EXHIBIT 4.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
February 8, 2005 among RCG Companies Incorporated, a Delaware corporation (the
"Company"), and the purchasers identified on the signature pages hereto (each,
including its successors and assigns, a "Purchaser" and collectively the
"Purchasers").
WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act (as defined below), and Rule
506 promulgated thereunder, the Company desires to issue and sell to each
Purchaser, and each Purchaser, severally and not jointly, desires to purchase
from the Company, 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 agrees
as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement: (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Debentures (as defined herein), and (b) the
following terms have the meanings indicated in this Section 1.1:
"Action" shall have the meaning ascribed to such term in Section
3.1(j).
"Actual Minimum" means, as of any date, the maximum aggregate number
of shares of Common Stock then issued or potentially issuable in the
future pursuant to the Transaction Documents, including any Underlying
Shares issuable upon exercise or conversion in full of all Warrants and
Debentures, ignoring any conversion or exercise limits set forth therein.
"Affiliate" means any Person that, directly or indirectly through
one or more intermediaries, controls or is controlled by or is under
common control with a Person, as such terms are used in and construed
under Rule 144 under the Securities Act. With respect to a Purchaser, any
investment fund or managed account that is managed on a discretionary
basis by the same investment manager as such Purchaser will be deemed to
be an Affiliate of such Purchaser.
"Closing" means the closing of the purchase and sale of the
Securities pursuant to Section 2.1.
"Closing Date" means the Trading Day when all of the Transaction
Documents have been executed and delivered by the applicable parties
thereto, and all conditions precedent to (i) each Purchaser's obligations
to pay the Subscription Amount have been satisfied or waived (ii) and the
Company's obligations to deliver the Securities have been satisfied or
waived.
"Closing Price" means on any particular date (a) the last reported
closing bid price per share of Common Stock on such date on the Trading
Market (as reported by Bloomberg L.P. at 4:15 PM (New York time), or (b)
if there is no such price on such date, then the closing bid price on the
Trading Market on the date nearest preceding such date (as reported by
Bloomberg L.P. at 4:15 PM (New York time) for the closing bid price for
regular session trading on such day), or (c) if the Common Stock is not
then listed or quoted on a Trading Market and if prices for the Common
Stock are then quoted on the OTC Bulletin Board, the closing bid price of
the Common Stock for such date (or the nearest preceding date) on the OTC
Bulletin Board (as reported by Bloomberg L.P. at 4:15 PM (New York time),
(d) if the Common Stock is not then listed or quoted on the Trading Market
and if prices for the Common Stock are then reported in the "pink sheets"
published by the Pink Sheets LLC (formerly the National Quotation Bureau
Incorporated (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent bid price per share of the
Common Stock so reported, or (e) if the shares of Common Stock are not
then publicly traded the fair market value of a share of Common Stock as
determined by a qualified independent appraiser selected in good faith by
the Purchasers of a majority in interest of the Principal Amount of
Debentures then outstanding.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, par value
$0.04 per share, and any securities into which such common stock shall
hereinafter have been reclassified into.
"Common Stock Equivalents" means any securities of the Company or
the Subsidiaries (other than Lifestyle Innovations, Inc.) which would
entitle the holder thereof to acquire at any time Common Stock, including
without limitation, any debt, preferred stock, rights, options, warrants
or other instrument that is at any time convertible into or exchangeable
for, or otherwise entitles the holder thereof to receive, Common Stock.
"Company Counsel" means Xxxxxx & Xxxx PA.
"Conversion Price" shall have the meaning ascribed to such term in
the Debentures.
"Debentures" means, the Secured Convertible Debentures due, subject
to the terms therein, two years from their date of issuance, issued by the
Company to the Purchasers hereunder, in the form of Exhibit A.
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"Effective Date" means the date that the Registration Statement is
first declared effective by the Commission.
"Escrow Agent" shall have the meaning set forth in the Escrow
Agreement.
"Escrow Agreement" shall mean the Escrow Agreement in substantially
the form of Exhibit E hereto executed and delivered contemporaneously with
this Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"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 by a majority of the non-employee
members of the Board of Directors of the Company or a majority of the
members of a committee of non-employee directors established for such
purpose, (b) securities upon the exercise of or conversion of any
securities issued hereunder, convertible securities, options or warrants
issued and outstanding on the date of this Agreement, provided that such
securities have not been amended since the date of this Agreement to
increase the number of such securities; and (c) securities issued pursuant
to acquisitions or strategic transactions, provided any such issuance
shall only be to a Person which is, itself or through its subsidiaries, an
operating company and in which the Company receives benefits in addition
to the investment of funds, but shall not include a transaction in which
the Company is issuing securities primarily for the purpose of raising
capital or to an entity whose primary business is investing in securities,
(d) securities to the vendors or other creditors set forth on Schedule 1.1
to satisfy obligations of the Company or its Subsidiaries in amounts not
to exceed 125,000 shares, in the aggregate, per any 12 month period.
"FW" means Xxxxxxx Xxxxxxxxx LLP with offices located at 000
Xxxxxxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000-0000.
"GAAP" shall have the meaning ascribed to such term in Section
3.1(h).
"Liens" means a lien, charge, security interest, encumbrance, right
of first refusal, preemptive right or other similar restriction.
"Losses" means any and all losses, claims, damages, liabilities,
settlement costs and expenses, including without limitation costs of
preparation and reasonable attorneys' fees.
"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).
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"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.
"Principal Amount" shall mean, as to each Purchaser, the amounts set
forth below such Purchaser's signature block on the signature pages hereto
and next to the heading "Principal Amount", in United States Dollars,
which shall equal such Purchaser's Subscription Amount multiplied by
1.266.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated the date hereof, among the Company and each Purchaser, in
the form of Exhibit B.
"Registration Statement" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering
the resale by the Purchasers of the Underlying Shares.
"Required Approvals" shall have the meaning ascribed to such term in
Section 3.1(e).
"Rule 144" means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"SEC Reports" shall have the meaning ascribed to such term in
Section 3.1(h).
"Securities" means the Debentures, the Warrants, the Warrant Shares
and the Underlying Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Agreement" means the Security Agreement, dated the date
hereof, among the Company and the Purchasers, in the form of Exhibit G
attached hereto.
"Security Documents" means the Security Agreement, the Subsidiary
Guarantees and any other documents and filing required thereunder in order
to grant the Purchasers a perfected security interest in all of the assets
of the Company, including all UCC-1 filing receipts.
"Shareholder Approval" means such approval as may be required by the
applicable rules and regulations of the Principal Market (or any successor
entity) from the shareholders of the Company with respect to the
transactions contemplated by the Transaction Documents, including the
issuance of all of the Underlying Shares in excess of 19.9% of the
Company's issued and outstanding Common Stock on the Closing Date.
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"Subscription Amount" shall mean, as to each Purchaser, the amount
to be paid for Debentures and Warrants purchased hereunder as specified
below such Purchaser's name on the signature page of this Agreement, in
United States Dollars.
"Subsidiary" means any subsidiary of the Company that is required to
be listed in Schedule 3.1(a).
"Subsidiary Guarantee" means the Subsidiary Guarantee, dated the
date hereof, among each of the Subsidiaries and the Purchasers, in the
form of Exhibit H attached hereto.
"Trading Day" means any day during which the Trading Market shall be
open for business.
"Trading Market" means the following markets or exchanges on which
the Common Stock is listed or quoted for trading on the date in question:
the American Stock Exchange, the New York Stock Exchange, the Nasdaq
National Market or the Nasdaq SmallCap Market.
"Transaction Documents" means this Agreement, the Debentures, the
Warrants, the Escrow Agreement, the Security Agreement and Security
Documents and the Registration Rights Agreement.
"Underlying Shares" means the shares of Common Stock issuable upon
conversion of the Debentures and upon exercise of the Warrants.
"Warrants" means the Common Stock Purchase Warrants, in the form of
Exhibit C, delivered to the Purchasers at the Closing in accordance with
Section 2.2 hereof.
"Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1 Closing. On the Closing Date, each Purchaser shall purchase from
the Company, severally and not jointly with the other Purchasers, and the
Company shall issue and sell to each Purchaser, (a) up to $7,000,000
Principal Amount of Debentures; and (b) the Warrants as determined
pursuant to Sections 2.2(a)(iii) - (iv). Upon satisfaction of the
conditions set forth in Section 2.2, the Closing shall occur at the
offices of the Escrow Agent or such other location as the parties shall
mutually agree.
2.2 Conditions to Closing. The Closing is subject to the
satisfaction or waiver by the party to be benefited thereby of the
following conditions.
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a) The Company shall have delivered or caused to be delivered to the
Escrow Agent the following:
(i) this Agreement duly executed by the Company;
(ii) a Debenture with a principal amount equal to such Purchaser's
Principal Amount, registered in the name of such Purchaser;
(iii) a Warrant registered in the name of such Purchaser to purchase
up to a number of shares of Common Stock equal to 100% of such
Purchaser's Principal Amount divided by the average of the 5
Closing Prices immediately prior to the date hereof, with an
exercise price equal to $1.55, subject to adjustment as set
forth therein and exercisable beginning 181 days after the
date hereof for a term of 3.5 years;
(iv) a Warrant registered in the name of such Purchaser to purchase
up to a number of shares of Common Stock equal to 100% of such
Purchaser's Principal Amount divided by the average of the 5
Closing Prices immediately prior to the date hereof, with an
exercise price equal to $1.87, subject to adjustment as set
forth therein and exercisable beginning 181 days after the
date hereof for a term of 3.5 years;
(v) the written voting agreement, substantially in the form of
Exhibit F attached hereto, of all of the executive officers
and directors to vote all Common Stock owned by each of such
shareholders as of the record date for the annual or special
meeting of shareholders of the Company in favor of Shareholder
Approval;
(vi) a legal opinion of Company Counsel, in the form of Exhibit D
attached hereto, addressed to each Purchaser;
(vii) the Escrow Agreement duly executed by the Company;
(viii) the Registration Rights Agreement duly executed by the
Company; and
(ix) the Security Agreement, duly executed by the Company, along
with all the Security Documents.
b) At the Closing, each Purchaser shall have delivered or caused to be
delivered to the Escrow Agent the following:
(i) this Agreement duly executed by such Purchaser;
(ii) such Purchaser's Subscription Amount by wire transfer to the
account of the Escrow Agent;
(iii) the Escrow Agreement duly executed by such Purchaser;
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(iv) the Registration Rights Agreement duly executed by such
Purchaser; and
(v) the Security Agreement duly execute by such Purchaser.
(c) All representations and warranties of the other party contained
herein shall remain true and correct in all material respects (except
those qualified as to materiality, which shall remain true and correct) as
of the Closing Date except for those that speak as of a specific date and
all covenants of the other party shall have been performed if due prior to
such date.
(d) From the date hereof to the Closing Date, trading in the Common
Stock shall not have been suspended by the Commission (except for any
suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to the Closing), and, at any time
prior to the Closing Date, trading in securities generally as reported by
Bloomberg Financial Markets shall not have been suspended or limited, or
minimum prices shall not have been established on securities whose trades
are reported by such service, or on any Trading Market, nor shall a
banking moratorium have been declared either by the United States or New
York State authorities nor shall there have occurred any material outbreak
or escalation of hostilities or other national or international calamity
of such magnitude in its effect on, or any material adverse change in, any
financial market which, in each case, in the reasonable judgment of each
Purchaser, makes it impracticable or inadvisable to purchase the
Debentures at the Closing.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth in
the SEC Reports or under the corresponding section of the Disclosure Schedules
which Disclosure Schedules shall be deemed a part hereof, the Company hereby
makes the representations and warranties set forth below to each Purchaser.
(a) Subsidiaries. All of the direct and indirect subsidiaries of the
Company are set forth on Schedule 3.1(a). The Company owns, directly or
indirectly, all of the capital stock or other equity interests of each
Subsidiary free and clear of any Liens, and all the issued and outstanding
shares of capital stock of each Subsidiary (other than Lifestyle
Innovations, Inc.) are validly issued and are fully paid, non-assessable
and free of preemptive and similar rights to subscribe for or purchase
securities. If the Company has no subsidiaries, then references in the
Transaction Documents to the Subsidiaries will be disregarded.
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(b) Organization and Qualification. Each of the Company and the
Subsidiaries (other than Lifestyle Innovations, Inc.) is an entity duly
incorporated or otherwise organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization
(as applicable), with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently conducted.
Neither the Company nor any Subsidiary (other than Lifestyle Innovations,
Inc.) is in violation or default of any of the provisions of its
respective certificate or articles of incorporation, bylaws or other
organizational or charter documents. Each of the Company and the
Subsidiaries (other than Lifestyle Innovations, Inc.) is duly qualified to
conduct business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business conducted
or property owned by it makes such qualification necessary, except where
the failure to be so qualified or in good standing, as the case may be,
could not have or reasonably be expected to result in (i) a material
adverse effect on the legality, validity or enforceability of any
Transaction Document, (ii) a material adverse effect on the results of
operations, assets, business or financial condition of the Company and the
Subsidiaries, taken as a whole other than any change, event or occurrence
resulting from any change to the extent generally affecting the national
or any local economy or the industries in which the Company and the
Subsidiaries operate, or (iii) a material adverse effect on the Company's
ability to perform in any material respect on a timely basis its
obligations under any Transaction Document (any of (i), (ii) or (iii), a
"Material Adverse Effect") and, to the Company's knowledge, no Proceeding
has been instituted in any such jurisdiction revoking, limiting or
curtailing or seeking to revoke, limit or curtail such power and authority
or qualification.
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations hereunder or thereunder. The
execution and delivery of each of the Transaction Documents by the Company
and the consummation by it of the transactions contemplated hereby or
thereby have been duly authorized by all necessary action on the part of
the Company and no further consent or action is required by the Company
other than Required Approvals. Each of the Transaction Documents has been
(or upon delivery will be) duly executed by the Company and, when
delivered in accordance with the terms hereof, will constitute the valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and general principles
of equity. Neither the Company nor any Subsidiary (other than Lifestyle
Innovations, Inc.) is in violation of any of the provisions of its
respective certificate or articles of incorporation, by-laws or other
organizational or charter documents except where such violation could not,
individually or in the aggregate, constitute a Material Adverse Effect.
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(d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company, the issuance and sale of the
Securities and the consummation by the Company of the other transactions
contemplated thereby do not and will not: (i) conflict with or violate any
provision of the Company's or any Subsidiary's (other than Lifestyle
Innovations, Inc.) certificate or articles of incorporation, bylaws or
other organizational or charter documents, or (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time or
both would become a default) under, result in the creation of any Lien
upon any of the properties or assets of the Company or any Subsidiary, or
give to others any rights of termination, amendment, acceleration or
cancellation (with or without notice, lapse of time or both) of, any
agreement, credit facility, debt or other instrument (evidencing a Company
or Subsidiary (other than Lifestyle Innovations, Inc.) debt or otherwise)
or other understanding to which the Company or any Subsidiary (other than
Lifestyle Innovations, Inc.) is a party or by which any property or asset
of the Company or any Subsidiary (other than Lifestyle Innovations, Inc.)
is bound or affected, or (iii) subject to the Required Approvals, conflict
with or result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or
governmental authority to which the Company or a Subsidiary (other than
Lifestyle Innovations, Inc.) is subject (including federal and state
securities laws and regulations), or by which any property or asset of the
Company or a Subsidiary is bound or affected, or (iv) conflict with or
violate the terms of any agreement by which the Company or any Subsidiary
(other than Lifestyle Innovations, Inc.) is bound or to which any property
or asset of the Company or any Subsidiary is bound or affected; except in
the case of each of clauses (ii), (iii) and (iv), such as could not have
or reasonably be expected to result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. Neither the Company nor any
Subsidiary is required to obtain any consent, waiver, authorization or
order of, give any notice to, or make any filing or registration with, any
court or other federal, state, local or other governmental authority or
other Person in connection with the execution, delivery and performance by
the Company of the Transaction Documents, other than (i) the filings
required under Section 4.4, (ii) the filing with the Commission of the
Registration Statement, (iii) the application(s) to each applicable
Trading Market for the issuance and sale of the Debentures and Warrants
and the listing of the Underlying Shares for trading thereon in the time
and manner required thereby, (iv) the filing with the Commission of a Form
D pursuant to Commission Regulation D and (v) applicable Blue Sky filings
and (collectively, the "Required Approvals").
(f) Issuance of the Securities. The Securities are duly authorized
and, when issued and paid for in accordance with the applicable
Transaction Documents, will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens. The Company has reserved from
its duly authorized capital stock a number of shares of Common Stock for
issuance of the Underlying Shares at least equal to the Actual Minimum on
the date hereof.
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(g) Capitalization. The capitalization of the Company is as
described in the Company's most recent periodic report filed with the
Commission. The Company has not issued any capital stock since such filing
other than pursuant to the exercise of employee stock options under the
Company's stock option plans, the issuance of shares of Common Stock to
employees pursuant to the Company's employee stock purchase plan and
pursuant to the conversion or exercise of outstanding Common Stock
Equivalents. No Person has any right of first refusal, preemptive right,
right of participation, or any similar right to participate in the
transactions contemplated by the Transaction Documents. Except as a result
of the purchase and sale of the Securities, there are no outstanding
options, warrants, script rights to subscribe to, calls or commitments of
any character whatsoever relating to, or securities, rights or obligations
convertible into or exchangeable for, or giving any Person any right to
subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary (other than Lifestyle Innovations, Inc.) is or may become bound
to issue additional shares of Common Stock, or securities or rights
convertible or exchangeable into shares of Common Stock. The issue and
sale of the Securities will not obligate the Company to issue shares of
Common Stock or other securities to any Person (other than the Purchasers)
and will not result in a right of any holder of Company securities to
adjust the exercise, conversion, exchange or reset price under such
securities. All of the outstanding shares of capital stock of the Company
are validly issued, fully paid and nonassessable, have been issued in
compliance with all federal and state securities laws, and none of such
outstanding shares was issued in violation of any preemptive rights or
similar rights to subscribe for or purchase securities. No further
approval or authorization of any stockholder, the Board of Directors of
the Company or others is required for the issuance and sale of the shares
of Preferred Stock other than Shareholder Approval to comply with rules of
the American Stock Exchange. There are no stockholders agreements, voting
agreements or other similar agreements with respect to the Company's
capital stock to which the Company is a party or, to the knowledge of the
Company, between or among any of the Company's stockholders.
(h) SEC Reports; Financial Statements. The Company has filed all
reports required to be filed by it under the Securities Act and the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for
the two years preceding the date hereof (or such shorter period as the
Company was required by law to file such material) (the foregoing
materials, including the exhibits thereto, being collectively referred to
herein as the "SEC Reports") on a timely basis or has received a valid
extension of such time of filing and has filed any such SEC Reports prior
to the expiration of any such extension. As of their respective dates, the
SEC Reports complied in all material respects with the requirements of the
Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Reports, when
filed, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company
included in the SEC Reports comply in all material respects with
applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis
during the periods involved ("GAAP"), except as may be otherwise specified
in such financial statements or the notes thereto and except that
unaudited financial statements may not contain all footnotes required by
GAAP, and fairly present in all material respects the financial position
of the Company and its consolidated subsidiaries as of and for the dates
thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.
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(i) Material Changes. Since the date of the latest audited financial
statements included within the SEC Reports, (i) there has been no event,
occurrence or development that has had or that would reasonably be
expected to result in a Material Adverse Effect, (ii) the Company has not
incurred any liabilities (contingent or otherwise) other than (A) trade
payables and accrued expenses incurred in the ordinary course of business
consistent with past practice and (B) liabilities not required to be
reflected in the Company's financial statements pursuant to GAAP or
required to be disclosed in filings made with the Commission, (iii) the
Company has not altered its method of accounting, (iv) the Company has not
declared or made any dividend or distribution of cash or other property to
its stockholders or purchased, redeemed or made any agreements to purchase
or redeem any shares of its capital stock and (v) the Company has not
issued any equity securities to any executive officer, director or
Affiliate, except pursuant to existing Company stock option plans. The
Company does not have pending before the Commission any request for
confidential treatment of information.
(j) Litigation. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company, any Subsidiary
(other than Lifestyle Innovations, Inc.) or any of their respective
properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county,
local or foreign) (collectively, an "Action") which (i) adversely affects
or challenges the legality, validity or enforceability of any of the
Transaction Documents or the Securities or (ii) would, if there were an
unfavorable decision, have or reasonably be expected to result in a
Material Adverse Effect. Neither the Company nor any Subsidiary (other
than Lifestyle Innovations, Inc.), nor any director or executive officer
thereof, is or has been the subject of any Action involving a claim of
violation of or liability under federal or state securities laws or a
claim of breach of fiduciary duty as it relates to the Company or its
Subsidiary. There has not been, and to the knowledge of the Company, there
is not pending or contemplated, any investigation by the Commission
involving the Company or any current or former director or officer of the
Company. The Commission has not issued any stop order or other order
suspending the effectiveness of any registration statement filed by the
Company or any Subsidiary (other than Lifestyle Innovations, Inc.) under
the Exchange Act or the Securities Act.
(k) Labor Relations. No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees
of the Company which could reasonably be expected to result in a Material
Adverse Effect.
(l) Compliance. Neither the Company nor any Subsidiary (other than
Lifestyle Innovations, Inc.) (i) is in default under or in violation of
(and no event has occurred that has not been waived that, with notice or
lapse of time or both, would result in a default by the Company or any
Subsidiary (other than Lifestyle Innovations, Inc.) under), nor has the
Company or any Subsidiary (other than Lifestyle Innovations, Inc.)
received notice of a claim that it is in default under or that it is in
violation of, any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any of
its properties is bound (whether or not such default or violation has been
waived), (ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is or has been in violation of any statute,
rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws applicable to its
business except in each case as could not have a Material Adverse Effect.
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(m) Regulatory Permits. The Company and the Subsidiaries (other than
Lifestyle Innovations, Inc.) possess all certificates, authorizations and
permits issued by the appropriate federal, state, local or foreign
regulatory authorities necessary to conduct their respective businesses as
described in the SEC Reports, except where the failure to possess such
permits could not, individually or in the aggregate, have or reasonably be
expected to result in a Material Adverse Effect ("Material Permits"), and
neither the Company nor any Subsidiary (other than Lifestyle Innovations,
Inc.) has received any notice of proceedings relating to the revocation or
modification of any Material Permit.
(n) Title to Assets. The Company and the Subsidiaries (other than
Lifestyle Innovations, Inc.) have good and marketable title in fee simple
to all real property owned by them that is material to the business of the
Company and the Subsidiaries (other than Lifestyle Innovations, Inc.) and
good and marketable title in all personal property owned by them that is
material to the business of the Company and the Subsidiaries (other than
Lifestyle Innovations, Inc.), in each case free and clear of all Liens,
except for Liens as do not materially affect the value of such property
and do not materially interfere with the use made and proposed to be made
of such property by the Company and the Subsidiaries (other than Lifestyle
Innovations, Inc.) and Liens for the payment of federal, state or other
taxes, the payment of which is neither delinquent nor subject to
penalties. Any real property and facilities held under lease by the
Company and the Subsidiaries (other than Lifestyle Innovations, Inc.) are
held by them under valid, subsisting and enforceable leases of which the
Company and the Subsidiaries (other than Lifestyle Innovations, Inc.) are
in material compliance.
(o) Patents and Trademarks. The Company and the Subsidiaries (other
than Lifestyle Innovations, Inc.) have, or have rights to use, all
patents, patent applications, trademarks, trademark applications, service
marks, trade names, copyrights, licenses and other similar rights that are
necessary or material for use in connection with their respective
businesses as described in the SEC Reports and which the failure to so
have could have a Material Adverse Effect (collectively, the "Intellectual
Property Rights"). Neither the Company nor any Subsidiary (other than
Lifestyle Innovations, Inc.) has received a written notice that the
Intellectual Property Rights used by the Company or any Subsidiary (other
than Lifestyle Innovations, Inc.) violates or infringes upon the rights of
any Person. To the knowledge of the Company, all such Intellectual
Property Rights are enforceable and there is no existing infringement by
another Person of any of the Intellectual Property Rights of others.
12
(p) Insurance. The Company and the Subsidiaries (other than
Lifestyle Innovations, Inc.) are insured against such losses and risks and
in such amounts as are prudent and customary in the businesses in which
the Company and the Subsidiaries (other than Lifestyle Innovations, Inc.)
are engaged. Neither the Company nor any Subsidiary (other than Lifestyle
Innovations, Inc.) has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires or
to obtain similar coverage from similar insurers as may be necessary to
continue its business without a significant increase in cost.
(q) Transactions With Affiliates and Employees. None of the
executive officers or directors of the Company and, to the knowledge of
the Company, none of the employees of the Company is presently a party to
any transaction with the Company or any Subsidiary (other than Lifestyle
Innovations, Inc.) (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of
real or personal property to or from, or otherwise requiring payments to
or from any officer, director or such employee or, to the knowledge of the
Company, any entity in which any officer, director, or any such employee
has a substantial interest or is an officer, director, trustee or partner,
in each case in excess of $60,000 other than (i) for payment of salary or
consulting fees for services rendered, (ii) reimbursement for expenses
incurred on behalf of the Company and (iii) for other employee benefits,
including stock option agreements under any stock option plan of the
Company.
(r) Xxxxxxxx-Xxxxx; Internal Accounting Controls. The Company is in
material compliance with all provisions of the Xxxxxxxx-Xxxxx Act of 2002
which are applicable to it as of the Closing Date. The Company and the
Subsidiaries (other than Lifestyle Innovations, Inc.) maintain a system of
internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's general
or specific authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with GAAP and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv)
the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences. The Company has established disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the Company and designed such disclosure controls and
procedures to ensure that material information relating to the Company,
including its Subsidiaries (other than Lifestyle Innovations, Inc.), is
made known to the certifying officers by others within those entities,
particularly during the period in which the Company's most recently filed
periodic report under the Exchange Act, as the case may be, is being
prepared. The Company's certifying officers have evaluated the
effectiveness of the Company's controls and procedures as of the date
prior to the filing date of the most recently filed periodic report under
the Exchange Act (such date, the "Evaluation Date"). The Company presented
in its most recently filed periodic report under the Exchange Act the
conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no significant
changes in the Company's internal controls (as such term is defined in
Item 307(b) of Regulation S-K under the Exchange Act) or, to the Company's
knowledge, in other factors that could significantly affect the Company's
internal controls.
13
(s) Certain Fees. No brokerage or finder's fees or commissions are
or will be payable by the Company to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or other
Person with respect to the transactions contemplated by this Agreement.
The Purchasers shall have no obligation with respect to any fees or with
respect to any claims made by or on behalf of other Persons for fees of a
type contemplated in this Section that may be due in connection with the
transactions contemplated by this Agreement.
(t) Private Placement. Assuming the accuracy of the Purchasers
representations and warranties set forth in Section 3.2, no registration
under the Securities Act is required for the offer and sale of the
Securities by the Company to the Purchasers as contemplated hereby. The
issuance and sale of the Securities hereunder does not contravene the
rules and regulations of the Trading Market.
(u) Investment Company. The Company is not, and is not an Affiliate
of, and immediately after receipt of payment for the 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 subject to the
Investment Company Act.
(v) Registration Rights. No Person has any right to cause the
Company to effect the registration under the Securities Act of any
securities of the Company.
(w) Listing and Maintenance Requirements. The Company's Common Stock
is registered pursuant to Section 12(g) of the Exchange Act, and the
Company has taken no action designed to, or which to its knowledge is
likely to have the effect of, terminating the registration of the Common
Stock under the Exchange Act nor has the Company received any notification
that the Commission is contemplating terminating such registration. The
Company has not, in the 12 months preceding the date hereof, received
notice from any Trading Market on which the Common Stock is or has been
listed or quoted to the effect that the Company is not in compliance with
the listing or maintenance requirements of such Trading Market. The
Company is, and has no reason to believe that it will not in the
foreseeable future continue to be, in compliance with all such listing and
maintenance requirements.
(x) Application of Takeover Protections. The Company and its Board
of Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other
similar anti~takeover provision under the Company's Certificate of
Incorporation (or similar charter documents) or the laws of its state of
incorporation that is or could become applicable to the Purchasers as a
result of the Purchasers and the Company fulfilling their obligations or
exercising their rights under the Transaction Documents, including without
limitation the Company's issuance of the Securities and the Purchasers'
ownership of the Securities.
14
(y) Disclosure. Other than the terms of the Transaction Documents,
the Company confirms that, the Company has not provided any of the
Purchasers with any information that constitutes or might constitute
material, non-public information. The Company understands and confirms
that the Purchasers will rely on the foregoing representations and
covenants in effecting transactions in securities of the Company. All
disclosure provided to the Purchasers regarding the Company, its business
and the transactions contemplated hereby, including the Disclosure
Schedules to this Agreement, furnished by or on behalf of the Company with
respect to the representations and warranties made herein are true and
correct in all material respects with respect to such representations and
warranties and do not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
made therein, in light of the circumstances under which they were made,
not misleading. The Company acknowledges and agrees that no Purchaser
makes or has made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth
in Section 3.2 hereof.
(z) No Integrated Offering. Neither the Company, nor any of its
Affiliates, nor to its knowledge, any Person acting on its or their behalf
has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that would
cause this offering of the Securities to be integrated with prior
offerings by the Company for purposes of the Securities Act or which could
violate any applicable shareholder approval provisions, including, without
limitation, under the rules and regulations of the Trading Market.
(aa) Indebtedness. The SEC Reports set forth as of the dates thereof
all outstanding secured and unsecured Indebtedness of the Company or any
Subsidiary, or for which the Company or any Subsidiary has commitments.
For the purposes of this Agreement, "Indebtedness" shall mean (a) any
liabilities for borrowed money or amounts owed in excess of $50,000 (other
than trade accounts payable incurred in the ordinary course of business),
(b) all guaranties, endorsements and other contingent obligations in
respect of Indebtedness of others, whether or not the same are or should
be reflected in the Company's balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business; and
(c) the present value of any lease payments in excess of $50,000 due under
leases required to be capitalized in accordance with GAAP. Neither the
Company nor any Subsidiary is in default with respect to any Indebtedness.
(bb) S-3 Eligibility. To its knowledge, the Company is eligible to
register the Underlying Shares for resale by the Purchasers on SEC Form
S-3.
(cc) Tax Status. The Company and each of its Subsidiaries (other
than Lifestyle Innovations, Inc.) has made or filed all federal, state and
foreign income and all other tax returns, reports and declarations
required by any jurisdiction to which it is subject (unless and only to
the extent that the Company and each of its Subsidiaries has set aside on
its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid (or made provision for) all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except
those being contested in good faith and has set aside on its books
provisions reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due
by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim. The Company has not executed
a waiver with respect to the statute of limitations relating to the
assessment or collection of any foreign, federal, statue or local tax.
None of the Company's tax returns is presently being audited by any taxing
authority.
15
(dd) No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor, to the knowledge of the Company, any
of its directors or officers (i) has conducted or will conduct any general
solicitation (as that term is used in Rule 502(c) of Regulation D) or
general advertising with respect to the sale of the Debentures and the
Warrants, or (ii) made any offers or sales of any security or solicited
any offers to buy any security under any circumstances that would require
registration of the Debentures, the Underlying Shares or the Warrants
under the Securities Act or made any "directed selling efforts" as defined
in Rule 902 of Regulation S.
(ee) Foreign Corrupt Practices. Neither the Company, nor to the
knowledge of the Company, any agent or other person acting on behalf of
the Company, has (i) directly or indirectly, used any 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.
(ff) Acknowledgment Regarding Purchasers' Purchase of Securities.
The Company acknowledges and agrees that the Purchasers are acting solely
in the capacity of arm's length purchasers with respect to this Agreement
and the transactions contemplated hereby. The Company further acknowledges
that no Purchaser is acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to this Agreement and
the transactions contemplated hereby and any statement made by any
Purchaser or any of their respective representatives or agents in
connection with this Agreement and the transactions contemplated hereby is
not advice or a recommendation and is merely incidental to the Purchasers'
purchase of the Securities. The Company further represents to each
Purchaser that the Company's decision to enter into this Agreement has
been based solely on the independent evaluation of the Company and its
representatives.
16
(gg) Seniority. As of the date of this Agreement, no other equity of
the Company is senior to the Debentures in right of payment, whether with
respect to interest or upon liquidation or dissolution, or otherwise.
(hh) Acknowledgement Regarding Purchasers' Trading Activity.
Anything in this Agreement or elsewhere herein to the contrary
notwithstanding (except for Section 4.15 hereof), it is understood and
agreed by the Company (i) that none of the Purchasers have been asked 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) that past or future open market or other
transactions by any Purchaser, including Short Sales, and specifically
including, without limitation, Short Sales or "derivative" transactions,
before or after the closing of this or future private placement
transactions, may negatively impact the market price of the Company's
publicly-traded securities; and (iii) that 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.
(ii) Accountants. The Company's accountants are set forth on
Schedule 3.1(ii) of the Disclosure Schedule. To the Company's knowledge,
such accountants, who the Company expects will express their opinion with
respect to the financial statements to be included in the Company's Annual
Report on Form 10-K for the year ending June 30, 2005 are a registered
public accounting firm as required by the Securities Act.
(jj) No Disagreements with Accountants and Lawyers. There are no
disagreements of any kind presently existing, or reasonably anticipated by
the Company to arise, between the accountants and lawyers formerly or
presently employed by the Company, except where such disagreement could
constitute a Material Adverse Effect, and the Company is current with
respect to any fees owed to its accountants and lawyers.
3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:
(a) Organization; Authority. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution, delivery and performance by such
Purchaser of the transactions contemplated by this Agreement have been
duly authorized by all necessary corporate or similar action on the part
of such Purchaser. Each Transaction Document to which it is 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.
17
(b) Own Account. Such Purchaser understands that the Securities are
"restricted securities" and have not been registered under the Securities
Act or any applicable state securities law and is acquiring the Securities
as principal for its own account and not with a view to or for
distributing or reselling such Securities or any part thereof, has no
present intention of distributing any of such Securities and has no
arrangement or understanding with any other persons regarding the
distribution of such Securities (this representation and warranty not
limiting such Purchaser's right to sell the Securities pursuant to the
Registration Statement or otherwise in compliance with applicable federal
and state securities laws). Such Purchaser is acquiring the Securities
hereunder in the ordinary course of its business. Such Purchaser does not
have any agreement or understanding, directly or indirectly, with any
Person to distribute any of the Securities.
(c) Purchaser Status. At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is, and on each date on
which it exercises any Warrants or converts any Debentures it will be
either: (i) an "accredited investor" as defined in Rule 501(a)(1), (a)(2),
(a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a "qualified
institutional buyer" as defined in Rule 144A(a) under the Securities Act.
Such Purchaser is not required to be registered as a broker-dealer under
Section 15 of the Exchange Act.
(d) Experience of Such Purchaser. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the
Securities, and has so evaluated the merits and risks of such investment.
Such Purchaser is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete loss of
such investment.
(e) General Solicitation. Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement.
(f) Certain Trading Activities. Such Purchaser has not directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with such Purchaser, engaged in any transactions in the
securities of the Company (including, without limitations, any Short Sales
involving the Company's securities) since the time that such Purchaser was
first contacted by the Company or HPC Capital Management ("HPC") regarding
this investment in the Company. For purposes of this Section, "Short
Sales" include, without limitation, all "short sales" as defined in Rule
3b-3 of the Exchange Act and include all types of direct and indirect
stock pledges, forward sale contracts, options, puts, calls, short sales,
swaps and similar arrangements (including on a total return basis), and
sales and other transactions through non-US broker dealers or foreign
regulated brokers having the effect of hedging the securities or
investment made under this Agreement. Such Purchaser covenants that
neither it nor any Person acting on its behalf or pursuant to any
understanding with it will engage in any transactions in the securities of
the Company (including Short Sales) prior to the time that the
transactions contemplated by this Agreement are publicly disclosed.
18
(g) Access to Information. Such Purchaser acknowledges and agrees
that it has access to the Company's SEC Reports and has reviewed such
filings as such Purchaser has deemed necessary or desirable including the
Company's Annual Report on Form 10-K for the fiscal year ended June 30,
2004 and the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2004. Each Purchaser and its respective representatives have
been afforded an opportunity to ask such questions of the officers,
employees, agents, accountants and representatives of the Company
concerning the business, operations, financial condition, assets,
liabilities, and other relevant matters as such Purchaser and its
representatives have deemed necessary or desirable, and each Purchaser
hereby confirms that it or its agents have been given all such information
as has been requested in order to evaluate the merits and risks of the
prospective investment contemplated hereby and that it does not desire any
additional information. Without limiting the foregoing, each Purchaser
specifically acknowledges that it has had the opportunity to review the
Company's SEC Reports.
(h) Risk Factors. Such Purchaser understands and acknowledges that
an investment in the Shares is highly speculative and includes a high
degree of risk including, but not limited to, those risks specifically set
forth in both the Company's Annual Report on Form 10-K for the period
ended June 30, 2004 and the registration statement on Form S-3, file no.
333-120047, which, by its signature below, each Purchaser acknowledges it
has reviewed.
The Company acknowledges and agrees that each Purchaser does not
make or has not made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth
in this Section 3.2.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) The Securities may only be disposed of in compliance with state
and federal securities laws. In connection with any transfer of Securities
other than pursuant to an effective registration statement or Rule 144, to
the Company or to an Affiliate of a Purchaser or in connection with a
pledge as contemplated in Section 4.1(b), the Company may require the
transferor thereof to provide to the Company an opinion of counsel
selected by the transferor and reasonably acceptable to the Company, the
form and substance of which opinion and shall be reasonably satisfactory
to the Company, to the effect that such transfer does not require
registration of such transferred Securities under the Securities Act. As a
condition of transfer, any such transferee shall agree in writing to be
bound by the terms of this Agreement and shall have the rights of a
Purchaser under this Agreement and the Registration Rights Agreement.
19
(b) Each Purchaser agrees to the imprinting, so long as is required
by this Section 4.1(b), of the following legend on any certificate
evidencing Securities:
[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES
ARE [EXERCISABLE] [CONVERTIBLE]] HAVE BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT,
THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN SECURED BY SUCH SECURITIES.
The Company acknowledges and agrees that a Purchaser may from time
to time pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the
Securities to a financial institution that is an "accredited investor" as
defined in Rule 501(a) under the Securities Act and who agrees to be bound
by the provisions of this Agreement and the Registration Rights Agreement
and, if required under the terms of such arrangement, such Purchaser may
transfer pledged or secured Securities to the pledgees or secured parties.
Such a pledge or transfer would not be subject to approval of the Company
and no legal opinion of legal counsel of the pledgee, secured party or
pledgor shall be required in connection therewith. Further, no notice
shall be required of such pledge. At the appropriate Purchaser's expense,
the Company will execute and deliver such reasonable documentation as a
pledgee or secured party of Securities may reasonably request in
connection with a pledge or transfer of the Securities, including, if the
Securities are subject to registration pursuant to the Registration Rights
Agreement, the preparation and filing of any required prospectus
supplement under Rule 424(b)(3) under the Securities Act or other
applicable provision of the Securities Act to appropriately amend the list
of Selling Stockholders thereunder.
20
(c) Certificates evidencing Underlying Shares shall not contain any
legend (including the legend set forth in Section 4.1(b)): (i) while a
registration statement (including the Registration Statement) covering the
resale of such Underlying Shares is effective under the Securities Act, or
(ii) following any sale of such Underlying Shares pursuant to Rule 144, or
(iii) if such Securities are eligible for sale under Rule 144(k), or (iv)
if such legend is not required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements
issued by the Staff of the Commission). The Company shall cause its
counsel to issue a legal opinion to the Company's transfer agent promptly
after the Effective Date if required by the Company's transfer agent to
effect the removal of the legend hereunder. If all or any portion of a
Debenture or Warrant is converted or exercised (as applicable) at a time
when there is an effective registration statement to cover the resale of
the Underlying Shares, or if such Underlying Shares may be sold under Rule
144(k) or if such legend is not otherwise required under applicable
requirements of the Securities Act (including judicial interpretations
thereof) then such Underlying Shares shall be issued free of all legends.
The Company agrees that following the Effective Date or at such time as
such legend is no longer required under this Section 4.1(c), it will, no
later than three Trading Days following the delivery by a Purchaser to the
Company or the Company's transfer agent of a certificate representing
Securities issued with a restrictive legend (such date, the "Legend
Removal Date"), deliver or cause to be delivered to such Purchaser a
certificate representing such Underlying Shares that is free from all
restrictive and other legends. The Company may not make any notation on
its records or give instructions to any transfer agent of the Company that
enlarge the restrictions on transfer set forth in this Section..
(d) In addition to such Purchaser's other available remedies, the
Company shall pay to a Purchaser, in cash, as partial liquidated damages
and not as a penalty, for each $1,000 of Underlying Shares (based on the
Closing Price of the Common Stock on the date such Securities are
submitted to the Company's transfer agent) delivered for removal of the
restrictive legend and subject to this Section 4.1(c), $10 per Trading Day
(increasing to $20 per Trading Day five (5) Trading Days after such
damages have begun to accrue) for each Trading Day after the Legend
Removal Date until such certificate is delivered. Nothing herein shall
limit such Purchaser's right to pursue actual damages for the Company's
failure to deliver certificates representing any Securities as required by
the Transaction Documents, and such Purchaser shall have the right to
pursue all remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief.
(e) Each Purchaser, severally and not jointly with the other
Purchasers, agrees that the removal of the restrictive legend from
certificates representing Securities as set forth in this Section 4.1 is
predicated upon the Company's reliance that the Purchaser will sell any
Securities pursuant to either the registration requirements of the
Securities Act, including any applicable prospectus delivery requirements,
or an exemption therefrom.
(f) From the date hereof until the 12 month anniversary of the
Effective Date, the Company shall not undertake a reverse or forward stock
split or reclassification of the Common Stock without the prior written
consent of the Purchasers holding a majority in Principal Amount
outstanding of the Debentures.
21
4.2 Furnishing of Information. As long as any Purchaser owns Securities,
the Company covenants to use commercially reasonable efforts to timely file (or
obtain extensions in respect thereof and file within the applicable grace
period) all reports required to be filed by the Company after the date hereof
pursuant to the Exchange Act. Upon the written request of any Purchaser, the
Company shall deliver to such Purchaser a written certification of a duly
authorized officer as to whether it has complied with the preceding sentence. As
long as any Purchaser owns Securities, if the Company is not required to file
reports pursuant to such laws, it will prepare and furnish to each Purchaser and
make publicly available in accordance with Rule 144(c) such information as is
required for each Purchaser to sell the Securities under Rule 144. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request, all to the extent required from time to time
to enable such Person to sell such Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144.
4.3 Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market such that it would require shareholder
approval prior to the closing of such other transaction unless shareholder
approval is obtained before the closing of such subsequent transaction.
4.4 Securities Laws Disclosure; Publicity. The Company shall, by 8:30 a.m.
Eastern time on the second Trading Day following the date hereof, issue a press
release or file a Current Report on Form 8-K, in each case reasonably acceptable
to each Purchaser disclosing the material terms of the transactions contemplated
hereby (if a Purchaser does not object to the content of a press release within
1 Trading Day of receipt for review, such Purchaser shall be deemed to have
approved such press release). The Company and each Purchaser shall consult with
each other in issuing any press releases with respect to the transactions
contemplated hereby, and neither the Company nor any Purchaser shall issue any
such press release or otherwise make any such public statement without the prior
consent of the Company, with respect to any press release of any Purchaser, or
without the prior consent of each Purchaser, with respect to any press release
of the Company, which consent shall not unreasonably be withheld, except if such
disclosure is required by law, in which case the disclosing party shall promptly
provide the other party with prior notice of such public statement or
communication. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Purchaser, or include the name of any Purchaser in any
filing with the Commission or any regulatory agency or Trading Market, without
the prior written consent of such Purchaser, except (i) as required by federal
securities law in connection with the registration statement contemplated by the
Registration Rights Agreement and (ii) to the extent such disclosure is required
by law or Trading Market regulations, in which case the Company shall provide
the Purchasers with prior notice of such disclosure permitted under subclause
(i) or (ii).
22
4.5 Shareholder Rights Plan. No claim will be made or enforced by the
Company or, to the knowledge of the Company, any other Person that any Purchaser
is an "Acquiring Person" under any shareholder rights plan or similar plan or
arrangement in effect or hereafter adopted by the Company, or that any Purchaser
could be deemed to trigger the provisions of any such plan or arrangement, by
virtue of receiving Securities under the Transaction Documents or under any
other agreement between the Company and the Purchasers. The Company shall
conduct its business in a manner so that it will not become subject to the
Investment Company Act.
4.6 Non-Public Information. The Company covenants and agrees that it will
not and will not direct any other Person to, provide any Purchaser or its agents
or counsel with any information that the Company believes constitutes material
non-public information, unless prior thereto such Purchaser shall have executed
a written agreement regarding the confidentiality and use of such information.
The Company understands and confirms that each Purchaser shall be relying on the
foregoing representations in effecting transactions in securities of the
Company.
4.7 Use of Proceeds. 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 and working capital purposes and not for the satisfaction of any portion of
the Company's debt (other than payment of trade payables, capital lease
obligations, and accrued expenses in the ordinary course of the Company's
business and prior practices), to redeem any Company equity or equity-equivalent
securities or to settle any outstanding litigation. Prior to the receipt of
Shareholder Approval, the Company shall not declare or pay any cash dividend on
its shares of Common Stock while any Debentures remain outstanding.
4.8 Trading Market Approval. In the event the Company does not obtain the
approval of the Trading Market for this transaction within 10 Trading Days of
the date hereof, the Company shall return the respective net Subscription
Amounts to each Purchaser within 2 Trading Days of the date a majority in
interest of the Purchaser's notify the Company to return said amounts and the
Purchasers and the Company, upon receipt of such payment by the Purchasers,
shall instruct the Escrow Agent to return the Debentures and the Warrants to the
Company.
4.9 Indemnification of Purchasers. Subject to the provisions of this
Section 4.9, the Company will indemnify and hold the Purchasers and their
directors, officers, shareholders, partners, employees and agents (each, a
"Purchaser Party") harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any material breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against a
Purchaser, or any of them or their respective Affiliates, by any stockholder of
the Company who is not a Purchaser or an Affiliate of any Purchaser, arising
solely out of the transactions contemplated by the Transaction Documents (unless
such action is based upon a breach of such Purchaser's representation,
warranties or covenants under the Transaction Documents or any agreements or
understandings such Purchaser may have with any such stockholder or any
violations by the Purchaser of state or federal securities laws or any conduct
by such Purchaser which constitutes fraud, gross negligence, willful misconduct
or malfeasance). If any action shall be brought against any Purchaser Party in
respect of which indemnity may be sought pursuant to this Agreement, such
Purchaser Party shall promptly notify the Company in writing, and the Company
shall have the right to assume the defense thereof with counsel of its own
choosing. Any Purchaser Party shall have the right to employ separate counsel in
any such action and participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Purchaser Party except
to the extent that (i) the employment thereof has been specifically authorized
by the Company in writing, (ii) the Company has failed after a reasonable period
of time to assume such defense and to employ counsel or (iii) in such action
there is, in the reasonable written opinion of such separate counsel, a material
conflict on any material issue between the position of the Company and the
position of such Purchaser Party. The Company will not be liable to any
Purchaser Party under this Agreement (i) for any settlement by a Purchaser Party
effected without the Company's prior written consent, which shall not be
unreasonably withheld or delayed; or (ii) to the extent, but only to the extent
that a loss, claim, damage or liability is attributable to any Purchaser Party's
breach of any of the representations, warranties, covenants or agreements made
by the Purchasers in this Agreement or in the other Transaction Documents.
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4.10 Reservation and Listing of Securities.
(a) The Company shall maintain a reserve from its duly authorized
shares of Common Stock for issuance pursuant to the Transaction Documents
in such amount as may be required to fulfill its obligations in full under
the Transaction Documents.
(b) If, on any date, the number of authorized but unissued (and
otherwise unreserved) shares of Common Stock is less than 120% of (i) the
Actual Minimum on such date, minus (ii) the number of shares of Common
Stock previously issued pursuant to the Transaction Documents, then the
Board of Directors of the Company shall use commercially reasonable
efforts to amend the Company's certificate or articles of incorporation to
increase the number of authorized but unissued shares of Common Stock to
at least the Actual Minimum at such time (minus the number of shares of
Common Stock previously issued pursuant to the Transaction Documents), as
soon as possible and in any event not later than the 75th day after such
date; provided that the Company will not be required at any time to
authorize a number of shares of Common Stock greater than the maximum
remaining number of shares of Common Stock that could possibly be issued
after such time pursuant to the Transaction Documents.
(c) The Company shall: (i) in the time and manner required by the
Trading Market, prepare and file with such Trading Market an additional
shares listing application covering a number of shares of Common Stock at
least equal to the Actual Minimum on the date of such application, (ii)
take all steps necessary to cause such shares of Common Stock to be
approved for listing on the Trading Market as soon as possible thereafter,
(iii) upon a Purchaser's written request, provide to each Purchaser
evidence of such listing, and (iv) use reasonable efforts to maintain the
listing of such Common Stock on such Trading Market or another Trading
Market. In addition, the Company shall hold a special meeting of
shareholders (which may also be at the annual meeting of shareholders) at
the earliest practical date, but in no event later than May 31, 2005, for
the purpose of obtaining Shareholder Approval, with the recommendation of
the Company's Board of Directors that such proposal be approved, and the
Company shall solicit proxies from its shareholders in connection
therewith in the same manner as all other management proposals in such
proxy statement and all management-appointed proxyholders shall vote their
proxies in favor of such proposal. If the Company does not obtain
Shareholder Approval at the first meeting, the Company shall call a
meeting on the first business day of each fiscal quarter thereafter to
seek Shareholder Approval until the earlier of the date Shareholder
Approval is obtained or the Debentures are no longer outstanding.
24
(d) If, on any date, the Company is listed on a different Trading
Market, then the Company shall take the necessary actions to list all of
the Underlying Shares on such Trading Market as soon as reasonably
possible.
4.11 Conversion and Exercise Procedures. The form of Election to Purchase
included in the Warrants and the forms of Conversion Notice included in the
Debenture set forth the totality of the procedures required in order to exercise
the Warrants or convert the Debentures. No additional legal opinion or other
information or instructions shall be necessary to enable each Purchaser to
exercise their Warrants or convert their Debenture. The Company shall honor
exercises of the Warrants and conversions of the Debenture and shall deliver
Underlying Shares in accordance with the terms, conditions and time periods set
forth in the Transaction Documents. The Company acknowledges that the issuance
of the Securities may result in dilution of the outstanding shares of Common
Stock, which dilution may be substantial under certain market conditions. The
Company further acknowledges that its obligations under the Transaction
Documents, including its obligation to issue the Underlying Shares pursuant to
the Transaction Documents, are unconditional and absolute and not subject to any
right of set off, counterclaim, delay or reduction, regardless of the effect of
any such dilution or any claim the Company may have against any Purchaser and
regardless of the dilutive effect that such issuance may have on the ownership
of the other stockholders of the Company.
4.12 Equal Treatment of Purchasers. No consideration shall be offered or
paid to any person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. For
clarification purposes, this provision constitutes a separate right granted to
each Purchaser by the Company and negotiated separately by each Purchaser, and
is intended to treat for the Company the Purchasers as a class and shall not in
any way be construed as the Purchasers acting in concert or as a group with
respect to the purchase, disposition or voting of Securities or otherwise.
4.13 Participation in Future Financing. From the date hereof until the
Debentures are no longer outstanding, upon any financing by the Company of its
Common Stock or Common Stock Equivalents (a "Subsequent Financing"), each
Purchaser shall have the right to participate in up to 100% of such Subsequent
Financing. At least 3 Trading Days prior to the closing of the Subsequent
Financing, the Company shall deliver to each Purchaser a written notice of its
intention to effect a Subsequent Financing ("Pre-Notice"), which Pre-Notice
shall ask such Purchaser if it wants to review the details of such financing
(such additional notice, a "Subsequent Financing Notice"). Upon the written
request of a Purchaser, and only upon a request by such Purchaser, for a
Subsequent Financing Notice, the Company shall promptly, but no later than 1
Trading Day after such request, deliver a Subsequent Financing Notice to such
Purchaser. The Subsequent Financing Notice shall describe in reasonable detail
the proposed terms of such Subsequent Financing, the amount of proceeds intended
to be raised thereunder, the Person with whom such Subsequent Financing is
proposed to be effected, and attached to which shall be a term sheet or similar
document relating thereto. If by 6:30 p.m. (New York City time) on the 3rd
Trading Day after all of the Purchasers have received the Pre-Notice,
notifications of the Purchasers of their willingness to participate in the
Subsequent Financing (or to cause their designees to provide) is, in the
aggregate, less than the total amount of the Subsequent Financing, then the
Company may effect the remaining portion of such Subsequent Financing on the
terms and to the Persons set forth in the Subsequent Financing Notice. If the
Company receives no notice from a Purchaser as of such 3rd Trading Day, such
Purchaser shall be deemed to have notified the Company that it does not elect to
participate. The Company must provide the Purchasers with a second Subsequent
Financing Notice, and the Purchasers will again have the right of participation
set forth above in this Section 4.13, if the Subsequent Financing subject to the
initial Subsequent Financing Notice is not consummated for any reason on the
terms set forth in such Subsequent Financing Notice within 60 Trading Days after
the date of the initial Subsequent Financing Notice. In the event the Company
receives responses to Subsequent Financing Notices from Purchasers seeking to
purchase more than the aggregate amount of the Subsequent Financing, each such
Purchaser shall have the right to purchase their Pro Rata Portion (as defined
below) of the Subsequent Financing. "Pro Rata Portion" is the ratio of (x) the
Subscription Amount of a participating Purchaser and (y) the sum of the
aggregate Subscription Amount of all participating Purchasers. Notwithstanding
the foregoing, this Section 4.13 shall not apply in respect of an Exempt
Issuance and the reasonable and customary issuance of Common Stock or Common
Stock Equivalents to service providers of the Company, the primary purpose of
which is not to raise capital
25
4.14 Future Financings. From the date hereof until 90 days after the
Effective Date, other than as contemplated by this Agreement, neither the
Company nor any Subsidiary (with respect to Common Stock Equivalents) shall
issue or sell any Common Stock or Common Stock Equivalents entitling any Person
to acquire shares of Common Stock. Notwithstanding anything herein to the
contrary, the 90 day period set forth in this Section 4.14 shall be extended for
the number of Trading Days during such period in which (i) trading in the Common
Stock is suspended by any Trading Market, or (ii) following the Effective Date,
the Registration Statement is not effective or the prospectus included in the
Registration Statement may not be used by each Purchaser for the resale of the
Underlying Shares. Notwithstanding anything to the contrary herein, this Section
4.14 shall not apply in respect of an Exempt Issuance, the reasonable and
customary issuance of Common Stock or Common Stock Equivalents to service
providers or customers of the Company, the primary purpose of which is not to
raise capital and the item set forth on Schedule 4.14. In addition to the
limitations set forth herein, from the date hereof until such time as no
Purchaser holds any of the Securities, the Company shall be prohibited from
effecting or enter into an agreement to effect any Subsequent Financing
involving, or any "Variable Rate Transaction" (as defined below). The term
"Variable Rate Transaction" shall mean a transaction in which the Company issues
or sells (i) any debt or equity securities that are convertible into,
exchangeable or exercisable for, or include the right to receive additional
shares of Common Stock either (A) at a conversion, exercise or exchange rate or
other price that is based upon and/or varies with the trading prices of or
quotations for the shares of Common Stock at any time after the initial issuance
of such debt or equity securities (including any equity line type structures),
or (B) with a conversion, exercise or exchange price that is subject to being
reset at some future date after the initial issuance of such debt or equity
security or upon the occurrence of specified or contingent events directly or
indirectly related to the business of the Company or the market for the Common
Stock; provided that the existence of anti-dilution provisions attached to any
such securities shall not alone make a transaction a Variable Rate Transaction.
In addition, unless Shareholder Approval has been obtained and deemed effective
in accordance with Section 4.10(c), the Company shall not make any issuance
whatsoever of Common Stock or Common Stock Equivalents, excluding Exempt
Issuances for an effective per share of Common Stock price of less than $1.55,
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.
26
4.15 Short Sales. Each Purchaser covenants that neither it nor any
affiliates acting on its behalf or pursuant to any understanding with it will
execute any Short Sales during the period from the Discussion Time until prior
to the time that the transactions contemplated by this Agreement are first
publicly announced as described in Section 4.4. Notwithstanding the foregoing,
no Purchaser makes any representation, warranty or covenant hereby that it will
not engage in Short Sales in the securities of the Company after the time that
the transactions contemplated by this Agreement are first publicly announced as
described in Section 4.4.
ARTICLE V.
MISCELLANEOUS
5.1 Fees and Expenses. Except as otherwise set forth in this Agreement,
each party shall pay the fees and expenses of its advisers, counsel, accountants
and other experts, if any, and all other expenses incurred by such party
incident to the negotiation, preparation, execution, delivery and performance of
this Agreement. The Company shall pay all stamp and other taxes and duties
levied in connection with the sale of the Securities.
5.2 Entire Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified on the signature page prior to 4:00 p.m. (New York City time) on a
Trading Day and an electronic confirmation of delivery is received by the
sender, (b) the next Trading Day after the date of transmission, if such notice
or communication is delivered via facsimile at the facsimile number specified in
this Section on a day that is not a Trading Day or later than 4:00 p.m. (New
York City time) on any Trading Day, (c) three Trading Days following the date of
mailing, if sent by U.S. nationally recognized overnight courier service, or (d)
upon actual receipt by the party to whom such notice is required to be given.
The addresses for such notices and communications are those set forth on the
signature pages hereof, or such other address as may be designated in writing
hereafter, in the same manner, by such Person.
27
5.4 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Company and each Purchaser or, in the case of a waiver, by the party against
whom enforcement of any such waiver is sought. No waiver of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.
5.5 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. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
5.6 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser. Any Purchaser may assign
any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided such transferee agrees
in writing with the Company to be bound, with respect to the transferred
Securities, by the provisions hereof that apply to the "Purchasers".
5.7 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.9.
5.8 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper or inconvenient venue for such
proceeding. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect for notices
to it under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law. The parties hereby waive all rights to a trial by jury. If
either party shall commence an action or proceeding to enforce any provisions of
the Transaction Documents, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys' fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.
28
5.9 Survival. The representations and warranties contained herein shall
survive the Closing and the delivery, exercise and/or conversion of the
Securities, as applicable, until the 3 year anniversary of the date hereof. This
Agreement may be terminated by any Purchaser, by written notice to the other
parties, if the Closing has not been consummated on or before February 4, 2005;
provided that no such termination will affect the right of any party to xxx for
any breach by the other party (or parties)
5.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
5.11 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
5.12 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights.
5.13 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
29
5.14 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of each
Purchaser and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
5.15 Payment Set Aside. To the extent that the Company makes a payment or
payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
5.16 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction 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, Purchasers and their respective counsel have
chosen to communicate with the Company through FW. FW does not represent all of
the Purchasers but only HPC. The Company has elected to provide all Purchasers
with the same terms and Transaction Documents for the convenience of the Company
and not because it was required or requested to do so by the Purchasers.
5.17 Liquidated Damages. The Company's obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.
30
5.18 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.
(Signature Pages Follow)
31
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
RCG COMPANIES INCORPORATED Address for Notice:
By:_____________________________________ 0000 Xxxxxxxx Xxxx.
Name: Suite 200
Title: Xxxxxxxxx, Xxxxx Xxxxxxxx 00000
Attn: Xxxxxxx Xxxxx
Fax: (000) 000 0000
Tel: (000) 000 0000 x00
With a copy to (which shall not constitute notice):
Xxxx Xxxxxxxxx, Esq.
Xxxxxx & Xxxx, P.A.
000 Xxxx Xxx Xxxx Xxxxxxxxx
Xxxxx 0000
Xxxx Xxxxxxxxxx, Xxxxxxx 00000
000.000.0000 (phone)
000.000.0000 (fax)
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
32
[PURCHASER SIGNATURE PAGES TO RCG SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Name of Purchaser: ________________________________________________________
Signature of Authorized Signatory of Purchaser: ___________________________
Name of Authorized Signatory: _____________________________________________
Title of Authorized Signatory: ____________________________________________
Email Address of Purchaser:________________________________________________
Address for Notice of Purchaser:
Address for Delivery of Securities for Purchaser (if not same as above):
Subscription Amount:
Principal Amount
Warrant Shares:
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
