Exhibit 1
EXECUTION COPY
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "AGREEMENT") is dated as of
July 24, 2003 by and between Medifast, Inc., a Delaware corporation (the
"COMPANY"), and each purchaser identified on the signature pages hereto (each, a
"PURCHASER" and collectively, the "PURCHASERS").
WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as
amended, the Company desires to issue and sell to each Purchaser, and each
Purchaser, severally and not jointly, desires to purchase from the Company,
certain securities of the Company as more fully described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each of the
Purchasers agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. In addition to the terms defined elsewhere in this
Agreement, the following terms have the meanings indicated:
"AFFILIATE" means any Person that, directly or indirectly
through one or more intermediaries, controls or is controlled by or is
under common control with a Person, as such terms are used in and
construed under Rule 144 under the Securities Act.
"BANKRUPTCY EVENT" means any of the following events: (a) the
Company or any Subsidiary commences a case or other proceeding under
any bankruptcy, reorganization, arrangement, adjustment of debt, relief
of debtors, dissolution, insolvency or liquidation or similar law of
any jurisdiction relating to the Company or any Subsidiary thereof; (b)
there is commenced against the Company or any Subsidiary any such case
or proceeding that is not dismissed within 60 days after commencement;
(c) the Company or any Subsidiary is adjudicated insolvent or bankrupt
or any order of relief or other order approving any such case or
proceeding is entered; (d) the Company or any Subsidiary suffers any
appointment of any custodian or the like for it or any substantial part
of its property that is not discharged or stayed within 60 days; (e)
the Company or any Subsidiary makes a general assignment for the
benefit of creditors; (f) the Company or any Subsidiary fails to pay,
or states that it is unable to pay or is unable to pay, its debts
generally as they become due; (g) the Company or any Subsidiary calls a
meeting of its creditors with a view to arranging a composition,
adjustment or restructuring of its debts; or (h) the Company or any
Subsidiary, by any act or failure to act, expressly indicates its
consent to, approval of or acquiescence in any of the foregoing or
takes any corporate or other action for the purpose of effecting any of
the foregoing.
"BUSINESS DAY" means any day other than Saturday, Sunday or
other day on which commercial banks in The City of New York are
authorized or required by law to remain closed.
"CHANGE OF CONTROL" means the occurrence of any of the
following in one or a series of related transactions: (i) an
acquisition after the date hereof by an individual or legal entity or
"group" (as described in Rule 13d-5(b)(1) under the Exchange Act) of
more than one-half of the voting rights or equity interests in the
Company; (ii) a replacement of more than one-half of the members of the
Company's board of directors that is not approved by those individuals
who are members of the board of directors on the date hereof (or other
directors previously approved by such individuals); (iii) a merger or
consolidation of the Company or any Subsidiary or a sale of more than
one-half of the assets of the Company in one or a series of related
transactions, unless following such transaction or series of
transactions, the holders of the Company's securities prior to the
first such transaction continue to hold at least two-thirds of the
voting rights and equity interests in of the surviving entity or
acquirer of such assets; (iv) a recapitalization, reorganization or
other transaction involving the Company or any Subsidiary that
constitutes or results in a transfer of more than one-half of the
voting rights or equity interests in the Company; (v) consummation of a
"Rule 13e-3 transaction" as defined in Rule 13e-3 under the Exchange
Act with respect to the Company, or (vi) the execution by the Company
or its controlling stockholders of an agreement providing for or
reasonably likely to result in any of the foregoing events.
"CLOSING" means the closing of the purchase and sale of the
Shares and the Warrants pursuant to Section 2.1.
"CLOSING DATE" means the date of the Closing.
"CLOSING PRICE" means, for any date, the price determined by
the first of the following clauses that applies: (a) if the Common
Stock is then listed or quoted on an Eligible Market or any other
national securities exchange, the closing bid price per share of the
Common Stock for such date (or the nearest preceding date) on the
primary Eligible Market or exchange on which the Common Stock is then
listed or quoted; (b) if prices for the Common Stock are then quoted on
the OTC Bulletin Board, the closing bid price per share of the Common
Stock for such date (or the nearest preceding date) so quoted; (c) if
prices for the Common Stock are then reported in the "Pink Sheets"
published by the National Quotation Bureau Incorporated (or a similar
organization or agency succeeding to its functions of reporting
prices), the most recent closing bid price per share of the Common
Stock so reported; or (d) in all other cases, the fair market value of
a share of Common Stock as determined by an independent appraiser
selected in good faith by a majority-in-interest of the Purchasers.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock of the Company, par
value $.001 per share.
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"COMMON STOCK EQUIVALENTS" means, collectively, Options and
Convertible Securities.
"COMPANY COUNSEL" means Xxxxxx Xxxxxx Giacovas & Kranjac LLP.
"CONVERTIBLE SECURITIES" means any stock or securities (other
than Options) convertible into or exercisable or exchangeable for
Common Stock.
"EFFECTIVE DATE" means the date that the Registration
Statement is first declared effective by the Commission.
"ELIGIBLE MARKET" means any of the New York Stock Exchange,
the American Stock Exchange, the Nasdaq National Market or the Nasdaq
Small Cap Market.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXCLUDED STOCK" means the issuance of Common Stock (A) upon
exercise or conversion of any options, warrants or other securities
described in Schedule 3.1(f) (provided that such exercise or conversion
occurs in accordance with the terms thereof, without amendment or
modification, and that the applicable exercise or conversion price or
ratio is described in such schedule), (B) in connection with any grant
of options to employees, officers, directors or consultants of the
Company pursuant to a stock option plan duly adopted by the Company's
board of directors or in respect of the issuance of Common Stock upon
exercise of any such options, (C) pursuant to a bona fide firm
commitment underwritten public offering with a nationally recognized
underwriter (excluding any equity line) at a per share offering price
equal to at least the market price and in an aggregate offering amount
greater than $30,000,000, or (D) in connection with a bona fide joint
venture or development agreement or strategic partnership, the primary
purpose of which is not to raise equity capital.
"FILING DATE" means August 23, 2003.
"LIEN" means any lien, charge, claim, security interest,
encumbrance, right of first refusal or other restriction.
"LOSSES" means any and all losses, claims, damages,
liabilities, settlement costs and expenses, including, without
limitation, costs of preparation and reasonable attorneys' fees.
"OPTIONS" means any rights, warrants or options to subscribe
for or purchase Common Stock or Convertible Securities.
"PERSON" means any individual or corporation, partnership,
trust, incorporated or unincorporated association, joint venture,
limited liability company, joint stock company or other entity of any
kind.
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"PROCEEDING" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"PROSPECTUS" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes
any information previously omitted from a prospectus filed as part of
an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by
any prospectus supplement, with respect to the terms of the offering of
any portion of the Registrable Securities covered by the Registration
Statement, and all other amendments and supplements to the Prospectus,
including post-effective amendments, and all material incorporated by
reference or deemed to be incorporated by reference in such Prospectus.
"REGISTRABLE SECURITIES" means any Common Stock (including
Underlying Shares) issued or issuable pursuant to the Transaction
Documents, together with any securities issued or issuable upon any
stock split, dividend or other distribution, recapitalization or
similar event with respect to the foregoing.
"REGISTRATION STATEMENT" means each registration statement
required to be filed under Article VI, including (in each case) the
Prospectus, amendments and supplements to such registration statement
or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference or deemed
to be incorporated by reference in such registration statement.
"REQUIRED EFFECTIVENESS DATE" means October 22, 2003.
"RULE 144," "RULE 415," and "RULE 424" means Rule 144, Rule
415 and Rule 424, respectively, promulgated by the Commission pursuant
to the Securities Act, as such Rules may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission
having substantially the same effect as such Rule.
"SECURITIES" means the Shares, the Warrants and the Underlying
Shares.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means an aggregate of 550,000 shares of Common Stock,
which are being issued and sold to the Purchasers at the Closing.
"SUBSIDIARY" means any Person in which the Company, directly
or indirectly, owns capital stock or holds an equity or similar
interest that are required to be listed in Schedule 3.1(a).
"TRADING DAY" means (a) any day on which the Common Stock is
listed or quoted and traded on its primary Trading Market, (b) if the
Common Stock is not then listed or quoted and traded on any Eligible
Market, then a day on which trading occurs on the American Stock
Exchange (or any successor thereto), or (c) if trading does not occur
on the American Stock Exchange (or any successor thereto), any Business
Day.
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"TRADING MARKET" means the American Stock Exchange or any
other Eligible Market on which the Common Stock is then listed or
quoted.
"TRANSACTION DOCUMENTS" means this Agreement, the Warrants,
the Transfer Agent Instructions and any other documents or agreements
executed in connection with the transactions contemplated hereunder.
"TRANSFER AGENT" means American Stock Transfer, or any other
transfer agent selected by the Company.
"TRANSFER AGENT INSTRUCTIONS" means the Irrevocable Transfer
Agent Instructions, in the form of Exhibit D, executed by the Company
and delivered to and acknowledged in writing by the Transfer Agent.
"UNDERLYING SHARES" means the shares of Common Stock issuable
upon exercise of the Warrants and any securities issued in exchange for
or in respect of such shares.
"WARRANTS" means, collectively, the Common Stock purchase
warrants issued and sold under this Agreement, in the form of Exhibit
A, and any warrants issued upon exercise of such warrants.
ARTICLE II
PURCHASE AND SALE
2.1 CLOSING. Subject to the terms and conditions set forth in this
Agreement, at the Closing the Company shall issue and sell to each Purchaser,
and each Purchaser shall, severally and not jointly, purchase from the Company,
such number of Shares and a Warrant to purchase such number of Underlying
Shares, each as indicated below such Purchaser's name on the signature page of
this Agreement, for an aggregate purchase price for such Purchaser as indicated
below such Purchaser's name on the signature page of this Agreement. The Closing
shall take place at the offices of Proskauer Rose LLP immediately following the
execution hereof, or at such other location or time as the parties may agree.
2.2 CLOSING DELIVERIES.
(a) At the Closing, the Company shall deliver or cause to be
delivered to each Purchaser the following:
(i) one or more stock certificates, free and clear of all
restrictive and other legends (except as expressly provided in Section
4.1(b) hereof), evidencing the number of Shares indicated below such
Purchaser's name on the signature page of this Agreement, registered in
the name of such Purchaser;
(ii) a Warrant, registered in the name of such Purchaser,
pursuant to which such Purchaser shall have the right to acquire the
number of Underlying Shares indicated below such Purchaser's name on
the signature page of this Agreement, on the terms set forth therein;
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(iii) a legal opinion of Company Counsel, in the form of
Exhibit B, executed by such counsel and delivered to the Purchasers;
(iv) duly executed Transfer Agent Instructions acknowledged by
the Transfer Agent; and
(v) a lock-up letter in the form of Exhibit E executed by each
of Xx. Xxxxxxx X. XxxXxxxxx, Xxx. Xxxxxxx X. XxxXxxxxx and Xx. Xxxxxxxx
X. XxxXxxxxx and delivered to the Purchasers.
(b) At the Closing, each Purchaser shall deliver or cause to be
delivered to the Company the purchase price, without any reduction thereto
whatsoever, indicated below such Purchaser's name on the signature page of this
Agreement, in United States dollars and in immediately available funds, by wire
transfer to an account designated in writing by the Company for such purpose.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to each of the Purchasers as follows:
(a) SUBSIDIARIES. The Company has no direct or indirect
Subsidiaries other than those listed in Schedule 3.1(a). Except as disclosed in
Schedule 3.1(a), the Company owns, directly or indirectly, all of the capital
stock or comparable equity interests of each Subsidiary free and clear of any
Lien, and all the issued and outstanding shares of capital stock or comparable
equity interests of each Subsidiary are validly issued and are fully paid,
non-assessable and free of preemptive and similar rights.
(b) ORGANIZATION AND QUALIFICATION. Each of the Company and the
Subsidiaries is an entity duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization (as
applicable), with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently conducted.
Neither the Company nor any Subsidiary is in violation of any of the provisions
of its respective certificate or articles of incorporation, bylaws or other
organizational or charter documents. Each of the Company and the Subsidiaries is
duly qualified to do business and is in good standing as a foreign corporation
or other entity in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the case may be,
could not, individually or in the aggregate, (i) adversely affect the legality,
validity or enforceability of any Transaction Document, (ii) have or result in a
material adverse effect on the results of operations, assets, prospects,
business or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (iii) adversely impair the Company's ability
to perform fully on a timely basis its obligations under any of the Transaction
Documents (any of (i), (ii) or (iii), a "MATERIAL ADVERSE EFFECT").
(c) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
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obligations hereunder and thereunder. The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company and no further consent or action is
required by the Company, its Board of Directors or its stockholders. Each of the
Transaction Documents has been (or upon delivery will be) duly executed by the
Company and is, or when delivered in accordance with the terms hereof, will
constitute, the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms.
(d) NO CONFLICTS. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby do not and will not (i) conflict
with or violate any provision of the Company's or any Subsidiary's certificate
or articles of incorporation, bylaws or other organizational or charter
documents, (ii) conflict with, or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation (with or
without notice, lapse of time or both) of, any agreement, credit facility, debt
or other instrument (evidencing a Company or Subsidiary debt or otherwise) or
other understanding to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound or
affected, except to the extent that such conflict, default or termination right
could not reasonably be expected to have a Material Adverse Effect, or (iii)
result in a violation of any law, rule, regulation, order, judgment, injunction,
decree or other restriction of any court or governmental authority to which the
Company or a Subsidiary is subject (including federal and state securities laws
and regulations and the rules and regulations of any self-regulatory
organization to which the Company or its securities are subject), or by which
any property or asset of the Company or a Subsidiary is bound or affected.
(e) ISSUANCE OF THE SECURITIES. The Securities (including the
Underlying Shares) are duly authorized and, when issued and paid for in
accordance with the Transaction Documents, will be duly and validly issued,
fully paid and nonassessable, free and clear of all Liens and shall not be
subject to preemptive rights or similar rights of stockholders. The Company has
reserved from its duly authorized capital stock the maximum number of shares of
Common Stock issuable upon exercise of the Warrants.
(f) CAPITALIZATION. The number of shares and type of all
authorized, issued and outstanding capital stock, options and other securities
of the Company (whether or not presently convertible into or exercisable or
exchangeable for shares of capital stock of the Company) is set forth in
Schedule 3.1(f). All outstanding shares of capital stock are duly authorized,
validly issued, fully paid and nonassessable and have been issued in compliance
with all applicable securities laws. Except as disclosed in Schedule 3.1(f),
there are no outstanding options, warrants, script rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exercisable or exchangeable for, or giving any
Person any right to subscribe for or acquire, any shares of Common Stock, or
contracts, commitments, understandings or arrangements by which the Company or
any Subsidiary is or may become bound to issue additional shares of Common
Stock, or securities or rights convertible or exchangeable into shares of Common
Stock. Except as disclosed in Schedule 3.1(f), there are no anti-dilution or
price adjustment provisions contained in any security issued by the Company (or
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in any agreement providing rights to security holders) and the issue and sale of
the Securities (including the Underlying Shares) will not obligate the Company
to issue shares of Common Stock or other securities to any Person (other than
the Purchasers) and will not result in a right of any holder of Company
securities to adjust the exercise, conversion, exchange or reset price under
such securities. To the knowledge of the Company, except as specifically
disclosed in Schedule 3.1(f), no Person or group of related Persons beneficially
owns (as determined pursuant to Rule 13d-3 under the Exchange Act), or has the
right to acquire, by agreement with or by obligation binding upon the Company,
beneficial ownership of in excess of 5% of the outstanding Common Stock,
ignoring for such purposes any limitation on the number of shares of Common
Stock that may be owned at any single time.
(g) SEC REPORTS; FINANCIAL STATEMENTS. The Company has filed all
reports required to be filed by it under the Securities Act and the Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was required by
law to file such material) (the foregoing materials being collectively referred
to herein as the "SEC REPORTS" and, together with this Agreement and the
Schedules to this Agreement, the "DISCLOSURE MATERIALS") on a timely basis or
has received a valid extension of such time of filing and has filed any such SEC
Reports prior to the expiration of any such extension. The Company has delivered
to the Purchasers true, correct and complete copies of all SEC Reports filed
within the 10 days preceding the date hereof. As of their respective dates, the
SEC Reports complied in all material respects with the requirements of the
Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC Reports
comply in all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in effect at the
time of filing. Such financial statements have been prepared in accordance with
United States generally accepted accounting principles applied on a consistent
basis during the periods involved ("GAAP"), except as may be otherwise specified
in such financial statements or the notes thereto, and fairly present in all
material respects the financial position of the Company and its consolidated
subsidiaries as of and for the dates thereof and the results of operations and
cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal, immaterial, year-end audit adjustments. All material
agreements to which the Company or any Subsidiary is a party or to which the
property or assets of the Company or any Subsidiary are subject are included as
part of or specifically identified in the SEC Reports.
(h) MATERIAL CHANGES. Since the date of the latest audited
financial statements included within the SEC Reports, except as specifically
disclosed in the SEC Reports, (i) there has been no event, occurrence or
development that, individually or in the aggregate, has had or that could result
in a Material Adverse Effect, (ii) the Company has not incurred any liabilities
(contingent or otherwise) other than (A) trade payables and accrued expenses
incurred in the ordinary course of business consistent with past practice and
(B) liabilities not required to be reflected in the Company's financial
statements pursuant to GAAP or required to be disclosed in filings made with the
Commission, (iii) the Company has not altered its method of accounting or the
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identity of its auditors, (iv) the Company has not declared or made any dividend
or distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock, and (v) the Company has not issued any equity securities to any officer,
director or Affiliate, except pursuant to existing Company stock option plans.
(i) ABSENCE OF LITIGATION. Except as set forth in Schedule 3.1(i),
there is no action, suit, claim, proceeding, inquiry or investigation before or
by any court, public board, government agency, self-regulatory organization or
body pending or, to the knowledge of the Company, threatened against or
affecting the Company or any of its Subsidiaries that could, individually or in
the aggregate, have a Material Adverse Effect. Schedule 3.1(i) contains a
complete list and summary description of any pending or, to the knowledge of the
Company, threatened proceeding against or affecting the Company or any of its
Subsidiaries that could individually or in the aggregate, have a Material
Adverse Effect.
(j) COMPLIANCE. Neither the Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default by
the Company or any Subsidiary under), nor has the Company or any Subsidiary
received notice of a claim that it is in default under or that it is in
violation of, any indenture, loan or credit agreement or any other agreement or
instrument to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived), (ii) is in
violation of any order of any court, arbitrator or governmental body, or (iii)
is or has been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign, federal, state
and local laws relating to taxes, environmental protection, occupational health
and safety, product quality and safety and employment and labor matters, except
in each case as could not, individually or in the aggregate, have or result in a
Material Adverse Effect.
(k) TITLE TO ASSETS. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them that is
material to the business of the Company and the Subsidiaries and good and
marketable title in all personal property owned by them that is material to the
business of the Company and the Subsidiaries, in each case free and clear of all
Liens, except for Liens as do not materially affect the value of such property
and do not materially interfere with the use made and proposed to be made of
such property by the Company and the Subsidiaries. Any real property and
facilities held under lease by the Company and the Subsidiaries are held by them
under valid, subsisting and enforceable leases of which the Company and the
Subsidiaries are in material compliance.
(l) CERTAIN FEES. Except for the fees to Xxxxxxx Xxxxx & Co., Inc.
and described in Schedule 3.1(l), all of which are payable to registered
broker-dealers, no brokerage or finder's fees or commissions are or will be
payable by the Company to any broker, financial advisor or consultant, finder,
placement agent, investment banker, bank or other Person with respect to the
transactions contemplated by this Agreement, and the Company has not taken any
action that would cause any Purchaser to be liable for any such fees or
commissions.
(m) PRIVATE PLACEMENT. Neither the Company nor any Person acting on
the Company's behalf has sold or offered to sell or solicited any offer to buy
the Securities by means of any form of general solicitation or advertising.
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Neither the Company nor any of its Affiliates nor any Person acting on the
Company's behalf has, directly or indirectly, at any time within the past six
months, made any offer or sale of any security or solicitation of any offer to
buy any security under circumstances that would (i) eliminate the availability
of the exemption from registration under Regulation D under the Securities Act
in connection with the offer and sale of the Securities as contemplated hereby
or (ii) cause the offering of the Securities pursuant to the Transaction
Documents to be integrated with prior offerings by the Company for purposes of
any applicable law, regulation or stockholder approval provisions, including,
without limitation, under the rules and regulations of any Trading Market. The
Company is not, and is not an Affiliate of, an "investment company" within the
meaning of the Investment Company Act of 1940, as amended. The Company is not a
United States real property holding corporation within the meaning of the
Foreign Investment in Real Property Tax Act of 1980.
(n) FORM S-3 ELIGIBILITY. The Company is eligible to register its
Common Stock for resale by the Purchasers using Form S-3 promulgated under the
Securities Act.
(o) LISTING AND MAINTENANCE REQUIREMENTS. The Company has not, in
the two years preceding the date hereof, received notice (written or oral) from
any Trading Market on which the Common Stock is or has been listed or quoted to
the effect that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market. The Company is, and has no reason to
believe that it will not in the foreseeable future continue to be, in compliance
with all such listing and maintenance requirements.
(p) Registration Rights. Except as described in Schedule 3.1(p),
the Company has not granted or agreed to grant to any Person any rights
(including "piggy-back" registration rights) to have any securities of the
Company registered with the Commission or any other governmental authority that
have not been satisfied.
(q) APPLICATION OF TAKEOVER PROTECTIONS. There is no control share
acquisition, business combination, poison pill (including any distribution under
a rights agreement) or other similar anti-takeover provision under the Company's
charter documents or the laws of its state of incorporation that is or could
become applicable to any of the Purchasers as a result of the Purchasers and the
Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including, without limitation, as a result of the
Company's issuance of the Securities and the Purchasers' ownership of the
Securities.
(r) DISCLOSURE. The Company confirms that neither it nor any other
Person acting on its behalf has provided any of the Purchasers or their agents
or counsel with any information that constitutes or might constitute material,
nonpublic information. The Company understands and confirms that each of the
Purchasers will rely on the foregoing representations in effecting transactions
in securities of the Company. All disclosure provided to the Purchasers
regarding the Company, its business and the transactions contemplated hereby,
including the Schedules to this Agreement, furnished by or on behalf of the
Company are true and correct and do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading. No event or circumstance has occurred or information
exists with respect to the Company or any of its Subsidiaries or its or their
business, properties, prospects, operations or financial condition, which, under
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applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed. The
Company acknowledges and agrees that no Purchaser makes or has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 3.2.
(s) ACKNOWLEDGMENT REGARDING PURCHASERS' PURCHASE OF SECURITIES.
The Company acknowledges and agrees that each of the Purchasers is acting solely
in the capacity of an arm's length purchaser with respect to this Agreement and
the transactions contemplated hereby. The Company further acknowledges that no
Purchaser is acting as a financial advisor or fiduciary of the Company or any
other Purchaser (or in any similar capacity) with respect to this Agreement and
the transactions contemplated hereby and any advice given by any Purchaser or
any of their respective representatives or agents in connection with this
Agreement and the transactions contemplated hereby is merely incidental to such
Purchaser's purchase of the Securities. The Company further represents to each
Purchaser that the Company's decision to enter into this Agreement has been
based solely on the independent evaluation of the transactions contemplated
hereby by the Company and its representatives.
(t) PATENTS AND TRADEMARKS. The Company and the Subsidiaries have,
or have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and other similar
rights that are necessary or material for use in connection with their
respective businesses as described in the SEC Reports and which the failure to
so have could have a Material Adverse Effect (collectively, the "INTELLECTUAL
PROPERTY RIGHTS"). Neither the Company nor any Subsidiary has received a written
notice that the Intellectual Property Rights used by the Company or any
Subsidiary violates or infringes upon the rights of any Person. To the knowledge
of the Company, all such Intellectual Property Rights are enforceable and there
is no existing infringement by another Person of any of the Intellectual
Property Rights.
(u) INSURANCE. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which the
Company and the Subsidiaries are engaged. Neither the Company nor any Subsidiary
has any reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business
without a significant increase in cost.
(v) REGULATORY PERMITS. The Company and the Subsidiaries possess
all certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits could not, individually or in the aggregate, have or
result in a Material Adverse Effect ("MATERIAL PERMITS"), and neither the
Company nor any Subsidiary has received any notice of proceedings relating to
the revocation or modification of any Material Permit.
(w) TRANSACTIONS WITH AFFILIATES AND EMPLOYEES. Except as set forth
in SEC Reports filed at least ten days prior to the date hereof, none of the
officers or directors of the Company and, to the knowledge of the Company, none
11
of the employees of the Company is presently a party to any transaction with the
Company or any Subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
(x) SOLVENCY. Based on the financial condition of the Company as of
the Closing Date, (i) the Company's fair saleable value of its assets exceeds
the amount that will be required to be paid on or in respect of the Company's
existing debts and other liabilities (including known contingent liabilities) as
they mature; (ii) the Company's assets do not constitute unreasonably small
capital to carry on its business for the current fiscal year as now conducted
and as proposed to be conducted including its capital needs taking into account
the particular capital requirements of the business conducted by the Company,
and projected capital requirements and capital availability thereof; and (iii)
the current cash flow of the Company, together with the proceeds the Company
would receive, were it to liquidate all of its assets, after taking into account
all anticipated uses of the cash, would be sufficient to pay all amounts on or
in respect of its debt when such amounts are required to be paid. The Company
does not intend to incur debts beyond its ability to pay such debts as they
mature (taking into account the timing and amounts of cash to be payable on or
in respect of its debt).
(y) INTERNAL ACCOUNTING CONTROLS. The Company and the Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management's general
or specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
3.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser
hereby, as to itself only and for no other Purchaser, represents and warrants to
the Company as follows:
(a) ORGANIZATION; AUTHORITY. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder. The purchase by such Purchaser of the
Shares and the Warrants hereunder has been duly authorized by all necessary
action on the part of such Purchaser. This Agreement has been duly executed and
delivered by such Purchaser and constitutes the valid and binding obligation of
such Purchaser, enforceable against it in accordance with its terms.
(b) INVESTMENT INTENT. Such Purchaser is acquiring the Securities
as principal for its own account for investment purposes only and not with a
view to or for distributing or reselling such Securities or any part thereof,
without prejudice, however, to such Purchaser's right, subject to the provisions
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of this Agreement, at all times to sell or otherwise dispose of all or any part
of such Securities pursuant to an effective registration statement under the
Securities Act or under an exemption from such registration and in compliance
with applicable federal and state securities laws. Nothing contained herein
shall be deemed a representation or warranty by such Purchaser to hold
Securities for any period of time. Such Purchaser does not have any agreement or
understanding, directly or indirectly, with any Person to distribute any of the
Securities.
(c) PURCHASER STATUS. At the time such Purchaser was offered the
Shares and the Warrants, it was, and at the date hereof it is, an "accredited
investor" as defined in Rule 501(a) under the Securities Act.
(d) EXPERIENCE OF SUCH PURCHASER. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment. Such Purchaser is able to
bear the economic risk of an investment in the Securities and, at the present
time, is able to afford a complete loss of such investment.
(e) ACCESS TO INFORMATION. Such Purchaser acknowledges that it has
reviewed the Disclosure Materials and has been afforded (i) the opportunity to
ask such questions as it has deemed necessary or appropriate of, and to receive
answers from, representatives of the Company concerning the terms and conditions
of the offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Subsidiaries
and their respective financial condition, results of operations, business,
properties, management and prospects sufficient to enable it to evaluate its
investment; and (iii) the opportunity to obtain such additional information that
the Company possesses or can acquire without unreasonable effort or expense that
is necessary to make an informed investment decision with respect to the
investment. Neither such inquiries nor any other investigation conducted by or
on behalf of such Purchaser or its representatives or counsel shall modify,
amend or affect such Purchaser's right to rely on the truth, accuracy and
completeness of the Disclosure Materials and the Company's representations and
warranties contained in the Transaction Documents.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
4.1 TRANSFER RESTRICTIONS.
(a) Securities may only be disposed of pursuant to an effective
registration statement under the Securities Act or pursuant to an available
exemption from the registration requirements of the Securities Act, and in
compliance with any applicable state securities laws. In connection with any
transfer of Securities other than pursuant to an effective registration
statement or to the Company or pursuant to Rule 144(k), except as otherwise set
forth herein, the Company may require the transferor to provide to the Company
an opinion of counsel selected by the transferor, the form and substance of
which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration under the Securities Act.
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Notwithstanding the foregoing, the Company hereby consents to and agrees to
register on the books of the Company and with its Transfer Agent, without any
such legal opinion, any transfer of Securities by a Purchaser to an Affiliate of
such Purchaser, provided that (i) the transferee certifies to the Company that
it is an "accredited investor" as defined in Rule 501(a) under the Securities
Act and (ii) such transfer complies with all applicable provisions of the
Securities Act.
(b) The Purchasers agree to the imprinting, so long as is required
by this Section 4.1(b), of the following legend on any certificate evidencing
Securities:
[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE EXERCISABLE] HAVE [NOT] BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS. NOTWITHSTANDING THE FOREGOING, THESE
SECURITIES [AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY SUCH
SECURITIES.
Certificates evidencing Securities shall not be required to contain such legend
or any other legend (i) while a Registration Statement covering the resale of
such Securities is effective under the Securities Act, or (ii) following any
sale of such Securities pursuant to Rule 144, or (iii) if such Securities are
eligible for sale under Rule 144(k), or (iv) if such legend is not required
under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the Staff of the Commission). The
Company shall cause its counsel to issue the legal opinion included in the
Transfer Agent Instructions to the Transfer Agent on the Effective Date.
Following the Effective Date or at such earlier time as a legend is no longer
required for certain Securities, the Company will no later than three Trading
Days following the delivery by a Purchaser to the Company or the Transfer Agent
of a legended certificate representing such Securities, deliver or cause to be
delivered to such Purchaser a certificate representing such Securities that is
free from all restrictive and other legends. The Company may not make any
notation on its records or give instructions to any transfer agent of the
Company that enlarge the restrictions on transfer set forth in this Section. For
so long as any Purchaser owns Securities, the Company will not effect or
publicly announce its intention to effect any exchange, recapitalization or
other transaction that effectively requires or rewards physical delivery of
certificates evidencing the Common Stock.
(c) The Company acknowledges and agrees that a Purchaser may from
time to time pledge or grant a security interest in some or all of the
Securities in connection with a bona fide margin agreement or other loan or
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financing arrangement secured by the Securities and, if required under the terms
of such agreement, loan or arrangement, such Purchaser may transfer pledged or
secured Securities to the pledgees or secured parties. Such a pledge or transfer
would not be subject to approval of the Company and no legal opinion of the
pledgee, secured party or pledgor shall be required in connection therewith.
Further, no notice shall be required of such pledge. At the appropriate
Purchaser's expense, the Company will execute and deliver such reasonable
documentation as a pledgee or secured party of Securities may reasonably request
in connection with a pledge or transfer of the Securities, including the
preparation and filing of any required prospectus supplement under Rule
424(b)(3) of the Securities Act or other applicable provision of the Securities
Act to appropriately amend the list of selling stockholders thereunder.
4.2 FURNISHING OF INFORMATION. As long as any Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. Promptly after the request of any Purchaser, the Company shall
deliver to such Purchaser a written certification of a duly authorized officer
as to whether it has complied with the preceding sentence. As long as any
Purchaser owns Securities, if the Company is not required to file reports
pursuant to such laws, it will prepare and furnish to the Purchasers and make
publicly available in accordance with paragraph (c) of Rule 144 such information
as is required for the Purchasers to sell the Securities under Rule 144. The
Company further covenants that it will take such further action as any holder of
Securities may reasonably request to satisfy the provisions of Rule 144
applicable to the issuer of securities relating to transactions for the sale of
securities pursuant to Rule 144.
4.3 INTEGRATION. The Company shall not, and shall use its best efforts
to ensure that no Affiliate of the Company shall, sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchasers, or
that would be integrated with the offer or sale of the Securities for purposes
of the rules and regulations of any Trading Market.
4.4 RESERVATION OF SECURITIES. The Company shall maintain a reserve
from its duly authorized shares of Common Stock for issuance pursuant to the
Transaction Documents in such amount as may be required to fulfill its
obligations in full under the Transaction Documents. In the event that at any
time the then authorized shares of Common Stock are insufficient for the Company
to satisfy its obligations in full under the Transaction Documents, the Company
shall promptly take such actions as may be required to increase the number of
authorized shares.
4.5 SUBSEQUENT PLACEMENTS.
(a) From the date hereof until 30 Trading Days after the Effective
Date (the "BLOCKOUT PERIOD"), the Company will not, directly or indirectly,
offer, sell, grant any option to purchase, or otherwise dispose of (or announce
any offer, sale, grant or any option to purchase or other disposition of) any of
its or the Subsidiaries' equity or equity equivalent securities, including
without limitation any debt, preferred stock or other instrument or security
that is, at any time during its life and under any circumstances, convertible
into or exchangeable or exercisable for Common Stock or Common Stock Equivalents
15
(any such offer, sale, grant, disposition or announcement being referred to as a
"SUBSEQUENT PLACEMENT").
(b) The Blockout Period set forth in the preceding paragraph (a)
shall be extended for the number of Trading Days during such period in which (i)
trading in the Common Stock is suspended by any Trading Market, (ii) the
Registration Statement is not effective, or (iii) the prospectus included in the
Registration Statement may not be used by the Purchasers for the resale of
Registrable Securities thereunder.
(c) From the end of the Blockout Period until the one year
anniversary thereof, the Company will not, directly or indirectly, effect any
Subsequent Placement unless the Company shall have first complied with this
Section 4.5(c).
(i) The Company shall deliver to each Purchaser a written
notice (the "OFFER") of any proposed or intended issuance or sale or
exchange of the securities being offered (the "OFFERED SECURITIES") in
a Subsequent Placement, which Offer shall (w) identify and describe the
Offered Securities, (x) describe the price and other terms upon which
they are to be issued, sold or exchanged, and the number or amount of
the Offered Securities to be issued, sold or exchanged, (y) identify
the Persons or entities (if known) to which or with which the Offered
Securities are to be offered, issued, sold or exchanged and (z) offer
to issue and sell to or exchange with each Purchaser the Offered
Securities, based on such Purchaser's pro rata portion of the aggregate
purchase price paid by the Purchasers for all of the Shares purchased
hereunder (the "BASIC AMOUNT"), and with respect to each Purchaser that
elects to purchase its Basic Amount, any additional portion of the
Offered Securities attributable to the Basic Amounts of other
Purchasers as such Purchaser shall indicate it will purchase or acquire
should the other Purchasers subscribe for less than their Basic Amounts
(the "UNDERSUBSCRIPTION AMOUNT").
(ii) To accept an Offer, in whole or in part, a Purchaser must
deliver a written notice to the Company prior to the end of the ten
(10) Trading Day period of the Offer, setting forth the portion of the
Purchaser's Basic Amount that such Purchaser elects to purchase and, if
such Purchaser shall elect to purchase all of its Basic Amount, the
Undersubscription Amount, if any, that such Purchaser elects to
purchase (in either case, the "NOTICE OF ACCEPTANCE"). If the Basic
Amounts subscribed for by all Purchasers are less than the total of all
of the Basic Amounts, then each Purchaser who has set forth an
Undersubcription Amount in its Notice of Acceptance shall be entitled
to purchase, in addition to the Basic Amounts subscribed for, the
Undersubscription Amount it has subscribed for; provided, however, that
if the Undersubscription Amounts subscribed for exceed the difference
between the total of all the Basic Amounts and the Basic Amounts
subscribed for (the "AVAILABLE UNDERSUBSCRIPTION AMOUNT"), each
Purchaser who has subscribed for any Undersubscription Amount shall be
entitled to purchase on that portion of the Available Undersubscription
Amount as the Basic Amount of such Purchaser bears to the total Basic
Amounts of all Purchasers that have subscribed for Undersubscription
Amounts, subject to rounding by the Board of Directors to the extent
its deems reasonably necessary.
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(iii) The Company shall have five (5) Trading Days from the
expiration after the period set forth in Section 4.5(c)(ii) above to
issue, sell or exchange all or any part of such Offered Securities as
to which a Notice of Acceptance has not been given by the Purchasers
(the "REFUSED SECURITIES"), but only to the offerees described in the
Offer (if so described therein) and only upon terms and conditions
(including, without limitation, unit prices and interest rates) that
are not more favorable to the acquiring Person or Persons or less
favorable to the Company than those set forth in the Offer.
(iv) In the event the Company shall propose to sell less than
all the Refused Securities (any such sale to be in the manner and on
the terms specified in Section 4.5(c)(iii) above), then each Purchaser
may, at its sole option and in its sole discretion, reduce the number
or amount of the Offered Securities specified in its Notice of
Acceptance to an amount that shall be not less than the number or
amount of the Offered Securities that the Purchaser elected to purchase
pursuant to Section 4.5(c)(ii) above multiplied by a fraction, (i) the
numerator of which shall be the number or amount of Offered Securities
the Company actually proposes to issue, sell or exchange (including
Offered Securities to be issued or sold to Purchasers pursuant to
Section 4.5(c)(ii) above prior to such reduction) and (ii) the
denominator of which shall be the original amount of the Offered
Securities. In the event that any Purchaser so elects to reduce the
number or amount of Offered Securities specified in its Notice of
Acceptance, the Company may not issue, sell or exchange more than the
reduced number or amount of the Offered Securities unless and until
such securities have again been offered to the Purchasers in accordance
with Section 4.5(c)(i) above.
(v) Upon the closing of the issuance, sale or exchange of all
or less than all of the Refused Securities, the Purchasers shall
acquire from the Company, and the Company shall issue to the
Purchasers, the number or amount of Offered Securities specified in the
Notices of Acceptance, as reduced pursuant to Section 4.5(c)(iv) above
if the Purchasers have so elected, upon the terms and conditions
specified in the Offer. The purchase by the Purchasers of any Offered
Securities is subject in all cases to the preparation, execution and
delivery by the Company and the Purchasers of a purchase agreement
relating to such Offered Securities reasonably satisfactory in form and
substance to the Purchasers and their respective counsel.
(vi) Any Offered Securities not acquired by the Purchasers or
other Persons in accordance with Section 4.5(c)(iii) above may not be
issued, sold or exchanged until they are again offered to the
Purchasers under the procedures specified in this Agreement.
(d) The restrictions contained in paragraphs (a) and (c) of this
Section shall not apply to Excluded Stock.
4.6 SECURITIES LAWS DISCLOSURE; PUBLICITY. The Company shall, on or
before 9:30a.m., Eastern Standard Time, on July 25, 2003, issue a press release
acceptable to the Purchasers disclosing all material terms of the transactions
contemplated hereby. On the Closing Date, the Company shall file a Current
Report on Form 8-K with the Commission (the "8-K FILING") describing the terms
of the transactions contemplated by the Transaction Documents and including as
17
exhibits to such Current Report on Form 8-K this Agreement and the form of
Warrants, in the form required by the Exchange Act. Thereafter, the Company
shall timely file any filings and notices required by the Commission or
applicable law with respect to the transactions contemplated hereby and provide
copies thereof to the Purchasers promptly after filing. Except with respect to
the 8-K Filing (a copy of which will be provided to the Purchasers for their
review as early as practicable prior to its filing), the Company shall, at least
two Trading Days prior to the filing or dissemination of any disclosure required
by this paragraph, provide a copy thereof to the Purchasers for their review.
The Company and the Purchasers shall consult with each other in issuing any
press releases or otherwise making public statements or filings and other
communications with the Commission or any regulatory agency or Trading Market
with respect to the transactions contemplated hereby, and neither party shall
issue any such press release or otherwise make any such public statement, filing
or other communication without the prior written consent of the other, except if
such disclosure is required by law, in which case the disclosing party shall
promptly provide the other party with prior written notice of such public
statement, filing or other communication. Notwithstanding the foregoing, the
Company shall not publicly disclose the name of any Purchaser, or include the
name of any Purchaser in any filing with the Commission or any regulatory agency
or Trading Market, without the prior written consent of such Purchaser, except
to the extent such disclosure (but not any disclosure as to the controlling
Persons thereof) is required by law or Trading Market regulations, in which case
the Company shall provide the Purchasers with prior written notice of such
disclosure. The Company shall not, and shall cause each of its Subsidiaries and
its and each of their respective officers, directors, employees and agents not
to, provide any Purchaser with any material nonpublic information regarding the
Company or any of its Subsidiaries from and after the filing of the 8-K Filing
without the express written consent of such Purchaser. In the event of a breach
of the foregoing covenant by the Company, any of its Subsidiaries, or any of its
or their respective officers, directors, employees and agents, in addition to
any other remedy provided herein or in the Transaction Documents, a Purchaser
shall have the right to make a public disclosure, in the form of a press
release, public advertisement or otherwise, of such material nonpublic
information without the prior approval by the Company, its Subsidiaries, or any
of its or their respective officers, directors, employees or agents. No
Purchaser shall have any liability to the Company, its Subsidiaries, or any of
its or their respective officers, directors, employees, stockholders or agents
for any such disclosure. Subject to the foregoing, neither the Company nor any
Purchaser shall issue any press releases or any other public statements with
respect to the transactions contemplated hereby; provided, however, that the
Company shall be entitled, without the prior approval of any Purchaser, to make
any press release or other public disclosure with respect to such transactions
(i) in substantial conformity with the 8-K Filing and contemporaneously
therewith and (ii) as is required by applicable law and regulations (provided
that in the case of clause (i) each Purchaser shall be consulted by the Company
in connection with any such press release or other public disclosure prior to
its release). Each press release disseminated during the 12 months preceding the
date of this Agreement did not at the time of release contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading
4.7 USE OF PROCEEDS. Except as otherwise set forth in Schedule 4.7, the
Company shall use the net proceeds from the sale of the Securities hereunder for
working capital purposes and not for the satisfaction of any portion of the
Company's debt (other than payment of trade payables and accrued expenses in the
18
ordinary course of the Company's business and consistent with prior practices),
to redeem any Company equity or equity-equivalent securities or to settle any
outstanding litigation.
4.8 REIMBURSEMENT. If any Purchaser or any of its Affiliates or any
officer, director, partner, controlling Person, employee or agent of a Purchaser
or any of its Affiliates (a "RELATED PERSON") becomes involved in any capacity
in any Proceeding brought by or against any Person in connection with or as a
result of the transactions contemplated by the Transaction Documents, the
Company will indemnify and hold harmless such Purchaser or Related Person for
its reasonable legal and other expenses (including the costs of any
investigation, preparation and travel) and for any Losses incurred in connection
therewith, as such expenses or Losses are incurred, excluding only Losses that
result directly from such Purchaser's or Related Person's gross negligence or
willful misconduct. In addition, the Company shall indemnify and hold harmless
each Purchaser and Related Person from and against any and all Losses, as
incurred, arising out of or relating to any breach by the Company of any of the
representations, warranties or covenants made by the Company in this Agreement
or any other Transaction Document, or any allegation by a third party that, if
true, would constitute such a breach. The conduct of any Proceedings for which
indemnification is available under this paragraph shall be governed by Section
6.4(c) below. The indemnification obligations of the Company under this
paragraph shall be in addition to any liability that the Company may otherwise
have and shall be binding upon and inure to the benefit of any successors,
assigns, heirs and personal representatives of the Purchasers and any such
Related Persons. The Company also agrees that neither the Purchasers nor any
Related Persons shall have any liability to the Company or any Person asserting
claims on behalf of or in right of the Company in connection with or as a result
of the transactions contemplated by the Transaction Documents, except to the
extent that any Losses incurred by the Company result from the gross negligence
or willful misconduct of the applicable Purchaser or Related Person in
connection with such transactions. If the Company breaches its obligations under
any Transaction Document, then, in addition to any other liabilities the Company
may have under any Transaction Document or applicable law, the Company shall pay
or reimburse the Purchasers on demand for all costs of collection and
enforcement (including reasonable attorneys fees and expenses). Without limiting
the generality of the foregoing, the Company specifically agrees to reimburse
the Purchasers on demand for all costs of enforcing the indemnification
obligations in this paragraph.
ARTICLE V
CONDITIONS
5.1 Conditions Precedent to the Obligations of the Purchasers. The
obligation of each Purchaser to purchase Securities at the Closing is subject to
the satisfaction or waiver by such Purchaser, at or before the Closing, of each
of the following conditions:
(a) Representations and Warranties. The representations and warranties
of the Company contained herein shall be true and correct in all material
respects as of the date when made and as of the Closing as though made on and as
of such date; and
(b) Performance. The Company and each other Purchaser shall have
performed, satisfied and complied in all material respects with all covenants,
19
agreements and conditions required by the Transaction Documents to be performed,
satisfied or complied with by it at or prior to the Closing.
5.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY. The
obligation of the Company to sell Securities at the Closing is subject to the
satisfaction or waiver by the Company, at or before the Closing, of each of the
following conditions:
(a) Representations and Warranties. The representations and
warranties of the Purchasers contained herein shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made on and as of such date; and
(b) Performance. The Purchasers shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by the Purchasers at or prior to the Closing.
ARTICLE VI
REGISTRATION RIGHTS
6.1 Shelf Registration
(a) As promptly as possible, and in any event on or prior to the
Filing Date, the Company shall prepare and file with the Commission a "Shelf"
Registration Statement covering the resale of all Registrable Securities for an
offering to be made on a continuous basis pursuant to Rule 415. The Registration
Statement shall be on Form S-3 (except if the Company is not then eligible to
register for resale the Registrable Securities on Form S-3, in which case such
registration shall be on another appropriate form in accordance herewith as the
Purchasers may consent) and shall contain (except if otherwise directed by the
Purchasers) the "Plan of Distribution" attached hereto as Exhibit C.
(b) The Company shall use its best efforts to cause the
Registration Statement to be declared effective by the Commission as promptly as
possible after the filing thereof, but in any event prior to the Required
Effectiveness Date, and shall use its best efforts to keep the Registration
Statement continuously effective under the Securities Act until the fifth
anniversary of the Effective Date or such earlier date when all Registrable
Securities covered by such Registration Statement have been sold (the
"EFFECTIVENESS PERIOD").
(c) The Company shall notify each Purchaser in writing promptly
(and in any event within one Trading Day) after receiving notification from the
Commission that the Registration Statement has been declared effective.
(d) Upon the occurrence of any Event (as defined below) and on
every monthly anniversary thereof until the applicable Event is cured, as
partial relief for the damages suffered therefrom by the Purchasers (which
remedy shall not be exclusive of any other remedies available under this
Agreement, at law or in equity), the Company shall pay to each Purchaser an
amount in cash, as liquidated damages and not as a penalty, equal to 1% of the
aggregate purchase price paid by such Purchaser hereunder for the first month
and 2% for each month thereafter. The payments to which a Purchaser shall be
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entitled pursuant to this Section 6.1(d) are referred to herein as "EVENT
PAYMENTS". Any Event Payments payable pursuant to the terms hereof shall apply
on a pro-rata basis for any portion of a month prior to the cure of an Event. In
the event the Company fails to make Event Payments in a timely manner, such
Event Payments shall bear interest at the rate of 1.5% per month (prorated for
partial months) until paid in full.
For such purposes, each of the following shall constitute an "EVENT":
(i) the Registration Statement is not filed on or prior to the
Filing Date or is not declared effective on or prior to the Required
Effectiveness Date; provided, however, that for the purposes of the
Event Payment under this Section 6.1(d) only, the Company shall have an
additional 30 days to cure the failure to declare the Registration
Statement effective on or prior to the Required Effectiveness Date
before such Event Payment is due to the Purchasers under this Section
6.1(d);
(ii) after the Effective Date, a Purchaser is not permitted to
sell Registrable Securities under the Registration Statement (or a
subsequent Registration Statement filed in replacement thereof) for any
reason for five or more Trading Days (whether or not consecutive);
(iii) after the Effective Date, any Registrable Securities
covered by such Registration Statement are not listed on an Eligible
Market;
(iv) the Common Stock is not listed or quoted, or is suspended
from trading, on an Eligible Market for a period of three Trading Days
(which need not be consecutive Trading Days);
(v) the Company fails for any reason to deliver a certificate
evidencing any Securities to a Purchaser within three Trading Days
after delivery of such certificate is required pursuant to any
Transaction Document or the exercise rights of the Purchasers pursuant
to the Transaction Documents are otherwise suspended for any reason; or
(vi) the Company fails to have available a sufficient number
of authorized but unissued and otherwise unreserved shares of Common
Stock available to issue Underlying Shares upon any exercise of the
Warrants or, at any time following the Effective Date, any Shares or
Underlying Shares are not listed on an Eligible Market.
(e) The Company shall not, prior to the Effective Date of the
Registration Statement, prepare and file with the Commission a registration
statement relating to an offering for its own account or the account of others
under the Securities Act of any of its equity securities.
6.2 REGISTRATION PROCEDURES. In connection with the Company's
registration obligations hereunder, the Company shall:
(a) Not less than three Trading Days prior to the filing of a
Registration Statement or any related Prospectus or any amendment or supplement
thereto (including any document that would be incorporated or deemed to be
incorporated therein by reference), the Company shall (i) furnish to each
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Purchaser and any counsel designated by any Purchaser (each, a "PURCHASER
COUNSEL", and Mainfield Enterprises, Inc. has initially designated Proskauer
Rose LLP) copies of all such documents proposed to be filed, which documents
(other than those incorporated or deemed to be incorporated by reference) will
be subject to the review of such Purchasers and each Purchaser Counsel, and (ii)
cause its officers and directors, counsel and independent certified public
accountants to respond to such inquiries as shall be necessary, in the
reasonable opinion of each Purchaser Counsel, to conduct a reasonable
investigation within the meaning of the Securities Act. The Company shall not
file a Registration Statement or any such Prospectus or any amendments or
supplements thereto to which Purchasers holding a majority of the Registrable
Securities shall reasonably object.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to each Registration Statement and the
Prospectus used in connection therewith as may be necessary to keep the
Registration Statement continuously effective as to the applicable Registrable
Securities for the Effectiveness Period and prepare and file with the Commission
such additional Registration Statements in order to register for resale under
the Securities Act all of the Registrable Securities; (ii) cause the related
Prospectus to be amended or supplemented by any required Prospectus supplement,
and as so supplemented or amended to be filed pursuant to Rule 424; (iii)
respond as promptly as reasonably possible, and in any event within ten days, to
any comments received from the Commission with respect to the Registration
Statement or any amendment thereto and as promptly as reasonably possible
provide the Purchasers true and complete copies of all correspondence from and
to the Commission relating to the Registration Statement; and (iv) comply in all
material respects with the provisions of the Securities Act and the Exchange Act
with respect to the disposition of all Registrable Securities covered by the
Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Purchasers thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented
(c) Notify the Purchasers of Registrable Securities to be sold and
each Purchaser Counsel as promptly as reasonably possible, and (if requested by
any such Person) confirm such notice in writing no later than one Trading Day
thereafter, of any of the following events: (i) the Commission notifies the
Company whether there will be a "review" of any Registration Statement; (ii) the
Commission comments in writing on any Registration Statement (in which case the
Company shall deliver to each Purchaser a copy of such comments and of all
written responses thereto); (iii) any Registration Statement or any
post-effective amendment is declared effective; (iv) the Commission or any other
Federal or state governmental authority requests any amendment or supplement to
any Registration Statement or Prospectus or requests additional information
related thereto; (v) the Commission issues any stop order suspending the
effectiveness of any Registration Statement or initiates any Proceedings for
that purpose; (vi) the Company receives notice of any suspension of the
qualification or exemption from qualification of any Registrable Securities for
sale in any jurisdiction, or the initiation or threat of any Proceeding for such
purpose; or (vii) the financial statements included in any Registration
Statement become ineligible for inclusion therein or any statement made in any
Registration Statement or Prospectus or any document incorporated or deemed to
be incorporated therein by reference is untrue in any material respect or any
revision to a Registration Statement, Prospectus or other document is required
so that it will not contain any untrue statement of a material fact or omit to
22
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(d) Use its best efforts to avoid the issuance of or, if issued,
obtain the withdrawal of (i) any order suspending the effectiveness of any
Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.
(e) Furnish to each Purchaser and each Purchaser Counsel, without
charge, at least one conformed copy of each Registration Statement and each
amendment thereto, including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference, and all exhibits
to the extent requested by such Person (including those previously furnished or
incorporated by reference) promptly after the filing of such documents with the
Commission.
(f) Promptly deliver to each Purchaser and each Purchaser Counsel,
without charge, as many copies of the Prospectus or Prospectuses (including each
form of prospectus) and each amendment or supplement thereto as such Persons may
reasonably request. The Company hereby consents to the use of such Prospectus
and each amendment or supplement thereto by each of the selling Purchasers in
connection with the offering and sale of the Registrable Securities covered by
such Prospectus and any amendment or supplement thereto.
(g) (i) In the time and manner required by each Trading Market,
prepare and file with such Trading Market an additional shares listing
application covering all of the Registrable Securities; (ii) take all steps
necessary to cause such Registrable Securities to be approved for listing on
each Trading Market as soon as possible thereafter; (iii) provide to the
Purchasers evidence of such listing; and (iv) maintain the listing of such
Registrable Securities on each such Trading Market or another Eligible Market.
(h) Prior to any public offering of Registrable Securities, use its
best efforts to register or qualify or cooperate with the selling Purchasers and
each applicable Purchaser Counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or blue sky laws
of such jurisdictions within the United States as any Purchaser requests in
writing, to keep each such registration or qualification (or exemption
therefrom) effective during the Effectiveness Period and to do any and all other
acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by a Registration Statement;
provided, however, that the Company shall not be obligated to file any general
consent to service of process or to qualify as a foreign corporation or as a
dealer in securities in any jurisdiction in which it is not so qualified or to
subject itself to taxation in respect of doing business in any jurisdiction in
which it is not otherwise subject.
(i) Cooperate with the Purchasers to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be delivered to a transferee pursuant to a Registration Statement, which
certificates shall be free, to the extent permitted by this Agreement, of all
restrictive legends, and to enable such Registrable Securities to be in such
denominations and registered in such names as any such Purchasers may request.
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(j) Upon the occurrence of any event described in Section
6.2(c)(vii), as promptly as reasonably possible, prepare a supplement or
amendment, including a post-effective amendment, to the Registration Statement
or a supplement to the related Prospectus or any document incorporated or deemed
to be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither the Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(k) Cooperate with any due diligence investigation undertaken by
the Purchasers in connection with the sale of Registrable Securities, including
without limitation by making available any documents and information; provided
that the Company will not deliver or make available to any Purchaser material,
nonpublic information unless such Purchaser specifically requests in advance to
receive material, nonpublic information in writing.
(l) If Holders of a majority of the Registrable Securities being
offered pursuant to a Registration Statement select underwriters for the
offering, the Company shall enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, by providing customary legal opinions, comfort letters and
indemnification and contribution obligations.
(m) Comply with all applicable rules and regulations of the
Commission.
6.3 REGISTRATION EXPENSES. The Company shall pay (or reimburse the
Purchasers for) all fees and expenses incident to the performance of or
compliance with this Agreement by the Company, including without limitation (a)
all registration and filing fees and expenses, including without limitation
those related to filings with the Commission, any Trading Market and in
connection with applicable state securities or Blue Sky laws, (b) printing
expenses (including without limitation expenses of printing certificates for
Registrable Securities and of printing prospectuses requested by the
Purchasers), (c) messenger, telephone and delivery expenses, (d) reasonable fees
and disbursements of counsel for the Company and up to $10,000 in the aggregate
for the Purchaser Counsels, (e) reasonable fees and expenses of all other
Persons retained by the Company in connection with the consummation of the
transactions contemplated by this Agreement, and (f) all listing fees to be paid
by the Company to the Trading Market.
6.4 INDEMNIFICATION
(a) INDEMNIFICATION BY THE COMPANY. The Company shall,
notwithstanding any termination of this Agreement, except if the termination is
caused by the gross negligence or willful misconduct of a Purchaser, indemnify
and hold harmless each Purchaser, the officers, directors, partners, members,
agents, brokers (including brokers who offer and sell Registrable Securities as
principal as a result of a pledge or any failure to perform under a margin call
of Common Stock), investment advisors and employees of each of them, each Person
who controls any such Purchaser (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) and the officers, directors,
partners, members, agents and employees of each such controlling Person, to the
fullest extent permitted by applicable law, from and against any and all Losses,
24
as incurred, arising out of or relating to any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
Prospectus or any form of prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, or arising out of or relating to any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus or form
of prospectus or supplement thereto, in the light of the circumstances under
which they were made) not misleading, except to the extent, but only to the
extent, that (i) such untrue statements, alleged untrue statements, omissions or
alleged omissions are based solely upon information regarding such Purchaser
furnished in writing to the Company by such Purchaser expressly for use therein,
or to the extent that such information relates to such Purchaser or such
Purchaser's proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Purchaser expressly for use
in the Registration Statement, such Prospectus or such form of Prospectus or in
any amendment or supplement thereto or (ii) in the case of an occurrence of an
event of the type specified in Section 6.2(c)(v)-(vii), the use by such
Purchaser of an outdated or defective Prospectus after the Company has notified
such Purchaser in writing that the Prospectus is outdated or defective and prior
to the receipt by such Purchaser of the Advice contemplated in Section 6.5. The
Company shall notify the Purchasers promptly of the institution, threat or
assertion of any Proceeding of which the Company is aware in connection with the
transactions contemplated by this Agreement.
(b) INDEMNIFICATION BY PURCHASERS. Each Purchaser shall, severally
and not jointly, indemnify and hold harmless the Company, its directors,
officers, agents and employees, each Person who controls the Company (within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act),
and the directors, officers, agents or employees of such controlling Persons, to
the fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising solely out of any untrue statement of a material
fact contained in the Registration Statement, any Prospectus, or any form of
prospectus, or in any amendment or supplement thereto, or arising solely out of
any omission of a material fact required to be stated therein or necessary to
make the statements therein (in the case of any Prospectus or form of prospectus
or supplement thereto, in the light of the circumstances under which they were
made) not misleading to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing by
such Purchaser to the Company specifically for inclusion in such Registration
Statement or such Prospectus or to the extent that (i) such untrue statements or
omissions are based solely upon information regarding such Purchaser furnished
in writing to the Company by such Purchaser expressly for use therein, or to the
extent that such information relates to such Purchaser or such Purchaser's
proposed method of distribution of Registrable Securities and was reviewed and
expressly approved in writing by such Purchaser expressly for use in the
Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto or (ii) in the case of an occurrence of an event
of the type specified in Section 6.2(c)(v)-(vii), the use by such Purchaser of
an outdated or defective Prospectus after the Company has notified such
Purchaser in writing that the Prospectus is outdated or defective and prior to
the receipt by such Purchaser of the Advice contemplated in Section 6.5. In no
event shall the liability of any selling Purchaser hereunder be greater in
amount than the dollar amount of the net proceeds received by such Purchaser
upon the sale of the Registrable Securities giving rise to such indemnification
obligation.
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(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any Proceeding shall
be brought or asserted against any Person entitled to indemnity hereunder (an
"INDEMNIFIED PARTY"), such Indemnified Party shall promptly notify the Person
from whom indemnity is sought (the "INDEMNIFYING PARTY") in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (i) the Indemnifying Party has agreed in
writing to pay such fees and expenses; or (ii) the Indemnifying Party shall have
failed promptly to assume the defense of such Proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Proceeding; or
(iii) the named parties to any such Proceeding (including any impleaded parties)
include both such Indemnified Party and the Indemnifying Party, and such
Indemnified Party shall have been advised by counsel that a conflict of interest
is likely to exist if the same counsel were to represent such Indemnified Party
and the Indemnifying Party (in which case, if such Indemnified Party notifies
the Indemnifying Party in writing that it elects to employ separate counsel at
the expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within ten Trading Days after written notice thereof to the
Indemnifying Party (regardless of whether it is ultimately determined that an
Indemnified Party is not entitled to indemnification hereunder; provided, that
the Indemnifying Party may require such Indemnified Party to undertake to
reimburse all such fees and expenses to the extent it is finally judicially
determined that such Indemnified Party is not entitled to indemnification
hereunder).
(d) CONTRIBUTION. If a claim for indemnification under Section
6.4(a) or (b) is unavailable to an Indemnified Party (by reasons other than the
specified exclusions to indemnification), then each Indemnifying Party, in lieu
of indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Losses, in such proportion
as is appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
26
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 6.4(c), any reasonable attorneys' or
other reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 6.4(d) were determined by pro
rata allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 6.4(d), no Purchaser
shall be required to contribute, in the aggregate, any amount in excess of the
amount by which the proceeds actually received by such Purchaser from the sale
of the Registrable Securities subject to the Proceeding exceeds the amount of
any damages that such Purchaser has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this
Section are in addition to any liability that the Indemnifying Parties may have
to the Indemnified Parties.
6.5 DISPOSITIONS. Each Purchaser agrees that it will comply with the
prospectus delivery requirements of the Securities Act as applicable to it in
connection with sales of Registrable Securities pursuant to the Registration
Statement. Each Purchaser further agrees that, upon receipt of a notice from the
Company of the occurrence of any event of the kind described in Sections
6.2(c)(v), (vi) or (vii), such Purchaser will discontinue disposition of such
Registrable Securities under the Registration Statement until such Purchaser's
receipt of the copies of the supplemented Prospectus and/or amended Registration
Statement contemplated by Section 6.2(j), or until it is advised in writing (the
"ADVICE") by the Company that the use of the applicable Prospectus may be
resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus or Registration Statement. The Company may provide
appropriate stop orders to enforce the provisions of this paragraph.
6.6 NO PIGGYBACK ON REGISTRATIONS. Neither the Company nor any of its
security holders (other than the Purchasers in such capacity pursuant hereto)
may include securities of the Company in the Registration Statement other than
the Registrable Securities, and the Company shall not after the date hereof
enter into any agreement providing any such right to any of its security
holders.
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6.7 PIGGY-BACK REGISTRATIONS. If at any time during the Effectiveness
Period there is not an effective Registration Statement covering all of the
Registrable Securities and the Company shall determine to prepare and file with
the Commission a registration statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each Purchaser written notice of
such determination and if, within fifteen days after receipt of such notice, any
such Purchaser shall so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities such
Purchaser requests to be registered.
ARTICLE VII
MISCELLANEOUS
7.1 TERMINATION. This Agreement may be terminated by the Company or any
Purchaser, by written notice to the other parties, if the Closing has not been
consummated by the third Trading Day following the date of this Agreement;
provided that no such termination will affect the right of any party to xxx for
any breach by the other party (or parties).
7.2 FEES AND EXPENSES. At the Closing, the Company shall pay to
Mainfield Enterprises, Inc. an aggregate of $30,000 for their legal fees and
expenses incurred in connection with the preparation and negotiation of the
Transaction Documents. In lieu of the foregoing payment, Mainfield Enterprises,
Inc. may retain such amount at the Closing or require the Company to pay such
amount directly to Proskauer Rose LLP. Except as expressly set forth in the
Transaction Documents to the contrary, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall pay all Transfer Agent fees, stamp taxes and other taxes and duties levied
in connection with the issuance of the Securities.
7.3 ENTIRE AGREEMENT. The Transaction Documents, together with the
Exhibits and Schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules. At or
after the Closing, and without further consideration, the Company will execute
and deliver to the Purchasers such further documents as may be reasonably
requested in order to give practical effect to the intention of the parties
under the Transaction Documents. Notwithstanding anything to the contrary
herein, Securities may be assigned to any Person in connection with a bona fide
margin account or other loan or financing arrangement secured by such Company
Securities.
7.4 NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified in this Section prior to 6:30 p.m. (New York City time) on a Trading
Day, (b) the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section on a day that is not a Trading Day or later than 6:30 p.m. (New
York City time) on any Trading Day, (c) the Trading Day following the date of
28
mailing, if sent by U.S. nationally recognized overnight courier service, or (d)
upon actual receipt by the party to whom such notice is required to be given.
The addresses and facsimile numbers for such notices and communications are
those set forth on the signature pages hereof, or such other address or
facsimile number as may be designated in writing hereafter, in the same manner,
by such Person.
7.5 AMENDMENTS; WAIVERS. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by the Company and each of the Purchasers or, in the case of a waiver, by the
party against whom enforcement of any such waiver is sought. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right.
Notwithstanding the foregoing, a waiver or consent to depart from the provisions
hereof with respect to a matter that relates exclusively to the rights of
Purchasers under Article VI and that does not directly or indirectly affect the
rights of other Purchasers may be given by Purchasers holding at least a
majority of the Registrable Securities to which such waiver or consent relates.
7.6 CONSTRUCTION. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
7.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers. Any Purchaser may assign
its rights under this Agreement to any Person to whom such Purchaser assigns or
transfers any Securities, provided such transferee agrees in writing to be
bound, with respect to the transferred Securities, by the provisions hereof that
apply to the "Purchasers." Notwithstanding anything to the contrary herein,
Securities may be assigned to any Person in connection with a bona fide margin
account or other loan or financing arrangement secured by such Securities.
7.8 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except that each Related Person is an intended third party
beneficiary of Section 4.8 and each Indemnified Party is an intended third party
beneficiary of Section 6.4 and (in each case) may enforce the provisions of such
Sections directly against the parties with obligations thereunder.
7.9 GOVERNING LAW; VENUE; WAIVER OF JURY TRAIL. ALL QUESTIONS
CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
29
LAWS OF THE STATE OF NEW YORK. THE COMPANY AND PURCHASERS HEREBY IRREVOCABLY
SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN
THE CITY OF NEW YORK, BOROUGH OF MANHATTAN FOR THE ADJUDICATION OF ANY DISPUTE
BROUGHT BY THE COMPANY OR ANY PURCHASER HEREUNDER, IN CONNECTION HEREWITH OR
WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN (INCLUDING WITH
RESPECT TO THE ENFORCEMENT OF ANY OF THE TRANSACTION DOCUMENTS), AND HEREBY
IRREVOCABLY WAIVE, AND AGREE NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING
BROUGHT BY THE COMPANY OR ANY PURCHASER, ANY CLAIM THAT IT IS NOT PERSONALLY
SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, OR THAT SUCH SUIT, ACTION OR
PROCEEDING IS IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF
PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR
PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR
OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN
EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL
CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING
CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS
IN ANY MANNER PERMITTED BY LAW. THE COMPANY AND PURCHASERS HEREBY WAIVE ALL
RIGHTS TO A TRIAL BY JURY.
7.10 SURVIVAL. The representations, warranties, agreements and
covenants contained herein shall survive the Closing and the delivery and/or
exercise of the Securities, as applicable.
7.11 EXECUTION. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
7.12 SEVERABILITY. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
7.13 RESCISSION AND WITHDRAWAL RIGHT. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights.
30
7.14 REPLACEMENT OF SECURITIES. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
7.15 REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
7.16 PAYMENT SET ASIDE. To the extent that the Company makes a payment
or payments to any Purchaser hereunder or pursuant to the Warrants or any
Purchaser enforces or exercises its rights hereunder or thereunder, and such
payment or payments or the proceeds of such enforcement or exercise or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside, recovered from, disgorged by or are required to be refunded, repaid
or otherwise restored to the Company by a trustee, receiver or any other Person
under any law (including, without limitation, any bankruptcy law, state or
federal law, common law or equitable cause of action), then to the extent of any
such restoration the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.
7.17 ADJUSTMENTS IN SHARE NUMBERS AND PRICES. In the event of any stock
split, subdivision, dividend or distribution payable in shares of Common Stock
(or other securities or rights convertible into, or entitling the holder thereof
to receive directly or indirectly shares of Common Stock), combination or other
similar recapitalization or event occurring after the date hereof, each
reference in any Transaction Document to a number of shares or a price per share
shall be amended to appropriately account for such event.
7.18 INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. The decision of each Purchaser to
purchase Shares pursuant to this Agreement has been made by such Purchaser
independently of any other Purchaser and independently of any information,
materials, statements or opinions as to the business, affairs, operations,
assets, properties, liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company or of the Subsidiary which may have been
made or given by any other Purchaser or by any agent or employee of any other
Purchaser, and no Purchaser or any of its agents or employees shall have any
liability to any other Purchaser (or any other Person) relating to or arising
from any such information, materials, statements or opinions. Nothing contained
herein or in any Transaction Document, and no action taken by any Purchaser
31
pursuant thereto, shall be deemed to constitute the Purchasers as a partnership,
an association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Document. Each Purchaser acknowledges that no other Purchaser has
acted as agent for such Purchaser in connection with making its investment
hereunder and that no other Purchaser will be acting as agent of such Purchaser
in connection with monitoring its investment hereunder. Each Purchaser shall be
entitled to independently protect and enforce its rights, including without
limitation the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose.
[Signature pages to follow]
32
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Medifast, INC.
By: __________________________
Name:
Title:
Address for Notice:
00000 Xxxxxxxx Xxxxx
Xxxxx Xxxxx, Xxxxxxxx 00000
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
Attn: [Xxxxxx XxXxxxxx]
With a copy to: Xxxxxx Xxxxxx Giacovas & Kranjac LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
Attn: Xxxxx X. Xxxxxxx, Esquire
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOR PURCHASERS FOLLOW]
Mainfield Enterprises, Inc.
By: __________________________
Name:
Title:
Purchase Price: $5,270,000
Number of Shares to be acquired: 425,000
Underlying Shares subject to Warrant: 63,750
Address for Notice:
Mainfield Enterprises, Inc.
c/o Sage Capital Growth, Inc.
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
Attn: Eldad Gal
With a copy to: Proskauer Rose LLP
0000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
Attn: Xxxx X. Xxxxxxx, Esquire
PORTSIDE GROWTH & OPPORTUNITY FUND
By: __________________________
Name:
Title:
Purchase Price: $1,550,000
Number of Shares to be acquired: 125,000
Underlying Shares subject to Warrant:18,750
Address for Notice:
x/x Xxxxxx Xxxxxxx Xxxxxx, X.X.X
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
Attn: Xxxxxxx X. Xxxxxxx
Xxxxxxx Xxxxx
Exhibits:
---------
A Form of Warrant
B Opinion of Company Counsel
C Plan of Distribution
D Transfer Agent Instructions
E Lock-up Letter
EXHIBIT A-I
NEITHER THESE SECURITIES NOR THE SECURITIES FOR WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE
SECURITIES OR BLUE SKY LAWS. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON
EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
MEDIFAST, INC.
WARRANT
-------
Warrant No. 1 Dated: July 24, 2003
Medifast, Inc., a Delaware corporation (the "COMPANY"), hereby
certifies that, for value received, Mainfield Enterprises, Inc. or its
registered assigns (the "HOLDER"), is entitled to purchase from the Company up
to a total of 63,750 shares of common stock, $.001 par value per share (the
"COMMON STOCK"), of the Company (each such share, a "WARRANT SHARE" and all such
shares, the "WARRANT SHARES") at an exercise price equal to $16.78 per share (as
adjusted from time to time as provided in Section 9, the "EXERCISE PRICE"), at
any time and from time to time from and after the date hereof and through and
including the date that is five years from the date of issuance hereof (the
"EXPIRATION DATE"), and subject to the following terms and conditions. This
Warrant (this "WARRANT") is one of a series of similar warrants issued pursuant
to that certain Securities Purchase Agreement, dated as of the date hereof, by
and among the Company and the Purchasers identified therein (the "PURCHASE
AGREEMENT"). All such warrants are referred to herein, collectively, as the
"WARRANTS."
1. DEFINITIONS. In addition to the terms defined elsewhere in this
Warrant, capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Purchase Agreement.
2. REGISTRATION OF WARRANT. The Company shall register this Warrant,
upon records to be maintained by the Company for that purpose (the "WARRANT
REGISTER"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, absent actual notice to the contrary.
3. REGISTRATION OF TRANSFERS. The Company shall register the transfer
of any portion of this Warrant in the Warrant Register, upon surrender of this
Warrant, with the Form of Assignment attached hereto duly completed and signed,
to the Transfer Agent or to the Company at its address specified herein. Upon
any such registration or transfer, a new warrant to purchase Common Stock, in
substantially the form of this Warrant (any such new warrant, a "NEW WARRANT"),
evidencing the portion of this Warrant so transferred shall be issued to the
transferee and a New Warrant evidencing the remaining portion of this Warrant
not so transferred, if any, shall be issued to the transferring Holder. The
acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance by such transferee of all of the rights and obligations of a holder
of a Warrant.
4. EXERCISE AND DURATION OF WARRANTS.
(a) This Warrant shall be exercisable by the registered Holder at
any time and from time to time on or after the date hereof to and including the
Expiration Date. At 6:30 P.M., New York City time on the Expiration Date, the
portion of this Warrant not exercised prior thereto shall be and become void and
of no value; provided that, if the average of the Closing Prices for the five
Trading Days immediately prior to (but not including) the Expiration Date
exceeds the Exercise Price on the Expiration Date, then this Warrant shall be
deemed to have been exercised in full (to the extent not previously exercised)
on a "cashless exercise" basis at 6:30 P.M. New York City time on the Expiration
Date if a "cashless exercise" may occur at such time pursuant to Section 10
below. Notwithstanding anything to the contrary herein, the Expiration Date
shall be extended for each day following the Effective Date that the
Registration Statement is not effective.
(b) A Holder may exercise this Warrant by delivering to the Company
(i) an exercise notice, in the form attached hereto (the "EXERCISE NOTICE"),
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares as to which this Warrant is being exercised
(which may take the form of a "cashless exercise" if so indicated in the
Exercise Notice and if a "cashless exercise" may occur at such time pursuant to
this Section 10 below), and the date such items are delivered to the Company (as
determined in accordance with the notice provisions hereof) is an "EXERCISE
DATE." The Holder shall not be required to deliver the original Warrant in order
to effect an exercise hereunder. Execution and delivery of the Exercise Notice
shall have the same effect as cancellation of the original Warrant and issuance
of a New Warrant evidencing the right to purchase the remaining number of
Warrant Shares.
5. DELIVERY OF WARRANT SHARES.
(a) Upon exercise of this Warrant, the Company shall promptly (but
in no event later than three Trading Days after the Exercise Date) issue or
cause to be issued and cause to be delivered to or upon the written order of the
Holder and in such name or names as the Holder may designate, a certificate for
the Warrant Shares issuable upon such exercise, free of restrictive legends
unless a registration statement covering the resale of the Warrant Shares and
naming the Holder as a selling stockholder thereunder is not then effective and
the Warrant Shares are not freely transferable without volume restrictions
pursuant to Rule 144 under the Securities Act. The Holder, or any Person so
designated by the Holder to receive Warrant Shares, shall be deemed to have
become holder of record of such Warrant Shares as of the Exercise Date. The
Company shall, upon request of the Holder, use its best efforts to deliver
2
Warrant Shares hereunder electronically through the Depository Trust Corporation
or another established clearing corporation performing similar functions.
(b) This Warrant is exercisable, either in its entirety or, from
time to time, for a portion of the number of Warrant Shares. Upon surrender of
this Warrant following one or more partial exercises, the Company shall issue or
cause to be issued, at its expense, a New Warrant evidencing the right to
purchase the remaining number of Warrant Shares.
(c) In addition to any other rights available to a Holder, if the
Company fails to deliver to the Holder a certificate representing Warrant Shares
by the third Trading Day after the date on which delivery of such certificate is
required by this Warrant, and if after such third Trading Day the Holder
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the Holder of the Warrant Shares that the
Holder anticipated receiving from the Company (a "BUY-IN"), then the Company
shall, within three Trading Days after the Holder's request and in the Holder's
discretion, either (i) pay cash to the Holder in an amount equal to the Holder's
total purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased (the "BUY-IN PRICE"), at which point the Company's
obligation to deliver such certificate (and to issue such Common Stock) shall
terminate, or (ii) promptly honor its obligation to deliver to the Holder a
certificate or certificates representing such Common Stock and pay cash to the
Holder in an amount equal to the excess (if any) of the Buy-In Price over the
product of (A) such number of shares of Common Stock, times (B) the Closing
Price on the date of the event giving rise to the Company's obligation to
deliver such certificate.
(d) The Company's obligations to issue and deliver Warrant Shares
in accordance with the terms hereof are absolute and unconditional, irrespective
of any action or inaction by the Holder to enforce the same, any waiver or
consent with respect to any provision hereof, the recovery of any judgment
against any Person or any action to enforce the same, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by the Holder or any other Person of any obligation to the Company or any
violation or alleged violation of law by the Holder or any other Person, and
irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with the issuance of
Warrant Shares. Nothing herein shall limit a Holder's right to pursue any other
remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with
respect to the Company's failure to timely deliver certificates representing
shares of Common Stock upon exercise of the Warrant as required pursuant to the
terms hereof.
6. CHARGES, TAXES AND EXPENSES. Issuance and delivery of certificates
for shares of Common Stock upon exercise of this Warrant shall be made without
charge to the Holder for any issue or transfer tax, withholding tax, transfer
agent fee or other incidental tax or expense in respect of the issuance of such
certificates, all of which taxes and expenses shall be paid by the Company;
provided, however, that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the registration of any
certificates for Warrant Shares or Warrants in a name other than that of the
Holder or an Affiliate thereof. The Holder shall be responsible for all other
tax liability that may arise as a result of holding or transferring this Warrant
or receiving Warrant Shares upon exercise hereof.
3
7. REPLACEMENT OF WARRANT. If this Warrant is mutilated, lost, stolen
or destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary and
reasonable indemnity, if requested. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable third-party costs as the Company may
prescribe.
8. RESERVATION OF WARRANT SHARES. The Company covenants that it will at
all times reserve and keep available out of the aggregate of its authorized but
unissued and otherwise unreserved Common Stock, solely for the purpose of
enabling it to issue Warrant Shares upon exercise of this Warrant as herein
provided, the number of Warrant Shares which are then issuable and deliverable
upon the exercise of this entire Warrant, free from preemptive rights or any
other contingent purchase rights of persons other than the Holder (taking into
account the adjustments and restrictions of Section 9). The Company covenants
that all Warrant Shares so issuable and deliverable shall, upon issuance and the
payment of the applicable Exercise Price in accordance with the terms hereof, be
duly and validly authorized, issued and fully paid and nonassessable. The
Company will take all such action as may be necessary to assure that such shares
of Common Stock may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of any securities exchange
or automated quotation system upon which the Common Stock may be listed.
9. CERTAIN ADJUSTMENTS. The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to
time as set forth in this Section 9.
(a) STOCK DIVIDENDS AND SPLITS. If the Company, at any time while
this Warrant is outstanding, (i) pays a stock dividend on its Common Stock or
otherwise makes a distribution on any class of capital stock that is payable in
shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into
a larger number of shares, or (iii) combines outstanding shares of Common Stock
into a smaller number of shares, then in each such case the Exercise Price shall
be multiplied by a fraction of which the numerator shall be the number of shares
of Common Stock outstanding immediately before such event and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately after such event. Any adjustment made pursuant to clause (i) of this
paragraph shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution,
and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall
become effective immediately after the effective date of such subdivision or
combination.
(b) PRO RATA DISTRIBUTIONS. If the Company, at any time while this
Warrant is outstanding, distributes to holders of Common Stock (i) evidences of
its indebtedness, (ii) any security (other than a distribution of Common Stock
covered by the preceding paragraph), (iii) rights or warrants to subscribe for
or purchase any security, or (iv) any other asset (in each case, "DISTRIBUTED
PROPERTY"), then in each such case the Exercise Price in effect immediately
prior to the record date fixed for determination of stockholders entitled to
receive such distribution shall be adjusted (effective on such record date) to
equal the product of such Exercise Price times a fraction of which the
denominator shall be the average of the Closing Prices for the five Trading Days
4
immediately prior to (but not including) such record date and of which the
numerator shall be such average less the then fair market value of the
Distributed Property distributed in respect of one outstanding share of Common
Stock, as determined by the Company's independent certified public accountants
that regularly examine the financial statements of the Company (an "APPRAISER").
In such event, the Holder, after receipt of the determination by the Appraiser,
shall have the right to select an additional appraiser (which shall be a
nationally recognized accounting firm), in which case such fair market value
shall be deemed to equal the average of the values determined by each of the
Appraiser and such appraiser. As an alternative to the foregoing adjustment to
the Exercise Price, at the request of the Holder delivered before the 90th day
after such record date, the Company will deliver to such Holder, within five
Trading Days after such request (or, if later, on the effective date of such
distribution), the Distributed Property that such Holder would have been
entitled to receive in respect of the Warrant Shares for which this Warrant
could have been exercised immediately prior to such record date. If such
Distributed Property is not delivered to a Holder pursuant to the preceding
sentence, then upon expiration of or any exercise of the Warrant that occurs
after such record date, such Holder shall remain entitled to receive, in
addition to the Warrant Shares otherwise issuable upon such exercise (if
applicable), such Distributed Property.
(c) FUNDAMENTAL TRANSACTIONS. If, at any time while this Warrant is
outstanding, (i) the Company effects any merger or consolidation of the Company
with or into another Person, (ii) the Company effects any sale of all or
substantially all of its assets in one or a series of related transactions,
(iii) any tender offer or exchange offer (whether by the Company or another
Person) is completed pursuant to which holders of Common Stock are permitted to
tender or exchange their shares for other securities, cash or property, or (iv)
the Company effects any reclassification of the Common Stock or any compulsory
share exchange pursuant to which the Common Stock is effectively converted into
or exchanged for other securities, cash or property (other than as a result of a
subdivision or combination of shares of Common Stock covered by Section 9(a)
above) (in any such case, a "FUNDAMENTAL TRANSACTION"), then the Holder shall
have the right thereafter to receive, upon exercise of this Warrant, the same
amount and kind of securities, cash or property as it would have been entitled
to receive upon the occurrence of such Fundamental Transaction if it had been,
immediately prior to such Fundamental Transaction, the holder of the number of
Warrant Shares then issuable upon exercise in full of this Warrant (the
"ALTERNATE CONSIDERATION"). The aggregate Exercise Price for this Warrant will
not be affected by any such Fundamental Transaction, but the Company shall
apportion such aggregate Exercise Price among the Alternate Consideration in a
reasonable manner reflecting the relative value of any different components of
the Alternate Consideration. If holders of Common Stock are given any choice as
to the securities, cash or property to be received in a Fundamental Transaction,
then the Holder shall be given the same choice as to the Alternate Consideration
it receives upon any exercise of this Warrant following such Fundamental
Transaction. At the Holder's request, any successor to the Company or surviving
entity in such Fundamental Transaction shall issue to the Holder a new warrant
consistent with the foregoing provisions and evidencing the Holder's right to
purchase the Alternate Consideration for the aggregate Exercise Price upon
exercise thereof. The terms of any agreement pursuant to which a Fundamental
Transaction is effected shall include terms requiring any such successor or
surviving entity to comply with the provisions of this paragraph (c) and
insuring that the Warrant (or any such replacement security) will be similarly
adjusted upon any subsequent transaction analogous to a Fundamental Transaction.
If any Fundamental Transaction constitutes or results in a Change of Control,
5
then at the request of the Holder delivered before the 90th day after such
Fundamental Transaction, the Company (or any such successor or surviving entity)
will purchase the Warrant from the Holder for a purchase price, payable in cash
within five Trading Days after such request (or, if later, on the effective date
of the Fundamental Transaction), equal to the Black Scholes value of the
remaining unexercised portion of this Warrant on the date of such request.
(d) SUBSEQUENT EQUITY SALES.
(i) If, at any time while this Warrant is outstanding, the
Company or any Subsidiary issues additional shares of Common Stock or
rights, warrants, options or other securities or debt convertible,
exercisable or exchangeable for shares of Common Stock or otherwise
entitling any Person to acquire shares of Common Stock (collectively,
"COMMON STOCK EQUIVALENTS") at an effective net price to the Company
per share of Common Stock (the "EFFECTIVE PRICE") less than the
Exercise Price (as adjusted hereunder to such date), then the Exercise
Price shall be reduced to equal the Effective Price. If, at any time
while this Warrant is outstanding, the Company or any Subsidiary issues
Common Stock or Common Stock Equivalents at an Effective Price greater
than the Exercise Price (as adjusted hereunder to such date) but less
than the average Closing Price over the five Trading Days prior to such
issuance (the "ADJUSTMENT PRICE"), then the Exercise Price shall be
reduced to equal the product of (A) the Exercise Price in effect
immediately prior to such issuance of Common Stock or Common Stock
Equivalents times (B) a fraction, the numerator of which is the sum of
(1) the number of shares of Common Stock outstanding immediately prior
to such issuance, plus (2) the number of shares of Common Stock which
the aggregate Effective Price of the Common Stock issued (or deemed to
be issued) would purchase at the Adjustment Price, and the denominator
of which is the aggregate number of shares of Common Stock outstanding
or deemed to be outstanding immediately after such issuance. For
purposes of this paragraph, in connection with any issuance of any
Common Stock Equivalents, (A) the maximum number of shares of Common
Stock potentially issuable at any time upon conversion, exercise or
exchange of such Common Stock Equivalents (the "DEEMED NUMBER") shall
be deemed to be outstanding upon issuance of such Common Stock
Equivalents, (B) the Effective Price applicable to such Common Stock
shall equal the minimum dollar value of consideration payable to the
Company to purchase such Common Stock Equivalents and to convert,
exercise or exchange them into Common Stock (net of any discounts,
fees, commissions and other expenses), divided by the Deemed Number,
and (C) no further adjustment shall be made to the Exercise Price upon
the actual issuance of Common Stock upon conversion, exercise or
exchange of such Common Stock Equivalents.
(ii) If, at any time while this Warrant is outstanding, the
Company or any Subsidiary issues Common Stock Equivalents with an
Effective Price or a number of underlying shares that floats or resets
or otherwise varies or is subject to adjustment based (directly or
indirectly) on market prices of the Common Stock (a "FLOATING PRICE
SECURITY"), then for purposes of applying the preceding paragraph in
connection with any subsequent exercise, the Effective Price will be
determined separately on each Exercise Date and will be deemed to equal
the lowest Effective Price at which any holder of such Floating Price
6
Security is entitled to acquire Common Stock on such Exercise Date
(regardless of whether any such holder actually acquires any shares on
such date).
(iii) Notwithstanding the foregoing, no adjustment will be
made under this paragraph (d) in respect of any Excluded Stock.
(e) NUMBER OF WARRANT SHARES. Simultaneously with any adjustment to
the Exercise Price pursuant to paragraphs (a), (b) or (d) of this Section, the
number of Warrant Shares that may be purchased upon exercise of this Warrant
shall be increased or decreased proportionately, so that after such adjustment
the aggregate Exercise Price payable hereunder for the increased or decreased
number of Warrant Shares shall be the same as the aggregate Exercise Price in
effect immediately prior to such adjustment.
(f) CALCULATIONS. All calculations under this Section 9 shall be
made to the nearest cent or the nearest 1/100th of a share, as applicable. The
number of shares of Common Stock outstanding at any given time shall not include
shares owned or held by or for the account of the Company, and the disposition
of any such shares shall be considered an issue or sale of Common Stock.
(g) NOTICE OF ADJUSTMENTS. Upon the occurrence of each adjustment
pursuant to this Section 9, the Company at its expense will promptly compute
such adjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such adjustment, including a statement of the adjusted
Exercise Price and adjusted number or type of Warrant Shares or other securities
issuable upon exercise of this Warrant (as applicable), describing the
transactions giving rise to such adjustments and showing in detail the facts
upon which such adjustment is based. Upon written request, the Company will
promptly deliver a copy of each such certificate to the Holder and to the
Company's Transfer Agent.
(h) NOTICE OF CORPORATE EVENTS. If the Company (i) declares a
dividend or any other distribution of cash, securities or other property in
respect of its Common Stock, including without limitation any granting of rights
or warrants to subscribe for or purchase any capital stock of the Company or any
Subsidiary, (ii) authorizes or approves, enters into any agreement contemplating
or solicits stockholder approval for any Fundamental Transaction or (iii)
authorizes the voluntary dissolution, liquidation or winding up of the affairs
of the Company, then the Company shall deliver to the Holder a notice describing
the material terms and conditions of such transaction, at least 20 calendar days
prior to the applicable record or effective date on which a Person would need to
hold Common Stock in order to participate in or vote with respect to such
transaction, and the Company will take all steps reasonably necessary in order
to insure that the Holder is given the practical opportunity to exercise this
Warrant prior to such time so as to participate in or vote with respect to such
transaction; provided, however, that the failure to deliver such notice or any
defect therein shall not affect the validity of the corporate action required to
be described in such notice.
10. PAYMENT OF EXERCISE PRICE. The Holder shall pay the Exercise Price
in immediately available funds; provided, however, if the Registration Statement
did not become effective on or before the Required Effectiveness Date and is not
continuously effective through the Expiration Date, the Holder may satisfy its
7
obligation to pay the Exercise Price through a "cashless exercise," in which
event the Company shall issue to the Holder the number of Warrant Shares
determined as follows:
X = Y [(A-B)/A]
where:
X = the number of Warrant Shares to
be issued to the Holder.
Y = the number of Warrant Shares with
respect to which this Warrant is
being exercised.
A = the average of the Closing Prices
for the five Trading Days immediately
prior to (but not including) the
Exercise Date.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act,
it is intended, understood and acknowledged that the Warrant Shares issued in a
cashless exercise transaction shall be deemed to have been acquired by the
Holder, and the holding period for the Warrant Shares shall be deemed to have
commenced, on the date this Warrant was originally issued pursuant to the
Purchase Agreement.
11. LIMITATION ON EXERCISE. Notwithstanding anything to the contrary
contained herein, the number of shares of Common Stock that may be acquired by
the Holder upon any exercise of this Warrant (or otherwise in respect hereof)
shall be limited to the extent necessary to insure that, following such exercise
(or other issuance), the total number of shares of Common Stock then
beneficially owned by such Holder and its Affiliates and any other Persons whose
beneficial ownership of Common Stock would be aggregated with the Holder's for
purposes of Section 13(d) of the Exchange Act, does not exceed 9.999% (the
"MAXIMUM PERCENTAGE") of the total number of issued and outstanding shares of
Common Stock (including for such purpose the shares of Common Stock issuable
upon such exercise). For such purposes, beneficial ownership shall be determined
in accordance with Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder. Each delivery of an Exercise Notice
hereunder will constitute a representation by the Holder that it has evaluated
the limitation set forth in this paragraph and determined that issuance of the
full number of Warrant Shares requested in such Exercise Notice is permitted
under this paragraph. The Company's obligation to issue shares of Common Stock
in excess of the limitation referred to in this Section shall be suspended (and
shall not terminate or expire notwithstanding any contrary provisions hereof)
until such time, if any, as such shares of Common Stock may be issued in
compliance with such limitation. By written notice to the Company, the Holder
may waive the provisions of this Section or increase or decrease the Maximum
Percentage to any other percentage specified in such notice, but (i) any such
waiver or increase will not be effective until the 61st day after such notice is
delivered to the Company, and (ii) any such waiver or increase or decrease will
apply only to the Holder and not to any other holder of Warrants.
(b) Notwithstanding anything to the contrary contained herein, if
the Trading Market is the New York Stock Exchange or any other market or
exchange with similar applicable rules, then the maximum number of shares of
8
Common Stock that the Company may issue pursuant to the Transaction Documents at
an effective purchase price less than the Closing Price on the Trading Day
immediately preceding the Closing Date equals 19.99% of the outstanding shares
of Common Stock (the "ISSUABLE MAXIMUM"), unless the Company obtains stockholder
approval in accordance with the rules and regulations of such Trading Market.
If, at the time any Holder requests an exercise of any of the Warrants, the
Actual Minimum (excluding any shares issued or issuable at an effective purchase
price in excess of the Closing Price on the Trading Day immediately preceding
the Closing Date) exceeds the Issuable Maximum (and if the Company has not
previously obtained the required stockholder approval), then the Company shall
issue to the Holder requesting such exercise a number of shares of Common Stock
not exceeding such Holder's pro-rata portion of the Issuable Maximum (based on
such Holder's share (vis-a-vis other Holders) of the aggregate purchase price
paid under the Purchase Agreement and taking into account any Warrant Shares
previously issued to such Holder), and the remainder of the Warrant Shares
issuable in connection with such exercise or conversion (if any) shall
constitute "Excess Shares" pursuant to Section 11(c) below. For the purposes
hereof, "ACTUAL MINIMUM" shall mean, as of any date, the maximum aggregate
number of shares of Common Stock then issued or potentially issuable in the
future pursuant to the Transaction Documents, including any Underlying Shares
issuable upon exercise in full of all Warrants, ignoring any limits on the
number of shares of Common Stock that may be owned by a Holder at any one time.
(c) In the event that any Holder's receipt of shares of Common
Stock upon exercise of this Warrant is restricted based on the Issuable Maximum,
the Company shall either: (i) use its best efforts to obtain the required
stockholder approval necessary to permit the issuance of such Excess Shares as
soon as is reasonably possible, but in any event not later than the 60th day
after the event giving rise to such Excess Shares, or (ii) within five Trading
Days after such event, pay cash to such Holder, as liquidated damages and not as
a penalty, in an amount equal to the difference between the Black Scholes value
of this Warrant assuming the limitations in Section 11(b) were not applicable
and the Black Scholes value of this Warrant after giving effect to the
limitations in Section 11(b), measured as of the date of such event or, if
greater, the date of payment (such difference, the "CASH AMOUNT"). If the
Company elects the first option under the preceding sentence and the Company
fails to obtain the required stockholder approval on or prior to the 60th day
after such event, then within three Trading Days after such 60th day, the
Company shall pay the Cash Amount to such Holder, as liquidated damages and not
as a penalty.
12. FRACTIONAL SHARES. The Company shall not be required to issue or
cause to be issued fractional Warrant Shares on the exercise of this Warrant. If
any fraction of a Warrant Share would, except for the provisions of this
Section, be issuable upon exercise of this Warrant, the number of Warrant Shares
to be issued will be rounded up to the nearest whole share.
13. NOTICES. Any and all notices or other communications or deliveries
hereunder (including without limitation any Exercise Notice) shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section prior to 6:30 p.m. (New York City
time) on a Trading Day, (ii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section on a day that is not a Trading Day or
9
later than 6:30 p.m. (New York City time) on any Trading Day, (iii) the Trading
Day following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is
required to be given. The address for such notices or communications shall be as
set forth in the Purchase Agreement.
14. WARRANT AGENT. The Company shall serve as warrant agent under this
Warrant. Upon 30 days' notice to the Holder, the Company may appoint a new
warrant agent. Any corporation into which the Company or any new warrant agent
may be merged or any corporation resulting from any consolidation to which the
Company or any new warrant agent shall be a party or any corporation to which
the Company or any new warrant agent transfers substantially all of its
corporate trust or stockholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder's last
address as shown on the Warrant Register.
15. MISCELLANEOUS.
(a) Subject to the restrictions on transfer set forth on the first
page hereof, this Warrant may be assigned by the Holder. This Warrant may not be
assigned by the Company except to a successor in the event of a Fundamental
Transaction. This Warrant shall be binding on and inure to the benefit of the
parties hereto and their respective successors and assigns. Subject to the
preceding sentence, nothing in this Warrant shall be construed to give to any
Person other than the Company and the Holder any legal or equitable right,
remedy or cause of action under this Warrant. This Warrant may be amended only
in writing signed by the Company and the Holder and their successors and
assigns.
(b) The Company will not, by amendment of its governing documents
or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this Warrant,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the Holder against impairment. Without limiting the
generality of the foregoing, the Company (i) will not increase the par value of
any Warrant Shares above the amount payable therefor on such exercise, (ii) will
take all such action as may be reasonably necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable Warrant
Shares on the exercise of this Warrant, and (iii) will not close its stockholder
books or records in any manner which interferes with the timely exercise of this
Warrant.
(C) GOVERNING LAW; VENUE; WAIVER OF JURY TRIAL. ALL QUESTIONS
CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS
WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF
NEW YORK, BOROUGH OF MANHATTAN, FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR
IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED
10
HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THE TRANSACTION
DOCUMENTS), AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT,
ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS
IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND
CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY
MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY
(WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES
TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD
AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN
SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER
PERMITTED BY LAW. THE COMPANY HEREBY WAIVES ALL RIGHTS TO A TRIAL BY JURY.
(d) The headings herein are for convenience only, do not constitute
a part of this Warrant and shall not be deemed to limit or affect any of the
provisions hereof.
(e) In case any one or more of the provisions of this Warrant shall
be invalid or unenforceable in any respect, the validity and enforceability of
the remaining terms and provisions of this Warrant shall not in any way be
affected or impaired thereby and the parties will attempt in good faith to agree
upon a valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
11
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
MEDIFAST, INC.
By:_________________________
Name:_______________________
Title:______________________
12
FORM OF EXERCISE NOTICE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To: Medifast, Inc.
The undersigned is the Holder of Warrant No. _______ (the "WARRANT") issued by
Medifast, Inc., a Delaware corporation (the "COMPANY"). Capitalized terms used
herein and not otherwise defined have the respective meanings set forth in the
Warrant.
1. The Warrant is currently exercisable to purchase a total of
______________ Warrant Shares.
2. The undersigned Holder hereby exercises its right to purchase
_________________ Warrant Shares pursuant to the Warrant.
3. The Holder intends that payment of the Exercise Price shall be made as
(check one):
____ "Cash Exercise" under Section 10
____ "Cashless Exercise" under Section 10 (if
permitted)
4. If the holder has elected a Cash Exercise, the holder shall pay the sum
of $____________ to the Company in accordance with the terms of the
Warrant.
5. Pursuant to this exercise, the Company shall deliver to the holder
_______________ Warrant Shares in accordance with the terms of the
Warrant.
6. Following this exercise, the Warrant shall be exercisable to purchase
a total of ______________ Warrant Shares.
Dated: , Name of Holder:
--------------------- -------
(Print)______________________
By:__________________________
Name:________________________
Title:_______________________
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant)
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of Medifast, Inc. to
which the within Warrant relates and appoints ________________ attorney to
transfer said right on the books of Medifast, Inc. with full power of
substitution in the premises.
Dated: ,
--------------------- ------
-----------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant)
-----------------------------------
Address of Transferee
-----------------------------------
-----------------------------------
In the presence of:
-------------------------------
EXHIBIT A-II
NEITHER THESE SECURITIES NOR THE SECURITIES FOR WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE
SECURITIES OR BLUE SKY LAWS. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON
EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
MEDIFAST, INC.
WARRANT
Warrant No. 2 Dated: July 24, 2003
Medifast, Inc., a Delaware corporation (the "COMPANY"), hereby
certifies that, for value received, Portside Growth & Opportunity Fund or its
registered assigns (the "HOLDER"), is entitled to purchase from the Company up
to a total of 18,750 shares of common stock, $.001 par value per share (the
"COMMON STOCK"), of the Company (each such share, a "WARRANT SHARE" and all such
shares, the "WARRANT SHARES") at an exercise price equal to $16.78 per share (as
adjusted from time to time as provided in Section 9, the "EXERCISE PRICE"), at
any time and from time to time from and after the date hereof and through and
including the date that is five years from the date of issuance hereof (the
"EXPIRATION DATE"), and subject to the following terms and conditions. This
Warrant (this "WARRANT") is one of a series of similar warrants issued pursuant
to that certain Securities Purchase Agreement, dated as of the date hereof, by
and among the Company and the Purchasers identified therein (the "PURCHASE
AGREEMENT"). All such warrants are referred to herein, collectively, as the
"WARRANTS."
1. DEFINITIONS. In addition to the terms defined elsewhere in this
Warrant, capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Purchase Agreement.
2. REGISTRATION OF WARRANT. The Company shall register this Warrant,
upon records to be maintained by the Company for that purpose (the "WARRANT
REGISTER"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, absent actual notice to the contrary.
3. REGISTRATION OF TRANSFERS. The Company shall register the transfer
of any portion of this Warrant in the Warrant Register, upon surrender of this
Warrant, with the Form of Assignment attached hereto duly completed and signed,
to the Transfer Agent or to the Company at its address specified herein. Upon
any such registration or transfer, a new warrant to purchase Common Stock, in
substantially the form of this Warrant (any such new warrant, a "NEW WARRANT"),
evidencing the portion of this Warrant so transferred shall be issued to the
transferee and a New Warrant evidencing the remaining portion of this Warrant
not so transferred, if any, shall be issued to the transferring Holder. The
acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance by such transferee of all of the rights and obligations of a holder
of a Warrant.
4. EXERCISE AND DURATION OF WARRANTS.
(a) This Warrant shall be exercisable by the registered Holder at
any time and from time to time on or after the date hereof to and including the
Expiration Date. At 6:30 P.M., New York City time on the Expiration Date, the
portion of this Warrant not exercised prior thereto shall be and become void and
of no value; provided that, if the average of the Closing Prices for the five
Trading Days immediately prior to (but not including) the Expiration Date
exceeds the Exercise Price on the Expiration Date, then this Warrant shall be
deemed to have been exercised in full (to the extent not previously exercised)
on a "cashless exercise" basis at 6:30 P.M. New York City time on the Expiration
Date if a "cashless exercise" may occur at such time pursuant to Section 10
below. Notwithstanding anything to the contrary herein, the Expiration Date
shall be extended for each day following the Effective Date that the
Registration Statement is not effective.
(b) A Holder may exercise this Warrant by delivering to the Company
(i) an exercise notice, in the form attached hereto (the "EXERCISE NOTICE"),
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares as to which this Warrant is being exercised
(which may take the form of a "cashless exercise" if so indicated in the
Exercise Notice and if a "cashless exercise" may occur at such time pursuant to
this Section 10 below), and the date such items are delivered to the Company (as
determined in accordance with the notice provisions hereof) is an "EXERCISE
DATE." The Holder shall not be required to deliver the original Warrant in order
to effect an exercise hereunder. Execution and delivery of the Exercise Notice
shall have the same effect as cancellation of the original Warrant and issuance
of a New Warrant evidencing the right to purchase the remaining number of
Warrant Shares.
5. DELIVERY OF WARRANT SHARES.
(a) Upon exercise of this Warrant, the Company shall promptly (but
in no event later than three Trading Days after the Exercise Date) issue or
cause to be issued and cause to be delivered to or upon the written order of the
Holder and in such name or names as the Holder may designate, a certificate for
the Warrant Shares issuable upon such exercise, free of restrictive legends
unless a registration statement covering the resale of the Warrant Shares and
naming the Holder as a selling stockholder thereunder is not then effective and
the Warrant Shares are not freely transferable without volume restrictions
pursuant to Rule 144 under the Securities Act. The Holder, or any Person so
designated by the Holder to receive Warrant Shares, shall be deemed to have
become holder of record of such Warrant Shares as of the Exercise Date. The
Company shall, upon request of the Holder, use its best efforts to deliver
2
Warrant Shares hereunder electronically through the Depository Trust Corporation
or another established clearing corporation performing similar functions.
(b) This Warrant is exercisable, either in its entirety or, from
time to time, for a portion of the number of Warrant Shares. Upon surrender of
this Warrant following one or more partial exercises, the Company shall issue or
cause to be issued, at its expense, a New Warrant evidencing the right to
purchase the remaining number of Warrant Shares.
(c) In addition to any other rights available to a Holder, if the
Company fails to deliver to the Holder a certificate representing Warrant Shares
by the third Trading Day after the date on which delivery of such certificate is
required by this Warrant, and if after such third Trading Day the Holder
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the Holder of the Warrant Shares that the
Holder anticipated receiving from the Company (a "BUY-IN"), then the Company
shall, within three Trading Days after the Holder's request and in the Holder's
discretion, either (i) pay cash to the Holder in an amount equal to the Holder's
total purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased (the "BUY-IN PRICE"), at which point the Company's
obligation to deliver such certificate (and to issue such Common Stock) shall
terminate, or (ii) promptly honor its obligation to deliver to the Holder a
certificate or certificates representing such Common Stock and pay cash to the
Holder in an amount equal to the excess (if any) of the Buy-In Price over the
product of (A) such number of shares of Common Stock, times (B) the Closing
Price on the date of the event giving rise to the Company's obligation to
deliver such certificate.
(d) The Company's obligations to issue and deliver Warrant Shares
in accordance with the terms hereof are absolute and unconditional, irrespective
of any action or inaction by the Holder to enforce the same, any waiver or
consent with respect to any provision hereof, the recovery of any judgment
against any Person or any action to enforce the same, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by the Holder or any other Person of any obligation to the Company or any
violation or alleged violation of law by the Holder or any other Person, and
irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with the issuance of
Warrant Shares. Nothing herein shall limit a Holder's right to pursue any other
remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with
respect to the Company's failure to timely deliver certificates representing
shares of Common Stock upon exercise of the Warrant as required pursuant to the
terms hereof.
6. CHARGES, TAXES AND EXPENSES. Issuance and delivery of certificates
for shares of Common Stock upon exercise of this Warrant shall be made without
charge to the Holder for any issue or transfer tax, withholding tax, transfer
agent fee or other incidental tax or expense in respect of the issuance of such
certificates, all of which taxes and expenses shall be paid by the Company;
provided, however, that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the registration of any
certificates for Warrant Shares or Warrants in a name other than that of the
Holder or an Affiliate thereof. The Holder shall be responsible for all other
tax liability that may arise as a result of holding or transferring this Warrant
or receiving Warrant Shares upon exercise hereof.
3
7. REPLACEMENT OF WARRANT. If this Warrant is mutilated, lost, stolen
or destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary and
reasonable indemnity, if requested. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable third-party costs as the Company may
prescribe.
8. RESERVATION OF WARRANT SHARES. The Company covenants that it will at
all times reserve and keep available out of the aggregate of its authorized but
unissued and otherwise unreserved Common Stock, solely for the purpose of
enabling it to issue Warrant Shares upon exercise of this Warrant as herein
provided, the number of Warrant Shares which are then issuable and deliverable
upon the exercise of this entire Warrant, free from preemptive rights or any
other contingent purchase rights of persons other than the Holder (taking into
account the adjustments and restrictions of Section 9). The Company covenants
that all Warrant Shares so issuable and deliverable shall, upon issuance and the
payment of the applicable Exercise Price in accordance with the terms hereof, be
duly and validly authorized, issued and fully paid and nonassessable. The
Company will take all such action as may be necessary to assure that such shares
of Common Stock may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of any securities exchange
or automated quotation system upon which the Common Stock may be listed.
9. CERTAIN ADJUSTMENTS. The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to
time as set forth in this Section 9.
(a) STOCK DIVIDENDS AND SPLITS. If the Company, at any time while
this Warrant is outstanding, (i) pays a stock dividend on its Common Stock or
otherwise makes a distribution on any class of capital stock that is payable in
shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into
a larger number of shares, or (iii) combines outstanding shares of Common Stock
into a smaller number of shares, then in each such case the Exercise Price shall
be multiplied by a fraction of which the numerator shall be the number of shares
of Common Stock outstanding immediately before such event and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately after such event. Any adjustment made pursuant to clause (i) of this
paragraph shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution,
and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall
become effective immediately after the effective date of such subdivision or
combination.
(b) PRO RATA DISTRIBUTIONS. If the Company, at any time while this
Warrant is outstanding, distributes to holders of Common Stock (i) evidences of
its indebtedness, (ii) any security (other than a distribution of Common Stock
covered by the preceding paragraph), (iii) rights or warrants to subscribe for
or purchase any security, or (iv) any other asset (in each case, "DISTRIBUTED
PROPERTY"), then in each such case the Exercise Price in effect immediately
prior to the record date fixed for determination of stockholders entitled to
receive such distribution shall be adjusted (effective on such record date) to
equal the product of such Exercise Price times a fraction of which the
denominator shall be the average of the Closing Prices for the five Trading Days
4
immediately prior to (but not including) such record date and of which the
numerator shall be such average less the then fair market value of the
Distributed Property distributed in respect of one outstanding share of Common
Stock, as determined by the Company's independent certified public accountants
that regularly examine the financial statements of the Company (an "APPRAISER").
In such event, the Holder, after receipt of the determination by the Appraiser,
shall have the right to select an additional appraiser (which shall be a
nationally recognized accounting firm), in which case such fair market value
shall be deemed to equal the average of the values determined by each of the
Appraiser and such appraiser. As an alternative to the foregoing adjustment to
the Exercise Price, at the request of the Holder delivered before the 90th day
after such record date, the Company will deliver to such Holder, within five
Trading Days after such request (or, if later, on the effective date of such
distribution), the Distributed Property that such Holder would have been
entitled to receive in respect of the Warrant Shares for which this Warrant
could have been exercised immediately prior to such record date. If such
Distributed Property is not delivered to a Holder pursuant to the preceding
sentence, then upon expiration of or any exercise of the Warrant that occurs
after such record date, such Holder shall remain entitled to receive, in
addition to the Warrant Shares otherwise issuable upon such exercise (if
applicable), such Distributed Property.
(c) Fundamental Transactions. If, at any time while this Warrant is
outstanding, (i) the Company effects any merger or consolidation of the Company
with or into another Person, (ii) the Company effects any sale of all or
substantially all of its assets in one or a series of related transactions,
(iii) any tender offer or exchange offer (whether by the Company or another
Person) is completed pursuant to which holders of Common Stock are permitted to
tender or exchange their shares for other securities, cash or property, or (iv)
the Company effects any reclassification of the Common Stock or any compulsory
share exchange pursuant to which the Common Stock is effectively converted into
or exchanged for other securities, cash or property (other than as a result of a
subdivision or combination of shares of Common Stock covered by Section 9(a)
above) (in any such case, a "FUNDAMENTAL TRANSACTION"), then the Holder shall
have the right thereafter to receive, upon exercise of this Warrant, the same
amount and kind of securities, cash or property as it would have been entitled
to receive upon the occurrence of such Fundamental Transaction if it had been,
immediately prior to such Fundamental Transaction, the holder of the number of
Warrant Shares then issuable upon exercise in full of this Warrant (the
"ALTERNATE CONSIDERATION"). The aggregate Exercise Price for this Warrant will
not be affected by any such Fundamental Transaction, but the Company shall
apportion such aggregate Exercise Price among the Alternate Consideration in a
reasonable manner reflecting the relative value of any different components of
the Alternate Consideration. If holders of Common Stock are given any choice as
to the securities, cash or property to be received in a Fundamental Transaction,
then the Holder shall be given the same choice as to the Alternate Consideration
it receives upon any exercise of this Warrant following such Fundamental
Transaction. At the Holder's request, any successor to the Company or surviving
entity in such Fundamental Transaction shall issue to the Holder a new warrant
consistent with the foregoing provisions and evidencing the Holder's right to
purchase the Alternate Consideration for the aggregate Exercise Price upon
exercise thereof. The terms of any agreement pursuant to which a Fundamental
Transaction is effected shall include terms requiring any such successor or
surviving entity to comply with the provisions of this paragraph (c) and
insuring that the Warrant (or any such replacement security) will be similarly
adjusted upon any subsequent transaction analogous to a Fundamental Transaction.
If any Fundamental Transaction constitutes or results in a Change of Control,
5
then at the request of the Holder delivered before the 90th day after such
Fundamental Transaction, the Company (or any such successor or surviving entity)
will purchase the Warrant from the Holder for a purchase price, payable in cash
within five Trading Days after such request (or, if later, on the effective date
of the Fundamental Transaction), equal to the Black Scholes value of the
remaining unexercised portion of this Warrant on the date of such request.
(d) SUBSEQUENT EQUITY SALES.
(i) If, at any time while this Warrant is outstanding, the
Company or any Subsidiary issues additional shares of Common Stock or
rights, warrants, options or other securities or debt convertible,
exercisable or exchangeable for shares of Common Stock or otherwise
entitling any Person to acquire shares of Common Stock (collectively,
"COMMON STOCK EQUIVALENTS") at an effective net price to the Company
per share of Common Stock (the "EFFECTIVE PRICE") less than the
Exercise Price (as adjusted hereunder to such date), then the Exercise
Price shall be reduced to equal the Effective Price. If, at any time
while this Warrant is outstanding, the Company or any Subsidiary issues
Common Stock or Common Stock Equivalents at an Effective Price greater
than the Exercise Price (as adjusted hereunder to such date) but less
than the average Closing Price over the five Trading Days prior to such
issuance (the "ADJUSTMENT PRICE"), then the Exercise Price shall be
reduced to equal the product of (A) the Exercise Price in effect
immediately prior to such issuance of Common Stock or Common Stock
Equivalents times (B) a fraction, the numerator of which is the sum of
(1) the number of shares of Common Stock outstanding immediately prior
to such issuance, plus (2) the number of shares of Common Stock which
the aggregate Effective Price of the Common Stock issued (or deemed to
be issued) would purchase at the Adjustment Price, and the denominator
of which is the aggregate number of shares of Common Stock outstanding
or deemed to be outstanding immediately after such issuance. For
purposes of this paragraph, in connection with any issuance of any
Common Stock Equivalents, (A) the maximum number of shares of Common
Stock potentially issuable at any time upon conversion, exercise or
exchange of such Common Stock Equivalents (the "DEEMED NUMBER") shall
be deemed to be outstanding upon issuance of such Common Stock
Equivalents, (B) the Effective Price applicable to such Common Stock
shall equal the minimum dollar value of consideration payable to the
Company to purchase such Common Stock Equivalents and to convert,
exercise or exchange them into Common Stock (net of any discounts,
fees, commissions and other expenses), divided by the Deemed Number,
and (C) no further adjustment shall be made to the Exercise Price upon
the actual issuance of Common Stock upon conversion, exercise or
exchange of such Common Stock Equivalents.
(ii) If, at any time while this Warrant is outstanding, the
Company or any Subsidiary issues Common Stock Equivalents with an
Effective Price or a number of underlying shares that floats or resets
or otherwise varies or is subject to adjustment based (directly or
indirectly) on market prices of the Common Stock (a "FLOATING PRICE
SECURITY"), then for purposes of applying the preceding paragraph in
connection with any subsequent exercise, the Effective Price will be
determined separately on each Exercise Date and will be deemed to equal
the lowest Effective Price at which any holder of such Floating Price
6
Security is entitled to acquire Common Stock on such Exercise Date
(regardless of whether any such holder actually acquires any shares on
such date).
(iii) Notwithstanding the foregoing, no adjustment will be
made under this paragraph (d) in respect of any Excluded Stock.
(e) NUMBER OF WARRANT SHARES. Simultaneously with any adjustment to
the Exercise Price pursuant to paragraphs (a), (b) or (d) of this Section, the
number of Warrant Shares that may be purchased upon exercise of this Warrant
shall be increased or decreased proportionately, so that after such adjustment
the aggregate Exercise Price payable hereunder for the increased or decreased
number of Warrant Shares shall be the same as the aggregate Exercise Price in
effect immediately prior to such adjustment.
(f) CALCULATIONS. All calculations under this Section 9 shall be
made to the nearest cent or the nearest 1/100th of a share, as applicable. The
number of shares of Common Stock outstanding at any given time shall not include
shares owned or held by or for the account of the Company, and the disposition
of any such shares shall be considered an issue or sale of Common Stock.
(g) NOTICE OF ADJUSTMENTS. Upon the occurrence of each adjustment
pursuant to this Section 9, the Company at its expense will promptly compute
such adjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such adjustment, including a statement of the adjusted
Exercise Price and adjusted number or type of Warrant Shares or other securities
issuable upon exercise of this Warrant (as applicable), describing the
transactions giving rise to such adjustments and showing in detail the facts
upon which such adjustment is based. Upon written request, the Company will
promptly deliver a copy of each such certificate to the Holder and to the
Company's Transfer Agent.
(h) NOTICE OF CORPORATE EVENTS. If the Company (i) declares a
dividend or any other distribution of cash, securities or other property in
respect of its Common Stock, including without limitation any granting of rights
or warrants to subscribe for or purchase any capital stock of the Company or any
Subsidiary, (ii) authorizes or approves, enters into any agreement contemplating
or solicits stockholder approval for any Fundamental Transaction or (iii)
authorizes the voluntary dissolution, liquidation or winding up of the affairs
of the Company, then the Company shall deliver to the Holder a notice describing
the material terms and conditions of such transaction, at least 20 calendar days
prior to the applicable record or effective date on which a Person would need to
hold Common Stock in order to participate in or vote with respect to such
transaction, and the Company will take all steps reasonably necessary in order
to insure that the Holder is given the practical opportunity to exercise this
Warrant prior to such time so as to participate in or vote with respect to such
transaction; provided, however, that the failure to deliver such notice or any
defect therein shall not affect the validity of the corporate action required to
be described in such notice.
10. PAYMENT OF EXERCISE PRICE. The Holder shall pay the Exercise Price
in immediately available funds; provided, however, if the Registration Statement
did not become effective on or before the Required Effectiveness Date and is not
continuously effective through the Expiration Date, the Holder may satisfy its
obligation to pay the Exercise Price through a "cashless exercise," in which
7
event the Company shall issue to the Holder the number of Warrant Shares
determined as follows:
X = Y [(A-B)/A]
where:
X = the number of Warrant Shares to
be issued to the Holder.
Y = the number of Warrant Shares with
respect to which this Warrant is
being exercised.
A = the average of the Closing Prices
for the five Trading Days immediately
prior to (but not including) the
Exercise Date.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act,
it is intended, understood and acknowledged that the Warrant Shares issued in a
cashless exercise transaction shall be deemed to have been acquired by the
Holder, and the holding period for the Warrant Shares shall be deemed to have
commenced, on the date this Warrant was originally issued pursuant to the
Purchase Agreement.
11. LIMITATION ON EXERCISE. Notwithstanding anything to the contrary
contained herein, the number of shares of Common Stock that may be acquired by
the Holder upon any exercise of this Warrant (or otherwise in respect hereof)
shall be limited to the extent necessary to insure that, following such exercise
(or other issuance), the total number of shares of Common Stock then
beneficially owned by such Holder and its Affiliates and any other Persons whose
beneficial ownership of Common Stock would be aggregated with the Holder's for
purposes of Section 13(d) of the Exchange Act, does not exceed 9.999% (the
"MAXIMUM PERCENTAGE") of the total number of issued and outstanding shares of
Common Stock (including for such purpose the shares of Common Stock issuable
upon such exercise). For such purposes, beneficial ownership shall be determined
in accordance with Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder. Each delivery of an Exercise Notice
hereunder will constitute a representation by the Holder that it has evaluated
the limitation set forth in this paragraph and determined that issuance of the
full number of Warrant Shares requested in such Exercise Notice is permitted
under this paragraph. The Company's obligation to issue shares of Common Stock
in excess of the limitation referred to in this Section shall be suspended (and
shall not terminate or expire notwithstanding any contrary provisions hereof)
until such time, if any, as such shares of Common Stock may be issued in
compliance with such limitation. By written notice to the Company, the Holder
may waive the provisions of this Section or increase or decrease the Maximum
Percentage to any other percentage specified in such notice, but (i) any such
waiver or increase will not be effective until the 61st day after such notice is
delivered to the Company, and (ii) any such waiver or increase or decrease will
apply only to the Holder and not to any other holder of Warrants.
(b) Notwithstanding anything to the contrary contained herein, if
the Trading Market is the New York Stock Exchange or any other market or
exchange with similar applicable rules, then the maximum number of shares of
8
Common Stock that the Company may issue pursuant to the Transaction Documents at
an effective purchase price less than the Closing Price on the Trading Day
immediately preceding the Closing Date equals 19.99% of the outstanding shares
of Common Stock (the "ISSUABLE MAXIMUM"), unless the Company obtains stockholder
approval in accordance with the rules and regulations of such Trading Market.
If, at the time any Holder requests an exercise of any of the Warrants, the
Actual Minimum (excluding any shares issued or issuable at an effective purchase
price in excess of the Closing Price on the Trading Day immediately preceding
the Closing Date) exceeds the Issuable Maximum (and if the Company has not
previously obtained the required stockholder approval), then the Company shall
issue to the Holder requesting such exercise a number of shares of Common Stock
not exceeding such Holder's pro-rata portion of the Issuable Maximum (based on
such Holder's share (vis-a-vis other Holders) of the aggregate purchase price
paid under the Purchase Agreement and taking into account any Warrant Shares
previously issued to such Holder), and the remainder of the Warrant Shares
issuable in connection with such exercise or conversion (if any) shall
constitute "Excess Shares" pursuant to Section 11(c) below. For the purposes
hereof, "ACTUAL MINIMUM" shall mean, as of any date, the maximum aggregate
number of shares of Common Stock then issued or potentially issuable in the
future pursuant to the Transaction Documents, including any Underlying Shares
issuable upon exercise in full of all Warrants, ignoring any limits on the
number of shares of Common Stock that may be owned by a Holder at any one time.
(c) In the event that any Holder's receipt of shares of Common
Stock upon exercise of this Warrant is restricted based on the Issuable Maximum,
the Company shall either: (i) use its best efforts to obtain the required
stockholder approval necessary to permit the issuance of such Excess Shares as
soon as is reasonably possible, but in any event not later than the 60th day
after the event giving rise to such Excess Shares, or (ii) within five Trading
Days after such event, pay cash to such Holder, as liquidated damages and not as
a penalty, in an amount equal to the difference between the Black Scholes value
of this Warrant assuming the limitations in Section 11(b) were not applicable
and the Black Scholes value of this Warrant after giving effect to the
limitations in Section 11(b), measured as of the date of such event or, if
greater, the date of payment (such difference, the "CASH AMOUNT"). If the
Company elects the first option under the preceding sentence and the Company
fails to obtain the required stockholder approval on or prior to the 60th day
after such event, then within three Trading Days after such 60th day, the
Company shall pay the Cash Amount to such Holder, as liquidated damages and not
as a penalty.
12. FRACTIONAL SHARES. The Company shall not be required to issue or
cause to be issued fractional Warrant Shares on the exercise of this Warrant. If
any fraction of a Warrant Share would, except for the provisions of this
Section, be issuable upon exercise of this Warrant, the number of Warrant Shares
to be issued will be rounded up to the nearest whole share.
13. NOTICES. Any and all notices or other communications or deliveries
hereunder (including without limitation any Exercise Notice) shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section prior to 6:30 p.m. (New York City
time) on a Trading Day, (ii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section on a day that is not a Trading Day or
9
later than 6:30 p.m. (New York City time) on any Trading Day, (iii) the Trading
Day following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is
required to be given. The address for such notices or communications shall be as
set forth in the Purchase Agreement.
14. WARRANT AGENT. The Company shall serve as warrant agent under this
Warrant. Upon 30 days' notice to the Holder, the Company may appoint a new
warrant agent. Any corporation into which the Company or any new warrant agent
may be merged or any corporation resulting from any consolidation to which the
Company or any new warrant agent shall be a party or any corporation to which
the Company or any new warrant agent transfers substantially all of its
corporate trust or stockholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder's last
address as shown on the Warrant Register.
15. MISCELLANEOUS.
(a) Subject to the restrictions on transfer set forth on the first
page hereof, this Warrant may be assigned by the Holder. This Warrant may not be
assigned by the Company except to a successor in the event of a Fundamental
Transaction. This Warrant shall be binding on and inure to the benefit of the
parties hereto and their respective successors and assigns. Subject to the
preceding sentence, nothing in this Warrant shall be construed to give to any
Person other than the Company and the Holder any legal or equitable right,
remedy or cause of action under this Warrant. This Warrant may be amended only
in writing signed by the Company and the Holder and their successors and
assigns.
(b) The Company will not, by amendment of its governing documents
or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this Warrant,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the Holder against impairment. Without limiting the
generality of the foregoing, the Company (i) will not increase the par value of
any Warrant Shares above the amount payable therefor on such exercise, (ii) will
take all such action as may be reasonably necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable Warrant
Shares on the exercise of this Warrant, and (iii) will not close its stockholder
books or records in any manner which interferes with the timely exercise of this
Warrant.
(C) GOVERNING LAW; VENUE; WAIVER OF JURY TRIAL. ALL QUESTIONS
CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS
WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF
NEW YORK, BOROUGH OF MANHATTAN, FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR
IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED
10
HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THE TRANSACTION
DOCUMENTS), AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT,
ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS
IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND
CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY
MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY
(WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES
TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD
AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN
SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER
PERMITTED BY LAW. THE COMPANY HEREBY WAIVES ALL RIGHTS TO A TRIAL BY JURY.
(d) The headings herein are for convenience only, do not constitute
a part of this Warrant and shall not be deemed to limit or affect any of the
provisions hereof.
(e) In case any one or more of the provisions of this Warrant shall
be invalid or unenforceable in any respect, the validity and enforceability of
the remaining terms and provisions of this Warrant shall not in any way be
affected or impaired thereby and the parties will attempt in good faith to agree
upon a valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
11
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
MEDIFAST, INC.
By:__________________________
Name:________________________
Title:_______________________
12
FORM OF EXERCISE NOTICE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To: Medifast, Inc.
The undersigned is the Holder of Warrant No. _______ (the "WARRANT") issued by
Medifast, Inc., a Delaware corporation (the "COMPANY"). Capitalized terms used
herein and not otherwise defined have the respective meanings set forth in the
Warrant.
1. The Warrant is currently exercisable to purchase a total of
______________ Warrant Shares.
2. The undersigned Holder hereby exercises its right to purchase
_________________ Warrant Shares pursuant to the Warrant.
3. The Holder intends that payment of the Exercise Price shall be made as
(check one):
____ "Cash Exercise" under Section 10
____ "Cashless Exercise" under Section 10 (if
permitted)
4. If the holder has elected a Cash Exercise, the holder shall pay the sum
of $____________ to the Company in accordance with the terms of the
Warrant.
5. Pursuant to this exercise, the Company shall deliver to the holder
_______________ Warrant Shares in accordance with the terms of the
Warrant.
6. Following this exercise, the Warrant shall be exercisable to purchase a
total of ______________ Warrant Shares.
Dated: , Name of Holder:
--------------------- -------
(Print)____________________
By:________________________
Name:______________________
Title:_____________________
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant)
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of Medifast, Inc. to
which the within Warrant relates and appoints ________________ attorney to
transfer said right on the books of Medifast, Inc. with full power of
substitution in the premises.
Dated: ,
--------------------- -------
---------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant)
---------------------------------
Address of Transferee
---------------------------------
---------------------------------
In the presence of:
---------------------------------
EXHIBIT B
FORM OF LEGAL OPINION
[List of Purchasers]
Ladies and Gentlemen:
We have acted as counsel to Medifast, Inc., a Delaware corporation (the
"Company"), in connection with the execution and delivery by the Company of the
Securities Purchase Agreement dated as of July __, 2003 (the "Agreement"), by
and among the Company and the purchasers identified on the signature pages
thereto (the "Purchasers"). This opinion is given to you pursuant to Section
2.2(a)(iii) of the Agreement. (Capitalized terms not otherwise defined herein
are defined as set forth in the Agreement.)
We have participated in the preparation and negotiation of the
Agreement and the Exhibits and Schedules thereto, and the other documents
referred to therein. We also have examined such certificates of public
officials, corporate documents and records and other certificates, opinions,
agreements and instruments and have made such other investigations as we have
deemed necessary in connection with the opinions hereinafter set forth.
Based on the foregoing and upon such investigation as we have deemed
necessary, we give you our opinion as follows:
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. The Company has all
requisite power and authority, and all material governmental licenses,
authorizations, consents and approvals, required to own and operate its
properties and assets and to carry on its business as now conducted and as
proposed to be conducted (all as described in the Company's Annual Report on
Form 10-K for its fiscal ended March 31, 2003). The Company is duly qualified to
transact business and is in good standing in each jurisdiction in which the
failure to qualify could have a material adverse effect on the Company.
2. Each of the following subsidiaries of the Company (the
"Subsidiaries") is a corporation, duly organized and in good standing under the
State of Delaware: [ ].
3. The Company has all requisite power and authority to execute,
deliver and perform the Agreement, the Warrants, and each other document or
instrument executed by it, or any of its officers, in connection herewith or
therewith or pursuant hereto or thereto (collectively, the "Transaction
Documents"), to issue, sell and deliver the Securities pursuant to the
Transaction Documents, to issue and deliver the Underlying Shares, and to carry
out and perform its obligations under, and to consummate the transactions
contemplated by, the Transaction Documents.
4. All corporate action on the part of the Company, its directors and
its stockholders necessary for the authorization, execution and delivery by the
Company of the Transaction Documents, the authorization, issuance, sale and
delivery of the Securities pursuant to the Agreement, the issuance and delivery
of the Underlying Shares upon conversion or exercise of the Securities, and the
consummation by the Company of the transactions contemplated by the Transaction
Documents has been duly taken. The Transaction Documents have been duly and
validly executed and delivered by the Company and constitute the legal, valid
and binding obligation of the Company, enforceable against the Company in
accordance with their terms, except (a) that such enforceability may be limited
by bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights in general and (b) that the remedies of specific performance
and injunctive and other forms of injunctive relief may be subject to equitable
defenses.
5. After giving effect to the transactions contemplated by the
Agreement, and immediately after the Closing, the authorized capital stock of
the Company will consist of: an aggregate of _________ shares of Common Stock,
of which shares will be issued and outstanding and _________ shares will be
reserved for issuance upon conversion of issued and outstanding options,
warrants and other derivative securities, __________ shares will be reserved for
issuance to employees, officers and directors under the Company's [ _ Stock
Incentive Plan], of which __________ shares are subject to currently outstanding
incentive stock option grants and __________ shares are subject to currently
outstanding non-qualified stock option grants, and __________ shares will be
reserved for issuance upon exercise of Additional Investment Warrants. All
presently issued and outstanding shares of Common Stock have been duly
authorized and validly issued and are fully paid and nonassessable and free of
any preemptive or similar rights, and have been issued in compliance with
applicable securities laws and regulations. The Securities which are being
issued on the date hereof pursuant to the Agreement have been duly authorized
and validly issued and are fully paid and nonassessable and free of preemptive
or similar rights, and have been issued in compliance with applicable securities
laws, rules and regulations. The Underlying Shares issuable upon conversion of
the Securities has been duly and validly authorized and reserved for issuance,
and when issued in accordance with the exercise of the Additional Investment
Warrants, will be validly issued, fully paid and nonassessable, and free of any
preemptive or similar rights. To our knowledge, except for rights described in
Schedule 3.1(f) of the Agreement, there are no other options, warrants,
conversion privileges or other rights presently outstanding to purchase or
otherwise acquire from the Company any capital stock or other securities of the
Company, or any other agreements to issue any such securities or rights. The
rights, privileges and preferences of the Common Stock are as stated in the
Company's Certificate of Incorporation.
2
6. The Company meets the eligibility requirements for the use of Form
S-3 for the registration of the Securities and Underlying Shares.
7. To our knowledge, the Company has filed all reports (the "SEC
Documents") required to be filed by it under Sections 13(a) and 15(d) of the
Exchange Act of 1934, as amended (the "Exchange Act"). As of their respective
filing dates, the SEC Documents complied in all material respects as to form
with the requirements of the Exchange Act and the rules and regulations of the
SEC promulgated thereunder.
8. Based in part upon the representations of the Purchasers contained
in the Securities Purchase Agreement, the Securities may be issued to the
Purchasers without registration under the Securities Act of 1933, as amended.
9. The execution, delivery and performance by the Company of, and the
compliance by the Company with the terms of, the Transaction Documents, the
issuance, sale and delivery of the Securities pursuant to the Agreement, and the
issuance and delivery of Conversion Stock do not (a) conflict with or result in
a violation of any provision of law, rule or regulation having applicability to
the Company or its Subsidiaries or of the certificate of incorporation or
by-laws or other similar organizational documents of the Company or its
Subsidiaries, (b) conflict with, result in a breach of or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or result in or permit the termination or modification of, any agreement,
instrument, order, writ, judgment or decree known to us to which the Company of
its Subsidiaries is a party or is subject or (c) result in the creation or
imposition of any lien, claim or encumbrance on any of the Company's or its
Subsidiaries' assets or properties.
10. To our knowledge, there is no claim, action, suit, proceeding,
arbitration, investigation or inquiry, pending or threatened, before any court
or governmental or administrative body or agency, or any private arbitration
tribunal, against the Company or its Subsidiaries, or any of its officers,
directors or employees (in connection with the discharge of their duties as
officers, directors and employees), or affecting any of its properties or
assets.
11. No consent, license, permit, waiver, approval or authorization of,
or designation, declaration, registration or filing with, any court,
governmental or regulatory authority, or self-regulatory organization, is
required in connection with the valid execution, delivery and performance by the
Company of the Documents, or the offer, sale, issuance or delivery of the
Securities (and the Underlying Shares issuable upon conversion of the
Securities) or the consummation of the transactions contemplated thereby.
12. The Company is not an Investment Company within the meaning of the
Investment Company Act of 1940, as amended.
We express no opinion as to any matters governed by any laws other than the
law of the State of Delaware, the law of the State of New York and the Federal
laws of the United States of America.
Very truly yours,
3
EXHIBIT C
PLAN OF DISTRIBUTION
The selling stockholders may, from time to time, sell any or all of
their shares of common stock on any stock exchange, market or trading facility
on which the shares are traded or in private transactions. These sales may be at
fixed or negotiated prices. The selling stockholders may use any one or more of
the following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the shares
as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the applicable
exchange;
o privately negotiated transactions;
o short sales;
o broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The selling stockholders may also engage in short sales against the
box, puts and calls and other transactions in our securities or derivatives of
our securities and may sell or deliver shares in connection with these trades.
Broker-dealers engaged by the selling stockholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the selling stockholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved. Any
profits on the resale of shares of common stock by a broker-dealer acting as
principal might be deemed to be underwriting discounts or commissions under the
Securities Act. Discounts, concessions, commissions and similar selling
expenses, if any, attributable to the sale of shares will be borne by a selling
stockholder. The selling stockholders may agree to indemnify any agent, dealer
or broker-dealer that participates in transactions involving sales of the shares
if liabilities are imposed on that person under the Securities Act.
The selling stockholders may from time to time pledge or grant a
security interest in some or all of the shares of common stock owned by them
and, if they default in the performance of their secured obligations, the
pledgees or secured parties may offer and sell the shares of common stock from
time to time under this prospectus after we have filed an amendment to this
prospectus under Rule 424(b)(3) or other applicable provision of the Securities
Act of 1933 amending the list of selling stockholders to include the pledgee,
transferee or other successors in interest as selling stockholders under this
prospectus.
The selling stockholders also may transfer the shares of common stock
in other circumstances, in which case the transferees, pledgees or other
successors in interest will be the selling beneficial owners for purposes of
this prospectus and may sell the shares of common stock from time to time under
this prospectus after we have filed an amendment to this prospectus under Rule
424(b)(3) or other applicable provision of the Securities Act of 1933 amending
the list of selling stockholders to include the pledgee, transferee or other
successors in interest as selling stockholders under this prospectus.
The selling stockholders and any broker-dealers or agents that are
involved in selling the shares of common stock may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales. In such event, any commissions received by such broker-dealers or agents
and any profit on the resale of the shares of common stock purchased by them may
be deemed to be underwriting commissions or discounts under the Securities Act.
We are required to pay all fees and expenses incident to the
registration of the shares of common stock. We have agreed to indemnify the
selling stockholders against certain losses, claims, damages and liabilities,
including liabilities under the Securities Act.
The selling stockholders have advised us that they have not entered
into any agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their shares of common stock, nor is there
an underwriter or coordinating broker acting in connection with a proposed sale
of shares of common stock by any selling stockholder. If we are notified by any
selling stockholder that any material arrangement has been entered into with a
broker-dealer for the sale of shares of common stock, if required, we will file
a supplement to this prospectus. If the selling stockholders use this prospectus
for any sale of the shares of common stock, they will be subject to the
prospectus delivery requirements of the Securities Act.
The anti-manipulation rules of Regulation M under the Securities
Exchange Act of 1934 may apply to sales of our common stock and activities of
the selling stockholders.
EXHIBIT D
IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
MEDIFAST, INC.
American Stock Transfer
Ladies and Gentlemen:
Reference is made to the Securities Purchase Agreements (the "Purchase
Agreement"), dated as of July __, 2003, among Medifast, Inc., a Delaware
corporation (the "Company"), and the purchasers named therein (the "Holders")
pursuant to which the Company is issuing the Company's common stock, $[ ] par
value per share (the "Common Stock"), and certain Common Stock purchase warrants
(the "Warrants") which shall be exercisable into shares of Common Stock. The
shares of Common Stock issued at the Closing and issuable upon exercise of the
Warrants are collectively referred to herein as "Underlying Shares."
The Company has agreed with the Holders that it will instruct you to:
(A) issue the Underlying Shares free of all restrictive and other legends if, at
the time of such issue, (i) a registration statement covering the resale of such
Underlying Shares has been declared and is effective by the Commission under the
Securities Act, (ii) such Underlying Shares are eligible for sale under Rule
144(k) or (iii) such legend is not required under applicable requirements of the
Securities Act; or (B) reissue the Underlying Shares (if such shares were
originally issued with a restrictive legend) free of all restrictive and other
legends (i) upon the effectiveness of a registration statement covering the
resale of the Underlying Shares or (ii) following any sale of such Underlying
Shares pursuant to Rule 144 or (iii) such Underlying Shares are eligible for
sale under Rule 144(k) or (iv) if such legend is not required under applicable
requirements of the Securities Act.
In furtherance of this instruction, upon the effectiveness of the
Registration Statement (as defined in the Purchase Agreement) we have instructed
our counsel to deliver to you their opinion letter in the form attached hereto
as EXHIBIT I to the effect that the Registration Statement has been declared
effective by the Commission and that Underlying Shares are freely transferable
by the Holders and accordingly may be issued (or reissued, as applicable) and
delivered to the Holders free of all restrictive and other legends.
You need not require further letters from us or our counsel to effect
any future issuance or reissuance of shares of Common Stock to the Holders as
contemplated by the Purchase Agreement and this letter. This letter shall serve
as our standing irrevocable instructions with regard to this matter
Please be advised that the Holders have relied upon this instruction
letter as an inducement to enter into the Purchase Agreement. Please execute
this letter in the space indicated to acknowledge your agreement to act in
accordance with these instructions.
Very truly yours,
MEDIFAST, INC.
By: _____________________________________
Name: __________________________________
Title: ___________________________________
ACKNOWLEDGED AND AGREED:
American Stock Transfer
By: _________________________________
Name :_______________________________
Title: ________________________________
Exhibit I
[Counsel's Letterhead]
[Transfer Agent]
Re: Medifast, Inc.
To Whom It May Concern:
We are writing on behalf of our client, Medifast, Inc., a Delaware
corporation (the "Company"), in connection with the Company's recent filing of a
Registration Statement on Form S-3 (File No. ______) (the "Registration
Statement") with the Securities and Exchange Commission (the "SEC") relating to
____ shares of the Company's common stock, $[ ] par value per share (the
"Registrable Securities"), issued or to be issued to the selling stockholders
(the "Selling Stockholders") listed in the selling stockholders table at pages
__ of the final prospectus, a copy of which is attached hereto as Exhibit A.
In connection with the foregoing, we advise you that the SEC has
entered an order declaring the Registration Statement effective under the
Securities Act of 1933, as amended (the "1933 Act"), on ___ __, 200_. We have no
knowledge that any stop order suspending its effectiveness has been issued or
that any proceedings for that purpose are pending before, or threatened by, the
SEC.
This letter shall serve as our standing opinion to you that the
Underlying Shares are freely transferable by the Holders pursuant to the
Registration Statement. You need not require further letters from us to effect
any future legend-free issuance or reissuance of shares of Common Stock to the
Holders as contemplated by the Company's Irrevocable Transfer Agent Instructions
dated __, 2003. This letter shall serve as our standing opinion with regard to
this matter.
If you have any questions relating to the foregoing, please feel free
to call me at
-----------------.
Very truly yours,
EXHIBIT E
July 24, 2003
Mainfield Enterprises, Inc.
c/o Sage Capital Growth, Inc.
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Portside Growth & Opportunity Fund
x/x Xxxxxx Xxxxxxx Xxxxxx, X.X.X
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Ladies and Gentlemen:
The undersigned understands Mainfield Enterprises, Inc. (the
"Purchaser") has entered into a Securities Purchase Agreement dated as of July
24, 2003 (the "Purchase Agreement") with Medifast, Inc., a Delaware corporation
(the "Company"), providing for the purchase by the Purchaser of 550,000 shares
(the "Shares") of common stock of the Company, par value $0.001 (the "Common
Stock"). Any capitalized terms used herein and not otherwise defined shall have
the meanings ascribed to them in the Purchase Agreement.
In consideration of the Purchase Agreement by the Purchaser to purchase
the Shares, and for other good and valuable consideration, receipt of which is
hereby acknowledged, the undersigned hereby agrees that it will not, during the
period ending 15 days after the date hereof, offer, sell, contract to sell,
pledge or grant any option which may be exercisable during such period, or
otherwise dispose of (or agree or announce an intention to do so), directly or
indirectly, any Common Stock or any shares of the capital stock of the Company,
or any securities convertible into or exercisable or exchangeable for any of the
foregoing. The provisions of this agreement shall be binding upon the
undersigned and the assigns, heirs and personal representatives of the
undersigned.
The undersigned understands that the Company and the Purchaser will
proceed with the purchase of the Shares in reliance upon this agreement.
Very truly yours,
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Name:
