EXHIBIT 4.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
September 13, 2004, by and among RCG Companies Incorporated, a Delaware
corporation (the "Company"), and the purchasers identified on the signature
pages hereto (each, including its successors and assigns, a "Purchaser" and
collectively the "Purchasers").
WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act (as defined below),
and Rule 506 promulgated thereunder, the Company desires to issue and sell to
each Purchaser, and each Purchaser, severally and not jointly, desires to
purchase from the Company in the aggregate, up to $6,000,000 million of
Preferred Stock, Warrants and Additional Investment Rights on the Closing Date.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agrees
as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement: (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Certificate of Designation (as defined
herein), and (b) the following terms have the meanings indicated in this Section
1.1:
"Action" shall have the meaning ascribed to such term in
Section 3.1(j).
"Actual Minimum" means, as of any date, the maximum aggregate
number of shares of Common Stock then issued or potentially issuable in
the future pursuant to the Transaction Documents, including any
Underlying Shares issuable upon exercise or conversion in full of all
Warrants and Additional Investment Rights and shares of Preferred
Stock, ignoring any conversion or exercise limits set forth therein,
and assuming that any previously unconverted shares of Preferred Stock
are held until the third anniversary of the Closing Date and all
dividends are paid in shares of Common Stock until such third
anniversary, subject to the limitation on the number of shares of
Common Stock issuable hereunder set forth in Section 5(a)(iii) of the
Certificate of Designation.
"Additional Investment Right" means the Additional Investment
Rights in the form of Exhibit E, delivered to the Purchasers at the
Closing in accordance with Section 2.2(a)(iv).
"Additional Investment Right Shares" means the shares of
Common Stock issuable upon exercise of the Additional Investment
Rights.
"Affiliate" means any Person that, directly or indirectly
through one or more intermediaries, controls or is controlled by or is
under common control with a Person, as such terms are used in and
construed under Rule 144 under the Securities Act. With respect to a
Purchaser, any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as such Purchaser
will be deemed to be an Affiliate of such Purchaser.
"Certificate of Designation" means the Certificate of
Designation to be filed prior to the Closing by the Company with the
Secretary of State of Delaware, in the form of Exhibit A attached
hereto.
"Closing" means the closing of the purchase and sale of the
Securities pursuant to Section 2.1.
"Closing Date" means the Trading Day when all of the
Transaction Documents have been executed and delivered by the
applicable parties thereto, and all conditions precedent to (i) each
Purchaser's obligations to pay the Subscription Amount have been
satisfied or waived (ii) and the Company's obligations to deliver the
Securities have been satisfied or waived.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, par
value $0.04 per share, and any securities into which such common stock
shall hereinafter been reclassified into.
"Common Stock Equivalents" means any securities of the Company
or the Subsidiaries (other than Lifestyle Innovations, Inc.) which
would entitle the holder thereof to acquire at any time Common Stock,
including without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible
into or exchangeable for, or otherwise entitles the holder thereof to
receive, Common Stock.
"Company Counsel" means Xxxxxx & Xxxx PA.
"Disclosure Schedules" means the Disclosure Schedules of the
Company delivered concurrently herewith.
"Effective Date" means the date that the Registration
Statement is first declared effective by the Commission.
"Escrow Agent" shall have the meaning set forth in the Escrow
Agreement.
"Escrow Agreement" shall mean the Escrow Agreement in
substantially the form of Exhibit G hereto executed and delivered
contemporaneously with this Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
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"Exempt Issuance" the issuance of (a) shares of Common Stock
or options to employees, officers or directors of the Company pursuant
to any stock or option plan duly adopted by a majority of the
non-employee members of the Board of Directors of the Company or a
majority of the members of a committee of non-employee directors
established for such purpose, (b) securities upon the exercise of or
conversion of any securities issued hereunder, convertible securities,
options or warrants issued and outstanding on the date of this
Agreement, provided that such securities have not been amended since
the date of this Agreement to increase the number of such securities;
(c) securities issued pursuant to acquisitions or strategic
transactions, provided any such issuance shall only be to a Person
which is, itself or through its subsidiaries, an operating company and
in which the Company receives benefits in addition to the investment of
funds, but shall not include a transaction in which the Company is
issuing securities primarily for the purpose of raising capital or to
an entity whose primary business is investing in securities; and (d) an
additional issuance of Preferred Stock, Warrants and Additional
Investment Rights on the exact same terms and conditions as the
issuance under the Transaction Documents and placed through HPC Capital
for up to the difference between $6 million and the aggregate
Subscription Amount raised hereunder, which exempt issuance shall have
occurred within 5 Trading Days of the date hereof; provided, however,
such issuance shall not toll or extend the Closing Date for purposes of
the Transaction Documents.
"FW" means Xxxxxxx Xxxxxxxxx LLP with offices located at 000
Xxxxxxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000-0000.
"GAAP" shall have the meaning ascribed to such term in Section
3.1(h).
"Liens" means a lien, charge, security interest, encumbrance,
right of first refusal, preemptive right or other similar restriction.
"Losses" means any and all losses, claims, damages,
liabilities, settlement costs and expenses, including without
limitation costs of preparation and reasonable attorneys' fees.
"Market Price" means $0.94.
"Material Adverse Effect" shall have the meaning assigned to
such term in Section 3.1(b).
"Material Permits" shall have the meaning ascribed to such
term in Section 3.1(m).
"Person" means an individual or corporation, partnership,
trust, incorporated or unincorporated association, joint venture,
limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
"Preferred Stock" means the up to 6,000 shares of the
Company's Series __ 6% Convertible Preferred Stock issued hereunder
having the rights, preferences and privileges set forth in the
Certificate of Designation.
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"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated the date hereof, among the Company and each Purchaser,
in the form of Exhibit B.
"Registration Statement" means a registration statement
meeting the requirements set forth in the Registration Rights Agreement
and covering the resale by the Purchasers of the Underlying Shares.
"Required Approvals" shall have the meaning ascribed to such
term in Section 3.1(e).
"Rule 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time
to time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same effect as such Rule.
"Shareholder Approval" means such approval as may be required
by the applicable rules and regulations of the Principal Market (or any
successor entity) from the shareholders of the Company with respect to
the transactions contemplated by the Transaction Documents, including
the issuance of all of the Underlying Shares in excess of 19.9% of the
Company's issued and outstanding Common Stock on the Closing Date.
"SEC Reports" shall have the meaning ascribed to such term in
Section 3.1(h).
"Securities" means the Preferred Stock, the Warrants, the
Additional Investment Rights and the Underlying Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Set Price" shall have the meaning ascribed to such term in
the Certificate of Designations.
"Stated Value" means $1,000 per share of Preferred Stock.
"Subscription Amount" shall mean, as to each Purchaser, the
amount to be paid for the Preferred Stock purchased hereunder as
specified below such Purchaser's name on the signature page of this
Agreement, in United States Dollars.
"Subsidiary" means any subsidiary of the Company that is
required to be listed in Schedule 3.1(a).
"Trading Day" means any day during which the Trading Market
shall be open for business.
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"Trading Market" means the following markets or exchanges on
which the Common Stock is listed or quoted for trading on the date in
question: the American Stock Exchange, the New York Stock Exchange, the
Nasdaq National Market or the Nasdaq SmallCap Market.
"Transaction Documents" means this Agreement, the Certificate
of Designation, the Warrants, the Additional Investment Rights, the
Registration Rights Agreement and the Escrow Agreement.
"Underlying Shares" means the shares of Common Stock issuable
upon conversion of the Preferred Stock, upon exercise of the Warrants
and Additional Investment Rights and issued and issuable in lieu of the
cash payment of dividends on the Preferred Stock.
"VWAP" means, for any date, the price determined by the first
of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Principal Market, the daily volume weighted
average price of the Common Stock for such date (or the nearest
preceding date) on the Principal Market on which the Common Stock is
then listed or quoted as reported by Bloomberg Financial L.P. (based on
a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time);
(b) if the Common Stock is not then listed or quoted on a Principal
Market and if prices for the Common Stock are then quoted on the OTC
Bulletin Board, the volume weighted average price of the Common Stock
for such date (or the nearest preceding date) on the OTC Bulletin
Board; (c) if the Common Stock is not then listed or quoted on the OTC
Bulletin Board and if prices for the Common Stock are then reported in
the "Pink Sheets" published by the National Quotation Bureau
Incorporated (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent bid price per share of
the Common Stock so reported; or (c) in all other cases, the fair
market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by the Purchasers and reasonably
acceptable to the Company.
"Warrants" means the Common Stock Purchase Warrants, in the
form of Exhibit C, delivered to the Purchasers at the Closing in
accordance with Section 2.2 hereof.
"Warrant Shares" means the shares of Common Stock issuable
upon exercise of the Warrants.
ARTICLE II
PURCHASE AND SALE
2.1 Closing. On the Closing Date, each Purchaser shall purchase from
the Company, severally and not jointly with the other Purchasers, and the
Company shall issue and sell to each Purchaser, (a) shares of Preferred Stock
with an aggregate Stated Value equal to such Purchaser's Subscription Amount;
(b) the Warrants as determined pursuant to Section 2.2(a)(iii) and (c) the
Additional Investment Rights as determined pursuant to Section 2.2(a)(iv). The
aggregate number of shares of Preferred Stock sold hereunder shall be up to
6,000. Upon satisfaction of the conditions set forth in Section 2.2, the Closing
shall occur at the offices of the Escrow Agent or such other location as the
parties shall mutually agree.
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2.2 Conditions to Closing. The Closing is subject to the satisfaction
or waiver by the party to be benefited thereby of the following conditions:
(a) The Company shall have delivered or caused to be delivered
to the Escrow Agent the following:
(i) this Agreement duly executed by the Company;
(ii) a certificate evidencing a number of shares of
Preferred Stock equal to such Purchaser's Subscription Amount
divided by the Stated Value, registered in the name of such
Purchaser;
(iii) a Warrant, registered in the name of such
Purchaser, to purchase up to a number of shares of Common
Stock equal to 25% of such Purchaser's Subscription Amount
divided by the Market Price, with an exercise price equal to
$1.20, subject to adjustment as set forth therein, and
exercisable beginning 181 days after the date hereof for a
term of 3 years;
(iv) an Additional Investment Right, registered in
the name of such Purchaser, to purchase up to a number of
shares of Common Stock equal to 75% of such Purchaser's
Subscription Amount divided by the Market Price, with an
exercise price equal to $1.03 and exercisable starting 181
days from the date hereof for a term ending the earlier of (A)
the later of (1) 181 days after the Effective Date and (2) 181
days after the initial exercise date thereof and (B) the 2nd
year anniversary of the date hereof, both subject to
adjustment as set forth therein;
(v) the written voting agreement, substantially in
the form of Exhibit F attached hereto, of all of the executive
officers and directors to vote all Common Stock owned by each
of such shareholders as of the record date for the annual
meeting of shareholders of the Company in favor of Shareholder
Approval;
(vi) a legal opinion of Company Counsel, in the form
of Exhibit D attached hereto, addressed to each Purchaser;
(vii) the Escrow Agreement duly executed by the
Company; and
(viii) the Registration Rights Agreement duly
executed by the Company.
(b) At the Closing, each Purchaser shall have delivered or
caused to be delivered to the Escrow Agent the following:
(i) this Agreement duly executed by such Purchaser;
(ii) such Purchaser's Subscription Amount by wire
transfer to the account as specified in writing by the
Company;
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(iii) the Escrow Agreement duly executed by such
Purchaser; and
(iv) the Registration Rights Agreement duly executed
by such Purchaser.
(c) All representations and warranties of the other party
contained herein shall remain true and correct in all material respects
(except those qualified as to materiality, which shall remain true and
correct) as of the Closing Date and all covenants of the other party
shall have been performed if due prior to such date.
(d) From the date hereof to the Closing Date, trading in the
Common Stock shall not have been suspended by the Commission (except
for any suspension of trading of limited duration agreed to by the
Company, which suspension shall be terminated prior to the Closing),
and, at any time prior to the Closing Date, trading in securities
generally as reported by Bloomberg Financial Markets shall not have
been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported by such service, or
on any Trading Market, nor shall a banking moratorium have been
declared either by the United States or New York State authorities nor
shall there have occurred any material outbreak or escalation of
hostilities or other national or international calamity of such
magnitude in its effect on, or any material adverse change in, any
financial market which, in each case, in the reasonable judgment of
each Purchaser, makes it impracticable or inadvisable to purchase the
shares of Preferred Stock at the Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth
in the SEC Reports or under the corresponding section of the Disclosure
Schedules which Disclosure Schedules shall be deemed a part hereof, the Company
hereby makes the representations and warranties set forth below to each
Purchaser:
(a) Subsidiaries. All of the direct and indirect subsidiaries
of the Company are set forth on Schedule 3.1(a). The Company owns,
directly or indirectly, all of the capital stock or other equity
interests of each Subsidiary free and clear of any Liens, and all the
issued and outstanding shares of capital stock of each Subsidiary
(other than Lifestyle Innovations, Inc.) are validly issued and are
fully paid, non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities. If the Company has no
subsidiaries, then references in the Transaction Documents to the
Subsidiaries will be disregarded.
(b) Organization and Qualification. Each of the Company and
the Subsidiaries (other than Lifestyle Innovations, Inc.) is an entity
duly incorporated or otherwise organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization (as applicable), with the requisite power and authority to
own and use its properties and assets and to carry on its business as
currently conducted. Neither the Company nor any Subsidiary (other than
Lifestyle Innovations, Inc.) is in violation or default of any of the
provisions of its respective certificate or articles of incorporation,
bylaws or other organizational or charter documents. Each of the
Company and the Subsidiaries (other than Lifestyle Innovations, Inc.)
is duly qualified to conduct business and is in good standing as a
foreign corporation or other entity in each jurisdiction in which the
nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or
in good standing, as the case may be, could not have or reasonably be
expected to result in (i) a material adverse effect on the legality,
validity or enforceability of any Transaction Document, (ii) a material
adverse effect on the results of operations, assets, business or
financial condition of the Company and the Subsidiaries, taken as a
whole other than any change, event or occurrence resulting from any
change to the extent generally affecting the national or any local
economy or the industries in which the Company and the Subsidiaries
operate, or (iii) a material adverse effect on the Company's ability to
perform in any material respect on a timely basis its obligations under
any Transaction Document (any of (i), (ii) or (iii), a "Material
Adverse Effect") and to the Company's knowledge no Proceeding has been
instituted in any such jurisdiction revoking, limiting or curtailing or
seeking to revoke, limit or curtail such power and authority or
qualification.
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(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations hereunder or thereunder. The
execution and delivery of each of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated
hereby or thereby have been duly authorized by all necessary action on
the part of the Company and no further consent or action is required by
the Company other than Required Approvals. Each of the Transaction
Documents has been (or upon delivery will be) duly executed by the
Company and, when delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies
generally and general principles of equity. Neither the Company nor any
Subsidiary (other than Lifestyle Innovations, Inc.) is in violation of
any of the provisions of its respective certificate or articles of
incorporation, by-laws or other organizational or charter documents
except where such violation could not, individually or in the
aggregate, constitute a Material Adverse Effect.
(d) No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company, the issuance and sale of the
Securities and the consummation by the Company of the other
transactions contemplated thereby do not and will not (i) conflict with
or violate any provision of the Company's or any Subsidiary's (other
than Lifestyle Innovations, Inc.) certificate or articles of
incorporation, bylaws or other organizational or charter documents, or
(ii) conflict with, or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, result
in the creation of any Lien upon any of the properties or assets of the
Company or any Subsidiary, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice, lapse
of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary (other than Lifestyle
Innovations, Inc.) debt or otherwise) or other understanding to which
the Company or any Subsidiary (other than Lifestyle Innovations, Inc.)
is a party or by which any property or asset of the Company or any
Subsidiary (other than Lifestyle Innovations, Inc.) is bound or
affected, or (iii) subject to the Required Approvals, conflict with or
result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary (other than Lifestyle
Innovations, Inc.) is subject (including federal and state securities
laws and regulations), or by which any property or asset of the Company
or a Subsidiary is bound or affected, or (iv) conflict with or violate
the terms of any agreement by which the Company or any Subsidiary
(other than Lifestyle Innovations, Inc.) is bound or to which any
property or asset of the Company or any Subsidiary is bound or
affected; except in the case of each of clauses (ii), (iii) and (iv),
such as could not have or reasonably be expected to result in a
Material Adverse Effect.
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(e) Filings, Consents and Approvals. Neither the Company nor
any Subsidiary is required to obtain any consent, waiver, authorization
or order of, give any notice to, or make any filing or registration
with, any court or other federal, state, local or other governmental
authority or other Person in connection with the execution, delivery
and performance by the Company of the Transaction Documents, other than
(i) the filings required under Section 4.4, (ii) the filing with the
Commission of the Registration Statement, (iii) the application(s) to
each applicable Trading Market for the listing of the Underlying Shares
for trading thereon in the time and manner required thereby, (iv) the
filing with the Commission of a Form D pursuant to Commission
Regulation D, (v) applicable Blue Sky filings and (vi) the filing of
the Certificate of Designation with the Secretary of State of Delaware
(collectively, the "Required Approvals").
(f) Issuance of the Securities. The Securities are duly
authorized and, when issued and paid for in accordance with the
applicable Transaction Documents, will be duly and validly issued,
fully paid and nonassessable, free and clear of all Liens. The Company
has reserved from its duly authorized capital stock a number of shares
of Common Stock for issuance of the Underlying Shares at least equal to
the Actual Minimum on the date hereof.
(g) Capitalization. The capitalization of the Company is as
described in the Company's most recent periodic report filed with the
Commission. The Company has not issued any capital stock since such
filing other than pursuant to the exercise of employee stock options
under the Company's stock option plans, the issuance of shares of
Common Stock to employees pursuant to the Company's employee stock
purchase plan and pursuant to the conversion or exercise of outstanding
Common Stock Equivalents outstanding. No Person has any right of first
refusal, preemptive right, right of participation, or any similar right
to participate in the transactions contemplated by the Transaction
Documents. Except as a result of the purchase and sale of the
Securities, there are no outstanding options, warrants, script rights
to subscribe to, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or
acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary
(other than Lifestyle Innovations, Inc.) is or may become bound to
issue additional shares of Common Stock, or securities or rights
convertible or exchangeable into shares of Common Stock. The issue and
sale of the Securities will not obligate the Company to issue shares of
Common Stock or other securities to any Person (other than the
Purchasers) and will not result in a right of any holder of Company
securities to adjust the exercise, conversion, exchange or reset price
under such securities. All of the outstanding shares of capital stock
of the Company are validly issued, fully paid and nonassessable, have
been issued in compliance with all federal and state securities laws,
and none of such outstanding shares was issued in violation of any
preemptive rights or similar rights to subscribe for or purchase
securities. No further approval or authorization of any stockholder,
the Board of Directors of the Company or others is required for the
issuance and sale of the shares of Preferred Stock other than
Shareholder Approval to comply with rules of the American Stock
Exchange. There are no stockholders agreements, voting agreements or
other similar agreements with respect to the Company's capital stock to
which the Company is a party or, to the knowledge of the Company,
between or among any of the Company's stockholders.
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(h) SEC Reports; Financial Statements. The Company has filed
all reports required to be filed by it under the Securities Act and the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for
the two years preceding the date hereof (or such shorter period as the
Company was required by law to file such material) (the foregoing
materials, including the exhibits thereto, being collectively referred
to herein as the "SEC Reports") on a timely basis or has received a
valid extension of such time of filing and has filed any such SEC
Reports prior to the expiration of any such extension. As of their
respective dates, the SEC Reports complied in all material respects
with the requirements of the Securities Act and the Exchange Act and
the rules and regulations of the Commission promulgated thereunder, and
none of the SEC Reports, when filed, contained any untrue statement of
a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
The financial statements of the Company included in the SEC Reports
comply in all material respects with applicable accounting requirements
and the rules and regulations of the Commission with respect thereto as
in effect at the time of filing. Such financial statements have been
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis during the periods involved
("GAAP"), except as may be otherwise specified in such financial
statements or the notes thereto and except that unaudited financial
statements may not contain all footnotes required by GAAP, and fairly
present in all material respects the financial position of the Company
and its consolidated subsidiaries as of and for the dates thereof and
the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments.
(i) Material Changes. Since the date of the latest audited
financial statements included within the SEC Reports, (i) there has
been no event, occurrence or development that has had or that would
reasonably be expected to result in a Material Adverse Effect, (ii) the
Company has not incurred any liabilities (contingent or otherwise)
other than (A) trade payables and accrued expenses incurred in the
ordinary course of business consistent with past practice and (B)
liabilities not required to be reflected in the Company's financial
statements pursuant to GAAP or required to be disclosed in filings made
with the Commission, (iii) the Company has not altered its method of
accounting, (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its stockholders or
purchased, redeemed or made any agreements to purchase or redeem any
shares of its capital stock and (v) the Company has not issued any
equity securities to any executive officer, director or Affiliate,
except pursuant to existing Company stock option plans. The Company
does not have pending before the Commission any request for
confidential treatment of information.
(j) Litigation. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of
the Company, threatened against or affecting the Company, any
Subsidiary (other than Lifestyle Innovations, Inc.) or any of their
respective properties before or by any court, arbitrator, governmental
or administrative agency or regulatory authority (federal, state,
county, local or foreign) (collectively, an "Action") which (i)
adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or the Securities or
(ii) would, if there were an unfavorable decision, have or reasonably
be expected to result in a Material Adverse Effect. Neither the Company
nor any Subsidiary (other than Lifestyle Innovations, Inc.), nor any
director or executive officer thereof, is or has been the subject of
any Action involving a claim of violation of or liability under federal
or state securities laws or a claim of breach of fiduciary duty as it
relates to the Company or its Subsidiary. There has not been, and to
the knowledge of the Company, there is not pending or contemplated, any
investigation by the Commission involving the Company or any current or
former director or officer of the Company. The Commission has not
issued any stop order or other order suspending the effectiveness of
any registration statement filed by the Company or any Subsidiary
(other than Lifestyle Innovations, Inc.) under the Exchange Act or the
Securities Act.
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(k) Labor Relations. No material labor dispute exists or, to
the knowledge of the Company, is imminent with respect to any of the
employees of the Company which could reasonably be expected to result
in a Material Adverse Effect.
(l) Compliance. Neither the Company nor any Subsidiary (other
than Lifestyle Innovations, Inc.) (i) is in default under or in
violation of (and no event has occurred that has not been waived that,
with notice or lapse of time or both, would result in a default by the
Company or any Subsidiary (other than Lifestyle Innovations, Inc.)
under), nor has the Company or any Subsidiary (other than Lifestyle
Innovations, Inc.) received notice of a claim that it is in default
under or that it is in violation of, any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party
or by which it or any of its properties is bound (whether or not such
default or violation has been waived), (ii) is in violation of any
order of any court, arbitrator or governmental body, or (iii) is or has
been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign,
federal, state and local laws applicable to its business except in each
case as could not have a Material Adverse Effect.
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(m) Regulatory Permits. The Company and the Subsidiaries
(other than Lifestyle Innovations, Inc.) possess all certificates,
authorizations and permits issued by the appropriate federal, state,
local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the
failure to possess such permits could not, individually or in the
aggregate, have or reasonably be expected to result in a Material
Adverse Effect ("Material Permits"), and neither the Company nor any
Subsidiary (other than Lifestyle Innovations, Inc.) has received any
notice of proceedings relating to the revocation or modification of any
Material Permit.
(n) Title to Assets. The Company and the Subsidiaries (other
than Lifestyle Innovations, Inc.) have good and marketable title in fee
simple to all real property owned by them that is material to the
business of the Company and the Subsidiaries (other than Lifestyle
Innovations, Inc.) and good and marketable title in all personal
property owned by them that is material to the business of the Company
and the Subsidiaries (other than Lifestyle Innovations, Inc.), in each
case free and clear of all Liens, except for Liens as do not materially
affect the value of such property and do not materially interfere with
the use made and proposed to be made of such property by the Company
and the Subsidiaries (other than Lifestyle Innovations, Inc.) and Liens
for the payment of federal, state or other taxes, the payment of which
is neither delinquent nor subject to penalties. Any real property and
facilities held under lease by the Company and the Subsidiaries (other
than Lifestyle Innovations, Inc.) are held by them under valid,
subsisting and enforceable leases of which the Company and the
Subsidiaries (other than Lifestyle Innovations, Inc.) are in
compliance.
(o) Patents and Trademarks. The Company and the Subsidiaries
(other than Lifestyle Innovations, Inc.) have, or have rights to use,
all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses and other similar
rights that are necessary or material for use in connection with their
respective businesses as described in the SEC Reports and which the
failure to so have could have a Material Adverse Effect (collectively,
the "Intellectual Property Rights"). Neither the Company nor any
Subsidiary (other than Lifestyle Innovations, Inc.) has received a
written notice that the Intellectual Property Rights used by the
Company or any Subsidiary (other than Lifestyle Innovations, Inc.)
violates or infringes upon the rights of any Person. To the knowledge
of the Company, all such Intellectual Property Rights are enforceable
and there is no existing infringement by another Person of any of the
Intellectual Property Rights of others.
(p) Insurance. The Company and the Subsidiaries (other than
Lifestyle Innovations, Inc.) are insured against such losses and risks
and in such amounts as are prudent and customary in the businesses in
which the Company and the Subsidiaries (other than Lifestyle
Innovations, Inc.) are engaged. Neither the Company nor any Subsidiary
(other than Lifestyle Innovations, Inc.) has any reason to believe that
it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business without a
significant increase in cost.
12
(q) Transactions With Affiliates and Employees. None of the
executive officers or directors of the Company and, to the knowledge of
the Company, none of the employees of the Company is presently a party
to any transaction with the Company or any Subsidiary (other than
Lifestyle Innovations, Inc.) (other than for services as employees,
officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by,
providing for rental of real or personal property to or from, or
otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of the Company, any entity in which any
officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner, in each case in excess of
$60,000 other than (i) for payment of salary or consulting fees for
services rendered, (ii) reimbursement for expenses incurred on behalf
of the Company and (iii) for other employee benefits, including stock
option agreements under any stock option plan of the Company.
(r) Xxxxxxxx-Xxxxx; Internal Accounting Controls. The Company
is in material compliance with all provisions of the Xxxxxxxx-Xxxxx Act
of 2002 which are applicable to it as of the Closing Date. The Company
and the Subsidiaries (other than Lifestyle Innovations, Inc.) 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 GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's
general or specific authorization, and (iv) the recorded accountability
for assets is compared with the existing assets at reasonable intervals
and appropriate action is taken with respect to any differences. The
Company has established disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
Subsidiaries (other than Lifestyle Innovations, Inc.), is made known to
the certifying officers by others within those entities, particularly
during the period in which the Company's most recently filed periodic
report under the Exchange Act, as the case may be, is being prepared.
The Company's certifying officers have evaluated the effectiveness of
the Company's controls and procedures as of the date prior to the
filing date of the most recently filed periodic report under the
Exchange Act (such date, the "Evaluation Date"). The Company presented
in its most recently filed periodic report under the Exchange Act the
conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no
significant changes in the Company's internal controls (as such term is
defined in Item 307(b) of Regulation S-K under the Exchange Act) or, to
the Company's knowledge, in other factors that could significantly
affect the Company's internal controls.
(s) Certain Fees. No brokerage or finder's fees or commissions
are or will be payable by the Company to any broker, financial advisor
or consultant, finder, placement agent, investment banker, bank or
other Person with respect to the transactions contemplated by this
Agreement. The Purchasers shall have no obligation with respect to any
fees or with respect to any claims made by or on behalf of other
Persons for fees of a type contemplated in this Section that may be due
in connection with the transactions contemplated by this Agreement.
13
(t) Private Placement. Assuming the accuracy of the Purchasers
representations and warranties set forth in Section 3.2, no
registration under the Securities Act is required for the offer and
sale of the Securities by the Company to the Purchasers as contemplated
hereby. The issuance and sale of the Securities hereunder does not
contravene the rules and regulations of the Trading Market.
(u) Investment Company. The Company is not, and is not an
Affiliate of, and immediately after receipt of payment for the shares
of Preferred Stock, will not be or be an Affiliate of, an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended. The Company shall conduct its business in a manner so that it
will not become subject to the Investment Company Act.
(v) Registration Rights. No Person has any right to cause the
Company to effect the registration under the Securities Act of any
securities of the Company.
(w) Listing and Maintenance Requirements. The Company's Common
Stock is registered pursuant to Section 12(g) of the Exchange Act, and
the Company has taken no action designed to, or which to its knowledge
is likely to have the effect of, terminating the registration of the
Common Stock under the Exchange Act nor has the Company received any
notification that the Commission is contemplating terminating such
registration. The Company has not, in the 12 months preceding the date
hereof, received notice from any Trading Market on which the Common
Stock is or has been listed or quoted to the effect that the Company is
not in compliance with the listing or maintenance requirements of such
Trading Market. The Company is, and has no reason to believe that it
will not in the foreseeable future continue to be, in compliance with
all such listing and maintenance requirements.
(x) Application of Takeover Protections. 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 Company's
Certificate of Incorporation (or similar charter documents) or the laws
of its state of incorporation that is or could become applicable to the
Purchasers as a result of the Purchasers and the Company fulfilling
their obligations or exercising their rights under the Transaction
Documents, including without limitation the Company's issuance of the
Securities and the Purchasers' ownership of the Securities.
(y) Disclosure. Other than the terms of the Transaction
Documents, the Company confirms that, the Company has not provided any
of the Purchasers with any information that constitutes or might
constitute material, non-public information. The Company understands
and confirms that the Purchasers will rely on the foregoing
representations and covenants in effecting transactions in securities
of the Company. All disclosure provided to the Purchasers regarding the
Company, its business and the transactions contemplated hereby,
including the Schedules to this Agreement, furnished by or on behalf of
the Company with respect to the representations and warranties made
herein are true and correct in all material respects with respect to
such representations and warranties and do not contain any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The Company
acknowledges and agrees that no Purchaser makes or has made any
representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in Section
3.2 hereof.
14
(z) No Integrated Offering. Neither the Company, nor any of
its Affiliates, nor any Person acting on its or 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 cause this offering of the Securities to be integrated with prior
offerings by the Company for purposes of the Securities Act or which
could violate any applicable shareholder approval provisions,
including, without limitation, under the rules and regulations of the
Trading Market.
(aa) Solvency/Indebtedness. To the best of the Company's
knowledge, based on the financial condition of the Company as of the
Closing Date, including the application of the net proceeds raised
hereunder: (i) the fair saleable market value of the Company's assets
exceeds the amount that will be required to be paid on or in respect of
the Company's existing debts and other liabilities (including known
contingent liabilities) as they mature; (ii) the Company's assets do
not constitute unreasonably small capital to carry on its business
through, if less than $6 million is raised hereunder, December 31,
2004, and if $6 million in gross proceeds are raised hereunder in one
or more closings, the one year anniversary of the date hereof, as now
conducted and as proposed to be conducted including its capital needs
taking into account the particular capital requirements of the business
conducted by the Company, and projected capital requirements and
capital availability thereof; and (iii) the current cash flow of the
Company, together with the proceeds the Company would receive, were it
to liquidate all of its assets, after taking into account all
anticipated uses of the cash, would be sufficient to pay all amounts on
or in respect of its debt when such amounts are required to be paid.
The Company does not intend to incur debts beyond its ability to pay
such debts as they mature (taking into account the timing and amounts
of cash to be payable on or in respect of its debt). The Company has no
knowledge of any facts or circumstances which lead it to believe that
it will file for reorganization or liquidation under the bankruptcy or
reorganization laws of any jurisdiction within one year from the
Closing Date. The SEC Reports set forth as of the dates thereof all
outstanding secured and unsecured Indebtedness of the Company or any
Subsidiary, or for which the Company or any Subsidiary has commitments.
For the purposes of this Agreement, "Indebtedness" shall mean (a) any
liabilities for borrowed money or amounts owed in excess of $50,000
(other than trade accounts payable incurred in the ordinary course of
business), (b) all guaranties, endorsements and other contingent
obligations in respect of Indebtedness of others, whether or not the
same are or should be reflected in the Company's balance sheet (or the
notes thereto), except guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the
ordinary course of business; and (c) the present value of any lease
payments in excess of $50,000 due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor any
Subsidiary is in default with respect to any Indebtedness.
15
(bb) S-3 Eligibility. To its knowledge, the Company is
eligible to register the Underlying Shares for resale by the Purchasers
on SEC Form S-3.
(cc) Tax Status. The Company and each of its Subsidiaries
(other than Lifestyle Innovations, Inc.) has made or filed all federal,
state and foreign income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject
(unless and only to the extent that the Company and each of its
Subsidiaries has set aside on its books provisions reasonably adequate
for the payment of all unpaid and unreported taxes) and has paid (or
made provision for) 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 has set aside on its books provisions 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. The Company has not executed a waiver with
respect to the statute of limitations relating to the assessment or
collection of any foreign, federal, statue or local tax. None of the
Company's tax returns is presently being audited by any taxing
authority.
(dd) No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor, to the knowledge of the Company,
any of its directors or officers (i) has conducted or will conduct any
general solicitation (as that term is used in Rule 502(c) of Regulation
D) or general advertising with respect to the sale of the Preferred
Stock, the Warrants or Additional Investment Rights, or (ii) made any
offers or sales of any security or solicited any offers to buy any
security under any circumstances that would require registration of the
Preferred Stock, the Underlying Shares or the Warrants under the
Securities Act or made any "directed selling efforts" as defined in
Rule 902 of Regulation S.
(ee) Foreign Corrupt Practices. Neither the Company, nor to
the knowledge of the Company, any agent or other person acting on
behalf of the Company, has (i) directly or indirectly, used any corrupt
funds for unlawful contributions, gifts, entertainment or other
unlawful expenses related to foreign or domestic political activity,
(ii) made any unlawful payment to foreign or domestic government
officials or employees or to any foreign or domestic political parties
or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company (or made by any person acting on its
behalf of which the Company is aware) which is in violation of law, or
(iv) violated in any material respect any provision of the Foreign
Corrupt Practices Act of 1977, as amended.
16
(ff) Acknowledgment Regarding Purchasers' Purchase of
Securities. The Company acknowledges and agrees that the Purchasers are
acting solely in the capacity of arm's length purchasers with respect
to this Agreement and the transactions contemplated hereby. The Company
further acknowledges that no Purchaser is acting as a financial advisor
or fiduciary of the Company (or in any similar capacity) with respect
to this Agreement and the transactions contemplated hereby and any
statement made by any Purchaser or any of their respective
representatives or agents in connection with this Agreement and the
transactions contemplated hereby is not advice or a recommendation and
is merely incidental to the Purchasers' purchase of the Securities. The
Company further represents to each Purchaser that the Company's
decision to enter into this Agreement has been based solely on the
independent evaluation of the Company and its representatives.
(gg) Seniority. As of the date of this Agreement, no other
equity of the Company is senior to the Preferred Stock in right of
payment, whether with respect to interest or upon liquidation or
dissolution, or otherwise.
3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:
(a) Organization; Authority. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or
partnership power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents and otherwise to
carry out its obligations thereunder. The execution, delivery and
performance by such Purchaser of the transactions contemplated by this
Agreement have been duly authorized by all necessary corporate or
similar action on the part of such Purchaser. Each Transaction Document
to which it is party has been duly executed by such Purchaser, and when
delivered by such Purchaser in accordance with the terms hereof, will
constitute the valid and legally binding obligation of such Purchaser,
enforceable against it in accordance with its terms, except (i) as
limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally, (ii)
as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and (iii)
insofar as indemnification and contribution provisions may be limited
by applicable law.
(b) Investment Intent. Such Purchaser understands that the
Securities are "restricted securities" and have not been registered
under the Securities Act or any applicable state securities law and is
acquiring the Securities as principal for its own account and not with
a view to or for distributing or reselling such Securities or any part
thereof, has no present intention of distributing any of such
Securities and has no arrangement or understanding with any other
persons regarding the distribution of such Securities (this
representation and warranty not limiting such Purchaser's right to sell
the Securities pursuant to the Registration Statement or otherwise in
compliance with applicable federal and state securities laws). Such
Purchaser is acquiring the Securities hereunder in the ordinary course
of its business. Such Purchaser does not have any agreement or
understanding, directly or indirectly, with any Person to distribute
any of the Securities.
17
(c) Purchaser Status. At the time such Purchaser was offered
the Securities, it was, and at the date hereof it is, and on each date
on which it exercises any Warrants or Additional Investment Rights or
converts the Preferred Stock, it will be either: (i) an "accredited
investor" as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or
(a)(8) under the Securities Act or (ii) a "qualified institutional
buyer" as defined in Rule 144A(a) under the Securities Act. Such
Purchaser is not required to be registered as a broker-dealer under
Section 15 of the Exchange Act.
(d) Experience of such Purchaser. Such Purchaser, either alone
or together with its representatives, has such knowledge,
sophistication and experience in business and financial matters so as
to be capable of evaluating the merits and risks of the prospective
investment in the Securities, and has so evaluated the merits and risks
of such investment. Such Purchaser is able to bear the economic risk of
an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.
(e) General Solicitation. Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement.
(f) Certain Trading Activities. Such Purchaser has not
directly or indirectly, nor has any Person acting on behalf of or
pursuant to any understanding with such Purchaser, engaged in any
transactions in the securities of the Company (including, without
limitations, any Short Sales involving the Company's securities) since
the time that such Purchaser was first contacted by the Company or HPC
Capital Management regarding this investment in the Company. For
purposes of this Section, "Short Sales" include, without limitation,
all "short sales" as defined in Rule 3b-3 of the Exchange Act and
include all types of direct and indirect stock pledges, forward sale
contracts, options, puts, calls, short sales, swaps and similar
arrangements (including on a total return basis), and sales and other
transactions through non-US broker dealers or foreign regulated brokers
having the effect of hedging the securities or investment made under
this Agreement. Such Purchaser covenants that neither it nor any Person
acting on its behalf or pursuant to any understanding with it will
engage in any transactions in the securities of the Company (including
Short Sales) prior to the time that the transactions contemplated by
this Agreement are publicly disclosed.
(g) Access to Information. Such Purchaser acknowledges and
agrees that it has access to the Company's SEC Reports and has reviewed
such filings as such Purchaser has deemed necessary or desirable
including the Company's Annual Report on Form 10-KSB for the fiscal
year ended June 30, 2003 and the Company's Quarterly Report on Form
10-QSB for the quarter ended March 31 2004. Each Purchaser and its
respective representatives have been afforded an opportunity to ask
such questions of the officers, employees, agents, accountants and
representatives of the Company concerning the business, operations,
financial condition, assets, liabilities, and other relevant matters as
such Purchaser and its representatives have deemed necessary or
desirable, and each Purchaser hereby confirms that it or its agents
have been given all such information as has been requested in order to
evaluate the merits and risks of the prospective investment
contemplated hereby and that it does not desire any additional
information. Without limiting the foregoing, each Purchaser
specifically acknowledges that it has had the opportunity to review the
Company's SEC Reports.
18
(h) Risk Factors. Such Purchaser understands and acknowledges
that an investment in the Shares is highly speculative and includes a
high degree of risk including, but not limited to, those risks
specifically set forth in the Company's Annual Report on Form 10-KSB
for the period ended June 30, 2003, which, by its signature below, each
Purchaser acknowledges it has reviewed.
The Company acknowledges and agrees that each Purchaser does not make
or has not made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in this
Section 3.2.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) The Securities may only be disposed of in compliance with
state and federal securities laws. In connection with any transfer of
Securities other than pursuant to an effective registration statement
or Rule 144, to the Company or to an Affiliate of a Purchaser or in
connection with a pledge as contemplated in Section 4.1(b), the Company
may require the transferor thereof to provide to the Company an opinion
of counsel selected by the transferor and reasonably acceptable to the
Company, the form and substance of which opinion and shall be
reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred Securities
under the Securities Act. As a condition of transfer, any such
transferee shall agree in writing to be bound by the terms of this
Agreement and shall have the rights of a Purchaser under this Agreement
and the Registration Rights Agreement.
(b) Each Purchaser agrees to the imprinting, so long as is
required by this Section 4.1(b), of the following legend on any
certificate evidencing Securities:
[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [EXERCISABLE] [CONVERTIBLE]] HAVE BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF
ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF
COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL
BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND THE
SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY
SUCH SECURITIES.
19
The Company acknowledges and agrees that a Purchaser may from
time to time pledge pursuant to a bona fide margin agreement with a
registered broker-dealer or grant a security interest in some or all of
the Securities to a financial institution that is an "accredited
investor" as defined in Rule 501(a) under the Securities Act and who
agrees to be bound by the provisions of this Agreement and the
Registration Rights Agreement and, if required under the terms of such
arrangement, such Purchaser may transfer pledged or secured Securities
to the pledgees or secured parties. Such a pledge or transfer would not
be subject to approval of the Company and no legal opinion of legal
counsel of the pledgee, secured party or pledgor shall be required in
connection therewith. Further, no notice shall be required of such
pledge. At the appropriate Purchaser's expense, the Company will
execute and deliver such reasonable documentation as a pledgee or
secured party of Securities may reasonably request in connection with a
pledge or transfer of the Securities, including, if the Securities are
subject to registration pursuant to the Registration Rights Agreement,
the preparation and filing of any required prospectus supplement under
Rule 424(b)(3) under the Securities Act or other applicable provision
of the Securities Act to appropriately amend the list of Selling
Stockholders thereunder.
(c) Certificates evidencing Underlying Shares shall not
contain any legend (including the legend set forth in Section 4.1(b)):
(i) while a registration statement (including the Registration
Statement) covering the resale of such Underlying Shares is effective
under the Securities Act, or (ii) following any sale of such Underlying
Shares pursuant to Rule 144, or (iii) if such Securities are eligible
for sale under Rule 144(k), or (iv) if such legend is not required
under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the Staff of the
Commission). The Company shall cause its counsel to issue a legal
opinion to the Company's transfer agent promptly after the Effective
Date if required by the Company's transfer agent to effect the removal
of the legend hereunder. If all or any shares of Preferred Stock or any
portion of a Warrant or Additional Investment Right is converted or
exercised (as applicable) at a time when there is an effective
registration statement to cover the resale of the Underlying Shares, or
if such Underlying Shares may be sold under Rule 144(k) or if such
legend is not otherwise required under applicable requirements of the
Securities Act (including judicial interpretations thereof) then such
Underlying Shares shall be issued free of all legends. The Company
agrees that following the Effective Date or at such time as such legend
is no longer required under this Section 4.1(c), it will, no later than
three Trading Days following the delivery by a Purchaser to the Company
or the Company's transfer agent of a certificate representing
Securities issued with a restrictive legend (such date, the "Legend
Removal Date"), deliver or cause to be delivered to such Purchaser a
certificate representing such Underlying Shares that is free from all
restrictive and other legends. The Company may not make any notation on
its records or give instructions to any transfer agent of the Company
that enlarge the restrictions on transfer set forth in this Section.
20
(d) In addition to such Purchaser's other available remedies,
the Company shall pay to a Purchaser, in cash, as partial liquidated
damages and not as a penalty, for each $1,000 of Underlying Shares
(based on the VWAP on the date such Securities are submitted to the
Company's transfer agent) delivered for removal of the restrictive
legend and subject to this Section 4.1(c), $10 per Trading Day
(increasing to $20 per Trading Day five (5) Trading Days after such
damages have begun to accrue) for each Trading Day after the Legend
Removal Date until such certificate is delivered. Nothing herein shall
limit such Purchaser's right to pursue actual damages for the Company's
failure to deliver certificates representing any Securities as required
by the Transaction Documents, and such Purchaser shall have the right
to pursue all remedies available to it at law or in equity including,
without limitation, a decree of specific performance and/or injunctive
relief.
(e) Each Purchaser, severally and not jointly with the other
Purchasers, agrees that the removal of the restrictive legend from
certificates representing Securities as set forth in this Section 4.1
is predicated upon the Company's reliance that the Purchaser will sell
any Securities pursuant to either the registration requirements of the
Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom.
(f) From the date hereof until the 12 month anniversary of the
Effective Date, the Company shall not undertake a reverse or forward
stock split or reclassification of the Common Stock without the prior
written consent of the Purchasers holding a majority in interest of the
shares of Preferred Stock.
4.2 Furnishing of Information. As long as any Purchaser owns
Securities, the Company covenants to use commercially reasonable efforts to
timely file (or obtain extensions in respect thereof and file within the
applicable grace period) all reports required to be filed by the Company after
the date hereof pursuant to the Exchange Act. Upon the written request of any
Purchaser, the Company shall deliver to such Purchaser a written certification
of a duly authorized officer as to whether it has complied with the preceding
sentence. As long as any Purchaser owns Securities, if the Company is not
required to file reports pursuant to such laws, it will prepare and furnish to
each Purchaser and make publicly available in accordance with Rule 144(c) such
information as is required for each Purchaser to sell the Securities under Rule
144. The Company further covenants that it will take such further action as any
holder of Securities may reasonably request, all to the extent required from
time to time to enable such Person to sell such Securities without registration
under the Securities Act within the limitation of the exemptions provided by
Rule 144.
21
4.3 Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market such that it would require shareholder
approval prior to the closing of such other transaction unless shareholder
approval is obtained before the closing of such subsequent transaction.
4.4 Securities Laws Disclosure; Publicity. The Company shall, by 8:30
a.m. Eastern time on the second Trading Day following the date hereof, issue a
press release or file a Current Report on Form 8-K, in each case reasonably
acceptable to each Purchaser disclosing the material terms of the transactions
contemplated hereby (if a Purchaser does not object to the content of a press
release within 1 Trading Day of receipt for review, such Purchaser shall be
deemed to have approved such press release). The Company and each Purchaser
shall consult with each other in issuing any press releases with respect to the
transactions contemplated hereby, and neither the Company nor any Purchaser
shall issue any such press release or otherwise make any such public statement
without the prior consent of the Company, with respect to any press release of
any Purchaser, or without the prior consent of each Purchaser, with respect to
any press release of the Company, which consent shall not unreasonably be
withheld, except if such disclosure is required by law, in which case the
disclosing party shall promptly provide the other party with prior notice of
such public statement or communication. Notwithstanding the foregoing, the
Company shall not publicly disclose the name of any Purchaser, or include the
name of any Purchaser in any filing with the Commission or any regulatory agency
or Trading Market, without the prior written consent of such Purchaser, except
(i) as required by federal securities law in connection with the registration
statement contemplated by the Registration Rights Agreement and (ii) to the
extent such disclosure is required by law or Trading Market regulations, in
which case the Company shall provide the Purchasers with prior notice of such
disclosure permitted under subclause (i) or (ii).
4.5 Shareholders Rights Plan. No claim will be made or enforced by the
Company or, to the knowledge of the Company, any other Person that any Purchaser
is an "Acquiring Person" under any shareholders rights plan or similar plan or
arrangement in effect or hereafter adopted by the Company, or that any Purchaser
could be deemed to trigger the provisions of any such plan or arrangement, by
virtue of receiving Securities under the Transaction Documents or under any
other agreement between the Company and the Purchasers. The Company shall
conduct its business in a manner so that it will not become subject to the
Investment Company Act.
4.6 Non-Public Information. The Company covenants and agrees that it
will not and will not direct any other Person to, provide any Purchaser or its
agents or counsel with any information that the Company believes constitutes
material non-public information, unless prior thereto such Purchaser shall have
executed a written agreement regarding the confidentiality and use of such
information. The Company understands and confirms that each Purchaser shall be
relying on the foregoing representations in effecting transactions in securities
of the Company.
4.7 Use of Proceeds. The Company shall use the net proceeds from the
sale of the Securities hereunder for and working capital purposes and not for
the satisfaction of any portion of the Company's debt (other than payment of
trade payables, capital lease obligations, and accrued expenses in the ordinary
course of the Company's business and prior practices), to redeem any Company
equity or equity-equivalent securities or to settle any outstanding litigation.
Prior to the receipt of Shareholder Approval, the Company shall not declare or
pay any cash dividend on its shares of Common Stock while any shares of
Preferred Stock remain outstanding.
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4.8 Trading Market Approval. In the event the Company does not obtain
the approval of the Trading Market for this transaction within 10 Trading Days
of the date hereof, the Company shall return the respective net Subscription
Amounts to each Purchaser within 2 Trading Days of the date a majority in
interest of the Purchaser's notify the Company to return said amounts and the
Purchasers and the Company, upon receipt of such payment by the Purchasers,
shall instruct the Escrow Agent to return the Preferred Stock, Warrants and the
Additional Investment Rights to the Company.
4.9 Indemnification of Purchasers. Subject to the provisions of this
Section 4.9, the Company will indemnify and hold the Purchasers and their
directors, officers, shareholders, partners, employees and agents (each, a
"Purchaser Party") harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any material breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against a
Purchaser, or any of them or their respective Affiliates, by any stockholder of
the Company who is not an Affiliate of such Purchaser, arising solely out of the
transactions contemplated by the Transaction Documents (unless such action is
based upon a breach of such Purchaser's representation, warranties or covenants
under the Transaction Documents or any agreements or understandings such
Purchaser may have with any such stockholder or any violations by the Purchaser
of state or federal securities laws or any conduct by such Purchaser which
constitutes fraud, gross negligence, willful misconduct or malfeasance). If any
action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, such Purchaser Party shall
promptly notify the Company in writing, and the Company shall have the right to
assume the defense thereof with counsel of its own choosing. Any Purchaser Party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Purchaser Party except to the extent that (i)
the employment thereof has been specifically authorized by the Company in
writing, (ii) the Company has failed after a reasonable period of time to assume
such defense and to employ counsel or (iii) in such action there is, in the
reasonable written opinion of such separate counsel, a material conflict on any
material issue between the position of the Company and the position of such
Purchaser Party. The Company will not be liable to any Purchaser Party under
this Agreement (i) for any settlement by an Purchaser Party effected without the
Company's prior written consent, which shall not be unreasonably withheld or
delayed; or (ii) to the extent, but only to the extent that a loss, claim,
damage or liability is attributable to any Purchaser Party's breach of any of
the representations, warranties, covenants or agreements made by the Purchasers
in this Agreement or in the other Transaction Documents.
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4.10 Reservation and Listing of Securities.
(a) The Company shall maintain a reserve from its duly
authorized shares of Common Stock for issuance pursuant to the
Transaction Documents in such amount as may be required to fulfill its
obligations in full under the Transaction Documents.
(b) If, on any date, the number of authorized but unissued
(and otherwise unreserved) shares of Common Stock is less than 130% of
(i) the Actual Minimum on such date, minus (ii) the number of shares of
Common Stock previously issued pursuant to the Transaction Documents,
then the Board of Directors of the Company shall use commercially
reasonable efforts to amend the Company's certificate or articles of
incorporation to increase the number of authorized but unissued shares
of Common Stock to at least the Actual Minimum at such time (minus the
number of shares of Common Stock previously issued pursuant to the
Transaction Documents), as soon as possible and in any event not later
than the 75th day after such date; provided that the Company will not
be required at any time to authorize a number of shares of Common Stock
greater than the maximum remaining number of shares of Common Stock
that could possibly be issued after such time pursuant to the
Transaction Documents.
(c) The Company shall: (i) in the time and manner required by
the Trading Market, prepare and file with such Trading Market an
additional shares listing application covering a number of shares of
Common Stock at least equal to the Actual Minimum on the date of such
application, (ii) take all steps necessary to cause such shares of
Common Stock to be approved for listing on the Trading Market as soon
as possible thereafter, (iii) upon a Purchaser's written request,
provide to each Purchaser evidence of such listing, and (iv) use
reasonable efforts to maintain the listing of such Common Stock on such
Trading Market or another Trading Market. In addition, the Company
shall hold a special meeting of shareholders (which may also be at the
annual meeting of shareholders) at the earliest practical date, but in
no event later than November 30, 2004, for the purpose of obtaining
Shareholder Approval, with the recommendation of the Company's Board of
Directors that such proposal be approved, and the Company shall solicit
proxies from its shareholders in connection therewith in the same
manner as all other management proposals in such proxy statement and
all management-appointed proxyholders shall vote their proxies in favor
of such proposal.
(d) If, on any date, the Company is listed on a different
Trading Market, then the Company shall take the necessary actions to
list all of the Underlying Shares on such Trading Market as soon as
reasonably possible.
4.11 Conversion and Exercise Procedures. The form of Election to
Purchase included in the Warrants and the Additional Investment Rights and the
forms of Conversion Notice included in the Certificate of Designation set forth
the totality of the procedures required in order to exercise the Warrants and
Additional Investment Rights or convert the Preferred Stock. No additional legal
opinion or other information or instructions shall be necessary to enable each
Purchaser to exercise their Warrants and Additional Investment Rights or convert
their Preferred Stock. The Company shall honor exercises of the Warrants and
Additional Investment Rights and conversions of the Preferred Stock and shall
deliver Underlying Shares in accordance with the terms, conditions and time
periods set forth in the Transaction Documents. The Company acknowledges that
the issuance of the Securities may result in dilution of the outstanding shares
of Common Stock, which dilution may be substantial under certain market
conditions. The Company further acknowledges that its obligations under the
Transaction Documents, including its obligation to issue the Underlying Shares
pursuant to the Transaction Documents, are unconditional and absolute and not
subject to any right of set off, counterclaim, delay or reduction, regardless of
the effect of any such dilution or any claim the Company may have against any
Purchaser and regardless of the dilutive effect that such issuance may have on
the ownership of the other stockholders of the Company.
24
4.12 Equal Treatment of Purchasers. No consideration shall be offered
or paid to any person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. For
clarification purposes, this provision constitutes a separate right granted to
each Purchaser by the Company and negotiated separately by each Purchaser, and
is intended to treat for the Company the Purchasers as a class and shall not in
any way be construed as the Purchasers acting in concert or as a group with
respect to the purchase, disposition or voting of Securities or otherwise.
4.13 Participation in Future Financing. Until the 6 month anniversary
of the Effective Date, upon any financing by the Company of its Common Stock or
Common Stock Equivalents (a "Subsequent Financing"), each Purchaser shall have
the right to participate in up to 100% of such Subsequent Financing. At least 3
Trading Days prior to the closing of the Subsequent Financing, the Company shall
deliver to each Purchaser a written notice of its intention to effect a
Subsequent Financing ("Pre-Notice"), which Pre-Notice shall ask such Purchaser
if it wants to review the details of such financing (such additional notice, a
"Subsequent Financing Notice"). Upon the written request of a Purchaser, and
only upon a request by such Purchaser, for a Subsequent Financing Notice, the
Company shall promptly, but no later than 1 Trading Day after such request,
deliver a Subsequent Financing Notice to such Purchaser. The Subsequent
Financing Notice shall describe in reasonable detail the proposed terms of such
Subsequent Financing, the amount of proceeds intended to be raised thereunder,
the Person with whom such Subsequent Financing is proposed to be effected, and
attached to which shall be a term sheet or similar document relating thereto. If
by 6:30 p.m. (New York City time) on the 3rd Trading Day after all of the
Purchasers have received the Pre-Notice, notifications of the Purchasers of
their willingness to participate in the Subsequent Financing (or to cause their
designees to provide) is, in the aggregate, less than the total amount of the
Subsequent Financing, then the Company may effect the remaining portion of such
Subsequent Financing on the terms and to the Persons set forth in the Subsequent
Financing Notice. If the Company receives no notice from a Purchaser as of such
3rd Trading Day, such Purchaser shall be deemed to have notified the Company
that it does not elect to participate. The Company must provide the Purchasers
with a second Subsequent Financing Notice, and the Purchasers will again have
the right of participation set forth above in this Section 4.13, if the
Subsequent Financing subject to the initial Subsequent Financing Notice is not
consummated for any reason on the terms set forth in such Subsequent Financing
Notice within 60 Trading Days after the date of the initial Subsequent Financing
Notice. In the event the Company receives responses to Subsequent Financing
Notices from Purchasers seeking to purchase more than the aggregate amount of
the Subsequent Financing, each such Purchaser shall have the right to purchase
their Pro Rata Portion (as defined below) of the Subsequent Financing. "Pro Rata
Portion" is the ratio of (x) the Subscription Amount of a participating
Purchaser and (y) the sum of the aggregate Subscription Amount of all
participating Purchasers. Notwithstanding the foregoing, this Section 4.13 shall
not apply in respect of an Exempt Issuance and the reasonable and customary
issuance of Common Stock or Common Stock Equivalents to service providers of the
Company, the primary purpose of which is not to raise capital.
25
4.14 Future Financings. From the date hereof until 90 days after the Effective
Date, other than as contemplated by this Agreement, neither the Company nor any
Subsidiary (with respect to Common Stock Equivalents) shall issue or sell any
Common Stock or Common Stock Equivalents entitling any Person to acquire shares
of Common Stock. Notwithstanding anything herein to the contrary, the 90 day
period set forth in this Section 4.14 shall be extended for the number of
Trading Days during such period in which (i) trading in the Common Stock is
suspended by any Trading Market, or (ii) following the Effective Date, the
Registration Statement is not effective or the prospectus included in the
Registration Statement may not be used by each Purchaser for the resale of the
Underlying Shares. Notwithstanding anything to the contrary herein, this Section
4.14 shall not apply in respect of an Exempt Issuance and the reasonable and
customary issuance of Common Stock or Common Stock Equivalents to service
providers of the Company, the primary purpose of which is not to raise capital.
In addition to the limitations set forth herein, from the date hereof until such
time as no Purchaser holds any of the Securities, the Company shall be
prohibited from effecting or enter into an agreement to effect any Subsequent
Financing involving any security which is not a Junior Security as defined in
the Certificate of Designation or pari passu with the Preferred Stock, or any
"Variable Rate Transaction" (as defined below). The term "Variable Rate
Transaction" shall mean a transaction in which the Company issues or sells (i)
any debt or equity securities that are convertible into, exchangeable or
exercisable for, or include the right to receive additional shares of Common
Stock either (A) at a conversion, exercise or exchange rate or other price that
is based upon and/or varies with the trading prices of or quotations for the
shares of Common Stock at any time after the initial issuance of such debt or
equity securities, or (B) with a conversion, exercise or exchange price that is
subject to being reset at some future date after the initial issuance of such
debt or equity security or upon the occurrence of specified or contingent events
directly or indirectly related to the business of the Company or the market for
the Common Stock; provided that the existence of anti-dilution provisions
attached to any such securities shall not alone make a transaction a Variable
Rate Transaction. In addition, unless Shareholder Approval has been obtained and
deemed effective in accordance with Section 4.10(c), the Company shall not make
any issuance whatsoever of Common Stock or Common Stock Equivalents which would
cause any adjustment of the Set Price to the extent the holders of Preferred
Stock would not be permitted, pursuant to Section 5(a)(iii) of the Certificate
of Designations, to convert their respective outstanding Preferred Stock and
Warrants in full.
ARTICLE V
MISCELLANEOUS
5.1 Fees and Expenses. Except as otherwise set forth in this Agreement,
each party shall pay the fees and expenses of its advisers, counsel, accountants
and other experts, if any, and all other expenses incurred by such party
incident to the negotiation, preparation, execution, delivery and performance of
this Agreement. The Company shall pay all stamp and other taxes and duties
levied in connection with the sale of the Securities.
26
5.2 Entire Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified on the signature page prior to 4:00 p.m. (New York City time) on a
Trading Day and an electronic confirmation of delivery is received by the
sender, (b) the next Trading Day after the date of transmission, if such notice
or communication is delivered via facsimile at the facsimile number specified in
this Section on a day that is not a Trading Day or later than 4:00 p.m. (New
York City time) on any Trading Day, (c) three Trading Days following the date of
mailing, if sent by U.S. nationally recognized overnight courier service, or (d)
upon actual receipt by the party to whom such notice is required to be given.
The addresses for such notices and communications are those set forth on the
signature pages hereof, or such other address as may be designated in writing
hereafter, in the same manner, by such Person.
5.4 Amendments; Waivers. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by the Company and each Purchaser or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.
5.5 Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
5.6 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser. Any Purchaser may assign
any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided such transferee agrees
in writing with the Company to be bound, with respect to the transferred
Securities, by the provisions hereof that apply to the "Purchasers".
27
5.7 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.9.
5.8 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper or inconvenient venue for such
proceeding. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect for notices
to it under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law. The parties hereby waive all rights to a trial by jury. If
either party shall commence an action or proceeding to enforce any provisions of
the Transaction Documents, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys' fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.
5.9 Survival. The representations and warranties contained herein shall
survive the Closing and the delivery, exercise and/or conversion of the
Securities, as applicable, until the 3 year anniversary of the date hereof.
5.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
5.11 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
5.12 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights.
28
5.13 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
5.14 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of each
Purchaser and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
5.15 Payment Set Aside. To the extent that the Company makes a payment
or payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights 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, 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.
5.16 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Document. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation, the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose. Each Purchaser has been represented by its own separate legal counsel
in their review and negotiation of the Transaction Documents. For reasons of
administrative convenience only, Purchasers and their respective counsel have
chosen to communicate with the Company through FW. FW does not represent the
Purchasers but only HPC Capital Management. The Company has elected to provide
all Purchasers with the same terms and Transaction Documents for the convenience
of the Company and not because it was required or requested to do so by the
Purchasers.
29
5.17 Liquidated Damages. The Company's obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.
[SIGNATURE PAGE FOLLOWS]
30
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
RCG COMPANIES INCORPORATED Address for Notice:
-------------------
By:____________________________ 0000 Xxxxxxxx Xxxx.
Name: Suite 200
Title: Xxxxxxxxx, Xxxxx Xxxxxxxx 00000
Attn: Xxxxxxx Xxxxx
Fax: (000) 000 0000
Tel: (000) 000 0000 x00
With a copy to (which shall not constitute notice):
Xxxx Xxxxxxxxx, Esq.
Xxxxxx & Xxxx, P.A.
000 Xxxx Xxx Xxxx Xxxxxxxxx
Xxxxx 0000
Xxxx Xxxxxxxxxx, Xxxxxxx 00000
000.000.0000 (phone)
000.000.0000 (fax)
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
31
[PURCHASER SIGNATURE PAGES TO RCG SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Investing Entity: __________________________
Signature of Authorized Signatory of Investing Entity: _________________________
Name of Authorized Signatory: _________________________
Title of Authorized Signatory: __________________________
Email Address of Authorized Signatory:________________________________
Address for Notice of Investing Entity:
Address for Delivery of Securities for Investing Entity (if not same as above):
Subscription Amount:
Shares of Preferred Stock:
Warrant Shares:
Additional Investment Right Shares:
[SIGNATURE PAGES CONTINUE]
32
