SECURITIES PURCHASE AGREEMENT
Exhibit 10.4
SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of January 17, 2007, by and among
Hythiam, Inc., a Delaware corporation with headquarters located at 00000 Xxxxx Xxxxxx Xxxxxxxxx,
Xxxxx 0000, Xxx Xxxxxxx, Xxxxxxxxxx 00000 (the “Company”), and the investors listed on the Schedule
of Buyers attached hereto (individually, a “Buyer” and collectively, the “Buyers”).
WHEREAS:
A. The Company and each Buyer is executing and delivering this Agreement in reliance upon the
exemption from securities registration afforded by Section 4(2) of the Securities Act of 1933, as
amended (the “1933 Act”), and Rule 506 of Regulation D (“Regulation D”) as promulgated by the
United States Securities and Exchange Commission (the “SEC”) under the 1933 Act.
B. The Company has authorized a new series of senior secured notes of the Company, in
substantially the form attached hereto as Exhibit A (the “Notes”), for the purpose of
funding (i) the acquisition by the Company of all of the outstanding membership interests of
Woodcliff Healthcare Investment Partners, LLC, and the subsequent merger of a newly-formed
subsidiary of the Company with and into Comprehensive Care Corporation, a Delaware corporation
(“CompCare”), pursuant to which CompCare will become a wholly-owned subsidiary of the Company and
(ii) related expenses (the “CompCare Transaction”).
C. Each Buyer wishes to purchase, and the Company wishes to sell, upon the terms and
conditions stated in this Agreement, (i) that aggregate principal amount of the Notes set forth
opposite such Buyer’s name in column (3) on the Schedule of Buyers attached hereto (which aggregate
amount for all Buyers shall be $10,000,000), and (ii) warrants, in substantially the form attached
hereto as Exhibit B (the “Warrants”), to acquire up to that number of shares of the
Company’s common stock, par value $.0001 per share (the “Common Stock”), set forth opposite such
Buyer’s name in column (4) of the Schedule of Buyers (as exercised, collectively, the “Warrant
Shares”).
D. Contemporaneously with the execution and delivery of this Agreement, the parties hereto are
executing and delivering a Registration Rights Agreement, substantially in the form attached hereto
as Exhibit C (the “Registration Rights Agreement”), pursuant to which the Company has
agreed to provide certain registration rights with respect to the Warrant Shares under the 1933 Act
and the rules and regulations promulgated thereunder, and applicable state securities laws.
E. The Notes, the Warrants and the Warrant Shares collectively are referred to herein as the
“Securities”.
F. The Notes will rank senior to all outstanding and future indebtedness of the Company and
will be secured by a first priority, perfected security interest in all of the assets of the
Company and the stock of each of the Company’s subsidiaries, as evidenced by the pledge agreement
attached hereto as Exhibit D (the “Pledge Agreement”), the security agreement
attached hereto as Exhibit E (the “Security Agreement” and together with the Pledge
Agreement and the Security Agreement, collectively the “Security Documents”).
NOW, THEREFORE, the Company and each Buyer hereby agree as follows:
1. PURCHASE AND SALE OF NOTES AND WARRANTS.
(a) Purchase of Notes and Warrants.
(i) Subject to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7
below, the Company shall issue and sell to each Buyer, and each Buyer severally, but not jointly,
agrees to purchase from the Company on the Closing Date (as defined below), (x) a principal amount
of Notes as is set forth opposite such Buyer’s name in column (3) on the Schedule of Buyers and (y)
Warrants to acquire up to that number of Warrant Shares as is set forth opposite such Buyer’s name
in column (4) on the Schedule of Buyers (the “Closing”).
(ii) Closing. The date and time of the Closing (the “Closing Date”) shall be 10:00
a.m., New York City Time, on January 18, 2007 (or such later date as is mutually agreed to by the
Company and each Buyer) after notification of satisfaction (or waiver) of the conditions to the
Closing set forth in Sections 6 and 7 below at the offices of Xxxxxxx Xxxx & Xxxxx LLP, 000 Xxxxx
Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000.
(iii) Purchase Price. The aggregate purchase price for the Notes and the Warrants to
be purchased by each Buyer at the Closing (the “Purchase Price”) shall be the amount set forth
opposite such Buyer’s name in column (5) of the Schedule of Buyers. Each Buyer shall pay $1.00 for
each $1.00 of principal amount of Notes and related Warrants to be purchased by such Buyer at the
Closing. The Buyers and the Company agree that the Notes and the Warrants constitute an
“investment unit” for purposes of Section 1273(c)(2) of the Internal Revenue Code of 1986, as
amended (the “Code”). The Buyers and the Company mutually agree that the allocation of the issue
price of such investment unit between the Notes and the Warrants in accordance with Section
1273(c)(2) of the Code and Treasury Regulation Section 1.1273-2(h) shall be an aggregate amount of
$1,000,000 allocated to the Warrants and the balance of the Purchase Price allocated to the Notes,
and neither the Buyers nor the Company shall take any position inconsistent with such allocation in
any tax return or in any judicial or administrative proceeding in respect of taxes.
(b) Form of Payment. On the Closing Date, (i) each Buyer shall pay its Purchase Price
to the Company for the Notes and the Warrants to be issued and sold to such Buyer at the Closing by
wire transfer of immediately available funds in accordance with the Company’s written wire
instructions and (ii) the Company shall deliver to each Buyer (A) the Notes (in the principal
amounts as such Buyer shall request) which such Buyer is then purchasing and (B) the Warrants (in
the amounts as such Buyer shall request) which such Buyer is purchasing, in each case duly executed
on behalf of the Company and registered in the name of such Buyer or its designee.
2. BUYER’S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself that:
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(a) No Public Sale or Distribution. Such Buyer is (i) acquiring the Notes and the
Warrants and (ii) upon exercise of the Warrants (other than pursuant to a Cashless Exercise (as
defined in the Warrants)) will acquire the Warrant Shares issuable upon exercise of the Warrants,
for its own account and not with a view towards, or for resale in connection with, the public sale
or distribution thereof, except pursuant to sales registered or exempted under the 1933 Act;
provided, however, that by making the representations herein, such Buyer does not
agree to hold any of the Securities for any minimum or other specific term and reserves the right
to dispose of the Securities at any time in accordance with or pursuant to a registration statement
or an exemption under the 1933 Act. Such Buyer is acquiring the Securities hereunder in the
ordinary course of its business. Such Buyer does not presently have any agreement or
understanding, directly or indirectly, with any Person to distribute any of the Securities.
(b) Accredited Investor Status. Such Buyer is an “accredited investor” as that term
is defined in Rule 501(a) of Regulation D.
(c) Reliance on Exemptions. Such Buyer understands that the Securities are being
offered and sold to it in reliance on specific exemptions from the registration requirements of
United States federal and state securities laws and that the Company is relying in part upon the
truth and accuracy of, and such Buyer’s compliance with, the representations, warranties,
agreements, acknowledgments and understandings of such Buyer set forth herein in order to determine
the availability of such exemptions and the eligibility of such Buyer to acquire the Securities.
(d) Information. Such Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company and materials relating
to the offer and sale of the Securities which have been requested by such Buyer. Such Buyer and
its advisors, if any, have been afforded the opportunity to ask questions of the Company. Neither
such inquiries nor any other due diligence investigations conducted by such Buyer or its advisors,
if any, or its representatives shall modify, amend or affect such Buyer’s right to rely on the
Company’s representations and warranties contained herein. Such Buyer understands that its
investment in the Securities involves a high degree of risk. Such Buyer has sought such
accounting, legal and tax advice as it has considered necessary to make an informed investment
decision with respect to its acquisition of the Securities.
(e) No Governmental Review. Such Buyer understands that no United States federal or
state agency or any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities or the fairness or suitability of the investment in
the Securities nor have such authorities passed upon or endorsed the merits of the offering of the
Securities.
(f) Transfer or Resale. Such Buyer understands that except as provided in the
Registration Rights Agreement: (i) the Securities have not been and are not being registered under
the 1933 Act or any state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (A) subsequently registered thereunder, (B) such Buyer shall have delivered to
the Company an opinion of counsel, in a generally acceptable form, to the effect that such
Securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an
exemption from such registration, or (C) such Buyer provides the Company with reasonable
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assurance that such Securities can be sold, assigned or transferred pursuant to Rule 144 or
Rule 144A promulgated under the 1933 Act, as amended, (or a successor rule thereto) (collectively,
"Rule 144”); (ii) any sale of the Securities made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of the
Securities under circumstances in which the seller (or the Person (as defined in Section 3(s))
through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the
0000 Xxx) may require compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other Person is under any
obligation to register the Securities under the 1933 Act or any state securities laws or to comply
with the terms and conditions of any exemption thereunder.
(g) Legends. Such Buyer understands that the certificates or other instruments
representing the Notes and the Warrants and, until such time as the resale of the Warrant Shares
have been registered under the 1933 Act as contemplated by the Registration Rights Agreement, the
stock certificates representing the Warrant Shares, except as set forth below, shall bear any
legend as required by the “blue sky” laws of any state and a restrictive legend in substantially
the following form (and a stop-transfer order may be placed against transfer of such Warrants or
stock certificates or other instruments):
[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE OR OTHER INSTRUMENTS NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE EXERCISABLE HAVE BEEN][THE SECURITIES REPRESENTED BY THIS
CERTIFICATE OR OTHER INSTRUMENTS HAVE NOT BEEN] REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.
THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
(I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE
144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
The legend set forth above shall be removed and the Company shall issue a certificate or other
instruments without such legend to the holder of the Securities upon which it is stamped, if,
unless otherwise required by state securities laws or regulations, (i) such Securities are
registered for resale under the 1933 Act, (ii) in connection with a sale, assignment or other
transfer, such holder provides the Company with an opinion of counsel, in a form reasonably
acceptable to the Company, to the effect that such sale, assignment or transfer of the Securities
may be made without registration under the applicable requirements of the 1933 Act, or (iii) such
holder provides the Company with an opinion of counsel, in a form reasonably acceptable to the
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Company, to the effect that the Securities can be sold, assigned or transferred pursuant to Rule
144 or Rule 144A.
(h) Validity; Enforcement. This Agreement, the Registration Rights Agreement and the
Security Documents to which such Buyer is a party have been duly and validly authorized, executed
and delivered on behalf of such Buyer and shall constitute the legal, valid and binding obligations
of such Buyer enforceable against such Buyer in accordance with their respective terms, except as
such enforceability may be limited by general principles of equity or to applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors’ rights and remedies.
(i) No Conflicts. The execution, delivery and performance by such Buyer of this
Agreement, the Registration Rights Agreement and the Security Documents to which such Buyer is a
party and the consummation by such Buyer of the transactions contemplated hereby and thereby will
not (i) result in a violation of the organizational documents of such Buyer or (ii) conflict with,
or constitute a default (or an event which 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 of, any agreement, indenture or instrument to which such Buyer is a party, or (iii)
result in a violation of any law, rule, regulation, order, judgment or decree (including federal
and state securities laws) applicable to such Buyer, except in the case of clauses (ii) and (iii)
above, for such conflicts, defaults, rights or violations which would not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the ability of such Buyer to
perform its obligations hereunder.
(j) Residency. Such Buyer is a resident of that jurisdiction specified below its
address on the Schedule of Buyers.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers, except as set forth on the
disclosure schedule dated as of the date hereof and provided to the Buyers in connection herewith
(the “Disclosure Schedule”), that:
(a) Organization and Qualification. The Company and its “Subsidiaries” (which for
purposes of this Agreement means any entity in which the Company, directly or indirectly, owns
capital stock or holds an equity or similar interest) are entities duly organized and validly
existing in good standing under the laws of the jurisdiction in which they are formed, and have the
requisite power and authorization to own their properties and to carry on their business as now
being conducted. Each of the Company and its Subsidiaries is duly qualified as a foreign entity to
do business and is in good standing in every jurisdiction in which its ownership of property or the
nature of the business conducted by it makes such qualification necessary, except to the extent
that the failure to be so qualified or be in good standing would not have a Material Adverse
Effect. As used in this Agreement, “Material Adverse Effect” means any material adverse effect on
the business, properties, assets, operations, results of operations, condition (financial or
otherwise) or prospects of the Company and its Subsidiaries, taken as a whole, or on the
transactions contemplated hereby and the other Transaction Documents or by
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the agreements and instruments to be entered into in connection herewith or therewith, or on
the authority or ability of the Company to perform its obligations under the Transaction Documents
(as defined below). The Company has no Subsidiaries except as set forth in Section 3(a) to the
Disclosure Schedules.
(b) Authorization; Enforcement; Validity. The Company has the requisite power and
authority to enter into and perform its obligations under this Agreement, the Notes, the
Registration Rights Agreement, the Security Documents, the Irrevocable Transfer Agent Instructions
(as defined in Section 5(b)), the Warrants, and each of the other agreements entered into by the
parties hereto in connection with the transactions contemplated by this Agreement (collectively,
the “Transaction Documents”) and to issue the Securities in accordance with the terms hereof and
thereof. The execution and delivery of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby, including, without
limitation, the issuance of the Notes and the Warrants and the reservation for issuance and
issuance of Warrant Shares issuable upon exercise of the Warrants, and the granting of a security
interest in the Collateral (as defined in the Security Documents) have been duly authorized by the
Company’s Board of Directors and (other than (i) the filing of appropriate UCC financing statements
with the appropriate states and other authorities pursuant to the Pledge Agreement and (ii) than
the filing with the SEC of a Form D under Regulation D of the 1933 Act, in accordance with Section
4(b) hereof,) no further filing, consent, or authorization is required by the Company, its Board of
Directors or its stockholders. This Agreement and the other Transaction Documents of even date
herewith have been duly executed and delivered by the Company, and constitute the legal, valid and
binding obligations of the Company, enforceable against the Company in accordance with their
respective terms, except as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating
to, or affecting generally, the enforcement of applicable creditors’ rights and remedies.
(c) Issuance of Securities. The issuance of the Notes and the Warrants are duly
authorized and are free from all taxes, liens and charges with respect to the issue thereof. As of
the Closing, a number of shares of Common Stock shall have been duly authorized and reserved for
issuance which equals 110% of the maximum number of shares Common Stock issuable upon exercise of
the Warrants. Upon exercise in accordance with the Warrants, the Warrant Shares will be validly
issued, fully paid and nonassessable and free from all preemptive or similar rights, taxes, liens
and charges with respect to the issue thereof, with the holders being entitled to all rights
accorded to a holder of Common Stock. The offer and issuance by the Company of the Securities is
exempt from registration under the 1933 Act.
(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 (including, without limitation, the issuance of the Notes and the Warrants and
the reservation for issuance and issuance of the Warrant Shares) will not (i) result in a violation
of the Certificate of Incorporation (as defined in Section 3(r)) of the Company or any of its
Subsidiaries, any capital stock of the Company or Bylaws (as defined in Section 3(r)) of the
Company or any of its Subsidiaries or (ii) conflict with, or constitute a default (or an event
which 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 of, any
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agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party,
or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including
federal and state securities laws and regulations and the rules and regulations of The NASDAQ
Global Market (the “Principal Market”)) applicable to the Company or any of its Subsidiaries or by
which any property or asset of the Company or any of its Subsidiaries is bound or affected.
(e) Consents. The Company is not required to obtain any consent, authorization or
order of, or make any filing or registration with, any court, governmental agency or any regulatory
or self-regulatory agency or any other Person in order for it to execute, deliver or perform any of
its obligations under or contemplated by the Transaction Documents, in each case in accordance with
the terms hereof or thereof (other than the filing with the SEC of (i) a Form D under Regulation D
of the 1933 Act, in accordance with Section 4(b) hereof, (ii) one or more Registration Statements
in accordance with the requirements of the Registration Rights Agreement, and (iii) one or more
Current Reports on Form 8-K pursuant to Section 4(i) hereof). All consents, authorizations,
orders, filings and registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the Closing Date, and the Company and its
Subsidiaries are unaware of any facts or circumstances which would prevent the Company from
obtaining or effecting any of the registration, application or filings pursuant to the preceding
sentence. The Company is not in violation of the listing requirements of the Principal Market and
has no knowledge of any facts which would reasonably lead to delisting or suspension of the Common
Stock in the foreseeable future.
(f) Acknowledgment Regarding Buyer’s Purchase of Securities. The Company acknowledges
and agrees that each Buyer is acting solely in the capacity of arm’s length purchaser with respect
to the Transaction Documents and the transactions contemplated hereby and thereby. The Company
further acknowledges that no Buyer is (i) an officer or director of the Company, (ii) to the
knowledge of the Company, an “affiliate” of the Company (as defined in Rule 144) or (iii) to the
knowledge of the Company, a “beneficial owner” of more than 10% of the shares of Common Stock (as
defined for purposes of Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the “1934
Act”)). The Company further acknowledges that no Buyer is acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and
the transactions contemplated hereby and thereby, and any advice given by a Buyer or any of its
representatives or agents in connection with the Transaction Documents and the transactions
contemplated hereby and thereby is merely incidental to such Buyer’s purchase of the Securities.
The Company further represents to each Buyer that the Company’s decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the Company and its
representatives.
(g) No General Solicitation; Placement Agent’s Fees. Neither the Company, nor any of
its affiliates, nor any Person acting on its or their behalf, has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D) in connection with the
offer or sale of the Securities. The Company shall be responsible for the payment of any placement
agent’s fees, financial advisory fees, or brokers’ commissions (other than for persons engaged by
any Buyer or its investment advisor) relating to or arising out of the transactions contemplated
hereby. The Company shall pay, and hold each Buyer harmless against, any liability, loss or
expense (including, without limitation, attorney’s fees and out-of-
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pocket expenses) arising in connection with any such claim. The Company has not engaged any
placement agent or other agent in connection with the sale of the Securities.
(h) No Integrated Offering. None of the Company, its Subsidiaries, any of their
affiliates, and any Person acting on their behalf has, directly or indirectly, made any offers or
sales of any security or solicited any offers to buy any security, under circumstances that would
require registration of any of the Securities under the 1933 Act or cause this offering of the
Securities to be integrated with prior offerings by the Company for purposes of the 1933 Act or any
applicable stockholder approval provisions, including, without limitation, under the rules and
regulations of any exchange or automated quotation system on which any of the securities of the
Company are listed or designated. None of the Company, its Subsidiaries, their affiliates and any
Person acting on their behalf will take any action or steps referred to in the preceding sentence
that would require registration of any of the Securities under the 1933 Act or cause the offering
of the Securities to be integrated with other offerings.
(i) Dilutive Effect. The Company understands and acknowledges that the number of
Warrant Shares issuable upon exercise of the Warrants may increase in certain circumstances. The
Company further acknowledges that its obligation to issue the Warrant Shares upon exercise of the
Warrants in accordance with this Agreement and the Warrants is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company.
(j) Application of Takeover Protections; Rights Agreement. The Company and its board
of directors have taken all necessary action, if any, in order to render inapplicable any control
share acquisition, business combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Certificate of Incorporation or the
laws of the jurisdiction of its formation which is or could become applicable to any Buyer as a
result of the transactions contemplated by this Agreement, including, without limitation, the
Company’s issuance of the Securities and any Buyer’s ownership of the Securities.
(k) SEC Documents; Financial Statements. During the two (2) years prior to the date
hereof, the Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements of the 1934 Act (all
of the foregoing filed prior to the date hereof and all exhibits included therein and financial
statements, notes and schedules thereto and documents incorporated by reference therein being
hereinafter referred to as the “SEC Documents”). The Company has delivered to the Buyers or their
respective representatives true, correct and complete copies of the SEC Documents not available on
the XXXXX system. As of their respective dates, the SEC Documents complied in all material
respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated
thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were
filed with the SEC, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in the SEC Documents complied as
to form in all material respects with applicable accounting requirements and the published rules
and regulations of the SEC with respect thereto. Such financial statements have been prepared in
accordance with United States generally
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accepted accounting principles, consistently applied, during the periods involved (except (i)
as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the
case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and fairly present in all material respects the financial position of the
Company as of the dates thereof and the results of its operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments).
No other information provided by or on behalf of the Company to the Buyers which is not included in
the SEC Documents, including, without limitation, information referred to in Section 2(d) of this
Agreement, contains any untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements therein, in the light of the circumstance under which
they are or were made, not misleading.
(l) Absence of Certain Changes. Since December 31, 2005, there has been no material
adverse change and no material adverse development in the business, properties, operations,
condition (financial or otherwise), results of operations or prospects of the Company and its
Subsidiaries taken as a whole. Since December 31, 2005, the Company has not (i) declared or paid
any dividends, (ii) sold any assets, individually or in the aggregate, in excess of $100,000
outside of the ordinary course of business or (iii) had capital expenditures, individually or in
the aggregate, in excess of $1,500,000. The Company has not taken any steps to seek protection
pursuant to any bankruptcy law nor does the Company have any knowledge or reason to believe that
its creditors intend to initiate involuntary bankruptcy proceedings or any actual knowledge of any
fact which would reasonably lead a creditor to do so. The Company is not as of the date hereof,
and after giving effect to the transactions contemplated hereby to occur at the Closing, will not
be Insolvent (as defined below). For purposes of this Section 3(l), “Insolvent” means (i) the
present fair saleable value of the Company’s assets is less than the amount required to pay the
Company’s total Indebtedness (as defined in Section 3(s)), (ii) the Company is unable to pay its
debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become
absolute and matured, (iii) the Company intends to incur or believes that it will incur debts that
would be beyond its ability to pay as such debts mature or (iv) the Company has unreasonably small
capital with which to conduct the business in which it is engaged as such business is now conducted
and is proposed to be conducted.
(m) No Undisclosed Events, Liabilities, Developments or Circumstances. Except for the
transactions contemplated by this Agreement, no event, liability, development or circumstance has
occurred or exists with respect to the Company, its Subsidiaries or their respective business,
properties, prospects, operations or financial condition, that would be required to be disclosed by
the Company under applicable securities laws on a Current Report on Form 8-K filed with the SEC.
(n) Conduct of Business; Regulatory Permits. Neither the Company nor its Subsidiaries
is in violation of any term of or in default under its Certificate of Incorporation or Bylaws or
their organizational charter or certificate of incorporation or bylaws, respectively. Neither the
Company nor any of its Subsidiaries is in violation of any judgment, decree or order or any
statute, ordinance, rule or regulation applicable to the Company or its Subsidiaries, and neither
the Company nor any of its Subsidiaries will conduct its business in violation of any of the
foregoing, except for possible violations which would not, individually or in the aggregate, have a
Material Adverse Effect. Without limiting the generality of the foregoing, the Company
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is not in violation of any of the rules, regulations or requirements of the Principal Market
and has no knowledge of any facts or circumstances which would reasonably lead to delisting or
suspension of the Common Stock by the Principal Market in the foreseeable future. Since March 3,
2005, (i) the Common Stock has been designated for quotation on the Principal Market, (ii) trading
in the Common Stock has not been suspended by the SEC or the Principal Market and (iii) the Company
has received no communication, written or oral, from the SEC or the Principal Market regarding the
suspension or delisting of the Common Stock from the Principal Market. The Company and its
Subsidiaries possess all certificates, authorizations and permits issued by the appropriate
regulatory authorities necessary to conduct their respective businesses, except where the failure
to possess such certificates, authorizations or permits would not have, individually or in the
aggregate, a Material Adverse Effect, and neither the Company nor any such Subsidiary has received
any notice of proceedings relating to the revocation or modification of any such certificate,
authorization or permit.
(o) Foreign Corrupt Practices. Neither the Company, nor any of its Subsidiaries, nor
any director, officer, agent, employee or other Person acting on behalf of the Company or any of
its Subsidiaries has, in the course of its actions for, or on behalf of, the Company (i) used any
corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses
relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or
domestic government official or employee from corporate funds; (iii) violated or is in violation of
any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any
unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any
foreign or domestic government official or employee.
(p) Xxxxxxxx-Xxxxx Act. The Company is in compliance with any and all applicable
requirements of the Xxxxxxxx-Xxxxx Act of 2002 that are effective as of the date hereof with
respect to the Company, and any and all applicable rules and regulations promulgated by the SEC
thereunder that are effective as of the date hereof, except where such noncompliance would not
have, individually or in the aggregate, a Material Adverse Effect.
(q) Transactions With Affiliates. Except as set forth in the SEC Documents filed at
least ten days prior to the date hereof, none of the officers, directors or employees of the
Company is presently a party to any transaction with the Company or any of its Subsidiaries (other
than for ordinary course services as employees, officers or 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 such
officer, director or employee or, to the knowledge of the Company, any corporation, partnership,
trust or other entity in which any such officer, director, or employee has a substantial interest
or is an officer, director, trustee or partner.
(r) Equity Capitalization. As of the date hereof, and prior to giving effect to the
CompCare Transaction and the transactions contemplated hereby, the authorized capital stock of the
Company consists of (i) 200,000,000 shares of Common Stock, of which as of the date hereof,
43,922,474 are issued and outstanding, 6,728,500 shares are reserved for issuance pursuant to the
Company’s stock option and purchase plans, of which options exercisable for a total of 6,385,000
shares are outstanding, and 917,318 shares are reserved for issuance pursuant to securities
exercisable or exchangeable for, or convertible into, shares of Common Stock (other
10
than the Warrants) and (ii) 50,000,000 shares of preferred stock, par value $.0001 per share,
of which as of the date hereof, none of which shares are issued or outstanding. All of such
outstanding shares have been, or upon issuance will be, validly issued and are fully paid and
nonassessable. Except as disclosed in Section 3(r) to the disclosure Schedules: (i) none of the
Company’s capital stock is subject to preemptive rights or any other similar rights or any liens or
encumbrances suffered or permitted by the Company; (ii) there are no outstanding options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, or exercisable or exchangeable for, any capital stock of the
Company or any of its Subsidiaries, or contracts, commitments, understandings or arrangements by
which the Company or any of its Subsidiaries is or may become bound to issue additional capital
stock of the Company or any of its Subsidiaries or options, warrants, scrip, rights to subscribe
to, calls or commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any capital stock of the Company or any of
its Subsidiaries; (iii) there are no outstanding debt securities, notes, credit agreements, credit
facilities or other agreements, documents or instruments evidencing Indebtedness of the Company or
any of its Subsidiaries or by which the Company or any of its Subsidiaries is or may become bound;
(iv) there are no financing statements securing obligations in any material amounts, either singly
or in the aggregate, filed in connection with the Company or any of its Subsidiaries; (v) there are
no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of their securities under the 1933 Act (except the Registration Rights
Agreement); (vi) there are no outstanding securities or instruments of the Company or any of its
Subsidiaries which contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or
may become bound to redeem a security of the Company or any of its Subsidiaries; (vii) there are no
securities or instruments containing anti-dilution or similar provisions that will be triggered by
the issuance of the Securities; (viii) the Company does not have any stock appreciation rights or
“phantom stock” plans or agreements or any similar plan or agreement; and (ix) the Company and its
Subsidiaries have no liabilities or obligations required to be disclosed in the SEC Documents but
not so disclosed in the SEC Documents, other than those incurred in the ordinary course of the
Company’s or its Subsidiaries’ respective businesses and which, individually or in the aggregate,
do not or would not have a Material Adverse Effect. The Company has furnished to the Buyer true,
correct and complete copies of the Company’s Certificate of Incorporation, as amended and as in
effect on the date hereof (the “Certificate of Incorporation”), and the Company’s Bylaws, as
amended and as in effect on the date hereof (the “Bylaws”), and the terms of all securities
convertible into, or exercisable or exchangeable for, shares of Common Stock and the material
rights of the holders thereof in respect thereto.
(s) Indebtedness and Other Contracts. Except as set forth in Section 3(s) to the
Disclosure Schedule, neither the Company nor any of its Subsidiaries (i) has any outstanding
Indebtedness (as defined below), (ii) is a party to any contract, agreement or instrument, the
violation of which, or default under which, by the other party(ies) to such contract, agreement or
instrument (other than real property leases) would result in a Material Adverse Effect, (iii) is in
violation of any term of or in default under any contract, agreement or instrument relating to any
Indebtedness, except where such violations and defaults would not result, individually or in the
aggregate, in a Material Adverse Effect, or (iv) is a party to any contract, agreement or
instrument relating to any Indebtedness, the performance of which, in the judgment of the Company’s
officers, has or is expected to have a Material Adverse Effect. Section 3(s) to the
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Disclosure Schedules provides a detailed description of the material terms of any such
outstanding Indebtedness. For purposes of this Agreement: (x) “Indebtedness” of any Person means,
without duplication (A) all indebtedness for borrowed money, (B) all obligations issued, undertaken
or assumed as the deferred purchase price of property or services (other than trade payables
entered into in the ordinary course of business), (C) all reimbursement or payment obligations with
respect to letters of credit, surety bonds and other similar instruments, (D) all obligations
evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of property, assets or businesses, (E) all indebtedness
created or arising under any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with the proceeds of such
indebtedness (even though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (F) all monetary
obligations under any leasing or similar arrangement which, in connection with generally accepted
accounting principles, consistently applied for the periods covered thereby, is classified as a
capital lease, (G) all indebtedness referred to in clauses (A) through (F) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured
by) any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any
property or assets (including accounts and contract rights) owned by any Person, even though the
Person which owns such assets or property has not assumed or become liable for the payment of such
indebtedness, and (H) all Contingent Obligations in respect of indebtedness or obligations of
others of the kinds referred to in clauses (A) through (G) above; (y) “Contingent Obligation”
means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person
with respect to any indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is
to provide assurance to the obligee of such liability that such liability will be paid or
discharged, or that any agreements relating thereto will be complied with, or that the holders of
such liability will be protected (in whole or in part) against loss with respect thereto; and (z)
"Person” means an individual, a limited liability company, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a government or any department or agency
thereof.
(t) Absence of Litigation. There is no action, suit, proceeding, inquiry or
investigation before or by the Principal Market, 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, the Common Stock or any of the Company’s Subsidiaries or any of
the Company’s or its Subsidiaries’ officers or directors in their capacities as such, which
individually or in the aggregate would have a Material Adverse Effect.
(u) Insurance. The Company and each of its Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such amounts as management
of the Company believes to be prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such 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 at a cost that would not have a Material Adverse Effect.
12
(v) Employee Relations. (i) Neither the Company nor any of its Subsidiaries is a
party to any collective bargaining agreement or employs any member of a union. The Company and its
Subsidiaries believe that their relations with their employees are good. No executive officer of
the Company or any of its Subsidiaries (as defined in Rule 501(f) of the 0000 Xxx) has notified the
Company or any such Subsidiary that such officer intends to leave the Company or otherwise
terminate such officer’s employment with the Company or any such Subsidiary. No executive officer
of the Company or any of its Subsidiaries, to the knowledge of the Company, is, or is now expected
to be, in violation of any material term of any material employment contract, confidentiality,
disclosure or proprietary information agreement, non-competition agreement, or any other material
contract or agreement or any material restrictive covenant, and the continued employment of each
such executive officer does not subject the Company or any of its Subsidiaries to any liability
with respect to any of the foregoing matters.
(i) The Company and its Subsidiaries are in compliance with all federal, state, local and
foreign laws and regulations respecting labor, employment and employment practices and benefits,
terms and conditions of employment and wages and hours, except where failure to be in compliance
would not, either individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect.
(w) Title. Except as set forth in Section 3(w) to the Disclosure Schedule, the
Company and its Subsidiaries have good and marketable title in fee simple to all real property and
good and marketable title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all Liens (as defined in the
Notes) except such as do not materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company and any of its Subsidiaries.
Section 3(w) to the Disclosure Schedules provides a description of all outstanding Liens as of the
Closing Date. Any real property and facilities held under lease by the Company and any of its
Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions
as are not material and do not interfere with the use made and proposed to be made of such property
and buildings by the Company and its Subsidiaries.
(x) Intellectual Property Rights. The Company and its Subsidiaries own or possess
adequate rights or licenses to use all trademarks, trade names, service marks, service xxxx
registrations, service names, domain names, patents, patent rights, copyrights, computer software,
inventions, discoveries, trade secrets and know-how, and other intellectual property rights
(“Intellectual Property Rights”) necessary to conduct their respective businesses as now conducted.
None of the Company’s material Intellectual Property Rights have expired or terminated, or are
expected to expire or terminate, within three years from the date of this Agreement. The Company
does not have any knowledge of any infringement by the Company or its Subsidiaries of Intellectual
Property Rights of others. There is no claim, action or proceeding being made or brought, or to
the knowledge of the Company, being threatened, against the Company or its Subsidiaries regarding
its Intellectual Property Rights. The Company is unaware of any facts or circumstances which might
give rise to any of the foregoing infringements or claims, actions or proceedings. The Company and
its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality
and value of all of their material intellectual properties. All inventors, including current or
former employees of the Company and its Subsidiaries, are appropriately named as inventors on any
issued patent or
13
pending patent application owned by the Company or its Subsidiaries, and all such inventors
have assigned their right, title and interest in such issued patents or patent applications to the
Company or its Subsidiaries. The Company is further not aware of any prior art material to the
patentability of the inventions claimed in any patents and pending patent applications owned by the
Company or its Subsidiaries that was, or has not been, disclosed to the U.S. Patent Office.
(y) Environmental Laws. The Company and its Subsidiaries (i) are in compliance with
any and all Environmental Laws (as hereinafter defined), (ii) have received all permits, licenses
or other approvals required of them under applicable Environmental Laws to conduct their respective
businesses and (iii) are in compliance with all terms and conditions of any such permit, license or
approval where, in each of the foregoing clauses (i), (ii) and (iii), the failure to so comply
would be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect.
The term “Environmental Laws” means all federal, state, local or foreign laws relating to pollution
or protection of human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including, without limitation, laws
relating to emissions, discharges, releases or threatened releases of chemicals, pollutants,
contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials”) into
the environment, or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions, judgments, licenses,
notices or notice letters, orders, permits, plans or regulations issued, entered, promulgated or
approved thereunder.
(z) Subsidiary Rights. The Company or one of its Subsidiaries has the unrestricted
right to vote, and (subject to limitations imposed by applicable law) to receive dividends and
distributions on, all capital securities of its Subsidiaries as owned by the Company or such
Subsidiary.
(aa) Tax Status. The Company and each of its Subsidiaries (i) has made or filed all
foreign, federal and state income and all other tax returns, reports and declarations required by
any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessments
and charges that are material in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and (iii) has set aside on its books
provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to
which such returns, reports or declarations apply. There are no unpaid taxes in any material
amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
(bb) Internal Accounting Controls. The Company and each of its Subsidiaries maintain
a system of internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial statements in conformity
with generally accepted accounting principles and to maintain asset and liability accountability,
(iii) access to assets or incurrence of liabilities is permitted only in accordance with
management’s general or specific authorization and (iv) the recorded accountability for assets and
liabilities is compared with the existing assets and liabilities at reasonable intervals and
appropriate action is taken with respect to any difference.
14
(cc) Ranking of Notes. No Indebtedness of the Company is senior to or ranks pari
passu with the Notes in right of payment, whether with respect of payment of redemptions, interest,
damages or upon liquidation or dissolution or otherwise.
(dd) Form S-3 Eligibility. The Company is eligible to register the Warrant Shares for
resale by the Buyers using Form S-3 promulgated under the 1933 Act.
(ee) U.S. Real Property Holding Corporation. The Company is not, nor has ever been,
or shall become a U.S. real property holding corporation within the meaning of Section 897 of the
Internal Revenue Code of 1986, as amended, and the Company shall so certify upon Buyer’s request.
(ff) Investment Company. Neither the Company nor its Subsidiaries is and, after
giving effect to the offering and sale of the Securities and the application of the proceeds
thereof, will become an “investment company” or an “affiliated person” of, or “promoter” or
“principal underwriter” for an investment company, within the meaning of the Investment Company Act
of 1940, as amended.
(gg) Manipulation of Price. The Company has not, and to its knowledge no one acting
on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in
the stabilization or manipulation of the price of any security of the Company to facilitate the
sale or resale of any of the Securities, (ii) other than the Agent, sold, bid for, purchased, or
paid any compensation for soliciting purchases of, any of the Securities, or (iii) other than the
Agent, paid or agreed to pay to any person any compensation for soliciting another to purchase any
other securities of the Company.
(hh) Dividends. No Subsidiary is currently prohibited, directly or indirectly, from
paying any dividends to the Company, from making any other distribution on such Subsidiary’s
capital stock, from repaying to the Company any loans or advances to such Subsidiary from the
Company or from transferring any of such Subsidiary’s property or assets to the Company or any
other Subsidiary of the Company.
(ii) Health Care Regulations. The Company and the Subsidiaries have structured their
respective businesses practices in a manner reasonably designed to comply with applicable rules,
regulations and policies of the U.S. Food and Drug Administration and applicable federal and state
laws regarding false or misleading advertising claims, physician ownership of (or financial
relationship with), and referral to, entities providing healthcare-related goods or services, and
requiring disclosure of financial interests held by physicians in entities to which they may refer
patients for the provisions of healthcare-related goods or services, and the Company reasonably
believes that it and the Subsidiaries are in compliance with such laws and regulations, except
where noncompliance could not reasonably be expected to have a Material Adverse Effect.
(jj) Disclosure. The Company confirms that neither it nor any other Person acting on
its behalf has provided any of the Buyers or their agents or counsel with any information that
constitutes or could reasonably be expected to constitute material, nonpublic information that has
not been previously disclosed publicly or that will not be disclosed as part of
15
the 8-K Filing (as defined in Section 4(i) below). The Company understands and confirms that
each of the Buyers will rely on the Company’s representations in effecting transactions in
securities of the Company in connection with the transactions contemplated hereunder. All
disclosure provided to the Buyers regarding the Company, its business and the transactions
contemplated hereby, including the schedules to this Agreement, furnished by or on behalf of the
Company is true and correct and does 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. Each press release issued by the Company
during the twelve (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 the light of the
circumstances under which they are 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 conditions, which, under applicable law, rule or
regulation, requires public disclosure or announcement by the Company but which has not been so
publicly announced or disclosed in a timely manner and in accordance with such applicable law, rule
or regulation.
(kk) Acknowledgement Regarding Buyer’s Trading Activity. It is understood and
acknowledged by the Company (i) that the Buyer has not been asked to agree, and the Buyer has not
agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or
“derivative” securities based on securities issued by the Company or to hold the Securities for any
specified term; (ii) that the Buyer, and counter parties in “derivative” transactions to which the
Buyer is a party, directly or indirectly, presently may have a “short” position in the Common
Stock, and (iii) that the Buyer shall not be deemed to have any affiliation with or control over
any arm’s length counter-party in any “derivative” transaction. The Company further understands
and acknowledges that (a) the Buyer may engage in hedging and/or trading activities at various
times during the period that the Securities are outstanding, including, without limitation, during
the periods that the value of the Warrant Shares deliverable with respect to Securities are being
determined and (b) such hedging and/or trading activities, if any, can reduce the value of the
existing stockholders’ equity interest in the Company both at and after the time the hedging and/or
trading activities are being conducted. The Company acknowledges that such aforementioned hedging
and/or trading activities do not constitute a breach of this Agreement, the Note or any of the
documents executed in connection herewith.
4. COVENANTS.
(a) Best Efforts. Each party shall use its best efforts timely to satisfy each of the
conditions to be satisfied by it as provided in Sections 6 and 7 of this Agreement.
(b) Form D and Blue Sky. The Company agrees to file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof to each Buyer promptly
after such filing. The Company shall, on or before the Closing Date, take such action as the
Company shall reasonably determine is necessary in order to obtain an exemption for or to qualify
the Securities for sale to the Buyers at the Closing pursuant to this Agreement under applicable
securities or “Blue Sky” laws of the states of the United States (or to obtain an exemption from
such qualification), and shall provide evidence of any such action so taken to the
16
Buyers on or prior to the Closing Date. The Company shall make all filings and reports
relating to the offer and sale of the Securities required under applicable securities or “Blue Sky”
laws of the states of the United States following the Closing Date.
(c) Reporting Status. Until the date on which the Investors (as defined in the
Registration Rights Agreement) shall have sold all the Warrant Shares and none of the Warrants is
outstanding (the “Reporting Period”), the Company shall file all reports, if any, required to be
filed by it with the SEC pursuant to the 1934 Act, and the Company shall not terminate its status
as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would otherwise permit such termination.
(d) Use of Proceeds. The Company will use the proceeds from the sale of the
Securities for the CompCare Transaction and not for (i) the repayment of any outstanding
Indebtedness of the Company or any of its Subsidiaries or (ii) the redemption or repurchase of any
of its or its Subsidiaries’ equity securities.
(e) Financial Information. So long as any Notes are outstanding, the Company agrees
to send the following to each Investor during the Reporting Period (i) unless the following are
filed with the SEC through XXXXX and are available to the public through the XXXXX system, within
one (1) Business Day after the filing thereof with the SEC, a copy of its Annual Reports on Form
10-K, any interim reports or any consolidated balance sheets, income statements, stockholders’
equity statements and/or cash flow statements for any period other than annual, any Current Reports
on Form 8-K and any registration statements (other than on Form S-8) or amendments filed pursuant
to the 1933 Act and (ii) copies of any notices and other information made available or given to the
stockholders of the Company generally, contemporaneously with the making available or giving
thereof to the stockholders.
(f) Listing. The Company shall promptly secure the listing of all of the Registrable
Securities (as defined in the Registration Rights Agreement) upon each national securities exchange
and automated quotation system, if any, upon which the Common Stock is then listed (subject to
official notice of issuance) and shall maintain such listing of all Registrable Securities from
time to time issuable under the terms of the Transaction Documents. The Company shall maintain the
Common Stocks’ authorization for quotation on the Principal Market. Neither the Company nor any of
its Subsidiaries shall take any action which would be reasonably expected to result in the
delisting or suspension of the Common Stock on the Principal Market. The Company shall pay all
fees and expenses in connection with satisfying its obligations under this Section 4(f).
(g) Fees. Subject to Section 8 below, at the Closing, the Company shall pay a
non-accountable expense allowance of $150,000 (of which $25,000 has been paid) to Highbridge
International LLC, (a Buyer) or its designee(s) (in addition to any other expense amounts paid to
any Buyer prior to the date of this Agreement), which amount shall be withheld by such Buyer from
its Purchase Price at the Closing. The Company shall be responsible for the payment of any
placement agent’s fees, financial advisory fees, or broker’s commissions (other than for Persons
engaged by any Buyer) relating to or arising out of the transactions contemplated hereby. The
Company shall pay, and hold each Buyer harmless against, any liability, loss or expense (including,
without limitation, reasonable attorney’s fees and out-of-pocket expenses)
17
arising in connection with any claim relating to any such payment. Except as otherwise set
forth in the Transaction Documents, each party to this Agreement shall bear its own expenses in
connection with the sale of the Securities to the Buyers.
(h) Pledge of Securities. The Company acknowledges and agrees that, subject to
applicable laws, rules and regulations, the Securities may be pledged by an Investor (as defined in
the Registration Rights Agreement) in connection with a bona fide margin agreement or other loan or
financing arrangement that is secured by the Securities. The pledge of Securities shall not be
deemed to be a transfer, sale or assignment of the Securities hereunder, and no Investor effecting
a pledge of Securities shall be required to provide the Company with any notice thereof or
otherwise make any delivery to the Company pursuant to this Agreement or any other Transaction
Document, including, without limitation, Section 2(f) hereof; provided that an Investor and its
pledgee shall be required to comply with the provisions of Section 2(f) hereof in order to effect a
sale, transfer or assignment of Securities to such pledgee. The Company hereby agrees to execute
and deliver such documentation as a pledgee of the Securities may reasonably request in connection
with a pledge of the Securities to such pledgee by an Investor.
(i) Disclosure of Transactions and Other Material Information. On or before 8:30
a.m., New York Time, on January 19, 2007, the Company shall file a Current Report on Form 8-K
describing the terms of the transactions contemplated by the Transaction Documents and the terms of
the CompCare Transaction in the form required by the 1934 Act and attaching the material
Transaction Documents (including, without limitation, this Agreement (and all schedules to this
Agreement), the form of each of the Notes, the form of Warrant, the Registration Rights Agreement
and the material documents relating to the CompCare Transaction) as exhibits to such filing
(including all attachments, the “8-K Filing”). From and after the filing of the 8-K Filing with
the SEC, no Buyer shall be in possession of any material, nonpublic information received from the
Company, any of its Subsidiaries or any of their respective officers, directors, employees or
agents, that is not disclosed in the 8-K Filing. 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 Buyer with any material, nonpublic information regarding the Company or any of
its Subsidiaries from and after the filing of the 8-K Filing with the SEC without the express
written consent of such Buyer. Subject to the foregoing, neither the Company, its Subsidiaries nor
any Buyer 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 Buyer, 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 Buyer shall be consulted by the Company in connection with any
such press release or other public disclosure prior to its release).
(j) Restriction on Redemption and Cash Dividends. So long as any Notes are
outstanding, the Company shall not, directly or indirectly, redeem, or declare or pay any cash
dividend or distribution on, the Common Stock without the prior express written consent of the
holders of Notes representing not less than a majority of the aggregate principal amount of the
then outstanding Notes.
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(k) Additional Notes; Variable Securities; Dilutive Issuances. So long as any Buyer
beneficially owns any Notes, the Company will not issue any Notes other than to the Buyers as
contemplated hereby and the Company shall not issue any other securities that would cause a breach
or default under the Notes. For so long as any Warrants remain outstanding, the Company shall not,
in any manner, issue or sell any rights, warrants or options to subscribe for or purchase Common
Stock or directly or indirectly convertible into or exchangeable or exercisable for Common Stock at
a price which varies or may vary with the market price of the Common Stock, including by way of one
or more reset(s) to any fixed price unless the conversion, exchange or exercise price of any such
security cannot be less than the then applicable Exercise Price (as defined in the Warrants) with
respect to the Common Stock into which any Warrant is exercisable. For long as any Warrants remain
outstanding, the Company shall not, in any manner, enter into or affect any Dilutive Issuance (as
defined in the Warrants) if the effect of such Dilutive Issuance is to cause the Company to be
required to issue upon exercise of any Warrant any shares of Common Stock in excess of that number
of shares of Common Stock which the Company may issue upon exercise of the Warrants without
breaching the Company’s obligations under the rules or regulations of the Eligible Market (as
defined in the Warrants).
(l) Corporate Existence. So long as any Buyer beneficially owns any Securities, the
Company shall not be party to any Fundamental Transaction (as defined in the Notes) unless the
Company is in compliance with the provisions governing Fundamental Transactions set forth in the
Notes and the Warrants, if and as applicable.
(m) Reservation of Shares. So long as any Buyer owns any Warrants, the Company shall
take all action necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than 110% of the number of shares of Common Stock issuable upon exercise of the
Warrants then outstanding (without taking into account any limitations on the exercise of the
Warrants set forth in the Warrants).
(n) Conduct of Business. So long as any of the Notes remain outstanding, the business
of the Company and its Subsidiaries shall not be conducted in violation of any law, ordinance or
regulation of any governmental entity, except where such violations would not result, either
individually or in the aggregate, in a Material Adverse Effect.
(o) Additional Issuances of Securities.
(i) For purposes of this Section 4(o), the following definitions shall apply.
(1) “Convertible Securities” means any stock or securities (other than Options)
convertible into or exercisable or exchangeable for shares of Common Stock.
(2) “Options” means any rights, warrants or options to subscribe for or purchase shares
of Common Stock or Convertible Securities.
(3) “Common Stock Equivalents” means, collectively, Options and Convertible Securities.
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(ii) From the date hereof until the later of (i) 90 days following the Closing Date and (ii)
the earlier of (A) 30 days following the Effective Date and (B) one year following the Closing
Date, the Company will not, directly or indirectly, for its own account, 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 its 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 shares of Common Stock or Common Stock Equivalents.
(iii) The restrictions contained in this Section 4(o) shall not apply: (1) in connection with
(A) the Company’s 2003 Stock Incentive Plan, (B) any employee benefit plan approved by the Board of
Directors of the Company, or (C) issuance of the Company’s securities to any employee, officer,
director or consultant in exchange for services provided to the Company; (2) in connection with any
merger or acquisition of any assets or securities of another business, corporation or entity by the
Company, the primary purpose of which is not to raise equity capital, or (3) upon conversion of any
Options or Convertible Securities which are outstanding on the day immediately preceding the
Closing Date, provided that the terms of such Options or Convertible Securities are not amended,
modified or changed on or after the Closing Date (other than extensions of the term, conversion
period or exercise period of such Options or Convertible Securities).
(p) Collateral Agent.
(i) Each Buyer hereby (a) appoints Highbridge International LLC, as the collateral agent
hereunder and under the other Security Documents (in such capacity, the “Collateral Agent”), and
(b) authorizes the Collateral Agent (and its officers, directors, employees and agents) to take
such action on such Buyer’s behalf in accordance with the terms hereof and thereof. The Collateral
Agent shall not have, by reason hereof or any of the other Security Documents, a fiduciary
relationship in respect of any Buyer. Neither the Collateral Agent nor any of its officers,
directors, employees and agents shall have any liability to any Buyer for any action taken or
omitted to be taken in connection hereof or any other Security Document except to the extent caused
by its own gross negligence or willful misconduct, and each Buyer agrees to defend, protect,
indemnify and hold harmless the Collateral Agent and all of its officers, directors, employees and
agents (collectively, the “Indemnitees”) from and against any losses, damages, liabilities,
obligations, penalties, actions, judgments, suits, fees, costs and expenses (including, without
limitation, reasonable attorneys’ fees, costs and expenses) incurred by such Indemnitee, whether
direct, indirect or consequential, arising from or in connection with the performance by such
Indemnitee of the duties and obligations of Collateral Agent pursuant hereto or any of the Security
Documents.
(ii) The Collateral Agent shall be entitled to rely upon any written notices, statements,
certificates, orders or other documents or any telephone message believed by it in good faith to be
genuine and correct and to have been signed, sent or made by the proper Person, and with respect to
all matters pertaining to this Agreement or any of the other Transaction Documents and its duties
hereunder or thereunder, upon advice of counsel selected by it.
20
(iii) The Collateral Agent may resign from the performance of all its functions and duties
hereunder and under the Notes and the Security Documents at any time by giving at least ten (10)
Business Days prior written notice to the Company and each holder of the Notes. Such resignation
shall take effect upon the acceptance by a successor Collateral Agent of appointment as provided
below. Upon any such notice of resignation, the holders of a majority of the outstanding principal
under the Notes shall appoint a successor Collateral Agent. Upon the acceptance of the appointment
as Collateral Agent, such successor Collateral Agent shall succeed to and become vested with all
the rights, powers, privileges and duties of the retiring Collateral Agent, and the retiring
Collateral Agent shall be discharged from its duties and obligations under this Agreement, the
Notes and the other Security Documents. After any Collateral Agent’s resignation hereunder, the
provisions of this Section 4(q) shall inure to its benefit. If a successor Collateral Agent shall
not have been so appointed within said ten (10) Business Day period, the retiring Collateral Agent
shall then appoint a successor Collateral Agent who shall serve until such time, if any, as the
holders of a majority of the outstanding principal under the Notes appoint a successor Collateral
Agent as provided above.
(q) Security Documents. As soon as practicable, but in no event later than fifteen
(15) Business Days after the Closing Date, in accordance with the terms of the Security Documents,
the Company shall deliver to the Collateral Agent certificates representing at least 65% of each of
its Subsidiaries’ shares of capital stock, along with duly executed blank stock powers.
5. REGISTER; TRANSFER AGENT INSTRUCTIONS.
(a) Register. The Company shall maintain at its principal executive offices (or such
other office or agency of the Company as it may designate by notice to each holder of Securities),
a register for the Notes and the Warrants in which the Company shall record the name and address of
the Person in whose name the Notes and the Warrants have been issued (including the name and
address of each transferee), the principal amount of Notes held by such Person and the number of
Warrant Shares issuable upon exercise of the Warrants held by such Person. The Company shall keep
the register open and available at all times during business hours for inspection of any Buyer or
its legal representatives.
(b) Transfer Agent Instructions. The Company shall issue irrevocable instructions to
its transfer agent, and any subsequent transfer agent, to issue, subject to any applicable law,
rule, regulation, stock exchange listing requirement or court order, certificates or credit shares
to the applicable balance accounts at The Depository Trust Company (“DTC”), registered in the name
of each Buyer or its respective nominee(s), for Warrant Shares issued at the Closing or upon
exercise of the Warrants in such amounts as specified from time to time by each Buyer to the
Company upon exercise of the Warrants in the form of Exhibit F attached hereto (the
"Irrevocable Transfer Agent Instructions”). The Company warrants that no instruction other than
the Irrevocable Transfer Agent Instructions referred to in this Section 5(b), or the stop transfer
instructions to give effect to Section 2(g) hereof, will be given by the Company to its transfer
agent, and that the Securities shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement and the other Transaction Documents.
If a Buyer effects a sale, assignment or transfer of the Securities in accordance with Section
2(f), the Company shall permit the transfer and shall promptly instruct
21
its transfer agent to issue one or more certificates or credit shares to the applicable
balance accounts at DTC in such name and in such denominations as specified by such Buyer to effect
such sale, transfer or assignment. In the event that such sale, assignment or transfer involves
Warrant Shares sold, assigned or transferred pursuant to an effective registration statement or
pursuant to Rule 144, the transfer agent shall issue such Securities to the Buyer, assignee or
transferee, as the case may be, without any restrictive legend. The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to a Buyer. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations under this Section 5(b)
will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the
provisions of this Section 5(b), that a Buyer shall be entitled, in addition to all other available
remedies, to an order and/or injunction restraining any breach and requiring immediate issuance and
transfer, without the necessity of showing economic loss and without any bond or other security
being required.
6. CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Notes and the related Warrants
to each Buyer at the Closing is subject to the satisfaction, at or before the Closing Date, of each
of the following conditions, provided that these conditions are for the Company’s sole benefit and
may be waived by the Company at any time in its sole discretion by providing each Buyer with prior
written notice thereof:
(i) Such Buyer shall have executed each of the Transaction Documents to which it is a party
and delivered the same to the Company.
(ii) Such Buyer and each other Buyer shall have delivered to the Company the Purchase Price
(less, in the case of Highbridge International LLC, the amounts withheld pursuant to Section 4(g))
for the Notes and the related Warrants being purchased by such Buyer at the Closing by wire
transfer of immediately available funds pursuant to the wire instructions provided by the Company.
(iii) The representations and warranties of such Buyer shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though made at that time
(except for representations and warranties that speak as of a specific date), and such Buyer shall
have performed, satisfied and complied in all material respects with the covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied with by such Buyer at
or prior to the Closing Date.
7. CONDITIONS TO EACH BUYER’S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase the Notes and the related Warrants at the
Closing is subject to the satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for each Buyer’s sole benefit and may be waived by
such Buyer at any time in its sole discretion by providing the Company with prior written notice
thereof:
(i) The Company shall have executed and delivered to such Buyer (A) each of the Transaction
Documents, (B) the Notes (in such principal amounts as such Buyer
22
shall request) being purchased by such Buyer at the Closing pursuant to this Agreement, and (C) the
Warrants (in such amounts as such Buyer shall request) being purchased by such Buyer at the Closing
pursuant to this Agreement.
(ii) Such Buyer shall have received the opinion of Xxxxxx Xxxxx & Xxxxx LLP, the Company’s
outside counsel, dated as of the Closing Date, in substantially the form of Exhibit G
attached hereto.
(iii) The Company shall have delivered to such Buyer a copy of the Irrevocable Transfer Agent
Instructions, in the form of Exhibit F attached hereto, which instructions shall have been
delivered to and acknowledged in writing by the Company’s transfer agent.
(iv) The Company shall have delivered to such Buyer a certificate evidencing the formation and
good standing of the Company and each of its Subsidiaries in such entity’s jurisdiction of
formation issued by the Secretary of State (or comparable office) of such jurisdiction, as of a
date within 10 days of the Closing Date.
(v) The Company shall have delivered to such Buyer a certificate evidencing the Company’s
qualification as a foreign corporation and good standing issued by the Secretary of State (or
comparable office) of each jurisdiction in which the Company conducts business, as of a date within
10 days of the Closing Date.
(vi) The Company shall have delivered to such Buyer a certified copy of the Certificate of
Incorporation as certified by the Secretary of State of the State of Delaware within ten (10) days
of the Closing Date.
(vii) The Company shall have delivered to such Buyer a certificate, executed by the Secretary
of the Company and dated as of the Closing Date, as to (i) the resolutions consistent with Section
3(b) as adopted by the Company’s Board of Directors in a form reasonably acceptable to such Buyer,
(ii) the Certificate of Incorporation and (iii) the Bylaws, each as in effect at the Closing, in
the form attached hereto as Exhibit H.
(viii) The representations and warranties of the Company shall be true and correct as of the
date when made and as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date) and the Company shall have performed, satisfied
and complied in all respects with the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by the Company at or prior to the
Closing Date. Such Buyer shall have received a certificate, executed by the Chief Executive
Officer of the Company, dated as of the Closing Date, to the foregoing effect and as to such other
matters as may be reasonably requested by such Buyer in the form attached hereto as Exhibit
G.
(ix) Within five (5) Business Days prior to the Closing, the Company shall have delivered or
caused to be delivered to each Buyer (A) certified copies of UCC search results, listing all
effective financing statements which name as debtor the Company or any of its Subsidiaries filed in
the prior five years to perfect an interest in any assets thereof, together with copies of such
financing statements, none of which, except as otherwise agreed in writing by the
23
Buyers, shall cover any of the Collateral (as defined in the Security Documents) and the
results of searches for any tax lien and judgment lien filed against such Person or its property,
which results, except as otherwise agreed to in writing by the Buyers shall not show any such Liens
(as defined in the Security Documents); and (B) a perfection certificate, duly completed and
executed by the Company and each of its Subsidiaries, in form and substance satisfactory to the
Buyers.
(x) The Company shall have delivered to such Buyer a letter from the Company’s transfer agent
certifying the number of shares of Common Stock outstanding as of a date within five days of the
Closing Date.
(xi) The Common Stock (I) shall be designated for quotation or listed on the Principal Market
and (II) shall not have been suspended, as of the Closing Date, by the SEC or the Principal Market
from trading on the Principal Market nor shall suspension by the SEC or the Principal Market have
been threatened, as of the Closing Date, either (A) in writing by the SEC or the Principal Market
or (B) by falling below the minimum listing maintenance requirements of the Principal Market.
(xii) The Company shall have obtained all governmental, regulatory or third party consents and
approvals, if any, necessary for the sale of the Securities prior to the closing of any such sale
in connection therewith.
(xiii) In accordance with the terms of the Security Documents, the Company shall have
delivered to the Collateral Agent appropriate financing statements on Form UCC-1 to be duly filed
in such office or offices as may be necessary or, in the opinion of the Collateral Agent, desirable
to perfect the security interests purported to be created by each Security Document.
(xiv) The Company shall have delivered to such Buyer such other documents relating to the
transactions contemplated by this Agreement as such Buyer or its counsel may reasonably request.
8. TERMINATION. In the event that the Closing shall not have occurred with respect to
a Buyer on or before five (5) Business Days from the date hereof due to the Company’s or such
Buyer’s failure to satisfy the conditions set forth in Sections 6 and 7 above (and the nonbreaching
party’s failure to waive such unsatisfied condition(s)), the nonbreaching party shall have the
option to terminate this Agreement with respect to such breaching party at the close of business on
such date without liability of any party to any other party; provided, however,
this if this Agreement is terminated pursuant to this Section 8, the Company shall remain obligated
to reimburse the non-breaching Buyers for the expenses described in Section 4(g) above.
9. MISCELLANEOUS.
(a) Governing Law; Jurisdiction; Jury Trial. All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall be governed by the
internal laws of the State of New York, without giving effect to any choice of law or conflict of
law provision or rule (whether of the State of New York or any other jurisdictions) that would
24
cause the application of the laws of any jurisdictions other than the State of New York. Each
party hereby irrevocably submits to the non-exclusive jurisdiction of the state and federal courts
sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of any such court, that such suit,
action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by mailing a copy thereof
to such party at the address for such notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process in any manner
permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR
ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
(b) Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the other party;
provided that a facsimile signature shall be considered due execution and shall be binding upon the
signatory thereto with the same force and effect as if the signature were an original, not a
facsimile signature.
(c) Headings. The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement.
(d) Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity
or enforceability of any provision of this Agreement in any other jurisdiction.
(e) Entire Agreement; Amendments. This Agreement and the other Transaction Documents
supersede all other prior oral or written agreements between the Buyers, the Company, their
affiliates and Persons acting on their behalf with respect to the matters discussed herein, and
this Agreement, the other Transaction Documents and the instruments referenced herein and therein
contain the entire understanding of the parties with respect to the matters covered herein and
therein and, except as specifically set forth herein or therein, neither the Company nor any Buyer
makes any representation, warranty, covenant or undertaking with respect to such matters. No
provision of this Agreement may be amended or waived other than by an instrument in writing signed
by the Company and the holders of at least a majority of the aggregate number of Registrable
Securities issued and issuable hereunder, and any amendment to this Agreement made in conformity
with the provisions of this Section 9(e) shall be binding on all Buyers and holders of Securities,
as applicable. No such amendment or waiver shall be effective to the extent that it applies to
less than all of the holders of the applicable Securities then outstanding. No consideration shall
be offered or paid to any Person to amend or consent to
25
a waiver or modification of any provision of any of the Transaction Documents unless the same
consideration also is offered to all of the parties to the Transaction Documents, holders of Notes
or holders of the Warrants, as the case may be. The Company has not, directly or indirectly, made
any agreements with any Buyers relating to the terms or conditions of the transactions contemplated
by the Transaction Documents except as set forth in the Transaction Documents.
(f) Notices. Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing and will be deemed to
have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by
facsimile (provided confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one Business Day after deposit with an overnight
courier service, in each case properly addressed to the party to receive the same. The addresses
and facsimile numbers for such communications shall be:
If to the Company:
Hythiam, Inc.
00000 Xxxxx Xxxxxx Xxxxxxxxx, Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Chief Executive Officer
00000 Xxxxx Xxxxxx Xxxxxxxxx, Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Chief Executive Officer
With a copy to:
Xxxxxx Xxxxx & Xxxxx LLP
The Water Garden
0000 00xx Xxxxxx
0xx Xxxxx, Xxxxx Xxxxx
Xxxxx Xxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxx X. Xxxxxxxx, Esq.
The Water Garden
0000 00xx Xxxxxx
0xx Xxxxx, Xxxxx Xxxxx
Xxxxx Xxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxx X. Xxxxxxxx, Esq.
If to the Transfer Agent:
American Stock Transfer & Trust Company
0000 00xx Xxxxxx, 0xx Xxxxx
Xxxxxxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxx Xxxxxxxxxxxx
0000 00xx Xxxxxx, 0xx Xxxxx
Xxxxxxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxx Xxxxxxxxxxxx
If to a Buyer, to its address and facsimile number set forth on the Schedule of Buyers, with copies
to such Buyer’s representatives as set forth on the Schedule of Buyers,
26
with a copy (for informational purposes only) to:
Xxxxxxx Xxxx & Xxxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxxx X. Xxxxx, Esq.
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxxx X. Xxxxx, Esq.
or to such other address and/or facsimile number and/or to the attention of such other Person as
the recipient party has specified by written notice given to each other party five (5) days prior
to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of
such notice, consent, waiver or other communication, (B) mechanically or electronically generated
by the sender’s facsimile machine containing the time, date, recipient facsimile number and an
image of the first page of such transmission or (C) provided by an overnight courier service shall
be rebuttable evidence of personal service, receipt by facsimile or receipt from an overnight
courier service in accordance with clause (i), (ii) or (iii) above, respectively.
(g) Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and assigns, including any purchasers of the
Notes or the Warrants. The Company shall not assign this Agreement or any rights or obligations
hereunder without the prior written consent of the holders of at least a majority of the aggregate
number of Registrable Securities issued and issuable hereunder, including by way of a Fundamental
Transaction (unless the Company is in compliance with the applicable provisions governing
Fundamental Transactions set forth in the Notes and the Warrants). A Buyer may assign, without
consent of the Company, (i) some or all of its rights hereunder to any affiliate of the Buyer or
(ii) all of its rights hereunder to any unaffiliated Person, in which event such assignee shall be
deemed to be a Buyer hereunder with respect to such assigned rights.
(h) No Third Party Beneficiaries. This Agreement is intended for the benefit of the
parties hereto and their respective permitted successors and assigns, and is not for the benefit
of, nor may any provision hereof be enforced by, any other Person.
(i) Survival. Unless this Agreement is terminated under Section 8, the
representations and warranties of the Company and the Buyers contained in Sections 2 and 3 and the
agreements and covenants set forth in Sections 4, 5 and 9 shall survive the Closing. Each Buyer
shall be responsible only for its own representations, warranties, agreements and covenants
hereunder.
(j) Further Assurances. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as any other party may reasonably request in
order to carry out the intent and accomplish the purposes of this Agreement and the consummation of
the transactions contemplated hereby.
(k) Indemnification. In consideration of each Buyer’s execution and delivery of the
Transaction Documents and acquiring the Securities thereunder and in addition to all of
27
the Company’s other obligations under the Transaction Documents, the Company shall defend,
protect, indemnify and hold harmless each Buyer and each other holder of the Securities and all of
their stockholders, partners, members, officers, directors, employees and direct or indirect
investors and any of the foregoing Persons’ agents or other representatives (including, without
limitation, those retained in connection with the transactions contemplated by this Agreement)
(collectively, the “Indemnitees”) from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection
therewith (irrespective of whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements
(the “Indemnified Liabilities”), incurred by any Indemnitee as a result of, or arising out of, or
relating to (a) any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or document contemplated
hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Company contained
in the Transaction Documents or any other certificate, instrument or document contemplated hereby
or thereby or (c) any cause of action, suit or claim brought or made against such Indemnitee by a
third party (including for these purposes a derivative action brought on behalf of the Company) and
arising out of or resulting from (i) the execution, delivery, performance or enforcement of the
Transaction Documents or any other certificate, instrument or document contemplated hereby or
thereby, (ii) any transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities or (iii) the status of such Buyer
or holder of the Securities as an investor in the Company pursuant to the transactions contemplated
by the Transaction Documents; provided, however, that the Company shall have no
obligation to indemnify any individual or entity harmed directly or indirectly as a result of, and
to the extent of, any Buyer’s willful misconduct. To the extent that the foregoing undertaking by
the Company may be unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law. Except as otherwise set forth herein, the mechanics and procedures with respect to
the rights and obligations under this Section 9(k) shall be the same as those set forth in Section
6 of the Registration Rights Agreement.
(l) No Strict Construction. 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.
(m) Remedies. Each Buyer and each holder of the Securities shall have all rights and
remedies set forth in the Transaction Documents and all rights and remedies which such holders have
been granted at any time under any other agreement or contract and all of the rights which such
holders have under any law. Any Person having any rights under any provision of this Agreement
shall be entitled to enforce such rights specifically (without posting a bond or other security),
to recover damages by reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law. Furthermore, the Company recognizes that in the event that it fails
to perform, observe, or discharge any or all of its obligations under the Transaction Documents,
any remedy at law may prove to be inadequate relief to the Buyers. The Company therefore agrees
that the Buyers shall be entitled to seek temporary and permanent injunctive relief in any such
case without the necessity of proving actual damages and without posting a bond or other security.
28
(n) Payment Set Aside. To the extent that the Company makes a payment or payments to
the Buyers hereunder or pursuant to any of the other Transaction Documents or the Buyers enforce or
exercise their 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, a trustee, receiver or any other Person under any law
(including, without limitation, any bankruptcy law, foreign, 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.
(o) Rescission and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) the Transaction Documents, whenever
any Investor exercises a right, election, demand or option owed to such Investor by the Company
under a Transaction Document and the Company does not timely perform its related obligations within
the periods therein provided, then, prior to the performance by the Company of the Company’s
related obligation, such Investor may rescind or withdraw, in its sole discretion from time to time
upon written notice to such Seller, any relevant notice, demand or election in whole or in part
without prejudice to its future actions and rights.
(p) Independent Nature of Buyers’ Obligations and Rights. The obligations of each
Buyer under any Transaction Document are several and not joint with the obligations of any other
Buyer, and no Buyer shall be responsible in any way for the performance of the obligations of any
other Buyer under any Transaction Document. Nothing contained herein or in any other Transaction
Document, and no action taken by any Buyer pursuant hereto or thereto, shall be deemed to
constitute the Buyers as a partnership, an association, a joint venture or any other kind of
entity, or create a presumption that the Buyers are in any way acting in concert or as a group with
respect to such obligations or the transactions contemplated by the Transaction Documents. Each
Buyer confirms that it has independently participated in the negotiation of the transaction
contemplated hereby with the advice of its own counsel and advisors. Each Buyer shall be entitled
to independently protect and enforce its rights, including, without limitation, the rights arising
out of this Agreement or out of any other Transaction Documents, and it shall not be necessary for
any other Buyer to be joined as an additional party in any proceeding for such purpose.
(q) Individual Buyer. Notwithstanding anything in this agreement to the contrary, or
any references to “Buyers” herein, Highbridge International LLC acknowledges and the Company
confirms that Highbridge International LLC is the only Buyer party to the transactions contemplated
by this Agreement.
[Signature Page Follows]
29
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective signature page to
this Securities Purchase Agreement to be duly executed as of the date first written above.
| COMPANY: HYTHIAM, INC. |
||||
| By: | /s/ Xxxxx Xxxxx | |||
| Name: | Xxxxx Xxxxx | |||
| Title: | Chief Financial Officer | |||
30
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective signature page to
this Securities Purchase Agreement to be duly executed as of the date first written above.
| BUYERS: HIGHBRIDGE INTERNATIONAL LLC By: HIGHBRIDGE CAPITAL MANAGEMENT, LLC |
||||
| By: | /s/ Xxxx X. Chill | |||
| Name: | Xxxx X. Chill | |||
| Title: | Managing Director | |||
31
SCHEDULE OF BUYERS
| (3) | ||||||||||||||||
| Aggregate | ||||||||||||||||
| (2) | Principal | (4) | (6) | |||||||||||||
| (1) | Address and | Amount of | Number of | (5) | Legal Representative's Address and | |||||||||||
| Buyer | Facsimile Number | Notes | Warrant Shares | Purchase Price | Facsimile Number | |||||||||||
Highbridge
|
c/o Highbridge Capital Management, LLC | $ | 10,000,000 | 249,750 | $ | 10,000,000 | Xxxxxxx Xxxx & Xxxxx LLP | |||||||||
International LLC
|
0 Xxxx 00xx Xxxxxx, 00xx Xxxxx | 000 Xxxxx Xxxxxx | ||||||||||||||
| Xxx Xxxx, Xxx Xxxx 00000 | Xxx Xxxx, Xxx Xxxx 00000 | |||||||||||||||
| Attention: Xxx X. Xxxxxx | Attention: Xxxxxxx Xxxxx, Esq. | |||||||||||||||
| Xxxx X. Chill | Facsimile: (000) 000-0000 | |||||||||||||||
| Facsimile: (000) 000-0000 | Telephone: (000) 000-0000 | |||||||||||||||
| Telephone: (000) 000-0000 | ||||||||||||||||
| Residence: Cayman Islands | ||||||||||||||||
EXHIBITS
| Exhibit A | Form of Notes |
|
| Exhibit B | Form of Warrants |
|
| Exhibit C | Registration Rights Agreement |
|
| Exhibit D | Form of Pledge Agreement |
|
| Exhibit E | Form of Security Agreement |
|
| Exhibit F | Irrevocable Transfer Agent Instructions |
|
| Exhibit G | Form of Outside Company Counsel Opinion |
|
| Exhibit H | Form of Secretary’s Certificate |
|
| Exhibit I | Form of Officer’s Certificate |
DISCLOSURE SCHEDULES
| Schedule 3(a) | Subsidiaries |
|
| Schedule 3(r) | Capitalization |
|
| Schedule 3(s) | Indebtedness and Other Contracts |
|
| Schedule 3(w) | Liens |
