ROO GROUP, INC.
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and
entered into as of November 14, 2006, by and among ROO GROUP, INC., a Delaware
corporation (the "Company"), and each of the purchasers listed on Exhibit A
attached hereto (collectively, the "Purchasers" and individually, a
"Purchaser").
RECITALS
A. The Company desires to issue and sell to the Purchasers, and the
Purchasers desire to purchase from the Company, up to 9,000,000 units (each, a
"Unit"), each Unit consisting of one share of common stock, par value $0.0001
per share, of the Company (the "Common Stock"), and a three-tenths of one
five-year warrant to purchase one share of Common Stock, on the terms and
subject to the conditions set forth in this Agreement.
B. The Company and each Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("Regulation D"), as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "Securities Act").
The parties hereto agree as follows:
1. AGREEMENT TO PURCHASE AND SELL STOCK.
(a) Authorization. The Company's Board of Directors has authorized the
issuance and sale, pursuant to the terms and conditions of this Agreement, of up
to 9,000,000 Units, consisting of up to 9,000,000 shares of Common Stock (the
"Purchased Shares") and five-year warrants to purchase up to 2,700,000 shares,
substantially in the form attached hereto as Exhibit B. Each whole warrant
included in the Units shall be exercisable to purchase one share of Common Stock
at $3.00 per share (the "Purchased Warrants" and together with the Purchased
Shares, the "Purchased Securities").
(b) Agreement to Purchase and Sell Securities. On the terms and subject to
the conditions contained in this Agreement, each Purchaser severally agrees to
purchase, and the Company agrees to sell and issue to each Purchaser, at Closing
(as defined below), that number of Units set forth on such Purchaser's signature
page. The purchase price of each Unit (the "Per Unit Price") shall be $1.85.
(c) Use of Proceeds. The Company intends to apply the net proceeds from
the sale of the Purchased Securities for working capital and general corporate
purposes, as well as for strategic purposes in connection with selected
acquisitions that may be considered in the future to expand its product and
service offerings.
(d) Obligations Several Not Joint. The obligations of each Purchaser under
this Agreement 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 this Agreement. Nothing
contained herein, and no action taken by any Purchaser pursuant hereto, 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 this Agreement. Each Purchaser shall be
entitled to independently protect and enforce its rights, including without
limitation the rights arising out of this Agreement, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose.
2. CLOSING. The closing of the purchase and sale of the Purchased
Securities shall take place at the offices of Sichenzia Xxxx Xxxxxxxx Xxxxxxx
LLP, 0000 Xxxxxx xx xxx Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000 (the "SRFF Offices")
at 10:00 a.m. Eastern time on November 14, 2006, or at such other time and place
as the Company and Purchasers representing a majority of the Units to be
purchased mutually agree upon (which time and place are referred to in this
Agreement as the "Closing"). At the Closing, the Company shall, against delivery
of payment for the Purchased Securities by wire transfer of immediately
available funds in accordance with the Company's instructions, (a) authorize its
transfer agent to issue to each Purchaser one or more stock certificates (the
"Certificates") registered in the name of each Purchaser (or in such nominee
name(s) as designated by such Purchaser in the Stock Certificate Questionnaire
(attached hereto as Appendix I) (the "Stock Certificate Questionnaire"),
representing the appropriate number of Purchased Shares based on the number of
Units to be purchased by such Purchaser as set forth on such Purchaser's
signature page, and bearing the legend set forth in Section 4(j) herein and (b)
issue the appropriate number of Purchased Warrants based on the number of Units
to be purchased by such Purchaser as set forth on such Purchaser's signature
page. Closing documents may be delivered by facsimile with original signature
pages sent by overnight courier. The date of the Closing is referred to herein
as the Closing Date.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to each Purchaser that the statements in this Section 3
are true and correct, except as set forth in the SEC Documents (as defined
below):
(a) Organization, Good Standing and Qualification. The Company and each of
its subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it was formed. Each of the
Company and its subsidiaries has all corporate power and authority required to
carry on its business as presently conducted, and the Company has all corporate
power and authority required to enter into this Agreement and the other
agreements, instruments and documents contemplated hereby, and to consummate the
transactions contemplated hereby and thereby. Each of the Company and its
subsidiaries is duly qualified as a foreign entity to do business and is in good
standing in each jurisdiction in which the failure to so qualify would have a
Material Adverse Effect. As used in this Agreement, "Material Adverse Effect"
means a material adverse effect on, or a material adverse change in, or a group
of such effects on or changes in, the business, operations, condition, financial
or otherwise, results of operations, prospects, assets or liabilities of the
Company and its subsidiaries, taken as a whole.
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(b) Capitalization. The capitalization of the Company, without listing the
Purchased Securities to be purchased pursuant to this Agreement, is as follows:
(i) The authorized capital stock of the Company consists of 500,000,000
shares of Common Stock, par value $0.0001 per share, and 10,000,000 shares of
preferred stock, par value $0.0001 per share ("Preferred Stock"), of which
10,000,000 shares of Preferred Stock have been designated as Series A Preferred
Stock.
(ii) As of November 13, 2006, the issued and outstanding capital stock of
the Company consisted of 17,596,435 shares of Common Stock and 10,000,000 shares
of Series A Preferred Stock. The shares of issued and outstanding capital stock
of the Company have been duly authorized and validly issued, are fully paid and
nonassessable and have not been issued in violation of or are not otherwise
subject to any preemptive or other similar rights.
(iii) As of November 13, 2006, the Company had (a) 2,638,050 shares of
Common Stock reserved for issuance upon exercise of outstanding options granted
under the Company's 2004 Stock Option Plan, as amended (the "Option Plan"); (b)
567,500 shares of Common Stock reserved for issuance upon exercise of options
not granted under the Option Plan; and (c) 4,754,002 shares of Common Stock
reserved for issuance upon exercise of outstanding warrants.
(iv) As of November 14, 2006, the Company had 861,950 shares of Common
Stock available for future grant under the Option Plan.
With the exception of the foregoing in this Section 3(b) and except as set
forth in the Disclosure Letter attached hereto as Exhibit B (the "Disclosure
Letter"), there are no outstanding subscriptions, options, warrants, convertible
or exchangeable securities or other rights granted to or by the Company to
purchase shares of Common Stock or other securities of the Company and there are
no commitments, plans or arrangements to issue any shares of Common Stock or any
security convertible into or exchangeable for Common Stock.
(c) Subsidiaries. Except as set forth in the Disclosure Letter, the
Company does
not have any subsidiaries, and, does not own any capital stock of, assets
comprising the business of, obligations of, or any other interest (including any
equity or partnership interest) in, any person or entity.
(d) Due Authorization. All corporate actions on the part of the Company
necessary for the authorization, execution, delivery of, and the performance of
all obligations of the Company under this Agreement and the authorization,
issuance, reservation for issuance and delivery of all of the Purchased
Securities being sold under this Agreement have been taken, no further consent
or authorization of the Company or the Board of Directors or its stockholders is
required, and this Agreement constitutes the legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with its terms,
except (i) as may be limited by (A) applicable bankruptcy, insolvency,
reorganization or others laws of general application relating to or affecting
the enforcement of creditors' rights generally and (B) the effect of rules of
law governing the availability of equitable remedies and (ii) as rights to
indemnity or contribution may be limited under federal or state securities laws
or by principles of public policy thereunder.
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(e) Valid Issuance of Purchased Securities.
(i) Purchased Shares. The Purchased Shares will be, upon payment therefor
by the Purchasers in accordance with this Agreement, duly authorized, validly
issued, fully paid and non-assessable, free from all taxes, liens, claims,
encumbrances with respect to the issuance of such Purchased Shares and will not
be subject to any pre-emptive rights or similar rights.
(ii) Purchased Warrants. The Purchased Warrants will be, upon payment
therefor by the Purchasers in accordance with this Agreement, duly authorized
and validly issued, free from all taxes, liens, claims, encumbrances with
respect to the issuance of such Purchased Warrants and will not be subject to
any pre-emptive rights or similar rights.
(iii) Underlying Shares of Common Stock. The issuance of the shares of
Common Stock issued or issuable from time to time upon the exercise of the
Purchased Warrants (the "Underlying Shares") will be, and at all times prior to
such exercise, will have been, duly authorized, duly reserved for issuance upon
such exercise and payment of the exercise price of the Purchased Warrants, and
will be, upon such exercise and payment, validly issued, fully paid and
non-assessable free from all taxes, liens, claim, encumbrances with respect to
the issuance of such shares and will not be subject to any pre-emptive rights or
similar rights.
(iv) Compliance with Securities Laws. Subject to the accuracy of the
representations made by the Purchasers in Section 4 hereof, the Purchased
Securities (assuming no unlawful redistribution of the Purchased Securities by
the Purchasers or other parties as of the date hereof) will be issued to the
Purchasers in compliance with applicable exemptions from (A) the registration
and prospectus delivery requirements of the Securities Act and (B) the
registration and qualification requirements of all applicable securities laws of
the states of the United States.
(f) Governmental Consents. No consent, approval, order or authorization
of, or registration, qualification, designation, declaration or filing with, or
notice to, any federal, state or local governmental authority or self regulatory
agency on the part of the Company is required in connection with the issuance of
the Purchased Securities to the Purchasers, or the consummation of the other
transactions contemplated by this Agreement, except (i) such filings as have
been made prior to the date hereof and (ii) such additional post-Closing filings
as may be required to comply with applicable state and federal securities laws.
(g) Non-Contravention. The execution, delivery and performance of this
Agreement by the Company, and the consummation by the Company of the
transactions contemplated hereby (including issuance of the Purchased Securities
and Underlying Shares), do not , will not, in the case of the Underlying Shares:
(i) contravene or conflict with the Certificate of Incorporation of the Company,
as amended to date (the "Certificate of Incorporation"), or the Bylaws of the
Company, as amended to date (the "Bylaws"); (ii) constitute a violation of any
provision of any federal, state, local or foreign law, rule, regulation, order
or decree applicable to the Company; or (iii) constitute a default or require
any consent under, give rise to any right of termination, cancellation or
acceleration of, or to a loss of any material benefit to which the Company is
entitled under, or result in the creation or imposition of any lien, claim or
encumbrance on any assets of the Company under, any material contract to which
the Company is a party or any material permit, license or similar right relating
to the Company or by which the Company may be bound or affected.
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(h) Litigation. Except as set forth in the Disclosure Letter, there is no
action, suit, proceeding, claim, arbitration or investigation ("Action") pending
or, to the Company's knowledge, threatened in writing: (i) against the Company
or any of its subsidiaries, their respective activities, properties or assets,
or any officer, director or employee of the Company or any of its subsidiaries
in connection with such officer's, director's or employee's relationship with,
or actions taken on behalf of, the Company or any of its subsidiaries, that is
reasonably likely to have a Material Adverse Effect; or (ii) that seeks to
prevent, enjoin, alter, challenge or delay the transactions contemplated by this
Agreement (including the issuance of the Purchased Securities). Neither the
Company nor any of its subsidiaries is a party to or subject to the provisions
of, any order, writ, injunction, judgment or decree of any court or government
agency or instrumentality. No Action is currently pending nor does the Company
or any of its subsidiaries intend to initiate any Action that is reasonably
likely to have a Material Adverse Effect.
(i) Compliance with Law and Charter Documents. The Company is not in
violation or default of any provisions of the Certificate of Incorporation or
the Bylaws. The Company and each of its subsidiaries has complied and is
currently in compliance with all applicable statutes, laws, rules, regulations
and orders of the United States of America and all states thereof, foreign
countries and other governmental bodies and agencies having jurisdiction over
the Company's or each subsidiary's respective businesses or properties, except
for any instance of non-compliance that has not had, and would not reasonably be
expected to have, a Material Adverse Effect.
(j) Material Non-Public Information. The Company has not provided to the
Purchasers any material non-public information other than information related to
the transactions contemplated by this Agreement, all of which information
related to the transactions contemplated hereby shall be disclosed by the
Company pursuant to Section 9(m) hereof. (k) SEC Documents.
(i) Reports. Except as set forth in the Disclosure Letter, the Company has
filed in a timely manner all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations promulgated thereunder. The Company has
made available to the Purchasers prior to the date hereof copies of its Annual
Report on Form 10-KSB for the fiscal year ended December 31, 2005 (the "Form
10-KSB"), its quarterly report on Form 10-QSB for the fiscal quarter ended June
30, 2006 (the "Form 10-QSB"), and any Current Report on Form 8-K for events
occurring since June 30, 2006 ("Forms 8-K") filed by the Company with the SEC
(the Form 10-KSB, the Form 10-QSB and the Forms 8-K are collectively referred to
herein as the "SEC Documents"). Each of the SEC Documents, as of the respective
dates thereof (or, if amended or superseded by a filing prior to the Closing
Date, then on the date of such filing), did not contain any untrue statement of
a material fact or omit to state a material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. Each SEC Document, as it may have been subsequently
amended by filings made by the Company with the SEC prior to the date hereof,
complied in all material respects with the requirements of the Exchange Act and
the rules and regulations of the SEC promulgated thereunder applicable to such
SEC Document.
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The Company covenants that the Form 10-QSB for the quarter ended September
30, 2006 will be timely filed on or before November 20, 2006 and will not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
(ii) Xxxxxxxx-Xxxxx. The Chief Executive Officer and the Chief Financial
Officer of the Company have signed, and the Company has furnished to the SEC,
all certifications required by Sections 302 and 906 of the Xxxxxxxx-Xxxxx Act of
2002. Such certifications contain no qualifications or exceptions to the matters
certified therein and have not been modified or withdrawn; and neither the
Company nor any of its officers has received notice from any governmental entity
questioning or challenging the accuracy, completeness, form or manner of filing
or submission of such certifications. The Company is otherwise in compliance in
all material respects with all applicable effective provisions of the
Xxxxxxxx-Xxxxx Act of 2002 and the rules and regulations issued thereunder by
the SEC.
(iii) Financial Statements. The financial statements of the Company in the
SEC Documents present fairly, in accordance with United States generally
accepted accounting principles ("GAAP"), consistently applied, the financial
position of the Company as of the dates indicated, and the results of its
operations and cash flows for the periods therein specified, subject, in the
case of unaudited financial statements for interim periods, to normal year-end
audit adjustments.
(l) Absence of Certain Changes Since the Balance Sheet Date. Except as set
forth in the Disclosure Letter, since June 30, 2006, the business and operations
of the Company and each of its subsidiaries have been conducted in the ordinary
course consistent with past practice, and there has not been:
(i) any declaration, setting aside or payment of any dividend or other
distribution of the assets of the Company or any of its subsidiaries with
respect to any shares of capital stock of the Company or any of its subsidiaries
or any repurchase, redemption or other acquisition by the Company or any
subsidiary of the Company of any outstanding shares of the Company's capital
stock;
(ii) any damage, destruction or loss, whether or not covered by insurance,
except for such occurrences, individually and collectively, that have not had,
and would not reasonably be expected to have, a Material Adverse Effect;
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(iii) any waiver by the Company or any of its subsidiaries of a valuable
right or of a material debt owed to it, except for such waivers, individually
and collectively, that have not had, and would not reasonably be expected to
have, a Material Adverse Effect;
(iv) any material change or amendment to, or any waiver of any material
right under a material contract or arrangement by which the Company or any of
its subsidiaries or any of its or their respective assets or properties is bound
or subject;
(v) any change by the Company in its accounting principles, methods or
practices or in the manner in which it keeps its accounting books and records,
except any such change required by a change in GAAP or by the SEC; or
(vi) any other event or condition of any character, except for such events
and conditions that have not resulted, and are not expected to result, either
individually or collectively, in a Material Adverse Effect.
(m) Intellectual Property.
(i) Except as set forth in the Disclosure Letter, the Company and each of
its subsidiaries owns or possesses sufficient rights to use all patents, patent
rights, inventions, trade secrets, know-how, trademarks, service marks, trade
names, copyrights, information and other proprietary rights and processes
(collectively, "Intellectual Property"), which are necessary to conduct its or
their respective businesses as currently conducted free and clear of all liens,
encumbrances and other adverse claims, except where the failure to own or
possess free and clear of all liens, encumbrances and other adverse claims would
not reasonably be expected to result, either individually or in the aggregate,
in a Material Adverse Effect.
(ii) Neither the Company nor any of its subsidiaries has received any
written notice of, nor has knowledge of, any infringement of or conflict with
rights of others with respect to any Intellectual Property and neither the
Company nor any of its subsidiaries has knowledge of any infringement,
misappropriation or other violation of any Intellectual Property by any third
party, which, in either case, either individually or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would reasonably be
expected to have a Material Adverse Effect.
(iii) To the Company's knowledge, none of the patent rights owned or
licensed by the Company or any of its subsidiaries are unenforceable or invalid.
(iv) Each employee, consultant and contractor of the Company and each of
its subsidiaries who has had access to the Intellectual Property has executed a
valid and enforceable agreement to maintain the confidentiality of such
Intellectual Property and assigning all rights to the Company or such subsidiary
to any inventions, improvements, discoveries or information relating to the
business of the Company or such subsidiairy. The Company is not aware that any
of its or its subsidiaries' employees is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree or order of any court or administrative agency, that
would interfere with their duties to the Company or such subsidiary or that
would conflict with the Company's or such subsidiary's business.
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(v) Neither the Company nor any of its subsidiaries is subject to any
"open source" or "copyleft" obligations or otherwise required to make any public
disclosure or general availability of source code either used or developed by
the Company or any of its subsidiaries.
(n) Registration Rights. Except as provided in Section 5 herein and except
as set forth in the Disclosure Letter, the Company is not currently subject to
any agreement providing any person or entity any rights (including piggyback
registration rights) to have any securities of the Company registered with the
SEC or registered or qualified with any other governmental authority.
(o) Title to Property and Assets. Except as set forth in the Disclosure
Letter, the properties and assets of the Company are owned by the Company free
and clear of all mortgages, deeds of trust, liens, charges, encumbrances and
security interests except for (i) statutory liens for the payment of current
taxes that are not yet delinquent and (ii) liens, encumbrances and security
interests that arise in the ordinary course of business and do not in any
material respect affect the properties and assets of the Company. With respect
to the property and assets it leases, the Company is in compliance with such
leases in all material respects.
(p) Taxes. The Company and each of its subsidiaries has filed or has valid
extensions of the time to file all necessary federal, state, and foreign income
and franchise tax returns due prior to the date hereof and has paid or accrued
all taxes shown as due thereon, and the Company has no knowledge of any material
tax deficiency that has been or might be asserted or threatened against it or
any of its subsidiaries.
(q) Insurance. The Company maintains insurance of the types and in the
amounts that the Company reasonably believes is prudent and adequate for its
business and which is at least as extensive as is customary for other companies
in the Company's industry, all of which insurance is in full force and effect.
(r) 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
or any of its subsidiaries.
(s) Internal Accounting Controls. The Company and its subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
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.
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(t) Transactions With Officers and Directors. Except as set forth in the
Disclosure Letter, none of the officers or directors of the Company has entered
into any transaction with the Company or any Subsidiary that would be required
to be disclosed pursuant to Item 404(a), (b) or (c) of Regulation S-K of the
SEC.
(u) General Solicitation. Neither the Company nor any other person or
entity authorized by the Company to act on its behalf has engaged in a general
solicitation or general advertising (within the meaning of Regulation D of the
Securities Act) of investors with respect to offers or sales of the Purchased
Securities.
(v) Registration Statement Matters. The Company meets the eligibility
requirements for use of a registration statement on Form SB-2 for the resale of
the Purchased Shares and sale of the Underlying Shares by the Purchasers.
Assuming the completion and timely delivery of the Registration Statement
Questionnaire (attached hereto as Appendix II) (the "Registration Statement
Questionnaire") by each Purchaser to the Company, the Company is not aware of
any facts or circumstances that would prohibit or delay the preparation and
filing of a registration statement with respect to the Registrable Shares (as
defined below).
(w) Listing Matters. The Common Stock of the Company is listed on the Over
The Counter Bulletin Board (the "OTCBB") under the ticker symbol "RGRP." The
issuance and sale of the Purchased Securities under this Agreement does not
contravene the rules and regulations of the OTCBB.
(x) Investment Company. The Company and each of its subsidiaries is not
now, and after the sale of the Purchased Securities under this Agreement and the
application of the net proceeds from the sale of the Purchased Securities
described in Section 1(b) herein will not be, an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
(y) No Integrated Offering. Neither the Company, nor any Affiliate of the
Company, nor any person acting on its or their behalf has, directly or
indirectly, engaged in any form of general solicitation or general advertising
with respect to any security or made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that would cause
the offering or issuance of the Purchased Securities to be integrated with prior
offerings by the Company for purposes of the Securities Act which would cause
Regulation D or any other applicable exemption from registration under the
Securities Act to be unavailable, or would cause any applicable state securities
laws exemptions or any applicable stockholder approval provisions exemptions,
including, without limitation, under the rules and regulations of any national
securities exchange or automated quotation system on which any of the securities
of the Company are listed or designated to be unavailable, nor will the Company
take any action or steps that would cause the offering or issuance of the
Purchased Securities to be integrated with other offerings.
(z) Brokers. Except for Xxxxxxxx Curhan Ford & Co. and Brimberg & Co.,
neither the Company nor any subsidiary has any liability to pay any fees,
commissions or other similar compensation to any broker, finder, investment
banker, financial advisor or other similar person in connection with the
transactions contemplated by this Agreement.
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(aa) Pensions; Benefits. (a) Neither the Company nor any subsidiary or
ERISA Affiliate maintains or contributes to any Plan other than those disclosed
in the Disclosure Schedule.
(i) The Company and each ERISA Affiliate is in compliance with ERISA and
no contributions required to be made by the Company or any ERISA Affiliate to
any pension plan are overdue.
(ii) No liability to the PBGC has been or is expected to be incurred by
the Company or any ERISA Affiliate with respect to any pension plan that,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect. No circumstance exists that constitutes grounds under
section 4042 of ERISA entitling the PBGC to institute proceedings to terminate,
or appoint a trustee to administer, any pension plan or trust created
thereunder, nor has the PBGC instituted any such proceeding.
(ii) Neither the Company nor any ERISA Affiliate has incurred or presently
expects to incur any withdrawal liability under Title IV of ERISA with respect
to any multiemployer plan. There have been no "reportable events" (as such term
is defined in section 4043 of ERISA) with respect to any multiemployer plan that
could result in the termination of such multiemployer plan and give rise to a
liability of the Company or any ERISA Affiliate in respect thereof. Neither the
Company or any subsidiary has incurred or does it expect to incur liability
under Sections 412 or 4971 of the Code; and each "pension plan" for which the
Company would have any liability that is intended to be qualified under Section
401(a) of the Code has been determined by the Internal Revenue Service to be so
qualified and nothing has occurred, whether by action or by failure to act,
which could reasonably be expected to cause the loss of such qualification.
For purposes of this section 3(aa) "Code" means the Internal Revenue Code
of 1986; "ERISA" means the Employee Retirement Income Security Act of 1974;
"ERISA Affiliate" means any person required to be aggregated with the Company or
any subsidiary of the Company under Sections 414(b), (c), (m) or (o) of the
Code; "PBGC" means the Pension Benefit Guaranty Corporation; and "Plan" means
any employee benefit plan, program or arrangement, whether oral or written,
maintained or contributed to by the Company, any subsidiary of the Company or
any ERISA Affiliate, or with respect to which the Company, any of its
subsidiaries or any ERISA Affiliate may incur liability.
4. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF THE PURCHASERS.
Each Purchaser hereby represents and warrants to the Company, severally and not
jointly, and agrees that:
(a) Organization, Good Standing and Qualification. The Purchaser has all
corporate, membership or partnership power and authority required to enter into
this Agreement and the other agreements, instruments and documents contemplated
hereby, and to consummate the transactions contemplated hereby and thereby.
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(b) Authorization. The execution of this Agreement has been duly
authorized by all necessary corporate, membership or partnership action on the
part of the Purchaser. This Agreement constitutes the Purchaser's legal, valid
and binding obligation, enforceable in accordance with its terms, except (i) as
may be limited by (A) applicable bankruptcy, insolvency, reorganization or other
laws of general application relating to or affecting the enforcement of
creditors' rights generally and (B) the effect of rules of law governing the
availability of equitable remedies and (ii) as rights to indemnity or
contribution may be limited under federal or state securities laws or by
principles of public policy thereunder.
(c) Litigation. There is no Action pending to which such Purchaser is a
party that is reasonably likely to prevent, enjoin, alter or delay the
transactions contemplated by this Agreement.
(d) Purchase for Own Account. The Purchased Securities are being acquired
for investment for the Purchaser's own account, not as a nominee or agent, and
not with a view to the public resale or distribution thereof within the meaning
of the Securities Act, without prejudice, however, to such Purchaser's right at
all times to sell or otherwise dispose of all or any part of such securities in
compliance with applicable federal and state securities laws and as otherwise
contemplated by this Agreement. The Purchaser also represents that it has not
been formed for the specific purpose of acquiring the Purchased Securities.
(e) Investment Experience. The Purchaser understands that the purchase of
the Purchased Securities involves substantial risk. The Purchaser has experience
as an investor in securities of companies and acknowledges that it can bear the
economic risk of its investment in the Purchased Securities and has such
knowledge and experience in financial or business matters that it is capable of
evaluating the merits and risks of this investment in the Purchased Securities
and protecting its own interests in connection with this investment.
(f) Accredited Investor Status. The Purchaser is an "accredited investor"
within the meaning of Regulation D promulgated under the Securities Act.
(g) Reliance Upon Purchaser's Representations. The Purchaser understands
that the issuance and sale of the Purchased Securities to it will not be
registered under the Securities Act on the ground that such issuance and sale
will be exempt from registration under the Securities Act pursuant to Section
4(2) thereof, and that the Company's reliance on such exemption is based on each
Purchaser's representations set forth herein.
(h) Receipt of Information. The Purchaser has had an opportunity to ask
questions and receive answers from the Company regarding the terms and
conditions of the issuance and sale of the Purchased Securities and the
business, properties, prospects and financial condition of the Company and to
obtain any additional information requested and has received and considered all
information it deems relevant to make an informed decision to purchase the
Purchased Securities. Neither such inquiries nor any other investigation
conducted by or on behalf of such Purchaser or its representatives or counsel
shall modify, amend or affect such Purchaser's right to rely on the truth,
accuracy and completeness of such information and the Company's representations
and warranties contained in this Agreement.
-11-
(i) Restricted Securities. The Purchaser understands that the Purchased
Securities have not been registered under the Securities Act and will not sell,
offer to sell, assign, pledge, hypothecate or otherwise transfer any of the
Purchased Securities unless (i) pursuant to an effective registration statement
under the Securities Act, (ii) such holder provides the Company with an opinion
of counsel, in form and substance reasonably acceptable to the Company, to the
effect that a sale, assignment or transfer of the Purchased Securities may be
made without registration under the Securities Act and the transferee agrees to
be bound by the terms and conditions of this Agreement, (iii) such holder
provides the Company with reasonable assurances (in the form of seller and
broker representation letters) that the Purchased Shares or the Underlying
Shares, as the case may be, can be sold pursuant to Rule 144 promulgated under
the Securities Act ("Rule 144") or (iv) pursuant to Rule 144(k) promulgated
under the Securities Act following the applicable holding period.
Notwithstanding anything to the contrary contained in this Agreement, including
but not limited to in Section 5(c)(i) below, the Purchaser may transfer (without
restriction and without the need for an opinion of counsel) the Purchased Shares
or the Underlying Shares to its Affiliates (as defined below) provided that each
such Affiliate is an "accredited investor" under Regulation D, and such
Affiliate agrees to be bound by the terms and conditions of this Agreement.
For the purposes of this Agreement, an "Affiliate" of any specified
Purchaser means any other person or entity directly or indirectly controlling,
controlled by or under direct or indirect common control with such specified
Purchaser. For purposes of this definition, "control" means the power to direct
the management and policies of such person or firm, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise.
(j) Legends.
(i) Purchased Shares and Underlying Shares. The Purchaser agrees that the
certificates for the Purchased Shares and Underlying Shares shall bear the
following legend and that the Purchaser will comply with the restrictions on
transfer set forth in such legend:
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
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.
-12-
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 Purchased 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, if required under the terms of such arrangement, such Purchaser
may transfer pledged or secured Purchased Securities to the pledgees or secured
parties. 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 Purchased Securities may
reasonably request in connection with a pledge or transfer of the Purchased
Securities, 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.
In addition, the Purchaser agrees that the Company may place stop transfer
orders with its transfer agent with respect to such certificates in order to
implement the restrictions on transfer set forth in this Agreement. The
appropriate portion of the legend and the stop transfer orders will be removed
promptly (but in no event later than three (3) business days) upon delivery to
the Company of such satisfactory evidence as reasonably may be required by the
Company that such legend or stop orders are not required to ensure compliance
with the Securities Act. In addition, upon the declaration of the effectiveness
of the Registration Statement which includes the Purchased Securities, the
Company shall cause its counsel to deliver a blanket opinion to its transfer
agent to cause the stock certificates evidencing the Purchased Shares and
Underlying Shares to be issued to the Purchasers free of any Securities Act
restrictive legends assuming compliance with the prospectus delivery
requirements, to the extent required by Rule 172 of the Securities Act.
(ii) Purchased Warrants. The Purchaser agrees that Purchased Warrants
shall bear the following legend:
"THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR WITH ANY STATE SECURITIES
COMMISSION, AND MAY NOT BE TRANSFERRED OR DISPOSED OF BY THE
HOLDER IN THE ABSENCE OF A REGISTRATION STATEMENT WHICH IS
EFFECTIVE UNDER THE SECURITIES ACT AND APPLICABLE STATE LAWS
AND RULES, OR, UNLESS, IMMEDIATELY PRIOR TO THE TIME SET FOR
TRANSFER, SUCH TRANSFER MAY BE EFFECTED WITHOUT VIOLATION OF
THE SECURITIES ACT AND OTHER APPLICABLE STATE LAWS AND RULES."
-13-
(iii) The Company agrees, upon a Purchaser's reasonable request, to
reissue certificates representing any of the Purchased Shares and Underlying
Shares without the legend set forth above (i) while a registration statement
covering the resale of such securities is effective under the Securities Act,
(ii) following any sale of such securities pursuant to Rule 144 (assuming the
transferor is not an affiliate of the Company), (iii) if such Securities are
eligible for sale under Rule 144(k) (to the extent that the applicable Purchaser
provides a certification or legal opinion to the Company to that effect), or
(iv) if such legend is not required under applicable requirements of the
Securities Act (including controlling judicial interpretations and
pronouncements issued by the Commission). Following the effective date of a
registration statement, which includes the Purchased Securities, or at such
earlier time as a legend is no longer required for the Purchased Shares and the
Underlying Shares, the Company will, promptly following the delivery by a
Purchaser to the Company or the Company's transfer agent of a legended
certificate representing such securities, deliver or cause to be delivered to
such Purchaser a certificate representing such securities that is free from all
restrictive legends.
(iv) Buy-In. If the Company shall fail for any reason or for no reason to
issue to the holder of the Securities within three (3) Trading Days after the
occurrence of any of 4(j)(iii)(i) through (j)(iii)(iv) above (the "Delivery
Date") a certificate without such legend to the holder or to issue such
Securities to such holder by electronic delivery at the applicable balance
account at DTC, and if on or after such Trading Date the Purchaser purchases (in
an open market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the Purchaser of shares of Common Stock that the
Purchaser anticipated receiving from the Company without any restrictive legend
(a "Buy-In"), then the Company shall, within three (3) Trading Days after the
Purchaser's request and in the Purchaser's sole discretion, either (i) pay cash
to the Purchaser in an amount equal to the Purchaser's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased (the "Buy-In Price"), at which point the Company's obligation to
deliver such certificate shall terminate and such shares shall be cancelled, or
(ii) promptly honor its obligation to deliver to the Purchaser a certificate or
certificates representing such number of shares of Common Stock that would have
been issued if the Company timely complied with its obligations hereunder
("Unlegended Shares") and pay cash to the Purchaser in an amount equal to the
excess (if any) of the Buy-In Price over the aggregate Market Price of the
Unlegended Shares on the date the Company delivers the Unlegended Shares to the
Purchaser. For purposes of this clause (iv), "Market Price" means (i) if the
principal trading market for such securities is an exchange, the bid price per
share on the OTCBB or other trading market, (ii) if clause (i) is not
applicable, the bid price per share as set forth by Nasdaq or (iii) if clauses
(i) and (ii) are not applicable, the bid price per share as set forth in the
Pink Sheets.
(k) Questionnaires. The Purchaser has completed or caused to be completed
the Stock Certificate Questionnaire and the Registration Statement Questionnaire
for use in preparation of the Registration Statement (as defined in Section
5(a)(ii) below), and the answers to such questionnaires are true and correct as
of the date of this Agreement; provided, that the Purchasers shall be entitled
to update such information by providing written notice thereof to the Company
before the effective date of the Registration Statement.
(l) Prohibited Transactions. (i) During the last thirty (30) days prior to
the date hereof, neither such Purchaser nor any Affiliate of such Purchaser,
foreign or domestic, has, directly or indirectly, effected or agreed to effect
any "short sale" (as defined in Rule 200 under Regulation SHO), whether or not
against the box, established any "put equivalent position" (as defined in Rule
16a-1(h) under the 0000 Xxx) with respect to the Common Stock, borrowed or
pre-borrowed any shares of Common Stock, or granted any other right (including,
without limitation, any put or call option) with respect to the Common Stock or
with respect to any security that includes, relates to or derived any
significant part of its value from the Common Stock or otherwise sought to hedge
its position in the Company' securities (each, a "PROHIBITED TRANSACTION").
Notwithstanding the foregoing, with respect to LB I Group, Inc., the
representations contained in this Section 4(l) shall only apply to the Equity
Strategies Group-Opportunity Fund, as currently configured, of Xxxxxx Brothers
Inc., and shall not apply to any other affiliate, subsidiary, business unit,
area, group of Xxxxxx Brothers Inc.
-14-
(ii) Prior to the earliest to occur of (i) the termination of this
Agreement, (ii) the date the Registration Statement, as defined below, is
declared effective by the Securities and Exchange Commission or (iii) 90 days
from the Closing Date (120 days if the registration statement is reviewed by the
SEC) such Purchaser shall not, and shall cause its Affiliates not to, engage,
directly or indirectly, in (a) a Prohibited Transaction nor (b) any sale,
assignment, pledge, hypothecation, put, call, or other transfer of any of the
shares of Common Stock, warrants or other securities of the issuer acquired
hereunder.
5. FORM D FILING; REGISTRATION; COMPLIANCE WITH THE SECURITIES ACT.
(a) Form D Filing; Registration of the Purchased Shares and Underlying
Shares; Piggyback Registration. The Company hereby agrees that it shall:
(i) file in a timely manner a Form D relating to the sale of the Purchased
Securities under this Agreement, pursuant to Regulation D promulgated under the
Securities Act;
(ii) prepare and file with the SEC as soon as practicable, and in no event
later than 30 days following the Closing, a registration statement on Form SB-2
(the "Registration Statement"), which shall contain (except if otherwise
required pursuant to written comments received from the SEC upon a review of
such Registration Statement) the "Plan of Distribution" attached hereto as Annex
A, to enable the offer and resale of the Purchased Shares and the sale of the
Underlying Shares (together with any shares of Common Stock issued as a dividend
or other distribution with respect to, or in exchange for, or in replacement of,
the Purchased Shares or the Underlying Shares, the "Registrable Shares") by the
Purchasers from time to time on a delayed or continuous basis pursuant to Rule
415 under the Securities Act and use all reasonable best efforts to cause such
Registration Statement to be declared effective as promptly as possible after
filing, but in any event, within 90 days following the Closing Date or, in the
event of a review of the Registration Statement by the SEC, within 120 days
following the Closing Date, and to remain continuously effective until the
earlier of (A) the date on which all Registrable Shares purchased by the
Purchasers pursuant to this Agreement have been sold under the Registration
Statement, (B) the date on which the Registrable Shares can be sold pursuant to
Rule 144(k) promulgated under the Securities Act, or (C) the later of (x) the
date that is five years after the date of effectiveness of the Registration
Statement and (y) the date each Purchaser would be able to sell all of its
Registrable Shares within a six-month period under the volume limitations of
Rule 144(e) of the Securities Act (the "Registration Period").The Registration
Statement shall include the shares of common stock, and shares underlying
warrants issued by the Company in connection with that certain Securities
Purchase Agreement dated August 18, 2006.
-15-
(iii) prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
Prospectus (as defined below) used in connection therewith as may be necessary
to keep the Registration Statement effective at all times until the end of the
Registration Period;
(iv) furnish to the Purchasers with respect to the Registrable Shares
registered under the Registration Statement such reasonable number of copies of
any Prospectus (as defined below) in conformity with the requirements of the
Securities Act and such other documents as the Purchaser may reasonably request,
in order to facilitate the public sale or other disposition of all or any of the
Registrable Shares by the Purchasers;
(v) use its reasonable best efforts to file documents required of the
Company for normal blue sky clearance in states specified in writing by the
Purchasers; provided, however, that the Company shall not be required to qualify
to do business or consent to service of process in any jurisdiction in which it
is not now so qualified or has not so consented;
(vi) promptly notify the Purchasers simultaneously in writing, in no event
more than one (1) business day after the Registration Statement has been
declared effective;
(vii) promptly notify the Purchasers in writing of the existence of any
fact or the happening of any event, during the Registration Period (but not as
to the substance of any such fact or event), that makes any statement of a
material fact made in the Registration Statement, the Prospectus, any amendment
or supplement thereto, or any document incorporated by reference therein untrue,
or that requires the making of any additions to or changes in the Registration
Statement or the Prospectus in order to make the statements therein not
misleading (provided, however, that no notice by the Company shall be required
pursuant to this subsection (vii) in the event that the Company either
contemporaneously files a prospectus supplement to update the Prospectus or a
Form 8-K or other appropriate Exchange Act report that is incorporated by
reference into the Registration Statement, which, in either case, contains the
requisite information with respect to such material event that results in such
Registration Statement no longer containing any such untrue or misleading
statements);
(viii) furnish to each Purchaser upon written request, from the date of
this Agreement until the end of the Registration Period, one copy of its
periodic reports filed with the SEC pursuant to the Exchange Act and the rules
and regulations promulgated thereunder; and
(ix) bear all expenses in connection with the procedures described in
paragraphs (i) through (viii) of this Section 5(a) and the registration of the
Registrable Shares pursuant to the Registration Statement other than fees and
expenses, if any, of legal counsel or other advisers to the Purchasers or
underwriting discounts, brokerage fees and commissions incurred by the
Purchasers, if any; provided, however, that the Company shall pay all reasonable
fees and disbursements of one counsel to the Purchasers.
It shall be a condition precedent to the obligations of the Company to
take any action pursuant to this Section 5(a) with respect to Registrable Shares
held by a Purchaser that such Purchaser shall timely furnish to the Company a
completed Registration Statement Questionnaire on or before the Closing Date and
such other written information regarding itself, the Registrable Shares to be
sold by such Purchaser, and the intended method of disposition of the
Registrable Shares as shall be required to effect the registration of the
Registrable Shares.
-16-
(b) Piggyback Registration
(i) If during the Registration Period the Registration Statement is not or
ceases to be effective and continues to be not effective and during such time
the Company proposes to register any of its Common Stock under the Securities
Act, whether as a result of an offering for its own account or the account of
others (but excluding any registrations to be effected for Forms S-4 or S-8 or
other applicable successor Forms) on a Registration Statement that is to become
effective prior to the expiration of the Registration Period, the Company shall,
each such time, give to the Purchasers twenty (20) days' prior written notice of
its intent to do so, and such notice shall describe the proposed registration
and shall offer such Purchasers the opportunity to include in such Registration
Statement such number of Purchased Shares and Underlying Shares as each such
Purchaser may request. Upon the written request of any Purchaser given to the
Company within fifteen (15) days after the receipt of any such notice by the
Company, the Company shall include in such Registration Statement all or part of
the Purchased Shares and Underlying Shares of such Purchaser, to the extent
requested to be registered, subject to clause (ii) below.
(ii) If a registration pursuant to this Section 5(b) involves an
underwritten offering and the managing underwriter shall advise the Company in
writing that, in its opinion, the number of shares of Common Stock requested by
the Purchasers to be included in such registration is likely to materially and
adversely affect the success of the offering or the price that would be received
for any shares of Common Stock included in such offering, then, notwithstanding
anything in this Section 5(b) to the contrary, the Company shall only be
required to include in such registration, to the extent of the number of shares
of Common Stock which the Company is so advised can be sold in such offering,
(A) first, any shares of Common Stock proposed to be included in such
registration for the account of the Company, and (B) second, the number of
shares of Common Stock requested to be included in such registration for the
account of any stockholders of the Company (including the Purchasers), pro rata
among such stockholders on the basis of the number of shares of Common Stock
(including Underlying Shares) that each of them has requested to be included in
such registration.
(iii) In connection with any offering involving an underwriting of shares,
the Company shall not be required under this Section 5(b) or otherwise to
include the Purchased Shares or Underlying Shares of any Purchaser therein
unless such Purchaser accepts and agrees to the terms of the underwriting, which
shall be reasonable and customary, as agreed upon between the Company and the
underwriters selected by the Company (which underwriters shall be reasonably
acceptable to the holders of a majority of the then outstanding Purchased
Securities.
-17-
(c) Liquidated Damages.
(i) Delay in Filing of Registration Statement. In the event that the
Registration Statement is not filed with the SEC within 30 days following the
Closing Date, the Company shall pay to each Purchaser liquidated damages (in
addition to the rights and remedies available to each Purchaser under applicable
law and this Agreement), in cash or shares at the option of the Company, at a
rate equal to one percent per month (pro rata on a 30-day basis) of the total
purchase price of the Purchased Securities purchased by such Purchaser pursuant
to this Agreement, up to a maximum of 10% of the total purchase price of the
Purchased Securities purchased by such Purchaser, until the Registration
Statement is filed with SEC. Such liquidated damages shall be payable within 10
days of the end of each one-month anniversary of the filing deadline set forth
in this section 5(c).
(ii) Delay in Effectiveness of Registration Statement. In the event that
the Registration Statement is not declared effective within 90 days following
the Closing Date or, in the event of a review of the Registration Statement by
the SEC, within 120 days following the Closing Date, the Company shall pay to
each Purchaser liquidated damages (in addition to the rights and remedies
available to each Purchaser under applicable law and this Agreement), in cash or
shares at the option of the Company, at a rate equal to one percent per month
(pro rata on a 30-day basis) of the total purchase price of the Purchased
Securities purchased by such Purchaser pursuant to this Agreement, up to a
maximum, together with all payments made by the Company to such Purchaser
pursuant to Section 5(c)(i), of 10% of the total purchase price of the Purchased
Securities purchased by such Purchaser, until the Registration Statement is
declared effective, provided however, if the Registration Statement shall not be
effective on the date that is two years after the date of Closing the Company
shall pay to the Purchasers (in addition to the rights and remedies available to
each Purchaser under applicable law and this Agreement) pro rata in a single
payment on such date liquidated damages (in addition to the prior 10% of the
total purchase price of the Purchase Securities) of 8% of the total purchase
price of the Purchased Securities. Other than as set forth in the proviso of the
immediately preceding sentence, liquidated damages shall be payable within 10
days of the end of each one month anniversary of the effectiveness deadline set
forth in this Section 5(c)(ii).
(iii) Lapse in Effectiveness of Registration Statement. In the event that
the Registration Statement is filed and declared effective but, during the
Registration Period, shall thereafter cease to be effective or useable or the
prospectus included in the Registration Statement (the "Prospectus", as amended
or supplemented by any prospectus supplement and by all other amendments thereto
and all material incorporated by reference in such Prospectus) ceases to be
usable, in either case, in connection with resales of Registrable Shares,
without such lapse being cured within 10 business days (the "Cure Period") by a
post-effective amendment to the Registration Statement, a supplement to the
Prospectus or a report filed with the SEC pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act or other action that cures such lapse, then the
Company shall pay to each Purchaser that at the time of such lapse continues to
hold Registrable Securities, liquidated damages (in addition to the rights and
remedies available to each Purchaser under applicable law and this Agreement),
in cash or shares at the option of the Company, for the period from and
including the first day following the expiration of the Cure Period until, but
excluding, the earlier of (A) the date on which such failure is cured and (B)
the date on which the Registration Period expires, at a rate equal to one
percent per month (pro rata on a 30-day basis) of the total purchase price of
the Purchased Securities purchased by such Purchaser that are held by such
Purchaser at the time of such lapse pursuant to this Agreement up to a maximum
of 18% of the total purchase price of the Purchased Securities purchased by such
Purchaser. Such liquidated damages shall be payable within ten days of the end
of each one month anniversary of the expiration of the Cure Period.
-18-
(iv) Strategic Investor. If at any time prior to the date on which the
Registration Statement has been declared effective the Company enters into an
agreement to issue equity securities to an investor that, in the reasonable,
good faith determination of the Company is a strategic investor the Company will
be granted a 30-day extension of the timeframes set forth in Sections 5(c)(i)
and 5(c)(ii) above, and no liquidated damages shall accrue during such 30-day
period.
(v) Payment of Liquidated Damages in Common Stock. If the Company elects
to pay liquidated damages, required by this Section 5(c) in shares of Common
Stock, such shares shall be issued at the then current market price at the time
payment becomes due.
(d) Transfer of Registrable Shares After Registration; Suspension.
(i) The Purchasers agree that they will not offer to sell or make any
sale, assignment, pledge, hypothecation or other transfer with respect to the
Registrable Shares that would constitute a sale within the meaning of the
Securities Act except pursuant to either (A) the Registration Statement, (B)
Rule 144 of the Securities Act or another 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. and that they will promptly
notify the Company of any changes in the information set forth in the
Registration Statement after it is prepared regarding the Purchaser or its plan
of distribution to the extent required by applicable law.
(ii) In addition to any suspension rights under paragraph (iii) below, if
the Company shall furnish to the Purchasers a certificate signed by the
President or Chief Executive Officer of the Company stating that the Board of
Directors of the Company has made a good faith determination upon the advice of
counsel (i) that the continued use by the Purchasers of the Registration
Statement for purposes of effecting offers or sales of Purchased Shares and
Underlying Shares pursuant hereto would require, under the Securities Act,
premature disclosure in the Registration Statement (or the Prospectus relating
thereto) of material, nonpublic information concerning the Company, its business
or prospects or any proposed material transaction involving the Company and (ii)
that such premature disclosure would be materially adverse to the Company, its
business or prospects or any such proposed material transaction, then the
Company may, on not more than two occasions for not more than 45 days on each
such occasion, suspend use of the Prospectus, on written notice to each
Purchaser (which notice will not disclose the content of any material non-public
information and will indicate the date of the beginning and end of the intended
period of suspension, if known), in which case each Purchaser shall discontinue
disposition of Registrable Shares covered by the Registration Statement or
Prospectus until copies of a supplemented or amended Prospectus are distributed
to the Purchasers or until the Purchasers are advised in writing by the Company
that sales of Registrable Shares under the applicable Prospectus may be resumed
and have received copies of any additional or supplemental filings that are
incorporated or deemed incorporated by reference in any such Prospectus. The
suspension and notice thereof described in this Section 5(d)(ii) shall be held
in strictest confidence and shall not be disclosed by the Purchasers.
-19-
(iii) Subject to paragraph (iv) below, in the event of: (A) any request by
the SEC or any other federal or state governmental authority during the period
of effectiveness of the Registration Statement for amendments or supplements to
a Registration Statement or related prospectus or for additional information;
(B) the issuance by the SEC or any other federal or state governmental authority
of any stop order suspending the effectiveness of a Registration Statement or
the initiation of any proceedings for that purpose; (C) the receipt by the
Company of any notification with respect to the suspension of the qualification
or exemption from qualification of any of the Registrable Shares for sale in any
jurisdiction or the initiation of any proceeding for such purpose; or (D) any
event or circumstance that necessitates the making of any changes in the
Registration Statement or Prospectus, or any document incorporated or deemed to
be incorporated therein by reference, so that, in the case of the Registration
Statement, it will not contain any untrue statement of a material fact or any
omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, and that in the case of the
Prospectus, it will not contain any untrue statement of a material fact or any
omission to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, then the Company shall deliver a certificate in
writing to the Purchasers (the "Suspension Notice") to the effect of the
foregoing (which notice will not disclose the content of any material non-public
information and will indicate the date of the beginning and end of the intended
period of suspension, if known), and, upon receipt of such Suspension Notice,
the Purchasers will discontinue disposition of Registrable Shares covered by to
the Registration Statement or Prospectus (a "Suspension") until the Purchasers'
receipt of copies of a supplemented or amended Prospectus prepared and filed by
the Company, or until the Purchasers are advised in writing by the Company that
the current Prospectus may be used, and have received copies of any additional
or supplemental filings that are incorporated or deemed incorporated by
reference in any such prospectus. In the event of any Suspension, the Company
will use its reasonable best efforts to cause the use of the Prospectus so
suspended to be resumed as soon as possible after delivery of a Suspension
Notice to the Purchasers.
(iv) Provided that a Suspension is not then in effect, the Purchasers may
sell Registrable Shares under the Registration Statement, provided that the
selling Purchaser arranges for delivery of a current Prospectus to the
transferee of such Registrable Shares to the extent such delivery is required by
applicable law.
(e) Indemnification. For the purpose of this Section 5(e), the term
"Registration Statement" shall include any preliminary or final Prospectus,
exhibit, supplement or amendment included in or relating to the Registration
Statement referred to in Section 5(a).
-20-
(i) Indemnification by the Company. The Company agrees to indemnify and
hold harmless each of the Purchasers and their affiliates and their respective
officers, directors, agents, employees, subsidiaries, partners, members,
investment advisors and controlling persons and each person, if any, who
controls any Purchaser within the meaning of the Securities Act, to the fullest
extent permitted by law, against any and all losses, claims, damages,
liabilities or expenses, joint or several, to which such Purchasers or such
controlling person may become subject, under the Securities Act, the Exchange
Act or any other federal or state statutory law or regulation, or at common law
or otherwise (including in settlement of any litigation, if such settlement is
effected with the written consent of the Company, which consent shall not be
unreasonably withheld), insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof as contemplated below) arise out of or
are based upon (A) any breach by the Company of any representations, warranties,
covenants or agreements of the Company contained in this Agreement or the
Warrants and (B) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state in any of them a material fact required to be
stated therein or necessary to make the statements in any of them, in light of
the circumstances under which they were made, not misleading, and will reimburse
each Purchaser and each such controlling person for any reasonable legal and
other expenses as such reasonable expenses are incurred by such Purchaser or
such controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action; provided, however, that the Company will not be liable in any such case
to the extent that any such loss, claim, damage, liability, expense or action
arises out of or is based upon (A) an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement,
the Prospectus or any amendment to or supplement of the Registration Statement
or Prospectus made in reliance upon and in conformity with written information
furnished to the Company by or on behalf of the Purchaser expressly for use in
the Registration Statement or the Prospectus, (B) the failure of such Purchaser
to comply with the covenants and agreements contained in this Agreement
respecting resale of the Purchased Shares or the sale of the Underlying Shares
or (C) any untrue statement or omission of a material fact required to make such
statement not misleading in any Prospectus that is corrected in any subsequent
Prospectus that was delivered to the Purchaser before the pertinent sale or
sales by the Purchaser.
(ii) Indemnification by the Purchaser. Each Purchaser will severally and
not jointly indemnify and hold harmless the Company, each of its directors, each
of its officers who signed the Registration Statement and each person, if any,
who controls the Company within the meaning of the Securities Act, against any
losses, claims, damages, liabilities or expenses to which the Company, its
directors, its officers who signed the Registration Statement and any
controlling persons may become subject, under the Securities Act, the Exchange
Act, or any other federal or state statutory law or regulation, or at common law
or otherwise (including in settlement of any litigation, if such settlement is
effected with the written consent of such Purchaser, which consent shall not be
unreasonably withheld) insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof as contemplated below) arise out of or
are based upon any untrue statement of any material fact contained in the
Registration Statement, the Prospectus, or any amendment or supplement to the
Registration Statement or Prospectus, or arise out of or are based upon the
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or omission was made
in the Registration Statement, the Prospectus, or any amendment or supplement
thereto, in reliance upon and in strict conformity with written information
furnished
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to the Company by or on behalf of such Purchaser expressly for use therein, and
the Purchaser will reimburse the Company, each of its directors, each of its
officers who signed the Registration Statement, and any controlling persons for
any reasonable legal and other expense incurred by the Company, its directors,
its officers who signed the Registration Statement, and any controlling persons,
in connection with investigating, defending, settling, compromising or paying
any such loss, claim, damage, liability, expense or action; provided, however,
that the Purchaser shall not be liable for any such untrue statement or omission
with respect to which the Purchaser has delivered to the Company in writing a
correction before the occurrence of the event from which such loss was incurred.
Notwithstanding the provisions of this Section 5(e), the Purchaser shall not be
liable for any indemnification obligation under this Agreement in excess of the
aggregate amount of net proceeds received by the Purchaser from the sale of the
Registrable Shares pursuant to the Registration Statement.
(iii) Indemnification Procedure.
(A) Promptly after receipt by an indemnified party under this Section 5(e)
of notice of the threat or commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against an indemnifying party
under this Section 5(e), promptly notify the indemnifying party in writing of
the claim; but the omission so to notify the indemnifying party will not relieve
it from any liability that it may have to any indemnified party for contribution
or otherwise under the indemnity agreement contained in this Section 5(e) or
otherwise, to the extent it is not prejudiced as a result of such failure.
(B) In case any such action is brought against any indemnified party and
such indemnified party seeks or intends to seek indemnity from an indemnifying
party, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with all other indemnifying parties similarly
notified, to assume the defense thereof with counsel reasonably satisfactory to
such indemnified party; provided, however, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be a conflict
between the positions of the indemnifying party and the indemnified party in
conducting the defense of any such action or that there may be legal defenses
available to it or other indemnified parties that are different from or
additional to those available to the indemnifying party, the indemnified party
or parties shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on behalf of
such indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of its election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying party
will not be liable to such indemnified party under this Section 5(e) for any
legal or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof unless:
(I) the indemnified party shall have employed such counsel in connection
with the assumption of legal defenses in accordance with the proviso to the
preceding sentence (it being understood, however, that the indemnifying party
shall not be liable for the expenses of more than one separate counsel, approved
by such indemnifying party, representing all of the indemnified parties who are
parties to such action); or
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(II) the indemnifying party shall not have employed counsel reasonably
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action against the
indemnified party,
in each of which cases the reasonable fees and expenses of counsel for the
indemnified party shall be at the expense of the indemnifying party.
(iv) Contribution. If the indemnification provided for in this Section
5(e) is required by its terms but is for any reason held to be unavailable to,
or is otherwise insufficient to hold harmless, an indemnified party under this
Section 5(e) with respect to any losses, claims, damages, liabilities or
expenses referred to in this Agreement, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of any losses, claims, damages, liabilities or expenses referred to in this
Agreement:
(A) in such proportion as is appropriate to reflect the relative faults of
the Company and the Purchaser in connection with the statements or omissions or
inaccuracies in the representations and warranties in this Agreement that
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations, or
(B) if the allocation provided by clause (A) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative faults referred to in clause (A) above but the relative benefits
received by the Company and the Purchaser from the sale of the Purchased
Securities.
The respective relative benefits received by the Company on the one hand
and each Purchaser on the other shall be deemed to be in the same proportion as
the amount to which the consideration paid by such Purchaser to the Company
pursuant to this Agreement for the Purchased Securities purchased by such
Purchaser that were sold pursuant to the Registration Statement bears to the
difference (the "Difference") between the amount such Purchaser paid for the
Purchased Securities that were sold pursuant to the Registration Statement and
the amount received by such Purchaser from such sale. The relative fault of the
Company and each Purchaser shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact or the inaccurate or the
alleged inaccurate material fact relates to information supplied by the Company
or by such Purchaser and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in Section 5(e)(iii), any reasonable legal
or other fees or expenses incurred by such party in connection with
investigating or defending any such action or claim. The provisions set forth in
Section 5(e)(iii) with respect to the notice of the threat or commencement of
any threat or action shall apply if a claim for contribution is to be made under
this Section 5(e)(iv); provided, however, that no additional notice shall be
required with respect to any threat or action for which notice has been given
under Section 5(e)(iii) for purposes of indemnification. The Company and each
Purchaser agree that it would not be just and equitable if contribution pursuant
to this Section 5(e)(iv) were determined solely by pro rata allocation (even if
the Purchasers were treated as one entity for such purpose) or by any other
method of allocation that does not take account of the equitable considerations
referred to in this paragraph. Notwithstanding the provisions of this Section
5(e)(iv), no Purchaser shall be required to contribute any amount in excess of
the amount by which the Difference exceeds the amount of any damages that such
Purchaser has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. The Purchasers' obligations to contribute pursuant
to this Section 5(e)(iv) are several and not joint.
-23-
(f) Rule 144 Information. For two years after the date of this Agreement,
the Company shall file in a timely manner all reports required to be filed by it
under the Securities Act and the Exchange Act and the rules and regulations
promulgated thereunder and shall take such further action to the extent required
to enable the Purchasers to sell the Purchased Shares and the Underlying Shares
pursuant to Rule 144 under the Securities Act (as such rule may be amended from
time to time).
6. CONDITIONS TO THE PURCHASER'S OBLIGATIONS AT THE CLOSING. The
obligations of the Purchasers under Section 1(b) of this Agreement are subject
to the fulfillment or waiver, on or before the Closing, of each of the following
conditions:
(a) Representations and Warranties True. Each of the representations and
warranties of the Company contained in Section 3 shall be true and correct in
all material respects on and as of the date hereof (provided, however, that such
materiality qualification shall only apply to representations or warranties not
otherwise qualified by materiality) and on and as of the date of the Closing
with the same effect as though such representations and warranties had been made
as of the Closing; provided, however, that if a representation and warranty is
made as of a specific date, it shall be true and correct in all material
respects only as of such date.
(b) Performance. The Company shall have performed and complied in all
material respects with all agreements, obligations and conditions contained in
this Agreement that are required to be performed or complied with by it on or
before the Closing and shall have obtained all approvals, consents and
qualifications necessary to complete the purchase and sale described herein;
provided, however, that the Company may furnish to each Purchaser a facsimile
copy of the warrant representing the Purchased Warrants and the stock
certificate representing the Purchased Shares, with the original warrant and
stock certificate held in trust by counsel for the Company until delivery
thereof on the next business day.
(c) Compliance Certificate. The Company will have delivered to the
Purchasers a certificate signed on its behalf by its Chief Executive Officer or
Chief Financial Officer certifying that the conditions specified in Sections
6(a) and 6(b) hereof have been fulfilled.
(d) Agreement. The Company shall have executed and delivered to the
Purchasers this Agreement.
-24-
(e) Securities Exemptions. The offer and sale of the Purchased Securities
to the Purchasers pursuant to this Agreement shall be exempt from the
registration requirements of the Securities Act and the registration and/or
qualification requirements of all applicable state securities laws.
(f) No Suspension of Trading or Listing of Common Stock. The Common Stock
of the Company (i) shall be designated for quotation or listed on the OTCBB and
(ii) shall not have been suspended from trading on the OTCBB.
(g) Good Standing Certificates. The Company shall have delivered to the
Purchasers a certificate of the Secretary of State of the State of Delaware,
dated as of a date within ten days of the date of the Closing, with respect to
the good standing of the Company.
(h) Secretary's Certificate. The Company shall have delivered to the
Purchasers a certificate of the Company executed by the Company's Secretary
attaching and certifying to the truth and correctness of (i) the Certificate of
Incorporation, (ii) the Bylaws and (iii) the resolutions adopted by the
Company's Board of Directors in connection with the transactions contemplated by
this Agreement.
(i) Opinion of Company Counsel. The Purchasers will have received an
opinion on behalf of the Company, dated as of the date of the Closing, from
Sichenzia Xxxx Xxxxxxxx Xxxxxxx LLP, counsel to the Company, in the form
attached as Exhibit C.
(j) No Statute or Rule Challenging Transaction. No statute, rule,
regulation, executive order, decree, ruling, injunction, action, proceeding or
interpretation shall have been enacted, entered, promulgated, endorsed or
adopted by any court or governmental authority of competent jurisdiction or any
self-regulatory organization or the staff of any of the foregoing, having
authority over the matters contemplated hereby that questions the validity of,
or challenges or prohibits the consummation of, any of the transactions
contemplated by this Agreement.
(k) Other Actions. The Company shall have executed such certificates,
agreements, instruments and other documents, and taken such other actions as
shall be customary or reasonably requested by the Purchasers in connection with
the transactions contemplated hereby.
7. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT THE CLOSING. The obligations
of the Company to the Purchasers under this Agreement are subject to the
fulfillment or waiver, on or before the Closing, of each of the following
conditions:
(a) Representations and Warranties True. The representations and
warranties of the Purchasers contained in Section 4 shall be true and correct in
all material respects on and as of the date hereof (provided, however, that such
materiality qualification shall only apply to representations and warranties not
otherwise qualified by materiality) and on and as of the date of the Closing
with the same effect as though such representations and warranties had been made
as of the Closing.
(b) Performance. The Purchasers shall have performed and complied in all
material respects with all agreements, obligations and conditions contained in
this Agreement that are required to be performed or complied with by it on or
before the Closing and shall have obtained all approvals, consents and
qualifications necessary to complete the purchase and sale described herein.
-25-
(c) Agreement. The Purchasers shall have executed and delivered to the
Company this Agreement (and Appendix I and Appendix II hereto).
(d) Securities Exemptions. The offer and sale of the Purchased Securities
to the Purchasers pursuant to this Agreement shall be exempt from the
registration requirements of the Securities Act and the registration and/or
qualification requirements of all applicable state securities laws.
(e) Payment of Purchase Price. The Purchasers shall have delivered to the
Company by wire transfer of immediately available funds, full payment of the
purchase price for the Purchased Securities as specified in Section 1(b).
(f) No Statute or Rule Challenging Transaction. No statute, rule,
regulation, executive order, decree, ruling, injunction, action, proceeding or
interpretation shall have been enacted, entered, promulgated, endorsed or
adopted by any court or governmental authority of competent jurisdiction or any
self-regulatory organization or the staff of any of the foregoing, having
authority over the matters contemplated hereby that questions the validity of,
or challenges or prohibits the consummation of, any of the transactions
contemplated by this Agreement.
8. SUBSEQUENT FINANCING; RIGHT OF PARTICIPATION.
During the period commencing on the date of the Closing (the "Closing
Date") and ending on the date that is ninety (90) days following the Closing
Date, the Company covenants and agrees to promptly notify in writing (a "Rights
Notice") the Purchasers of the terms and conditions of any proposed financing by
the Company of its Common Stock with a strategic investor (a "Subsequent
Financing"). The Rights Notice shall describe, the material terms of the
proposed Subsequent Financing, the proposed closing date of the Subsequent
Financing and a list of the proposed definitive documentation to be entered into
in connection therewith. The Rights Notice shall provide each Purchaser an
option (the "Rights Option") during the three (3) trading days following
delivery of the Rights Notice (the "Option Period") to purchase up to its pro
rata share of the number of Purchased Shares subscribed for hereunder, together
with the other Purchasers exercising the Rights Option, for up to fifty percent
(50%) of the amount of the securities being offered in such Subsequent Financing
on the same, absolute terms and conditions as contemplated by such Subsequent
Financing, provided, however, that no Purchaser shall be required to comply with
any non-monetary term or condition or otherwise provide any goods or services
provided by such strategic investor in any Subsequent Financing.If any Purchaser
elects not to participate in such Subsequent Financing, the other Purchasers may
participate on a pro-rata basis so long as such participation in the aggregate
does not exceed fifty percent (50%) of the total amount of the Subsequent
Financing. For purposes of this Section, all references to "pro rata" means, for
any Purchaser electing to participate in such Subsequent Financing, the
percentage obtained by dividing (x) the total number of Shares purchased by such
Purchaser at the Closing by (y) the total number of Purchases Shares purchased
by all of the participating Purchasers at the Closing. If the Company does not
receive notice of exercise of the Rights Option from any of the Purchasers
within the Option Period, the Company shall have the right to close the
Subsequent Financing on the scheduled closing date with the strategic partner
(and, if applicable, with such Purchasers as shall have exercised their Rights
Option); provided that all of the material terms and conditions of the closing
are the same as those provided to the Purchasers in the Rights Notice. If the
closing of the proposed Subsequent Financing does not occur within 60 days from
the date the Rights Notice is given, any closing of the contemplated Subsequent
Financing or any other Subsequent Financing shall be subject to all of the
provisions of this Section, including, without limitation, the delivery of a new
Rights Notice.
-26-
Notwithstanding the foregoing, during the period commencing on the Closing
Date and ending on the date that is ninety (90) days following the Closing Date,
the Company covenants and agrees that it will not consummate a Subsequent
Financing with a strategic investor at a price that is less than the Per Unit
Price.
9. MISCELLANEOUS.
(a) Successors and Assigns. The terms and conditions of this Agreement
will inure to the benefit of and be binding upon the respective successors and
permitted assigns of the parties. The Company shall not assign this Agreement or
any rights or obligations hereunder without the prior written consent of the
Purchasers holding a majority of the total aggregate number of Purchased Shares
and Underlying Shares then outstanding (excluding any shares sold to the public
pursuant to Rule 144 or otherwise). Any Purchaser may assign its rights under
this Agreement to any person to whom the Purchaser assigns or transfers any
Purchased Securities, provided that such transferee agrees in writing to be
bound by the terms and provisions of this Agreement, and such transfer is in
compliance with the terms and provisions of this Agreement and permitted by
federal and state securities laws.
(b) Governing Law. This Agreement will be governed by and construed and
enforced under the internal laws of the State of New York, without reference to
principles of conflict of laws or choice of laws. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT
OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
(c) Survival. The representations and warranties of the Company and the
Purchasers contained in Sections 3 and 4 of this Agreement shall survive until
the second anniversary of the Closing Date.
(d) Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
(e) Headings. The headings and captions used in this Agreement are used
for convenience only and are not to be considered in construing or interpreting
this Agreement. All references in this Agreement to sections, paragraphs,
exhibits and schedules will, unless otherwise provided, refer to sections and
paragraphs hereof and exhibits and schedules attached hereto, all of which
exhibits and schedules are incorporated herein by reference.
-27-
(f) Notices. Any notices and other communications required or permitted
under this Agreement shall be in writing and shall be delivered (i) personally
by hand or by courier, (ii) mailed by United States first-class mail, postage
prepaid or (iii) sent by facsimile directed (A) if to a Purchaser, at such
Purchaser's address or facsimile number set forth on such Purchaser's signature
page to this Agreement, or at such address or facsimile number as such Purchaser
may designate by giving at least ten days' advance written notice to the Company
or (B) if to the Company, to its address or facsimile number set forth below, or
at such other address or facsimile number as the Company may designate by giving
at least ten days' advance written notice to the Purchaser. All such notices and
other communications shall be deemed given upon (I) receipt or refusal of
receipt, if delivered personally, (II) three days after being placed in the
mail, if mailed, or (III) confirmation of facsimile transfer, if faxed.
The address of the Company for the purpose of this Section 9(f) is as
follows:
ROO Group, Inc.
000 Xxxx 00xx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, XX 00000
Tel: (000) 000-0000
Fax: (000) 000-0000
Attention: Xxxxxx Xxxxx
with a copy to:
Sichenzia Xxxx Xxxxxxxx Xxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Tel: (000) 000-0000
Fax: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxxx, Esq.
(g) Amendments and Waivers. This Agreement may be amended and the
observance of any term of this Agreement may be waived only with the written
consent of the Company and the Purchasers holding a majority of the total
aggregate number of Purchased Shares and Underlying Shares then outstanding
(excluding any shares sold to the public pursuant to Rule 144 or otherwise). Any
amendment effected in accordance with this Section 9(g) will be binding upon the
Purchasers, the Company and their respective successors and permitted assigns.
(h) Severability. If any provision of this Agreement is held to be
unenforceable under applicable law, such provision will be excluded from this
Agreement and the balance of the Agreement will be interpreted as if such
provision were so excluded and will be enforceable in accordance with its terms.
-28-
(i) Entire Agreement. This Agreement, together with all exhibits and
schedules hereto and thereto constitutes the entire agreement and understanding
of the parties with respect to the subject matter hereof and supersedes any and
all prior negotiations, correspondence, agreements, understandings, duties or
obligations between the parties with respect to the subject matter hereof.
(j) No Additional Agreements. The Company does not have any written or
oral contract, agreement, arrangement or understanding with any Purchaser with
respect to the transactions contemplated by this Agreement other than as
expressly stated herein.
(k) Further Assurances. From and after the date of this Agreement, upon
the request of the Company or the Purchasers, the Company and the Purchasers
will execute and deliver such instruments, documents or other writings, and take
such other actions, as may be reasonably necessary or desirable to confirm and
carry out and to effectuate fully the intent and purposes of this Agreement.
(l) Meaning of Include and Including. Whenever in this Agreement the word
"include" or "including" is used, it shall be deemed to mean "include, without
limitation" or "including, without limitation," as the case may be, and the
language following "include" or "including" shall not be deemed to set forth an
exhaustive list.
(m) Fees, Costs and Expenses. All fees, costs and expenses (including
attorneys' fees and expenses) incurred by any party hereto in connection with
the preparation, negotiation and execution of this Agreement and the exhibits
and schedules hereto and the consummation of the transactions contemplated
hereby and thereby shall be the sole and exclusive responsibility of such party;
provided that, the Company shall pay all actual attorneys' fees and expenses up
to a maximum of $20,000 incurred by Ashford Capital Management, Inc., the lead
Purchaser, incurred in connection with the negotiation, execution and delivery
of this Agreement (including the other documents in connection therewith) and
the transactions contemplated herein. In addition, the Company will pay the
costs associated with any filings with, or compliance with any of the
requirements of any governmental authorities.
(n) 8-K Filing and Publicity; Standstill. As soon as practicable following
the execution of this Agreement but in no event later than 8:30 a.m. EST within
four (4) business days following the execution of this Agreement, the Company
shall file a Current Report on Form 8-K with the SEC describing the material
terms of the transactions contemplated by this Agreement and attaching this
Agreement and the press release referred to below as exhibits to such filing
(the "8-K Filing" including all attachments). Neither the Company nor any
Purchaser shall issue any press releases or any other public statements with
respect to the transactions contemplated by this Agreement; provided, however,
that the Company shall be entitled, without the prior approval of any Purchaser,
to issue any press release or make any other public disclosure (including a
press release (concerning the offering of the Purchased Securities) pursuant to
Rule 135(c) under the Securities Act) with respect to such transactions (i) in
substantial conformity with the 8-K Filing and (ii) as is required by applicable
law and regulations; and, provided further, that no such release may identify a
Purchaser unless such Purchaser has consented thereto in writing, or as required
by law. The Company and Tudor Investment Corporation ("Tudor") hereby agree that
the "Standstill Period" set forth in the letter agreement dated as of June 1,
2006 by and between the Company and Tudor shall expire as of the date of this
Agreement notwithstanding anything to the contrary therein.
-29-
(o) Stock Splits, Dividends and other Similar Events. The provisions of
this Agreement shall be appropriately adjusted to reflect any stock split, stock
dividend, reorganization or other similar event that may occur with respect to
the Company after the date hereof.
(p) Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each Purchaser
and the Company will be entitled to specific performance under this Agreement.
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.
(p) Several Liability; Advice. Each Purchaser agrees that no other
Purchaser nor the respective controlling persons, officers, directors, partners,
agents or employees of any other Purchaser shall be liable to such Purchaser for
any losses incurred by such Purchaser in connection with its investment in the
Company. Each Purchaser acknowledges that it is not relying upon any person,
firm or corporation (including without limitation any other Purchaser), other
than the Company and its officers and directors (acting in their capacity as
representatives of the Company), in deciding to invest and in making its
investment in the Company. The Company acknowledges that no Purchaser is acting
or has acted as an advisor, agent or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and any advice given by any Purchaser
or any of its representatives in connection with this Agreement is merely
incidental to the Purchasers' purchase of securities of the Company hereunder.
[Remainder of page intentionally left blank.]
* * *
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The parties hereto have executed this Agreement as of the date and year
first above written.
ROO GROUP, INC.
By:
--------------------------------------------
Xxxxxx Xxxxx
Chief Executive Officer
[PURCHASER SIGNATURE PAGES TO FOLLOW]
SIGNATURE PAGE TO
SECURITIES PURCHASE AGREEMENT
DATED AS OF NOVEMBER 14, 2006
BY AND AMONG
ROO GROUP, INC.
AND EACH PURCHASER NAMED THEREIN
The undersigned hereby executes and delivers to Roo Group, Inc., the
Securities Purchase Agreement (the "Agreement") to which this signature page is
attached, which Agreement and signature page, together with all counterparts of
such Agreement and signature pages of the other Purchasers named in such
Agreement, shall constitute one and the same document in accordance with the
terms of such Agreement.
Number of Units: __________
NAME OF PURCHASER
Signature:
----------------------------------
By:
-----------------------------------------
Title:
--------------------------------------
Address:
------------------------------------
------------------------------------
------------------------------------
Telephone:
------------------------------------
Fax:
----------------------------------------
Tax ID Number:
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EXHIBIT A
SCHEDULE OF PURCHASERS
Purchaser Name
--------------------------------------------
Xxxxxx Xxxxx
Xxxx Xxxx
Lacuna Hedge Fund LLC
XXX Opportunity Fund, LTD.
Xxxxx Opportunity Fund, LP
LBI Group, Inc.
Glacier Partners, LP
033 Growth International Fund, Ltd
033 Growth Partners I, LP
033 Growth Partners II, LP
Oyster Pond Partners, LP
Anvil Investment Associates, X.X.
Xxxxxxx Capital Partners, L.P.
Xxxx & Co.
Xxxxxxx River Partners, Ltd.
Xxxxxxx River Partners II, XX
Xxxxxxx River Partners, L.P
The Tudor BVI Global Portfolio Ltd.
Tudor Proprietary Trading, L.L.C.
Witches Rock Portfolio Ltd.
EXHIBIT B
FORM OF WARRANT
EXHIBIT C
DISCLOSURE LETTER
EXHIBIT D
OPINION OF COMPANY COUNSEL
Annex A
Plan of Distribution
The Selling Stockholders and any of their pledgees, donees,
transferees, assignees and successors-in-interest may, from time to time, sell
any or all of their shares of Common Stock on any stock exchange, market or
trading facility on which the shares are traded or in private transactions.
These sales may be at fixed or negotiated prices. The Selling Stockholders may
use any one or more of the following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o short sales;
o broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;
o through the writing or settlement of options or other hedging
transactions, whether through an options exchange or otherwise;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
Broker-dealers engaged by the Selling Stockholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the Selling Stockholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The Selling Stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
The Selling Stockholders may from time to time pledge or grant a
security interest in some or all of the Shares owned by them and, if they
default in the performance of their secured obligations, the pledgees or secured
parties may offer and sell shares of Common Stock from time to time under this
prospectus, or under an amendment or supplement to this prospectus under Rule
424(b)(3) or other applicable provision of the Securities Act of 1933 amending
the list of selling stockholders to include the pledgee, transferee or other
successors in interest as selling stockholders under this prospectus.
Upon the Company being notified in writing by a Selling Stockholder
that any material agreement has been entered into with a broker-dealer for the
sale of Common Stock through a block trade, special offering, exchange
distribution or secondary distribution or a purchase by a broker or dealer, a
supplement to this prospectus will be filed, if required disclosing (i) the name
of each such Selling Stockholder and of the participating broker-dealer(s), (ii)
the number of shares involved, (iii) the price at which such shares of Common
Stock were sold, (iv) the commissions paid or discounts or concessions allowed
to such broker-dealers, where applicable, (v) if applicable, that such
broker-dealer(s) did not conduct any investigation to verify the information set
out or incorporated by reference in this prospectus, and (vi) other facts
material to the transaction. In addition, upon the Company being notified in
writing by a Selling Stockholder that a donee or pledgee intends to sell more
than 500 shares of Common Stock, a supplement to this prospectus will be filed
if then required in accordance with applicable securities laws.
The Selling Stockholders also may transfer the shares of Common Stock
in other circumstances, in which case the transferees, pledgees or other
successors in interest will be the selling beneficial owners for purposes of
this prospectus.
The Selling Stockholders may also enter into option or other
transactions with broker-dealers or other financial institutions or the creation
of one or more derivative securities which require the delivery to such
broker-dealer or other financial institution of shares offered by this
Prospectus, which shares such broker-dealer or other financial institution may
resell pursuant to this Prospectus (as supplemented or amended to reflect such
transaction).
The Selling Stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. Discounts, concessions,
commissions and similar selling expenses, if any, attributable to the sale of
shares will be borne by the Selling Stockholder. Each Selling Stockholder has
represented and warranted to the Company that it acquired the securities subject
to this registration statement in the ordinary course of such Selling
Stockholder's business and, at the time of its purchase of such securities such
Selling Stockholder had no agreements or understandings, directly or indirectly,
with any person to distribute any such securities.
The Company has advised each Selling Stockholder that it may not use
shares registered on this Registration Statement to cover short sales of Common
Stock made prior to the date on which this Registration Statement shall have
been declared effective by the Commission. If the Selling Stockholders use this
prospectus for any sale of the Common Stock, they will be subject to the
prospectus delivery requirements of the Securities Act unless an exemption
therefrom is available. The Selling Stockholders will be responsible to comply
with the applicable provisions of the Securities Act and Exchange Act, and the
rules and regulations thereunder promulgated, including, without limitation, to
the extent applicable, Regulation M, as applicable to such Selling Stockholders
in connection with resales of their respective shares under this Registration
Statement.
In connection with sales of the shares of Common Stock or otherwise,
the Selling Stockholders may enter into hedging transactions with
broker-dealers, which may in turn engage in short sales of the shares of Common
Stock in the course of hedging in positions they assume. The Selling
Stockholders may also sell shares of Common Stock short and deliver shares of
Common Stock covered by this prospectus to close out short positions and to
return borrowed shares in connection with such short sales. The Selling
Stockholders may also loan or pledge shares of Common Stock to broker-dealers
that in turn may sell such shares.
The Company is required to pay all fees and expenses incident to the
registration of the shares, but we will not receive any proceeds from the sale
of the Common Stock. The Company has agreed to indemnify the Selling
Stockholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act and state securities laws, relating to the
registration of the shares offered by this Prospectus.
APPENDIX I
STOCK CERTIFICATE QUESTIONNAIRE
Please provide us with the following information:
1. The exact name that the Securities are to be
registered in (this is the name that will appear
on the stock certificate(s)). You may use a
nominee name if appropriate: __________________________
2. The relationship between the Purchaser of the
Securities and the Registered Holder listed in
response to item 1 above: __________________________
3. The mailing address of the Registered Holder
listed in response to item 1 above: __________________________
__________________________
__________________________
__________________________
__________________________
__________________________
4. The Tax Identification Number of the Registered
Holder listed in response to item 1 above: __________________________
APPENDIX II
REGISTRATION STATEMENT QUESTIONNAIRE
In connection with the preparation of the Registration Statement,
please provide us with the following information regarding the Purchaser.
A. GENERAL INFORMATION
1. Please state your organization's name exactly as it should appear in the
Registration Statement:________________________________
2. Have you or your organization had any position, office or other material
relationship within the past three years with the Company or its affiliates
other than as disclosed in the Prospectus included in the Registration
Statement?
|_| Yes |_| No
If yes, please indicate the nature of any such relationships below:
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B. SECURITIES HOLDINGS
Please fill in all blanks in the following questions related to your
beneficial ownership of the Company's capital stock. Generally, the term
"beneficial ownership" refers to any direct or indirect interest in the
securities which entitles you to any of the rights or benefits of ownership,
even though you may not be the holder of record of the securities. For example,
securities held in "street name" over which you exercise voting or investment
power would be considered beneficially owned by you. Other examples of indirect
ownership include ownership by a partnership in which you are a partner or by an
estate or trust of which you or any member of your immediate family is a
beneficiary. Ownership of securities held in the names of your spouse, minor
children or other relatives who live in the same household may be attributed to
you.
================================================================================
PLEASE NOTE: IF YOU HAVE ANY REASON TO BELIEVE THAT ANY INTEREST IN
SECURITIES OF THE COMPANY WHICH YOU MAY HAVE, HOWEVER REMOTE, IS A BENEFICIAL
INTEREST, PLEASE DESCRIBE SUCH INTEREST. FOR PURPOSES OF RESPONDING TO THIS
QUESTIONNAIRE, IT IS PREFERABLE TO ERR ON THE SIDE OF INCLUSION RATHER THAN
EXCLUSION. WHERE THE SEC'S INTERPRETATION OF BENEFICIAL OWNERSHIP WOULD REQUIRE
DISCLOSURE OF YOUR INTEREST OR POSSIBLE INTEREST IN CERTAIN SECURITIES OF THE
COMPANY, AND YOU BELIEVE THAT YOU DO NOT ACTUALLY POSSESS THE ATTRIBUTES OF
BENEFICIAL OWNERSHIP, AN APPROPRIATE RESPONSE IS TO DISCLOSE THE INTEREST AND AT
THE SAME TIME DISCLAIM BENEFICIAL OWNERSHIP OF THE SECURITIES.
================================================================================
1. As of NOVEMBER 14, 2006, I owned outright (including shares registered in my
name individually or jointly with others, shares held in the name of a bank,
broker, nominee, depository or in "street name" for my account), the following
number of shares of the Company's capital stock: _________________.
2. In addition to the number of shares I own outright as indicated by my answer
to question B(1), as of NOVEMBER 14, 2006, I had or shared voting power or
investment power, directly or indirectly, through a contract, arrangement,
understanding, relationship or otherwise, over the following number of shares of
the Company's capital stock: _________________.
If the answer to this question B(2) was not "zero," please complete the
following: with whom shared; and the nature of the relationship and any
underlying voting trust agreement, investment arrangement or the like:
SHARED VOTING POWER:
=====================================================================
Number of Shares With Whom Shared Nature of Relationship
=====================================================================
=====================================================================
SHARED INVESTMENT POWER:
=====================================================================
Number of Shares With Whom Shared Nature of Relationship
=====================================================================
=====================================================================
As of JANUARY 14, 2007, I will have the right to acquire ________
shares of the Company's capital stock pursuant to outstanding stock options
issued under the Company's stock option plans and ______ shares pursuant to the
exercise of outstanding warrants (none, indicated by "0" above).
====================================================================
Options and Warrants
Class Number of Shares
================================= ==================================
================================= ==================================
(4) Please identify the natural person or persons who have voting
and/or investment control over the Company's securities that you own, and state
whether such person(s) disclaims beneficial ownership of the securities. For
example, if you are a general partnership, please identify the general partners
in the partnership.
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C. NASD QUESTIONS
1. Are you (i) a "member"(1) of the National Association of Securities
Dealers, Inc. (the "NASD"), (ii) an "affiliate"(2) of a member of the NASD,
(iii) a "person associated with a member" or an "associated person of a
member"(3) of the NASD or (iv) an immediate family member(4) of any of the
foregoing persons? If yes, please identify the member and describe such
relationship (whether direct or indirect), and please respond to Question Number
2 below; if no, please proceed directly to Question Number 3.
Yes _____ No _____
Description:
2. If you answered "yes" to Question Number 1, please furnish any
information as to whether any such member intends to participate in any capacity
in the public offering, including the details of such participation:
Description:
3. Are you or have you been an "underwriter or related person"(5) or a
person associated with an underwriter or related person, including, without
limitation, with respect to the proposed public offering? If yes, please
identify the underwriter or related person and describe such relationship
(whether direct or indirect).
Yes _____ No _____
Description:
4. If known, please describe in detail any underwriting compensations,
arrangements or dealings entered into during the previous twelve months, or
proposed to be consummated in the next twelve months, between (i) any
underwriter or related person, member of the NASD, affiliate of a member of the
NASD, person associated with a member or associated person of a member of the
NASD or any immediate family member thereof, on the one hand, and (ii) the
Company, or any director, officer or shareholder thereof, on the other hand,
which provides for the receipt of any item of value and/or the transfer of any
warrants, options or other securities from the Company to any such person (other
than the information relating to the arrangements with any investment firm or
underwriting organization which may participate in the proposed public
offering).
Description:
5. Have you purchased the securities in the ordinary course of
business?
Yes _____ No _____
----------------------
(1) NASD defines a "member" as any broker or dealer admitted to membership in
the NASD, or any officer or partner or branch manager of such a member, or any
person occupying a similar status or performing a similar function for such a
member.
(2) The term "affiliate" means a person that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is in common control
with, the person specified. Persons who have acted or are acting on behalf of or
for the benefit of a person include, but are not necessarily limited to,
directors, officers, employees, agents, consultants and sales representatives.
The following should apply for purposes of the foregoing:
(i) a person should be presumed to control a Member if the person
beneficially owns 10 percent or more the outstanding voting securities of a
Member which is a corporation, or beneficially owns a partnership interest in 10
percent or more of the distributable profits or losses of a Member which is a
partnership;
(ii) a Member should be presumed to control a person if the Member and
Persons Associated With a Member beneficially own 10 percent or more of the
outstanding voting securities of a person which is a corporation, or
beneficially own a partnership interest in 10 percent or more of the
distributable profits or losses of a person which is a partnership;
(iii) a person should be presumed to be under common control with a Member
if:
(1) the same person controls both the Member and another person by
beneficially owning 10 percent or more of the outstanding voting
securities of a Member or person which is a corporation, or by
beneficially owning a partnership interest in 10 percent or more of the
distributable profits or losses of a Member or person which is a
partnership; or
(2) a person having the power to direct or cause the direction of
the management or policies of the Member or such person also has the power
to direct or cause the direction of the management or policies of the
other entity in question.
(3) The NASD defines a "person associated with a member" or an
"associated person of a member" as being every sole proprietor, partner,
equity owner, officer, director or branch manager of any member, or any
natural person occupying a similar status or performing similar functions,
or any natural person engaged in the investment banking or securities
business who directly or indirectly controls or is controlled by such
member (for example, any employee), whether or not any such person is
registered or exempt from registration with the NASD.
(4) Immediate family includes parents, mother-in-law, father-in-law,
husband or wife, brother or sister, brother-in-law or sister-in-law,
son-in-law or daughter-in-law, and children, or any other person who is
supported, directly or indirectly, to a material extent, by a person
associated with a member of the NASD or any other broker/dealer.
(5) The term "underwriter or related person" includes underwriters,
underwriters' counsel, financial consultants and advisors, finders,
members of the selling or distribution group, and any and all other
persons associated with or related to any of such persons, including
members of the immediate family of such persons.
The answers to the foregoing questions are correctly stated to the best of my
information and belief. I shall advise the Company's outside counsel promptly of
any changes in the foregoing information.
_____________________________________________
(Print name of Selling Security Holder)
_____________________________________________
(Signature)
By: __________________________________________
(Name and title of signatory, if stockholder is an entity)
_____________________________________________
(Date)
