EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
BY AND AMONG
HEALTH FITNESS CORPORATION
AND
THE PURCHASERS NAMED IN EXHIBIT A-I
DATED AS OF NOVEMBER 14, 2005
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (the "Agreement"), dated as of
November 14, 2005, is entered into by and among Health Fitness Corporation, a
Minnesota corporation (the "Company"), and the Persons listed on Exhibit A-I
hereto (the "Purchasers").
In consideration of the mutual promises and covenants contained in this
Agreement, the parties hereto agree as follows:
1. Authorization, Sale and Exchange.
1.1 Authorization.
(a) Authorization of Series B Preferred. The Company has duly
authorized the sale and issuance, pursuant to the terms of this
Agreement, of 1,000 shares of its Series B Convertible Preferred Stock,
par value $0.01 per share (the "Series B Preferred"), having the
designations and powers, preferences and relative participating,
optional or other special rights, and the qualifications, limitations
and restrictions thereof, as set forth in the Certificate of
Designation , Preferences and Rights of Series B Convertible Preferred
Stock attached hereto as Exhibit B (the "Series B Certificate of
Designations").
(b) Authorization of Warrants. The Company has duly authorized
the sale and delivery, pursuant to the terms of this Agreement, of
warrants to purchase [1.53 million] shares (the "Warrant Shares") of
the Company's common stock, par value $0.01 per share (the "Common
Stock"), each substantially in the form attached hereto as Exhibit C
(the "Warrants").
1.2 Sale of Preferred Stock and Warrants. Subject to the terms and
conditions of this Agreement, at the Closing, the Company will sell and deliver
to each of the Purchasers, and each Purchaser will severally (and not jointly)
purchase:
(a) such number of shares of Series B Preferred set forth
opposite such Purchaser's name under the heading "Series B Preferred
Shares" on Exhibit A-I, and
(b) a Warrant to initially purchase such number of Warrant
Shares set forth opposite such Purchaser's name under the heading
"Warrants" on Exhibit A-I,
for an aggregate purchase price set forth opposite such Purchaser's name under
the heading "Purchase Price" on Exhibit A-I (such Purchaser's "Purchase Price"),
which aggregate Purchase Price for such Purchaser shall equal the product of (x)
$[10,200], times (y) the number of shares of Series B Preferred being purchased
by such Purchaser at the Closing.
1.3 Use of Proceeds. The Company will use the proceeds from the sale of
the Series B Preferred and Warrants sold under this Agreement for the purposes
set forth on Schedule 1.3(1) attached hereto.
1.4 Separate Agreements. The Company's agreement with each of the
Purchasers is a separate agreement, and the sale of the Series B Preferred and
Warrants to each of the Purchasers is a separate sale.
2. Closing. The closing (the "Closing") of the sale and purchase of Series
B Preferred and Warrants under this Agreement shall take place at the offices of
Mayer, Brown, Xxxx & Maw LLP, 0000 Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000, or at
such other place as is mutually agreeable to the Company and the Purchasers. At
the Closing, the Company shall deliver to each Purchaser (a) certificates
representing shares of Series B Preferred in an amount calculated in accordance
with Section 1.2 and (b) Warrants to purchase Warrant Shares in an amount
calculated in accordance with Section 1.2, in each case, registered in the name
of each such Purchaser, against payment to the Company of the Purchase Price
therefor, by wire transfer, Federal Reserve Bank Check, or other method
acceptable to the Company. The Closing shall occur on the date hereof (the
"Closing Date").
3. Representations of the Company. The Company hereby confirms that the
representations and warranties made by it in this Section 3 are true and
accurate in all respects as of the Closing Date (except with respect to any such
representations or warranties that speak as of a specified date, which shall be
true and correct as of such specified date):
3.1 Organization and Corporate Power. The Company and each of its
Subsidiaries is duly organized, validly existing and in good standing under the
laws of its respective jurisdiction of organization and has full power and
authority to own its properties and to conduct its business as presently
conducted and as proposed to be conducted by it and to enter into and perform
this Agreement and the Transaction Documents, to carry out the transactions
contemplated by this Agreement and the Transaction Documents and to (a) issue,
sell and deliver the shares of Series B Preferred to be sold and delivered to
the Purchasers at the Closing, (b) sell and deliver the Warrants to be sold and
delivered to the Purchasers at the Closing, (c) issue, sell and deliver the
Warrant Shares upon exercise of the Warrants and (d) issue, sell and deliver the
shares of Common Stock issuable upon conversion of the shares of Series B
Preferred (the "Conversion Shares"). The Company and each of its Subsidiaries is
duly qualified to do business as a foreign corporation in every jurisdiction in
which the failure to so qualify would reasonably be expected to have a Material
Adverse Effect.
3.2 Capitalization.
(a) The type of all authorized, issued and outstanding capital
stock of the Company, and all shares of Common Stock reserved for
issuance under the Company's various option and incentive plans, is set
forth in the SEC Reports. The number of issued and outstanding shares
of each such class of capital stock is as set forth in the SEC
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(1) We anticipate that this would include the repurchase of approximately 3.1
million shares from Bayview, working capital and general corporate purposes
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Reports, except that the number of shares of Common Stock of the
Company as indicated as being outstanding in its most recent Quarterly
Report on Form 10-Q excludes not more than 1,000 shares of Common
Stock that the Company may have issued since the date specified in such
Quarterly Report on Form 10-Q in the ordinary course of its business
from shares of Common Stock previously reserved for issuance to
employees, directors or consultants. All outstanding shares of capital
stock are duly authorized, validly issued, fully paid and
non-assessable and have been issued in compliance with all applicable
securities laws.
(b) Except as set forth in the SEC Reports and the Transaction
Documents, and except for rights previously granted to Bayview as set
forth in the SEC Reports, no securities of the Company currently
outstanding are entitled to preemptive or similar rights, and 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 for the Series B
Preferred, the Warrants, warrants issued or to be issued to Banner and
GHF pursuant to the terms of the Letter Agreement (the "Transaction
Warrants"), and except as disclosed in the SEC Reports, there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, Common Stock,
Common Stock Equivalents, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become
bound to issue additional shares of Common Stock, or Common Stock
Equivalents. Except for the Series B Preferred and the Warrants, and
except for rights previously granted to Bayview as set forth in the SEC
Reports, there are no anti-dilution or price adjustment provisions
contained in any security issued by the Company (or in any agreement
providing rights to security holders). Except for rights previously
granted to Bayview as set forth in the SEC Reports and the issuance of
the Transaction Warrants, the issue and sale of the Series B Preferred
and the Warrants, and the issuance or deemed issuance of the Conversion
Shares and Warrant Shares, will not, immediately or with the passage of
time, 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.
3.3 Subsidiaries, Etc. Except as set forth in the SEC Reports, the
Company has no Subsidiaries and does not own or control, directly or indirectly,
contractually or otherwise, any other corporation or limited liability company
or any interest in any partnership, joint venture or other non-corporate
business enterprise. Except as disclosed in the SEC Reports, the Company owns,
directly or indirectly, all of the capital stock or comparable equity interests
of each Subsidiary free and clear of any and all Liens, and all the issued and
outstanding shares of capital stock or comparable equity interests of each
Subsidiary are validly issued and are fully paid, non-assessable and free of
preemptive and similar rights.
3.4 Compliance. Neither the Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default by
the Company or any Subsidiary under), nor has the Company or any Subsidiary
received notice of a claim that it is in default under or that it is in
violation of, any indenture, loan or credit agreement or any other agreement or
instrument to
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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 relating
to taxes, environmental protection, banking, occupational health and safety,
product quality and safety and employment and labor matters, except in the case
of clauses (i) and (iii) above as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. The Company is in
compliance with the requirements that are currently applicable to it under the
Xxxxxxxx-Xxxxx Act of 2002, as amended, and the rules and regulations
thereunder, except where such noncompliance would not reasonably be expected to
have a Material Adverse Effect.
3.5 Sale, Issuance and Delivery of Securities.
(a) The issuance, sale and delivery of the Series B Preferred
at the Closing, and the issuance and delivery of the Conversion Shares
issuable upon conversion of the Series B Preferred, has been duly
authorized by all necessary corporate action on the part of the
Company, and all such shares have been duly reserved for issuance. The
Series B Preferred when so issued and delivered at the Closing against
delivery by the Purchasers to the Company of the Purchase Price, and
the Conversion Shares issuable upon conversion of the Series B
Preferred, when issued upon such conversion, will be duly and validly
issued, fully paid and non-assessable, and free and clear of all Liens
(other than any such Liens created by or through the Purchasers).
Except as set forth in the SEC Reports, the issuance of the Series B
Preferred, and the issuance of the Conversion Shares upon conversion of
the Series B Preferred, is not and will not be subject to any
preemptive or similar right to subscribe for or purchase securities.
(b) The issuance, sale and delivery of the Warrants at the
Closing, and the issuance and delivery of the Warrant Shares issuable
upon exercise of the Warrants, has been duly authorized by all
necessary corporate action on the part of the Company, and all such
shares have been duly reserved for issuance. The Warrants when so
issued and delivered at the Closing against delivery by the Purchasers
to the Company of the Purchase Price, and the Warrant Shares issuable
upon exercise of the Warrants when so issued, sold and delivered
against payment therefor in accordance with the provisions of the
Warrants, will be duly and validly issued, fully paid and
non-assessable, and free and clear of all Liens (other than any such
Liens created by or through the Purchasers). Except as set forth in the
SEC Reports, the issuance of the Warrants, and the issuance of the
Warrant Shares upon exercise of the Warrants, is not and will not be
subject to any preemptive or similar right to subscribe for or purchase
securities.
3.6 Authority for Agreement; Effect of Transactions. The execution,
delivery and performance by the Company of this Agreement, the Series B
Certificate of Designations, the Warrants and the Registration Rights Agreement
(collectively, the "Transaction Documents") and the consummation by the Company
of the transactions contemplated hereby and thereby, have been duly authorized
by all necessary corporate action. This Agreement and the Transaction Documents
have been duly executed and delivered by the Company and constitute valid and
binding obligations of the Company enforceable in accordance with their
respective
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terms, subject as to enforcement of remedies to (i) bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights, (ii) a court's
discretionary authority with respect to the granting of a decree ordering
specific performance or other equitable remedies and (iii) with respect to the
indemnification provisions of the Registration Rights Agreement, public policy.
The execution of and performance of the transactions contemplated by this
Agreement and the Transaction Documents and compliance with their provisions by
the Company, and, assuming the accuracy of the Purchasers' representations and
warranties set forth herein and the Purchasers' compliance with their covenants
set forth herein, the issuance and sale of the Series B Preferred and the
Warrants (and the issuance of the Conversion Shares and Warrant Shares in the
manner contemplated in the Series B Certificate of Designations and the
Warrants, as the case may be), will not (a) violate any provision of law or
regulation applicable to the Company and its Subsidiaries or any of their
respective assets or any decree, judgment, license, permit, order, statute, rule
or regulation applicable to the Company or any of its Subsidiaries (including
federal and state securities laws and regulations and the rules and regulations
of any self-regulatory organization to which the Company or its securities are
subject), (b) result in the creation of any Lien upon any of the property of the
Company or any of its Subsidiaries, (c) conflict with or result in any breach of
any of the terms, conditions or provisions of, or constitute a default under, or
require a consent or waiver under, the Company's certificate of incorporation or
by-laws (each as amended to date), or (d) conflict with or result in any breach
of any of the terms, conditions or provisions of, or constitute a default under,
or require a consent or waiver under, any indenture, lease, agreement or other
instrument to which the Company or any of its Subsidiaries is a party or by
which it or any of their respective properties are bound, except, in the case of
clause (b) and (d) above, where such noncompliance would not reasonable be
expected to have a Material Adverse Effect.
3.7 Litigation. There is no Action to which the Company is a party
which (i) adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents, the Series B Preferred, the
Warrants, the Conversion Shares or the Warrant Shares or (ii) except as
specifically disclosed in the SEC Reports, would, if there were an unfavorable
decision, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. Neither the Company nor any Subsidiary, nor, to the
Company's knowledge, any director or officer thereof, is or has been the subject
of any Action involving a claim of violation of or liability under federal or
state securities laws or a claim of breach of fiduciary duty, except as
specifically disclosed in the SEC Reports. There has not been, and to the
knowledge of the Company, there is not pending or contemplated, any Action by
the Commission involving the Company or any current director or officer of the
Company. To the knowledge of the Company, there has not been, and there is not
pending or contemplated, any Action by the Commission involving any former
director or officer of the Company or any current or former stockholder of the
Company. The Company has not received any stop order or other order suspending
the effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act.
3.8 Title to Assets. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them that is
material to their respective businesses and good and marketable title in all
personal property owned by them that is material to their respective businesses,
in each case free and clear of all Liens, except for Liens disclosed in the
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SEC Reports and except 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. Any real property and
facilities or personal property held under lease by the Company and the
Subsidiaries are held by them under valid, subsisting and enforceable leases of
which the Company and the Subsidiaries are in compliance, except as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
3.9 Filings, Consents and Approvals. Except with respect to rights
previously granted to Bayview as set forth in the SEC Reports, the Company is
not required to obtain any third party 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 filing with the Commission of one or
more Registration Statements in accordance with the requirements of the
Registration Rights Agreement, (ii) filings required by state securities laws,
and the filing of a Notice of Sale of Securities on Form D with the Commission
as required under Regulation D of the Securities Act, (iii) the filings required
in accordance with Section 5.4, (iv) the application to the OTC-BB for the
quotation of the Conversion Shares and the Warrant Shares thereon in the time
and manner required thereby, (v) the filing of the Series B Certificate of
Designations with the Secretary of State of the State of Minnesota and (vi)
those that have been made or obtained prior to the date of this Agreement.
3.10 SEC Reports; Financial Statements. The Company has filed all SEC
Reports required to be filed by it under applicable law and the rules and
regulations of the Commission on a timely basis or has timely filed 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 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
GAAP to the extent required by applicable law and the rules and regulations of
the Commission, except as may be otherwise specified in such financial
statements or the notes thereto, 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. All material agreements to which the
Company or any Subsidiary is a party or to which the property or assets of the
Company or any Subsidiary are subject are included as part of or specifically
identified in the SEC Reports to the extent required by applicable law and the
rules and regulations of the Commission.
3.11 Material Changes. Since the date of the latest audited financial
statements included in the Company's most recent Annual Report on Form 10-K,
except as specifically disclosed in the SEC Reports and except for information
disclosed to Purchasers pursuant to a
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written agreement regarding the confidentiality and use of such information, (i)
there has been no event, occurrence or development that has had or that could
reasonably be expected to have a Material Adverse Effect, (ii) the Company has
not incurred any liabilities (contingent or otherwise) other than (A) trade
payables, accrued expenses, and other liabilities 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 critical accounting policies or the identity of its
auditors, (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
binding agreements to purchase or redeem any shares of its capital stock (other
than as contemplated on Schedule 1.3 hereto), and (v) the Company has not issued
any securities to any officer, director or affiliate, except pursuant to
existing Company stock option plans under registration statements on Form S-8.
The Company does not have pending before the Commission any request for
confidential treatment of information or documents.
3.12 Tax Matters. The Company and each of its Subsidiaries have timely
filed all foreign, federal, state and local income, excise or franchise tax
returns, real estate and personal property tax returns, sales and use tax
returns and other tax returns required to be filed by it and has paid all taxes
owed by it, except taxes which have not yet accrued or otherwise become due. The
provision for taxes in the financial statements contained in the SEC Reports is
materially sufficient as of its date for the payment of all accrued and unpaid
federal, state, county and local taxes of any nature of the Company and each of
its Subsidiaries, and any applicable taxes owing to any foreign jurisdiction,
whether or not disputed. All taxes and other assessments and levies which the
Company or any of its Subsidiaries is required to withhold or collect have been
withheld and collected in a timely manner and have been paid over to the proper
governmental authorities to the extent required to be so paid. With regard to
the income tax returns of the Company and its Subsidiaries, neither the Company
nor any of its Subsidiaries has received notice of any audit or of any proposed
deficiencies from any taxing authority, and no controversy with respect to taxes
of the Company or any of its Subsidiaries of any type is pending or, to the
Company's knowledge, threatened. There are in effect no waivers of applicable
statutes of limitations with respect to any taxes owed by the Company or any of
its Subsidiaries for any year.
3.13 Loans and Advances. Except as set forth in the SEC Reports,
neither the Company nor any of its Subsidiaries has any outstanding loans or
advances to any Person and is not obligated to make any such loans or advances,
except, in each case, for advances to employees of the Company in respect of
reimbursable business expenses anticipated to be incurred by them in connection
with their performance of services for the Company.
3.14 Assumptions, Guaranties, Etc. of Indebtedness of Other Persons.
Except as set forth in the SEC Reports, neither the Company nor any of its
Subsidiaries has assumed, guaranteed, endorsed or otherwise become directly or
contingently liable on any indebtedness of any other Person (including, without
limitation, liability by way of agreement, contingent or otherwise, to purchase,
to provide funds for payment, to supply funds to or otherwise invest in the
debtor, or otherwise to assure the creditor against loss), except for guaranties
by endorsement of negotiable instruments for deposit or collection in the
ordinary course of business.
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3.15 Transactions With Affiliates and Employees. Except as set forth in
the SEC Reports, none of the officers or directors of the Company and, to the
knowledge of the Company, none of the employees of the Company is presently a
party to any transaction with the Company or any Subsidiary (other than 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 that would be required to be disclosed now or in the
future in an SEC Report pursuant to the requirements of Item 404 of Regulation
S-K.
3.16 Proprietary Rights; Employee Restrictions. The Company and the
Subsidiaries have, or have rights to use, all Intellectual Property Rights,
except where the failure to so have would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. The Company owns or
has the legal right to use all such Intellectual Property Rights and, to the
Company's knowledge, neither the present nor proposed business activities or
products of the Company or any of its Subsidiaries infringe or misappropriate
any patents, copyrights, trademarks, trade names, service marks, logos or other
intellectual or tangible proprietary rights of others, except where the failure
to so have would not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect. Neither the Company nor any of its
Subsidiaries has received any notice or other claim from any Person asserting
that any of the Company's or any of its Subsidiaries' present or proposed
activities infringe or misappropriate, or may infringe or misappropriate, any
intellectual property rights of any Person. To the Company's knowledge, the
Company and its Subsidiaries have the right to use, free and clear of Liens,
claims or rights of others, other than Liens described in the SEC Reports, all
trade secrets and know-how, including without limitation: customer lists,
manufacturing processes, hardware designs, programming processes, software and
other trade secrets or know-how required for or incident to its products or its
business as presently conducted or contemplated. The Company and its
Subsidiaries have taken all steps reasonably required to establish and preserve
its ownership of all of the Intellectual Property Rights owned by them,
including but not limited to requiring all employees and consultants to execute
a confidentiality and assignment of inventions agreement in favor of the Company
and its Subsidiaries. The Company is not aware of any infringement or
misappropriation by others of any Intellectual Property Rights of the Company or
any of its Subsidiaries, or any violation of the confidentiality of any of their
respective proprietary information. To the knowledge of the Company, neither the
Company nor any of its Subsidiaries is making unlawful use of any confidential
information or trade secrets of any past or present employees of the Company or
any of its Subsidiaries. Neither the Company nor any of its Subsidiaries has
granted or assigned to any other Person any right to manufacture, have
manufactured, assemble or sell the products or proposed products or to provide
the services or proposed services of the Company or any of its Subsidiaries,
except pursuant to agreements described in the SEC Reports.
3.17 Proprietary Information of Third Parties. No third party has
claimed or, to the Company's knowledge, has reason to claim, that any Person
employed or engaged by the Company or any of its Subsidiaries has, in the
performance of such Person's duties to the Company, (a) violated or may be
violating any of the material terms or conditions of his employment,
non-competition or non-disclosure agreement with such third party, (b) disclosed
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or may be disclosing or utilized or may be utilizing any trade secret or
proprietary information or documentation of such third party or (c) interfered
or may be interfering in the employment relationship between such third party
and any of its present or former employees, except in each instance, where the
failure to so have would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect
3.18 Business; Compliance with Laws. Except for those which would not
reasonably be expected to have a Material Adverse Effect, the Company and each
of its Subsidiaries has all necessary franchises, permits, licenses and other
rights and privileges necessary to permit it to own its property and to conduct
its business as is presently conducted. Neither the Company nor any of its
Subsidiaries is in violation of any law, regulation, authorization or order
material to the ownership of its properties or the carrying on of its business
as presently conducted.
3.19 Environmental Compliance. Except as set forth in the SEC Reports,
neither the Company nor any of its Subsidiaries (a) has ever violated, or is
presently in noncompliance with, all federal, state, and local environmental and
health and safety laws, rules, regulations, ordinances, guidelines, codes,
orders, approvals and similar items ("Environmental Laws") applicable to its
business and properties; (b) has generated, manufactured, used, refined,
transported, treated, stored, handled, disposed of, transferred, produced, or
processed any pollutant, toxic substance, hazardous waste, hazardous substance,
hazardous material, oil, or petroleum product other than ordinary cleaning and
other similar products ("Hazardous Materials") as defined under any
Environmental Law, or any solid waste, other than such instances and Hazardous
Materials as are normally consumed by businesses engaged in operations
substantially similar to those conducted by the Company, and has any knowledge
of the release or threat of release of any Hazardous Materials from its
products, properties or facilities except in compliance with law; (c) has (i)
entered into or been subject to any consent decree, compliance order, or
administrative order with respect to any environmental or health and safety
matter relating to its business or any of its properties or facilities, (ii)
received notice under the citizen suit provision of any Environmental Law in
connection with its business or any of its properties or facilities, (iii)
received any request for information, notice, demand letter, administrative
inquiry, or formal or informal complaint or claim with respect to any
environmental or health and safety matter relating to its business or any of its
properties or facilities, or (iv) been subject to or threatened with any
governmental or citizen enforcement action with respect to any environmental or
health and safety matter relating to its business or any of its properties or
facilities, and has any reason to believe that any matters described in clauses
(i) through (iv) above will be forthcoming. No Lien has been imposed on any of
the properties or facilities of the Company or any of its Subsidiaries by any
governmental agency at the federal, state, or local level in connection with the
presence of any Hazardous Materials.
3.20 Brokerage. Except as set forth in the Letter Agreement, there are
no, and will be no, claims for and no Person is entitled to any brokerage
commissions, finder's fees or similar compensation in connection with the
transactions contemplated by this Agreement from the Company or any of its
Subsidiaries or based on any arrangement or agreement made by or on behalf of
the Company or any of its Subsidiaries. The Purchasers shall have no direct
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.
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3.21 Employee Benefit Plans. Except as set forth in the SEC Reports,
neither the Company nor any of its Subsidiaries maintains or contributes to any
employee benefit plans. The Company and each of its Subsidiaries is and has been
in material compliance with the provisions of all laws or rules or regulations
applicable to any employee benefit plan maintained or contributed to by the
Company or any of its Subsidiaries for the benefit of its employees and, to the
Company's knowledge, there are no claims (other than routine claims for
benefits) pending or threatened with respect to any of such employee benefit
plans. Neither the Company nor any of its Subsidiaries maintains or contributes
to, or has ever maintained or contributed to, any qualified retirement plan that
is subject to the minimum funding requirements of Xxxxxxx 000 xx xxx Xxxxxx
Xxxxxx Internal Revenue Code of 1986, as amended. There are no material unfunded
obligations of the Company or any of its Subsidiaries under any retirement,
pension, profit-sharing or deferred compensation plan or program. Neither the
Company nor any of its Subsidiaries is required to make any payments or
contributions to any employee benefit plan pursuant to any collective bargaining
agreement. Neither the Company nor any of its Subsidiaries has ever maintained
or contributed to any employee benefit plan providing or promising any health or
other non-pension benefits to terminated employees. For purposes of this Section
3.21, the term "Company" includes all entities that have controlled, have been
under the control of, or have been under common control with, the Company.
3.22 Employees. No officer or key employee of the Company or any of its
Subsidiaries has advised the Company or any of its Subsidiaries (orally or in
writing) that he or she intends to terminate employment with the Company or any
of its Subsidiaries. Except as set forth in the SEC Reports, the Company and
each of its Subsidiaries has complied in all material respects with all
applicable laws relating to the employment of labor, including provisions
relating to wages, laws, equal opportunity, collective bargaining and the
payment of social security and other taxes. Except as set forth in the SEC
Reports, none of the employees of the Company or any of its Subsidiaries is
represented by any labor union or covered by any collective bargaining
agreements, the Company is not aware of any effort to establish a labor union or
bargaining unit or similar organizational effort with respect to its employees
or the employees of any of its Subsidiaries, and, to the Company's knowledge,
there is no labor strike or other labor trouble pending or threatened and with
respect to the Company or any of its Subsidiaries. Except as set forth in the
SEC Reports, there are no pending, or, to the Company's knowledge, threatened or
anticipated (i) employment discrimination charges or complaints against or
involving the Company or any of its Subsidiaries before any federal, state or
local commission or agency or (ii) unfair labor practice charges or complaints,
disputes or grievances involving the Company or any of its Subsidiaries.
3.23 Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which the
Company and the Subsidiaries are engaged. Neither the Company nor any Subsidiary
has any reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business
without a significant increase in cost.
3.24 Registration Rights. Except for rights previously granted to
Bayview as set forth in the SEC Reports and except as contemplated pursuant to
the Transaction Documents, the
10
Company has not granted or agreed to grant to any Person any rights (including
"piggy back" registration rights) to have any securities of the Company that are
currently outstanding registered with the Commission or any other governmental
authority that have not been satisfied.
3.25 OTC-BB Quotation. The Company's Common Stock is registered
pursuant to Section 12(g) of the Exchange Act and is quoted on the OTC-BB, and
the Company has taken no action designed to, or likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act or
terminating the quotation of the Common Stock from the OTC-BB, nor to the
Company's knowledge is the OTC-BB currently contemplating terminating such
quotation. The Company and the Common Stock meet and the Company will use best
efforts to ensure that the Company and the Common Stock continue to meet the
criteria for continued quotation on the OTC-BB.
3.26 No Manipulation of Stock. The Company has not taken and will not,
in violation of applicable law, take, any action designed to or that might
reasonably be expected to cause or result in stabilization or manipulation of
the price of the Common Stock, the Series B Preferred or the Warrants to
facilitate the sale or resale of the Series B Preferred, the Warrants, the
Conversion Shares or the Warrant Shares.
3.27 Application of Takeover Protections. The Company and its Board of
Directors have taken all necessary action, if any, 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 charter documents or the laws of its state of incorporation
that is or, solely as a result of the transactions contemplated under this
Agreement and the Transaction Documents, could become applicable to any of the
Purchasers as a result of the Purchasers and the Company fulfilling their
obligations or exercising their rights under the Transaction Documents,
including, without limitation, as a result of the Company's issuance of the
Series B Preferred, the Warrants, the Conversion Shares and the Warrant Shares
and the Purchasers' ownership of the Series B Preferred, the Warrants, the
Conversion Shares and the Warrant Shares, but excluding the effect of any and
all transactions executed by the Purchasers from time to time to which the
Company is not a direct party to the extent any such transaction results in a
Purchaser increasing the number of shares of capital stock of the Company that
it is deemed to beneficially own (including for purposes of Rule 13d-5(b) of the
Exchange Act).
3.28 Acknowledgment Regarding Purchasers' Purchase of Securities. The
Company acknowledges and agrees that, to its knowledge, each of the Purchasers
is acting solely in the capacity of an arm's length purchaser with respect to
this Agreement, the Transaction Documents and the transactions contemplated
hereby and thereby. The Company further acknowledges that no Purchaser is acting
as a financial advisor or fiduciary of the Company or, to the Company's
knowledge, any other Purchaser, with respect to this Agreement, the Transaction
Documents and the transactions contemplated hereby and thereby. The Company
further represents to each Purchaser that the Company's decision to enter into
this Agreement and the Transaction Documents has been based solely on the
independent evaluation of the transactions contemplated hereby and thereby by
the Company and its representatives, and no statement, commitment or promise to
the Company or any of its representatives by any Purchaser (other than those
statements, commitments or promise set forth in this Agreement and
11
the Transaction Documents) is or was an inducement to the Company to enter into
this Agreement, the Transaction Documents or otherwise.
3.29 Internal Accounting Controls. The Company and the Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
GAAP and to maintain asset accountability, (iii) access to assets is permitted
only in accordance with management's general or specific authorization, and (iv)
the recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. To the extent required by applicable law and the rules and
regulations of the Commission, the Company has established disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15 and 15d-15) for the
Company and designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its Subsidiaries, is
made known to the certifying officers by others within those entities,
particularly during the period in which the Company's Forms 10-K or 10-Q, as the
case may be, are being prepared. To the extent required by applicable law and
the rules and regulations of the Commission, the Company's certifying officers
have evaluated the effectiveness of the Company's controls and procedures as of
the Evaluation Date. To the extent required by applicable law and the rules and
regulations of the Commission, the Company presented in its most recently filed
Form 10-K or Form 10-Q the conclusions of the certifying officers about the
effectiveness of the disclosure controls and procedures based on their
respective evaluations as of the Evaluation Date. Since the Evaluation Date,
there have been no significant changes in the Company's internal controls over
financial reporting (as described in Item 308(c) of Regulation S-K under the
Exchange Act). The Company and its subsidiaries are not currently required to
comply with the provisions of Section 404 of the Xxxxxxxx-Xxxxx Act of 2002, as
amended, and the rules and regulations thereunder, and the Purchasers hereby
acknowledge that no representation and warranty of the Company or its
Subsidiaries set forth in this Agreement or any Transaction Documents shall
imply that the Company and its Subsidiaries have complied with, or be construed
to expand the scope of the Company's obligations to comply with, such Section or
related rules or regulations.
3.30 Private Placement. Neither the Company nor, to the knowledge of
the Company, any Person acting on the Company's behalf, has sold, offered to
sell or solicited any offer to buy the Series B Preferred, the Warrants, the
Conversion Shares or the Warrant Shares by means of any form of general
solicitation or advertising. Neither the Company, any of its affiliates nor any
Person acting on the Company's behalf has, directly or indirectly, at any time
within the six (6) month period immediately prior to the date of this Agreement,
made any offer or sale of any security or solicitation of any offer to buy any
security under circumstances that would (i) eliminate the availability of the
exemption from registration under Regulation D under the Securities Act in
connection with the offer and sale of the Series B Preferred, the Warrants, the
Conversion Shares and the Warrant Shares as contemplated hereby or (B) cause the
offering of the Series B Preferred, the Warrants, the Conversion Shares and the
Warrant Shares pursuant to the Transaction Documents to be integrated with prior
offerings by the Company for purposes of any applicable law, regulation or
stockholder approval provisions, including, without limitation, under the rules
and regulations of the OTC-BB.
12
3.31 Securities Act Registration. Assuming that the representations and
warranties of each of the Purchasers contained herein are true, it is not
necessary in connection with the offer, sale and delivery of the Series B
Preferred, the Warrants, the Conversion Shares or the Warrant Shares in the
manner contemplated by this Agreement and the Transaction Documents to register
any of the Series B Preferred, the Warrants, the Conversion Shares or the
Warrant Shares under the Securities Act or under applicable state securities or
Blue Sky laws regulating the issuance or sale of securities.
3.32 Investment Company Act. The Company is not, and will not after the
consummation of the offering of the Series B Preferred, the Warrants, the
Conversion Shares and the Warrant Shares contemplated by this Agreement and the
Transaction Documents be, an "investment company," or a company "controlled" by
an "investment company," within the meaning of the Investment Company Act of
1940, as amended.
3.33 U.S. Real Property Holding Corporation. The Company is not now and
has never been a "United States real property holding corporation," as defined
in the Internal Revenue Code of 1986, as amended.
3.34 Disclosure. The Company confirms that neither it, its employees,
officers or directors, nor, to its knowledge, any Person acting on its behalf
has provided any of the Purchasers with any information that the Company
believes constitutes material, non-public information, except for the material
terms embodied in this Agreement (which will be disclosed as provided in Section
5.4) or 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 the Purchasers will rely on the representations
set forth in this Article 3 in effecting transactions in securities of the
Company. The Company's representations and warranties set forth in this Article
3 are true and correct in all respects 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.
3.35 No Additional Representations. The Company acknowledges that no
Purchaser makes or has made any representations, warranties or agreements with
respect to the transactions contemplated hereby other than those specifically
set forth in the Transaction Documents.
3.36 No Disagreements with Accountants and Lawyers. There are no
disagreements of any kind presently existing, or reasonably anticipated by the
Company to arise, between the Company and either its accountants or lawyers
formerly or presently employed by the Company. The Company is current with
respect to any fees owed to its accountants and lawyers.
3.37 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
13
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.
4. Representations of the Purchasers. Each of the Purchasers, severally and
not jointly, represents and warrants to the Company as follows:
4.1 Authority. Such Purchaser is duly organized, validly existing and
in good standing under the laws of its state of organization. Such Purchaser has
now, and will have at Closing, all requisite power to enter into this Agreement
and the Transaction Documents to which it is a party and the transactions
contemplated hereby and thereby and to perform its obligations under the terms
of this Agreement and each of the Transaction Documents to which it is a party.
4.2 Validity. This Agreement and each of the Transaction Documents to
which it is a party, when executed and delivered by such Purchaser and each of
the other parties thereto, will constitute a valid and legally binding
obligation of such Purchaser, enforceable in accordance with its terms, subject
to (i) bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium
and similar laws of general applicability relating to or affecting creditors'
rights, (ii) a court's discretionary authority with respect to the granting of a
decree ordering specific performance or other equitable remedies and (iii) with
respect to the indemnification provisions of the Registration Rights Agreement,
public policy.
4.3 Purchase Entirely for Own Account. Such Purchaser hereby confirms
that the Series B Preferred and Warrants to be purchased by such Purchaser at
the Closing will be acquired for investment for such Purchaser's own account,
not as a nominee or agent, and not with a view to the resale or distribution of
any part thereof; provided, however, that such representation is made without
prejudice to such Purchaser's right at all times to sell or otherwise dispose of
all or any pay of such Series B Preferred and Warrants in compliance with
applicable federal and state securities laws. Noting contained herein shall be
deemed a representation or warrant by such Purchaser to holder the Series B
Preferred and Warrants for any period of time.
4.4 Reliance Upon Purchaser's Representations. Such Purchaser
understands that the Series B Preferred and Warrants are not currently, and any
Warrant Shares and Conversion Shares acquired on the exercise or conversion of
any of the Series B Preferred or Warrants at the time of issuance may not be,
registered under the Securities Act, and that the Company's reliance on such
exemption is predicated on each Purchaser's representations set forth herein.
4.5 Restricted Securities. Such Purchaser understands that, except as
otherwise provided in the Transaction Documents, the Series B Preferred and
Warrants (and any Warrant Shares and Conversion Shares issued on exercise or
conversion of any of the Series B Preferred or Warrants) may not be sold,
transferred, or otherwise disposed of without registration under the Securities
Act or an exemption therefrom, and that in the absence of an effective
registration statement covering the Series B Preferred and Warrants (or any
Warrant Shares and Conversion Shares issued on exercise or conversion of any of
the Series B Preferred or Warrants) or an available exemption from registration
under the Securities Act, the Series B Preferred and Warrants (and any Warrant
Shares and Conversion Shares issued on exercise or conversion of any of the
Series B Preferred or Warrants) must be held indefinitely.
14
4.6 Economic Risk: Sophistication. Such Purchaser is able to bear the
economic risk of an investment in the Series B Preferred and Warrants acquired
by it pursuant to this Agreement and has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of the proposed investment and therefore has the capacity to protect its
own interests in connection with such purchase and such conversion.
4.7 Accredited Investor. Such Purchaser meets the criteria of an
"accredited investor" as defined in Rule 501(a) of Regulation D adopted under
the Securities Act.
4.8 General Solicitation. Such Purchaser is not purchasing the Series B
Preferred or Warrants as a result of any advertisement, article, notice or other
communication regarding the Series B Preferred or the Warrants 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.
4.9 Access to Information; Limitation on Disclosure.
(a) Such Purchaser acknowledges that it has been afforded the
opportunity to ask questions of, or to receive answers from,
representatives of the Company in connection with the Company's
original offering and sale of the Series B Preferred, the Warrants, the
Conversion Shares and the Warrant Shares to the Purchaser in accordance
with the terms of this Agreement and the Transaction Documents,
including the merits and risks of investing therein.
(b) Such Purchaser acknowledges and agrees, consistent with
the representations and warranties of the Company set forth in Sections
3.33 and 5.6 of this Agreement, that such Purchaser has voluntarily
elected to rely solely upon the information (A) disclosed by the
Company in the SEC Reports, (B) the Company's representations set forth
in this Agreement and the Transaction Documents (as qualified herein
and therein) and (C) delivered by the Company to such Purchaser
pursuant to an executed, written agreement regarding the
confidentiality and use of such information.
4.10 No Trading. Each Purchaser represents and warrants that from the
time such Purchaser was first informed of the transactions contemplated by this
Agreement (the "Discussion Time") up through the time the transactions
contemplated by this Agreement are first publicly announced by the Company as
provided in Section 5.4, the Purchaser did not and will not, directly or
indirectly, execute any Short Sales or engage in any other trading in any
securities of the Company or any "derivative" security thereof.
5. Other Agreements of the Parties.
5.1 Transfers.
(a) Each of the Company and each Purchaser severally and not
jointly agree, that the Series B Preferred, the Warrants, the
Conversion Shares and the Warrant Shares may only be disposed of in
compliance with state and federal securities laws. In connection with
any transfer of the Series B Preferred, the Warrants, the Conversion
Shares or the Warrant Shares other than pursuant to (i) an effective
registration statement, (ii) to the
15
Company, (iii) to an affiliate of a Purchaser, or (iv) in connection
with a pledge as contemplated in Section 5.1(b), the transferor thereof
will, if reasonably requested by the Company, provide to the Company an
opinion of counsel selected by the transferor, reasonably acceptable to
the Company, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred Series B
Preferred, Warrants, Conversion Shares or Warrant Shares 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 hereunder and under the Registration
Rights Agreement.
(b) Certificates evidencing the Series B Preferred, the
Warrants, the Conversion Shares and the Warrant Shares will contain the
following legend, until such time as they are not required under
Section 5.1(c):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR
ANY STATE SECURITIES LAW. THESE SECURITIES MAY NOT BE SOLD, OFFERED FOR
SALE, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT WITH RESPECT THERETO UNDER THE
SECURITIES ACT OR A WRITTEN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO THE COMPANY THAT AN EXEMPTION FROM REGISTRATION FOR SUCH SALE,
OFFER, TRANSFER OR OTHER ASSIGNMENT IS AVAILABLE UNDER THE SECURITIES
ACT AND SUCH STATE LAWS. THE SECURITIES MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES IN A MANNER
THAT COMPLIES WITH THE SECURITIES ACT.
The Company acknowledges and agrees that a Purchaser may from
time to time pledge, and/or grant a security interest in some or all of
the Series B Preferred, the Warrants, the Conversion Shares and the
Warrant Shares pursuant to a bona fide margin agreement in connection
with a bona fide margin account and, if required under the terms of
such agreement or account, such Purchaser may transfer pledged or
secured Series B Preferred, Warrants, Conversion Shares or Warrant
Shares to the pledgees or secured parties. Such a pledge or transfer
would not be subject to approval or consent of the Company and no legal
opinion of legal counsel to the pledgee, secured party or pledgor shall
be required in connection with the pledge, but such legal opinion may
be required in connection with a subsequent transfer following default
by the Purchaser transferee of the pledge. No notice shall be required
of such pledge. The Company will execute and deliver such reasonable
documentation as a pledgee or secured party of the Series B Preferred,
the Warrants, the Conversion Shares or the Warrant Shares may
reasonably request in connection with a pledge or transfer of the
Series B Preferred, the Warrants, the Conversion Shares or the Warrant
Shares including the preparation and filing of any required prospectus
supplement under Rule 424(b)(3) of the Securities Act or other
applicable provision of the Securities Act to appropriately amend the
list of selling stockholders thereunder.
16
(c) Certificates evidencing the Series B Preferred, the
Warrants, the Conversion Shares and the Warrant Shares shall not
contain any legend (including the legend set forth in Section 5.1(b)):
(i) following a sale of the Series B Preferred, the Warrants, the
Conversion Shares or the Warrant Shares pursuant to Rule 144 (assuming
the transferor is not an affiliate of the Company), or (ii) while the
Series B Preferred, the Warrants, the Conversion Shares or the Warrant
Shares are eligible for sale under Rule 144(k) promulgated under the
Securities Act, or (iii) 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). Certificates evidencing the Conversion Shares and the
Warrant Shares shall not contain any legend (including the legend set
forth in Section 5.1(b)) while a registration statement (including the
Registration Statement) is effective that covers the resale of the
Conversion Shares or the Warrant Shares. Following such time as
restrictive legends are not required to be placed on certificates
representing the Series B Preferred, the Warrants, the Conversion
Shares and the Warrant Shares in accordance with this Section, the
Company will, no later than three (3) business days following the
delivery by the Purchaser to the Company or the Company's transfer
agent of (i) the certificate representing the Series B Preferred, the
Warrants, the Conversion Shares or the Warrant Shares containing a
restrictive legend, and (ii) an opinion of counsel selected by the
Purchaser, reasonably acceptable to the Company, the form and substance
of which opinion shall be reasonably satisfactory to the Company, to
the effect that such certificate is no longer required to contain the
restrictive legend, deliver or cause to be delivered to such Purchaser
a certificate representing such Series B Preferred, Warrants,
Conversion Shares or Warrant 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.
5.2 Integration. The Company shall not, and shall use its best efforts
to ensure that no affiliate of the Company shall, sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any securities of the
Company or any of its affiliates that would be integrated with the offer or sale
of the Series B Preferred, the Warrants, the Conversion Shares or the Warrant
Shares pursuant to this Agreement in a manner that would require the
registration under the Securities Act of the sale of the Series B Preferred, the
Warrants, the Conversion Shares or the Warrant Shares to the Purchasers, or that
would be integrated with the offer or sale of the Series B Preferred, the
Warrants, the Conversion Shares or the Warrant Shares for purposes of the rules
and regulations of the OTC-BB.
5.3 Subsequent Registrations. Other than pursuant to the Registration
Statement, the Company may not file any registration statement (other than on
Form S-8) with the Commission with respect to any securities of the Company
until the Effective Date.
5.4 Securities Laws Disclosure; Publicity. By 5:30 p.m. (New York time)
on the date hereof, the Company will issue a press release disclosing all
material terms of the transactions contemplated hereby and file a Current Report
on Form 8-K with the Commission disclosing all material terms of the
transactions contemplated hereby (and attach as exhibits thereto the Transaction
Documents) in accordance with the applicable Commission rules and regulations.
In addition, the Company will make such other filings and notices in the manner
and time required
17
by the Commission and the OTC-BB. 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 (other than the Registration
Statement and any exhibits to filings made in respect of this transaction in
accordance with periodic filing requirements under the Exchange Act) or any
regulatory agency or securities exchange or the OTC-BB, without the prior
written consent of such Purchaser, except to the extent such disclosure is
required by law or OTC-BB regulations, in which case the Company shall provide
the Purchasers with prior notice of such disclosure.
5.5 Indemnification of Purchasers.
(a) In addition to the indemnity provided in the Registration
Rights Agreement, the Company will indemnify and hold the Purchaser
Parties harmless from any and all Losses that any such Purchaser Party
may suffer or incur as a result of or relating to (i) any breach of any
of the representations, warranties, covenants or agreements made by the
Company in any Transaction Document or (ii) any Action instituted
against a Purchaser Party with respect to any of the transactions
contemplated by the Transaction Documents (unless such Action is based
upon a breach of such Purchaser's representations, warranties or
covenants under the Transaction Documents or any violations by the
Purchaser Party of state or federal securities laws or any conduct by
such Purchaser Party which constitutes fraud, gross negligence, willful
misconduct or malfeasance). The Company will not be liable to any
Purchaser under this Agreement to the extent, but only to the extent,
that a Loss is attributable to any breach of any of the
representations, warranties, covenants or agreements made by the
Purchaser in this Agreement or in the other Transaction Documents. In
addition to the indemnity contained herein, the Company will reimburse
each Purchaser Party for its reasonable legal and other expenses
(including the cost of any investigation, preparation and travel in
connection therewith) incurred in connection therewith, as such
expenses are incurred.
(b) If any Action shall be brought or asserted 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, including the employment of counsel reasonably satisfactory to
the Purchaser Party and the payment of all fees and expenses incurred
in connection with defense thereof; provided that the failure of any
Purchaser Party to give such notice shall not relieve the Company of
its obligations or liabilities pursuant to this Agreement, except (and
only) to the extent that it shall be finally determined by a court of
competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Company.
(c) A Purchaser Party shall have the right to employ separate
counsel in any such Action and to participate in the defense thereof,
but the fees and expenses of such counsel shall be at the expense of
such Purchaser Party unless: (1) the Company has agreed in writing to
pay such fees and expenses; (2) the Company shall have failed promptly
to assume the defense of such Action or to employ counsel reasonably
satisfactory to such Purchaser Party in any such Action; or (3) the
named parties to any such Action
18
(including any impleaded parties) include both such Purchaser Party and
the Company, and such Purchaser Party shall have been advised by
counsel that a material conflict of interest is likely to exist if the
same counsel were to represent such Purchaser Party and the Company (in
which case, if such Purchaser Party notifies the Company in writing
that it elects to employ separate counsel at the expense of the
Company, the Company shall not have the right to assume the defense
thereof and such counsel shall be at the expense of the Company;
provided, however, that in the event one or more Purchaser Parties is a
party to such Action, the Company shall only be required to pay the
expenses of one law firm serving as counsel to said Purchaser Parties).
The Company shall not be liable for any settlement of any such Action
effected without its written consent, which consent shall not be
unreasonably withheld. The Company shall not, without the prior written
consent of the Purchaser Party, effect any settlement of any pending
Action in respect of which any Purchaser Party is a party, unless such
settlement includes an unconditional release of such Purchaser Party
from all liability on claims that are the subject matter of such
Action.
(d) All fees and expenses of the Purchaser Party (including
reasonable fees and expenses of counsel to the extent incurred in
connection with investigating or preparing to defend such Action in a
manner not inconsistent with this Section) shall be paid to the
Purchaser Party, as incurred, within ten (10) business days of written
notice thereof to the Company (regardless of whether it is ultimately
determined that a Purchaser Party is not entitled to indemnification
hereunder; provided, that the Company may require such Purchaser Party
to undertake to reimburse all such fees and expenses to the extent it
is finally judicially determined that such Purchaser Party is not
entitled to indemnification hereunder).
5.6 Non-Public Information. The Company covenants and agrees that
neither it nor any other Person acting on its behalf has provided or will
provide any Purchaser 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 covenant in effecting transactions in securities of the
Company. In the event a breach is reasonably likely to have occurred with
respect to the foregoing covenant by the Company or any Person acting on its
behalf, the Company shall, upon written notice of such breach, make public
disclosure of such material non-public information; provided that the Company
shall not be required to make public disclosure of any such material non-public
information which the Board of Directors of the Company reasonably determines
not to be in the best interests of the Company to disclose, including a
significant business opportunity (including, but limited to, the acquisition or
disposition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer or similar transaction) available to the
Company to the extent that the Company shall have delivered Advice (as defined
in the Registration Rights Agreement) to the Purchaser in respect of such
non-public information. In the event that the Company has not made such public
disclosure as required pursuant to the foregoing sentence within two (2)
business days of such written notice, in addition to any other remedy provided
herein or in the Transaction Documents or otherwise available, a Purchaser shall
have the right to make a public disclosure, in the form of a press release,
public advertisement or otherwise, of such material non-public information
without the prior approval
19
by the Company or any Person acting on its or their behalf. No Purchaser shall
have any liability to the Company or any Person acting on its or their behalf
for any such disclosure. Further, each Purchaser acknowledges and agrees that
(x) the Company might be in possession of material non-public information
regarding its publicly stated strategies for growing and expanding the Company's
business and prospects and (y) to the extent that such material non-public
information is not required to be publicly disclosed by the Company in
accordance with the instructions and requirements of the forms on which the SEC
Reports are based, such Purchaser has expressly rejected the opportunity to
learn any such information in connection with its execution, delivery and
performance of this Agreement and the Transaction Documents.
5.7 Trading Limitations and Restrictions on Short Sales. Each Purchaser
hereby, for itself and for no other Purchaser, represents, warrants, covenants
and agrees that (i) from the Discussion Time through the date hereof, such
Purchaser did not, and (ii) from the date hereof until the date the transactions
contemplated by this Agreement are first publicly announced by the Company as
described in Section 5.4, such Purchaser will not, directly or indirectly, (i)
trade in the Common Stock or execute or effect (or cause to be executed or
effected) any Short Sale in the Common Stock, or (ii) sell, offer to sell,
solicit offers to buy, dispose of, loan, pledge or grant any right with respect
to shares of Common Stock, except in compliance with all relevant securities
laws and regulations. Notwithstanding the foregoing, no Purchaser makes any
representation, warranty or covenant hereby that it will not engage in Short
Sales in the securities of the Company after the time that the transactions
contemplated by this Agreement are first publicly announced by the Company as
described in Section 5.4.
5.8 Form D. The Company agrees to file one or more Forms D with respect
to the Series B Preferred, Warrants, Conversion Shares and Warrant Shares on a
timely basis as required under Regulation D under the Securities Act to claim
the exemption provided by Rule 506 of Regulation D.
5.9 Reservation and Quotation of Common Stock. As of the date hereof,
the Company has reserved and the Company shall continue to reserve and keep
available at all times, free of preemptive rights, a sufficient number of shares
of Series B Preferred and Common Stock for the purpose of enabling the Company
to issue the Series B Preferred pursuant to this Agreement, the Conversion
Shares pursuant to any conversion of the Series B Preferred and the Warrant
Shares pursuant to any exercise of the Warrants. The Company shall use
reasonable best efforts to comply with all requirements of the OTC-BB with
respect to the issuance and quotation of the Conversion Shares and the Warrant
Shares and continued quotation of its Common Stock (including the Conversion
Shares and the Warrant Shares).
5.10 Preemptive Rights. After the date hereof, in the event that the
Company proposes to issue any Securities other than Permitted Securities
(collectively, "Preemptive Interests"), the Company shall comply with the
provisions of this Section 5.10.
(a) Issuance Notice. The Company shall give the Purchasers
written notice of the Company's intention to issue such Preemptive
Interests (the "Issuance Notice"), describing the material terms of the
Preemptive Interests, the price at which such Preemptive Interests will
be issued or sold, the material terms upon which the Company proposes
to issue or sell such Preemptive Interests, including the anticipated
date of such
20
issuance or sale, and a statement that as a condition precedent to the
exercise of any Purchaser's rights to purchase any such Preemptive
Interests pursuant to this Section 5.10 such Purchaser must certify in
its Response Notice that such Purchaser continues to own at least fifty
percent (50%) of the aggregate number of Conversion Shares acquired by
such Purchaser at the Closing (as calculated on an As Converted Basis)
(as appropriately adjusted from time to time as a result of a stock
split, stock combination or any other similar event affecting the
outstanding number of shares of Series B Preferred or Conversion
Shares).
(b) Response Notice.
(i) Each Purchaser shall have ten (10) business days
from the date the Issuance Notice is received to agree to
purchase all (but not less than all) of such Purchaser's Pro
Rata Share of such Preemptive Interests by giving written
notice to the Company of its desire to purchase such
Purchaser's Pro Rata Share of such Preemptive Interests (the
"Response Notice"). In order to exercise its rights pursuant
to this Section 5.10, a Purchaser must certify in its Response
Notice that such Purchaser continues to own at least fifty
percent (50%) of the aggregate number of Conversion Shares
acquired by such Purchaser at the Closing (as calculated on an
As Converted Basis) (as appropriately adjusted from time to
time as a result of a stock split, stock combination or any
other similar event affecting the outstanding number of shares
of Series B Preferred or Conversion Shares). Such Response
Notice shall constitute the irrevocable agreement of such
Purchaser (a "Preemptive Purchaser") to purchase all (but not
less than all) of such Preemptive Purchaser's Pro Rata Share
of the Preemptive Interests at the price and upon the terms
stated in the Issuance Notice.
(ii) In the event any Preemptive Interests remain
unsubscribed ten (10) business days after the delivery of the
Issuance Notice (the "Unsubscribed Securities"), the Company
shall promptly issue a subsequent Issuance Notice (the
"Subsequent Issuance Notice") to each Preemptive Purchaser.
Each Preemptive Purchaser shall have five (5) business days
from the date the Subsequent Issuance Notice is received to
agree to purchase all or any portion of the Unsubscribed
Securities by giving a second Response Notice (the "Subsequent
Response Notice") to the Company and stating therein the
quantity of Unsubscribed Securities to be purchased and that
the representations and commitments set forth in the Response
Notice continue to be true as of the date of the Subsequent
Response Notice. Such Subsequent Response Notice shall
constitute the irrevocable agreement of such Preemptive
Purchaser to purchase the quantity of Unsubscribed Securities
indicated in such Subsequent Response Notice at the price and
upon the terms stated in the Issuance Notice. If such
Preemptive Purchasers subscribe for more than the Unsubscribed
Securities available, the Unsubscribed Securities shall be
allocated among each such Preemptive Purchaser in proportion
to each such Preemptive Purchaser's respective Pro Rata Share.
21
(c) Unsubscribed Securities. In the event any Unsubscribed
Securities remain unsubscribed five (5) business days after the
delivery of a Subsequent Issuance Notice (the "Unrestricted Additional
Securities"), the Company shall have the right, but not the obligation,
to issue and sell such Unrestricted Additional Securities to any Person
within ninety (90) days from the date of the initial Issuance Notice at
a price and upon the terms that are not materially less favorable to
the Company than those specified in the Issuance Notice. If the Company
proposes to issue any Preemptive Interests after such 90-day period or
at a price or upon terms that are materially less favorable to the
Company than those specified in the Issuance Notice, it must again
comply with this Section 5.10.
(d) Closings of Sales of Preemptive Interests. Any purchase of
Preemptive Interests by any Preemptive Purchaser pursuant to the this
Section 5.10 shall be consummated on the closing date specified in the
Issuance Notice (or, if other Persons are purchasing Unrestricted
Additional Securities, the date on which such Unrestricted Additional
Securities are first issued and sold to such other Persons).
6. Conditions to the Closing.
6.1 Company Obligations. At Closing, the Company will deliver, or
authorize delivery, to each Purchaser, of:
(a) Stock Certificates. An original stock certificate free and
clear of all restrictive and other legends (except as expressly
provided in Section 5.1(b) hereof), evidencing the number of Series B
Preferred being purchased by each such Purchaser as indicated on
Exhibit A-I, registered in the name of such Purchaser or, if so
requested by the Purchaser, its custodian.
(b) Warrant. A Warrant registered in the name of each such
Purchaser, pursuant to which such Purchaser shall have the right to
acquire such number of Warrant Shares indicated on Exhibit A-I hereto.
(c) Opinion of Counsel. An opinion from counsel for the
Company, dated as of the Closing Date, addressed to the Purchasers at
the Closing, in the form attached hereto as Exhibit D.
(d) Certificates and Documents. The following certificates and
documents:
(i) the certificate of incorporation of the Company,
as in effect as of the Closing Date, certified by the
Secretary of State of the State of Minnesota, together with
the Series B Certificate of Designations duly accepted for
filing by the Secretary of State of the State of Minnesota;
(ii) certificates, dated no more than five days prior
to the Closing Date, as to the corporate good standing of the
Company issued by the Secretary of State of the State of
Minnesota and any other jurisdiction where the Company is
qualified to do business;
22
(iii) the by-laws of the Company, as in effect as of
the Closing Date, certified by its Secretary or Assistant
Secretary as of the Closing Date;
(iv) a certificate of incumbency of the Company's
principal officers, certified by its Secretary or Assistant
Secretary as of the Closing Date; and
(v) resolutions of the Board of Directors of the
Company, authorizing and approving all matters in connection
with this Agreement and the Transaction Documents and the
transactions contemplated hereby and thereby, certified by the
Secretary or Assistant Secretary of the Company as of the
Closing Date.
(e) Registration Rights Agreement. The Registration Rights
Agreement, dated the date hereof, among the Company and the Purchasers,
in the form attached hereto as Exhibit E (the "Registration Rights
Agreement"), duly executed by the Company.
6.2 Purchaser Obligations. At Closing, each Purchaser, severally and
not jointly:
(a) Purchase Price. Will pay, or authorize payment of, the
Purchase Price by wire transfer, Federal Reserve Bank Check, or other
method acceptable to the Company.
(b) Registration Rights Agreement. Will deliver to the Company
the Registration Rights Agreement, dated the hereof and duly executed
by such Purchaser.
7. Definitions. In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms shall have
the meanings indicated in this Section 7:
"Action" means any action, suit, inquiry, comment letter, notice of
violation, proceeding (including any partial proceeding such as a deposition) or
investigation pending or threatened in writing against or affecting the Company,
any Subsidiary or any of their respective properties before or by any court,
arbitrator, governmental or administrative agency, regulatory authority
(federal, state, county, local or foreign), stock market, stock exchange or
trading facility.
"Agreement" shall have the meaning set forth in the preamble.
"As Converted Basis" means, when used herein in connection with any
calculation of the aggregate number of shares of Common Stock outstanding, such
calculation shall take into account the aggregate number of shares of Common
Stock issuable upon conversion or exercise of all Series B Preferred Warrants,
and other Common Stock Equivalents then outstanding.
"Banner" means Banner Capital Markets, LLC, together with Xxxxx
Advisory Services, LLC.
"Bayview" means Bayview Capital Partners LP, a Delaware limited
partnership.
"Closing" shall have the meaning set forth in the Section 2.
"Closing Date" shall have the meaning set forth in the Section 2.
23
"Commission" means the Securities and Exchange Commission.
"Common Stock" shall have the meaning set forth in the Section 1.1(b).
"Common Stock Equivalents" means any securities of the Company or any
Subsidiary which entitle the holder thereof to acquire Common Stock at any time,
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 or other securities that entitle the holder to receive, directly or
indirectly, Common Stock.
"Company" shall have the meaning set forth in the preamble.
"Conversion Shares" shall have the meaning set forth in the Section
3.1.
"Discussion Time" shall have the meaning set forth in the Section 4.10.
"Effective Date" means the date that the Registration Statement
required by Sections 2(a), 2(b) or 2(c) of the Registration Rights Agreement is
first declared effective by the Commission.
"Environmental Laws" shall have the meaning set forth in the Section
3.19.
"Evaluation Date" means a date within 90 days prior to the filing date
of the Form 10-Q for the Company's most recently ended fiscal quarter.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles in the United
States applied on a consistent basis during the periods involved.
"GHF" means Xxxxxx, Xxxxxxx and Xxxxxx LLC.
"Hazardous Materials" shall have the meaning set forth in the Section
3.19.
"Intellectual Property Rights" means 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 the Company's and the Subsidiaries' business as described in the
SEC Reports.
"Issuance Notice" shall have the meaning set forth in the Section
5.10(a).
"Letter Agreements" means the letter agreement, dated August 23, 2005,
between the Company, Banner, GHF and Bayview with respect to the transactions
contemplated by this Agreement.
"Lien" means any lien, charge, claim, encumbrance, security interest,
right of first refusal, preemptive right or other restrictions of any kind;
other than restrictions on transfer of securities arising under federal or state
securities laws and regulations.
24
"Loss" means 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
preparation and investigation.
"Material Adverse Effect" means (i) a material adverse effect on the
results of operations, business, prospects, assets, liabilities or condition
(financial or otherwise) of the Company and its Subsidiaries, taken as a whole,
or (ii) any material limitation on the ability of the Company to perform its
obligations under, or the legality, validity or enforceability of, this
Agreement or the Transaction Documents.
"OTC-BB" means the Over the Counter Bulletin Board.
"Permitted Securities" means (i) the Series B Preferred and Warrants
issued or to be issued pursuant to this Agreement, (ii) the Conversion Shares
issuable upon conversion of the Series B Preferred, (iii) the Warrant Shares
issuable upon exercise of the Warrants, (iv) shares of Common Stock and Common
Stock Equivalents issued pursuant to the Company's 2005 Stock Option Plan or any
other employee option, stock purchase or similar plan approved by the Board of
Directors of the Company after the date hereof, (v) shares of Common Stock and
Common Stock Equivalents issued as purchase price consideration for acquisitions
by the Company of businesses or assets of any third Person in bona fide
transactions, (vi) shares of Common Stock and Common Stock Equivalents issued in
consideration for the provision of bona fide services or debt financings
(including capital leases) to the Company by non-affiliates and (vii) the
warrants to purchase Common Stock issued to each of Banner and GHF in connection
with the transactions contemplated by this Agreement pursuant to the Letter
Agreement.
"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or other entity of any kind.
"Preemptive Interests" shall have the meaning set forth in the Section
5.10.
"Preemptive Purchaser" shall have the meaning set forth in the Section
5.10(b)(i).
25
"Pro Rata Share" means, with respect to any Purchaser, a quotient,
expressed as a percentage, (i) the numerator of which is equal to the aggregate
number of Conversion Shares and Warrant Shares then held by such Purchaser (as
calculated on an As Converted Basis) and (ii) the denominator of which is equal
to the sum, without duplication of (A) the aggregate number of Conversion Shares
then outstanding (as calculated on an As Converted Basis), plus (B) the
aggregate number of Warrant Shares then outstanding (as calculated on an As
Converted Basis), plus (C) the aggregate number of shares of Common Stock then
outstanding.
"Purchase Price" shall have the meaning set forth in the Section 1.2.
"Purchaser Parties" means the Purchasers, their affiliates and their
respective directors, officers, members, shareholders, partners, employees,
representatives, attorneys and agents.
"Purchasers" shall have the meaning set forth in the preamble.
"Registration Rights Agreement" shall have the meaning set forth in the
Section 6.1(e).
"Registration Statement" means a registration statement, including
amendments and supplements thereto, meeting the requirements set forth in the
Registration Rights Agreement and covering the resale by the Purchasers of the
Conversion Shares and the Warrant Shares.
"Response Notice" shall have the meaning set forth in the Section
5.10(b)(i).
"SEC Reports" means all reports required to be filed by the Company
under the Securities Act and the Exchange Act, including pursuant to Section
13(a) or 15(d) thereof, for the twelve (12) months preceding the date hereof,
including all documents filed as exhibits together with such reports.
"Securities" means, collectively, the Series B Preferred, the Warrants,
the Conversion Shares, the Warrant Shares, Common Stock, any Common Stock
Equivalent and any other equity security of the Company now or hereafter issued
and outstanding.
"Securities Act" means the Securities Act of 1933, as amended.
"Series B Certificate of Designations" shall have the meaning set forth
in the Section 1.1(a).
"Series B Preferred" shall have the meaning set forth in the Section
1.1(a).
"Short Sale" means, all "short sales" as defined in Rule 3b-3 of the
Exchange Act.
"Subsequent Issuance Notice" shall have the meaning set forth in the
Section 5.10(b)(ii).
"Subsequent Response Notice" shall have the meaning set forth in the
Section 5.10(b)(ii).
"Subsidiary" means any "significant subsidiary" as defined in Rule
1-02(w) of Regulation S-X promulgated by the Commission under the Exchange Act.
"Transaction Documents" shall have the meaning set forth in the Section
3.6.
26
"Transaction Warrants" shall have the meaning set forth in the Section
3.2(b).
"Unrestricted Additional Securities" shall have the meaning set forth
in the Section 5.10(c).
"Unsubscribed Securities" shall have the meaning set forth in the
Section 5.10(b)(ii).
"Warrant Shares" shall have the meaning set forth in the Section
1.1(b).
"Warrants" shall have the meaning set forth in the Section 1.1(b).
8. Miscellaneous.
8.1 Expenses. Each party hereto will pay its own expenses in connection
with the transactions contemplated hereby, whether or not such transactions
shall be consummated; provided, however, that the Company shall, at Closing, pay
the reasonable fees and out-of-pocket expenses of the Purchasers (including the
reasonable fees and expenses of Purchasers' counsel, Mayer, Brown, Xxxx & Maw
LLP), as evidenced by appropriate supporting documentation delivered to the
Company at or prior to Closing, in connection with such transactions in an
amount not to exceed $25,000 in the aggregate.
8.2 Survival of Representations and Warranties. All agreements,
covenants, representations and warranties contained herein shall survive the
execution and delivery of this Agreement and the Closing of the transactions
contemplated hereby.
8.3 Notices. Any notice required or permitted under this Agreement
shall be given in writing and shall be deemed effectively given upon personal
delivery to the party to be notified or sent by electronic facsimile
transmission with a copy in either case sent by United States Post Office, by
registered or certified mail, postage prepaid and addressed to the party to be
notified or by overnight or international courier, as follows:
If to the Company:
Xxx Xxxxxxxxx
Chief Financial Officer
0000 Xxxxxxxx Xxxx X, Xxxxx 000
Xxxxxxxxxxx, XX 00000
(Fax) 000-000-0000
If to a Purchaser, at such Purchaser's respective address set forth on
Exhibit A-II, or at such other address or addresses as may have been furnished
to the Company in writing by such Purchaser.
Notices provided in accordance with this Section 8.3 shall be deemed
delivered upon personal delivery or two business days after deposit in the mail.
27
8.4 Successor and Assigns. The provisions of this Agreement shall bind
and inure to the benefit of the respective successors, assigns, heirs, executors
and administrators of the parties hereto.
8.5 Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings, whether written
or oral, relating to such subject matter.
8.6 Amendments and Waivers.
(a) Amendments to this Agreement. Except as otherwise
expressly set forth in this Agreement, any term of this Agreement may
be amended with respect to all Purchasers and the observance of any
term of this Agreement may be waived with respect to all Purchasers
(either generally or in a particular instance and either retroactively
or prospectively), with the written consent of the Company and the
holders of at least a majority of the aggregate number of shares of
Common Stock issued or issuable upon exercise of the Warrants and upon
conversion of Series B Preferred (calculated on an as converted into
Common Stock basis).
(b) General. Any amendment or waiver effected in accordance
with this Section 8.6 shall be binding upon the Company each Purchaser.
No waivers of or exceptions to any term, condition or provision of this
Agreement or any Transaction Document, in any one or more instances,
shall be deemed to be, or construed as, a further or continuing waiver
of any such term, condition or provision.
8.7 Counterparts; Facsimile Signatures. This Agreement may be executed
in counterparts, each of which shall be deemed to be an original, but all of
which shall be one and the same document. This Agreement may be executed by
facsimile signatures.
8.8 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.
8.9 Replacement of Securities. If any certificate or instrument
evidencing any Series B Preferred, Warrant, Conversion Share or Warrant Share 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 Series B Preferred, Warrant, Conversion Share or Warrant Share. If a
replacement certificate or instrument evidencing any Series B Preferred,
Warrant, Conversion Share or Warrant Share is requested due to a mutilation
thereof, the Company may
28
require delivery of such mutilated certificate or instrument as a condition
precedent to any issuance of a replacement.
8.10 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
8.11 Payment Set Aside. To the extent that the Company makes a payment
or payments to any Purchaser hereunder or pursuant to the Transaction Documents,
or any Purchaser enforces or exercises its rights hereunder or 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 by 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.
8.12 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. The decision of each Purchaser to
purchase any Series B Preferred, Warrant, Conversion Share or Warrant Share
pursuant to this Agreement has been made by such Purchaser independently of any
other Purchaser and independently of any information, materials, statements or
opinions as to the business, affairs, operations, assets, properties,
liabilities, results of operations, condition (financial or otherwise) or
prospects of the Company or of the Subsidiary which may have been made or given
by any other Purchaser or by any agent or employee of any other Purchaser, and
no Purchaser or any of its agents or employees shall have any liability to any
other Purchaser (or any other person) relating to or arising from any such
information, materials, statements or opinions. Nothing contained herein or in
any Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Purchaser acknowledges that no other Purchaser has acted as agent for such
Purchaser in connection with making its investment hereunder and that no
Purchaser will be acting as agent of such Purchaser in connection with
monitoring its investment in any Series B Preferred, Warrant, Conversion Share
or Warrant Share or enforcing its rights under the Transaction Documents. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose. Each
29
Purchaser represents that it has been represented by its own separate legal
counsel in its review and negotiations of this Agreement and the Transaction
Documents.
8.13 Section Headings. The section headings are for the convenience of
the parties and in no way alter, modify, amend, limit, or restrict the
contractual obligations of the parties.
8.14 Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
8.15 Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all Proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Agreement and any other
Transaction Documents (whether brought against a party hereto or its respective
affiliates, employees or agents) will be exclusively commenced in the New York
courts. Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York courts 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 the any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any Action, any claim that it is not personally subject to the jurisdiction
of any such New York court, or that such Action has been commenced in an
improper or inconvenient forum. Each party hereto hereby irrevocably waives
personal service of process and consents to process being served in any such
Action 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. Each party hereto hereby irrevocably waives, to the
fullest extent permitted by applicable law, any and all right to trial by jury
in any legal proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby. If either party shall commence a Action to
enforce any provisions of a Transaction Document, then the prevailing party in
such Action shall be reimbursed by the other party for its attorney's fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such Action.
[Signatures Follow]
30
IN WITNESS WHEREOF, the parties hereto have executed this Securities
Purchase Agreement as of the day and year first above written.
COMPANY:
HEALTH FITNESS CORPORATION
By: /s/ Xxxxx X. Xxxxx
________________________________
Name: Xxxxx X. Xxxxx
Title: President CEO
SCHEDULE A-I
TO SECURITIES PURCHASE AGREEMENT
The "Purchasers" for purposes of the Securities Purchase Agreement to
which this Schedule relates are:
Pequot Scout Fund, L.P.
Pequot Mariner Master Fund, L.P.
Pequot Navigator Offshore Fund, Inc.
Pequot Diversified Master Fund, Ltd.
Premium Series PCC Limited -- Cell 33
Pequot Healthcare Fund, L.P.
Pequot Healthcare Offshore Fund, Inc.
Pequot Series PCC Limited - Cell 32
Pequot Healthcare Institutional Fund, L.P.
Magnetar Capital Master Fund, Ltd.
Lagunitas Partners XX
Xxxxxx & McBaine International
Xxx X. and Xxxxx X. Xxxxxx Trust
X. Xxxxxxxxx McBaine
CAMOFI Master LDC
Cherry Tree Core Growth Fund, LLLP