similar laws affecting the rights of creditors generally,

(b) rules of law governing specific performance, injunctive relief and

other equitable remedies, and (c) the enforceability of provisions

requiring indemnification in connection with the offering, sale or issuance of

securities.

 

3.3          Securities

 

The Common Stock and Warrants to be issued pursuant to

this Agreement, when issued and delivered to Investor pursuant to this

Agreement, shall be validly issued, fully paid and nonassessable and, assuming

the accuracy of the representations and warranties contained in Section 4,

issued in compliance with applicable federal and state securities laws.  The shares of Common Stock issuable upon

exercise of the Warrant (the “Warrant Shares”), when issued and delivered to

Investor pursuant to the Warrant, shall be validly issued, fully paid and

nonassessable and, assuming the 

 

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accuracy of the representations and warranties contained in

Section 4 as of the date of such issuance, issued in compliance with

applicable federal and state securities laws.

 

3.4          No

Approvals or Notices Required; No Conflicts With Instruments

 

The execution, delivery and performance of this

Agreement and the consummation of the transactions contemplated hereby will not

(a) constitute a violation (with or without the giving of notice or lapse

of time, or both) of any provision of law or any judgment, decree, order, regulation

or rule of any court or other governmental authority applicable to the Company;

(b) require any consent, approval or authorization of, or declaration,

filing or registration with, any person or entity, except (i) compliance

with applicable securities laws and (ii) such consents, approvals,

authorizations, declarations, filings and registrations (A) which have

been or as of any Purchase Date (as defined in Section 5) will have been

obtained or effected or (B) the failure of which to obtain or effect would

not, both individually and in the aggregate, have a Company Material Adverse

Effect; (c) result in a default (with or without the giving of notice or

lapse of time, or both) under, or acceleration or termination of, or the

creation in any party of the right to accelerate, terminate, modify or cancel

any agreement or document filed as an exhibit the Company’s SEC Documents (as

defined below), except for such defaults, accelerations, terminations or

creations of such rights which would not, both individually and in the

aggregate, have a Company Material Adverse Effect; or (d) conflict with or

result in a breach of or constitute a default under any provision of the

Articles of Incorporation or Bylaws of the Company, in each case as amended.

 

3.5          Capitalization

 

The authorized capital stock of the Company consists

of 25,000,000 shares of Common Stock, of which 10,010,107 shares were

issued and outstanding as of March 31, 2002, and 5,000,000 shares of

preferred stock, par value $0.01 per share, none of which is issued or

outstanding.  Such issued and

outstanding shares of Common Stock are validly issued, fully paid and

nonassessable.

 

3.6          SEC

Documents

 

The Company has furnished or made available to

Investor true and complete copies of (a) its Annual Report on Form 10–K

for the fiscal year ended December 31, 2001, (b) its Quarterly Report on

Form 10-Q for the quarter ended March 31, 2002 (c) all Forms 8–K

filed after the date of such Form 10–K, if any, and (d) its Proxy

Statement, dated April 19, 2002, for the annual meeting of the Company’s

shareholders held on May 21, 2002 (collectively, the “SEC

Documents”).  As of their 

 

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respective filing dates, each of the SEC Documents complied in all

material respects with the requirements of the Securities Exchange Act of 1934,

as amended (the “Exchange Act”), and the rules and regulations of the

Securities and Exchange Commission promulgated thereunder.

 

3.7          Full

Disclosure

 

The information furnished by the Company to Investor

or its representatives in writing in connection with this Agreement (including,

without limitation, the information contained in the SEC Documents, as the same

may have been updated by filings by the Company with the Securities and

Exchange Commission after the date hereof but prior to any Purchase Date), when

taken together, does not contain any untrue statement of a material fact or

omit to state a material fact necessary in order to make the statements so made

or information so delivered, in light of the circumstances under which they

were made, not misleading.

 

3.8          Brokers

or Finders

 

Except for an obligation to issue warrants to purchase

shares of common stock at a price of $10.67 per share to Montauk Financial

Group or its affiliates in connection with the transactions contemplated by

this Agreement, the Company has not incurred, and will not incur, directly or

indirectly, as a result of any action taken by or on behalf of the Company, any

liability for brokerage or finders’ fees or agents’ commissions or any similar

charges in connection with this Agreement or any transaction contemplated

hereby.

 

3.9          S-3 Eligibility

 

As of the date hereof, the Company is eligible to use

a registration statement on Form S-3 to register resales of its Common Stock.

 

Section

4.              Representations and

Warranties of Investor

 

Investor hereby represents and warrants that:

 

4.1          Authorization

 

All corporate or other similar action, if any,

required on the part of Investor for the authorization, execution and delivery

of this Agreement and the other agreements and transactions contemplated

herein, and the performance of all of Investor’s obligations hereunder and

thereunder have been taken, and this Agreement constitutes, and when executed

and delivered by Investor the other agreements contemplated herein to which

Investor is a party will constitute, valid and legally binding obligations 

 

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of Investor, enforceable in accordance with their respective terms,

except as to the effect, if any, of (a) applicable bankruptcy and other

similar laws affecting the rights of creditors generally, (b) rules of law

governing specific performance, injunctive relief and other equitable remedies,

and (c) the enforceability of provisions requiring indemnification in

connection with the offering, sale or issuance of securities.  Investor has full power and authority to

execute, deliver and perform its obligations under this Agreement and such

other agreements and to own the Common Stock and Warrants to be received by

Investor hereunder and the Warrant Shares issuable upon exercise of the

Warrants (collectively, the “Securities”).

 

4.2          Purchase Entirely for Own Account

 

This Agreement is being entered into in reliance upon

Investor’s representation to the Company, which by Investor’s execution of this

Agreement Investor hereby confirms, that the Securities will be acquired for

investment for Investor’s own account, and not with a view to the distribution

of any part thereof, and that Investor has no present intention of selling,

granting any participation in, or otherwise distributing the same in a manner

contrary to the Securities Act of 1933, as amended (the “Act”), or applicable

state securities laws.

 

4.3          Disclosure of Information; Due

Diligence

 

Investor has received and reviewed a copy of each SEC

Document.  Investor represents and

acknowledges that he has been solely responsible for his own “due diligence”

investigation of the Company and of the management and business of the Company,

for his own analysis of the merits and risks of this investment, and for his

own analysis of the fairness and desirability of the terms of the investment;

that in taking any action or performing any role relative to the arranging of

the proposed investment, Investor has acted solely in his own interests.

 

4.4          Investment Experience; Accredited

Investor Status

 

Investor is an investor in securities of the type of

the Securities and acknowledges that the Securities are a speculative

risk.  Investor is able to fend for

himself in the transactions contemplated by this Agreement, can bear the

economic risk of his investment (including possible complete loss of such

investment) for an indefinite period of time and has such knowledge and

experience in financial or business matters that he is capable of evaluating

the merits and risks of the investment in the Securities.  Investor understands that the Securities

have not been registered under the Act, or under the securities laws of any

jurisdiction, by reason of reliance upon certain exemptions, and that the

reliance of the Company on such exemptions is predicated upon the accuracy of

his representations and warranties in this Section 4.  

 

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Investor is familiar with Regulation D promulgated under the Act and is

an “accredited investor” as defined in Rule 501(a) of such Regulation D.

 

4.5          Restricted Securities

 

Investor understands that the Securities are

characterized as “restricted securities” under the federal securities laws

inasmuch as they are being acquired from the Company in a transaction not

involving a public offering and that under such laws and applicable regulations

such securities may be resold without registration under the Act only in

certain limited circumstances and in accordance with the terms and conditions

set forth in the legend described in Section 4.6 below.  In this connection, Investor represents that

he is familiar with Rule 144 promulgated under the Act, as currently in effect,

and understands the resale limitations imposed thereby and by the Act.

 

4.6          Legend

 

It is understood that the certificates evidencing the

Securities may bear the following or a similar legend:

 

THE SECURITIES EVIDENCED

BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,

AS AMENDED (THE “ACT”), OR APPLICABLE STATE LAW, AND NO INTEREST THEREIN MAY BE

SOLD, DISTRIBUTED, ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS

(A) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE

SECURITIES LAWS COVERING ANY SUCH TRANSACTION INVOLVING SAID SECURITIES, OR (B)

SUCH TRANSACTION IS EXEMPT FROM, AND NOT SUBJECT TO, THE REGISTRATION

REQUIREMENTS OF THE ACT AND APPLICABLE STATE SECURITIES LAWS AND THIS

CORPORATION RECEIVES AN OPINION OF LEGAL COUNSEL FOR THE HOLDER OF THESE

SECURITIES SATISFACTORY TO THIS CORPORATION STATING THAT SUCH TRANSACTION IS

EXEMPT FROM REGISTRATION, OR (C) THIS CORPORATION OTHERWISE SATISFIES ITSELF

THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION.

 

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4.7          Residency

 

For purposes of the application of state securities

laws, Investor represents that he is a resident of the state indicated on the

signature pages hereof.

 

Section

5.              Conditions of Investor’s

Obligations at Purchase

 

The obligations of Investor under Section 1 of this

Agreement are subject to the fulfillment at or before each date that the

Company requires Investor to purchase Common Stock (each a “Purchase Date”) of

each of the following conditions:

 

5.1          Representations and Warranties

 

The representations and warranties of the Company

contained in Section 3 hereof shall be true in all material respects when made.

 

5.2          Performance

 

The Company shall have performed and complied in all

material respects with all agreements, obligations and covenants contained in

this Agreement that are required to be performed or complied with by it on or

before each Purchase Date.

 

5.3          Qualification

 

The offer and sale of the Common Stock, the Warrants

and the Warrant Shares to Investor pursuant to this Agreement shall be

qualified or exempt from qualification under all applicable federal and state

securities laws, which qualification or exemption the Company shall have

exercised its reasonable best efforts to obtain.

 

Section

6.              Conditions of the

Company’s Obligations at Purchase

 

The obligations of the Company to Investor under this

Agreement are subject to the fulfillment at or before each Purchase Date of

each of the following conditions:

 

6.1          Representations and Warranties

 

The representations and warranties of Investor

contained in Section 4 shall be true in all material respects when made.

 

6.2          Qualification

 

The offer and sale to Investor of the Securities shall

be qualified or exempt from qualification under all applicable federal and

state securities laws, which 

 

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qualification or exemption the Company shall have exercised its

reasonable best efforts to obtain.

 

Section

7.              Registration Rights

 

(a)           Subject

to Section 7(b) below, Investor may demand that the Company file, within 60

days of a Purchase that results in Investor holding at least 200,000 Purchased

Shares, a registration statement on Form S-3 (or any successor form) to

register under the Act the Purchased Shares and the Warrant Shares

(collectively, the “Registrable Shares”) held by Investor.  Any such registration statement may also

include other shares of Common Stock issued to other investors by the Company.  The Company shall use its best efforts to have

the registration statement declared effective within 90 days after filing

and to maintain the effectiveness of such registration statement (and maintain

the current status of the prospectus or prospectuses contained therein) until

the earliest of (i) the fifth anniversary of the effective date,

(ii) the date all such Registrable Shares have been disposed of pursuant

to such effective registration statement and (iii) the date Investor could

sell all the Registrable Shares under Rule 144 without limitations on the

number of shares sold.  The Company

shall respond to the SEC within 15 days after the Company’s receipt of any SEC

comments with respect to the registration statement or any amendments thereto,

subject to timely receipt from Investor and other holders of shares of Common

Stock to be included in such registration statement of information required to

so respond to such comments.

 

(b)           The

Company shall not be obligated to effect any such registration pursuant to

Section 7(a):

 

(1)           if the offering is deemed by the SEC

to involve a primary offering by the Company and Form S-3 is not available for

such offering; or

 

(2)           in any particular jurisdiction in

which the Company would be required to qualify to do business or to execute a

general consent to service of process in effecting such registration.

 

(c)           The

Company shall notify Investor in writing at least thirty (30) days prior to

filing any registration statement under the Act for purposes of effecting a

public offering of securities of the Company (including, but not limited to,

registration statements relating to secondary offerings of securities of the

Company, but excluding registration statements relating to any registration

under Section 7(a) of this Agreement or to any employee benefit plan or a

corporate reorganization) and will afford Investor an opportunity to include in

such registration statement all or any part of the Registrable Shares then held

by Investor, subject to the provisions of Section 7(d) below.  If Investor wants to include in any such

registration statement all 

 

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or any part of such Registrable Shares he holds, he shall within twenty

(20) days after receipt of the above-described notice from the Company, so

notify the Company in writing, and in such notice shall inform the Company of

the number of such Registrable Shares he wishes to include in such registration

statement.

 

(d)           If

a registration statement under which the Company gives notice under Section

7(c) is for an underwritten offering, then the Company shall so advise

Investor.  In such event, the right of

an Investor to include any of Investor’s Registrable Shares in a registration

pursuant to Section 7(c) shall be conditioned upon Investor’s participation in

such underwriting and the inclusion of Investor’s Registrable Shares in the

underwriting on the same terms and conditions as the other participants in such

offering, including, without limitation, entering into an underwriting

agreement in customary form with the managing underwriter or underwriters

selected for such underwriting (including a market stand-off agreement of up to

180 days if required by such underwriters). 

Notwithstanding any other provision of this Agreement, if the managing

underwriter(s) determine(s) in good faith that marketing factors require a

limitation of the number of shares to be underwritten, then the managing

underwriter(s) may exclude shares from the registration and the underwriting,

and the number of shares that may be included in the registration and the

underwriting shall be allocated, first, to the Company, second,

to each holder of registration rights granted by the Company before the date of

this Agreement that contractually require the Company to include such holder’s

shares on a priority basis, and, third, to Investor and any other holder

of registration rights granted by the Company (excluding those covered above),

on a pro rata basis based on the total number of shares of Common Stock then

sought to be included by each in such offering.  If Investor disapproves of the terms of any such underwriting, he

may elect to withdraw therefrom by written notice to the Company and the

underwriter(s), delivered at least ten (10) business days prior to the effective

date of the registration statement.  Any

Registrable Shares excluded or withdrawn from such underwriting shall be

excluded and withdrawn from the registration.

 

(e)           Investor

shall have no right to obtain or seek, nor shall he obtain or seek, an

injunction restraining or otherwise delaying any registration as the result of

any controversy that might arise with respect to the interpretation or

implementation of this Agreement.

 

(f)            In

the event any Registrable Shares are included in a registration statement under

this Agreement or the terms of a Warrant:

 

(i)            To

the extent permitted by law, the Company will indemnify and hold harmless

Investor against any losses, claims, damages, or liabilities to which he may

become subject under the Act, the Securities Exchange Act of 1934, as amended 

 

9

 

(the “1934 Act”) or other federal or state law, insofar as such losses,

claims, damages, or liabilities (or actions in respect thereof) arise out of or

are based upon any of the following statements, omissions or violations

(collectively a “Violation”): (A) any untrue statement or alleged untrue

statement of a material fact contained in such registration statement,

including any preliminary prospectus or final prospectus contained therein or

any amendments or supplements thereto, (B) the omission or alleged omission to

state therein a material fact required to be stated therein, or necessary to

make the statements therein, in light of the circumstances under which they

were made, not misleading, or (C) any violation or alleged violation by the

Company of the Act, the 1934 Act, any state securities law or any rule or

regulation promulgated under the Act, the 1934 Act or any state securities law

in connection with such registration and sale of securities; and the Company

will pay to Investor, as incurred, any legal or other expenses reasonably

incurred by him in connection with investigating or defending any such loss,

claim, damage, liability, or action; provided, however, that the indemnity

agreement contained in this subsection 7(f)(i) shall not apply to amounts

paid in settlement of any such loss, claim, damage, liability, or action if

such settlement is effected without the Company’s consent (which consent shall

not be unreasonably withheld), nor shall the Company be liable in any such case

for any such loss, claim, damage, liability, or action to the extent that it

arises out of or is based upon a Violation that occurs in reliance upon and in

conformity with written information furnished expressly for use in connection

with such registration by Investor or any of his agents.

 

(ii)           To

the extent permitted by law, Investor will indemnify and hold harmless the

Company, each of its directors, each of its officers who has signed the

registration statement, each person, if any, who controls the Company within

the meaning of the Act, each agent and any underwriter, any other person or

entity selling securities in such registration statement and any controlling

person of any such underwriter or other person or entity, against any losses,

claims, damages, or liabilities (joint or several) to which any of the

foregoing persons may become subject, under the Act, the 1934 Act or other

federal or state law, insofar as such losses, claims, damages, or liabilities

(or actions in respect thereto) arise out of or are based upon any Violation,

in each case to the extent (and only to the extent) that such Violation occurs

in reliance upon and in conformity with written information furnished by

Investor or his agents expressly for use in connection with such registration;

and Investor will pay, as incurred, any legal or other expenses reasonably

incurred by any person intended to be indemnified pursuant to this

subsection 7(f)(ii), in connection with investigating or defending any such

loss, claim, damage, liability, or action; provided, however, that the

indemnity agreement contained in this subsection 7(f)(ii) shall not apply

to amounts paid in settlement of any such loss, claim, damage, liability or

action if such settlement is effected without the consent of Investor (which

consent shall not 

 

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be unreasonably withheld); and, provided further, that in no event

shall any indemnity under this subsection 7(f)(ii) exceed the net proceeds

from the offering received by Investor.

 

(iii)          Promptly

after receipt by an indemnified party under this Section 7(f) of notice of

the commencement of any action (including any governmental action), such

indemnified party will, if a claim in respect thereof is to be made against any

indemnifying party under this Section 7(f), deliver to the indemnifying

party a written notice of the commencement thereof and the indemnifying party

shall have the right to participate in, and, to the extent the indemnifying

party so desires, jointly with any other indemnifying party similarly noticed,

to assume the defense thereof with counsel mutually satisfactory to the

parties; provided, however, that an indemnified party (together with all other

indemnified parties that may be represented without conflict by one counsel)

shall have the right to retain one separate counsel, with reasonable fees and

expenses to be paid by the indemnifying party, if representation of such

indemnified party by the counsel retained by the indemnifying party would be

inappropriate due to actual or potential differing interests between such

indemnified party and any other party represented by such counsel in such

proceeding.  The failure to deliver

written notice to the indemnifying party within a reasonable time of the

commencement of any such action, if prejudicial to its ability to defend such

action, shall relieve such indemnifying party of any liability to the

indemnified party under this Section 7(f), but the omission so to deliver written

notice to the indemnifying party will not relieve it of any liability that it

may have to any indemnified party otherwise than under this Section 7(f).

 

(iv)          To

the extent the indemnification provided for in this Section 7(f) is held

by a court of competent jurisdiction to be unavailable to an indemnified party

with respect to any losses, claims, damages or liabilities referred to herein,

the indemnifying party, in lieu of indemnifying such indemnified party

hereunder, shall to the extent permitted by applicable law contribute to the

amount paid or payable by such indemnified party as a result of such loss,

claim, damage or liability in such proportion as is appropriate to reflect the

relative fault of the indemnifying party on the one hand and of the indemnified

party on the other, in connection with the Violation(s) that resulted in such

loss, claim, damage or liability, as well as any other relevant equitable

considerations.  The relative fault of

the indemnifying party and of the indemnified party shall be determined by a

court of law by reference to, among other things, whether the untrue or

allegedly untrue statement of a material fact or the omission to state a

material fact relates to information supplied by the indemnifying party or by

the indemnified party and the parties’ relative intent, knowledge, access to

information and opportunity to correct or prevent such statement or omission.

 

11

 

(v)           The

obligations of the Company and Investor under this Section 7(f) shall

survive the completion of any offering of Registrable Shares in a registration

statement under Section 7, and otherwise.

 

(g)           With

a view to making available to Investor the benefits of Rule 144 promulgated

under the Act, the Company agrees to (i) make and keep public information

available, as those terms are understood and defined in SEC Rule 144, at all

times, and (ii)         file with

the SEC in a timely manner all reports and other documents required of the

Company under the Act and the 1934 Act.

 

Section

8.              Miscellaneous

 

8.1          Survival of Warranties

 

The warranties, representations and covenants

contained in or made pursuant to this Agreement shall survive the Term of this

Agreement.

 

8.2          Successors and Assigns

 

The terms and conditions of this Agreement shall inure

to the benefit of and be binding upon the respective successors, permitted

assigns, heirs and legal representatives of the parties.  Nothing in this Agreement, express or

implied, is intended to confer upon any party other than the parties hereto and

their respective successors and permitted assigns any rights, remedies,

obligations or liabilities under or by reason of this Agreement, except as

expressly provided in this Agreement.

 

8.3          Governing Law; Jurisdiction; Venue

 

This Agreement shall be

governed by and construed under the laws of the State of Oregon as applied to

agreements among persons domiciled in Oregon entered into and to be performed

entirely within the State of Oregon.  The

parties irrevocably consent to the exclusive jurisdiction and venue of the

state and federal courts located in Multnomah County, Oregon in connection with

any action relating to this Agreement or the Securities.

 

8.4          Counterparts

 

This Agreement may be executed in two or more

counterparts, each of which shall be deemed an original, but all of which

together shall constitute one and the same instrument.

 

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8.5          Headings

 

The headings used in this Agreement are used for

convenience only and are not to be considered in construing or interpreting

this Agreement.

 

8.6          Notices

 

Unless otherwise provided, any notice required or

permitted under this Agreement shall be given in writing and shall be deemed

effectively given upon personal delivery to the party to be notified or three

business days after deposit in the United States Mail, postage prepaid,

registered or certified with return receipt requested and addressed to the

party to be notified, if to the Company, at 7175 NW Evergreen Parkway, Hillsboro,

Oregon 97124, Attention: Chief Financial Officer, or, if to Investor, at the

address indicated for him on the signature page hereof, or at such other

address as either party may designate by ten days’ advance written notice to

the other party given in the foregoing manner.

 

8.7          Expenses

 

The Company shall pay all costs and expenses incurred

by it with respect to the preparation and performance of this Agreement.  Investor shall pay all costs and expenses

incurred by him with respect to the preparation and performance of this

Agreement.

 

8.8          Amendments and Waivers

 

This Agreement may

be amended and the observance of any term of this Agreement may be waived

(either generally or in a particular instance and either retroactively or

prospectively) only with the written consent of the Company and Investor.

 

8.9          Severability

 

If one or more provisions of this Agreement is held to

be unenforceable under applicable law, such provision shall be excluded from

this Agreement, and the balance of this Agreement shall be interpreted as if

such provision were so excluded and shall be enforceable in accordance with its

terms.

 

8.10        Entire Agreement

 

This Agreement constitutes the full and entire

understanding and agreement between the parties with respect to the subject

matter hereof, and supersedes all prior agreements with respect to the subject

matter hereof, including the letter agreement between the parties dated

March 15, 2002.

 

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IN WITNESS WHEREOF, the parties have duly executed

this STANDBY INVESTMENT AGREEMENT as of the date first above written.

 

	

   

  	

  CENTERSPAN COMMUNICATIONS CORPORATION

  
	

   

  	

   

  
	

   

  	

   

  
	

   

  	

  By:

  	

  /s/

  	

   

  	

   

  
	

   

  	

  Name:  Mark

  B. Conan

  
	

   

  	

  Title:  Vice

  President of Finance and

  Administration and Chief Financial Officer

  
	

   

  	

   

  
	

   

  	

  PETER R. KELLOGG

  
	

   

  	

   

  
	

   

  	

  /s/

  	

   

  
	

   

  	

  State of Residency: 

  New Jersey

  
	

   

  	

   

  

 

S-1

 

EXHIBIT

A

 

[CENTERSPAN LETTERHEAD]

 

Re:

REQUEST FOR PURCHASE

 

Pursuant to the Standby Investment Agreement, dated as

of June 10, 2002, between CenterSpan Communications Corporation (the

“Company”) and you (the “Agreement”), the Company requests that you purchase

          shares of its Common

Stock and wire transfer funds in the amount of $          

to the Company’s account as set forth below on or before

           .

 

The Company represents to you that the representations

and warranties set forth in Section 3 of the Agreement were true and

correct when made and that the Company has performed or complied with all of

the obligations that are required to be performed or complied with by the

Company pursuant to the Agreement prior to the advance requested by this

request.

 

Please wire transfer immediately funds in the amount

of $           to:

 

[Insert Wire Instructions]

 

	

   

  	

  Thank you, 

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  CENTERSPAN COMMUNICATIONS CORPORATION

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

   

  	

   

  
	

   

  	

   

  	

  Name:

  
	

   

  	

   

  	

  Title:EXHIBIT

10.2

 

STANDSTILL

AGREEMENT

 

THIS STANDSTILL AGREEMENT (the “Agreement”) is made as

of June 10, 2002, by and between Peter R. Kellogg (“Shareholder”), and

Centerspan Communications Corporation, an Oregon corporation (the “Company”).

 

A.            Shareholder

currently owns an aggregate of 2,140,022 shares of Company Common Stock

(defined below).

 

B.            The

Company and Shareholder are entering into a Standby Investment Agreement (the

“Standby Agreement”) contemporaneously with this Agreement whereby Shareholder

has agreed to purchase shares of Company Common Stock, and the Company and

Shareholder desire, in connection with the execution of the Standby Agreement,

to make certain covenants and agreements with one another pursuant to this

Agreement.

 

NOW THEREFORE, in consideration of the covenants and

promises set forth herein, the issuance by the Company to Shareholder of a

warrant to purchase 100,000 shares of Company Common Stock, the execution

and delivery of the Standby Agreement, and for other good and valuable consideration,

the receipt and sufficiency of which is hereby acknowledged, the parties hereby

agree as follows:

 

1.             TERM

OF AGREEMENT

 

Except as otherwise expressly provided herein, the

covenants and agreements of Shareholder contained in Section 3 of this

Agreement will become effective on the Notice Date (as defined in Section 2)

and will continue in full force and effect until the earlier of (i) five

years from the Notice Date, or (ii) the date the Shareholder Group (as

defined in Section 2) owns less than 15% of the outstanding Company Common

Stock (the “Termination Date”).

 

2.             DEFINITIONS

 

For the purpose of this Agreement, the following terms

shall have the meanings specified below:

 

“Affiliate” shall have the meaning set forth in

Rule 12b-2 of the rules and regulations promulgated under the Exchange

Act; provided, however, that for purposes of this Agreement, the Shareholder

and his Affiliates, on the one hand, and 

 

 

the Company and its Affiliates, on the other, shall not be deemed to be

“Affiliates” of one another.

 

“Beneficially Own,” “Beneficially Owned,” or

“Beneficial Ownership” shall have the meaning set forth in Rule 13d-3 of

the rules and regulations promulgated under the Exchange Act.

 

“Change in Control of the Company” shall mean any of the

following: (i) a merger, consolidation or other business combination or

transaction to which the Company is a party if the shareholders of the Company

immediately prior to the effective date of such merger, consolidation or other

business combination or transaction, as a result of such share ownership, have

Beneficial Ownership of voting securities representing less than 50% of the

Total Current Voting Power of the surviving entity following such merger,

consolidation or other business combination or transaction; (ii) an

acquisition by any person, entity or 13D Group of direct or indirect

Beneficial Ownership of Voting Securities of the Company representing 50% or

more of the Total Current Voting Power of the Company; (iii) a sale of all

or substantially all of the assets of the Company; (iv) a liquidation or

dissolution of the Company; (v) the institution of any proceeding by or

against the Company under the provisions of any insolvency or bankruptcy law

which is not dismissed within ninety (90) days; the appointment of a receiver

of a material portion of the assets or property of the Company; (vi) the

issuance of an order for an execution on a material portion of the property of

the Company pursuant to a judgment which is not dismissed within ninety

(90) days; or (vii) during any period of two consecutive years,

individuals who at the beginning of such period constituted the Board of

Directors of the Company (together with any new directors whose election by

such Board of Directors or whose nomination for election by the shareholders of

the Company was approved by a vote of a majority of the directors of the

Company then still in office who were either directors at the beginning of such

period or whose election or nomination for election was previously so approved,

other than a director designated by a person who has entered into an agreement

with the Company to effect a transaction described in the preceding clauses)

cease for any reason to constitute a majority of the Board of Directors of the

Company then in office.

 

“Company Common Stock” shall mean shares of the Common

Stock of the Company.

 

“Exchange Act” shall mean the Securities Exchange Act

of 1934, as amended.

 

“Non-Voting Convertible Securities” shall mean any

securities of the Company which are convertible into, exchangeable for or

otherwise exercisable to acquire 

 

2

 

Voting Securities of the Company, including convertible securities,

warrants, rights or options to purchase Voting Securities of the Company.

 

“Notice Date” shall mean the date the Company gives

Shareholder notice of the Company’s intent to require Shareholder to purchase

Company Common Stock pursuant to the Standby Agreement.

 

“Person” shall mean an individual, corporation,

partnership, limited liability company, association, trust, or other entity or

organization, including a government or political subdivision or an agency or

instrumentality thereof.

 

“Rule 144” shall mean Rule 144 as promulgated

under the Securities Act.

 

“SEC” shall mean the U.S. Securities and Exchange

Commission.

 

“Securities Act” shall mean the Securities Act of

1933, as amended.

 

“Shares” shall mean any shares of Company Common Stock

held by Shareholder.

 

“Shareholder Controlled Entity” shall mean an entity

of which the Shareholder, together with Affiliates of the Shareholder, directly

or indirectly, owns not less than a majority of the outstanding voting power

entitled to vote in the election of directors of such entity (or, in the event

the entity is not a corporation, the governing members, board or other similar

body of such entity).

 

“Shareholder Group” shall mean Shareholder, any

Shareholder Controlled Entity and any Affiliates of Shareholder.

 

“Termination Date” shall have the meaning ascribed to

it in Section 1.

 

“Total Current Voting Power” shall mean, with respect

to any entity, at the time of determination of Total Current Voting Power, the

total number of votes which may be cast in the election of members of the board

of directors of the corporation if all securities entitled to vote in the

election of such directors are present and voted (or, in the event the entity

is not a corporation, the governing members, board or other similar body of

such entity).

 

“Transfer” shall mean to directly or indirectly, sell,

transfer, pledge, contract to sell, sell any option or contract to purchase,

purchase any option or contract to sell, grant any option, right or warrant to

purchase, transfer the economic risk of ownership of, or otherwise dispose of

any Voting Securities.

 

“Transfer Notice” shall have the meaning ascribed to

it in Subsection 5(a).

 

3

 

“Voting Securities” shall mean shares of the Company

Common Stock and any other securities of the Company having the ordinary power

to vote in the election of members of the Board of Directors of the Company.

 

“13D Group” means any group of persons formed for the

purpose of acquiring, holding, voting or disposing of Voting Securities which

would be required under Section 13(d) of the Exchange Act, and the rules

and regulations promulgated thereunder, to file a statement with the SEC on

Schedule 13D pursuant to Rule 13d-1(a) of the rules and regulations

promulgated under the Exchange Act or Schedule 13G pursuant to Rule 13d-1(c)

of the rules and regulations promulgated under the Exchange Act as a “person”

within the meaning of Section 13(d)(3) of the Exchange Act if such group

Beneficially Owned Voting Securities representing more than 5% of any class of

Voting Securities then outstanding.

 

3.            COVENANTS OF SHAREHOLDER

 

Shareholder agrees, prior to the Termination Date and

subject to the further provisions hereof, that:

 

(a)           Shareholder

shall take such action as may be required so that all Voting Securities

Beneficially Owned by Shareholder or any Shareholder Controlled Entity (and

shall use commercially reasonable efforts to cause any Voting Securities held

by an Affiliate of Shareholder or any 13D Group of which Shareholder or any

Affiliate of Shareholder is a party) are voted for nominees to the Board of

Directors of the Company proposed by either the current Board of Directors or

the members of the Board of Directors who have been nominated by the current

Board of Directors (or such of their successors who have been nominated by the

Board members so nominated) and, unless the Company otherwise consents in

writing, on all other matters to be voted on by the holders of Voting

Securities as recommended by the Company’s Board of Directors.  Shareholder, as the holder of shares of

Voting Securities, shall be present in person or by proxy (and shall cause any

Shareholder Controlled Entities holding Voting Securities to be so present and

shall use reasonable efforts to cause his Affiliates holding Voting Securities

to be so present) at all meetings of shareholders of the Company so that all

Voting Securities Beneficially Owned by them may be counted for the purpose of

determining the presence of a quorum at such meetings.

 

(b)           No

member of the Shareholder Group shall deposit any Voting Securities in a voting

trust or subject any Voting Securities to any arrangement or agreement with

respect to the voting of such Voting Securities.

 

4

 

(c)           No

member of the Shareholder Group shall solicit or participate in any

solicitation of proxies with respect to any Voting Securities, nor seek to

advise or influence any person with respect to the voting of any Voting

Securities (other than as otherwise provided or contemplated by this Agreement)

or initiate or propose any shareholder proposal or participate in the making

of, or solicit shareholders for the approval of any shareholder proposals.

 

(d)           No

member of the Shareholder Group shall join a 13D Group (other than a group

comprised solely of Shareholder and his Affiliates) or other group, or

otherwise act in concert with any third person for the purpose of acquiring,

holding, voting or disposing of Voting Securities or Non-Voting Convertible

Securities.

 

(e)           Shareholder

shall not otherwise act, alone or in concert with others, to seek control or

influence the management, Board of Directors or policies of the Company,

including soliciting or proposing to effect or negotiate any form of business

combination, restructuring, recapitalization or other extraordinary action

involving the Company or a Change in Control of the Company.

 

(f)            Without

the prior written consent of the Company (which consent may be withheld at the

sole and unfettered discretion of the Company), no member of the Shareholder

Group shall Transfer any Voting Securities, except (i) to another member

of the Shareholder Group, (ii) pursuant to a bona fide public offering,

registered under the Securities Act, of Voting Securities (provided that no

sales of Voting Securities are made to any person or related group of persons

who would immediately thereafter, to the knowledge of any member of the

Shareholder Group, own or have the right to acquire Voting Securities

representing more than 3% of the total combined voting power of all Voting Securities

then outstanding), (iii) pursuant to Rule 144 under the Securities

Act, (iv) pursuant to a tender offer or exchange offer (1) commenced

by the Company or (2) approved by the Board of Directors of the Company,

or (v) where the proposed transferee offers to purchase a ratable number

of shares of Company Common Stock from all other holders of Company Common

Stock upon the same terms and conditions offered to Shareholder.  Any attempted Transfer or other disposition

of Voting Securities by a member of the Shareholder Group that is not in

compliance with this Subsection 3(f), shall be null and void ab initio.

 

4.             MISCELLANEOUS

 

(a)           Shareholder

and the Company acknowledge and agree that irreparable damage would occur in

the event any of the provisions of this Agreement were not performed in

accordance with their specific terms or were otherwise breached. It is accord­ingly

agreed that the parties shall be entitled to an injunction or injunctions to

prevent breaches of the provisions of this Agreement and to enforce

specifically the 

 

5

 

terms and provisions hereof, in addition to any other remedy to which

they may be entitled at law or equity.

 

(b)           If

any provision of this Agreement is in violation of any statute, rule,

regulation, order or decree of any governmental authority, court or agency, or

subjects any member of the Shareholder Group to governmental regulation to

which it is not now subject, which violation or regulation would have a

material adverse impact on the operations of the Shareholder Group taken as a

whole, then such member of the Shareholder Group shall be relieved of its

obligations under such provision to the minimum extent necessary to cure such

violation or eliminate the applicability of such regulation; provided that this

subparagraph shall not apply to any such violation or regulation resulting in

part from activities or operations of any member of the Shareholder Group other

than its ownership of Voting Securities and the consummation of the

transactions contemplated by this Agreement; and provided  further that

in the event any member of the Shareholder Group is relieved of its obligations

under any provision of this Agreement pursuant to this subparagraph, the

Company may terminate this Agreement, in its sole discretion.

 

(c)           If

requested in writing by the Company, Shareholder shall present or cause to be

presented promptly all certificates representing Voting Securities now owned or

hereafter acquired by members of the Shareholder Group, for the placement

thereon of the following legend, which will remain thereon as long as such

Voting Securities are subject to the restrictions contained in this Agreement:

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE

SUBJECT TO THE PROVISIONS OF AN AGREEMENT DATED AS OF JUNE 10, 2002, BETWEEN

SHAREHOLDER AND CENTERSPAN COMMUNICATIONS CORPORATION, AND MAY NOT BE SOLD OR

TRANSFERRED EXCEPT IN ACCORDANCE THEREWITH. A COPY OF SAID AGREEMENT IS ON FILE

AT THE OFFICE OF THE CORPORATE SECRETARY OF CENTERSPAN COMMUNICATIONS

CORPORATION.  THE COMPANY MAY ENTER A

STOP TRANSFER ORDER WITH THE  TRANSFER AGENT OR AGENTS OF VOTING

SECURITIES AGAINST THE TRANSFER OF VOTING SECURITIES EXCEPT IN COMPLIANCE WITH

THE REQUIREMENTS OF THIS AGREEMENT. THE COMPANY AGREES TO REMOVE PROMPTLY ANY

STOP TRANSFER ORDER WITH RESPECT TO, AND ISSUE PROMPTLY UNLEGENDED CERTIFICATES

IN SUBSTITUTION FOR, CERTIFICATES FOR ANY VOTING SECURITIES THAT ARE NO LONGER

SUBJECT TO THE RESTRICTIONS CONTAINED IN THIS AGREEMENT.

 

6

 

(d)           This

Agreement and the Standby Agreement contain the entire understanding of the

parties with respect to the transactions contemplated hereby and this Agreement

may be amended only by an agreement in writing executed by the parties hereto.

 

(e)           Descriptive

headings are for convenience only and shall not control or affect the meaning

or construction of any provision of this Agreement.

 

(f)            All

notices, consents, requests, instructions, approvals and other communications

provided for herein and all legal process in regard hereto shall be validly

given, made or served, if in writing and delivered personally, by telex (except

for legal process) or sent by registered mail, postage prepaid, if to:

 

THE COMPANY:

 

Centerspan Communications Corporation

Suite 400

7175 N.W. Evergreen Parkway

Hillsboro, OR 

97124

Attention: 

Chief Executive Officer

Facsimile: 

(503) 615-3297

 

Copy to:

 

Patrick J. Simpson

Perkins Coie LLP

1211 S.W. Fifth Avenue, Suite 1500

Portland, OR 

97204-3715

Telephone: 

(503) 727-2008

Fax:  (503)

727-2222

 

SHAREHOLDER:

 

Peter R. Kellogg

c/o Marguette Gorman

120 Broadway

New York, NY 10271

 

or to such other address or facsimile number as any party may, from

time to time, designate in a written notice given in a like manner.  Notice given by facsimile shall be deemed

delivered on the day the sender receives facsimile confirmation that such

notice was received at the facsimile number of the addressee.  Notice given by mail as 

 

7

 

set out above shall be deemed delivered five days after the date the

same is postmarked.

 

(g)           From

and after the Termination Date or earlier termination of this Agreement, the

covenants of the parties set forth herein shall be of no further force or

effect and the parties shall be under no further obligation with respect

thereto.

 

(h)           This

Agreement shall be governed by and construed and enforced in accordance with

the laws of the State of Oregon without regard to principles of conflict of laws.  Each party to this Agreement expressly and

irrevocably consents and submits to the jurisdiction and venue of each state

and federal court located in the County of Multnomah, State of Oregon and each

appellate court located in the State of Oregon in connection with any such

legal proceeding, including to enforce any settlement, order or award.

 

(i)            For

the convenience of the parties, this Agreement may be executed in counterparts

by the parties hereto and each such executed counterpart shall be, and shall be

deemed to be, an original instrument.

 

IN WITNESS WHEREOF, Shareholder and the Company have

caused this Agreement to be duly executed as of the day and year first above

written.

 

	

   

  	

  CENTERSPAN

  COMMUNICATIONS CORPORATION

  
	

   

  	

   

  
	

   

  	

   

  
	

   

  	

  By

  	

  /s/

  
	

   

  	

   

  	

  Name:

  
	

   

  	

   

  	

  Title:

  
	

   

  	

   

  	

   

  
	

   

  	

  PETER

  R. KELLOGG

  
	

   

  	

   

  
	

   

  	

    /s/

  

 

8

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