EXHIBIT 10.2
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
October ___, 2003, among eResource Capital Group, Inc., a Delaware corporation
(the "Company"), and the purchasers identified on the signature pages hereto
(each a "Purchaser" and collectively the "Purchasers"); and
WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act (as defined below),
and Rule 506 promulgated thereunder, the Company desires to issue and sell to
the Purchasers, and each Purchaser, severally and not jointly, desires to
purchase from the Company in the aggregate, up to $4,000,000 of Common Stock and
Warrants on the Closing Date.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agree
as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms have the
meanings indicated in this Section 1.1:
"Action" shall have the meaning ascribed to such term in Section
3.1(j).
"Affiliate" means any Person that, directly or indirectly through
one or more intermediaries, controls or is controlled by or is under
common control with a Person as such terms are used in and construed
under Rule 144. With respect to a Purchaser, any investment fund or
managed account that is managed on a discretionary basis by the same
investment manager as such Purchaser will be deemed to be an Affiliate
of such Purchaser.
"Business Day" means any day except Saturday, Sunday and any day
which shall be a federal legal holiday or a day on which banking
institutions in the State of New York are authorized or required by law
or other governmental action to close.
"Closing" means the closing of the purchase and sale of the Common
Stock and the Warrants pursuant to Section 2.1.
"Closing Date" means the Trading Day when all of the Transaction
Documents have been executed and delivered by the applicable parties
thereto, and all conditions precedent to (i) the Purchasers' obligations
to pay the Subscription Amount and (ii) the Company's obligations to
deliver the Securities have been satisfied or waived.
"Closing Price" means on any particular date (a) the last reported
closing bid price per share of Common Stock on such date on the Trading
Market (as reported by Bloomberg L.P. at 4:15 PM (New York time), or (b)
if there is no such price on such date, then the closing bid price on
the Trading Market on the date nearest preceding such
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date (as reported by Bloomberg L.P. at 4:15 PM (New York time) for the
closing bid price for regular session trading on such day), or (c) if
the Common Stock is not then listed or quoted on the Trading Market and
if prices for the Common Stock are then reported in the "pink sheets"
published by the National Quotation Bureau Incorporated (or a similar
organization or agency succeeding to its functions of reporting prices),
the most recent bid price per share of the Common Stock so reported, or
(d) if the shares of Common Stock are not then publicly traded the fair
market value of a share of Common Stock as determined by an appraiser
selected in good faith by the Purchasers of a majority in interest of
the Shares then outstanding.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, $0.04 par
value per share, and any securities into which such common stock may
hereafter be reclassified.
"Common Stock Equivalents" means any securities of the Company or
the Subsidiaries which would entitle the holder thereof to acquire at
any time Common Stock, including without limitation, any debt, preferred
stock, rights, options, warrants or other instrument that is at any time
convertible into or exchangeable for, or otherwise entitles the holder
thereof to receive, Common Stock.
"Company Counsel" means __________________________.
"Disclosure Schedules" means the Disclosure Schedules delivered
concurrently herewith.
"Effective Date" means the date that the Registration Statement is
first declared effective by the Commission.
"Escrow Agent" shall have the meaning set forth in the Escrow
Agreement.
"Escrow Agreement" shall mean the Escrow Agreement in
substantially the form of Exhibit B hereto executed and delivered
contemporaneously with this Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"FW" means Xxxxxxx Xxxxxxxxx LLP with offices located at 000
Xxxxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000-0000.
"Intellectual Property Rights" shall have the meaning ascribed to
such term in Section 3.1(o).
"Liens" means a lien, charge, security interest, encumbrance,
right of first refusal, preemptive right or other restriction.
"Material Adverse Effect" shall have the meaning ascribed to such
term in Section 3.1(b).
"Material Permits" shall have the meaning ascribed to such term in
Section 3.1(m).
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"Per Share Purchase Price" equals $1.60, subject to adjustment for
reverse and forward stock splits, stock dividends, stock combinations
and other similar transactions of the Common Stock that occur after the
date of this Agreement.
"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
"Registration Statement" means a registration statement meeting
the requirements set forth in the Registration Rights Agreement and
covering the resale by the Purchasers of the Shares and the Warrant
Shares.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of this Agreement, among the Company and
each Purchaser, in the form of Exhibit A hereto.
"Required Approvals" shall have the meaning ascribed to such term
in Section 3.1(e).
"Rule 144" means Rule 144 promulgated by the Commission pursuant
to the Securities Act, as such Rule may be amended from time to time, or
any similar rule or regulation hereafter adopted by the Commission
having substantially the same effect as such Rule.
"SEC Reports" shall have the meaning ascribed to such term in
Section 3.1(h).
"Securities" means the Shares, the Warrants and the Warrant
Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means the shares of Common Stock issued or issuable to
each Purchaser pursuant to this Agreement.
"Subscription Amount" means, as to each Purchaser, the amounts set
forth below such Purchaser's signature block on the signature page
hereto, in United States dollars and in immediately available funds.
"Subsidiary" shall mean the subsidiaries of the Company, if any,
set forth on Schedule 3.1(a).
"Trading Day" means (i) a day on which the Common Stock is traded
on a Trading Market, or (ii) if the Common Stock is not listed on a
Trading Market, a day on which the Common Stock is traded on the
over-the-counter market, as reported by the OTC Bulletin Board, or (iii)
if the Common Stock is not quoted on the OTC Bulletin Board, a day on
which the Common Stock is quoted in the over-the-counter market as
reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding its functions of reporting prices);
provided, that in the event that the Common Stock is not listed or
quoted as set forth in (i), (ii) and (iii) hereof, then Trading Day
shall mean a Business Day.
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"Trading Market" means the following markets or exchanges on which
the Common Stock is listed or quoted for trading on the date in
question: the American Stock Exchange, the New York Stock Exchange, the
Nasdaq National Market or the Nasdaq SmallCap Market.
"Transaction Documents" means this Agreement, the Escrow
Agreement, the Warrants and the Registration Rights Agreement and any
other documents or agreements executed in connection with the
transactions contemplated hereunder.
"Warrants" means the Common Stock Purchase Warrants, in the form
of Exhibit C, issuable to the Purchasers at the Closing, which warrants
shall be exercisable on or after the 6-month anniversary of their date
of issuance for an exercise term of 3 years and have an exercise price
equal to $____1.
"Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1 Closing. On the Closing Date, each Purchaser shall purchase from the
Company, severally and not jointly with the other Purchasers, and the Company
shall issue and sell to each Purchaser, (a) a number of Shares equal to such
Purchaser's Subscription Amount divided by the Per Share Purchase Price and
(b) the Warrants as determined pursuant to Section 2.2(a)(iii). The aggregate
Subscription Amounts for Shares sold hereunder shall be up to $4,000,000. Upon
satisfaction of the conditions set forth in Section 2.2, the Closing shall
occur at the offices of the Escrow Agent, or such other location as the
parties shall mutually agree.
2.2 Closing Conditions.
(a) On the Closing Date, the Company shall deliver or cause to be
delivered to the Escrow Agent with respect to each Purchaser the
following:
(i) this Agreement duly executed by the Company;
(ii) a certificate evidencing a number of Shares equal to such
Purchaser's Subscription Amount divided by the Per Share Purchase
Price, registered in the name of such Purchaser;
(iii) a Warrant, registered in the name of such Purchaser,
pursuant to which such Purchaser shall have the right to acquire up
to the number of shares of Common Stock equal to the Shares to be
issued to such Purchaser at the Closing;
(iv) the Registration Rights Agreement duly executed by the
Company;
(v) the Escrow Agreement duly executed by the Company; and
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1 110% of the Closing Price on the Trading Day immediately prior to the
date hereof.
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(vi) a legal opinion of Company Counsel, in the form of Exhibit
C attached hereto.
(b) On the Closing Date, each Purchaser shall deliver or cause to be
delivered to the Escrow Agent the following:
(i) this Agreement duly executed by such Purchaser;
(ii) such Purchaser's Subscription Amount by wire transfer to
the account of the Escrow Agent;
(iii) the Escrow Agreement duly executed by such Purchaser; and
(iv) the Registration Rights Agreement duly executed by such
Purchaser.
(c) All representations and warranties of the other party contained
herein shall remain true and correct as of the Closing Date.
(d) As of the Closing Date, there shall have been no Material
Adverse Effect with respect to the Company since the date hereof.
(e) From the date hereof to the Closing Date, trading in the Common
Stock shall not have been suspended by the Commission (except for any
suspension of trading of limited duration agreed to by the Company,
which suspension shall be terminated prior to the Closing), and, at any
time prior to the Closing Date, trading in securities generally as
reported by Bloomberg Financial Markets shall not have been suspended or
limited, or minimum prices shall not have been established on securities
whose trades are reported by such service, or on any Trading Market, nor
shall a banking moratorium have been declared either by the United
States or New York State authorities nor shall there have occurred any
material outbreak or escalation of hostilities or other national or
international calamity of such magnitude in its effect on, or any
material adverse change in, any financial market which, in each case, in
the reasonable judgment of each Purchaser, makes it impracticable or
inadvisable to purchase the Shares at the such Closing.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth
under the corresponding section of the Disclosure Schedules delivered
concurrently herewith, the Company hereby makes the following representations
and warranties as of the date hereof and as of the Closing Date to each
Purchaser:
(a) Subsidiaries. All of the subsidiaries of the Company are set
forth on Schedule 3.1(a). The Company owns, directly or indirectly, all
of the capital stock or other equity interests of each Subsidiary free
and clear of any Liens, and all the issued and outstanding shares of
capital stock of each Subsidiary (other than Lifestyle Innovations,
Inc.) are validly issued and are fully paid, non-assessable and free of
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preemptive and similar rights. If the Company has no subsidiaries, then
references in the Transaction Documents to the Subsidiaries will be
disregarded.
(b) Organization and Qualification. Each of the Company and the
Subsidiaries (other than Lifestyle Innovations, Inc.) is an entity duly
incorporated or otherwise organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization (as applicable), with the requisite power and authority to
own and use its properties and assets and to carry on its business as
currently conducted. Neither the Company nor any Subsidiary (other than
Lifestyle Innovations, Inc.) is in violation of any of the provisions of
its respective certificate or articles of incorporation, bylaws or other
organizational or charter documents. Each of the Company and the
Subsidiaries (other than Lifestyle Innovations, Inc.) is duly qualified
to conduct business and is in good standing as a foreign corporation or
other entity in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary,
except where the failure to be so qualified or in good standing, as the
case may be, could not have or reasonably be expected to result in (i) a
material adverse effect on the legality, validity or enforceability of
any Transaction Document, (ii) a material adverse effect on the results
of operations, assets, business, prospects or financial condition of the
Company and the Subsidiaries, taken as a whole, or (iii) a material
adverse effect on the Company's ability to perform in any material
respect on a timely basis its obligations under any Transaction Document
(any of (i), (ii) or (iii), a "Material Adverse Effect").
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations thereunder. The execution and
delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been
duly authorized by all necessary action on the part of the Company and
no further action is required by the Company in connection therewith
other than in connection with the Required Approvals. Each Transaction
Document has been (or upon delivery will have been) duly executed by the
Company and, when delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms except (i) as limited
by applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors'
rights generally and (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other
equitable remedies.
(d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company
of the transactions contemplated thereby do not and will not (i)
conflict with or violate any provision of the Company's or any
Subsidiary (other than Lifestyle Innovations, Inc.)'s certificate or
articles of incorporation, bylaws or other organizational or charter
documents, or (ii) conflict with, or constitute a default (or an event
that with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation (with or without notice, lapse of time or both) of, any
agreement, credit facility, debt or other instrument (evidencing a
Company or Subsidiary (other than Lifestyle Innovations, Inc.) debt or
otherwise) or other understanding to
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which the Company or any Subsidiary (other than Lifestyle Innovations,
Inc.) is a party or by which any property or asset of the Company or any
Subsidiary (other than Lifestyle Innovations, Inc.) is bound or
affected, or (iii) subject to the Required Approvals, result in a
violation of any law, rule, regulation, order, judgment, injunction,
decree or other restriction of any court or governmental authority to
which the Company or a Subsidiary (other than Lifestyle Innovations,
Inc.) is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company or a
Subsidiary (other than Lifestyle Innovations, Inc.) is bound or
affected; except in the case of each of clauses (ii) and (iii), such as
could not have or reasonably be expected to result in a Material Adverse
Effect.
(e) Filings, Consents and Approvals. The Company is not required to
obtain any consent, waiver, authorization or order of, give any notice
to, or make any filing or registration with, any court or other federal,
state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company
of the Transaction Documents, other than (i) filings required pursuant
to Section 4.6 of this Agreement, (ii) the filing with the Commission of
the Registration Statement, (iii) application(s) to each applicable
Trading Market for the listing of the Shares and Warrant Shares for
trading thereon in the time and manner required thereby, and (iv) the
filing of Form D with the Commission and such filings as are required to
be made under applicable state securities laws (collectively, the
"Required Approvals").
(f) Issuance of the Securities. The Securities are duly authorized
and, when issued and paid for in accordance with the Transaction
Documents, will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens. The Company has reserved
from its duly authorized capital stock the maximum number of shares of
Common Stock issuable pursuant to this Agreement and the Warrants.
(g) Capitalization. The capitalization of the Company is as
described in the Company's most recent periodic report filed with the
Commission. The Company has not issued any capital stock since such
filing other than pursuant to the exercise of employee stock options
under the Company's stock option plans, the issuance of shares of Common
Stock to employees pursuant to the Company's employee stock purchase
plan and pursuant to the conversion or exercise of outstanding Common
Stock Equivalents. No Person has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in
the transactions contemplated by the Transaction Documents. Except as a
result of the purchase and sale of the Securities or the granting of
options to employees, officers and directors of the Company pursuant to
any stock option plan duly adopted by a majority of the non-employee
members of the Board of Directors of the Company or a majority of the
members of a committee of non-employee directors established for such
purpose, there are no outstanding options, warrants, script rights to
subscribe to, calls or commitments of any character whatsoever relating
to, or securities, rights or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or
acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary is
or may become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common
Stock. The issue and sale of the Securities will not obligate the
Company to issue shares of Common Stock
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or other securities to any Person (other than the Purchasers) and will
not result in a right of any holder of Company securities to adjust the
exercise, conversion, exchange or reset price under such securities.
(h) SEC Reports; Financial Statements. The Company has filed all
reports required to be filed by it under the Securities Act and the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for
the two years preceding the date hereof (or such shorter period as the
Company was required by law to file such material) (the foregoing
materials, including the exhibits thereto, being collectively referred
to herein as the "SEC Reports") on a timely basis or has received a
valid extension of such time of filing and has filed any such SEC
Reports prior to the expiration of any such extension. As of their
respective dates, the SEC Reports complied in all material respects with
the requirements of the Securities Act and the Exchange Act and the
rules and regulations of the Commission promulgated thereunder, and none
of the SEC Reports, when filed, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. The
financial statements of the Company included in the SEC Reports comply
in all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in
effect at the time of filing. Such financial statements have been
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis during the periods involved
("GAAP"), except as may be otherwise specified in such financial
statements or the notes thereto and except that unaudited financial
statements may not contain all footnotes required by GAAP, and fairly
present in all material respects the financial position of the Company
and its consolidated subsidiaries as of and for the dates thereof and
the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments.
(i) Material Changes. Since the date of the latest audited financial
statements included within the SEC Reports, except as disclosed in the
SEC Reports, (i) there has been no event, occurrence or development that
has had or that could reasonably be expected to result in a Material
Adverse Effect, (ii) the Company has not incurred any liabilities
(contingent or otherwise) other than (A) trade payables and accrued
expenses incurred in the ordinary course of business consistent with
past practice and (B) liabilities not required to be reflected in the
Company's financial statements pursuant to GAAP or required to be
disclosed in filings made with the Commission, (iii) the Company has not
altered its method of accounting, (iv) the Company has not declared or
made any dividend or distribution of cash or other property to its
stockholders or purchased, redeemed or made any agreements to purchase
or redeem any shares of its capital stock and (v) the Company has not
issued any equity securities to any officer, director or Affiliate,
except pursuant to existing Company stock option plans. The Company does
not have pending before the Commission any request for confidential
treatment of information.
(j) Litigation. Except as disclosed in the SEC Reports, there is no
action, suit, inquiry, notice of violation, proceeding or investigation
pending or, to the knowledge of the Company, threatened against or
affecting the Company, any Subsidiary
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(other than Lifestyle Innovations, Inc.) or any of their respective
properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county,
local or foreign) (collectively, an "Action") which (i) adversely
affects or challenges the legality, validity or enforceability of any of
the Transaction Documents or the Securities or (ii) could, if there were
an unfavorable decision, have or reasonably be expected to result in a
Material Adverse Effect. Neither the Company nor any Subsidiary (other
than Lifestyle Innovations, Inc.), nor any director or officer thereof,
is or has been the subject of any Action involving a claim of violation
of or liability under federal or state securities laws or a claim of
breach of fiduciary duty. There has not been, and to the knowledge of
the Company, there is not pending or contemplated, any investigation by
the Commission involving the Company or any current or former director
or officer of the Company. The Commission has not issued any stop order
or other order suspending the effectiveness of any registration
statement filed by the Company or any Subsidiary (other than Lifestyle
Innovations, Inc.) under the Exchange Act or the Securities Act.
(k) Labor Relations. No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the
employees of the Company which could reasonably be expected to result in
a Material Adverse Effect.
(l) Compliance. Except as disclosed in the SEC Reports, neither the
Company nor any Subsidiary (other than Lifestyle Innovations, Inc.) (i)
is in default under or in violation of (and no event has occurred that
has not been waived that, with notice or lapse of time or both, would
result in a default by the Company or any Subsidiary (other than
Lifestyle Innovations, Inc.) under), nor has the Company or any
Subsidiary (other than Lifestyle Innovations, Inc.) received notice of a
claim that it is in default under or that it is in violation of, any
indenture, loan or credit agreement or any other agreement or instrument
to which it is a party or by which it or any of its properties is bound
(whether or not such default or violation has been waived), (ii) is in
violation of any order of any court, arbitrator or governmental body, or
(iii) is or has been in violation of any statute, rule or regulation of
any governmental authority, including without limitation all foreign,
federal, state and local laws applicable to its business except in each
case as could not have a Material Adverse Effect.
(m) Regulatory Permits. The Company and the Subsidiaries (other than
Lifestyle Innovations, Inc.) possess all certificates, authorizations
and permits issued by the appropriate federal, state, local or foreign
regulatory authorities necessary to conduct their respective businesses
as described in the SEC Reports, except where the failure to possess
such permits could not have or reasonably be expected to result in a
Material Adverse Effect ("Material Permits"), and neither the Company
nor any Subsidiary (other than Lifestyle Innovations, Inc.) has received
any notice of proceedings relating to the revocation or modification of
any Material Permit.
(n) Title to Assets. The Company and the Subsidiaries (other than
Lifestyle Innovations, Inc.) have good and marketable title in fee
simple to all real property owned by them that is material to the
business of the Company and the Subsidiaries (other than Lifestyle
Innovations, Inc.) and good and marketable title in all personal
property owned by them that is material to the business of the Company
and the Subsidiaries (other than
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Lifestyle Innovations, Inc.), in each case free and clear of all Liens,
except for Liens as do not materially affect the value of such property
and do not materially interfere with the use made and proposed to be
made of such property by the Company and the Subsidiaries (other than
Lifestyle Innovations, Inc.) and Liens for the payment of federal, state
or other taxes, the payment of which is neither delinquent nor subject
to penalties. Any real property and facilities held under lease by the
Company and the Subsidiaries (other than Lifestyle Innovations, Inc.)
are held by them under valid, subsisting and enforceable leases of which
the Company and the Subsidiaries (other than Lifestyle Innovations,
Inc.) are in compliance.
(o) Patents and Trademarks. To the knowledge of the Company and each
Subsidiary (other than Lifestyle Innovations, Inc.), the Company and the
Subsidiaries (other than Lifestyle Innovations, Inc.) have, or have
rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and other
similar rights that are necessary or material for use in connection with
their respective businesses as described in the SEC Reports and which
the failure to so have could have or reasonably be expected to result in
a Material Adverse Effect (collectively, the "Intellectual Property
Rights"). Neither the Company nor any Subsidiary (other than Lifestyle
Innovations, Inc.) has received a written notice that the Intellectual
Property Rights used by the Company or any Subsidiary (other than
Lifestyle Innovations, Inc.) violates or infringes upon the rights of
any Person. To the knowledge of the Company, all such Intellectual
Property Rights are enforceable.
(p) Insurance. The Company and the Subsidiaries (other than
Lifestyle Innovations, Inc.) are insured by insurers of recognized
financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which the
Company and the Subsidiaries (other than Lifestyle Innovations, Inc.)
are engaged. Neither the Company nor any Subsidiary (other than
Lifestyle Innovations, Inc.) has any reason to believe that it will not
be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as
may be necessary to continue its business without a significant increase
in cost.
(q) Transactions With Affiliates and Employees. Except as set forth
in the SEC Reports, none of the officers or directors of the Company
and, to the knowledge of the Company, none of the employees of the
Company is presently a party to any transaction with the Company or any
Subsidiary (other than Lifestyle Innovations, Inc.) (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services
to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of the Company, any entity in which any
officer, director, or any such employee has a substantial interest or is
an officer, director, trustee or partner, in each case in excess of
$60,000 other than (i) for payment of salary or consulting fees for
services rendered, (ii) reimbursement for expenses incurred on behalf of
the Company and (iii) for other employee benefits, including stock
option agreements under any stock option plan of the Company.
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(r) Internal Accounting Controls. The Company and each of its
Subsidiaries (other than Lifestyle Innovations, Inc.) maintains a system
of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access
to assets is permitted only in accordance with management's general or
specific authorization, and (iv) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences. The Company
has established disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Company and designed such
disclosure controls and procedures to ensure that material information
relating to the Company, including its Subsidiaries (other than
Lifestyle Innovations, Inc.), is made known to the certifying officers
by others within those entities, particularly during the period in which
the Company's most recently filed period report under the Exchange Act,
as the case may be, is being prepared. The Company's certifying officers
have evaluated the effectiveness of the Company's controls and
procedures as of a date within 90 days prior to the filing date of the
most recently filed periodic report under the Exchange Act (such date,
the "Evaluation Date"). The Company presented in its most recently filed
period report under the Exchange Act the conclusions of the certifying
officers about the effectiveness of the disclosure controls and
procedures based on their evaluations as of the Evaluation Date. Since
the Evaluation Date, there have been no significant changes in the
Company's internal controls (as such term is defined in Item 307(b) of
Regulation S-K under the Exchange Act) or, to the Company's knowledge,
in other factors that could significantly affect the Company's internal
controls.
(s) Certain Fees. No brokerage or finder's fees or commissions are
or will be payable by the Company to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or other
Person with respect to the transactions contemplated by this Agreement.
The Purchasers shall have no obligation with respect to any fees or with
respect to any claims made by or on behalf of other Persons for fees of
a type contemplated in this Section that may be due in connection with
the transactions contemplated by this Agreement.
(t) Private Placement. Assuming the accuracy of the Purchasers
representations and warranties set forth in Section 3.2, no registration
under the Securities Act is required for the offer and sale of the
Securities by the Company to the Purchasers as contemplated hereby. The
issuance and sale of the Securities hereunder does not contravene the
rules and regulations of the Trading Market.
(u) Investment Company. The Company is not, and is not an Affiliate
of, an "investment company" within the meaning of the Investment Company
Act of 1940, as amended.
(v) Registration Rights. Except as set forth on the disclosure
schedule to the Registration Rights Agreement, no Person has any right
to cause the Company to effect the registration under the Securities Act
of any securities of the Company.
11
(w) Listing and Maintenance Requirements. The Company has not, in
the 12 months preceding the date hereof, received notice from any
Trading Market on which the Common Stock is or has been listed or quoted
to the effect that the Company is not in compliance with the listing or
maintenance requirements of such Trading Market. The Company is, and has
no reason to believe that it will not in the foreseeable future continue
to be, in compliance with all such listing and maintenance requirements.
(x) Application of Takeover Protections. The Company and its Board
of Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other
similar anti-takeover provision under the Company's Certificate of
Incorporation (or similar charter documents) or the laws of its state of
incorporation that is or could become applicable to the Purchasers as a
result of the Purchasers and the Company fulfilling their obligations or
exercising their rights under the Transaction Documents, including
without limitation the Company's issuance of the Securities and the
Purchasers' ownership of the Securities.
(y) Disclosure. Other than the terms of the transaction contemplated
by this Agreement, the Company confirms that, neither the Company nor
any other Person acting on its behalf has provided any of the Purchasers
or their agents or counsel with any information that constitutes or
might constitute material, non-public information. The Company
understands and confirms that the Purchasers will rely on the foregoing
representations and covenants in effecting transactions in securities of
the Company. All disclosure provided to the Purchasers regarding the
Company, its business and the transactions contemplated hereby,
including the Disclosure Schedules to this Agreement, furnished by or on
behalf of the Company are true and correct and do not contain any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
(z) No Integrated Offering. Assuming the accuracy of the Purchasers'
representations and warranties set forth in Section 3.2, neither the
Company, nor any of its affiliates, nor any Person acting on its or
their behalf has, directly or indirectly, made any offers or sales of
any security or solicited any offers to buy any security, under
circumstances that would cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the
Securities Act or any applicable shareholder approval provisions,
including, without limitation, under the rules and regulations of any
exchange or automated quotation system on which any of the securities of
the Company are listed or designated.
(aa) Solvency. Based on the financial condition of the Company as of
the Closing Date after giving effect to the receipt by the Company of
the proceeds from the sale of the Securities hereunder, (i) the
Company's fair saleable value of its assets exceeds the amount that will
be required to be paid on or in respect of the Company's existing debts
and other liabilities (including known contingent liabilities) as they
mature; (ii) the Company's assets do not constitute unreasonably small
capital to carry on its business for the current fiscal year as now
conducted and as proposed to be conducted including its capital needs
taking into account the particular capital requirements of the business
12
conducted by the Company, and projected capital requirements and capital
availability thereof; and (iii) the current cash flow of the Company,
together with the proceeds the Company would receive, were it to
liquidate all of its assets, after taking into account all anticipated
uses of the cash, would be sufficient to pay all amounts on or in
respect of its debt when such amounts are required to be paid. The
Company does not intend to incur debts beyond its ability to pay such
debts as they mature (taking into account the timing and amounts of cash
to be payable on or in respect of its debt).
(bb) Form S-3 Eligibility. The Company is eligible to register the
resale of its Common Stock by the Purchasers under Form S-3 promulgated
under the Securities Act.
Each Purchaser acknowledges and agrees that the Company does not make or
has not made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in
this Section 3.1.
3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of
the date hereof and as of the Closing Date to the Company as follows:
(a) Organization; Authority. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or
partnership power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents and otherwise to
carry out its obligations thereunder. The execution, delivery and
performance by such Purchaser of the transactions contemplated by this
Agreement have been duly authorized by all necessary corporate action on
the part of such Purchaser. Each Transaction Document to which it is
party has been duly executed by such Purchaser, and when delivered by
such Purchaser in accordance with the terms hereof, will constitute the
valid and legally binding obligation of such Purchaser, enforceable
against it in accordance with its terms, except (i) as limited by
general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally, (ii) as limited by
laws relating to the availability of specific performance, injunctive
relief or other equitable remedies and (iii) insofar as indemnification
and contribution provisions may be limited by applicable law.
(b) Investment Intent. Such Purchaser understands that the
Securities are "restricted securities" and have not been registered
under the Securities Act or any applicable state securities law and is
acquiring the Securities as principal for its own account for investment
purposes only and not with a view to or for distributing or reselling
such Securities or any part thereof, has no present intention of
distributing any of such Securities and has no arrangement or
understanding with any other persons regarding the distribution of such
Securities (this representation and warranty not limiting such
Purchaser's right to sell the Securities pursuant to the Registration
Statement or otherwise in compliance with applicable federal and state
securities laws). Such Purchaser is acquiring the Securities hereunder
in the ordinary course of its business. Such Purchaser does not have any
agreement or understanding, directly or indirectly, with any Person to
distribute any of the Securities.
13
(c) Purchaser Status. At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is an "accredited
investor" as defined in Rule 501(a) under the Securities Act. Such
Purchaser is not required to be registered as a broker-dealer under
Section 15 of the Exchange Act.
(d) Experience of Such Purchaser. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication
and experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the
Securities, and has so evaluated the merits and risks of such
investment. Such Purchaser is able to bear the economic risk of an
investment in the Securities and, at the present time, is able to afford
a complete loss of such investment.
(e) General Solicitation. Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement.
(f) Access to Information. Such Purchaser acknowledges and agrees
that it has access to the Company's SEC Reports and has reviewed such
filings as such Purchaser has deemed necessary or desirable including
the Company's Annual Report on Form 10-KSB for the fiscal year ended
June 30, 2003. Each Purchaser and its respective representatives have
been afforded an opportunity to ask such questions of the officers,
employees, agents, accountants and representatives of the Company
concerning the business, operations, financial condition, assets,
liabilities, and other relevant matters as such Purchaser and its
representatives have deemed necessary or desirable, and each Purchaser
hereby confirms that it or its agents have been given all such
information as has been requested in order to evaluate the merits and
risks of the prospective investment contemplated hereby and that it does
not desire any additional information. Without limiting the foregoing,
each Purchaser specifically acknowledges that it has had the opportunity
to review the Company's SEC Reports.
(g) Risk Factors. Such Purchaser understands and acknowledges that
an investment in the Shares is highly speculative and includes a high
degree of risk including, but not limited to, those risks specifically
set forth in the Company's Annual Report on Form 10-KSB for the period
ended June 30, 2003, which, by its signature below, each Purchaser
acknowledges it has reviewed.
The Company acknowledges and agrees that each Purchaser does not make or
has not made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in
this Section 3.2.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) The Securities may only be disposed of in compliance with state
and federal securities laws. In connection with any transfer of
Securities other than pursuant
14
to an effective registration statement, to the Company, to an Affiliate
of a Purchaser or in connection with a pledge as contemplated in Section
4.1(b), the Company may require the transferor thereof to provide to the
Company an opinion of counsel selected by the transferor, the form and
substance of which opinion shall be reasonably satisfactory to the
Company, to the effect that such transfer does not require registration
of such transferred Securities under the Securities Act. As a condition
of transfer, any such transferee shall agree in writing to be bound by
the terms of this Agreement and shall have the rights of a Purchaser
under this Agreement and the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is required
by this Section 4.1(b), of a legend on any of the Securities in the
following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED
BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS
AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a) UNDER THE
SECURITIES ACT.
The Company acknowledges and agrees that a Purchaser may from
time to time pledge pursuant to a bona fide margin agreement with a
registered broker-dealer or grant a security interest in some or all of
the Securities to a financial institution that is an "accredited
investor" as defined in Rule 501(a) under the Securities Act and who
agrees to be bound by the provisions of this Agreement and the
Registration rights Agreement and, if required under the terms of such
arrangement, such Purchaser may transfer pledged or secured Securities
to the pledgees or secured parties. Such a pledge or transfer would not
be subject to approval of the Company and no legal opinion of legal
counsel of the pledgee, secured party or pledgor shall be required in
connection therewith. Further, no notice shall be required of such
pledge. At the appropriate Purchaser's expense, the Company will execute
and deliver such reasonable documentation as a pledgee or secured party
of Securities may reasonably request in connection with a pledge or
transfer of the Securities, including, if the Securities are subject to
registration pursuant to the Registration Rights Agreement, the
preparation and filing of any required prospectus supplement under Rule
424(b)(3) under the Securities Act or other applicable provision of the
Securities Act to appropriately amend the list of Selling Stockholders
thereunder.
15
(c) Certificates evidencing the Shares and Warrant Shares shall not
contain any legend (including the legend set forth in Section 4.1(b)),
(i) while a registration statement (including the Registration
Statement) covering the resale of such security is effective under the
Securities Act, or (ii) following any sale of such Shares or Warrant
Shares pursuant to Rule 144, or (iii) if such Shares or Warrant Shares
are eligible for sale under Rule 144(k), or (iv) if such legend is not
required under applicable requirements of the Securities Act (including
judicial interpretations and pronouncements issued by the Staff of the
Commission). The Company shall cause its counsel to issue a legal
opinion to the Company's transfer agent promptly after the Effective
Date if required by the Company's transfer agent to effect the removal
of the legend hereunder. If all or any portion of a Warrant is exercised
at a time when there is an effective registration statement to cover the
resale of the Warrant Shares, such Warrant Shares shall be issued free
of all legends. The Company agrees that following the Effective Date or
at such time as such legend is no longer required under this Section
4.1(c), it will, no later than three Trading Days following the delivery
by a Purchaser to the Company or the Company's transfer agent of a
certificate representing Shares or Warrant Shares, as the case may be,
issued with a restrictive legend (such date, the "Legend Removal Date"),
deliver or cause to be delivered to such Purchaser a certificate
representing such Securities that is free from all restrictive and other
legends. The Company may not make any notation on its records or give
instructions to any transfer agent of the Company that enlarge the
restrictions on transfer set forth in this Section.
(d) In addition to such Purchaser's other available remedies, the
Company shall pay to a Purchaser, in cash, as liquidated damages and not
as a penalty, for each $1,000 of Shares or Warrant Shares (based on the
Closing Price of the Common Stock on the date such Securities are
submitted to the Company's transfer agent) subject to Section 4.1(c),
$10 per Trading Day (increasing to $20 per Trading Day five (5) Trading
Days after such damages have begun to accrue) for each Trading Day after
such third Trading Day after the Legend Removal Date until such
certificate is delivered. Nothing herein shall limit such Purchaser's
right to pursue actual damages for the Company's failure to deliver
certificates representing any Securities as required by the Transaction
Documents, and such Purchaser shall have the right to pursue all
remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief.
(e) Each Purchaser, severally and not jointly with the other
Purchasers, agrees that the removal of the restrictive legend from
certificates representing Securities as set forth in this Section 4.1 is
predicated upon the Company's reliance that the Purchaser will sell any
Securities pursuant to either the registration requirements of the
Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom.
(f) Until the date that each Purchaser holds less than 20% of the
Shares initially purchased hereunder by such Purchaser, the Company
shall not undertake a reverse or forward stock split or reclassification
of the Common Stock without the prior written consent of the Purchasers
holding a majority in interest of the Shares.
4.2 Furnishing of Information. As long as any Purchaser owns Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the
16
applicable grace period) all reports required to be filed by the Company after
the date hereof pursuant to the Exchange Act. As long as any Purchaser owns
Securities, if the Company is not required to file reports pursuant to such
laws, it will prepare and furnish to the Purchasers and make publicly
available in accordance with Rule 144(c) such information as is required for
the Purchasers to sell the Securities under Rule 144. The Company further
covenants that it will take such further action as any holder of Securities
may reasonably request, all to the extent required from time to time to enable
such Person to sell such Securities without registration under the Securities
Act within the limitation of the exemptions provided by Rule 144.
4.3 Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or
sale of the Securities in a manner that would require the registration under
the Securities Act of the sale of the Securities to the Purchasers or that
would be integrated with the offer or sale of the Securities for purposes of
the rules and regulations of any Trading Market such that it would require
shareholder approval prior to the closing of such other transaction unless
shareholder approval is obtained before the closing of such subsequent
transaction.
4.4 Securities Laws Disclosure; Publicity. The Company shall, by 8:30
a.m. Eastern time on the Trading Day following the Closing Date, issue a press
release or file a Current Report on Form 8-K, in each case reasonably
acceptable to each Purchaser disclosing the transactions contemplated hereby.
The Company and each Purchaser shall consult with each other in issuing any
press releases with respect to the transactions contemplated hereby, and
neither the Company nor any Purchaser shall issue any such press release or
otherwise make any such public statement without the prior consent of the
Company, with respect to any press release of any Purchaser, or without the
prior consent of each Purchaser, with respect to any press release of the
Company, which consent shall not unreasonably be withheld, except if such
disclosure is required by law, in which case the disclosing party shall
promptly provide the other party with prior notice of such public statement or
communication. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Purchaser, or include the name of any Purchaser in
any filing with the Commission or any regulatory agency or Trading Market,
without the prior written consent of such Purchaser, except (i) as required by
federal securities law in connection with the registration statement
contemplated by the Registration Rights Agreement and (ii) to the extent such
disclosure is required by law or Trading Market regulations, in which case the
Company shall provide the Purchasers with prior notice of such disclosure
permitted under subclause (i) or (ii).
4.5 Shareholders Rights Plan. No claim will be made or enforced by the
Company or, to the knowledge of the Company, any other Person that any
Purchaser is an "Acquiring Person" under any shareholders rights plan or
similar plan or arrangement in effect or hereafter adopted by the Company, or
that any Purchaser could be deemed to trigger the provisions of any such plan
or arrangement, by virtue of receiving Securities under the Transaction
Documents or under any other agreement between the Company and the Purchasers.
4.6 Non-Public Information. The Company covenants and agrees that
neither it nor any other Person acting on its behalf will provide any
Purchaser or its agents or counsel with any information that the Company
believes constitutes material non-public information, unless prior thereto
such Purchaser shall have executed a written agreement regarding the
confidentiality and
17
use of such information. The Company understands and confirms that each
Purchaser shall be relying on the foregoing representations in effecting
transactions in securities of the Company.
4.7 Use of Proceeds. Except as set forth on Schedule 4.7 attached
hereto, the Company shall use the net proceeds from the sale of the Securities
hereunder for working capital purposes and not for the satisfaction of any
portion of the Company's debt (other than payment of trade payables in the
ordinary course of the Company's business and prior practices), to redeem any
Company equity or equity-equivalent securities or to settle any outstanding
litigation.
4.8 Reimbursement. If any Purchaser becomes involved in any capacity in
any Proceeding by or against any Person who is a stockholder of the Company
(except as a result of sales, pledges, margin sales and similar transactions
by such Purchaser to or with any current stockholder), solely as a result of
such Purchaser's acquisition of the Securities under this Agreement, the
Company will reimburse such Purchaser for its reasonable legal and other
expenses (including the cost of any investigation preparation and travel in
connection therewith) incurred in connection therewith, as such expenses are
incurred. The reimbursement obligations of the Company under this paragraph
shall be in addition to any liability which the Company may otherwise have,
shall extend upon the same terms and conditions to any Affiliates of the
Purchasers who are actually named in such action, proceeding or investigation,
and partners, directors, agents, employees and controlling persons (if any),
as the case may be, of the Purchasers and any such Affiliate, and shall be
binding upon and inure to the benefit of any successors, assigns, heirs and
personal representatives of the Company, the Purchasers and any such Affiliate
and any such Person. The Company also agrees that neither the Purchasers nor
any such Affiliates, partners, directors, agents, employees or controlling
persons shall have any liability to the Company or any Person asserting claims
on behalf of or in right of the Company solely as a result of acquiring the
Securities under this Agreement.
4.9 Indemnification of Purchasers. The Company will indemnify and hold
the Purchasers and their directors, officers, shareholders, partners,
employees and agents (each, a "Purchaser Party") harmless from any and all
losses, liabilities, obligations, claims, contingencies, damages, costs and
expenses, including all judgments, amounts paid in settlements, court costs
and reasonable attorneys' fees and costs of investigation that any such
Purchaser Party may suffer or incur as a result of or relating to: (a) any
misrepresentation, breach or inaccuracy, or any allegation by a third party
that, if true, would constitute a breach or inaccuracy, of any of the
representations, warranties, covenants or agreements made by the Company in
this Agreement or in the other Transaction Documents; or (b) any cause of
action, suit or claim brought or made against such Purchaser Party and arising
solely out of or solely resulting from the execution, delivery, performance or
enforcement of this Agreement or any of the other Transaction Documents and
without causation by any other activity, obligation, condition or liability
pertaining to such Purchaser. The Company will reimburse such Purchaser for
its reasonable legal and other expenses (including the cost of any
investigation, preparation and travel in connection therewith) incurred in
connection therewith, as such expenses are incurred.
4.10 Reservation of Common Stock. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, a sufficient number of shares of Common
Stock for the purpose of enabling the Company
18
to issue Shares pursuant to this Agreement and Warrant Shares pursuant to any
exercise of the Warrants.
4.11 Listing of Common Stock. The Company hereby agrees to use
commercially reasonably efforts to maintain the listing of the Common Stock on
the Trading Market, and as soon as reasonably practicable following the
Closing (but not later than the earlier of the Effective Date and the first
anniversary of the Closing Date) to list all of the Shares and Warrant Shares
on the Trading Market. The Company further agrees, if the Company applies to
have the Common Stock traded on any other Trading Market, it will include in
such application all of the Shares and Warrant Shares, and will take such
other action as is necessary to cause the Shares and Warrant Shares to be
listed on such other Trading Market as promptly as possible. The Company will
take all action reasonably necessary to continue the listing and trading of
its Common Stock on a Trading Market and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the Trading Market.
4.12 Participation in Future Financing. From the date hereof until 12
months after the Effective Date, the Company shall not effect a financing of
its Common Stock or Common Stock Equivalents (a "Subsequent Financing") unless
(i) the Company delivers to each of such Purchasers a written notice at least
3 Trading Days prior to the closing of such Subsequent Financing (the
"Subsequent Financing Notice") of its intention to effect such Subsequent
Financing, which Subsequent Financing Notice shall describe in reasonable
detail the proposed terms of such Subsequent Financing, the amount of proceeds
intended to be raised thereunder, the Person with whom such Subsequent
Financing is proposed to be effected, and attached to which shall be a term
sheet or similar document relating thereto and (ii) such Purchaser shall not
have notified the Company by 6:30 p.m. (New York City time) on the third (3rd)
Trading Day after its receipt of the Subsequent Financing Notice of its
willingness to provide (or to cause its designee to provide), subject to
completion of mutually acceptable documentation, all or part of such financing
to the Company on the same terms set forth in the Subsequent Financing Notice.
If one or more Purchasers shall fail to so notify the Company of their
willingness to participate in the Subsequent Financing, the Company may effect
the remaining portion of such Subsequent Financing on the terms and to the
Persons set forth in the Subsequent Financing Notice; provided that the
Company must provide the Purchasers with a second Subsequent Financing Notice,
and the Purchasers will again have the right of first refusal set forth above
in this Section 4.12, if the Subsequent Financing subject to the initial
Subsequent Financing Notice is not consummated for any reason on the terms set
forth in such Subsequent Financing Notice within 60 Trading Days after the
date of the initial Subsequent Financing Notice with the Person identified in
the Subsequent Financing Notice. In the event the Company receives responses
to Subsequent Financing Notices from Purchasers seeking to purchase more than
the financing sought by the Company in the Subsequent Financing such
Purchasers shall have the right to purchase their Pro Rata Portion (as defined
below) of the Common Stock or Common Stock Equivalents to be issued in such
Subsequent Financing. "Pro Rata Portion" is the ratio of (x) such Purchaser's
Subscription Amount and (y) the aggregate sum of all of the Subscription
Amounts. Notwithstanding anything to the contrary herein, this Section 4.12
shall not apply to the following (a) the granting of options to employees,
officers and directors of the Company pursuant to any stock option plan duly
adopted by a majority of the non-employee members of the Board of Directors of
the Company or a majority of the members of a committee of non-employee
directors established for such purpose, or (b) the exercise of any security
issued by the Company in connection with the offer and sale of the Company's
securities pursuant to this
19
Agreement, or (c) the exercise of or conversion of any convertible securities,
options or warrants issued and outstanding on the date hereof, provided such
securities have not been amended since the date hereof, or (d) acquisitions or
strategic investments, the primary purpose of which is not to raise capital,
(e) the reasonable and customary issuance of Common Stock or Common Stock
Equivalents to service providers of the Company, the primary purpose of which
is not to raise capital.
4.13 Subsequent Equity Sales. From the date hereof until 90 days after
the Effective Date, neither the Company nor any Subsidiary shall issue shares
of Common Stock or Common Stock Equivalents; provided, however, the 90 day
period set forth in this Section 4.13 shall be extended for the number of
Trading Days during such period in which (y) trading in the Common Stock is
suspended by any Trading Market, or (z) following the Effective Date, the
Registration Statement is not effective or the prospectus included in the
Registration Statement may not be used by the Purchasers for the resale of the
Shares and Warrant Shares. Notwithstanding anything to the contrary herein,
this Section 4.13 shall not apply to the following (a) the granting of options
to employees, officers and directors of the Company pursuant to any stock
option plan duly adopted by a majority of the non-employee members of the
Board of Directors of the Company or a majority of the members of a committee
of non-employee directors established for such purpose, or (b) the exercise of
any security issued by the Company in connection with the offer and sale of
the Company's securities pursuant to this Agreement, or (c) the exercise of or
conversion of any convertible securities, options or warrants issued and
outstanding on the date hereof, provided such securities have not been amended
since the date hereof, or (d) acquisitions or strategic investments, the
primary purpose of which is not to raise capital, or (e) the reasonable and
customary issuance of Common Stock or Common Stock Equivalents to service
providers of the Company, the primary purpose of which is not to raise
capital.
4.14 Equal Treatment of Purchasers. No consideration shall be offered or
paid to any person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents.
ARTICLE V.
MISCELLANEOUS
5.1 Fees and Expenses. Except as otherwise set forth in this Agreement,
each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all stamp and other taxes
and duties levied in connection with the sale of the Securities.
5.2 Entire Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, with respect to such matters,
which the parties acknowledge have been merged into such documents, exhibits
and schedules.
5.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall
be deemed given and effective
20
on the earliest of (a) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth on
the signature pages attached hereto prior to 6:30 p.m. (New York City time) on
a Trading Day, (b) the next Trading Day after the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
number set forth on the signature pages attached hereto on a day that is not a
Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day,
(c) the second Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages
attached hereto.
5.3 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Company and each Purchaser or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver
of any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to
exercise any right hereunder in any manner impair the exercise of any such
right.
5.4 Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
5.5 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or
obligations hereunder without the prior written consent of each Purchaser. Any
Purchaser may assign any or all of its rights under this Agreement to any
Person to whom such Purchaser assigns or transfers any Securities, provided
such transferee agrees in writing to be bound, with respect to the transferred
Securities, by the provisions hereof that apply to the "Purchasers".
5.6 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other Person, except as otherwise set forth in Section 4.8.
5.7 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed
by and construed and enforced in accordance with the internal laws of the
State of New York, without regard to the principles of conflicts of law
thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement and any other Transaction Documents (whether brought against a
party hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York. Each party hereto hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting
in the City of New York, New York for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein (including with respect to the
21
enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereto hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by delivering a copy thereof via
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to
serve process in any manner permitted by law. Each party hereto (including its
affiliates, agents, officers, directors and employees) hereby irrevocably
waives, to the fullest extent permitted by applicable law, any and all right
to trial by jury in any legal proceeding arising out of or relating to this
Agreement or the transactions contemplated hereby. If either party shall
commence an action or proceeding to enforce any provisions of a Transaction
Document, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its attorneys' fees and other costs and
expenses incurred with the investigation, preparation and prosecution of such
action or proceeding.
5.8 Survival. The representations and warranties herein shall survive
the Closing and delivery of the Shares and Warrant Shares.
5.9 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed
by each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature
is executed) with the same force and effect as if such facsimile signature
page were an original thereof.
5.10 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of
the remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a
valid and enforceable provision that is a reasonable substitute therefor, and
upon so agreeing, shall incorporate such substitute provision in this
Agreement.
5.11 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new
certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary
and reasonable indemnity, if requested. The applicants for a new certificate
or instrument under such circumstances shall also pay any reasonable
third-party costs associated with the issuance of such replacement Securities.
5.12 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any
22
action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
5.13 Payment Set Aside. To the extent that the Company makes a payment
or payments to any Purchaser pursuant to any Transaction Document or a
Purchaser enforces or exercises its rights thereunder, and such payment or
payments or the proceeds of such enforcement or exercise or any part thereof
are subsequently invalidated, declared to be fraudulent or preferential, set
aside, recovered from, disgorged by or are required to be refunded, repaid or
otherwise restored to the Company, a trustee, receiver or any other person
under any law (including, without limitation, any bankruptcy law, state or
federal law, common law or equitable cause of action), then to the extent of
any such restoration the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.
5.14 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and
not joint with the obligations of any other Purchaser, and no Purchaser shall
be responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association,
a joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Document. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation, the rights arising out of this Agreement or out
of the other Transaction Documents, and it shall not be necessary for any
other Purchaser to be joined as an additional party in any proceeding for such
purpose. Each Purchaser was introduced to the Company HPC Capital Management,
which has acted solely as agent for the Company and not for any Purchaser.
Each Purchaser has been represented by its own separate legal counsel in their
review and negotiation of the Transaction Documents. For reasons of
administrative convenience only, Purchasers and their respective counsel have
chosen to communicate with the Company through FW. FW does not represent all
of the Purchasers but only the placement agent, HPC Capital Management. The
Company has elected to provide all Purchasers with the same terms and
Transaction Documents for the convenience of the Company and not because it
was required or requested to do so by the Purchasers.
(Signature Page Follows)
23
IN WITNESS WHEREOF, the parties hereto have caused this
Securities Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
ERESOURCE CAPITAL GROUP, INC. Address for Notice:
------------------
By:_____________________________________
Name:
Title: Attn:
Tel:
Fax:
With copy to (which shall not constitute notice):
[COMPANY COUNSEL]
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOR PURCHASERS FOLLOW]
24
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
PALISADES MASTER FUND L.P. Address for Notice:
------------------
By: PEF ADVISORS, LLC, its authorized agent X/x XXX Xxxxxxxx, XXX
000 Xxxxxxx Xxxxx Xxxx
By: ____________________________________ Ste. 550
Name: Xxxxxxx XX 00000
Title: Attn: Xxxx X. Xxxxxxx, Xx.
Subscription Amount: $
Shares:
Warrant Shares:
With a copy to for benefit of Placement Agent:
---------------------------------------------
Xxxxxxx Xxxxxxxxx LLP
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxx X. Xxxxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
[RCG SPA SIGNATURE PAGE CONTINUED]
25
PURCHASER'S RCG SPA SIGNATURE PAGE (CONT. . . )
CRESCENT INTERNATIONAL LTD. Address for Notice:
------------------
x/x XxxxxXxxxx (Xxxxxxxxxxx) XX
00, Xxxxxx Xxxxx-Xxxxx
XX 0000 Cointrin, Geneva
By: ____________________________ Switzerland
Name: Attention: Xxx Xxxx / Maxi Brezzi
Title: Tel.: + 00 00 000 0000 / x00 00 000 0000
Fax : x00 00 000 0000
Subscription Amount: $
Shares:
Warrant Shares:
[SIGNATURE PAGE CONTINUED]
26
PURCHASER'S RCG SPA SIGNATURE PAGE (CONT. . . )
ALPHA CAPITAL AG Address for Notice:
------------------
Xxxxxxxxxxx 00
Furstentum 9490
By: __________________________ Vaduz, Liechtenstein
Name: Fax: 000-000 000 0000
Title: Attn: Director
Subscription Amount: $
Shares:
Warrant Shares:
[SIGNATURE PAGE CONTINUED]
27
PURCHASER'S RCG SPA SIGNATURE PAGE (CONT. . . )
BRISTOL INVESTMENT FUND, LTD. Address for Notice:
------------------
c/o Bristol DLP, LLC
0000 Xxxxxx Xxxxxxxxx, 0xx Xxxxx
Xxxxxxxxx, Xxxxxxxxxx 00000
By:_________________________ Attn: Xxx Xxxx, Esq.
Name: Fax: (000) 000-0000
Title:
Subscription Amount: $
Shares:
Warrant Shares:
[SIGNATURE PAGE CONTINUED]
28
PURCHASER'S RCG SPA SIGNATURE PAGE (CONT. . . )
GRYPHON MASTER FUND, LP
By: ___________________________
Name:
Title:
Subscription Amount: $
Shares:
Warrant Shares:
Address for Notice:
------------------
000 Xxxxxxxx Xxxxx, Xxxxx #000
Xxxxxx, Xxxxx 00000
Tel: (000) 000-0000
Fax: (000) 000-0000
Attn: Xxxx Xxxxxxx
[SIGNATURE PAGE CONTINUED]
29
PURCHASER'S RCG SPA SIGNATURE PAGE (CONT. . . )
CRESTVIEW CAPITAL FUND II, LP
By: _____________________________
Name:
Title:
Subscription Amount: $
Shares:
Warrant Shares:
Address for Notice:
------------------
c/o Kingsport Capital, LLC
00 Xxxxxx Xxxxx, Xxxxx X
Xxxxxxxxxx, Xxxxxxxx 00000
Attn: Xxxxxxx Xxxx, Esq.
Fax: (000) 000-0000
[SIGNATURE PAGE CONTINUED]
30
PURCHASER'S RCG SPA SIGNATURE PAGE (CONT. . . )
XXXXXXXXXXX X.X. Address for Notice:
------------------
000 Xxxx Xxxxxx Xxxx.
Xxxxx 000
By:_________________________ Markham, ON X0X 0X0 Xxxxxx
Name: Attn: Fund Manager
Title:
Subscription Amount: $
Shares:
Warrant Shares:
31
