Exhibit 4.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
September 13, 2004, by and among RCG Companies Incorporated, a Delaware
corporation (the "Company"), and the purchasers identified on the signature
pages hereto (each, including its successors and assigns, a "Purchaser" and
collectively the "Purchasers").
WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act (as defined below), and Rule
506 promulgated thereunder, the Company desires to issue and sell to each
Purchaser, and each Purchaser, severally and not jointly, desires to purchase
from the Company in the aggregate, up to $6,000,000 million of Preferred Stock,
Warrants and Additional Investment Rights 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 agrees
as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement: (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Certificate of Designation (as defined
herein), and (b) the following terms have the meanings indicated in this Section
1.1:
"Action" shall have the meaning ascribed to such term in Section 3.1(j).
"Actual Minimum" means, as of any date, the maximum aggregate number of
shares of Common Stock then issued or potentially issuable in the future
pursuant to the Transaction Documents, including any Underlying Shares issuable
upon exercise or conversion in full of all Warrants and Additional Investment
Rights and shares of Preferred Stock, ignoring any conversion or exercise limits
set forth therein, and assuming that any previously unconverted shares of
Preferred Stock are held until the third anniversary of the Closing Date and all
dividends are paid in shares of Common Stock until such third anniversary,
subject to the limitation on the number of shares of Common Stock issuable
hereunder set forth in Section 5(a)(iii) of the Certificate of Designation.
"Additional Investment Right" means the Additional Investment Rights in
the form of Exhibit E, delivered to the Purchasers at the Closing in accordance
with Section 2.2(a)(iv).
"Additional Investment Right Shares" means the shares of Common Stock
issuable upon exercise of the Additional Investment Rights.
"Affiliate" means any Person that, directly or indirectly through one or
more intermediaries, controls or is controlled by or is under common control
with a Person, as such terms are used in and construed under Rule 144 under the
Securities Act. With respect to a Purchaser, any investment fund or managed
account that is managed on a discretionary basis by the same investment manager
as such Purchaser will be deemed to be an Affiliate of such Purchaser.
"Certificate of Designation" means the Certificate of Designation to be
filed prior to the Closing by the Company with the Secretary of State of
Delaware, in the form of Exhibit A attached hereto.
"Closing" means the closing of the purchase and sale of the Securities
pursuant to Section 2.1.
"Closing Date" means the Trading Day when all of the Transaction Documents
have been executed and delivered by the applicable parties thereto, and all
conditions precedent to (i) each Purchaser's obligations to pay the Subscription
Amount have been satisfied or waived (ii) and the Company's obligations to
deliver the Securities have been satisfied or waived.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, par value $0.04 per
share, and any securities into which such common stock shall hereinafter been
reclassified into.
"Common Stock Equivalents" means any securities of the Company or the
Subsidiaries (other than Lifestyle Innovations, Inc.) which would entitle the
holder thereof to acquire at any time Common Stock, including without
limitation, any debt, preferred stock, rights, options, warrants or other
instrument that is at any time convertible into or exchangeable for, or
otherwise entitles the holder thereof to receive, Common Stock.
"Company Counsel" means Xxxxxx & Xxxx PA.
"Disclosure Schedules" means the Disclosure Schedules of the Company
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 G hereto executed and delivered contemporaneously with this
Agreement.
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"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exempt Issuance" the issuance of (a) shares of Common Stock or options to
employees, officers or directors of the Company pursuant to any stock or option
plan duly adopted by a majority of the non-employee members of the Board of
Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose, (b) securities upon the
exercise of or conversion of any securities issued hereunder, convertible
securities, options or warrants issued and outstanding on the date of this
Agreement, provided that such securities have not been amended since the date of
this Agreement to increase the number of such securities; (c) securities issued
pursuant to acquisitions or strategic transactions, provided any such issuance
shall only be to a Person which is, itself or through its subsidiaries, an
operating company and in which the Company receives benefits in addition to the
investment of funds, but shall not include a transaction in which the Company is
issuing securities primarily for the purpose of raising capital or to an entity
whose primary business is investing in securities; and (d) an additional
issuance of Preferred Stock, Warrants and Additional Investment Rights on the
exact same terms and conditions as the issuance under the Transaction Documents
and placed through HPC Capital for up to the difference between $6 million and
the aggregate Subscription Amount raised hereunder, which exempt issuance shall
have occurred within 5 Trading Days of the date hereof; provided, however, such
issuance shall not toll or extend the Closing Date for purposes of the
Transaction Documents.
"FW" means Xxxxxxx Xxxxxxxxx LLP with offices located at 000 Xxxxxxxxx
Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000-0000.
"GAAP" shall have the meaning ascribed to such term in Section 3.1(h).
"Liens" means a lien, charge, security interest, encumbrance, right of
first refusal, preemptive right or other similar restriction.
"Losses" means any and all losses, claims, damages, liabilities,
settlement costs and expenses, including without limitation costs of preparation
and reasonable attorneys' fees.
"Market Price" means $0.94.
"Material Adverse Effect" shall have the meaning assigned to such term in
Section 3.1(b).
"Material Permits" shall have the meaning ascribed to such term in Section
3.1(m).
"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.
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"Preferred Stock" means the up to 6,000 shares of the Company's Series __
6% Convertible Preferred Stock issued hereunder having the rights, preferences
and privileges set forth in the Certificate of Designation.
"Proceeding" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated the date hereof, among the Company and each Purchaser, in the form of
Exhibit B.
"Registration Statement" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering the
resale by the Purchasers of the Underlying Shares.
"Required Approvals" shall have the meaning ascribed to such term in
Section 3.1(e).
"Rule 144" means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Shareholder Approval" means such approval as may be required by the
applicable rules and regulations of the Principal Market (or any successor
entity) from the shareholders of the Company with respect to the transactions
contemplated by the Transaction Documents, including the issuance of all of the
Underlying Shares in excess of 19.9% of the Company's issued and outstanding
Common Stock on the Closing Date.
"SEC Reports" shall have the meaning ascribed to such term in Section
3.1(h).
"Securities" means the Preferred Stock, the Warrants, the Additional
Investment Rights and the Underlying Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Set Price" shall have the meaning ascribed to such term in the
Certificate of Designations.
"Stated Value" means $1,000 per share of Preferred Stock.
"Subscription Amount" shall mean, as to each Purchaser, the amount to be
paid for the Preferred Stock purchased hereunder as specified below such
Purchaser's name on the signature page of this Agreement, in United States
Dollars.
"Subsidiary" means any subsidiary of the Company that is required to be
listed in Schedule 3.1(a).
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"Trading Day" means any day during which the Trading Market shall be open
for business.
"Trading Market" means the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in question: the
American Stock Exchange, the New York Stock Exchange, the Nasdaq National Market
or the Nasdaq SmallCap Market.
"Transaction Documents" means this Agreement, the Certificate of
Designation, the Warrants, the Additional Investment Rights, the Registration
Rights Agreement and the Escrow Agreement.
"Underlying Shares" means the shares of Common Stock issuable upon
conversion of the Preferred Stock, upon exercise of the Warrants and Additional
Investment Rights and issued and issuable in lieu of the cash payment of
dividends on the Preferred Stock.
"VWAP" means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or quoted
on a Principal Market, the daily volume weighted average price of the Common
Stock for such date (or the nearest preceding date) on the Principal Market on
which the Common Stock is then listed or quoted as reported by Bloomberg
Financial L.P. (based on a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m.
Eastern Time); (b) if the Common Stock is not then listed or quoted on a
Principal Market and if prices for the Common Stock are then quoted on the OTC
Bulletin Board, the volume weighted average price of the Common Stock for such
date (or the nearest preceding date) on the OTC Bulletin Board; (c) if the
Common Stock is not then listed or quoted on the OTC Bulletin Board 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 (c) in all other cases, the fair
market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by the Purchasers and reasonably acceptable to
the Company.
"Warrants" means the Common Stock Purchase Warrants, in the form of
Exhibit C, delivered to the Purchasers at the Closing in accordance with Section
2.2 hereof.
"Warrant Shares" means the shares of Common Stock issuable upon exercise
of the Warrants.
ARTICLE II
PURCHASE AND SALE
2.1 Closing. On the Closing Date, each Purchaser shall purchase from the
Company, severally and not jointly with the other Purchasers, and the Company
shall issue and sell to each Purchaser, (a) shares of Preferred Stock with an
aggregate Stated Value equal to such Purchaser's Subscription Amount; (b) the
Warrants as determined pursuant to Section 2.2(a)(iii) and (c) the Additional
Investment Rights as determined pursuant to Section 2.2(a)(iv). The aggregate
number of shares of Preferred Stock sold hereunder shall be up to 6,000. 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.
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2.2 Conditions to Closing. The Closing is subject to the satisfaction or
waiver by the party to be benefited thereby of the following conditions:
(a) The Company shall have delivered or caused to be delivered to
the Escrow Agent the following:
(i) this Agreement duly executed by the Company;
(ii) a certificate evidencing a number of shares of Preferred
Stock equal to such Purchaser's Subscription Amount divided by the Stated Value,
registered in the name of such Purchaser;
(iii) a Warrant, registered in the name of such Purchaser, to
purchase up to a number of shares of Common Stock equal to 25% of such
Purchaser's Subscription Amount divided by the Market Price, with an exercise
price equal to $1.20, subject to adjustment as set forth therein, and
exercisable beginning 181 days after the date hereof for a term of 3 years;
(iv) an Additional Investment Right, registered in the name of
such Purchaser, to purchase up to a number of shares of Common Stock equal to
75% of such Purchaser's Subscription Amount divided by the Market Price, with an
exercise price equal to $1.03 and exercisable starting 181 days from the date
hereof for a term ending the earlier of (A) the later of (1) 181 days after the
Effective Date and (2) 181 days after the initial exercise date thereof and (B)
the 2nd year anniversary of the date hereof, both subject to adjustment as set
forth therein;
(v) the written voting agreement, substantially in the form of
Exhibit F attached hereto, of all of the executive officers and directors to
vote all Common Stock owned by each of such shareholders as of the record date
for the annual meeting of shareholders of the Company in favor of Shareholder
Approval;
(vi) a legal opinion of Company Counsel, in the form of
Exhibit D attached hereto, addressed to each Purchaser;
(vii) the Escrow Agreement duly executed by the Company; and
(viii) the Registration Rights Agreement duly executed by the
Company.
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(b) At the Closing, each Purchaser shall have delivered or caused to
be delivered to the Escrow Agent the following:
(i) this Agreement duly executed by such Purchaser;
(ii) such Purchaser's Subscription Amount by wire transfer to
the account as specified in writing by the Company;
(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 in all material respects (except those
qualified as to materiality, which shall remain true and correct) as of the
Closing Date and all covenants of the other party shall have been performed if
due prior to such date.
(d) From the date hereof to the Closing Date, trading in the Common
Stock shall not have been suspended by the Commission (except for any suspension
of trading of limited duration agreed to by the Company, which suspension shall
be terminated prior to the Closing), and, at any time prior to the Closing Date,
trading in securities generally as reported by Bloomberg Financial Markets shall
not have been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported by such service, or on any
Trading Market, nor shall a banking moratorium have been declared either by the
United States or New York State authorities nor shall there have occurred any
material outbreak or escalation of hostilities or other national or
international calamity of such magnitude in its effect on, or any material
adverse change in, any financial market which, in each case, in the reasonable
judgment of each Purchaser, makes it impracticable or inadvisable to purchase
the shares of Preferred Stock at the Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth in
the SEC Reports or under the corresponding section of the Disclosure Schedules
which Disclosure Schedules shall be deemed a part hereof, the Company hereby
makes the representations and warranties set forth below to each Purchaser:
(a) Subsidiaries. All of the direct and indirect subsidiaries of the
Company are set forth on Schedule 3.1(a). The Company owns, directly or
indirectly, all of the capital stock or other equity interests of each
Subsidiary free and clear of any Liens, and all the issued and outstanding
shares of capital stock of each Subsidiary (other than Lifestyle Innovations,
Inc.) are validly issued and are fully paid, non-assessable and free of
preemptive and similar rights to subscribe for or purchase securities. If the
Company has no subsidiaries, then references in the Transaction Documents to the
Subsidiaries will be disregarded.
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(b) Organization and Qualification. Each of the Company and the
Subsidiaries (other than Lifestyle Innovations, Inc.) is an entity duly
incorporated or otherwise organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or organization (as
applicable), with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently conducted.
Neither the Company nor any Subsidiary (other than Lifestyle Innovations, Inc.)
is in violation or default of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational or
charter documents. Each of the Company and the Subsidiaries (other than
Lifestyle Innovations, Inc.) is duly qualified to conduct business and is in
good standing as a foreign corporation or other entity in each jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not have or reasonably be expected to result
in (i) a material adverse effect on the legality, validity or enforceability of
any Transaction Document, (ii) a material adverse effect on the results of
operations, assets, business or financial condition of the Company and the
Subsidiaries, taken as a whole other than any change, event or occurrence
resulting from any change to the extent generally affecting the national or any
local economy or the industries in which the Company and the Subsidiaries
operate, or (iii) a material adverse effect on the Company's ability to perform
in any material respect on a timely basis its obligations under any Transaction
Document (any of (i), (ii) or (iii), a "Material Adverse ------------------
Effect") and to the Company's knowledge no Proceeding has been instituted in any
such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit
or curtail such power and authority or qualification.
(c) Authorization; Enforcement. The Company has the requisite corporate
power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations hereunder or thereunder. The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby or thereby have been duly authorized by all
necessary action on the part of the Company and no further consent or action is
required by the Company other than Required Approvals. Each of the Transaction
Documents has been (or upon delivery will be) duly executed by the Company and,
when delivered in accordance with the terms hereof, will constitute the valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and general principles of equity.
Neither the Company nor any Subsidiary (other than Lifestyle Innovations, Inc.)
is in violation of any of the provisions of its respective certificate or
articles of incorporation, by-laws or other organizational or charter documents
except where such violation could not, individually or in the aggregate,
constitute a Material Adverse Effect.
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(d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company, the issuance and sale of the Securities
and the consummation by the Company of the other transactions contemplated
thereby do not and will not (i) conflict with or violate any provision of the
Company's or any Subsidiary's (other than Lifestyle Innovations, Inc.)
certificate or articles of incorporation, bylaws or other organizational or
charter documents, or (ii) conflict with, or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, result
in the creation of any Lien upon any of the properties or assets of the Company
or any Subsidiary, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both) of,
any agreement, credit facility, debt or other instrument (evidencing a Company
or Subsidiary (other than Lifestyle Innovations, Inc.) debt or otherwise) or
other understanding to which the Company or any Subsidiary (other than Lifestyle
Innovations, Inc.) is a party or by which any property or asset of the Company
or any Subsidiary (other than Lifestyle Innovations, Inc.) is bound or affected,
or (iii) subject to the Required Approvals, conflict with or result in a
violation of any law, rule, regulation, order, judgment, injunction, decree or
other restriction of any court or governmental authority to which the Company or
a Subsidiary (other than Lifestyle Innovations, Inc.) is subject (including
federal and state securities laws and regulations), or by which any property or
asset of the Company or a Subsidiary is bound or affected, or (iv) conflict with
or violate the terms of any agreement by which the Company or any Subsidiary
(other than Lifestyle Innovations, Inc.) is bound or to which any property or
asset of the Company or any Subsidiary is bound or affected; except in the case
of each of clauses (ii), (iii) and (iv), such as could not have or reasonably be
expected to result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. Neither the Company nor any
Subsidiary is required to obtain any consent, waiver, authorization or order of,
give any notice to, or make any filing or registration with, any court or other
federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filings required under Section 4.4,
(ii) the filing with the Commission of the Registration Statement, (iii) the
application(s) to each applicable Trading Market for the listing of the
Underlying Shares for trading thereon in the time and manner required thereby,
(iv) the filing with the Commission of a Form D pursuant to Commission
Regulation D, (v) applicable Blue Sky filings and (vi) the filing of the
Certificate of Designation with the Secretary of State of Delaware
(collectively, the "Required Approvals").
(f) Issuance of the Securities. The Securities are duly authorized and,
when issued and paid for in accordance with the applicable Transaction
Documents, will be duly and validly issued, fully paid and nonassessable, free
and clear of all Liens. The Company has reserved from its duly authorized
capital stock a number of shares of Common Stock for issuance of the Underlying
Shares at least equal to the Actual Minimum on the date hereof.
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(g) Capitalization. The capitalization of the Company is as described in
the Company's most recent periodic report filed with the Commission. The Company
has not issued any capital stock since such filing other than pursuant to the
exercise of employee stock options under the Company's stock option plans, the
issuance of shares of Common Stock to employees pursuant to the Company's
employee stock purchase plan and pursuant to the conversion or exercise of
outstanding Common Stock Equivalents outstanding. No Person has any right of
first refusal, preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by the Transaction Documents.
Except as a result of the purchase and sale of the Securities, there are no
outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exchangeable for, or giving any Person any right
to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary (other than Lifestyle Innovations, Inc.) is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock. The issue and sale of the Securities
will not obligate the Company to issue shares of Common Stock or other
securities to any Person (other than the Purchasers) and will not result in a
right of any holder of Company securities to adjust the exercise, conversion,
exchange or reset price under such securities. All of the outstanding shares of
capital stock of the Company are validly issued, fully paid and nonassessable,
have been issued in compliance with all federal and state securities laws, and
none of such outstanding shares was issued in violation of any preemptive rights
or similar rights to subscribe for or purchase securities. No further approval
or authorization of any stockholder, the Board of Directors of the Company or
others is required for the issuance and sale of the shares of Preferred Stock
other than Shareholder Approval to comply with rules of the American Stock
Exchange. There are no stockholders agreements, voting agreements or other
similar agreements with respect to the Company's capital stock to which the
Company is a party or, to the knowledge of the Company, between or among any of
the Company's stockholders.
(h) SEC Reports; Financial Statements. The Company has filed all reports
required to be filed by it under the Securities Act and the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was required by
law to file such material) (the foregoing materials, including the exhibits
thereto, being collectively referred to herein as the "SEC Reports") -----------
on a timely basis or has received a valid extension of such time of filing and
has filed any such SEC Reports prior to the expiration of any such extension. As
of their respective dates, the SEC Reports complied in all material respects
with the requirements of the Securities Act and the Exchange Act and the rules
and regulations of the Commission promulgated thereunder, and none of the SEC
Reports, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the SEC Reports comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing. Such financial statements have been
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis during the periods involved ("GAAP"),
except as may be ---- otherwise specified in such financial statements or the
notes thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated subsidiaries as of and
for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.
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(i) Material Changes. Since the date of the latest audited financial
statements included within the SEC Reports, (i) there has been no event,
occurrence or development that has had or that would reasonably be expected to
result in a Material Adverse Effect, (ii) the Company has not incurred any
liabilities (contingent or otherwise) other than (A) trade payables and accrued
expenses incurred in the ordinary course of business consistent with past
practice and (B) liabilities not required to be reflected in the Company's
financial statements pursuant to GAAP or required to be disclosed in filings
made with the Commission, (iii) the Company has not altered its method of
accounting, (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock and (v) the Company has not issued any equity securities to any executive
officer, director or Affiliate, except pursuant to existing Company stock option
plans. The Company does not have pending before the Commission any request for
confidential treatment of information.
(j) Litigation. There is no action, suit, inquiry, notice of violation,
proceeding or investigation pending or, to the knowledge of the Company,
threatened against or affecting the Company, any Subsidiary (other than
Lifestyle Innovations, Inc.) or any of their respective properties before or by
any court, arbitrator, governmental or administrative agency or regulatory
authority (federal, state, county, local or foreign) (collectively, an "Action")
which (i) adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or the Securities or (ii)
would, if there were an unfavorable decision, have or reasonably be expected to
result in a Material Adverse Effect. Neither the Company nor any Subsidiary
(other than Lifestyle Innovations, Inc.), nor any director or executive officer
thereof, is or has been the subject of any Action involving a claim of violation
of or liability under federal or state securities laws or a claim of breach of
fiduciary duty as it relates to the Company or its Subsidiary. There has not
been, and to the knowledge of the Company, there is not pending or contemplated,
any investigation by the Commission involving the Company or any current or
former director or officer of the Company. The Commission has not issued any
stop order or other order suspending the effectiveness of any registration
statement filed by the Company or any Subsidiary (other than Lifestyle
Innovations, Inc.) under the Exchange Act or the Securities Act.
(k) Labor Relations. No material labor dispute exists or, to the knowledge
of the Company, is imminent with respect to any of the employees of the Company
which could reasonably be expected to result in a Material Adverse Effect.
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(l) Compliance. Neither the Company nor any Subsidiary (other than
Lifestyle Innovations, Inc.) (i) is in default under or in violation of (and no
event has occurred that has not been waived that, with notice or lapse of time
or both, would result in a default by the Company or any Subsidiary (other than
Lifestyle Innovations, Inc.) under), nor has the Company or any Subsidiary
(other than Lifestyle Innovations, Inc.) received notice of a claim that it is
in default under or that it is in violation of, any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party or by
which it or any of its properties is bound (whether or not such default or
violation has been waived), (ii) is in violation of any order of any court,
arbitrator or governmental body, or (iii) is or has been in violation of any
statute, rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws applicable to its business
except in each case as could not have a Material Adverse Effect.
(m) Regulatory Permits. The Company and the Subsidiaries (other than
Lifestyle Innovations, Inc.) possess all certificates, authorizations and
permits issued by the appropriate federal, state, local or foreign regulatory
authorities necessary to conduct their respective businesses as described in the
SEC Reports, except where the failure to possess such permits could not,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect ("Material Permits"), and neither the Company nor any
Subsidiary (other than Lifestyle Innovations, Inc.) has received any notice of
proceedings relating to the revocation or modification of any Material Permit.
(n) Title to Assets. The Company and the Subsidiaries (other than
Lifestyle Innovations, Inc.) have good and marketable title in fee simple to all
real property owned by them that is material to the business of the Company and
the Subsidiaries (other than Lifestyle Innovations, Inc.) and good and
marketable title in all personal property owned by them that is material to the
business of the Company and the Subsidiaries (other than Lifestyle Innovations,
Inc.), in each case free and clear of all Liens, except for Liens as do not
materially affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the Company and
the Subsidiaries (other than Lifestyle Innovations, Inc.) and Liens for the
payment of federal, state or other taxes, the payment of which is neither
delinquent nor subject to penalties. Any real property and facilities held under
lease by the Company and the Subsidiaries (other than Lifestyle Innovations,
Inc.) are held by them under valid, subsisting and enforceable leases of which
the Company and the Subsidiaries (other than Lifestyle Innovations, Inc.) are in
compliance.
(o) Patents and Trademarks. The Company and the Subsidiaries (other than
Lifestyle Innovations, Inc.) have, or have rights to use, all patents, patent
applications, trademarks, trademark applications, service marks, trade names,
copyrights, licenses and other similar rights that are necessary or material for
use in connection with their respective businesses as described in the SEC
Reports and which the failure to so have could have a Material Adverse Effect
(collectively, the "Intellectual Property Rights"). Neither the Company nor any
Subsidiary (other than Lifestyle Innovations, Inc.) has received a written
notice that the Intellectual Property Rights used by the Company or any
Subsidiary (other than Lifestyle Innovations, Inc.) violates or infringes upon
the rights of any Person. To the knowledge of the Company, all such Intellectual
Property Rights are enforceable and there is no existing infringement by another
Person of any of the Intellectual Property Rights of others.
-12-
(p) Insurance. The Company and the Subsidiaries (other than Lifestyle
Innovations, Inc.) are insured against such losses and risks and in such amounts
as are prudent and customary in the businesses in which the Company and the
Subsidiaries (other than Lifestyle Innovations, Inc.) are engaged. Neither the
Company nor any Subsidiary (other than Lifestyle Innovations, Inc.) has any
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business without a
significant increase in cost.
(q) Transactions With Affiliates and Employees. None of the executive
officers or directors of the Company and, to the knowledge of the Company, none
of the employees of the Company is presently a party to any transaction with the
Company or any Subsidiary (other than Lifestyle Innovations, Inc.) (other than
for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner, in each case in excess of $60,000 other than (i) for payment of salary
or consulting fees for services rendered, (ii) reimbursement for expenses
incurred on behalf of the Company and (iii) for other employee benefits,
including stock option agreements under any stock option plan of the Company.
(r) Xxxxxxxx-Xxxxx; Internal Accounting Controls. The Company is in
material compliance with all provisions of the Xxxxxxxx-Xxxxx Act of 2002 which
are applicable to it as of the Closing Date. The Company and the Subsidiaries
(other than Lifestyle Innovations, Inc.) maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. The
Company has established disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such
disclosure controls and procedures to ensure that material information relating
to the Company, including its Subsidiaries (other than Lifestyle Innovations,
Inc.), is made known to the certifying officers by others within those entities,
particularly during the period in which the Company's most recently filed
periodic report under the Exchange Act, as the case may be, is being prepared.
The Company's certifying officers have evaluated the effectiveness of the
Company's controls and procedures as of the date prior to the filing date of the
most recently filed periodic report under the Exchange Act (such date, the
"Evaluation Date"). The Company presented in its most recently filed periodic
report under the Exchange Act the conclusions of the certifying officers about
the effectiveness of the disclosure controls and procedures based on their
evaluations as of the Evaluation Date. Since the Evaluation Date, there have
been no significant changes in the Company's internal controls (as such term is
defined in Item 307(b) of Regulation S-K under the Exchange Act) or, to the
Company's knowledge, in other factors that could significantly affect the
Company's internal controls.
-13-
(s) Certain Fees. No brokerage or finder's fees or commissions are or will
be payable by the Company to any broker, financial advisor or consultant,
finder, placement agent, investment banker, bank or other Person with respect to
the transactions contemplated by this Agreement. The Purchasers shall have no
obligation with respect to any fees or with respect to any claims made by or on
behalf of other Persons for fees of a type contemplated in this Section that may
be due in connection with the transactions contemplated by this Agreement.
(t) Private Placement. Assuming the accuracy of the Purchasers
representations and warranties set forth in Section 3.2, no registration under
the Securities Act is required for the offer and sale of the Securities by the
Company to the Purchasers as contemplated hereby. The issuance and sale of the
Securities hereunder does not contravene the rules and regulations of the
Trading Market.
(u) Investment Company. The Company is not, and is not an Affiliate of,
and immediately after receipt of payment for the shares of Preferred Stock, will
not be or be an Affiliate of, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended. The Company shall conduct its
business in a manner so that it will not become subject to the Investment
Company Act.
(v) Registration Rights. No Person has any right to cause the Company to
effect the registration under the Securities Act of any securities of the
Company.
(w) Listing and Maintenance Requirements. The Company's Common Stock is
registered pursuant to Section 12(g) of the Exchange Act, and the Company has
taken no action designed to, or which to its knowledge is likely to have the
effect of, terminating the registration of the Common Stock under the Exchange
Act nor has the Company received any notification that the Commission is
contemplating terminating such registration. The Company has not, in the 12
months preceding the date hereof, received notice from any Trading Market on
which the Common Stock is or has been listed or quoted to the effect that the
Company is not in compliance with the listing or maintenance requirements of
such Trading Market. The Company is, and has no reason to believe that it will
not in the foreseeable future continue to be, in compliance with all such
listing and maintenance requirements.
-14-
(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 Documents, the
Company confirms that, the Company has not provided any of the Purchasers with
any information that constitutes or might constitute material, non-public
information. The Company understands and confirms that the Purchasers will rely
on the foregoing representations and covenants in effecting transactions in
securities of the Company. All disclosure provided to the Purchasers regarding
the Company, its business and the transactions contemplated hereby, including
the Schedules to this Agreement, furnished by or on behalf of the Company with
respect to the representations and warranties made herein are true and correct
in all material respects with respect to such representations and warranties and
do not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading. The Company
acknowledges and agrees that no Purchaser makes or has made any representations
or warranties with respect to the transactions contemplated hereby other than
those specifically set forth in Section 3.2 hereof.
(z) No Integrated Offering. Neither the Company, nor any of its
Affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would cause this offering of the
Securities to be integrated with prior offerings by the Company for purposes of
the Securities Act or which could violate any applicable shareholder approval
provisions, including, without limitation, under the rules and regulations of
the Trading Market.
(aa) Solvency/Indebtedness. To the best of the Company's knowledge, based
on the financial condition of the Company as of the Closing Date, including the
application of the net proceeds raised hereunder: (i) the fair saleable market
value of the Company's assets exceeds the amount that will be required to be
paid on or in respect of the Company's existing debts and other liabilities
(including known contingent liabilities) as they mature; (ii) the Company's
assets do not constitute unreasonably small capital to carry on its business
through, if less than $6 million is raised hereunder, December 31, 2004, and if
$6 million in gross proceeds are raised hereunder in one or more closings, the
one year anniversary of the date hereof, as now conducted and as proposed to be
conducted including its capital needs taking into account the particular capital
requirements of the business conducted by the Company, and projected capital
requirements and capital availability thereof; and (iii) the current cash flow
of the Company, together with the proceeds the Company would receive, were it to
liquidate all of its assets, after taking into account all anticipated uses of
the cash, would be sufficient to pay all amounts on or in respect of its debt
when such amounts are required to be paid. The Company does not intend to incur
debts beyond its ability to pay such debts as they mature (taking into account
the timing and amounts of cash to be payable on or in respect of its debt). The
Company has no knowledge of any facts or circumstances which lead it to believe
that it will file for reorganization or liquidation under the bankruptcy or
reorganization laws of any jurisdiction within one year from the Closing Date.
The SEC Reports set forth as of the dates thereof all outstanding secured and
unsecured Indebtedness of the Company or any Subsidiary, or for which the
Company or any Subsidiary has commitments. For the purposes of this Agreement,
"Indebtedness" shall mean (a) any liabilities for ------------ borrowed money or
amounts owed in excess of $50,000 (other than trade accounts payable incurred in
the ordinary course of business), (b) all guaranties, endorsements and other
contingent obligations in respect of Indebtedness of others, whether or not the
same are or should be reflected in the Company's balance sheet (or the notes
thereto), except guaranties by endorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course of business; and
(c) the present value of any lease payments in excess of $50,000 due under
leases required to be capitalized in accordance with GAAP. Neither the Company
nor any Subsidiary is in default with respect to any Indebtedness.
-15-
(bb) S-3 Eligibility. To its knowledge, the Company is eligible to
register the Underlying Shares for resale by the Purchasers on SEC Form S-3.
(cc) Tax Status. The Company and each of its Subsidiaries (other than
Lifestyle Innovations, Inc.) has made or filed all federal, state and foreign
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company and each of its Subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid (or made provision for) all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provisions reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim. The Company has not executed a
waiver with respect to the statute of limitations relating to the assessment or
collection of any foreign, federal, statue or local tax. None of the Company's
tax returns is presently being audited by any taxing authority.
(dd) No General Solicitation or Advertising in Regard to this Transaction.
Neither the Company nor, to the knowledge of the Company, any of its directors
or officers (i) has conducted or will conduct any general solicitation (as that
term is used in Rule 502(c) of Regulation D) or general advertising with respect
to the sale of the Preferred Stock, the Warrants or Additional Investment
Rights, or (ii) made any offers or sales of any security or solicited any offers
to buy any security under any circumstances that would require registration of
the Preferred Stock, the Underlying Shares or the Warrants under the Securities
Act or made any "directed selling efforts" as defined in Rule 902 of Regulation
S.
-16-
(ee) Foreign Corrupt Practices. Neither the Company, nor to the knowledge
of the Company, any agent or other person acting on behalf of the Company, has
(i) directly or indirectly, used any corrupt funds for unlawful contributions,
gifts, entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is in violation of law, or (iv) violated in
any material respect any provision of the Foreign Corrupt Practices Act of 1977,
as amended.
(ff) Acknowledgment Regarding Purchasers' Purchase of Securities. The
Company acknowledges and agrees that the Purchasers are acting solely in the
capacity of arm's length purchasers with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that no
Purchaser is acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any statement made by any Purchaser or any of their
respective representatives or agents in connection with this Agreement and the
transactions contemplated hereby is not advice or a recommendation and is merely
incidental to the Purchasers' purchase of the Securities. The Company further
represents to each Purchaser that the Company's decision to enter into this
Agreement has been based solely on the independent evaluation of the Company and
its representatives.
(gg) Seniority. As of the date of this Agreement, no other equity of the
Company is senior to the Preferred Stock in right of payment, whether with
respect to interest or upon liquidation or dissolution, or otherwise.
3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:
(a) Organization; Authority. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or partnership power
and authority to enter into and to consummate the transactions contemplated by
the Transaction Documents and otherwise to carry out its obligations thereunder.
The execution, delivery and performance by such Purchaser of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate or similar action on the part of such Purchaser. Each Transaction
Document to which it is party has been duly executed by such Purchaser, and when
delivered by such Purchaser in accordance with the terms hereof, will constitute
the valid and legally binding obligation of such Purchaser, enforceable against
it in accordance with its terms, except (i) as limited by general equitable
principles and applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable law.
-17-
(b) 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 and not with a view to or for distributing or reselling such
Securities or any part thereof, has no present intention of distributing any of
such Securities and has no arrangement or understanding with any other persons
regarding the distribution of such Securities (this representation and warranty
not limiting such Purchaser's right to sell the Securities pursuant to the
Registration Statement or otherwise in compliance with applicable federal and
state securities laws). Such Purchaser is acquiring the Securities hereunder in
the ordinary course of its business. Such Purchaser does not have any agreement
or understanding, directly or indirectly, with any Person to distribute any of
the Securities.
(c) Purchaser Status. At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is, and on each date on which it
exercises any Warrants or Additional Investment Rights or converts the Preferred
Stock, it will be either: (i) an "accredited investor" as defined in Rule
501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a
"qualified institutional buyer" as defined in Rule 144A(a) under the Securities
Act. Such Purchaser is not required to be registered as a broker-dealer under
Section 15 of the Exchange Act.
(d) Experience of such Purchaser. Such Purchaser, either alone or together
with its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and has so evaluated the
merits and risks of such investment. Such Purchaser is able to bear the economic
risk of an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.
(e) General Solicitation. Such Purchaser is not purchasing the Securities
as a result of any advertisement, article, notice or other communication
regarding the Securities published in any newspaper, magazine or similar media
or broadcast over television or radio or presented at any seminar or any other
general solicitation or general advertisement.
(f) Certain Trading Activities. Such Purchaser has not directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with such Purchaser, engaged in any transactions in the securities
of the Company (including, without limitations, any Short Sales involving the
Company's securities) since the time that such Purchaser was first contacted by
the Company or HPC Capital Management regarding this investment in the Company.
For purposes of this Section, "Short Sales" include, without limitation, all
"short sales" as defined in Rule 3b-3 ----------- of the Exchange Act and
include all types of direct and indirect stock pledges, forward sale contracts,
options, puts, calls, short sales, swaps and similar arrangements (including on
a total return basis), and sales and other transactions through non-US broker
dealers or foreign regulated brokers having the effect of hedging the securities
or investment made under this Agreement. Such Purchaser covenants that neither
it nor any Person acting on its behalf or pursuant to any understanding with it
will engage in any transactions in the securities of the Company (including
Short Sales) prior to the time that the transactions contemplated by this
Agreement are publicly disclosed.
-18-
(g) Access to Information. Such Purchaser acknowledges and agrees that it
has access to the Company's SEC Reports and has reviewed such filings as such
Purchaser has deemed necessary or desirable including the Company's Annual
Report on Form 10-KSB for the fiscal year ended June 30, 2003 and the Company's
Quarterly Report on Form 10-QSB for the quarter ended March 31 2004. Each
Purchaser and its respective representatives have been afforded an opportunity
to ask such questions of the officers, employees, agents, accountants and
representatives of the Company concerning the business, operations, financial
condition, assets, liabilities, and other relevant matters as such Purchaser and
its representatives have deemed necessary or desirable, and each Purchaser
hereby confirms that it or its agents have been given all such information as
has been requested in order to evaluate the merits and risks of the prospective
investment contemplated hereby and that it does not desire any additional
information. Without limiting the foregoing, each Purchaser specifically
acknowledges that it has had the opportunity to review the Company's SEC
Reports.
(h) Risk Factors. Such Purchaser understands and acknowledges that an
investment in the Shares is highly speculative and includes a high degree of
risk including, but not limited to, those risks specifically set forth in 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 to an effective registration statement or Rule 144, to the Company
or to an Affiliate of a Purchaser or in connection with a pledge as contemplated
in Section 4.1(b), the Company may require the transferor thereof to provide to
the Company an opinion of counsel selected by the transferor and reasonably
acceptable to the Company, the form and substance of which opinion and shall be
reasonably satisfactory to the Company, to the effect that such transfer does
not require registration of such transferred Securities under the Securities
Act. As a condition of transfer, any such transferee shall agree in writing to
be bound by the terms of this Agreement and shall have the rights of a Purchaser
under this Agreement and the Registration Rights Agreement.
-19-
(b) Each Purchaser agrees to the imprinting, so long as is required by
this Section 4.1(b), of the following legend on any certificate evidencing
Securities:
[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
[EXERCISABLE] [CONVERTIBLE]] HAVE BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON
EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
The Company acknowledges and agrees that a Purchaser may from time to time
pledge pursuant to a bona fide margin agreement with a registered broker-dealer
or grant a security interest in some or all of the Securities to a financial
institution that is an "accredited investor" as defined in Rule 501(a) under the
Securities Act and who agrees to be bound by the provisions of this Agreement
and the Registration Rights Agreement and, if required under the terms of such
arrangement, such Purchaser may transfer pledged or secured Securities to the
pledgees or secured parties. Such a pledge or transfer would not be subject to
approval of the Company and no legal opinion of legal counsel of the pledgee,
secured party or pledgor shall be required in connection therewith. Further, no
notice shall be required of such pledge. At the appropriate Purchaser's expense,
the Company will execute and deliver such reasonable documentation as a pledgee
or secured party of Securities may reasonably request in connection with a
pledge or transfer of the Securities, including, if the Securities are subject
to registration pursuant to the Registration Rights Agreement, the preparation
and filing of any required prospectus supplement under Rule 424(b)(3) under the
Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of Selling Stockholders thereunder.
-20-
(c) Certificates evidencing Underlying Shares shall not contain any legend
(including the legend set forth in Section 4.1(b)): (i) while a registration
statement (including the Registration Statement) covering the resale of such
Underlying Shares is effective under the Securities Act, or (ii) following any
sale of such Underlying Shares pursuant to Rule 144, or (iii) if such Securities
are eligible for sale under Rule 144(k), or (iv) if such legend is not required
under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the Staff of the Commission). The
Company shall cause its counsel to issue a legal opinion to the Company's
transfer agent promptly after the Effective Date if required by the Company's
transfer agent to effect the removal of the legend hereunder. If all or any
shares of Preferred Stock or any portion of a Warrant or Additional Investment
Right is converted or exercised (as applicable) at a time when there is an
effective registration statement to cover the resale of the Underlying Shares,
or if such Underlying Shares may be sold under Rule 144(k) or if such legend is
not otherwise required under applicable requirements of the Securities Act
(including judicial interpretations thereof) then such Underlying Shares shall
be issued free of all legends. The Company agrees that following the Effective
Date or at such time as such legend is no longer required under this Section
4.1(c), it will, no later than three Trading Days following the delivery by a
Purchaser to the Company or the Company's transfer agent of a certificate
representing Securities issued with a restrictive legend (such date, the "Legend
Removal Date"), deliver or cause to be delivered to such Purchaser a certificate
representing such Underlying Shares that is free from all restrictive and other
legends. The Company may not make any notation on its records or give
instructions to any transfer agent of the Company that enlarge the restrictions
on transfer set forth in this Section.
(d) In addition to such Purchaser's other available remedies, the Company
shall pay to a Purchaser, in cash, as partial liquidated damages and not as a
penalty, for each $1,000 of Underlying Shares (based on the VWAP on the date
such Securities are submitted to the Company's transfer agent) delivered for
removal of the restrictive legend and subject to this Section 4.1(c), $10 per
Trading Day (increasing to $20 per Trading Day five (5) Trading Days after such
damages have begun to accrue) for each Trading Day after the Legend Removal Date
until such certificate is delivered. Nothing herein shall limit such Purchaser's
right to pursue actual damages for the Company's failure to deliver certificates
representing any Securities as required by the Transaction Documents, and such
Purchaser shall have the right to pursue all remedies available to it at law or
in equity including, without limitation, a decree of specific performance and/or
injunctive relief.
(e) Each Purchaser, severally and not jointly with the other Purchasers,
agrees that the removal of the restrictive legend from certificates representing
Securities as set forth in this Section 4.1 is predicated upon the Company's
reliance that the Purchaser will sell any Securities pursuant to either the
registration requirements of the Securities Act, including any applicable
prospectus delivery requirements, or an exemption therefrom.
-21-
(f) From the date hereof until the 12 month anniversary of the Effective
Date, the Company shall not undertake a reverse or forward stock split or
reclassification of the Common Stock without the prior written consent of the
Purchasers holding a majority in interest of the shares of Preferred Stock.
4.2 Furnishing of Information. As long as any Purchaser owns Securities,
the Company covenants to use commercially reasonable efforts to timely file (or
obtain extensions in respect thereof and file within the applicable grace
period) all reports required to be filed by the Company after the date hereof
pursuant to the Exchange Act. Upon the written request of any Purchaser, the
Company shall deliver to such Purchaser a written certification of a duly
authorized officer as to whether it has complied with the preceding sentence. As
long as any Purchaser owns Securities, if the Company is not required to file
reports pursuant to such laws, it will prepare and furnish to each Purchaser and
make publicly available in accordance with Rule 144(c) such information as is
required for each Purchaser to sell the Securities under Rule 144. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request, all to the extent required from time to time
to enable such Person to sell such Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144. 4.3
Integration. The Company shall not sell, offer for sale or solicit offers to buy
or otherwise negotiate in respect of any security (as defined in Section 2 of
the Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the sale of the Securities to the Purchasers or that would be integrated
with the offer or sale of the Securities for purposes of the rules and
regulations of any Trading Market such that it would require shareholder
approval prior to the closing of such other transaction unless shareholder
approval is obtained before the closing of such subsequent transaction.
4.4 Securities Laws Disclosure; Publicity. The Company shall, by 8:30 a.m.
Eastern time on the second Trading Day following the date hereof, issue a press
release or file a Current Report on Form 8-K, in each case reasonably acceptable
to each Purchaser disclosing the material terms of the transactions contemplated
hereby (if a Purchaser does not object to the content of a press release within
1 Trading Day of receipt for review, such Purchaser shall be deemed to have
approved such press release). The Company and each Purchaser shall consult with
each other in issuing any press releases with respect to the transactions
contemplated hereby, and neither the Company nor any Purchaser shall issue any
such press release or otherwise make any such public statement without the prior
consent of the Company, with respect to any press release of any Purchaser, or
without the prior consent of each Purchaser, with respect to any press release
of the Company, which consent shall not unreasonably be withheld, except if such
disclosure is required by law, in which case the disclosing party shall promptly
provide the other party with prior notice of such public statement or
communication. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Purchaser, or include the name of any Purchaser in any
filing with the Commission or any regulatory agency or Trading Market, without
the prior written consent of such Purchaser, except (i) as required by federal
securities law in connection with the registration statement contemplated by the
Registration Rights Agreement and (ii) to the extent such disclosure is required
by law or Trading Market regulations, in which case the Company shall provide
the Purchasers with prior notice of such disclosure permitted under subclause
(i) or (ii).
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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. The Company shall
conduct its business in a manner so that it will not become subject to the
Investment Company Act.
4.6 Non-Public Information. The Company covenants and agrees that it will
not and will not direct any other Person to, provide any Purchaser or its agents
or counsel with any information that the Company believes constitutes material
non-public information, unless prior thereto such Purchaser shall have executed
a written agreement regarding the confidentiality and use of such information.
The Company understands and confirms that each Purchaser shall be relying on the
foregoing representations in effecting transactions in securities of the
Company.
4.7 Use of Proceeds. The Company shall use the net proceeds from the sale
of the Securities hereunder for and working capital purposes and not for the
satisfaction of any portion of the Company's debt (other than payment of trade
payables, capital lease obligations, and accrued expenses in the ordinary course
of the Company's business and prior practices), to redeem any Company equity or
equity-equivalent securities or to settle any outstanding litigation. Prior to
the receipt of Shareholder Approval, the Company shall not declare or pay any
cash dividend on its shares of Common Stock while any shares of Preferred Stock
remain outstanding.
4.8 Trading Market Approval. In the event the Company does not obtain the
approval of the Trading Market for this transaction within 10 Trading Days of
the date hereof, the Company shall return the respective net Subscription
Amounts to each Purchaser within 2 Trading Days of the date a majority in
interest of the Purchaser's notify the Company to return said amounts and the
Purchasers and the Company, upon receipt of such payment by the Purchasers,
shall instruct the Escrow Agent to return the Preferred Stock, Warrants and the
Additional Investment Rights to the Company.
4.9 Indemnification of Purchasers. Subject to the provisions of this
Section 4.9, the Company will indemnify and hold the Purchasers and their
directors, officers, shareholders, partners, employees and agents (each, a
"Purchaser Party") harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any material breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against a
Purchaser, or any of them or their respective Affiliates, by any stockholder of
the Company who is not an Affiliate of such Purchaser, arising solely out of the
transactions contemplated by the Transaction Documents (unless such action is
based upon a breach of such Purchaser's representation, warranties or covenants
under the Transaction Documents or any agreements or understandings such
Purchaser may have with any such stockholder or any violations by the Purchaser
of state or federal securities laws or any conduct by such Purchaser which
constitutes fraud, gross negligence, willful misconduct or malfeasance). If any
action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, such Purchaser Party shall
promptly notify the Company in writing, and the Company shall have the right to
assume the defense thereof with counsel of its own choosing. Any Purchaser Party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Purchaser Party except to the extent that (i)
the employment thereof has been specifically authorized by the Company in
writing, (ii) the Company has failed after a reasonable period of time to assume
such defense and to employ counsel or (iii) in such action there is, in the
reasonable written opinion of such separate counsel, a material conflict on any
material issue between the position of the Company and the position of such
Purchaser Party. The Company will not be liable to any Purchaser Party under
this Agreement (i) for any settlement by an Purchaser Party effected without the
Company's prior written consent, which shall not be unreasonably withheld or
delayed; or (ii) to the extent, but only to the extent that a loss, claim,
damage or liability is attributable to any Purchaser Party's breach of any of
the representations, warranties, covenants or agreements made by the Purchasers
in this Agreement or in the other Transaction Documents.
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4.10 Reservation and Listing of Securities.
(a) The Company shall maintain a reserve from its duly authorized shares
of Common Stock for issuance pursuant to the Transaction Documents in such
amount as may be required to fulfill its obligations in full under the
Transaction Documents.
(b) If, on any date, the number of authorized but unissued (and otherwise
unreserved) shares of Common Stock is less than 130% of (i) the Actual Minimum
on such date, minus (ii) the number of shares of Common Stock previously issued
pursuant to the Transaction Documents, then the Board of Directors of the
Company shall use commercially reasonable efforts to amend the Company's
certificate or articles of incorporation to increase the number of authorized
but unissued shares of Common Stock to at least the Actual Minimum at such time
(minus the number of shares of Common Stock previously issued pursuant to the
Transaction Documents), as soon as possible and in any event not later than the
75th day after such date; provided that the Company will not be required at any
time to authorize a number of shares of Common Stock greater than the maximum
remaining number of shares of Common Stock that could possibly be issued after
such time pursuant to the Transaction Documents.
(c) The Company shall: (i) in the time and manner required by the Trading
Market, prepare and file with such Trading Market an additional shares listing
application covering a number of shares of Common Stock at least equal to the
Actual Minimum on the date of such application, (ii) take all steps necessary to
cause such shares of Common Stock to be approved for listing on the Trading
Market as soon as possible thereafter, (iii) upon a Purchaser's written request,
provide to each Purchaser evidence of such listing, and (iv) use reasonable
efforts to maintain the listing of such Common Stock on such Trading Market or
another Trading Market. In addition, the Company shall hold a special meeting of
shareholders (which may also be at the annual meeting of shareholders) at the
earliest practical date, but in no event later than November 30, 2004, for the
purpose of obtaining Shareholder Approval, with the recommendation of the
Company's Board of Directors that such proposal be approved, and the Company
shall solicit proxies from its shareholders in connection therewith in the same
manner as all other management proposals in such proxy statement and all
management-appointed proxyholders shall vote their proxies in favor of such
proposal.
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(d) If, on any date, the Company is listed on a different Trading Market,
then the Company shall take the necessary actions to list all of the Underlying
Shares on such Trading Market as soon as reasonably possible.
4.11 Conversion and Exercise Procedures. The form of Election to Purchase
included in the Warrants and the Additional Investment Rights and the forms of
Conversion Notice included in the Certificate of Designation set forth the
totality of the procedures required in order to exercise the Warrants and
Additional Investment Rights or convert the Preferred Stock. No additional legal
opinion or other information or instructions shall be necessary to enable each
Purchaser to exercise their Warrants and Additional Investment Rights or convert
their Preferred Stock. The Company shall honor exercises of the Warrants and
Additional Investment Rights and conversions of the Preferred Stock and shall
deliver Underlying Shares in accordance with the terms, conditions and time
periods set forth in the Transaction Documents. The Company acknowledges that
the issuance of the Securities may result in dilution of the outstanding shares
of Common Stock, which dilution may be substantial under certain market
conditions. The Company further acknowledges that its obligations under the
Transaction Documents, including its obligation to issue the Underlying Shares
pursuant to the Transaction Documents, are unconditional and absolute and not
subject to any right of set off, counterclaim, delay or reduction, regardless of
the effect of any such dilution or any claim the Company may have against any
Purchaser and regardless of the dilutive effect that such issuance may have on
the ownership of the other stockholders of the Company.
4.12 Equal Treatment of Purchasers. No consideration shall be offered or
paid to any person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. For
clarification purposes, this provision constitutes a separate right granted to
each Purchaser by the Company and negotiated separately by each Purchaser, and
is intended to treat for the Company the Purchasers as a class and shall not in
any way be construed as the Purchasers acting in concert or as a group with
respect to the purchase, disposition or voting of Securities or otherwise.
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4.13 Participation in Future Financing. Until the 6 month anniversary of
the Effective Date, upon any financing by the Company of its Common Stock or
Common Stock Equivalents (a "Subsequent Financing"), each Purchaser shall have
the right to participate in up to 100% of such Subsequent Financing. At least 3
Trading Days prior to the closing of the Subsequent Financing, the Company shall
deliver to each Purchaser a written notice of its intention to effect a
Subsequent Financing ("Pre-Notice"), which Pre-Notice shall ask such Purchaser
if it wants to review the details of such financing (such additional notice, a
"Subsequent Financing Notice"). Upon the written request of a Purchaser, and
only upon a request by such Purchaser, for a Subsequent Financing Notice, the
Company shall promptly, but no later than 1 Trading Day after such request,
deliver a Subsequent Financing Notice to such Purchaser. The Subsequent
Financing Notice shall describe in reasonable detail the proposed terms of such
Subsequent Financing, the amount of proceeds intended to be raised thereunder,
the Person with whom such Subsequent Financing is proposed to be effected, and
attached to which shall be a term sheet or similar document relating thereto. If
by 6:30 p.m. (New York City time) on the 3rd Trading Day after all of the
Purchasers have received the Pre-Notice, notifications of the Purchasers of
their willingness to participate in the Subsequent Financing (or to cause their
designees to provide) is, in the aggregate, less than the total amount of the
Subsequent Financing, then the Company may effect the remaining portion of such
Subsequent Financing on the terms and to the Persons set forth in the Subsequent
Financing Notice. If the Company receives no notice from a Purchaser as of such
3rd Trading Day, such Purchaser shall be deemed to have notified the Company
that it does not elect to participate. The Company must provide the Purchasers
with a second Subsequent Financing Notice, and the Purchasers will again have
the right of participation set forth above in this Section 4.13, if the
Subsequent Financing subject to the initial Subsequent Financing Notice is not
consummated for any reason on the terms set forth in such Subsequent Financing
Notice within 60 Trading Days after the date of the initial Subsequent Financing
Notice. In the event the Company receives responses to Subsequent Financing
Notices from Purchasers seeking to purchase more than the aggregate amount of
the Subsequent Financing, each such Purchaser shall have the right to purchase
their Pro Rata Portion (as defined below) of the Subsequent Financing. "Pro Rata
Portion" is the ratio of (x) the Subscription Amount of a participating
Purchaser and (y) the sum of the aggregate Subscription Amount of all
participating Purchasers. Notwithstanding the foregoing, this Section 4.13 shall
not apply in respect of an Exempt Issuance and the reasonable and customary
issuance of Common Stock or Common Stock Equivalents to service providers of the
Company, the primary purpose of which is not to raise capital.
4.14 Future Financings. From the date hereof until 90 days after the Effective
Date, other than as contemplated by this Agreement, neither the Company nor any
Subsidiary (with respect to Common Stock Equivalents) shall issue or sell any
Common Stock or Common Stock Equivalents entitling any Person to acquire shares
of Common Stock. Notwithstanding anything herein to the contrary, the 90 day
period set forth in this Section 4.14 shall be extended for the number of
Trading Days during such period in which (i) trading in the Common Stock is
suspended by any Trading Market, or (ii) following the Effective Date, the
Registration Statement is not effective or the prospectus included in the
Registration Statement may not be used by each Purchaser for the resale of the
Underlying Shares. Notwithstanding anything to the contrary herein, this Section
4.14 shall not apply in respect of an Exempt Issuance and the reasonable and
customary issuance of Common Stock or Common Stock Equivalents to service
providers of the Company, the primary purpose of which is not to raise capital.
In addition to the limitations set forth herein, from the date hereof until such
time as no Purchaser holds any of the Securities, the Company shall be
prohibited from effecting or enter into an agreement to effect any Subsequent
Financing involving any security which is not a Junior Security as defined in
the Certificate of Designation or pari passu with the Preferred Stock, or any
"Variable Rate Transaction" (as defined below). The term "Variable Rate
Transaction" shall mean a transaction in which the Company issues or sells (i)
any debt or equity securities that are convertible into, exchangeable or
exercisable for, or include the right to receive additional shares of Common
Stock either (A) at a conversion, exercise or exchange rate or other price that
is based upon and/or varies with the trading prices of or quotations for the
shares of Common Stock at any time after the initial issuance of such debt or
equity securities, or (B) with a conversion, exercise or exchange price that is
subject to being reset at some future date after the initial issuance of such
debt or equity security or upon the occurrence of specified or contingent events
directly or indirectly related to the business of the Company or the market for
the Common Stock; provided that the existence of anti-dilution provisions
attached to any such securities shall not alone make a transaction a Variable
Rate Transaction. In addition, unless Shareholder Approval has been obtained and
deemed effective in accordance with Section 4.10(c), the Company shall not make
any issuance whatsoever of Common Stock or Common Stock Equivalents which would
cause any adjustment of the Set Price to the extent the holders of Preferred
Stock would not be permitted, pursuant to Section 5(a)(iii) of the Certificate
of Designations, to convert their respective outstanding Preferred Stock and
Warrants in full.
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ARTICLE V
MISCELLANEOUS
5.1 Fees and Expenses. Except as otherwise set forth in this Agreement,
each party shall pay the fees and expenses of its advisers, counsel, accountants
and other experts, if any, and all other expenses incurred by such party
incident to the negotiation, preparation, execution, delivery and performance of
this Agreement. The Company shall pay all stamp and other taxes and duties
levied in connection with the sale of the Securities.
5.2 Entire Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified on the signature page prior to 4:00 p.m. (New York City time) on a
Trading Day and an electronic confirmation of delivery is received by the
sender, (b) the next Trading Day after the date of transmission, if such notice
or communication is delivered via facsimile at the facsimile number specified in
this Section on a day that is not a Trading Day or later than 4:00 p.m. (New
York City time) on any Trading Day, (c) three Trading Days following the date of
mailing, if sent by U.S. nationally recognized overnight courier service, or (d)
upon actual receipt by the party to whom such notice is required to be given.
The addresses for such notices and communications are those set forth on the
signature pages hereof, or such other address as may be designated in writing
hereafter, in the same manner, by such Person.
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5.4 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Company and each Purchaser or, in the case of a waiver, by the party against
whom enforcement of any such waiver is sought. No waiver of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.
5.5 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.
5.6 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser. Any Purchaser may assign
any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided such transferee agrees
in writing with the Company to be bound, with respect to the transferred
Securities, by the provisions hereof that apply to the "Purchasers".
5.7 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.9.
5.8 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper or inconvenient venue for such
proceeding. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect for notices
to it under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law. The parties hereby waive all rights to a trial by jury. If
either party shall commence an action or proceeding to enforce any provisions of
the Transaction Documents, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys' fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.
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5.9 Survival. The representations and warranties contained herein shall
survive the Closing and the delivery, exercise and/or conversion of the
Securities, as applicable, until the 3 year anniversary of the date hereof.
5.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
5.11 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
5.12 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights.
5.13 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
5.14 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of each
Purchaser and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
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5.15 Payment Set Aside. To the extent that the Company makes a payment or
payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
5.16 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction 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 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 the
Purchasers but only 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.
5.17 Liquidated Damages. The Company's obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
RCG Companies Incorporated Address for Notice:
-------------------
By:__________________________________________ 0000 Xxxxxxxx Xxxx.
Name: Suite 200
Title: Xxxxxxxxx, Xxxxx Xxxxxxxx 00000
Attn: Xxxxxxx Xxxxx
Fax: (000) 000 0000
Tel: (000) 000 0000 x00
With a copy to (which shall not constitute notice):
Xxxx Xxxxxxxxx, Esq.
Xxxxxx & Xxxx, P.A.
000 Xxxx Xxx Xxxx Xxxxxxxxx
Xxxxx 0000
Xxxx Xxxxxxxxxx, Xxxxxxx 00000
000.000.0000 (phone)
000.000.0000 (fax)
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
-31-
[PURCHASER SIGNATURE PAGES TO RCG SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Investing Entity: __________________________
Signature of Authorized Signatory of Investing Entity: _______________
Name of Authorized Signatory: _________________________
Title of Authorized Signatory: __________________________
Email Address of Authorized Signatory:________________________________
Address for Notice of Investing Entity:
Address for Delivery of Securities for Investing Entity (if not same as above):
Subscription Amount:
Shares of Preferred Stock:
Warrant Shares:
Additional Investment Right Shares:
[SIGNATURE PAGES CONTINUE]
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