SECURITIES PURCHASE AGREEMENT
This
Securities Purchase Agreement (this “Agreement”) is dated
as of September ___, 2009, between Hythiam, Inc., a Delaware corporation (the
“Company”), and
each purchaser 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
an effective registration statement under the Securities Act of 1933, as amended
(the “Securities
Act”), the Company desires to issue and sell to each Purchaser, and each
Purchaser, severally and not jointly, desires to purchase from the Company,
securities of the Company as more fully described in this
Agreement.
NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration the receipt and adequacy of which
are hereby acknowledged, the Company and each Purchaser agree as
follows:
ARTICLE
I.
DEFINITIONS
1.1
Definitions. In addition to the terms defined elsewhere in
this Agreement, for all purposes of this Agreement, the following terms have the
meanings set forth in this Section 1.1:
“Acquiring Person”
shall have the meaning ascribed to such term in Section 4.5.
“Action” shall have
the meaning ascribed to such term in Section 3.1(j).
“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 405 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.
“Board of Directors”
means the board of directors of the Company.
“Business Day” means
any day except any Saturday, any Sunday, any day which is a federal legal
holiday in the United States or any day on which banking institutions in the
State of New York are authorized or required by law or other governmental action
to close.
“Closing” means the
closing of the purchase and sale of the Securities pursuant to Section
2.1.
“Closing Date” means
the Trading Day on which all of the Transaction Documents have been executed and
delivered by the applicable parties thereto, and all conditions precedent to (i)
the Purchasers’ obligations to pay the Subscription Amount and (ii) the
Company’s obligations to deliver the Securities, in each case, have been
satisfied or waived, but in no event later than the third Trading Day following
the date hereof.
“Commission” means the
United States Securities and Exchange Commission.
“Common Stock” means
the common stock of the Company, par value $0.0001 per share, and any other
class of securities into which such securities may hereafter be reclassified or
changed.
“Common Stock
Equivalents” means any securities of the Company or the Subsidiaries
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 exercisable
or exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.
“Company Counsel”
means Xxxx, Forward, Xxxxxxxx & Scripps LLP, with offices located at 000 X.
Xxxxxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxxxxx, XX 00000, Attention: Xxxx X. Xxxxxxxx,
Esq.
“Disclosure Schedules”
means the Disclosure Schedules of the Company delivered concurrently
herewith.
“Evaluation Date”
shall have the meaning ascribed to such term in Section 3.1(r).
“Exchange Act” means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
“Exempt Issuance”
means 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 for such purpose, by a majority of the non-employee members of the Board
of Directors or a majority of the members of a committee of non-employee
directors established for such purpose, (b) securities upon the exercise or
exchange of or conversion of any Securities issued hereunder and/or other
securities exercisable or exchangeable for or convertible into shares of Common
Stock 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 or to decrease the exercise price, exchange price
or conversion price of such securities (except as a result of anti-dilution
provisions therein), and (c) securities issued pursuant to acquisitions or
strategic transactions approved by a majority of the disinterested directors of
the Company, provided that any such issuance shall only be to a Person (or to
the equityholders of a Person) which is, itself or through its subsidiaries, an
operating company or an asset in a business synergistic with the business of the
Company and shall provide to the Company additional 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.
“FDA” shall have the
meaning ascribed to such term in Section 3.1(gg).
“FDCA” shall have the
meaning ascribed to such term in Section 3.1(gg).
“GAAP” shall have the
meaning ascribed to such term in Section 3.1(h).
“Indebtedness” shall
have the meaning ascribed to such term in Section 3.1(z).
“Intellectual Property
Rights” shall have the meaning ascribed to such term in Section
3.1(o).
“Liens” means a lien,
charge, security interest, encumbrance, right of first refusal, preemptive right
or other restriction.
“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).
“Per Share Purchase
Price” equals $_____, subject to adjustment for reverse and forward stock
splits, stock dividends, stock combinations and other similar transactions of
the Common Stock that occur after the date of this Agreement.
“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.
“Pharmaceutical
Product” shall have the meaning ascribed to such term in Section
3.1(gg).
“Proceeding” means an
action, claim, suit, or proceeding (including, without limitation, a partial
proceeding, such as a deposition).
“Prospectus” means the
final prospectus filed for the Registration Statement.
“Prospectus
Supplement” means the supplement to the Prospectus complying with Rule
424(b) of the Securities Act that is filed with the Commission and delivered by
the Company to each Purchaser at the Closing.
“Purchaser Party”
shall have the meaning ascribed to such term in Section 4.8.
“Registration
Statement” means the effective registration statement with Commission
File No. 333-158407 which registers the sale of the Shares, the Warrants and the
Warrant Shares by the Purchasers.
“Required Approvals”
shall have the meaning ascribed to such term in Section 3.1(d).
“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.
“Rule 424” means Rule
424 promulgated by the Commission pursuant to the Securities Act, as such Rule
may be amended or interpreted from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially the same
purpose and effect as such Rule.
“SEC Reports” shall
have the meaning ascribed to such term in Section 3.1(h).
“Securities” means the
Shares, the Warrants and the Warrant Shares.
“Securities Act” means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“Shares” means the
shares of Common Stock issued or issuable to each Purchaser pursuant to this
Agreement.
“Short Sales” means
all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange
Act (but shall not be deemed to include the location and/or reservation of
borrowable shares of Common Stock).
“Subscription Amount”
means, as to each Purchaser, the aggregate amount to be paid for Shares and
Warrants purchased hereunder as specified below such Purchaser’s name on the
signature page of this Agreement and next to the heading “Subscription Amount,”
in United States dollars and in immediately available funds.
“Subsidiary” means any
subsidiary of the Company as set forth on Schedule 3.1(a), and
shall, where applicable, also include any subsidiary of the Company formed or
acquired after the date hereof.
“Trading Day” means a
day on which the principal Trading Market is open for trading.
“Trading Market” means
any of the following markets or exchanges on which the Common Stock is listed or
quoted for trading on the date in question: the NYSE AMEX, the Nasdaq Capital
Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York
Stock Exchange or the OTC Bulletin Board (or any successors to any of the
foregoing).
“Transaction
Documents” means this Agreement, the Warrants and any other documents or
agreements executed in connection with the transactions contemplated
hereunder.
“Transfer Agent” means
American Stock Transfer & Trust Company, the current transfer agent of the
Company, with a mailing address of 00 Xxxxxx Xxxx, Xxx Xxxx, Xxx Xxxx 00000 and
a facsimile number of (000) 000-0000, and any successor transfer agent of the
Company.
“Variable Rate
Transaction” shall have the meaning ascribed to such term in Section
4.12(b).
“Warrants” means,
collectively, the Common Stock purchase warrants delivered to the Purchasers at
the Closing in accordance with Section 2.2(a) hereof, which Warrants shall be
exercisable ____________ and have a term of exercise equal to ___ years, in the
form of Exhibit
A attached hereto.
“Warrant Shares” means
the shares of Common Stock issuable upon exercise of the Warrants.
“WS” means Xxxxxxxxx
Xxxxx LLP with offices located at 000 Xxxxxxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx,
Xxx Xxxx 00000-0000.
ARTICLE
II.
PURCHASE
AND SALE
2.1 Closing. On
the Closing Date, upon the terms and subject to the conditions set forth herein,
substantially concurrent with the execution and delivery of this Agreement by
the parties hereto, the Company agrees to sell, and the Purchasers, severally
and not jointly, agree to purchase, up to an aggregate of
$___,000,000 of Shares and Warrants. Each Purchaser shall deliver to
the Company, via wire transfer or a certified check of immediately available
funds equal to such Purchaser’s Subscription Amount as set forth on the
signature page hereto executed by such Purchaser and the Company shall deliver
to each Purchaser its respective Shares and a Warrant as determined pursuant to
Section 2.2(a), and the Company and each Purchaser shall deliver the other items
set forth in Section 2.2 deliverable at the Closing. Upon
satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3,
the Closing shall occur at the offices of Company Counsel or such other location
as the parties shall mutually agree.
2.2 Deliveries.
(a) On
or prior to the Closing Date, the Company shall deliver or cause to be delivered
to each Purchaser the following:
(i) this
Agreement duly executed by the Company;
(ii) a
legal opinion of Company Counsel, substantially in the form of Exhibit B attached
hereto;
(iii) a
copy of the irrevocable instructions to the Company’s transfer agent instructing
the transfer agent to deliver via the Depository Trust Company Deposit
Withdrawal Agent Commission System (“DWAC”) Shares equal
to such Purchaser’s Subscription Amount divided by the Per Share Purchase Price,
registered in the name of such Purchaser;
(iv) a
Warrant registered in the name of such Purchaser to purchase up to a number of
shares of Common Stock equal to ___% of such Purchaser’s Shares, with an
exercise price equal to $_____, subject to adjustment therein (such Warrant
certificate may be delivered within three Trading Days of the Closing Date);
and
(v) the
Prospectus and Prospectus Supplement (which may be delivered in accordance with
Rule 172 under the Securities Act).
(b) On
or prior to the Closing Date, each Purchaser shall deliver or cause to be
delivered to the Company the following:
(i) this
Agreement duly executed by such Purchaser; and
(ii) such
Purchaser’s Subscription Amount by wire transfer to the account as specified in
writing by the Company.
2.3 Closing
Conditions.
(a) The
obligations of the Company hereunder in connection with the Closing are subject
to the following conditions being met:
(i) the
accuracy in all material respects on the Closing Date of the representations and
warranties of the Purchasers contained herein (unless as of a specific date
therein, or to the extent they relate to an earlier date, in which case such
representations and warranties shall have been true and accurate on and as of
such earlier date);
(ii) all
obligations, covenants and agreements of each Purchaser required to be performed
at or prior to the Closing Date shall have been performed;
(iii) no
statute, rule, regulation, executive order, decree, ruling, injunction, action,
proceeding, or interpretation shall have been enacted, entered, promulgated,
endorsed or adopted by any court or governmental authority of competent
jurisdiction or any self regulatory organization or the staff of any foregoing,
having authority over the matter contemplated hereby which questions the
validity of, or challenges or prohibits the consummation of, any of the
transactions contemplated by this Agreement; and
(iv) the
delivery by each Purchaser of the items set forth in Section 2.2(b) of this
Agreement.
(b) The
respective obligations of the Purchasers hereunder in connection with the
Closing are subject to the following conditions being met:
(i) the
accuracy in all material respects when made and on the Closing Date of the
representations and warranties of the Company contained herein (unless as of a
specific date therein, or to the extent they relate to an earlier date, in which
case such representations and warranties shall have been true and accurate on
and as of such earlier date);
(ii) all
obligations, covenants and agreements of the Company required to be performed at
or prior to the Closing Date shall have been performed;
(iii) the
delivery by the Company of the items set forth in Section 2.2(a) of this
Agreement;
(iv) there
shall have been no Material Adverse Effect with respect to the Company since the
date hereof; and
(v) from
the date hereof to the Closing Date, trading in the Common Stock shall not have
been suspended by the Commission or the Company’s principal Trading Market
(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 L.P. 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 Securities at the Closing.
ARTICLE
III.
REPRESENTATIONS
AND WARRANTIES
3.1 Representations and
Warranties of the Company. Except as set forth in the
Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof
and shall qualify any representation or otherwise made herein to the extent of
the disclosure contained in the corresponding section of the Disclosure
Schedules, the Company hereby makes the following representations and warranties
to each Purchaser, which shall be correct as of the date of this Agreement,
except as to any representation or warranty which expressly relates to an
earlier date, which only need be correct as of such earlier date:
(a) Subsidiaries. All
of the direct and indirect subsidiaries of the Company are set forth on Schedule
3.1(a). Except as set forth in the SEC Reports, 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 of the issued and
outstanding shares of capital stock of each Subsidiary 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, all other references to the Subsidiaries or any of them in the
Transaction Documents shall be disregarded.
(b) Organization and
Qualification. The Company and each of the Subsidiaries 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, with the corporate power and corporate authority to own and use
its properties and assets and to carry on its business as currently
conducted. Neither the Company nor any Subsidiary is in violation nor
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 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
condition (financial or otherwise) of the Company and the Subsidiaries, taken as
a whole, 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 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; provided, however, that
“Material Adverse Effect” shall not be deemed to include (i) any adverse effect
on the Company occurring either prior to, or after the Closing Date resulting
from any change in the general economic conditions relating to the market in
which the Company operates, or (ii) rumor, public announcement or closing
relating to the negotiation and execution of this Agreement and the transactions
described herein.
(c) Authorization;
Enforcement. The Company has the corporate power and corporate
authority to enter into and to consummate the transactions contemplated by each
of the Transaction Documents to which it is a party and otherwise to carry out
its obligations hereunder and thereunder. The execution and delivery
of each of the Transaction Documents to which it is a party by the Company and
the consummation by it of the transactions contemplated hereby and thereby have
been duly authorized by all necessary action on the part of the Company and no
further action is required by the Company, the Board of Directors or the
Company’s stockholders in connection therewith other than in connection with the
Required Approvals. Each Transaction Document to which it is a party
has been (or upon delivery will have been) duly executed by the Company and,
when delivered in accordance with the terms hereof and thereof, will constitute
the valid and binding obligation of the Company enforceable against the Company
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.
(d) No
Conflicts. The execution, delivery and performance by the
Company of the Transaction Documents, the issuance and sale of the Securities
and the consummation by the Company of the transactions contemplated hereby and
thereby to which it is a party do not and will not (i) conflict with or violate
any provision of the Company’s or any Subsidiary’s certificate or articles of
incorporation, bylaws or other organizational or charter documents, 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 debt or
otherwise) or other understanding to which the Company or any Subsidiary is a
party or by which any property or asset of the Company or any Subsidiary is
bound or affected, 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 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; except in the case of each of clauses (ii) and
(iii), such as could not have or reasonably be expected to result in a Material
Adverse Effect.
(e) Filings, Consents and
Approvals. The Company is not 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 pursuant to Section 4.4 of this Agreement, (ii)
the filing with the Commission of the Prospectus Supplement, (iii)
application(s) to each applicable Trading Market for the listing of the
Securities for trading thereon in the time and manner required thereby and (iv)
such filings as are required to be made under applicable federal and state
securities laws (collectively, the “Required
Approvals”).
(f) Issuance of the Securities;
Registration. 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 imposed by the Company. The Warrant Shares, when issued and
paid for in accordance with the terms of the Warrants, will be validly issued,
fully paid and nonassessable, free and clear of all Liens imposed by the
Company. The Company has reserved from its duly authorized capital
stock the maximum number of shares of Common Stock issuable pursuant to this
Agreement and the Warrants. The Company has prepared and filed the Registration
Statement in conformity with the requirements of the Securities Act, which
became effective on September 11, 2009 (the “Effective Date”),
including the Prospectus, and such amendments and supplements thereto as may
have been required to the date of this Agreement. The Registration
Statement is effective under the Securities Act and no stop order preventing or
suspending the effectiveness of the Registration Statement or suspending or
preventing the use of the Prospectus has been issued by the Commission and no
proceedings for that purpose have been instituted or, to the knowledge of the
Company, are threatened by the Commission. The Company, if required
by the rules and regulations of the Commission, proposes to file the Prospectus,
with the Commission pursuant to Rule 424(b). At the time the
Registration Statement and any amendments thereto became effective, at the date
of this Agreement and at the Closing Date, the Registration Statement and any
amendments thereto conformed and will conform in all material respects to the
requirements of the Securities Act and did not and will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading; and
the Prospectus and any amendments or supplements thereto, at time the Prospectus
or any amendment or supplement thereto was issued and at the Closing Date,
conformed and will conform in all material respects to the requirements of the
Securities Act and did not and will not contain an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(g) Capitalization. The
capitalization of the Company as of December 31, 2008, is as set forth in the
most recent applicable SEC Reports, increased as set forth in the next
sentence. The Company has not issued any capital stock since its most
recently filed periodic report under the Exchange Act, other than pursuant to
the exercise of employee stock options, the issuance of shares of Common Stock
under the Company’s stock option plans, the issuance of shares of Common Stock
to employees pursuant to the Company’s employee stock purchase plans and
pursuant to the conversion and/or exercise of Common Stock Equivalents
outstanding as of the date of the most recently filed periodic report under the
Exchange Act. Except as set forth in the SEC Reports, 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 set forth in the SEC Reports or as a result of
the purchase and sale of the Securities, there are no outstanding options,
warrants, scrip rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities, rights or obligations convertible into or
exercisable or exchangeable for, or giving any Person any right to subscribe for
or acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary is or may
become bound to issue additional shares of Common Stock or Common Stock
Equivalents. The issuance 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 any of 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 or others
is required for the issuance and sale of the Securities. Except as
set forth in the SEC Reports, or in filings with the Commission under Sections
13 or 16 of the Exchange Act, 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.
(h) SEC Reports; Financial
Statements. The Company has filed all reports, schedules,
forms, statements and other documents required to be filed by the Company under
the Securities Act and the Exchange Act, including pursuant to Section 13(a) or
15(d) thereof, for the twelve months preceding the date hereof (or such shorter
period as the Company was required by law or regulation to file such material)
(the foregoing materials, including the exhibits thereto and documents
incorporated by reference therein, together with the Prospectus and the
Prospectus Supplement, 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, as applicable, and none of the SEC Reports, when filed, contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. Within the past twelve months the Company has never been an issuer
subject to Rule 144(i) under the Securities Act. 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, year-end audit
adjustments.
(i) Material Changes;
Undisclosed Events, Liabilities or Developments. Since the
date of the latest audited financial statements included within the SEC Reports,
except as specifically disclosed in a subsequent SEC Report filed prior to the
date hereof, (i) there has been no event, occurrence or development that has had
or that could 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 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 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. Except for the
issuance of the Securities contemplated by this Agreement or as set forth on
Schedule
3.1(i), no event, liability, fact, circumstance, occurrence or
development has occurred or exists with respect to the Company or its
Subsidiaries or their respective business, properties, operations, assets or
financial condition that would be required to be disclosed by the Company under
applicable securities laws at the time this representation is made or deemed
made that has not been publicly disclosed at least 1 Trading Day prior to the
date that this representation is made.
(j) Litigation. Except
as may be disclosed in the SEC Reports, 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 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) could, if there were an
unfavorable decision, reasonably be expected to result in a Material Adverse
Effect. Neither the Company nor any Subsidiary, nor to the knowledge
of the Company, any director or 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. 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 under the Exchange
Act or the Securities Act.
(k) Labor
Relations. No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to the employees of the
Company, which could reasonably be expected to result in a Material Adverse
Effect. None of the Company’s or its Subsidiaries’ employees is a
member of a union that relates to such employee’s relationship with the Company
or such Subsidiary, and neither the Company nor any of its Subsidiaries is a
party to a collective bargaining agreement, and the Company and its Subsidiaries
believe that their relationships with their employees are generally
good. To the knowledge of the Company, (i) no executive officer is in
violation of any material term of any employment contract, confidentiality,
disclosure or proprietary information agreement or non-competition agreement
relating to the Company, and, to the knowledge of the Company, or any other
contract or agreement or any restrictive covenant in favor of any third party,
and (ii) the continued employment of each such executive officer does not
subject the Company or any of its Subsidiaries to any liability with respect to
any of the foregoing matters which could reasonably be expected to result in a
Material Adverse Effect. The Company and its Subsidiaries are in
substantial compliance with all U.S. federal, state, local and foreign laws and
regulations relating to employment and employment practices, terms and
conditions of employment and wages and hours, except where the failure to be in
compliance could not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.
(l) Compliance. Except
as disclosed in the SEC Reports, neither the Company nor any Subsidiary: (i) is
in default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default by
the Company or any Subsidiary under), nor has the Company or any Subsidiary
received notice of a claim that it is in default under or that it is in
violation of, any indenture, loan or credit agreement or any other agreement or
instrument to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived), (ii) is in
violation of any judgment, decree or order of any court, arbitrator or
governmental body or (iii) is in material violation of any statute, rule,
ordinance 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 or reasonably be expected to
result in a Material Adverse Effect. The representations and
warranties set forth in this Section 3.1(l) do not apply to Labor Relations,
Regulatory Permits, Xxxxxxxx-Xxxxx, Tax Status, Foreign Corrupt Practices and
FDA, which are addressed in Sections 3.1(i), 3.1(k), 3.1(r), 3.1(aa), 3.1(bb)
and 3.1(ff), respectively.
(m) Regulatory
Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as currently conducted, as described in the SEC Reports,
except where the failure to possess such permits could not reasonably be
expected to result in a Material Adverse Effect (“Material Permits”),
and neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any Material
Permit.
(n) Title to
Assets. The Company and the Subsidiaries own no real
property. The Company and the Subsidiaries have good and marketable
title in all personal property owned by them that is material to the business of
the Company and the Subsidiaries, in each case free and clear of all Liens,
except for Liens as do not materially affect the value of such property and do
not materially interfere with the use made and of such property by the Company
and the Subsidiaries 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 that are material to the business of the Company
and the Subsidiaries are held by them under valid, subsisting and enforceable
leases with which the Company and the Subsidiaries are in
compliance.
(o) Patents and
Trademarks. The Company and the Subsidiaries have, or have
rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, trade secrets, inventions, copyrights,
licenses and other intellectual property rights and similar rights 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 reasonably be expected to
have a Material Adverse Effect (collectively, the “Intellectual Property
Rights”). Neither the Company nor any Subsidiary has received
a notice that any of the Intellectual Property Rights used by the Company or any
Subsidiary violates or infringes upon the rights of any Person. To
the knowledge of the Company, all such Intellectual Property Rights are
enforceable and there is no existing infringement by another Person of any of
the Intellectual Property Rights. The Company and its Subsidiaries
have taken reasonable security measures to protect the secrecy, confidentiality
and value of all of their intellectual properties, except where failure to do so
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
(p) Insurance. The
Company and the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which the Company and the Subsidiaries are
engaged, including, but not limited to, directors and officers insurance
coverage at least equal to the aggregate Subscription Amount. Neither
the Company nor any Subsidiary has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary to
continue its business.
(q) Transactions With Affiliates
and Employees. Except as set forth in the SEC Reports or the
Prospectus Supplement, 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 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 $120,000
other than for (i) payment of salary or consulting fees for services rendered,
(ii) reimbursement for expenses incurred on behalf of the Company and (iii)
other employee benefits, including stock option agreements under any stock
option plan of the Company.
(r) Xxxxxxxx-Xxxxx; Internal
Accounting Controls. To the Company’s knowledge, 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 maintain a system of internal accounting controls reasonably
designed 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 reasonably ensure that information required to be disclosed by the Company in
the reports it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Commission’s
rules and forms. The Company’s certifying officers have evaluated the
effectiveness of the Company’s disclosure controls and procedures as of the end
of the period covered by the Company’s 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 changes in the Company’s internal control over
financial reporting (as such term is defined in the Exchange Act) that has
materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.
(s) Certain
Fees. Except as set forth in the Prospectus Supplement, 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 the Transaction Documents. The Purchasers shall have
no obligation with respect to any such fees or with respect to any claims made
by or on behalf of any broker, financial advisor, consultant, finder, placement
agent or investment banker to the Company for fees of a type contemplated in
this Section that may be due in connection with the transactions contemplated by
the Transaction Documents.
(t) Investment Company.
The Company is not, and is not an Affiliate of, and immediately after receipt of
payment for the Securities, 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 an “investment company” subject to registration under the
Investment Company Act of 1940, as amended.
(u) Registration
Rights. Except as provided in the SEC Reports, no Person has
any right to cause the Company to effect the registration under the Securities
Act of any securities of the Company.
(v) Listing and Maintenance
Requirements. The Common Stock is registered pursuant to
Section 12(b) or 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. As set forth in the SEC Reports,
including without limitation the Form 8-K filed August 28, 2009, the Company
has, in the 12 months preceding the date hereof, received notice from a 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; and the Company is not, and has reason to
believe that it will not in the foreseeable future continue to be, in compliance
with all such listing and maintenance requirements.
(w) Application of Takeover
Protections. The Company and the 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 as a result of the Company’s issuance of the Securities and the
Purchasers’ ownership of the Securities.
(x) Disclosure. Except
with respect to the material terms and conditions of the transactions
contemplated by the Transaction Documents, the Company confirms that neither it
nor any other Person acting on its behalf has provided any of the Purchasers or
their agents or counsel with any information that it reasonably believes would
constitute material, non-public information which is not otherwise disclosed in
the Prospectus Supplement. The Company understands and confirms
that the Purchasers will rely on the foregoing representation in effecting
transactions in securities of the Company. All of the disclosure
furnished by or on behalf of the Company to the Purchasers regarding the
Company, its business and the transactions contemplated hereby, including the
Disclosure Schedules to this Agreement, is true and correct and does not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in 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.
(y) No Integrated
Offering. Assuming the accuracy of the Purchasers’ representations and
warranties set forth in Section 3.2, neither the Company, nor any of its
Affiliates, nor, to the knowledge of the Company, 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 any applicable shareholder approval
provisions of any Trading Market on which any of the securities of the Company
are listed or designated.
(z) Solvency. Based
on the consolidated financial condition of the Company as of the Closing Date,
after giving effect to the receipt by the Company of the proceeds from the sale
of the Securities hereunder, (i) the fair saleable 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 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 liabilities 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. Schedule 3.1(z) sets
forth as of the date hereof all outstanding secured and unsecured Indebtedness
of the Company or any Subsidiary, or for which the Company or any Subsidiary has
commitments, which are not contained within the SEC Reports. For the
purposes of this Agreement, “Indebtedness” means
(x) any liabilities for borrowed money or amounts owed in excess of $100,000
(other than trade accounts payable incurred in the ordinary course of business),
(y) 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 (z) the present value of
any lease payments in excess of $100,000 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.
(aa) Tax
Status. Except for matters that would not, individually or in
the aggregate, have or reasonably be expected to result in a Material Adverse
Effect, the Company and each Subsidiary has filed all necessary federal, state
and foreign income and franchise tax returns and has paid or accrued all taxes
shown as due thereon, and the Company has no knowledge of a tax deficiency which
has been asserted or threatened against the Company or any
Subsidiary.
(bb) 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 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.
(cc) Accountants. The
Company’s accounting firm is set forth on Schedule 3.1(cc) of
the Disclosure Schedules. To the knowledge and belief of the Company,
such accounting firm (i) is a registered public accounting firm as required by
the Exchange Act and (ii) shall express its opinion with respect to the
financial statements to be included in the Company’s Annual Report on Form 10-K
for the year ending December 31, 2009.
(dd)
Acknowledgment
Regarding Purchasers’ Purchase of Securities. Based upon the
assumption that the transactions contemplated by this Agreement are consummated
in all material respects in conformity with the Transaction Documents, the
Company acknowledges and agrees that each of the Purchasers is acting solely in
the capacity of an arm’s length purchaser with respect to the Transaction
Documents and the transactions contemplated thereby. 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 the
Transaction Documents and the transactions contemplated thereby and any advice
given by any Purchaser or any of their respective representatives or agents in
connection with the Transaction Documents and the transactions contemplated
thereby 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 and the other Transaction
Documents has been based solely on the independent evaluation of the
transactions contemplated hereby by the Company and its
representatives.
(ee) Acknowledgement Regarding
Purchaser’s Trading Activity. Anything in this Agreement or
elsewhere herein to the contrary notwithstanding (except for Sections 3.2(e) and
4.14 hereof), it is understood and acknowledged by the Company that: (i) none of
the Purchasers have been asked by the Company to agree, nor has any Purchaser
agreed, to desist from purchasing or selling, long and/or short, securities of
the Company, or “derivative” securities based on securities issued by the
Company or to hold the Securities for any specified term; (ii) past or future
open market or other transactions by any Purchaser, specifically including,
without limitation, Short Sales or “derivative” transactions, before or after
the Closing, may negatively impact the market price of the Company’s
publicly-traded securities; (iii) any Purchaser, and counter-parties in
“derivative” transactions to which any such Purchaser is a party, directly or
indirectly, presently may have a “short” position in the Common Stock, and (iv)
each Purchaser shall not be deemed to have any affiliation with or control over
any arm’s length counter-party in any “derivative” transaction. The
Company further understands and acknowledges that (y) one or more Purchasers may
engage in hedging activities at various times during the period that the
Securities are outstanding, including, without limitation, during the periods
that the value of the Warrant Shares deliverable with respect to Securities are
being determined, and (z) such hedging activities (if any) could reduce the
value of the existing stockholders' equity interests in the Company at and after
the time that the hedging activities are being conducted. The Company
acknowledges that such aforementioned hedging activities do not constitute a
breach of any of the Transaction Documents.
(ff) Regulation M
Compliance. The Company has not, and to its knowledge no one acting
on its behalf has, (i) taken, directly or indirectly, any action designed to
cause or to result in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or, paid any compensation for
soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay
to any Person any compensation for soliciting another to purchase any other
securities of the Company, other than, in the case of clauses (ii) and (iii),
compensation paid to the Company’s placement agent in connection with the
placement of the Securities.
(gg) FDA. To
the knowledge of the Company and except as set forth in the SEC Reports, there
is no product subject to the jurisdiction of the U.S. Food and Drug
Administration (“FDA”) under the
Federal Food, Drug and Cosmetic Act, as amended, and the regulations thereunder
(“FDCA”) that
is manufactured, packaged, labeled, tested, distributed, sold, and/or marketed
by the Company or any of its Subsidiaries (each such product, a “Pharmaceutical
Product”). There is no pending, completed or, to the Company's
knowledge, threatened, action (including any lawsuit, arbitration, or legal or
administrative or regulatory proceeding, charge, complaint, or investigation)
against the Company or any of its Subsidiaries, and none of the Company or any
of its Subsidiaries has received any notice, warning letter or other
communication from the FDA or any other governmental entity, which (i) imposes a
clinical hold on any clinical investigation by the Company or any of its
Subsidiaries, (ii) enters or proposes to enter into a consent decree of
permanent injunction with the Company or any of its Subsidiaries, or (iii)
otherwise alleges any violation of any laws, rules or regulations by the Company
or any of its Subsidiaries, and which, either individually or in the aggregate,
would reasonably be expected to have or result in a Material Adverse
Effect. The properties, business and operations of the Company have
been and are being conducted in a manner reasonably designed to comply in all
material respects in accordance with all applicable laws, rules and regulations
of the FDA. The Company has not been informed by the FDA that the FDA will
prohibit the marketing, sale, license or use in the United States of any product
proposed to be developed, produced or marketed by the Company nor has the FDA
expressed any concern as to approving or clearing for marketing any product
being developed or proposed to be developed by the Company.
Each
Purchaser acknowledges and agrees that the Company 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 3.1.
3.2 Representations and
Warranties of the Purchasers. Each Purchaser, for itself and
for no other Purchaser, hereby represents and warrants as of the date hereof and
as of the Closing Date to the Company as follows , which shall be correct as of
the date of this Agreement, except as to any representation or warranty which
expressly relates to an earlier date, which only need be correct as of such
earlier date:
(a) Organization;
Authority. Such Purchaser is either an individual or 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
this Agreement and otherwise to carry out its obligations hereunder and
thereunder. The execution and delivery of this Agreement and performance by such
Purchaser of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate, partnership, limited liability company or
similar action, as applicable, on the part of such Purchaser. Each
Transaction Document to which it is a 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) Own
Account. Such Purchaser 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 in violation of the Securities Act
or any applicable state securities law, has no present intention of distributing
any of such Securities in violation of the Securities Act or any applicable
state securities law and has no direct or indirect arrangement or understandings
with any other persons to distribute or regarding the distribution of such
Securities in violation of any law, including the Securities Act or any
applicable state securities law (this representation and warranty not limiting
such Purchaser’s right to sell the Securities immediately 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.
(c) Litigation. There
is no action pending, or to its knowledge, threatened, to which such Purchaser
is a party that is reasonably likely to prevent, enjoin, alter or delay the
transactions contemplated by this Agreement.
(d) Purchaser
Status. At the time such Purchaser was offered the Securities,
it was, and as of the date hereof it is, and on each date on which it exercises
any Warrants, 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.
(e) 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.
(f) Certain Transactions and
Confidentiality. Other than consummating the transactions
contemplated hereunder, such Purchaser has not, nor has any Person acting on
behalf of or pursuant to any understanding with such Purchaser, directly or
indirectly executed any purchases or sales, including Short Sales, of the
securities of the Company during the period commencing as of the time that such
Purchaser first received a term sheet (written or oral) as of the Company or any
other Person representing the Company setting forth the material terms of the
transactions contemplated hereunder and ending immediately prior to the
execution hereof. Notwithstanding the foregoing, in the case of a
Purchaser that is a multi-managed investment vehicle whereby separate portfolio
managers manage separate portions of such Purchaser’s assets and the portfolio
managers have no direct knowledge of the investment decisions made by the
portfolio managers managing other portions of such Purchaser’s assets, the
representation set forth above shall only apply with respect to the portion of
assets managed by the portfolio manager that made the investment decision to
purchase the Securities covered by this Agreement. Other than to
other Persons party to this Agreement, such Purchaser has maintained the
confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this
transaction). Notwithstanding the foregoing, for avoidance of doubt,
nothing contained herein shall constitute a representation or warranty, or
preclude any actions, with respect to the identification of the availability of,
or securing of, available shares to borrow in order to effect Short Sales or
similar transactions in the future.
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 Warrant
Shares. If all or any portion of a Warrant is exercised at a
time when there is an effective registration statement to cover the issuance or
resale of the Warrant Shares or if the Warrant is exercised via cashless
exercise, the Warrant Shares issued pursuant to any such exercise shall be
issued free of all legends. If at any time following the date hereof
the Registration Statement (or any subsequent registration statement registering
the sale or resale of the Warrant Shares) is not effective or is not otherwise
available for the sale or resale of the Warrant Shares, the Company shall
immediately notify the holders of the Warrants in writing that such registration
statement is not then effective and thereafter shall promptly notify such
holders when the registration statement is effective again and available for the
sale or resale of the Warrant Shares (it being understood and agreed that the
foregoing shall not limit the ability of the Company to issue, or any Purchaser
to sell, any of the Warrant Shares in compliance with applicable federal and
state securities laws). The Company shall use best efforts to keep a
registration statement (including the Registration Statement) registering the
issuance or resale of the Warrant Shares effective during the term of the
Warrants.
4.2 Furnishing of
Information. Until the earliest of the time that (i) no
Purchaser owns Securities it is not eligible to dispose of pursuant to Rule 144,
or (ii) the Warrants have expired, the Company covenants to use reasonable best
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 even if the Company is not
then subject to the reporting requirements of the Exchange Act. As
long as any Purchaser owns Securities, if the Company is not required to file
reports pursuant to the Exchange Act, it will prepare and furnish to the
Purchasers and use reasonable best efforts to make publicly available in
accordance with Rule 144(c) such information as is required for the Purchasers
to sell the Securities under Rule 144. The Company further covenants that it
will take such further action as any holder of Securities may reasonably
request, to the extent required from time to time to enable such Person to sell
such Securities without registration under the Securities Act within the
requirements of the exemption provided by Rule 144.
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 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. (New York City
time) on the Trading Day immediately following the date hereof, issue a press
release disclosing the material terms of the transactions contemplated hereby
and file a Form 8-K including the Transaction Documents as exhibits
thereto. From and after the issuance of such press release, the
Company shall have publicly disclosed all material, non-public information
delivered to any of the Purchasers by the Company or any of its subsidiaries, or
any of their respective officers, directors, employees or agents in connection
with the transactions contemplated by the Transaction Documents. The
Company and each Purchaser shall consult with each other in issuing any other
press releases with respect to the transactions contemplated hereby, and neither
the Company nor any Purchaser shall issue any such press release nor 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 other press release of the Company, which
consent shall not unreasonably be withheld or delayed, 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 (a) as
required by federal securities law in connection with the filing of final
Transaction Documents (including signature pages thereto) with the Commission
and (b) 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 this clause (b).
4.5 Shareholder Rights
Plan. No claim will be made or enforced by the Company or,
with the consent of the Company, any other Person, that any Purchaser is an
“Acquiring Person” under any control share acquisition, business combination,
poison pill (including any distribution under a rights agreement) or similar
anti-takeover 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.
4.6 Non-Public
Information. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents, the
Company covenants and agrees that neither it, nor any other Person acting on its
behalf will 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 with the
Company regarding the confidentiality and use of such
information. The Company understands and confirms that each Purchaser
shall be relying on the foregoing covenant in effecting transactions in
securities of the Company.
4.7 Use of
Proceeds. Except as set forth on Schedule 4.7 attached
hereto, the Company shall use the net proceeds from the sale of the Securities
hereunder for working capital and general corporate purposes. The
Company also may use a portion of the net proceeds, currently intended for
general corporate purposes, to acquire or invest in technologies, products or
services that complement its business, although the Company has no present plans
or commitments and is not currently engaged in any material negotiations with
respect to these types of transactions. Except as set forth in the
Form 8-K dated August 11, 2009, the Company shall not use such proceeds for: (a)
the satisfaction of any portion of the Company’s debt (other than payment of
trade payables in the ordinary course of the Company’s business and prior
practices), (b) the redemption of any Common Stock or Common Stock Equivalents
or (c) the settlement of any outstanding litigation.
4.8 Indemnification. Subject
to the provisions of this Section 4.8, and to the extent permitted by law, the
Company will indemnify and hold each Purchaser and its directors, officers,
shareholders, members, partners, employees, agents and controlling persons
(within the meaning of Section 15 of the Securities Act and Section 20
of the Exchange Act) (each, a “Purchaser Party”) harmless from any and all
losses, liabilities, 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 due to
a claim by a third party as a result of or relating to any action instituted
against a Purchaser Party by any stockholder of the Company who is not an
Affiliate of such Purchaser, with respect to any of the transactions
contemplated by the Transaction Documents, except to the extent that that a
loss, liability, damage, cost or expense is attributable to a breach of such
Purchaser’s representations, warranties or covenants under the Transaction
Documents or any agreements or understandings such Purchaser may have with such
stockholder or any violations by such Purchaser of state or federal securities
laws or any conduct by such Purchaser which constitutes fraud, gross negligence,
willful misconduct or malfeasance. If any claim, action or proceeding
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; provided, however, that the failure timely to give such
notice shall affect the rights of such Purchaser Party hereunder only to the
extent that such failure has a material prejudicial effect on the defenses or
other rights available to the Company with respect to such claim, action or
proceeding. At the election of the Company, the Company shall have the
right to assume the defense thereof with counsel of its own choosing reasonably
acceptable to the Purchaser Party. Any Purchaser Party shall have the
right to employ separate counsel in any such claim, action or proceeding 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 claim, action
or proceeding there is, in the reasonable opinion of counsel, a material
conflict on any material issue between the position of the Company and the
position of such Purchaser Party, in which case the Company shall be responsible
for the reasonable fees and expenses of no more than one such separate
counsel. The Company will have the exclusive right to settle any claim,
action or proceeding; provided, however, that the Company will not settle any
such claim, action or proceeding without the prior written consent of the
Purchaser Party, which will not be unreasonably withheld or delayed; provided,
however, that such consent shall not be required if the settlement includes a
full and unconditional release from all liability arising or that may arise out
of such claim or proceeding and does not include a statement as to or an
admission of fault, culpability or a failure to act by or on behalf of any
Purchaser Party.
4.9 Reservation of Common
Stock. As of the date hereof, the Company has reserved and the Company
shall continue to reserve and keep available at all times, free of preemptive
rights, a sufficient number of shares of Common Stock for the purpose of
enabling the Company to issue Shares pursuant to this Agreement and Warrant
Shares pursuant to any exercise of the Warrants.
4.10 Listing of Common
Stock. The Company hereby agrees to use reasonable best efforts to (a)
maintain the listing or quotation of the Common Stock on the Trading Market on
which it is currently listed, and concurrently with the Closing, the Company
shall apply to list or quote all of the Shares and Warrant Shares on such
Trading Market and promptly secure the listing of all of the Shares and Warrant
Shares on such Trading Market; (b) if the Company applies to have the Common
Stock traded on any other Trading Market, include in such application all of the
Shares and Warrant Shares, and take such other action as is reasonably necessary
to cause all of the Shares and Warrant Shares to be listed or quoted on such
other Trading Market as promptly as possible; (c) take all action necessary to
continue the listing and trading of its Common Stock on a Trading Market; and
(d) comply in all respects with the Company’s reporting, filing and other
obligations under the bylaws or rules of the Trading Market.
4.11 Subsequent Equity
Sales.
(a) From
the date hereof until 30 days after the Closing Date, neither the Company nor
any Subsidiary shall issue, enter into any agreement to issue or announce the
issuance or proposed issuance of any shares of Common Stock or Common Stock
Equivalents.
(b) Notwithstanding
the foregoing, this Section 4.11 shall not apply in respect of an Exempt
Issuance.
4.12 Equal Treatment of
Purchasers. No consideration (including any modification of
any Transaction Document) 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 for the Company to
treat 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 Certain Transactions and
Confidentiality. Each Purchaser, severally and not jointly with the other
Purchasers, covenants that neither it nor any Affiliate acting on its behalf or
pursuant to any understanding with it will execute any purchases or sales,
including Short Sales of any of the Company’s securities during the period
commencing with the execution of this Agreement and ending at such time that the
transactions contemplated by this Agreement are first publicly announced
pursuant to the initial press release as described in Section 4.4. Each
Purchaser, severally and not jointly with the other Purchasers, covenants that
until such time as the transactions contemplated by this Agreement are publicly
disclosed by the Company pursuant to the initial press release as described in
Section 4.4, such Purchaser will maintain the confidentiality of the existence
and terms of this transaction and the information included in the Disclosure
Schedules. Notwithstanding the foregoing and notwithstanding anything
contained in this Agreement to the contrary, the Company expressly acknowledges
and agrees that (i) no Purchaser makes any representation, warranty or covenant
hereby that it will not engage in effecting transactions in any securities of
the Company after the time that the transactions contemplated by this Agreement
are first publicly announced pursuant to the initial press release as described
in Section 4.4, (ii) no Purchaser shall be restricted or prohibited from
effecting any transactions in any securities of the Company in accordance with
applicable securities laws from and after the time that the transactions
contemplated by this Agreement are first publicly announced pursuant to the
initial press release as described in Section 4.4 and (iii) no Purchaser shall
have any duty of confidentiality to the Company or its Subsidiaries after the
issuance of the initial press release as described in Section 4.4.
Notwithstanding the foregoing, in the case of a Purchaser that is a
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser’s assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio managers
managing other portions of such Purchaser’s assets, the covenant set forth above
shall only apply with respect to the portion of assets managed by the portfolio
manager that made the investment decision to purchase the Securities covered by
this Agreement.
4.14 Delivery of Warrants After
Closing. The Company shall deliver, or cause to be delivered,
the respective Warrant certificates purchased by each Purchaser to such
Purchaser within 3 Trading Days of the Closing Date.
4.15 Capital
Changes. Until the one year anniversary of the Closing 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.
ARTICLE
V.
MISCELLANEOUS
5.1 Termination.
This Agreement may be terminated by the Company or any Purchaser, as to such
Purchaser’s obligations hereunder only and without any effect whatsoever on the
obligations between the Company and the other Purchasers, by written notice to
the other parties, if the Closing has not been consummated on or before
September ___, 2009; provided, however, that no such
termination will affect the right of any party to xxx for any breach by the
other party (or parties).
5.2 Fees and
Expenses. Except as expressly set forth in the Transaction
Documents to the contrary, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement. The Company shall pay all
Transfer Agent fees, stamp taxes and other taxes and duties levied in connection
with the delivery of any Securities to the Purchasers.
5.3 Entire
Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, the Prospectus and the Prospectus Supplement,
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.
5.4 Notices. Any
and all notices or other communications or deliveries required or permitted to
be provided hereunder shall be in writing and shall be deemed given and
effective on the earliest of: (a) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth on
the signature pages attached hereto prior to 5:30 p.m. (New York City time) on a
Trading Day, (b) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number set
forth on the signature pages attached hereto on a day that is not a Trading Day
or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second
(2nd)
Trading Day 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 address for such notices and
communications shall be as set forth on the signature pages attached
hereto.
5.5 Amendments;
Waivers. No provision of this Agreement may be waived,
modified, supplemented or amended except in a written instrument signed, in the
case of an amendment, by the Company and the Purchasers holding at least 67% in
interest of the Shares still held by the Purchasers or, in the case of a waiver,
by the party against whom enforcement of any such waived provision 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 any party to exercise any right hereunder in any manner impair the
exercise of any such right.
5.6 Headings. 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.
5.7 Successors and
Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or
obligations hereunder without the prior written consent of each Purchaser (other
than by merger). 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 that such transferee agrees in writing to be bound,
with respect to the transferred Securities, by the provisions of the Transaction
Documents that apply to the “Purchasers.”
5.8 No Third-Party
Beneficiaries. This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person, except as otherwise set forth in Section 4.8.
5.9 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 agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement and any other Transaction Documents (whether brought against a
party hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York. Each party hereby irrevocably submits to
the exclusive jurisdiction of the state and federal courts sitting in the City
of New York, borough of Manhattan for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed 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 is an 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 other manner
permitted by law. If either party shall commence an action or
proceeding to enforce any provisions of the Transaction Documents, then, in
addition to the obligations of the Company under Section 4.8, the prevailing
party in such action or proceeding shall be reimbursed by the other party for
its reasonable attorneys’ fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or
proceeding.
5.10 Survival. The
representations and warranties contained herein shall survive the Closing and
the delivery of the Securities.
5.11 Execution. This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by
facsimile transmission or by e-mail delivery of a “.pdf” format data file, 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 or “.pdf” signature page were an original thereof.
5.12 Severability. If
any term, provision, covenant or restriction of this Agreement is held by a
court of competent jurisdiction to be invalid, illegal, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions set forth
herein shall remain in full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use their commercially
reasonable efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
5.13 Rescission and Withdrawal
Right. Notwithstanding anything to the contrary contained in
(and without limiting any similar provisions of) any of the other Transaction
Documents, whenever any Purchaser exercises a right, election, demand or option
under any Transaction Document and the Company does not timely perform its
material 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; provided, however, that in the
case of a rescission of an exercise of a Warrant, the applicable Purchaser shall
be required to return any shares of Common Stock delivered in connection with
any such rescinded exercise notice concurrently with the return to such
Purchaser of the aggregate exercise price paid to the Company for such
shares.
5.14 Replacement of
Securities. If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue or
cause to be issued in exchange and substitution for and upon cancellation
thereof (in the case of mutilation), 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. The
applicant for a new certificate or instrument under such circumstances shall
also pay any reasonable third-party costs (including customary indemnity)
associated with the issuance of such replacement Securities.
5.15 Remedies. In
addition to being entitled to exercise all rights provided herein or granted by
law, including recovery of damages, each of the Purchasers and the Company will
be entitled to specific performance under the Transaction
Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations contained in the Transaction Documents and hereby agree to waive and
not to assert in any action for specific performance of any such obligation the
defense that a remedy at law would be adequate.
5.16 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.
5.17 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 or non-performance of the obligations of any other
Purchaser under any Transaction Document. The decision of each
Purchaser to purchase Securities pursuant to this Agreement and the other
Transaction Documents has been made by such Purchaser independently of any other
Purchaser and independently of any information, materials, statements or
opinions as to the business, affairs, operations, assets, properties,
liabilities, results of operations, condition (financial or otherwise) or
prospects of the Company or any Subsidiary which may have been made or given by
any other Purchaser or by any agent or employee of any other Purchaser, and no
Purchaser and any of its agents or employees shall have any liability to any
other Purchaser (or any other person or entity) relating to or arising from any
such information, materials, statement or opinions. Nothing contained
herein or in any other 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 Documents. 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, each Purchaser and its respective counsel have
chosen to communicate with the Company through WS. WS does not
represent any of the Purchasers and only represents Xxxxxx & Xxxxxxx LLC, as
the placement agent. 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 any of the
Purchasers. The Company’s obligations to each Purchaser under the
Transaction Documents are identical to its obligations to each other Purchaser
other than such differences resulting solely from the number of Securities
purchased by such Purchaser, but regardless of whether such obligations are
memorialized herein or in another agreement between the Company and a
Purchaser.
5.18 Saturdays, Sundays,
Holidays, etc. If the last or appointed day for the taking of any
action or the expiration of any right required or granted herein shall not be a
Business Day, then such action may be taken or such right may be exercised on
the next succeeding Business Day.
5.19 Construction. The
parties agree that each of them and/or their respective counsel has reviewed and
had an opportunity to revise the Transaction Documents and, therefore, the
normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of the Transaction Documents or any amendments hereto. In addition, each and
every reference to share prices and shares of Common Stock in any Transaction
Document shall be subject to adjustment for reverse and forward stock splits,
stock dividends, stock combinations and other similar transactions of the Common
Stock that occur after the date of this Agreement.
5.20 WAIVER OF
JURY TRIAL. IN ANY
ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY
OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST
EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY,
IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.
(Signature
Pages Follow)
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.
|
HYTHIAM,
INC.
|
Address for Notice:
00000
Xxxxx Xxxxxx Xxxx.
Xxxxx
0000
Xxx
Xxxxxxx, XX 00000
|
|
By:__________________________________________
Name: Xxxxxx
X. Xxxxxx
Title: Chairman
& CEO
With
a copy to (which shall not constitute notice):
|
Fax: (000)
000-0000
|
|
Xxxx
Xxxxxxx Xxxxxxxx & Scripps LLP
000
Xxxxx Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxx
Xxxxxxx, XX 00000
Fax: (000)
000-0000
Attn: Xxxx
X. Xxxxxxxx, Esq.
|
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE
PAGE FOR PURCHASER FOLLOWS]
[PURCHASER
SIGNATURE PAGES TO HYTM 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
Purchaser: ________________________________________________________
Signature of Authorized Signatory of
Purchaser: _________________________________
Name of
Authorized Signatory:
_______________________________________________
Title of
Authorized Signatory:
________________________________________________
Email
Address of Authorized
Signatory:_________________________________________
Facsimile
Number of Authorized Signatory:
__________________________________________
Address
for Notice of Purchaser:
Address
for Delivery of Securities for Purchaser (if not same as address for
notice):
Subscription
Amount: $_________________
Shares:
_________________
Warrant
Shares: __________________
EIN
Number: [PROVIDE
THIS UNDER SEPARATE COVER]
[SIGNATURE
PAGES CONTINUE]
EXHIBIT
A
COMMON
STOCK PURCHASE WARRANT
HYTHIAM,
INC.
Warrant
Shares:
_______ Initial
Exercise Date: _____, 20___
Issue
Date: September ___, 2009
THIS
COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies
that, for value received, _____________ (the “Holder”) is entitled,
upon the terms and subject to the limitations on exercise and the conditions
hereinafter set forth, at any time on or after ________________ (the “Initial Exercise
Date”) and on or prior to the close of business on the _____ year
anniversary of the Initial Exercise Date (the “Termination Date”)
but not thereafter, to subscribe for and purchase from Hythiam, Inc., a Delaware
corporation (the “Company”), up to
______ shares (the “Warrant Shares”) of
Common Stock. The purchase price of one share of Common Stock under
this Warrant shall be equal to the Exercise Price, as defined in Section
2(b).
Section
1. Definitions. Capitalized
terms used and not otherwise defined herein shall have the meanings set forth in
that certain Securities Purchase Agreement (the “Purchase Agreement”),
dated September __, 2009, among the Company and the purchasers signatory
thereto.
Section
2. Exercise.
a) Exercise of
Warrant. Exercise of the purchase rights represented by this
Warrant may be made, in whole or in part, at any time or times on or after the
Initial Exercise Date and on or before the Termination Date by delivery to the
Company (or such other office or agency of the Company as it may designate by
notice in writing to the registered Holder at the address of the Holder
appearing on the books of the Company) of a duly executed facsimile copy of the
Notice of Exercise Form annexed hereto; and, within three (3) Trading Days of
the date said Notice of Exercise is delivered to the Company, the Company shall
have received payment of the aggregate Exercise Price of the shares thereby
purchased by wire transfer or cashier’s check drawn on a United States bank or,
if available, pursuant to the cashless exercise procedure specified in Section
2(c) below. Notwithstanding anything herein to the contrary, the
Holder shall not be required to physically surrender this Warrant to the Company
until the Holder has purchased all of the Warrant Shares available hereunder and
the Warrant has been exercised in full, in which case, the Holder shall
surrender this Warrant to the Company for cancellation within three (3) Trading
Days of the date the final Notice of Exercise is delivered to the
Company. Partial exercises of this Warrant resulting in purchases of
a portion of the total number of Warrant Shares available hereunder shall have
the effect of lowering the outstanding number of Warrant Shares purchasable
hereunder in an amount equal to the applicable number of Warrant Shares
purchased. The Holder and the Company shall maintain records showing
the number of Warrant Shares purchased and the date of such
purchases. The Company shall deliver any objection to any Notice of
Exercise Form within 2 Business Days of receipt of such notice. In
the event of any dispute or discrepancy, the records of the Holder shall be
controlling and determinative in the absence of manifest error. The Holder and any assignee, by
acceptance of this Warrant, acknowledge and agree that, by reason of the
provisions of this paragraph, following the purchase of a portion of the Warrant
Shares hereunder, the number of Warrant Shares available for purchase hereunder
at any given time may be less than the amount stated on the face
hereof.
b) Exercise
Price. The exercise price per share of the Common Stock under
this Warrant shall be $_____, subject to adjustment
hereunder (the “Exercise
Price”).
c) Cashless
Exercise. If at the time of exercise hereof there is no
effective registration statement registering, or the prospectus contained
therein is not available for the issuance of the Warrant Shares to the Holder
and all of the Warrant Shares are not then registered for resale by Holder into
the market at market prices from time to time on an effective registration
statement for use on a continuous basis (or the prospectus contained therein is
not available for use), then this Warrant may also be exercised, in whole or in
part, at such time by means of a “cashless exercise” in which the Holder shall
be entitled to receive a certificate for the number of Warrant Shares equal to
the quotient obtained by dividing [(A-B) (X)] by (A), where:
|
(A)
=
|
the
VWAP on the Trading Day immediately preceding the date on which Holder
elects to exercise this Warrant by means of a “cashless exercise,” as set
forth in the applicable Notice of
Exercise;
|
|
(B)
=
|
the
Exercise Price of this Warrant, as adjusted hereunder;
and
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(X)
=
|
the
number of Warrant Shares that would be issuable upon exercise of this
Warrant in accordance with the terms of this Warrant if such exercise were
by means of a cash exercise rather than a cashless
exercise.
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“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 Trading Market, the daily
volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the Trading Market on which the Common Stock is then listed
or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m.
(New York City time) to 4:02 p.m. (New York City time), (b) if the
OTC Bulletin Board is not a Trading Market, 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 for trading
on the OTC Bulletin Board and if prices for the Common Stock are then reported
in the “Pink Sheets” published by Pink OTC Markets, Inc. (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 (d) in all
other cases, the fair market value of a share of Common Stock as determined by
an independent appraiser selected in good faith by the Holders of a majority in
interest of the Securities then outstanding and reasonably acceptable to the
Company, the fees and expenses of which shall be paid by the
Company.
Notwithstanding
anything herein to the contrary, on the Termination Date, this Warrant shall be
automatically exercised via cashless exercise pursuant to this Section
2(c).
d) Mechanics of
Exercise.
i. Delivery of Certificates
Upon Exercise. Certificates for shares purchased hereunder
shall be transmitted by the Transfer Agent to the Holder by crediting the
account of the Holder’s prime broker with the Depository Trust Company through
its Deposit Withdrawal Agent Commission (“DWAC”) system if the
Company is then a participant in such system and either (A) there is an
effective Registration Statement permitting the issuance of the Warrant Shares
to or resale of the Warrant Shares by Holder or (B) this Warrant is being
exercised via cashless exercise, and otherwise by physical delivery to the
address specified by the Holder in the Notice of Exercise by the date that is
three (3) Trading Days after the latest of (A) the delivery to the Company of
the Notice of Exercise Form, (B) surrender of this Warrant (if required) and (C)
payment of the aggregate Exercise Price as set forth above (including by
cashless exercise, if permitted) (such date, the “Warrant Share Delivery
Date”). This Warrant shall be deemed to have been exercised on
the first date on which all of the foregoing have been delivered to the
Company. The Warrant Shares shall be deemed to have been issued, and
Holder or any other person so designated to be named therein shall be deemed to
have become a holder of record of such shares for all purposes, as of the date
the Warrant has been exercised, with payment to the Company of the Exercise
Price (or by cashless exercise, if permitted) and all taxes required to be paid
by the Holder, if any, pursuant to Section 2(d)(vi) prior to the issuance of
such shares, having been paid.
ii. Delivery of New Warrants
Upon Exercise. If this Warrant shall have been exercised in
part, the Company shall, at the request of a Holder and upon surrender of this
Warrant certificate, at the time of delivery of the certificate or certificates
representing Warrant Shares, deliver to Holder a new Warrant evidencing the
rights of Holder to purchase the unpurchased Warrant Shares called for by this
Warrant, which new Warrant shall in all other respects be identical with this
Warrant.
iii. Rescission
Rights. If the Company fails to cause the Transfer Agent to
transmit to the Holder a certificate or the certificates representing the
Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date,
then, the Holder will have the right to rescind such exercise.
iv. Compensation for Buy-In on
Failure to Timely Deliver Certificates Upon Exercise. In
addition to any other rights available to the Holder, if the Company fails to
cause the Transfer Agent to transmit to the Holder a certificate or the
certificates representing the Warrant Shares pursuant to an exercise on or
before the Warrant Share Delivery Date, and if after such date the Holder is
required by its broker to purchase (in an open market transaction or otherwise)
or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to
deliver in satisfaction of a sale by the Holder of the Warrant Shares which the
Holder anticipated receiving upon such exercise (a “Buy-In”), then the
Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the
Holder’s total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (y) the amount obtained by
multiplying (1) the number of Warrant Shares that the Company was required to
deliver to the Holder in connection with the exercise at issue times (2) the
price at which the sell order giving rise to such purchase obligation was
executed, and (B) at the option of the Holder, either reinstate the portion of
the Warrant and equivalent number of Warrant Shares for which such exercise was
not honored (in which case such exercise shall be deemed rescinded) or deliver
to the Holder the number of shares of Common Stock that would have been issued
had the Company timely complied with its exercise and delivery obligations
hereunder. For example, if the Holder purchases Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to an attempted
exercise of shares of Common Stock with an aggregate sale price giving rise to
such purchase obligation of $10,000, under clause (A) of the immediately
preceding sentence the Company shall be required to pay the Holder $1,000. The
Holder shall provide the Company written notice indicating the amounts payable
to the Holder in respect of the Buy-In and, upon request of the Company,
evidence of the amount of such loss. Nothing herein shall limit a
Holder’s right to pursue any other remedies available to it hereunder, at law or
in equity including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company’s failure to timely deliver
certificates representing shares of Common Stock upon exercise of the Warrant as
required pursuant to the terms hereof.
v. No Fractional Shares or
Scrip. No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant. As to any
fraction of a share which the Holder would otherwise be entitled to purchase
upon such exercise, the Company shall, at its election, either pay a cash
adjustment in respect of such final fraction in an amount equal to such fraction
multiplied by the Exercise Price or round up to the next whole
share.
vi. Charges, Taxes and
Expenses. Issuance of certificates for Warrant Shares shall be
made without charge to the Holder for any issue or transfer tax or other
incidental expense in respect of the issuance of such certificate, all of which
taxes and expenses shall be paid by the Company, and such certificates shall be
issued in the name of the Holder or in such name or names as may be directed by
the Holder; provided, however, that in the
event certificates for Warrant Shares are to be issued in a name other than the
name of the Holder, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the Holder
and the Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto.
vii. Closing of
Books. The Company will not close its stockholder books or
records in any manner which prevents the timely exercise of this Warrant,
pursuant to the terms hereof.
e) Holder’s Exercise
Limitations. The Company shall not effect any exercise of this
Warrant, and a Holder shall not have the right to exercise any portion of this
Warrant, pursuant to Section 2 or otherwise, to the extent that after giving
effect to such issuance after exercise as set forth on the applicable Notice of
Exercise, the Holder (together with the Holder’s Affiliates, and any other
Persons acting as a group together with the Holder or any of the Holder’s
Affiliates), would beneficially own in excess of the Beneficial Ownership
Limitation (as defined below). For purposes of the foregoing
sentence, the number of shares of Common Stock beneficially owned by the Holder
and its Affiliates shall include the number of shares of Common Stock issuable
upon exercise of this Warrant with respect to which such determination is being
made, but shall exclude the number of shares of Common Stock which would be
issuable upon (i) exercise of the remaining, nonexercised portion of this
Warrant beneficially owned by the Holder or any of its Affiliates and (ii)
exercise or conversion of the unexercised or nonconverted portion of any other
securities of the Company (including, without limitation, any
other Common Stock Equivalents) subject to a limitation on conversion
or exercise analogous to the limitation contained herein beneficially owned by
the Holder or any of its Affiliates. Except as set forth in the
preceding sentence, for purposes of this Section 2(e), beneficial ownership
shall be calculated in accordance with Section 13(d) of the Exchange Act and the
rules and regulations promulgated thereunder, it being acknowledged by the
Holder that the Company is not representing to the Holder that such calculation
is in compliance with Section 13(d) of the Exchange Act and the Holder is solely
responsible for any schedules required to be filed in accordance
therewith. To the extent that the limitation contained in this
Section 2(e) applies, the determination of whether this Warrant is exercisable
(in relation to other securities owned by the Holder together with any
Affiliates) and of which portion of this Warrant is exercisable shall be in the
sole discretion of the Holder, and the submission of a Notice of Exercise shall
be deemed to be the Holder’s determination of whether this Warrant is
exercisable (in relation to other securities owned by the Holder together with
any Affiliates) and of which portion of this Warrant is exercisable, in each
case subject to the Beneficial Ownership Limitation, and the Company shall have
no obligation to verify or confirm the accuracy of such determination and shall
have no liability for exercises of the Warrant that are in noncompliance with
the Beneficial Ownership Limitation. In addition, a
determination as to any group status as contemplated above shall be determined
in accordance with Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder. For purposes of this Section
2(e), in determining the number of outstanding shares of Common Stock, a Holder
may rely on the number of outstanding shares of Common Stock as reflected in (A)
the Company’s most recent periodic or annual report filed with the Commission,
as the case may be, (B) a more recent public announcement by the Company or (C)
a more recent written notice by the Company or the Transfer Agent setting forth
the number of shares of Common Stock outstanding. Upon the written or
oral request of a Holder, the Company shall within two Trading Days confirm
orally and in writing to the Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common
Stock shall be determined after giving effect to the conversion or exercise of
securities of the Company, including this Warrant, by the Holder or its
Affiliates since the date as of which such number of outstanding shares of
Common Stock was reported. The “Beneficial Ownership
Limitation” shall be 4.9% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of shares of Common
Stock issuable upon exercise of this Warrant. The Holder, upon not
less than 61 days’ prior notice to the Company, may increase or decrease the
Beneficial Ownership Limitation provisions of this Section 2(e), provided that
the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of
shares of the Common Stock outstanding immediately after giving effect to the
issuance of shares of Common Stock upon exercise of this Warrant held by the
Holder and the provisions of this Section 2(e) shall continue to
apply. Any such increase or decrease will not be effective until the
61st
day after such notice is delivered to the Company. The provisions of
this paragraph shall be construed and implemented in a manner otherwise than in
strict conformity with the terms of this Section 2(e) to correct this paragraph
(or any portion hereof) which may be defective or inconsistent with the intended
Beneficial Ownership Limitation herein contained or to make changes or
supplements necessary or desirable to properly give effect to such limitation.
The limitations contained in this paragraph shall apply to a successor holder of
this Warrant.
Section 3. Certain
Adjustments.
a) Stock Dividends and
Splits. If the Company, at any time while this Warrant is outstanding:
(i) pays a stock dividend or otherwise makes a distribution or distributions on
shares of its Common Stock or any other equity or equity equivalent securities
payable in shares of Common Stock (which, for avoidance of doubt, shall not
include any shares of Common Stock issued by the Company upon exercise of this
Warrant), (ii) subdivides outstanding shares of Common Stock into a larger
number of shares, (iii) combines (including by way of reverse stock split)
outstanding shares of Common Stock into a smaller number of shares, or (iv)
issues by reclassification of shares of the Common Stock any shares of capital
stock of the Company, then in each case the Exercise Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding immediately before such
event and of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such event, and the number of shares issuable upon
exercise of this Warrant shall be proportionately adjusted such that the
aggregate Exercise Price of this Warrant shall remain unchanged. Any
adjustment made pursuant to this Section 3(a) shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or
re-classification.
b) [Reserved]
c) Subsequent Rights
Offerings. If the Company, at any time while the Warrant is
outstanding, shall issue rights, options or warrants to all holders of Common
Stock (and not to the Holders) entitling them to subscribe for or purchase
shares of Common Stock at a price per share less than the VWAP on the record
date mentioned below, then, the Exercise Price shall be multiplied by a
fraction, of which the denominator shall be the number of shares of the Common
Stock outstanding on the date of issuance of such rights, options or warrants
plus the number of additional shares of Common Stock offered for subscription or
purchase, and of which the numerator shall be the number of shares of the Common
Stock outstanding on the date of issuance of such rights, options or warrants
plus the number of shares which the aggregate offering price of the total number
of shares so offered (assuming receipt by the Company in full of all
consideration payable upon exercise of such rights, options or warrants) would
purchase at such VWAP. Such adjustment shall be made whenever such
rights, options or warrants are issued, and shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such rights, options or warrants.
d) Pro Rata
Distributions. If the Company, at any time while this Warrant
is outstanding, shall distribute to all holders of Common Stock (and not to the
Holders) evidences of its indebtedness or assets (including cash and cash
dividends) or rights or warrants to subscribe for or purchase any security other
than the Common Stock, then in each such case the Exercise Price shall be
adjusted by multiplying the Exercise Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the VWAP determined
as of the record date mentioned above, and of which the numerator shall be such
VWAP on such record date less the then per share fair market value at such
record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of the Common Stock as
determined by the Board of Directors in good faith. In either case
the adjustments shall be described in a statement provided to the Holder of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such
adjustment shall be made whenever any such distribution is made and shall become
effective immediately after the record date mentioned above.
e) Fundamental
Transaction. If, at any time while this Warrant is outstanding, (i) the
Company, directly or indirectly, in one or more related transactions effects any
merger or consolidation of the Company with or into another Person, (ii) the
Company, directly or indirectly, effects any sale, lease, license, assignment,
transfer, conveyance or other disposition of all or substantially all of its
assets in one or a series of related transactions, (iii) any, direct or
indirect, purchase offer, tender offer or exchange offer (whether by the Company
or another Person) is completed pursuant to which holders of Common Stock are
permitted to sell, tender or exchange their shares for other securities, cash or
property and has been accepted by the holders of 50% or more of the outstanding
Common Stock, (iv) the Company, directly or indirectly, in one or more related
transactions effects any reclassification, reorganization or recapitalization of
the Common Stock or any compulsory share exchange pursuant to which the Common
Stock is effectively converted into or exchanged for other securities, cash or
property, (v) the Company, directly or indirectly, in one or more related
transactions consummates a stock or share purchase agreement or other business
combination (including, without limitation, a reorganization, recapitalization,
spin-off or scheme of arrangement) with another Person whereby such other Person
acquires more than 50% of the outstanding shares of Common Stock (not including
any shares of Common Stock held by the other Person or other Persons making or
party to, or associated or affiliated with the other Persons making or party to,
such stock or share purchase agreement or other business combination) (each a
“Fundamental
Transaction”), then, upon any subsequent exercise of this Warrant, the
Holder shall have the right to receive, for each Warrant Share that would have
been issuable upon such exercise immediately prior to the occurrence of such
Fundamental Transaction, at the option of the Holder (without regard to any
limitation in Section 2(e) on the exercise of this Warrant), the number of
shares of Common Stock of the successor or acquiring corporation or of the
Company, if it is the surviving corporation, and any additional consideration
(the “Alternate
Consideration”) receivable as a result of such Fundamental Transaction by
a holder of the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such Fundamental Transaction (without regard to
any limitation in Section 2(e) on the exercise of this Warrant). For
purposes of any such exercise, the determination of the Exercise Price shall be
appropriately adjusted to apply to such Alternate Consideration based on the
amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Company shall apportion the
Exercise Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to
the securities, cash or property to be received in a Fundamental Transaction,
then the Holder shall be given the same choice as to the Alternate Consideration
it receives upon any exercise of this Warrant following such Fundamental
Transaction. The Company shall cause any successor entity in a
Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to
assume in writing all of the obligations of the Company under this Warrant and
the other Transaction Documents in accordance with the provisions of this
Section 3(e) pursuant to written agreements in form and substance reasonably
satisfactory to the Holder and approved by the Holder (without unreasonable
delay) prior to such Fundamental Transaction and shall, at the option of
the holder of this Warrant, deliver to the Holder in exchange for this Warrant a
security of the Successor Entity evidenced by a written instrument substantially
similar in form and substance to this Warrant which is exercisable for a
corresponding number of shares of capital stock of such Successor Entity (or its
parent entity) equivalent to the shares of Common Stock acquirable and
receivable upon exercise of this Warrant (without regard to any limitations on
the exercise of this Warrant) prior to such Fundamental Transaction, and with an
exercise price which applies the exercise price hereunder to such shares of
capital stock (but taking into account the relative value of the shares of
Common Stock pursuant to such Fundamental Transaction and the value of such
shares of capital stock, such number of shares of capital stock and such
exercise price being for the purpose of protecting the economic value of this
Warrant immediately prior to the consummation of such Fundamental Transaction),
and which is reasonably satisfactory in form and substance to the Holder. Upon
the occurrence of any such Fundamental Transaction, the Successor Entity shall
succeed to, and be substituted for (so that from and after the date of such
Fundamental Transaction, the provisions of this Warrant and the other
Transaction Documents referring to the “Company” shall refer instead to the
Successor Entity), and may exercise every right and power of the Company and
shall assume all of the obligations of the Company under this Warrant and the
other Transaction Documents with the same effect as if such Successor Entity had
been named as the Company herein.
f) Calculations. All
calculations under this Section 3 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. For purposes of this Section 3,
the number of shares of Common Stock deemed to be issued and outstanding as of a
given date shall be the sum of the number of shares of Common Stock (excluding
treasury shares, if any) issued and outstanding.
g) Notice to
Holder.
i. Adjustment to Exercise
Price. Whenever the Exercise Price is adjusted pursuant to any provision
of this Section 3, the Company shall promptly mail to the Holder a notice
setting forth the Exercise Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.
ii. Notice to Allow Exercise by
Holder. If (A) the Company shall declare a dividend (or any other
distribution in whatever form) on the Common Stock, (B) the Company shall
declare a special nonrecurring cash dividend on or a redemption of the Common
Stock, (C) the Company shall authorize the granting to all holders of the Common
Stock rights or warrants to subscribe for or purchase any shares of capital
stock of any class or of any rights, (D) the approval of any stockholders of the
Company shall be required in connection with any reclassification of the Common
Stock, any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, or any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property, or (E) the Company shall authorize the voluntary
or involuntary dissolution, liquidation or winding up of the affairs of the
Company, then, in each case, the Company shall cause to be mailed to the Holder
at its last address as it shall appear upon the Warrant Register of the Company,
at least 10 calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a record is to be
taken for the purpose of such dividend, distribution, redemption, rights or
warrants, or if a record is not to be taken, the date as of which the holders of
the Common Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale, transfer or share exchange
is expected to become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be entitled to
exchange their shares of the Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer or
share exchange; provided that the failure to mail such notice or any defect
therein or in the mailing thereof shall not affect the validity of the corporate
action required to be specified in such notice. To the extent that
any notice provided hereunder constitute, or contains, material, non-public
information regarding the Company or any of the Subsidiaries, the Company shall
simultaneously file such notice with the Commission pursuant to a Current Report
on Form 8-K. The Holder is entitled to exercise this Warrant during
the period commencing on the date of such notice to the effective date of the
event triggering such notice except as may otherwise be expressly set forth
herein.
Section 4. Transfer of
Warrant.
a) Transferability. This
Warrant and all rights hereunder (including, without limitation, any
registration rights) are transferable, in whole or in part, upon surrender of
this Warrant at the principal office of the Company or its designated agent,
together with a written assignment of this Warrant substantially in the form
attached hereto duly executed by the Holder or its agent or attorney and funds
sufficient to pay any transfer taxes payable upon the making of such
transfer. Upon such surrender and, if required, such payment, the
Company shall execute and deliver a new Warrant or Warrants in the name of the
assignee or assignees, as applicable, and in the denomination or denominations
specified in such instrument of assignment, and shall issue to the assignor a
new Warrant evidencing the portion of this Warrant not so assigned, and this
Warrant shall promptly be cancelled. The Warrant, if properly
assigned in accordance herewith, may be exercised by a new holder for the
purchase of Warrant Shares without having a new Warrant issued.
b) New Warrants. This
Warrant may be divided or combined with other Warrants upon presentation hereof
at the aforesaid office of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by the Holder or its agent or attorney. Subject to compliance
with Section 4(a), as to any transfer which may be involved in such division or
combination, the Company shall execute and deliver a new Warrant or Warrants in
exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice. All Warrants issued on transfers or exchanges shall be dated
the initial issuance date set forth on the first page of this Warrant and shall
be identical with this Warrant except as to the number of Warrant Shares
issuable pursuant thereto.
c) Warrant Register. The
Company shall register this Warrant, upon records to be maintained by the
Company for that purpose (the “Warrant Register”),
in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, absent actual notice to the
contrary.
d) Representation by the
Holder. The
Holder, by the acceptance hereof, represents and warrants that it is acquiring
this Warrant and, upon any exercise hereof, will acquire the Warrant Shares
issuable upon such exercise, for its own account and not with a view to or for
distributing or reselling such Warrant Shares or any part thereof in violation
of the Securities Act or any applicable state securities law, except pursuant to
sales registered or exempted under the Securities Act.
Section 5. Miscellaneous.
a) No Rights as Stockholder
Until
Exercise. This Warrant does not entitle the Holder to any
voting rights, dividends or other rights as a stockholder of the Company prior
to the exercise hereof as set forth in Section 2(d)(i).
b) Loss, Theft, Destruction or
Mutilation of Warrant. The Company covenants that upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant or any stock certificate relating to
the Warrant Shares, and in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it (which, in the case of the Warrant, shall
not include the posting of any bond), and upon surrender and cancellation of
such Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of such Warrant or stock certificate.
c) Saturdays, Sundays,
Holidays, etc. If the last or appointed day for the taking of
any action or the expiration of any right required or granted herein shall not
be a Business Day, then, such action may be taken or such right may be exercised
on the next succeeding Business Day.
d) Authorized
Shares.
The
Company covenants that, during the period the Warrant is outstanding, it will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of the Warrant Shares upon the exercise of
any purchase rights under this Warrant. The Company further covenants
that its issuance of this Warrant shall constitute full authority to its
officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for the Warrant Shares upon the
exercise of the purchase rights under this Warrant. The Company will
take all such reasonable action as may be necessary to assure that such Warrant
Shares may be issued as provided herein without violation of any applicable law
or regulation, or of any requirements of the Trading Market upon which the
Common Stock may be listed. The Company covenants that all Warrant
Shares which may be issued upon the exercise of the purchase rights represented
by this Warrant will, upon exercise of the purchase rights represented by this
Warrant and payment for such Warrant Shares in accordance herewith, be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges created by the Company in respect of the issue thereof
(other than taxes in respect of any transfer occurring contemporaneously with
such issue).
Except
and to the extent as waived or consented to by the Holder, the Company shall not
by any action, including, without limitation, amending its certificate of
incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of
all such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of Holder as set forth in this Warrant against
impairment. Without limiting the generality of the foregoing, the
Company will (i) not increase the par value of any Warrant Shares above the
amount payable therefor upon such exercise immediately prior to such increase in
par value, (ii) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
Warrant Shares upon the exercise of this Warrant and (iii) use commercially
reasonable efforts to obtain all such authorizations, exemptions or consents
from any public regulatory body having jurisdiction thereof, as may be,
necessary to enable the Company to perform its obligations under this
Warrant.
Before
taking any action which would result in an adjustment in the number of Warrant
Shares for which this Warrant is exercisable or in the Exercise Price, the
Company shall obtain all such authorizations or exemptions thereof, or consents
thereto, as may be necessary from any public regulatory body or bodies having
jurisdiction thereof.
e) Jurisdiction. All
questions concerning the construction, validity, enforcement and interpretation
of this Warrant shall be determined in accordance with the provisions of the
Purchase Agreement.
f) Restrictions. The
Holder acknowledges that the Warrant Shares acquired upon the exercise of this
Warrant, if not registered, and the Holder does not utilize cashless exercise,
will have restrictions upon resale imposed by state and federal securities
laws.
g) Nonwaiver and
Expenses. No course of dealing or any delay or failure to
exercise any right hereunder on the part of Holder shall operate as a waiver of
such right or otherwise prejudice Holder’s rights, powers or
remedies. Without limiting any other provision of this Warrant or the
Purchase Agreement, if the Company willfully and knowingly fails to comply with
any provision of this Warrant, which results in any material damages to the
Holder, the Company shall pay to Holder such amounts as shall be sufficient to
cover any costs and expenses including, but not limited to, reasonable
attorneys’ fees, including those of appellate proceedings, incurred by Holder in
collecting any amounts due pursuant hereto or in otherwise enforcing any of its
rights, powers or remedies hereunder.
h) Notices. Any
notice, request or other document required or permitted to be given or delivered
to the Holder by the Company shall be delivered in accordance with the notice
provisions of the Purchase Agreement.
i) Limitation of
Liability. No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant to purchase Warrant
Shares, and no enumeration herein of the rights or privileges of Holder, shall
give rise to any liability of Holder for the purchase price of any Common Stock
or as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.
j) Remedies. The
Holder, in addition to being entitled to exercise all rights granted by law,
including recovery of damages, will be entitled to specific performance of its
rights under this Warrant. The Company agrees that monetary damages
would not be adequate compensation for any loss incurred by reason of a breach
by it of the provisions of this Warrant and hereby agrees to waive and not to
assert the defense in any action for specific performance that a remedy at law
would be adequate.
k) Successors and
Assigns. Subject to applicable securities laws, this Warrant
and the rights and obligations evidenced hereby shall inure to the benefit of
and be binding upon the successors and permitted assigns of the Company and the
successors and permitted assigns of Holder. The provisions of this
Warrant are intended to be for the benefit of any Holder from time to time of
this Warrant and shall be enforceable by the Holder or holder of Warrant
Shares.
l) Amendment. This
Warrant may be modified or amended or the provisions hereof waived with the
written consent of the Company and holders holding Warrants (as defined in the
Purchase Agreement and not herein) at least equal to 67% of the Warrant Shares
(as defined in the Purchase Agreement and not herein) issuable upon exercise of
all then outstanding Warrants (as defined in the Purchase Agreement and not
herein.
m) Severability. Wherever
possible, each provision of this Warrant shall be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of this
Warrant shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of
this Warrant.
n) Headings. The
headings used in this Warrant are for the convenience of reference only and
shall not, for any purpose, be deemed a part of this Warrant.
********************
(Signature
Pages Follow)
IN
WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officer thereunto duly authorized as of the date first above
indicated.
|
HYTHIAM,
INC.
|
|
By:__________________________________________
Name:
Title:
|
NOTICE
OF EXERCISE
TO: HYTHIAM, INC.
(1) The
undersigned hereby elects to purchase ________ Warrant Shares of the Company
pursuant to the terms of the attached Warrant (only if exercised in full), and
tenders herewith payment of the exercise price in full, together with all
applicable transfer taxes, if any.
(2) Payment
shall take the form of (check applicable box):
[ ]
in lawful money of the United States; or
[ ] [if
permitted] the cancellation of such number of Warrant Shares as is necessary, in
accordance with the formula set forth in subsection 2(c), to exercise this
Warrant with respect to the maximum number of Warrant Shares purchasable
pursuant to the cashless exercise procedure set forth in subsection
2(c).
(3) Please
issue a certificate or certificates representing said Warrant Shares in the name
of the undersigned or in such other name as is specified below:
_______________________________
The
Warrant Shares shall be delivered to the following DWAC Account Number or by
physical delivery of a certificate to:
_______________________________
_______________________________
_______________________________
[SIGNATURE
OF HOLDER]
Name of
Investing Entity:
________________________________________________________________________
Signature of Authorized
Signatory of Investing
Entity:
_________________________________________________
Name of
Authorized Signatory:
___________________________________________________________________
Title of
Authorized Signatory:
____________________________________________________________________
Date:
_______________________________________________________________
ASSIGNMENT
FORM
(To
assign the foregoing warrant, execute
this form
and supply required information.
Do not
use this form to exercise the warrant.)
FOR VALUE
RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all
rights evidenced thereby are hereby assigned to
___________________________________________________________________________
whose address is
___________________________________________________________________________________________.
___________________________________________________________________________________________
Dated: ______________,
_______
Holder’s
Signature: _____________________________
Holder’s
Address: _____________________________
_____________________________
Signature
Guaranteed: ___________________________________________
NOTE: The
signature to this Assignment Form must correspond with the name as it appears on
the face of the Warrant, without alteration or enlargement or any change
whatsoever, and must be guaranteed by a bank or trust
company. Officers of corporations and those acting in a fiduciary or
other representative capacity should file proper evidence of authority to assign
the foregoing Warrant.
EXHIBIT
B
[INSERT
LETTERHEAD]
September
[ ], 2009
Purchasers,
as defined in the Securities Purchase Agreement
c/o
Rodman & Xxxxxxx LLC
0000
Xxxxxx xx xxx Xxxxxxxx, 00xx Xxxxx
Xxx Xxxx,
XX 00000
Xxxxxx
& Xxxxxxx LLC
0000
Xxxxxx xx xxx Xxxxxxxx, 00xx Xxxxx
Xxx Xxxx,
XX 00000
Offering of Common Stock and
Warrants of Hythiam, Inc.
Ladies
and Gentlemen:
We have
acted as counsel to Hythiam, Inc., a Delaware corporation (the “Company”), for
the purpose of rendering certain opinions, set forth herein, in connection with
the offering (the “Offering”) of up to an aggregate of
[ ] of shares (the
“Shares”) of the Company’s common stock (“Common Stock”), par value
[ ] per share,
and warrants (the “Warrants”) to purchase shares (the “Warrant Shares”) of the
Company’s Common Stock. This opinion letter is being delivered
pursuant to Section 2.2(a)(ii) of the Securities Purchase Agreement dated as of
September [ ], 2009 among the Company and the Purchasers (the “Securities
Purchase Agreement”) through the placement by Xxxxxx & Xxxxxxx, LLC (the
“Placement Agent”), and in accordance with the terms of a letter agreement dated
September [ ], 2009 between the Company and the Placement
Agreement.
We
understand that, in this transaction, and in the review and acceptance of this
opinion letter, you are represented by independent counsel of your choosing with
expertise in the relevant subject matter.
1. Factual
Examination
1.1 Documents
(a) Transaction
Documents. In connection with this opinion, we have examined
and relied upon copies of the following documents (collectively, the
“Transaction Documents”):
(i) Securities
Purchase Agreement executed by the Company and Purchasers;
(ii) Form of
Warrant executed by the Company with respect to each Purchaser; and
(iii) Placement
Agreement executed by the Company and the Placement Agent.
(b) Company
Documents. In connection with this opinion, we have also
examined and relied upon the following documents (collectively, the “Company
Documents”):
(i) Certificate
of Incorporation of the Company filed on September 3, 2003 and certified by the
Delaware Secretary of State on September 14, 2009;
(ii) Bylaws of the
Company dated September 29, 2003;
(iii) Certificate
of Good Standing of the Company issued by the Delaware Secretary of State as of
September 14, 2009;
(iv) Resolutions
of the Board of Directors of the Company dated September [ ],
2009;
(v) Certificate
of Incorporation of Catasys, Inc. (“Catasys”) filed on April 1, 2008 and
certified by the Delaware Secretary of State as of April 15, 2009 ;
(vi) Bylaws of
Catasys dated March 31, 2008;
(vii) Certificate
of Good Standing of Catasys issued by the Delaware Secretary of State as of
September 15, 2009;
(viii) Certificate
of Incorporation of Anxiolitix, Inc. (“Anxiolitix”) filed on April 1, 2008, as
amended, and certified by the Delaware Secretary of State as of September 15,
2009;
(ix) Bylaws of
Anxiolitix dated March 25, 2009;
(x) Certificate
of Good Standing of Anxiolitix issued by the Delaware Secretary of State as of
September 15, 2009;
(xi) Certificate
of Chief Operating Officer of the Company dated September [ ], 2009 (the
“Company’s Certificate”);
(xii) Officers’
Certificate of the Company dated September [ ], 2009 (“Officers’
Certificate”); and
(xiii) The Company’s
prospectus supplement dated September [ ], 2009, filed with the United
States Securities and Exchange Commission (the “Commission”).
1.2 Scope of
Inquiry; Certain Assumptions
(a) For
purposes of this opinion, we have examined only the Transaction Documents and
the Company Documents. We have assumed the correctness of all factual
matters set forth therein. We have not conducted any:
(i) investigation or examination of factual matters;
(ii) investigation or examination of the title to, or nature or extent of,
any real or personal property, or inspection of any such property; or
(iii) docket or other search of the records of any court, administrative
tribunal, recording or filing office, or other public entity.
(b) In
rendering this opinion, we have assumed: (i) the genuineness of all
signatures (if any) on all documents reviewed by us; (ii) that the copies
of the Transaction Documents and the Company Documents provided to us are
complete and correct copies which conform to authentic original documents, and
contain the entire agreement of the parties thereto, that there are no other
documents or oral agreements or other circumstances that would in any way alter
the provisions of the Transaction Documents or the Company Documents, and that
there has not been any mutual mistake of fact or misunderstanding, fraud, duress
or undue influence with respect thereto; (iv) that each natural person
executing or who has executed the Transaction Documents or the Company Documents
is or was competent to do so; (v) the accuracy, completeness and
authenticity of all certificates on which we have relied, and that any such
certificates dated as of an earlier date are still accurate as of the date
hereof; (vi) that the Company has filed all required franchise tax returns,
if any, and paid all required taxes, if any, under the applicable Delaware
statutes and under any other applicable governmental rule; (vii) all
statutes, judicial and administrative decisions, and rules and regulations of
governmental agencies constituting the laws which are the subject of this
opinion letter, as set forth in Section 4, are generally available (i.e.,
in terms of access and distribution following publication or other release) to
lawyers practicing in the State of California, and are in a format that makes
legal research reasonably feasible; (viii) the constitutionality or
validity of a relevant statute, rule, regulation or agency action is not in
issue unless a reported decision applying federal or California law has
specifically addressed but not resolved, or has established, its
unconstitutionality or invalidity; (ix) the Company has or will obtain all
permits and governmental approvals required in the future, and take all actions
similarly required, relevant to the performance of the Transaction Documents;
and (x) all parties to the Transaction Documents will act in accordance with,
and will refrain from taking action that is forbidden by, the terms and
conditions of the Transaction Documents.
(c) In
rendering this opinion, we have assumed: (i) that the Placement Agent and the
Purchasers (collectively, the “Other Parties”), are duly formed, validly
existing and in good standing under the laws of the jurisdiction of formation;
(ii) that each of the Other Parties is fully authorized and qualified under its
charter, organizational documents and all applicable laws and regulations of the
jurisdiction of its formation to transact business generally and to purchase
stock and warrants and enter into transactions of the nature provided for in the
Transaction Documents; (iii) if required by California law or the law of any
other jurisdiction because of its connection to this transaction, that each of
the Other Parties is properly qualified to do business within the State of
California and each such other jurisdiction; (iv) that each of the Other Parties
has the organizational power and authority to execute, deliver and perform the
terms of the Transaction Documents and has duly and validly authorized the
execution, delivery and performance by it of the Transaction Documents to which
each of the Other Parties is a party; (v) that the execution, delivery and
performance of the Transaction Documents by each of the Other Parties will not
violate any law, rule, regulation, writ or order to which it is subject; (vi)
that each of the Other Parties has extended consideration and value under the
Transaction Documents to which it is a party; and (vii) that all other
conditions precedent to the execution, effectiveness and performance under the
Transaction Documents to which each of the Other Parties is subject or by which
each of the Other Parties is benefited have been or will be satisfied or waived
and that each of the Other Parties will fulfill its obligations under the
Transaction Documents to which it is a party.
(d) We
have also assumed that the individuals executing the Transaction Documents on
behalf of the Company have been duly authorized and empowered to do
so.
(e) Where
we render an opinion “to our knowledge” or concerning an item “known to us” or
our opinion otherwise refers to our knowledge, it means that: (i) we have
conducted no independent investigation of the matters set forth in connection
therewith; (ii) we have not conducted a litigation search or other search or
investigation with respect to any pending items of litigation or orders or
decrees; (iii) with respect to factual matters we have relied solely upon the
statements, representations and warranties set forth in the Officers’
Certificate, the Company’s Certificate, and the Transaction Documents; (iv) by
your acceptance of this opinion letter you acknowledge that you have also relied
upon certifications of the Company or other due diligence conducted by you and
you have not relied solely on this opinion letter as to such matters; and (v) no
inference as to our knowledge of the existence or absence of facts or other
matters is to be drawn from the fact of our representation or any other matter,
but that, during and in the course of our representation of the Company in
connection with this transaction, no information has come to the attention of
the attorneys who rendered legal services in connection with that representation
(namely, Xxxx X. Xxxxxxxx and Xxxxx X. Xxxxx) as of the date hereof which gives
us current actual knowledge to the contrary.
2. Opinion
On the
basis of the foregoing, but subject to the additional
qualifications, assumptions and limitations set forth below, we are
of the opinion that, as of the date hereof:
(a) The
Company is a corporation validly existing and in good standing under the laws of
the State of Delaware, with the corporate power and corporate authority to own
its property and assets and to carry on its business as described in the
Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2008
(the “Annual Report”), as filed with the Commission.
(b) The
Company has the corporate power and corporate authority to execute and deliver
the Transactions Documents and to perform its obligations under the Transaction
Documents. The execution and delivery of the Transaction Documents by
the Company has been duly authorized by all required corporate action on the
part of the Company. The Transaction Documents have been duly
executed and delivered by the Company.
(c) Catasys
and Anxiolitix (the “Subsidiaries”) are each corporations validly existing and
in good standing under the laws of the State of Delaware.
(d) All
corporate action on the part of the Company, its directors and its holders of
Common Stock necessary for the authorization, execution and delivery by the
Company of the Transaction Documents, the authorization, issuance, sale and
delivery of the Shares, the Warrants and the Warrant Shares pursuant to the
Securities Purchase Agreement and the consummation by the Company of the
transactions contemplated by the Transaction Documents has been duly
taken.
(e) Upon
execution and delivery of the Transaction Documents, each of the Transaction
Documents executed by the Company will constitute the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms.
(f) The
Company has 200,000,000 shares of authorized Common Stock.
(g) The
Shares and the Warrants have been validly issued and are fully paid,
nonassessable, and free of preemptive or similar rights. The Warrant
Shares have been reserved for issuance and, when issued upon the exercise of the
Warrants in accordance with the terms therein, will be validly issued, fully
paid, nonassessable, and free of any preemptive or similar rights.
(h) The
Registration Statement filed with the Commission (No. 333-158407) which
registers the sale of the Shares, the Warrants and the Warrant Shares to the
Purchasers was effective as of September 11, 2009.
(i) The
execution, delivery, performance of, and compliance with, the Transaction
Documents by the Company and the consummation by the Company of the transactions
contemplated by the Transaction Documents do not and will not, either by itself
or upon notice or the passage of time or both: (A) conflict with or result in a
violation of any provision of law, rule or regulation or any rule or regulation
applicable to the Company or the Subsidiaries or of the certificate of
incorporation or by-laws of the Company or the Subsidiaries, (B) result in a
breach of, or a default under, any of the agreements filed as exhibits to the
Annual Report or to any Current Report on Form 8-K or any Quarterly Report on
Form 10-Q filed by the Company with the Commission on or after January 1, 2009
through the date hereof, or (C) result in the creation of any lien, security
interest or encumbrance on the assets or properties of the Company pursuant to,
any agreement, instrument, judgment, or decree filed as an exhibit to the Annual
Report or to any Current Report on Form 8-K or any Quarterly Report on Form 10-Q
filed by the Company with the Commission on or after January 1, 2009 through the
date hereof, which, individually or in the aggregate, would have a material
adverse effect on the business, assets, financial condition, or results of
operation of the Company and the Subsidiaries taken as a whole.
(j) To
our knowledge, except as disclosed in the Disclosure Schedules attached to the
Securities Purchase Agreement, there is no claim, action, suit, proceeding,
arbitration, investigation or inquiry, pending or threatened, before any court
or governmental or administrative body or agency, or any private arbitration
tribunal, against the Company that challenges the validity or enforceability of,
or seeks to enjoin the performance of, the Transaction Documents.
(k) To
our knowledge, other than those filings which have been made, no consent,
approval, authorization or other action by, or filing with, any governmental
authority is required for the execution and delivery by the Company of the
Transaction Documents.
(l) The
Company is not, and immediately after the consummation of the transactions
contemplated by the Transaction Documents will not be, an investment company
within the meaning of Investment Company Act of 1940, as amended.
3. Qualifications,
Assumptions and Limitations
Our
opinions above are subject to and limited by the following qualifications,
assumptions and limitations, in addition to those set forth elsewhere in this
letter:
(a) The
effect of bankruptcy, insolvency, reorganization, moratorium, liquidation,
receivership, assignment for the benefit of creditors, fraudulent conveyance or
transfer, marshaling and other laws relating to or affecting the rights and
remedies of creditors generally.
(b) The
effect of general principles of equity, whether considered in a proceeding in
equity or at law, including concepts of materiality, reasonableness, good faith
and fair dealing, and the discretion of a court before which a proceeding is
brought, and including limitations of law or equity upon the availability of
specific enforcement, injunctive relief, other equitable remedies or any
particular remedy at law.
(c) The
enforceability of any provision of the Transaction Documents which purports to
transfer rights under a contract, the transfer of which is prohibited or
restricted (by a requirement of consent or otherwise) by contract or by
law.
(d) The
enforceability of any provision of the Transaction Documents which purports to
prohibit or restrict a transfer of rights under the Warrants.
(e) The
enforceability of any provision of the Transaction Documents which purports to
establish evidentiary standards or to make determinations conclusive or powers
absolute.
(f) The
effect of judicial decisions which may permit the introduction of extrinsic
evidence to supplement the terms of the Transaction Documents or to aid in the
interpretation of the Transaction Documents.
(g) The
unenforceability or ineffectiveness, under certain circumstances, of contractual
provisions relating to severability; self-help; summary remedies without notice
or opportunity for hearing or correction; penalties, forfeitures, liquidated
damages (and in connection with these matters we also draw your attention to the
provisions of California Civil Code Sec. 1671 (liquidated damages)); attorneys'
fees to the extent inconsistent with California Civil Code Section 1717;
indemnity and release, limitations upon liability, exculpation and related
provisions, to the extent contrary to public policy or prohibited by law or
providing for indemnity, release, limitations upon liability or exculpation of a
party against or with respect to its own wrongful or negligent acts; cumulation,
election or non-exclusivity of remedies, or non-waiver of remedies by a failure
or delay of exercise; waiver of defense, setoff, counterclaim, recoupment or
marshaling rights; integration, and ineffectiveness of oral modifications;
restraints on trade; provisions or agreements after termination of agreements or
satisfaction of obligations; or waiver or relinquishment of (i) broadly or
vaguely stated rights, (ii) unknown future rights or defenses, (iii) defenses to
obligations, including, but not limited to, statutes of limitation, rights of
redemption, and default, or (iv) the benefits of statutory, regulatory or
constitutional law or other rights granted by law, where any of the foregoing is
contrary to public policy or otherwise prohibited, limited or made unenforceable
by law.
(h) The
unenforceability of contractual provisions or contracts found by a court to be
or to have been unconscionable or against public policy.
(i) The
assumption that all rights and remedies under the Transaction Documents will be
enforced in good faith and in a commercially reasonable manner and in accordance
with applicable California law, notwithstanding any contrary provision in the
Transaction Documents, which contrary provisions may be
unenforceable.
(j) We
advise you that an opinion as to enforceability of remedies means only that some
remedies are available under the agreement in question, and not necessarily that
every provision in an agreement will be enforced by a court in all
circumstances.
(k) We
express no opinion as to the enforceability of any provision relating
to: (a) consent to, establishment of, or waiver of objections to,
jurisdiction or venue; (b) choice of law; (c) consent to, waiver of,
establishment of a method for, or irrevocable appointment of an agent for,
service of process; (d) establishment of, changes in, or waiver of, measures or
methods of proof or rules of evidence or judicial or arbitration procedure; or
(e) waiver of jury trial.
(l) We
express no opinion as to (a) your compliance with any state or federal law, rule
or regulation that may, because of the nature of your business, be applicable to
the transactions contemplated under the Transaction Documents; (b) compliance
with or the effect of any federal or state laws, rules or regulations applicable
to the Company or the Subsidiaries by virtue of the nature or extent of the
business or operations of the Company or the Subsidiaries or their affiliates;
(c) the accuracy or effect of any matter of fact set forth in the Transaction
Documents, except to such extent that any such matter is also set forth as part
of our opinion above; (d) compliance with or the effect of any (i) income or
franchise tax or other laws, rules or regulations relating to taxation, (ii)
trade regulation or antitrust laws, (iii) laws and regulations on filing and
notice requirements such as Xxxx-Xxxxx-Xxxxxx, (iv) fiduciary duty requirements,
(v) statutes, ordinances, administrative decisions, and rules and regulations of
counties, towns, municipalities and special political subdivisions, and judicial
decisions to the extent that they deal with any thereof, (vi) racketeering laws
and regulations and criminal and civil forfeiture laws, and other laws of
general application providing for criminal prosecution, (vii) health and safety
laws and regulations, (viii) labor laws and regulations; (e) any documents
(including exhibits to the Transaction Documents) or the effect thereof other
than the enumerated Transaction Documents, (f) compliance with applicable
antifraud statutes, rules or regulations of applicable state and federal laws
including those concerning the issuance or sale of securities, or (g) past,
present, or future fair market value, absolute or relative, of any capital stock
or warrants of the Company.
(m) Our
opinion set forth in Section 2(e) is based upon our consideration of only those
statutes, rules and regulations known to us which, in our experience, are
normally applicable to companies in transactions such as those contemplated by
the Transaction Documents.
(n) We
express no opinion with respect to any matters which require us to perform a
mathematical calculation or make a financial or accounting
determination.
4. Laws Relevant to Opinion;
Matters Post-Dating Opinion
4.1 This
opinion letter relates solely to the laws of the State of California (laws
relating to conflicts or choice of law) and applicable federal law in effect on
the date hereof (but subject, however, to the exclusion of certain laws as set
forth elsewhere herein). Other than with respect to our opinions in
Sections 2(a) and 2(c) (implicating Delaware general corporation law), we have
not examined and do not opine with respect to the applicability or effect of any
other laws.
4.2 We
have assumed, but do not opine, that the Transaction Documents are governed
entirely by and would be interpreted and enforced under the internal laws of the
State of California, without regard to principles of conflict of
laws. We express no opinion as to which state’s law governs any
aspect of any Transaction Document. We call your attention to the
Transaction Documents, which all provide that they shall be governed by the laws
of the State of New York. We express no opinion as to the
effect of such provisions or such laws. In light of such provisions,
however, we advise you that California law may not apply. We also
advise you that to the extent that the Transaction Documents are not legal,
valid, binding and enforceable in accordance with the laws of the state referred
to therein, they may not be legal, valid, binding and enforceable in, or under
the laws of, the State of California.
4.3 We
express no opinion with respect to laws becoming effective after the date
hereof. This opinion relates only to matters as of the date hereof,
and we express no opinion with respect to any transaction, transfer, conveyance,
obligation or performance occurring after the date hereof. We
disclaim any obligation to advise you of any events occurring or coming to our
attention or any developments in areas covered by this opinion that occur after
the date of this opinion.
5. Use and
Reliance
This
opinion is provided at your request and solely to you for use in connection with
the Offering. This opinion may not be relied upon or used by any
other person or entity for any other purpose, nor may it be exhibited, quoted
from or referred to, or copies delivered to any other person or entity, without
our prior written consent.
Very
truly yours,
Xxxx,
Forward, Xxxxxxxx & Scripps LLP
SCHEDULE 3.1(a)
List
of Subsidiaries
The
following table sets forth the name and jurisdiction of incorporation of our
subsidiaries. Each subsidiary is owned, directly or indirectly, by
us.
|
Name
|
Jurisdiction of
Incorporation
|
|
Catasys,
Inc.
|
Delaware
|
|
Anxiolitix,
Inc.
|
Delaware
|
|
Hythiam
International (Cayman), Ltd.
|
Cayman
Islands
|
|
Hythiam
International, Sarl
|
Switzerland
|
|
Quit
System, Sarl
|
Switzerland
|
|
Hythiam
Switzerland, Sarl
|
Switzerland
|
|
Quit
Systems Spain Trading, Sl
|
Spain
|
SCHEDULE 3.1(i)
List
of Recent Developments
The
Company received a Notice from Nasdaq on September 15, 2009 indicating that the
Company’s listed securities did not maintain a minimum bid price of $1.00 per
share, as required under Nasdaq Listing Rule 5450(a)(1). The Company
is provided with a grace period of 180 calendar days under Nasdaq Listing Rule
5810(c)(3)(A) to regain compliance. The Company will receive a
written confirmation from Nasdaq that this matter is closed if at anytime during
the grace period, the bid price of the Company’s securities closes at $1.00 per
share or more for a minimum
of ten consecutive business days.
SCHEDULE 3.1cc
Accountants
The
Company’s accounting firm is Rose, Xxxxxx & Xxxxxx, a corporation of public
accountants, 00000 Xxxxxxx Xxxxxxxxx, Xxxxx 000, Xxxxxx, Xxxxxxxxxx
00000.
