SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
March 15, 2006, among Rush Financial Technologies, Inc., a Texas corporation
(the "Company"), and each purchaser identified on the signature pages hereto
(each, including its successors and assigns, a "Purchaser" and collectively the
"Purchasers").
WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act") 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 agree
as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in
this Agreement, for all purposes of this Agreement, the following terms have the
meanings indicated in this Section 1.1:
"Action" shall have the meaning ascribed to such term in
Section 3.1(j).
"Affiliate" means any Person that, directly or indirectly
through one or more intermediaries, controls or is controlled by or is
under common control with a Person as such terms are used in and
construed under Rule 144 under the Securities Act. With respect to a
Purchaser, any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as such Purchaser
will be deemed to be an Affiliate of such Purchaser.
"Certificate of Designations" means the Certificate of
Designations, as amended, establishing the rights and preferences of
the Series E Convertible Preferred Stock of the Company, in the form
attached hereto as Exhibit D.
"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) the
Purchasers' obligations to have the Escrow Agent pay the Subscription
Amount as directed by the Company and (ii) the Company's obligations to
deliver the Securities have been satisfied or waived.
"Commission" means the Securities and Exchange Commission.
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"Common Stock" means the common stock of the Company, par
value $.01 per share, and any other class of securities into which such
securities may hereafter have been reclassified or changed into.
"Common Stock Equivalents" means any securities of the Company
or the Subsidiaries which would entitle the holder thereof to acquire
at any time Common Stock, including, without limitation, any debt,
preferred stock, rights, options, warrants or other instrument that is
at any time convertible into or exercisable or exchangeable for, or
otherwise entitles the holder thereof to receive, Common Stock.
"Company Counsel" means Xxxxxxx Xxxxx LLP, with offices
located at 0000 Xxxx Xxxxxx, Xxxxx 0000, Xxxxxx, Xxxxx 00000 and 000
Xxxxxxxxx Xxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000.
"Conversion Shares" means the shares of Common Stock issuable
upon conversion of the Preferred Stock.
"Disclosure Schedules" means the Disclosure Schedules of the
Company delivered concurrently herewith.
"Discussion Time" shall have the meaning ascribed to such term
in Section 3.2(f).
"Effective Date" means the date that the initial Registration
Statement filed by the Company pursuant to the Registration Rights
Agreement is first declared effective by the Commission.
"Escrow Agent" shall mean Silicon Valley Bank.
"Escrow Agreement" means the Escrow Agreement in substantially
the form of Exhibit D hereto, among the Company, Arabella Securities,
TAL Financial Services, LLC, Ltd. and the Escrow Agent, executed and
delivered contemporaneously with this Agreement.
"Evaluation Date" shall have the meaning ascribed to such
term in Section 3.1(r).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Exempt Issuance" means the issuance of (a) shares of Common
Stock or options to employees, officers or directors of the Company
pursuant to any stock or option plan duly adopted 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 or
exchange of or conversion of any Securities issued hereunder and/or
securities exercisable or exchangeable for or convertible into shares
of Common Stock issued and outstanding on the date of this Agreement,
provided that such securities have not been amended since the date of
this Agreement to increase the number of such securities or to decrease
the exercise, exchange or conversion price of any such securities, (c)
securities issued pursuant to acquisitions or strategic transactions
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approved by a majority of the disinterested directors, provided any
such issuance shall only be to a Person which is, itself or through its
subsidiaries, an operating company in a business synergistic with the
business of the Company and in which the Company receives benefits in
addition to the investment of funds, but shall not include a
transaction in which the Company is issuing securities primarily for
the purpose of raising capital or to an entity whose primary business
is investing in securities and (d) the issuance of up to $7.0 million
mezzanine debt to Xxxxxxx Capital Finance, LLC, plus warrants to
purchase 8,000,000 shares for a price of $0.15 per share the terms of
which are set forth in that certain letter of intent between the
Company and Xxxxxxx, dated March 15, 2006, a copy of which was
delivered to the Purchasers, which issuance shall be consummated on or
prior to March 31, 2006; provided, however, that 51% in interest of the
Purchasers shall have consented to the final definitive documentation.
"Filings" shall have the meaning ascribed to such term in
Section 3.1(h).
"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).
"Governmental Authority" shall have the meaning ascribed to
such term in Section 2.3(b)(vi).
"Intellectual Property Rights" shall have the meaning
ascribed to such term in Section 3.1(o).
"Investment Company Act" shall have the meaning ascribed to
such term in Section 3.1(j).
"Legend Removal Date" shall have the meaning ascribed to such
term in Section 4.1(c).
"Liens" means a lien, charge, security interest, encumbrance,
right of first refusal, preemptive right or other restriction.
"Material Adverse Effect" shall have the meaning assigned to
such term in Section 3.1(b).
"Material Permits" shall have the meaning ascribed to such
term in Section 3.1(m).
"NASD" shall mean the National Association of Securities
Dealers.
"Participation Maximum" shall have the meaning ascribed to
such term in Section 4.13.
"Per Share Purchase Price" equals $1,000.
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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.
"Pre-Notice" shall have the meaning ascribed to such term in
Section 4.13.
"Preferred Stock" means the Company's Series E Convertible
Preferred Stock, par value $10.00 per share.
"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.
"Purchaser Party" shall have the meaning ascribed to such term
in Section 4.9.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated the date hereof, among the Company and the Purchasers,
in the form of Exhibit A attached hereto.
"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 Conversion Shares and
the Warrant 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.
"Securities" means the Shares, the Conversion Shares, the
Warrants and the Warrant Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means the shares of Preferred Stock issued or
issuable to each Purchaser pursuant to this Agreement.
"Shareholder Approval" shall mean the approval of the
Company's shareholders required to amend the Company's Articles of
Incorporation to increase the Company's authorized number of shares of
Common Stock to 500 million shares.
"Short Sales" shall include all "short sales" as defined in
Rule 200 of Regulation SHO under the Exchange Act (but shall not be
deemed to include the location and/or reservation of borrowable shares
of Common Stock).
"Subscription Amount" means, as to each Purchaser, the
aggregate amount to be paid for Shares and Warrants purchased hereunder
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as specified below such Purchaser's name on the signature page of this
Agreement and next to the heading "Subscription Amount", in United
States Dollars and in immediately available funds.
"Subsequent Financing" shall have the meaning ascribed to such
term in Section 4.13.
"Subsequent Financing Notice" shall have the meaning ascribed
to such term in Section 4.13.
"Subsidiary" means any subsidiary of the Company as set forth
on Schedule 3.1(a).
"TAL Closing" means the closing of the Membership Interest
Purchase Agreement between the Company and TAL Financial Services, LLC.
"Terra Nova Acquisition" means the acquisition of 100% of the
outstanding membership interests of Terra Nova Trading, LLC, Marketwise
Securities, LLC, and Marketwise Stock Trading School, LLC for a
purchase price of not more than $25 million and such other terms and
conditions as are reasonably satisfactory to the Purchasers, which
acquisition shall be consummated on or before May 31, 2006.
"Trading Day" means a day on which the Common Stock is traded
on a Trading Market.
"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 Nasdaq Capital Market, the American Stock Exchange, the
New York Stock Exchange, the Nasdaq National Market or the OTC Bulletin
Board.
"Transaction Documents" means this Agreement, the Warrants,
the Certificate of Designation, the Registration Rights Agreement, the
Escrow Agreement and any other documents or agreements executed in
connection with the transactions contemplated hereunder.
"VWAP" means, for any date, the price determined by the first
of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market, the daily volume weighted average
price of the Common Stock for such date (or the nearest preceding date)
on the Trading Market on which the Common Stock is then listed or
quoted, as reported by Bloomberg Financial L.P. (based on a Trading Day
from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b) if the
Common Stock is not then listed or quoted on a Trading Market and if
prices for the Common Stock are then reported in the "Pink Sheets"
published by the Pink Sheets, LLC (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid
price per share of the Common Stock so reported; or (c) in all other
cases, the fair market value of a share of Common Stock as determined
by an independent appraiser selected in good faith by the Purchasers
and reasonably acceptable to the Company.
"Warrants" means collectively the Common Stock purchase
warrants, in the form of Exhibit C delivered to the Purchasers at the
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Closing in accordance with Section 2.2(a) hereof, which Warrants shall
be exercisable immediately and have a term of exercise equal to five
years.
"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, upon the terms and subject to
the conditions set forth herein, concurrent with the execution and delivery of
this Agreement by the parties hereto, the Company agrees to sell, and each
Purchaser agrees to purchase in the aggregate, severally and not jointly, a
minimum of $28,000,000, and a maximum of $35,000,000 of Shares and Warrants.
Each Purchaser shall cause the Escrow Agent to deliver to the Company via a
certified check or by wire transfer in immediately available funds equal to its
Subscription Amount and the Company shall deliver to each Purchaser their
respective Shares and Warrants as determined pursuant to Section 2.2(a),
together with the other items set forth in Section 2.2 issuable at the Closing.
Upon satisfaction of the conditions set forth in Sections 2.2 and 2.3, the
Closing shall occur at the offices of FW, or such other location as the parties
shall mutually agree.
2.2 Deliveries.
(a) On or prior to the date hereof, the Company shall
deliver or cause to be delivered to each Purchaser the following:
(i) this Agreement duly executed by the Company;
(ii) a legal opinion of Company Counsel, in the
form of Exhibit B attached hereto;
(iii) the Escrow Agreement duly executed by the
Company, the Escrow Agent and the other parties thereto; and
(iv) the Registration Rights Agreement duly
executed by the Company.
(b) On or prior to the date hereof, each Purchaser shall
deliver or cause to be delivered to the Company (except as noted) the
following:
(i) this Agreement duly executed by such
Purchaser;
(ii) the Escrow Agreement duly executed by such
Purchaser;
(iii) such Purchaser's Subscription Amount by
certified check or wire transfer to the Escrow Agent's account
as specified in the Escrow Agreement; and
(iv) the Registration Rights Agreement duly
executed by such Purchaser.
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(c) On or within three Trading Days after the Closing
Date, the Company shall deliver:
(i) a certificate evidencing a number of Shares
equal to such Purchaser's Subscription Amount divided by the
Per Share Purchase Price, registered in the name of such
Purchaser; and
(ii) a Warrant registered in the name of such
Purchaser to purchase up to a number of shares of Common Stock
equal to 50% of such Purchaser's Subscription Amount divided
by $0.15, with an exercise price equal to $0.30, subject to
adjustment therein;
2.3 Closing Conditions.
(a) The obligations of the Company hereunder in
connection with the Closing are subject to the following conditions
being met:
(i) the accuracy in all material respects when
made and on the Closing Date of the representations and
warranties of the Purchasers contained herein;
(ii) all obligations, covenants and agreements of
the Purchasers required to be performed hereunder at or prior
to the Closing Date shall have been performed; and
(iii) the delivery by the Purchasers of the items
set forth in Section 2.2(b) of this Agreement.
(b) The respective obligations of the Purchasers
hereunder in connection with the Closing are subject to the following
conditions being met:
(i) the accuracy in all material respects on the
Closing Date of the representations and warranties of the
Company contained herein;
(ii) all obligations, covenants and agreements of
the Company required to be performed hereunder at or prior to
the Closing Date shall have been performed;
(iii) the delivery by the Company of the items set
forth in Section 2.2(a) of this Agreement;
(iv) the Company shall have received
subscriptions for at least 28,000 shares of Preferred Stock;
(v) the Company shall have obtained all Required
Approvals, and there shall be no injunction issued or suit
pending which seeks to enjoin either the transactions
contemplated hereby or the Terra Nova Acquisition;
(vi) The execution and delivery of each of the
Transaction Documents by the Company and any Subsidiary and
the consummation by it of the transactions contemplated
thereby do not violate, conflict with or result in a violation
of, or constitute a default (whether after the giving of
notice, lapse of time or both) under, any provision of any
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law, regulation or rule, or any order of, or any restriction
imposed by, any court or U.S. state or federal or foreign
governmental agency or authority, or self-regulatory
organization (any, a "Governmental Authority"), including
without limitation the Financial Services Authority, the
Securities and Exchange Commission, the Commodities Futures
Trading Commission, the NASD and the National Futures
Association, applicable to the Company; (iii) require from the
Company or any Subsidiary any notice to, declaration or filing
with, or consent or approval of any Governmental Authority or
other third party, except as set forth in Schedule 2.3(b)(vi);
(vii) Simultaneously with the Closing, the Company
shall have consummated the Terra Nova Acquisition;
(viii) there shall have been no Material Adverse
Effect with respect to the Company since the date hereof; and
(ix) from the date hereof to the Closing Date,
trading in the Common Stock shall not have been suspended by
the Commission or the Company's principal Trading Market
(except for any suspension of trading of limited duration
agreed to by the Company, which suspension shall be terminated
prior to the Closing), and, at any time prior to the Closing
Date, trading in securities generally as reported by Bloomberg
Financial Markets shall not have been suspended or limited, or
minimum prices shall not have been established on securities
whose trades are reported by such service, or on any Trading
Market, nor shall a banking moratorium have been declared
either by the United States or New York State authorities nor
shall there have occurred any material outbreak or escalation
of hostilities or other national or international calamity of
such magnitude in its effect on, or any material adverse
change in, any financial market which, in each case, in the
reasonable judgment of each Purchaser, makes it impracticable
or inadvisable to purchase the Shares at the Closing.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set
forth 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 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. The Company and each
of the Subsidiaries is an entity duly incorporated or otherwise
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with
the requisite power and authority to own and use its properties and
assets and to carry on its business as currently conducted. Neither the
Company nor any Subsidiary is in violation 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 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, prospects or condition (financial or
otherwise) of the Company and the Subsidiaries, taken as a whole, or
(iii) a material adverse effect on the Company's ability to perform in
any material respect on a timely basis its obligations under any
Transaction Document (any of (i), (ii) or (iii), a "Material Adverse
Effect") and no Proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing or seeking to revoke, limit or curtail
such power and authority or qualification.
(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 and thereunder. The
execution and delivery of each of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated
thereby have been duly authorized by all necessary action on the part
of the Company and no further action is required by the Company, its
board of directors or its stockholders in connection therewith other
than in connection with the Required Approvals. Each Transaction
Document has been (or upon delivery will have been) duly executed by
the Company and, when delivered in accordance with the terms hereof and
thereof, will constitute the valid and binding obligation of the
Company enforceable against the Company in accordance with its terms
except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally and (ii) as
limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies.
(d) No Conflicts. The execution, delivery and performance
of the Transaction Documents by the Company, the issuance and sale of
the Shares and the consummation by the Company of the other
transactions contemplated hereby and thereby do not and will not (i)
conflict with or violate any provision of the Company's or any
Subsidiary's certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time or
both would become a default) under, result in the creation of any Lien
upon any of the properties or assets of the Company or any Subsidiary,
or give to others any rights of termination, amendment, acceleration or
cancellation (with or without notice, lapse of time or both) of, any
agreement, credit facility, debt or other instrument (evidencing a
Company or Subsidiary debt or otherwise) or other understanding to
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which the Company or any Subsidiary is a party or by which any property
or asset of the Company or any Subsidiary is bound or affected, or
(iii) subject to the Required Approvals, conflict with or result in a
violation of any law, rule, regulation, order, judgment, injunction,
decree or other restriction of any court or governmental authority to
which the Company or a Subsidiary is subject (including federal and
state securities laws and regulations), or by which any property or
asset of the Company or a Subsidiary is bound or affected; except in
the case of each of clauses (ii) and (iii), such as could not have or
reasonably be expected to result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. The Company is not
required to obtain any consent, waiver, authorization or order of, give
any notice to, or make any filing or registration with, any court or
other federal, state, local or other governmental authority or other
Person in connection with the execution, delivery and performance by
the Company of the Transaction Documents, other than (i) filings
required pursuant to Section 4.4 of this Agreement, (ii) the filing
with the Commission of the Registration Statement, (iii) application(s)
to each applicable Trading Market for the listing of the Shares and
Warrant Shares for trading thereon in the time and manner required
thereby, and (iv) the filing of Form D with the Commission and such
filings as are required to be made under applicable state securities
laws (collectively, the "Required Approvals") and (v) the filing by any
Subsidiary with the NASD pursuant to NASD Rule 1017 for approval of any
25% change in control of any Subsidiary which is a registered
broker-dealer, and (vi) the filing with the NASD pursuant to NASD Rule
1017 for approval of the Terra Nova Acquisition.
(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 imposed by
the Company other than restrictions on transfer provided for in the
Transaction Documents. The Conversion Shares and the Warrant Shares,
when issued in accordance with the terms of the Transaction Documents,
will be validly issued, fully paid and nonassessable, free and clear of
all Liens imposed by the Company. Subject to receipt of Shareholder
Approval, the Company has reserved from its duly authorized capital
stock the maximum number of shares of Common Stock issuable pursuant to
conversion of the Preferred Stock and exercise of the Warrants.
(g) Capitalization. The capitalization of the Company is
as set forth on Schedule 3.1(g). The Company has not issued any capital
stock since its most recently filed periodic report under the Exchange
Act, other than pursuant to the exercise of employee stock options
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 set forth on Schedule 3.1(g), pursuant to the
Certificate of Designations or 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 exercisable or exchangeable for, or giving any
Person any right to subscribe for or acquire, any shares of Common
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Stock, or contracts, commitments, understandings or arrangements by
which the Company or any Subsidiary is or may become bound to issue
additional shares of Common Stock or Common Stock Equivalents. The
issuance and sale of the Securities will not obligate the Company to
issue shares of Common Stock or other securities to any Person (other
than the Purchasers) and will not result in a right of any holder of
Company securities to adjust the exercise, conversion, exchange or
reset price under 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 Securities. 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) Filings; Financial Statements. The Company and each
Subsidiary has timely filed all reports, registrations, schedules,
forms, statements and other documents required to be filed by it under
the Securities Act and the Exchange Act, including pursuant to Section
13(a) or 15(d) thereof, or with any Governmental Authority 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 and documents incorporated by reference
therein, being collectively referred to herein as the "Filings") on a
timely basis or has received a valid extension of such time of filing
and has filed any such Filings prior to the expiration of any such
extension. As of their respective dates, the Filings 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 the rules and regulations of any other
Governmental Authority with which the Filings were made or should have
been made, and none of the Filings, when filed, contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. The financial statements of the Company
and/or any Subsidiary included in the Filings comply in all material
respects with applicable accounting requirements and the rules and
regulations of the Commission with respect thereto as in effect at the
time of filing. Such financial statements have been prepared in
accordance with United States generally accepted accounting principles
applied on a consistent basis during the periods involved ("GAAP"),
except as may be otherwise specified in such financial statements or
the notes thereto and except that unaudited financial statements may
not contain all footnotes required by GAAP, and fairly present in all
material respects the financial position of the Company and its
consolidated Subsidiaries as of and for the dates thereof and the
results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments.
(i) Material Changes; Undisclosed Events, Liabilities or
Developments. Since the date of the latest audited financial statements
included within the Filings, except as specifically disclosed in the
Filings, (i) there has been no event, occurrence or development that
has had or that could reasonably be expected to result in a Material
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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 officer, director or Affiliate,
except pursuant to existing Company stock option plans. The Company
does not have pending before the Commission any request for
confidential treatment of information. Except for the issuance of the
Securities contemplated by this Agreement or as set forth on Schedule
3.1(i), no event, liability or development has occurred or exists with
respect to the Company or its Subsidiaries or their respective
business, properties, operations or financial condition, that would be
required to be disclosed by the Company under applicable securities
laws at the time this representation is made that has not been publicly
disclosed one Trading Day prior to the date that this representation is
made.
(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 or any of their respective properties before or by any
court, arbitrator, governmental or administrative agency or regulatory
authority (federal, state, county, local or foreign) (collectively, an
"Action") which (i) adversely affects or challenges the legality,
validity or enforceability of any of the Transaction Documents or the
Securities or (ii) could, if there were an unfavorable decision, have
or reasonably be expected to result in a Material Adverse Effect.
Neither the Company nor any Subsidiary, nor any director or officer or,
to the Company's knowledge, any employee thereof, is or has been the
subject of any Action involving a claim of violation of or liability
under federal or state securities laws or a claim of breach of
fiduciary duty. There has not been, and to the knowledge of the
Company, there is not pending or contemplated, any investigation by the
Commission involving the Company or any Subsidiary or any current or
former director or officer or employee of the Company or any
Subsidiary. The Commission has not issued any stop order or other order
suspending the effectiveness of any registration statement filed by the
Company or any Subsidiary under the Exchange Act or the Securities Act.
None of the Company's or its Subsidiaries' employees is a member of a
union that relates to such employee's relationship with the Company,
and neither the Company or any of its Subsidiaries is a party to a
collective bargaining agreement, and the Company and its Subsidiaries
believe that their relationships with their employees are good. No
executive officer is, or is now expected to be, in violation of any
material term of any employment contract, confidentiality, disclosure
or proprietary information agreement or non-competition agreement, or
any other contract or agreement or any restrictive covenant, and the
continued employment of each such executive officer does not subject
the Company or any of its Subsidiaries to any liability with respect to
any of the foregoing matters. The Company and its Subsidiaries are in
compliance with all U.S. federal, state, local and foreign laws and
regulations relating to employment and employment practices, terms and
conditions of employment and wages and hours, except where the failure
to be in compliance could not, individually or in the aggregate,
62
reasonably be expected to have a Material Adverse Effect. In addition
no Governmental Authority has initiated any administrative proceeding
or, to the knowledge of the Company, investigation into the business or
operations of the Company or any Subsidiary, (ii) the Company has not
received any notice of any unresolved violation or exception by any
Governmental Authority with respect to any report or statement relating
to any examination of the Company or any Subsidiary, and (iii) there
exists no reasonable basis upon which any Governmental Authority may
initiate any such administrative proceeding or investigation of the
Company or any Subsidiary or assert any such material violation against
the Company. Without limiting the generality of the foregoing, neither
the Company, any Subsidiaries nor any of their officers, directors,
employees, members, partners or other interest holders has been
enjoined, indicted, convicted or made the subject of a disciplinary
proceeding, consent decree, or administrative order on account of any
violation of the Exchange Act, the Commodities Exchange Act, the
Investment Company Act of 1940 (the "Investment Company Act"), as
amended, the Investment Advisers Act of 1940, as amended, state
securities law or applicable foreign law or regulation or Law.
(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
(i) is in default under or in violation of (and no event has occurred
that has not been waived that, with notice or lapse of time or both,
would result in a default by the Company or any Subsidiary under), nor
has the Company or any Subsidiary received notice of a claim that it is
in default under or that it is in violation of, any indenture, loan or
credit agreement or any other material 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 and all such
laws that affect the environment, except in each case as could not have
a Material Adverse Effect. Each the Company and its Subsidiaries has
not used and does not currently use any of the customer information
that it has received or currently receives through its website in a
manner that violates, in any material respect, the Company's or such
Subsidiaries' privacy policy. Neither the Company nor any Subsidiary
has collected any customer information through its website that
violates, in any material respect, its privacy policy.
(m) Regulatory Permits. The Company and the Subsidiaries
possess all certificates, authorizations, licenses, registrations and
permits issued by any Governmental Authority which are necessary to
conduct their respective businesses as described in the Filings, except
where the failure to possess such permits could not have or reasonably
be expected to result in a Material Adverse Effect ("Material
Permits"), and neither the Company nor any Subsidiary has received any
notice of Proceedings relating to the revocation or modification of any
Material Permit. Each such Material Permit is listed in Schedule 3.1(m)
and is in full force and effect, and there are no Proceedings or
investigations pending or, to the knowledge of the Company, threatened
to suspend, revoke or modify any of such permits. Each employee,
63
officer or director of the Company or any Subsidiary who is required to
be registered as a broker, dealer, agent, investment adviser,
investment adviser representative with the Commission, the NASD or any
state securities authority or any other Governmental Authority is duly
registered as such and such registration is in full force and effect.
Each such license is listed in Schedule 3.1(m) and is in full force and
effect and there are no Proceedings pending or, to the knowledge of the
Company, threatened to suspend, revoke or modify any of such licenses.
(n) Title to Assets. The Company and the Subsidiaries
have good and marketable title in fee simple to all real property owned
by them that is material to the business of the Company and the
Subsidiaries and good and marketable title in all personal property
owned by them that is material to the business of the Company and the
Subsidiaries, in each case free and clear of all Liens, except for
Liens as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such
property by the Company and the Subsidiaries 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 are held by them
under valid, subsisting and enforceable leases with which the Company
and the Subsidiaries are in material compliance.
(o) Patents and Trademarks. The Company and the
Subsidiaries have, or have rights to use, all patents, patent
applications, trademarks, trademark applications, service marks, trade
names, trade secrets, inventions, copyrights, licenses and other
similar intellectual property rights necessary or material for use in
connection with their respective businesses as described in the Filings
and which the failure to so have could have a Material Adverse Effect
(collectively, the "Intellectual Property Rights"). Neither the Company
nor any Subsidiary has received a notice (written or otherwise) that
the Intellectual Property Rights used by the Company or any Subsidiary
violates or infringes upon the rights of any Person. To the knowledge
of the Company, all such Intellectual Property Rights are enforceable
and there is no existing infringement by another Person of any of the
Intellectual Property Rights of others. The Company and its
Subsidiaries have taken reasonable security measures to protect the
secrecy, confidentiality and value of all of their intellectual
properties, except where failure to do so could not, individually or in
the aggregate, reasonably be expected to have a Material Adverse
Effect.
(p) Insurance. The Company and the Subsidiaries are
insured by insurers of recognized financial responsibility against such
losses and risks and in such amounts as are prudent and customary in
the businesses in which the Company and the Subsidiaries are engaged.
To the best knowledge of the Company, such insurance contracts and
policies are accurate and complete. Neither the Company nor any
Subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to
continue its business without a significant increase in cost.
(q) Transactions With Affiliates and Employees. Except as
set forth in the Filings, none of the officers or directors of the
Company and, to the knowledge of the Company, none of the employees of
the Company is presently a party to any transaction with the Company or
any Subsidiary (other than for services as employees, officers and
64
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. To the extent required, the Company and the Subsidiaries maintain
a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions
are recorded as necessary to permit preparation of financial statements
in conformity with 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, 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 knowledge of the
Company, in other factors that could significantly affect the Company's
internal controls.
(s) Certain Fees. Except as set forth is Schedule 3.1(s),
no brokerage or finder's fees or commissions are or will be payable by
the Company to any broker, financial advisor or consultant, finder,
placement agent, investment banker, bank or other Person with respect
to the transactions contemplated by the Transaction Documents. The
Purchasers shall have no obligation with respect to any 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 the Transaction Documents.
(t) Private Placement. Assuming the accuracy of the
Purchasers' representations and warranties set forth in Section 3.2, no
65
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. Neither the Company nor any
Subsidiary is, 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. The Company and each Subsidiary shall conduct its
respective business in a manner so that it will not become subject to
the Investment Company Act.
(v) Registration Rights. Other than each of the
Purchasers, 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 as a result of the Company's
issuance of the Securities and the Purchasers' ownership of the
Securities.
(y) Disclosure. 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 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.
66
(z) No Integrated Offering. Assuming the accuracy of the
Purchasers' representations and warranties set forth in Section 3.2,
neither the Company, nor any of its affiliates, nor 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 any applicable shareholder approval provisions,
including, without limitation, under the rules and regulations of any
Trading Market on which any of the securities of the Company are listed
or designated.
(aa) Solvency. Based on the financial condition of the
Company as of the Closing Date after giving effect to the receipt by
the Company of the proceeds from the sale of the Securities hereunder,
(i) the Company's fair saleable value of its assets exceeds the amount
that will be required to be paid on or in respect of the Company's
existing debts and other liabilities (including known contingent
liabilities) as they mature; (ii) the Company's assets do not
constitute unreasonably small capital to carry on its business for the
current fiscal year as now conducted and as proposed to be conducted
including its capital needs taking into account the particular capital
requirements of the business conducted by the Company, and projected
capital requirements and capital availability thereof; and (iii) the
current cash flow of the Company, together with the proceeds the
Company would receive, were it to liquidate all of its assets, after
taking into account all anticipated uses of the cash, would be
sufficient to pay all amounts on or in respect of its debt when such
amounts are required to be paid. The Company does not intend to incur
debts beyond its ability to pay such debts as they mature (taking into
account the timing and amounts of cash to be payable on or in respect
of its debt). The Company has no knowledge of any facts or
circumstances which lead it to believe that it will file for
reorganization or liquidation under the bankruptcy or reorganization
laws of any jurisdiction within one year from the Closing Date. The
Filings 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) [Reserved].
(cc) Tax Status. Except for matters that would not,
individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect, the Company and each Subsidiary
has filed all necessary federal, state and foreign income and franchise
tax returns and has paid or accrued all taxes shown as due thereon, and
the Company has no knowledge of a tax deficiency which has been
asserted or threatened against the Company or any Subsidiary.
67
(dd) No General Solicitation. Neither the Company nor any
Person acting on behalf of the Company has offered or sold any of the
Securities by any form of general solicitation or general advertising.
The Company has offered the Securities for sale only to the Purchasers
and certain other "accredited investors" within the meaning of Rule 501
under the Securities Act.
(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) Accountants. The Company's accountants are set forth
on Schedule 3.1(ff) of the Disclosure Schedule. 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-KSB for the year ending December 31, 2005, are a registered
public accounting firm as required by the Securities Act.
(gg) Acknowledgment Regarding Purchasers' Purchase of
Securities. The Company acknowledges and agrees that each of the
Purchasers is acting solely in the capacity of an arm's length
purchaser with respect to the Transaction Documents 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 advice given by any
Purchaser or any of their respective representatives or agents in
connection with this Agreement and the transactions contemplated hereby
is merely incidental to 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 transactions contemplated hereby by the
Company and its representatives.
(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; (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, and (iv) that each
68
Purchaser shall not be deemed to have any affiliation with or control
over any arm's length counter-party in any "derivative" transaction.
The Company further understands and acknowledges that (a) one or more
Purchasers may engage in hedging activities at various times during the
period that the Securities are outstanding, including, without
limitation, during the periods that the value of the Warrant Shares
deliverable with respect to Securities are being determined and (b)
such hedging activities (if any) could reduce the value of the existing
stockholders' equity interests in the Company at and after the time
that the hedging activities are being conducted. The Company
acknowledges that such aforementioned hedging activities do not
constitute a breach of any of the Transaction Documents.
(ii) Manipulation of Price. The Company has not, and to
its knowledge no one acting on its behalf has, (i) taken, directly or
indirectly, any action designed to cause or to result in the
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of any of the Securities, (ii)
sold, bid for, purchased, or, paid any compensation for soliciting
purchases of, any of the Securities (other than for the placement
agent's placement of the Securities), or (iii) paid or agreed to pay to
any person any compensation for soliciting another to purchase any
other securities of the Company.
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 hereunder and thereunder. The execution,
delivery and performance by such Purchaser of the Transaction Documents
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.
(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 in violation of the Securities Act or any applicable state
securities law, has no present intention of distributing any of such
Securities in violation of the Securities Act or any applicable state
securities law and has no 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
69
the Securities pursuant to the Registration Statement or otherwise in
compliance with applicable federal and state securities laws) in
violation of the Securities Act or any applicable state securities law.
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, it will be either: (i) an
"accredited investor" as defined in Rule 501(a) 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. In evaluating the merits of an investment in the
Securities, such Purchaser is not relying on the Company or any other
Person or their respective counsel for an evaluation of the business,
tax, legal or other consequences of such an investment. None of the
Company or any other Person has made any representations about the
value or performance of the Company or the Securities. 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. Such Purchaser is aware that an investment in the
Securities is a speculative investment and involves a high degree of
risk. Such Purchaser understands the financial risks involved, which
could result in a substantial or complete loss of Purchaser's
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) Short Sales and Confidentiality Prior To The Date
Hereof. Other than the transaction contemplated hereunder, such
Purchaser has not directly or indirectly, nor has any Person acting on
behalf of or pursuant to any understanding with such Purchaser,
executed any disposition, including Short Sales, in the securities of
the Company during the period commencing from the time that such
Purchaser first received a term sheet from the Company or any other
Person setting forth the material terms of the transactions
contemplated hereunder until the date hereof ("Discussion Time").
Notwithstanding the foregoing, in the case of a Purchaser that is a
multi-managed investment vehicle whereby separate portfolio managers
manage separate portions of such Purchaser's assets and the portfolio
managers have no direct knowledge of the investment decisions made by
the portfolio managers managing other portions of such Purchaser's
assets, the representation set forth above shall only apply with
respect to the portion of assets managed by the portfolio manager that
made the investment decision to purchase the Securities covered by this
70
Agreement. Other than to other Persons party to this Agreement, such
Purchaser has maintained the confidentiality of all disclosures made to
it in connection with this transaction (including the existence and
terms of this transaction).
(g) Rule 144. Such Purchaser is aware of the provisions
of Rule 144 which permit limited resale of shares purchased in a
private placement subject to the satisfaction of certain conditions,
which may include, among other things, the existence of a public market
for the shares, the availability of certain current public information
about the Company, the resale occurring not less than one year after a
party has purchased and paid for the security to be sold, the sale
being effected through a "broker's transaction" or in transactions
directly with a "market maker" and the number of shares being sold
during any three-month period not exceeding specified limitations.
(h) Reliance. Such Purchaser understands that the Company
and Arabella Securities, the placement agent, are relying on such
Purchaser's representations, warranties, and covenants herein in
establishing an exemption from registration under the Securities Act
and state securities laws for sale of the Securities to such Purchaser,
and that any inaccuracy herein could affect the Company's ability to
establish an exemption.
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 shall be
reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred Securities
under the Securities Act. As a condition of transfer, any such
transferee shall agree in writing to be bound by the terms of this
Agreement and shall have the rights of a Purchaser under this Agreement
and the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is
required by this Section 4.1(b), of a legend on any of the Securities
in the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
71
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 MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A
REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL
INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN
RULE 501(a) UNDER THE SECURITIES ACT 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.
(c) Certificates evidencing the Shares and Warrant 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 security is effective under the
Securities Act, or (ii) following any sale of such Shares or Warrant
Shares pursuant to Rule 144, or (iii) if such Shares or Warrant Shares
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 Warrant is
exercised at a time when there is an effective registration statement
to cover the resale of the Warrant Shares, such Warrant 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
72
transfer agent of a certificate representing Shares or Warrant Shares,
as the case may be, issued with a restrictive legend (such third
Trading Day, the "Legend Removal Date"), deliver or cause to be
delivered to such Purchaser a certificate representing such 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. Certificates for Securities subject to legend
removal hereunder shall be transmitted by the transfer agent of the
Company to the Purchasers by crediting the account of the Purchaser's
prime broker with the Depository Trust Company System.
(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 Shares or
Warrant Shares (based on the VWAP 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 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
without a legend. 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) Until the one year anniversary of the Effective Date,
the Company shall not undertake a reverse or forward stock split or
reclassification of the Common Stock without the prior written consent
of the Purchasers holding a majority in interest of the Shares.
4.2 Furnishing of Information. As long as any Purchaser owns at
least 1% of the Securities originally purchased hereunder, the Company covenants
to timely file (or obtain extensions in respect thereof and file within the
applicable grace period) all reports required to be filed by the Company after
the date hereof pursuant to the Exchange Act. As long as any Purchaser owns
Securities, if the Company is not required to file reports pursuant to the
Exchange Act, it will prepare and furnish to the Purchasers and make publicly
available in accordance with Rule 144(c) such information as is required for the
Purchasers to sell the Securities under Rule 144. The Company further covenants
that it will take such further action as any holder of Securities may reasonably
request, 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
73
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
5:30 p.m. Eastern time on the 4th Trading Day immediately following the date
hereof, issue a Current Report on Form 8-K, reasonably acceptable to each
Purchaser disclosing the material terms of the transactions contemplated hereby,
and shall attach the Transaction Documents thereto. The Company and each
Purchaser shall consult with each other in issuing any other press releases with
respect to the transactions contemplated hereby, and neither the Company nor any
Purchaser shall issue any such press release or otherwise make any such public
statement without the prior consent of the Company, with respect to any press
release of any Purchaser, or without the prior consent of each Purchaser, with
respect to any press release of the Company, which consent shall not
unreasonably be withheld, except if such disclosure is required by law, in which
case the disclosing party shall promptly provide the other party with prior
notice of such public statement or communication. Notwithstanding the foregoing,
the Company shall not publicly disclose the name of any Purchaser, or include
the name of any Purchaser in any filing with the Commission or any regulatory
agency or Trading Market, without the prior written consent of such Purchaser,
except (i) as required by federal securities law in connection with the
registration statement contemplated by the Registration Rights Agreement and
(ii) to the extent such disclosure is required by law or Trading Market
regulations, in which case the Company shall provide the Purchasers with prior
notice of such disclosure permitted under subclause (i) or (ii).
4.5 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
neither it nor any other Person acting on its behalf will provide any Purchaser
or its agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto such Purchaser
shall have executed a written agreement 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 the Terra Nova Acquisition and working capital purposes and not
for the satisfaction of any portion of the Company's debt (other than payment of
current and past-due trade payables in the ordinary course of the Company's
business and prior practices), to redeem any Common Stock or Common Stock
Equivalents or to settle any outstanding litigation.
74
4.8 Reimbursement. If any Purchaser becomes involved in any
capacity in any Proceeding by or against any Person who is a stockholder of the
Company (except as a result of sales, pledges, margin sales and similar
transactions by such Purchaser to or with any current stockholder), solely as a
result of such Purchaser's acquisition of the Securities under this Agreement,
the Company will reimburse such Purchaser for its reasonable legal and other
expenses (including the cost of any investigation preparation and travel in
connection therewith) incurred in connection therewith, as such expenses are
incurred. The reimbursement obligations of the Company under this paragraph
shall be in addition to any liability which the Company may otherwise have,
shall extend upon the same terms and conditions to any Affiliates of the
Purchasers who are actually named in such action or Proceeding, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Purchasers and any such Affiliate, and shall be binding upon and
inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company solely as a result of acquiring the Securities under
this Agreement, except if such claim arises primarily from a breach of such
Purchaser's representations, 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.
4.9 Indemnification of Purchasers. Subject to the provisions of
this Section 4.9, the Company will indemnify and hold each Purchaser and its
directors, officers, shareholders, members, partners, employees and agents (and
any other Persons with a functionally equivalent role of a Person holding such
titles notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, agents,
members, partners or employees (and any other Persons with a functionally
equivalent role of a Person holding such titles notwithstanding a lack of such
title or any other title) of such controlling persons (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 breach of any of the representations, warranties,
covenants or agreements made by the Company in this Agreement or in the other
Transaction Documents or (b) any action instituted against a Purchaser, or any
of them or their respective Affiliates, by any stockholder of the Company who is
not an Affiliate of such Purchaser, with respect to any of the transactions
contemplated by the Transaction Documents (unless such action is based upon a
breach of such Purchaser's representations, 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
75
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 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.
4.10 Reservation of Common Stock. Subject only to the receipt of
Shareholder Approval and the filing of an amendment to the Company's Certificate
of Incorporation, as of the date hereof, the Company has reserved and the
Company shall continue to reserve and keep available at all times, free of
preemptive rights, a sufficient number of shares of Common Stock for the purpose
of enabling the Company to issue Conversion Shares upon conversion of the
Preferred Stock and Warrant Shares pursuant to any exercise of the Warrants. The
Company agrees to call a meeting of its stockholders (which may also be an
annual or a special meeting) to be held no later than July 1, 2006 for the
purpose of obtaining Shareholder Approval. Such resolution shall be recommended
by the Board of Directors, and the Company shall solicit proxies in favor of
such proposal in the same manner as for any other proposal.
4.11 Listing of Common Stock. The Company hereby agrees to use best
efforts to maintain the listing of the Common Stock on a Trading Market, and as
soon as reasonably practicable following the Closing (but not later than the
earlier of the Effective Date and the first anniversary of the Closing Date) to
list all of the Conversion Shares and Warrant Shares on such Trading Market. The
Company further agrees, if the Company applies to have the Common Stock traded
on any other Trading Market, it will include in such application all of the
Conversion Shares and Warrant Shares, and will take such other action as is
necessary to cause all of the Conversion Shares and Warrant Shares to be listed
on such other Trading Market as promptly as possible. The Company will take all
action reasonably necessary to continue the listing and trading of its Common
Stock on a Trading Market and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the Trading
Market.
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.
(a) From the date hereof until the date that is the 12
month anniversary of the Effective Date, upon any financing by the
76
Company or any of its Subsidiaries of Common Stock or Common Stock
Equivalents (a "Subsequent Financing"), each Purchaser shall have the
right to participate in up to an amount of the Subsequent Financing
equal to 100% of the Subsequent Financing (the "Participation
Maximum").
(b) At least five 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 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.
(c) Any Purchaser desiring to participate in such
Subsequent Financing must provide written notice to the Company by not
later than 5:30 p.m. (New York City time) on the 5th Trading Day after
all of the Purchasers have received the Pre-Notice that the Purchaser
is willing to participate in the Subsequent Financing, the amount of
the Purchaser's participation, and that the Purchaser has such funds
ready, willing, and available for investment on the terms set forth in
the Subsequent Financing Notice. If the Company receives no notice from
a Purchaser as of such 5th Trading Day, such Purchaser shall be deemed
to have notified the Company that it does not elect to participate.
(d) If by 5:30 p.m. (New York City time) on the 5th
Trading Day after all of the Purchasers have received the Pre-Notice,
notifications by the Purchasers of their willingness to participate in
the Subsequent Financing (or to cause their designees to participate)
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.
(e) If by 5:30 p.m. (New York City time) on the 5th
Trading Day after all of the Purchasers have received the Pre-Notice,
the Company receives responses to a Subsequent Financing Notice from
Purchasers seeking to purchase more than the aggregate amount of the
Participation Maximum, each such Purchaser shall have the right to
purchase the greater of (a) their Pro Rata Portion (as defined below)
of the Participation Maximum and (b) the difference between the
Participation Maximum and the aggregate amount of participation by all
other Purchasers. "Pro Rata Portion" is the ratio of (x) the
Subscription Amount of Securities purchased on the Closing Date by a
Purchaser participating under this Section 4.13 and (y) the sum of the
aggregate Subscription Amounts of Securities purchased on the Closing
Date by all Purchasers participating under this Section 4.13.
(f) 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
77
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.
(g) Notwithstanding the foregoing, this Section 4.13
shall not apply in respect of an Exempt Issuance.
4.14 Subsequent Equity Sales.
(a) From the date hereof until 180 days after the
Effective Date, without the prior written consent of the holders of at
least 75% of the Shares, neither the Company nor any Subsidiary shall
issue shares of Common Stock or Common Stock Equivalents; provided,
however, the 180 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 the Purchasers for the resale of the Shares and Warrant
Shares.
(b) From the date hereof until such time as no Purchaser
holds any of the Securities, the Company shall be prohibited from
effecting or entering into an agreement to effect any Subsequent
Financing involving a "Variable Rate Transaction". The term "Variable
Rate Transaction" shall mean a transaction in which the Company issues
or sells (i) any debt or equity securities that are convertible into,
exchangeable or exercisable for, or include the right to receive
additional shares of Common Stock either (A) at a conversion, exercise
or exchange rate or other price that is based upon and/or varies with
the trading prices of or quotations for the shares of Common Stock at
any time after the initial issuance of such debt or equity securities,
or (B) with a conversion, exercise or exchange price that is subject to
being reset at some future date after the initial issuance of such debt
or equity security or upon the occurrence of specified or contingent
events directly or indirectly related to the business of the Company or
the market for the Common Stock or (ii) enters into any agreement,
including, but not limited to, an equity line of credit, whereby the
Company may sell securities at a future determined price. Any Purchaser
shall be entitled to obtain injunctive relief against the Company to
preclude any such issuance, which remedy shall be in addition to any
right to collect damages.
(c) Notwithstanding the foregoing, this Section 4.14
shall not apply in respect of an Exempt Issuance, except that no
Variable Rate Transaction shall be an Exempt Issuance.
4.15 Short Sales and Confidentiality After The Date Hereof. Each
Purchaser severally and not jointly with the other Purchasers 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 after the
Discussion Time and ending on the earlier of (i) September __, 2006 and (ii) the
Effective Date. Each Purchaser, severally and not jointly with the other
Purchasers, covenants that until such time as the transactions contemplated by
this Agreement are publicly disclosed by the Company as described in Section
4.4, such Purchaser will maintain, the confidentiality of all disclosures made
78
to it in connection with this transaction (including the existence and terms of
this transaction). Each Purchaser understands and acknowledges, severally and
not jointly with any other Purchaser, that the Commission currently takes the
position that coverage of short sales of shares of the Common Stock "against the
box" prior to the Effective Date of the Registration Statement with the
Securities is a violation of Section 5 of the Securities Act, as set forth in
Item 65, Section 5 under Section A, of the Manual of Publicly Available
Telephone Interpretations, dated July 1997, compiled by the Office of Chief
Counsel, Division of Corporation Finance. Notwithstanding the foregoing, in the
case of a Purchaser that is a multi-managed investment vehicle whereby separate
portfolio managers manage separate portions of such Purchaser's assets and the
portfolio managers have no direct knowledge of the investment decisions made by
the portfolio managers managing other portions of such Purchaser's assets, the
covenant set forth above shall only apply with respect to the portion of assets
managed by the portfolio manager that made the investment decision to purchase
the Securities covered by this Agreement.
4.16 Delivery of Securities After Closing. The Company shall
deliver, or cause to be delivered, the respective Securities purchased by each
Purchaser to such Purchaser within three Trading Days of the Closing Date.
4.17 Filings by Purchasers. Each Purchaser agrees to timely file
all reports which may be required of them under the Exchange Act with respect to
the transactions contemplated by this Agreement.
4.18 Director and Officer Liability Insurance. Within 60 days of
the date hereof, the Company shall have obtained, and shall maintain until the
Purchasers no longer hold any Securities, directors and officer liability
insurance coverage at least equal to $10,000,000.
4.19 Appointment of an Additional Director. The Company shall
appoint (or cause its board of directors or shareholders to appoint) two Persons
selected by Bonanza (as defined in Section 5.2), at Bonanza's sole discretion,
as members of the Company's board of directors, which appointment shall be
effective within 90 calendar days following the Closing. Until such date when
Bonanza beneficially owns (as determined under Section 13 of the Exchange Act)
less than 10% of the company's issued and outstanding Common Stock, the Company
shall use best efforts to nominate, solicit proxies and recommend that
shareholders vote in favor of such Persons, or replacement directors as selected
by Bonanza in Bonanza's sole discretion, for re-election as directors of the
Company at each annual meeting or special meeting of the shareholders of the
Company at which the election of directors is a matter to be acted upon. The
Company shall take all further actions reasonably necessary to satisfy the
covenants herein. The Company shall not increase the number of directors without
the consent of Bonanza.
ARTICLE V.
MISCELLANEOUS
5.1 Termination. This Agreement may be terminated by any
Purchaser, as to such Purchaser's obligations hereunder only and without any
effect whatsoever on the obligations between the Company and the other
Purchasers, by written notice to the other parties, if the Closing has not been
consummated on or before March 31, 2006; provided, however, that no such
termination will affect the right of any party to xxx for any breach by the
other party (or parties).
79
5.2 Fees and Expenses. At the Closing, the Company has agreed to
reimburse Bonanza Master Fund Ltd. ("Bonanza") the non-accountable sum of
$25,000, for its actual, reasonable, out-of-pocket legal fees and expenses.
Accordingly, in lieu of the foregoing payments, the aggregate amount that
Bonanza is to pay for the Securities at the Closing shall be reduced by $25,000
in lieu thereof. The Company shall deliver, prior to the Closing, a completed
and executed copy of the Closing Statement, attached hereto as Annex A. Except
as expressly set forth in the Transaction Documents to the contrary, each party
shall pay the fees and expenses of its advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this Agreement.
The Company shall pay all transfer agent fees, stamp taxes and other taxes and
duties levied in connection with the delivery of any Securities.
5.3 Entire Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.4 Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (a) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto prior to 5:30
p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the
date of transmission, if such notice or communication is delivered via facsimile
at the facsimile number set forth on the signature pages attached hereto on a
day that is not a Trading Day or later than 5:30 p.m. (New York City time) on
any Trading Day, (c) the 2nd Trading Day following the date of mailing, if sent
by U.S. nationally recognized overnight courier service, or (d) upon actual
receipt by the party to whom such notice is required to be given. The address
for such notices and communications shall be as set forth on the signature pages
attached hereto.
5.5 Amendments; Waivers. No provision of this Agreement may be
waived 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.
5.6 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. 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.
5.7 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or obligations
hereunder without the prior written consent of each Purchaser. Any Purchaser may
80
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 to be bound, with respect to the transferred Securities, by the
provisions hereof that apply to the "Purchasers".
5.8 No Third-Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.9.
5.9 Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of the Transaction Documents shall be
governed by and construed and enforced in accordance with the internal laws of
the State of New York, without regard to the principles of conflicts of law
thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement and any other Transaction Documents (whether brought against a
party hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York. Each party hereby irrevocably submits to
the exclusive jurisdiction of the state and federal courts sitting in the City
of New York, borough of Manhattan for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, that such suit, action or proceeding is
improper or inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by law. The parties
hereby waive all rights to a trial by jury. If either party shall commence an
action or proceeding to enforce any provisions of the Transaction Documents,
then the prevailing party in such action or proceeding shall be reimbursed by
the other party for its attorneys' fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such action or
proceeding.
5.10 Survival. The representations and warranties contained herein
shall survive the Closing and the delivery of the Securities.
5.11 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, 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.
5.12 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
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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.
5.13 Rescission and Withdrawal Right. Notwithstanding anything to
the contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights.
5.14 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
5.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
5.16 Payment Set Aside. To the extent that the Company makes a
payment or payments to any Purchaser pursuant to any Transaction Document or a
Purchaser enforces or exercises its rights thereunder, and such payment or
payments or the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
5.17 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance 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
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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 Bonanza. 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.
5.18 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.
5.19 Construction. The parties agree that each of them and/or their
respective counsel has reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto.
(Signature Pages Follow)
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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.
RUSH FINANCIAL TECHNOLOGIES, INC. Address for Notice:
-------------------
By: //X. X. Xxxxx, Xx. 00000 Xxxx Xxxx, Xxxxx 000
------------------------------------ Xxxxxx XX 00000
Name: X. X. Xxxxx, Xx.
Title: President
With a copy to (which shall not constitute notice):
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
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[PURCHASER SIGNATURE PAGES TO RSHF 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:
Shares:
Warrant Shares:
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
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Annex A
CLOSING STATEMENT
Pursuant to the attached Securities Purchase Agreement, dated as of the date
hereto, the purchasers shall purchase a minimum of $28,000,000 of Common Stock
and Warrants from Rush Financial Technologies, Inc. (the "Company"). All funds
will be wired into an escrow account maintained by Silicon Valley Bank. All
funds will be disbursed in accordance with this Closing Statement.
Disbursement Date: ________ ___, 2006
________________________________________________________________________________
I. PURCHASE PRICE
--------------
Gross Proceeds to be Received in Escrow $
II. DISBURSEMENTS
-------------
$
[Terra Nova Trading] $ [25,000,000
$
$
$
Total Amount Disbursed: $
WIRE INSTRUCTIONS:
-----------------
To: _____________________________________
To: _____________________________________
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