Exhibit 99.24
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "AGREEMENT") is dated as of
September 17, 2007, among Hartville Group, Inc., a Nevada corporation (the
"COMPANY"), and each purchaser identified on the signature pages hereto (each,
including its successors and assigns, a "PURCHASER" and collectively the
"PURCHASERS").
WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
"SECURITIES ACT") and Rule 506 promulgated thereunder, the Company desires to
issue and sell to each Purchaser, and each Purchaser, severally and not jointly,
desires to purchase from the Company, securities of the Company as more fully
described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agree
as follows:
ARTICLE I.
DEFINITIONS
1.1 DEFINITIONS. In addition to the terms defined elsewhere in this
Agreement: (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Debentures (as defined herein), and (b) the
following terms have the meanings indicated in this Section 1.1:
"ACTION" shall have the meaning ascribed to such term in Section
3.1(j).
"AFFILIATE" means any Person that, directly or indirectly through
one or more intermediaries, controls or is controlled by or is under
common control with a Person, as such terms are used in and construed
under Rule 144 under the Securities Act. With respect to a Purchaser, any
investment fund or managed account that is managed on a discretionary
basis by the same investment manager as such Purchaser will be deemed to
be an Affiliate of such Purchaser.
"AUTHORIZED SHARE APPROVAL" means (i) the vote by the shareholders
of the company to approve an amendment to the Company's articles or
certificate of incorporation that increases the number of authorized
shares of Common Stock and authorizes the board of directors of the
Company to effect such increase (the "AMENDMENT") and (ii) the filing by
the Company of the Amendment with the Secretary of State of the State of
Nevada and the acceptance of the Amendment by the Secretary of State of
the State of Nevada.
"BUSINESS DAY" means any day except Saturday, Sunday, any day which
shall be a federal legal holiday in the United States or any day on which
banking institutions in the State of New York are authorized or required
by law or other governmental action to close.
"CLOSING" means the closing of the purchase and sale of the
Securities pursuant to Section 2.1.
"CLOSING DATE" means the Trading Day when all of the Transaction
Documents have been executed and delivered by the applicable parties
thereto, and all conditions precedent to (i) the Purchasers' obligations
to pay the Subscription Amount and (ii) the Company's obligations to
deliver the Securities have been satisfied or waived.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock of the Company, par value
$0.001 per share, and any other class of securities into which such
securities may hereafter be reclassified or changed into.
"COMMON STOCK EQUIVALENTS" means any securities of the Company or
the Subsidiaries which would entitle the holder thereof to acquire at any
time Common Stock, including, without limitation, any debt, preferred
stock, rights, options, warrants or other instrument that is at any time
convertible into or exercisable or exchangeable for, or otherwise entitles
the holder thereof to receive, Common Stock.
"COMPANY COUNSEL" means ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP.
"CONVERSION PRICE" shall have the meaning ascribed to such term in
the Debentures.
"DEBENTURES" means, the Original Issue Discount Secured Convertible
Debentures due, subject to the terms therein, 3 years from their date of
issuance, issued by the Company to the Purchasers hereunder, in the form
of EXHIBIT A hereto.
"DISCLOSURE SCHEDULES" shall have the meaning ascribed to such term
in Section 3.1.
"EFFECTIVE DATE" means the date that the initial Registration
Statement filed by the Company pursuant to the Registration Rights
Agreement is first declared effective by the Commission.
"EVALUATION DATE" shall have the meaning ascribed to such term in
Section 3.1(r).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"EXEMPT ISSUANCE" means the issuance of (a) shares of Common Stock
or options to vendors of goods and services to the Company, or to
employees, officers or directors of the Company pursuant to a plan, in
each case duly authorized by a majority of the non-employee members of the
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Board of Directors of the Company or a majority of the members of a
committee of non-employee directors established for such purpose, (b)
securities upon the exercise or exchange of or conversion of any
Securities issued hereunder and/or other securities exercisable or
exchangeable for or convertible into shares of Common Stock issued and
outstanding on the date of this Agreement, provided that such securities
have not been amended since the date of this Agreement to increase the
number of such securities or to decrease the exercise, exchange or
conversion price of any such securities, and (c) securities issued
pursuant to acquisitions or strategic transactions approved by a majority
of the disinterested directors, provided any such issuance shall only be
to a Person which is, itself or through its subsidiaries, an operating
company in a business synergistic with the business of the Company and in
which the Company receives benefits in addition to the investment of
funds, but shall not include a transaction in which the Company is issuing
securities primarily for the purpose of raising capital or to an entity
whose primary business is investing in securities.
"FWS" means ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLP with offices located at
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇.
"GAAP" shall have the meaning ascribed to such term in Section
3.1(h).
"INTELLECTUAL PROPERTY RIGHTS" shall have the meaning ascribed to
such term in Section 3.1(o).
"LEGEND REMOVAL DATE" shall have the meaning ascribed to such term
in Section 4.1(c).
"LIENS" means a lien, charge, security interest, encumbrance, right
of first refusal, preemptive right or other restriction.
"MATERIAL ADVERSE EFFECT" shall have the meaning assigned to such
term in Section 3.1(b).
"MATERIAL PERMITS" shall have the meaning ascribed to such term in
Section 3.1(m).
"MAXIMUM RATE" shall have the meaning ascribed to such term in
Section 5.17.
"PARTICIPATION MAXIMUM" shall have the meaning ascribed to such term
in Section 4.13.
"PERSON" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
"PRE-NOTICE" shall have the meaning ascribed to such term in Section
4.13.
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"PROCEEDING" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"PURCHASER PARTY" shall have the meaning ascribed to such term in
Section 4.11.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated the date hereof, among the Company and the Purchasers, in
the form of EXHIBIT B attached hereto.
"REGISTRATION STATEMENT" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering
the resale of the Underlying Shares by each Purchaser as provided for in
the Registration Rights Agreement.
"REQUIRED APPROVALS" shall have the meaning ascribed to such term in
Section 3.1(e).
"REQUIRED MINIMUM" means, as of any date, the maximum aggregate
number of shares of Common Stock then issued or potentially issuable in
the future pursuant to the Transaction Documents, including any Underlying
Shares issuable upon exercise or conversion in full of all Warrants and
Debentures, ignoring any conversion or exercise limits set forth therein,
and assuming that the Conversion Price is at all times on and after the
date of determination 75% of the then Conversion Price on the Trading Day
immediately prior to the date of determination.
"RULE 144" means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"SEC REPORTS" shall have the meaning ascribed to such term in
Section 3.1(h).
"SECURITIES" means the Debentures, the Warrants, the Warrant Shares
and the Underlying Shares.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated hereunder.
"SECURITY AGREEMENT" means the Security Agreement, dated July 31,
2006, among the Company, the Subsidiaries and the Purchasers.
"SHORT SALES" shall include all "short sales" as defined in Rule 200
of Regulation SHO under the Exchange Act (but shall not be deemed to
include the location and/or reservation of borrowable shares of Common
Stock).
"SUBSCRIPTION AMOUNT" means, as to each Purchaser, the aggregate
amount to be paid for Debentures and Warrants purchased hereunder as
specified below such Purchaser's name on the signature page of this
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Agreement and next to the heading "Subscription Amount", in United States
Dollars and in immediately available funds, which shall be 79% of the
Principal Amount of the Debentures.
"SUBSEQUENT FINANCING" shall have the meaning ascribed to such term
in Section 4.13.
"SUBSEQUENT FINANCING NOTICE" shall have the meaning ascribed to
such term in Section 4.13.
"SUBSIDIARY" means any subsidiary of the Company as set forth on
SCHEDULE 3.1(A).
"TRADING DAY" means a day on which the Common Stock is traded on a
Trading Market.
"TRADING MARKET" means the following markets or exchanges on which
the Common Stock is listed or quoted for trading on the date in question:
the Nasdaq Capital Market, the American Stock Exchange, the New York Stock
Exchange, the Nasdaq National Market or the Over the Counter Bulletin
Board (OTCBB).
"TRANSACTION DOCUMENTS" means this Agreement, the Debentures, the
Warrants, the Registration Rights Agreement and any other documents or
agreements executed in connection with the transactions contemplated
hereunder.
"UNDERLYING SHARES" means the shares of Common Stock issued and
issuable upon conversion or redemption of the Debentures and upon exercise
of the Warrants.
"VWAP" means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or
quoted on a Trading Market, the daily volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the Trading
Market on which the Common Stock is then listed or quoted as reported by
Bloomberg L.P. (based on a Trading Day from 9:30 a.m. New York City time
to 4:02 p.m. New York City time); (b) if the OTC Bulletin Board is not a
Trading Market, the volume weighted average price of the Common Stock for
such date (or the nearest preceding date) on the OTC Bulletin Board; (c)
if the Common Stock is not then listed or quoted on the OTC Bulletin Board
and if prices for the Common Stock are then reported in the "Pink Sheets"
published by Pink Sheets, LLC (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid
price per share of the Common Stock so reported; or (d) in all other
cases, the fair market value of a share of Common Stock as determined by
an independent appraiser selected in good faith by the Purchasers and
reasonably acceptable to the Company.
"WARRANTS" means collectively the Common Stock purchase warrants, in
the form of EXHIBIT C delivered to the Purchasers at the Closing in
accordance with Section 2.2(a) hereof, which Warrants shall be exercisable
immediately and have a term of exercise equal to 4 years.
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"WARRANT SHARES" means the shares of Common Stock issuable upon
exercise of the Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1 CLOSING. On the Closing Date, upon the terms and subject to the
conditions set forth herein, substantially concurrent with the execution and
delivery of this Agreement by the parties hereto, the Company agrees to sell,
and each Purchaser agrees to purchase in the aggregate, severally and not
jointly, up to $2,531,645.50 principal amount of the Debentures (up to
$2,000,000 Subscription Amount). Each Purchaser shall deliver to the Company via
wire transfer or a certified check immediately available funds equal to their
Subscription Amount and the Company shall deliver to each Purchaser their
respective Debenture and Warrants as determined pursuant to Section 2.2(a) and
the other items set forth in Section 2.2 issuable at the Closing. Upon
satisfaction of the conditions set forth in Sections 2.2 and 2.3, the Closing
shall occur at the offices of FW, or such other location as the parties shall
mutually agree.
2.2 DELIVERIES.
(a) On the Closing Date, the Company shall deliver or cause to be
delivered to each Purchaser the following:
(i) this Agreement duly executed by the Company;
(ii) a legal opinion of Company Counsel, in the form of
EXHIBIT D attached hereto;
(iii) a Debenture with a principal amount equal to 126.58% of
such Purchaser's Subscription Amount, registered in the name of such
Purchaser;
(iv) a Warrant registered in the name of such Purchaser to
purchase up to a number of shares of Common Stock equal to 100% of
the principal amount of such Purchaser's Debenture divided by the
initial Conversion Price, with an exercise price equal to $0.15,
subject to adjustment therein;
(v) the Security Documents; and
(vi) the Registration Rights Agreement duly executed by the
Company.
(b) On the Closing Date, each Purchaser shall deliver or cause to be
delivered to the Company the following:
(i) this Agreement duly executed by such Purchaser;
(ii) such Purchaser's Subscription Amount by wire transfer to
the account as specified in writing by the Company; and
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(iii) the Registration Rights Agreement duly executed by such
Purchaser.
2.3 CLOSING CONDITIONS.
(a) The obligations of the Company hereunder in connection with the
Closing are subject to the following conditions being met:
(i) the accuracy in all material respects when made and on the
Closing Date of the representations and warranties of the Purchasers
contained herein;
(ii) all obligations, covenants and agreements of the
Purchasers required to be performed at or prior to the Closing Date
shall have been performed; and
(iii) the delivery by the Purchasers of the items set forth in
Section 2.2(b) of this Agreement.
(b) The respective obligations of the Purchasers hereunder in
connection with the Closing are subject to the following conditions being
met:
(i) the accuracy in all material respects on the Closing Date
of the representations and warranties of the Company contained
herein;
(ii) all obligations, covenants and agreements of the Company
required to be performed at or prior to the Closing Date shall have
been performed;
(iii) the delivery by the Company of the items set forth in
Section 2.2(a) of this Agreement;
(iv) there shall have been no Material Adverse Effect with
respect to the Company since the date hereof; and
(v) from the date hereof to the Closing Date, trading in the
Common Stock shall not have been suspended by the Commission or the
Company's principal Trading Market (except for any suspension of
trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to the Closing), and, at any
time prior to the Closing Date, trading in securities generally as
reported by Bloomberg L.P. shall not have been suspended or limited,
or minimum prices shall not have been established on securities
whose trades are reported by such service, or on any Trading Market,
nor shall a banking moratorium have been declared either by the
United States or New York State authorities nor shall there have
occurred any material outbreak or escalation of hostilities or other
national or international calamity of such magnitude in its effect
on, or any material adverse change in, any financial market which,
in each case, in the reasonable judgment of each Purchaser, makes it
impracticable or inadvisable to purchase the Debentures at the
Closing.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth
under the corresponding section of the disclosure schedules delivered to the
Purchasers concurrently herewith (the "DISCLOSURE SCHEDULES") which Disclosure
Schedules shall be deemed a part hereof and to qualify any representation or
warranty otherwise made herein to the extent of such disclosure, the Company
hereby makes the representations and warranties set forth below to each
Purchaser.
(a) SUBSIDIARIES. All of the direct and indirect subsidiaries of the
Company are set forth on SCHEDULE 3.1(A). The Company owns, directly or
indirectly, all of the capital stock or other equity interests of each
Subsidiary free and clear of any Liens, and all the issued and outstanding
shares of capital stock of each Subsidiary are validly issued and are
fully paid, non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities. If the Company has no subsidiaries,
then all other references in the Transaction Documents to the Subsidiaries
or any of them will be disregarded.
(b) ORGANIZATION AND QUALIFICATION. The Company and each of the
Subsidiaries is an entity duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the jurisdiction
of its incorporation or organization (as applicable), with the requisite
power and authority to own and use its properties and assets and to carry
on its business as currently conducted. Neither the Company nor any
Subsidiary is in violation or default of any of the provisions of its
respective certificate or articles of incorporation, bylaws or other
organizational or charter documents. Each of the Company and the
Subsidiaries is duly qualified to conduct business and is in good standing
as a foreign corporation or other entity in each jurisdiction in which the
nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in
good standing, as the case may be, could not have or reasonably be
expected to result in (i) a material adverse effect on the legality,
validity or enforceability of any Transaction Document, (ii) a material
adverse effect on the results of operations, assets, business, prospects
or condition (financial or otherwise) of the Company and the Subsidiaries,
taken as a whole, or (iii) a material adverse effect on the Company's
ability to perform in any material respect on a timely basis its
obligations under any Transaction Document (any of (i), (ii) or (iii), a
"MATERIAL ADVERSE EFFECT") and no Proceeding has been instituted in any
such jurisdiction revoking, limiting or curtailing or seeking to revoke,
limit or curtail such power and authority or qualification.
(c) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder. The
execution and delivery of each of the Transaction Documents by the Company
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and the consummation by it of the transactions contemplated hereby thereby
have been duly authorized by all necessary action on the part of the
Company and no further action is required by the Company, its board of
directors or its stockholders in connection therewith other than in
connection with the Required Approvals. Each Transaction Document has been
(or upon delivery will have been) duly executed by the Company and, when
delivered in accordance with the terms hereof and thereof, will constitute
the valid and binding obligation of the Company enforceable against the
Company in accordance with its terms except (i) as limited by general
equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or
other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.
(d) NO CONFLICTS. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company
of the other transactions contemplated hereby and thereby do not and will
not: (i) conflict with or violate any provision of the Company's or any
Subsidiary's certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) conflict with, or constitute
a default (or an event that with notice or lapse of time or both would
become a default) under, result in the creation of any Lien upon any of
the properties or assets of the Company or any Subsidiary, or give to
others any rights of termination, amendment, acceleration or cancellation
(with or without notice, lapse of time or both) of, any agreement, credit
facility, debt or other instrument (evidencing a Company or Subsidiary
debt or otherwise) or other understanding to which the Company or any
Subsidiary is a party or by which any property or asset of the Company or
any Subsidiary is bound or affected, or (iii) subject to the Required
Approvals, conflict with or result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of
any court or governmental authority to which the Company or a Subsidiary
is subject (including federal and state securities laws and regulations),
or by which any property or asset of the Company or a Subsidiary is bound
or affected; except in the case of each of clauses (ii) and (iii), such as
could not have or reasonably be expected to result in a Material Adverse
Effect.
(e) FILINGS, CONSENTS AND APPROVALS. The Company is not required to
obtain any consent, waiver, authorization or order of, give any notice to,
or make any filing or registration with, any court or other federal,
state, local or other governmental authority or other Person in connection
with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) filings required pursuant to Section
4.6, (ii) the filing with the Commission of the Registration Statement,
(iii) the notice and/or application(s) to each applicable Trading Market
for the issuance and sale of the Securities and the listing of the
Underlying Shares for trading thereon in the time and manner required
thereby, and (iv) the filing of Form D with the Commission and such
filings as are required to be made under applicable state securities laws
(collectively, the "REQUIRED Approvals").
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(f) ISSUANCE OF THE SECURITIES. The Securities are duly authorized
and, when issued and paid for in accordance with the applicable
Transaction Documents, will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company other
than restrictions on transfer provided for in the Transaction Documents.
The Underlying Shares, when issued in accordance with the terms of the
Transaction Documents, will be validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company. As
agreed with each Purchaser, the Company has not reserved from its duly
authorized capital stock any shares of Common Stock for issuance of the
Underlying Shares, but will so reserve a number of shares equal to the
Required Minimum at such time as the Company receives Authorized Share
Approval.
(g) CAPITALIZATION. The capitalization of the Company is as set
forth on SCHEDULE 3.1(G). The Company has not issued any capital stock
since its most recently filed periodic report under the Exchange Act,
other than pursuant to the exercise of employee stock options under the
Company's stock option plans, the issuance of shares of Common Stock to
employees pursuant to the Company's employee stock purchase plan and
pursuant to the conversion or exercise of Common Stock Equivalents
outstanding as of the date of the most recently filed periodic report
under the Exchange Act. No Person has any right of first refusal,
preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by the Transaction Documents.
Except as a result of the purchase and sale of the Securities, there are
no outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights
or obligations convertible into or exercisable or exchangeable for, or
giving any Person any right to subscribe for or acquire, any shares of
Common Stock, or contracts, commitments, understandings or arrangements by
which the Company or any Subsidiary is or may become bound to issue
additional shares of Common Stock or Common Stock Equivalents. The
issuance and sale of the Securities will not obligate the Company to issue
shares of Common Stock or other securities to any Person (other than the
Purchasers) and will not result in a right of any holder of Company
securities to adjust the exercise, conversion, exchange or reset price
under any of such securities. All of the outstanding shares of capital
stock of the Company are validly issued, fully paid and nonassessable,
have been issued in compliance with all federal and state securities laws,
and none of such outstanding shares was issued in violation of any
preemptive rights or similar rights to subscribe for or purchase
securities. No further approval or authorization of any stockholder, the
Board of Directors of the Company or others is required for the issuance
and sale of the Securities. There are no stockholders agreements, voting
agreements or other similar agreements with respect to the Company's
capital stock to which the Company is a party or, to the knowledge of the
Company, between or among any of the Company's stockholders.
(h) SEC REPORTS; FINANCIAL STATEMENTS. The Company has filed all
reports, schedules, forms, statements and other documents required to be
filed by it under the Securities Act and the Exchange Act, including
pursuant to Section 13(a) or 15(d) thereof, for the two years preceding
the date hereof (or such shorter period as the Company was required by law
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or regulation to file such material) (the foregoing materials, including
the exhibits thereto and documents incorporated by reference therein,
being collectively referred to herein as the "SEC REPORTS") on a timely
basis or has received a valid extension of such time of filing and has
filed any such SEC Reports prior to the expiration of any such extension.
As of their respective dates, the SEC Reports complied in all material
respects with the requirements of the Securities Act and the Exchange Act,
as applicable, and none of the SEC Reports, when filed, contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC
Reports comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing. Such financial statements have
been prepared in accordance with United States generally accepted
accounting principles applied on a consistent basis during the periods
involved ("GAAP"), except as may be otherwise specified in such financial
statements or the notes thereto and except that unaudited financial
statements may not contain all footnotes required by GAAP, and fairly
present in all material respects the financial position of the Company and
its consolidated subsidiaries as of and for the dates thereof and the
results of operations and cash flows for the periods then ended, subject,
in the case of unaudited statements, to normal, immaterial, year-end audit
adjustments.
(i) MATERIAL CHANGES. Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically
disclosed in a subsequent SEC Report, (i) there has been no event,
occurrence or development that has had or that could reasonably be
expected to result in a Material Adverse Effect, (ii) the Company has not
incurred any liabilities (contingent or otherwise) other than (A) trade
payables and accrued expenses incurred in the ordinary course of business
consistent with past practice and (B) liabilities not required to be
reflected in the Company's financial statements pursuant to GAAP or
disclosed in filings made with the Commission, (iii) the Company has not
altered its method of accounting, (iv) the Company has not declared or
made any dividend or distribution of cash or other property to its
stockholders or purchased, redeemed or made any agreements to purchase or
redeem any shares of its capital stock and (v) the Company has not issued
any equity securities to any officer, director or Affiliate, except
pursuant to existing Company stock option plans. The Company does not have
pending before the Commission any request for confidential treatment of
information. Except for the issuance of the Securities contemplated by
this Agreement or as set forth on SCHEDULE 3.1(I), no event, liability or
development has occurred or exists with respect to the Company or its
Subsidiaries or their respective business, properties, operations or
financial condition, that would be required to be disclosed by the Company
under applicable securities laws at the time this representation is made
that has not been publicly disclosed at least one Trading Day prior to the
date that this representation is made.
(j) LITIGATION. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company, any Subsidiary or
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any of their respective properties before or by any court, arbitrator,
governmental or administrative agency or regulatory authority (federal,
state, county, local or foreign) (collectively, an "ACTION") which (i)
adversely affects or challenges the legality, validity or enforceability
of any of the Transaction Documents or the Securities or (ii) could, if
there were an unfavorable decision, have or reasonably be expected to
result in a Material Adverse Effect. Neither the Company nor any
Subsidiary, nor any director or officer thereof, is or has been the
subject of any Action involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary duty.
There has not been, and to the knowledge of the Company, there is not
pending or contemplated, any investigation by the Commission involving the
Company or any current or former director or officer of the Company. The
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act.
(k) LABOR RELATIONS. No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees
of the Company which could reasonably be expected to result in a Material
Adverse Effect. None of the Company's or its Subsidiaries' employees is a
member of a union that relates to such employee's relationship with the
Company, and neither the Company or any of its Subsidiaries is a party to
a collective bargaining agreement, and the Company and its Subsidiaries
believe that their relationships with their employees are good. No
executive officer, to the knowledge of the Company, is, or is now expected
to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement or
non-competition agreement, or any other contract or agreement or any
restrictive covenant, and the continued employment of each such executive
officer does not subject the Company or any of its Subsidiaries to any
liability with respect to any of the foregoing matters. The Company and
its Subsidiaries are in compliance with all U.S. federal, state, local and
foreign laws and regulations relating to employment and employment
practices, terms and conditions of employment and wages and hours, except
where the failure to be in compliance could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
(l) COMPLIANCE. Neither the Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has not
been waived that, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the Company or
any Subsidiary received notice of a claim that it is in default under or
that it is in violation of, any indenture, loan or credit agreement or any
other agreement or instrument to which it is a party or by which it or any
of its properties is bound (whether or not such default or violation has
been waived), (ii) is in violation of any order of any court, arbitrator
or governmental body, or (iii) is or has been in violation of any statute,
rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws applicable to its
business and all such laws that affect the environment, except in each
case as could not have or reasonably be expected to result in a Material
Adverse Effect.
12
(m) REGULATORY PERMITS. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate
federal, state, local or foreign regulatory authorities necessary to
conduct their respective businesses as described in the SEC Reports,
except where the failure to possess such permits could not have or
reasonably be expected to result in a Material Adverse Effect ("MATERIAL
PERMITS"), and neither the Company nor any Subsidiary has received any
notice of proceedings relating to the revocation or modification of any
Material Permit.
(n) TITLE TO ASSETS. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them that is
material to the business of the Company and the Subsidiaries and good and
marketable title in all personal property owned by them that is material
to the business of the Company and the Subsidiaries, in each case free and
clear of all Liens, except for Liens as do not materially affect the value
of such property and do not materially interfere with the use made and
proposed to be made of such property by the Company and the Subsidiaries
and Liens for the payment of federal, state or other taxes, the payment of
which is neither delinquent nor subject to penalties. Any real property
and facilities held under lease by the Company and the Subsidiaries are
held by them under valid, subsisting and enforceable leases with which the
Company and the Subsidiaries are in compliance.
(o) PATENTS AND TRADEMARKS. The Company and the Subsidiaries have,
or have rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, trade secrets,
inventions, copyrights, licenses and other intellectual property rights
and similar rights necessary or material for use in connection with their
respective businesses as described in the SEC Reports and which the
failure to so have could have a Material Adverse Effect (collectively, the
"INTELLECTUAL PROPERTY RIGHTS"). Neither the Company nor any Subsidiary
has received a notice (written or otherwise) that the Intellectual
Property Rights used by the Company or any Subsidiary violates or
infringes upon the rights of any Person. To the knowledge of the Company,
all such Intellectual Property Rights are enforceable and there is no
existing infringement by another Person of any of the Intellectual
Property Rights. The Company and its Subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value of all
of their intellectual properties, except where failure to do so could not,
individually or in the aggregate, reasonably be expect to have a Material
Adverse Effect.
(p) INSURANCE. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses
in which the Company and the Subsidiaries are engaged, including, but not
limited to, directors and officers insurance coverage at least equal to
the aggregate Subscription Amount. 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.
13
(q) TRANSACTIONS WITH AFFILIATES AND EMPLOYEES. Except as set forth
in the SEC Reports, none of the officers or directors of the Company and,
to the knowledge of the Company, none of the employees of the Company is
presently a party to any transaction with the Company or any Subsidiary
(other than for services as employees, officers and directors), including
any contract, agreement or other arrangement providing for the furnishing
of services to or by, providing for rental of real or personal property to
or from, or otherwise requiring payments to or from any officer, director
or such employee or, to the knowledge of the Company, any entity in which
any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner, in each case in excess of
$60,000 other than (i) for payment of salary or consulting fees for
services rendered, (ii) reimbursement for expenses incurred on behalf of
the Company and (iii) for other employee benefits, including stock option
agreements under any stock option plan of the Company.
(r) ▇▇▇▇▇▇▇▇-▇▇▇▇▇; INTERNAL ACCOUNTING CONTROLS. The Company is in
material compliance with all provisions of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002
which are applicable to it as of the Closing Date. The Company and the
Subsidiaries maintain a system of internal accounting controls sufficient
to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management's
general or specific authorization, and (iv) the recorded accountability
for assets is compared with the existing assets at reasonable intervals
and appropriate action is taken with respect to any differences. The
Company has established disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed
such disclosure controls and procedures to ensure that information
required to be disclosed by the Company in the reports it files or submits
under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the Commission's rules and forms. The
Company's certifying officers have evaluated the effectiveness of the
Company's disclosure controls and procedures as of the end of the period
covered by the Company's most recently filed periodic report under the
Exchange Act (such date, the "EVALUATION DATE"). The Company presented in
its most recently filed periodic report under the Exchange Act the
conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no changes in
the Company's internal control over financial reporting (as such term is
defined in the Exchange Act) that has materially affected, or is
reasonably likely to materially affect, the Company's internal control
over financial reporting.
(s) CERTAIN FEES. No brokerage or finder's fees or commissions are
or will be payable by the Company to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or other
Person with respect to the transactions contemplated by the Transaction
Documents. The Purchasers shall have no obligation with respect to any
fees or with respect to any claims made by or on behalf of other Persons
14
for fees of a type contemplated in this Section that may be due in
connection with the transactions contemplated by the Transaction
Documents.
(t) PRIVATE PLACEMENT. Assuming the accuracy of the Purchasers
representations and warranties set forth in Section 3.2, no registration
under the Securities Act is required for the offer and sale of the
Securities by the Company to the Purchasers as contemplated hereby. The
issuance and sale of the Securities hereunder does not contravene the
rules and regulations of the Trading Market.
(u) INVESTMENT COMPANY. The Company is not, and is not an Affiliate
of, and immediately after receipt of payment for the Securities, will not
be or be an Affiliate of, an "investment company" within the meaning of
the Investment Company Act of 1940, as amended. The Company shall conduct
its business in a manner so that it will not become subject to the
Investment Company Act.
(v) REGISTRATION RIGHTS. Except as set forth on SCHEDULE 3.1(v),
other than each of the Purchasers, no Person has any right to cause the
Company to effect the registration under the Securities Act of any
securities of the Company.
(w) LISTING AND MAINTENANCE REQUIREMENTS. The Company's Common Stock
is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and
the Company has taken no action designed to, or which to its knowledge is
likely to have the effect of, terminating the registration of the Common
Stock under the Exchange Act nor has the Company received any notification
that the Commission is contemplating terminating such registration. The
Company has not, in the 12 months preceding the date hereof, received
notice from any Trading Market on which the Common Stock is or has been
listed or quoted to the effect that the Company is not in compliance with
the listing or maintenance requirements of such Trading Market. The
Company is, and has no reason to believe that it will not in the
foreseeable future continue to be, in compliance with all such listing and
maintenance requirements.
(x) APPLICATION OF TAKEOVER PROTECTIONS. The Company and its Board
of Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other
similar anti-takeover provision under the Company's Certificate of
Incorporation (or similar charter documents) or the laws of its state of
incorporation that is or could become applicable to the Purchasers as a
result of the Purchasers and the Company fulfilling their obligations or
exercising their rights under the Transaction Documents, including without
limitation as a result of the Company's issuance of the Securities and the
Purchasers' ownership of the Securities.
(y) DISCLOSURE. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents,
the Company confirms that neither it nor any other Person acting on its
behalf has provided any of the Purchasers or their agents or counsel with
any information that it believes constitutes or might constitute material,
nonpublic information. The Company understands and confirms that the
15
Purchasers will rely on the foregoing representation in effecting
transactions in securities of the Company. All disclosure furnished by or
on behalf of the Company to the Purchasers regarding the Company, its
business and the transactions contemplated hereby, including the
Disclosure Schedules to this Agreement, with respect to the
representations and warranties made herein are true and correct with
respect to such representations and warranties and do not contain any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The press
releases disseminated by the Company during the twelve months preceding
the date of this Agreement taken as a whole do not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements, in light
of the circumstances under which they were made and when made, not
misleading. The Company acknowledges and agrees that no Purchaser makes or
has made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth
in Section 3.2 hereof.
(z) NO INTEGRATED OFFERING. Assuming the accuracy of the Purchasers'
representations and warranties set forth in Section 3.2, neither the
Company, nor any of its Affiliates, nor any Person acting on its or their
behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, under circumstances
that would cause this offering of the Securities to be integrated with
prior offerings by the Company for purposes of the Securities Act or any
applicable shareholder approval provision of any Trading Market on which
any of the securities of the Company are listed or designated.
(aa) SOLVENCY. Except as described in SCHEDULE 3.1(AA), based on the
financial condition of the Company as of the Closing Date after giving
effect to the receipt by the Company of the proceeds from the sale of the
Securities hereunder, (i) the fair saleable value of the Company's assets
exceeds the amount that will be required to be paid on or in respect of
the Company's existing debts and other liabilities (including known
contingent liabilities) as they mature; (ii) the Company's assets do not
constitute unreasonably small capital to carry on its business as now
conducted and as proposed to be conducted including its capital needs
taking into account the particular capital requirements of the business
conducted by the Company, and projected capital requirements and capital
availability thereof; and (iii) the current cash flow of the Company,
together with the proceeds the Company would receive, were it to liquidate
all of its assets, after taking into account all anticipated uses of the
cash, would be sufficient to pay all amounts on or in respect of its
liabilities when such amounts are required to be paid. The Company does
not intend to incur debts beyond its ability to pay such debts as they
mature (taking into account the timing and amounts of cash to be payable
on or in respect of its debt). The Company has no knowledge of any facts
or circumstances which lead it to believe that it will file for
reorganization or liquidation under the bankruptcy or reorganization laws
of any jurisdiction within one year from the Closing Date. SCHEDULE
3.1(AA) sets forth as of the dates thereof all outstanding secured and
unsecured Indebtedness of the Company or any Subsidiary, or for which the
Company or any Subsidiary has commitments. For the purposes of this
Agreement, "Indebtedness" shall mean (a) any liabilities for borrowed
16
money or amounts owed in excess of $50,000 (other than trade accounts
payable incurred in the ordinary course of business), (b) all guaranties,
endorsements and other contingent obligations in respect of Indebtedness
of others, whether or not the same are or should be reflected in the
Company's balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value
of any lease payments in excess of $50,000 due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor any
Subsidiary is in default with respect to any Indebtedness.
(bb) TAX STATUS. Except for matters that would not, individually or
in the aggregate, have or reasonably be expected to result in a Material
Adverse Effect, the Company and each Subsidiary has filed all necessary
federal, state and foreign income and franchise tax returns and has paid
or accrued all taxes shown as due thereon, and the Company has no
knowledge of a tax deficiency which has been asserted or threatened
against the Company or any Subsidiary.
(cc) NO GENERAL SOLICITATION. Neither the Company nor any person
acting on behalf of the Company has offered or sold any of the Securities
by any form of general solicitation or general advertising. The Company
has offered the Securities for sale only to the Purchasers and certain
other "accredited investors" within the meaning of Rule 501 under the
Securities Act.
(dd) FOREIGN CORRUPT PRACTICES. Neither the Company, nor to the
knowledge of the Company, any agent or other person acting on behalf of
the Company, has (i) directly or indirectly, used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to
foreign or domestic political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to any foreign or
domestic political parties or campaigns from corporate funds, (iii) failed
to disclose fully any contribution made by the Company (or made by any
person acting on its behalf of which the Company is aware) which is in
violation of law, or (iv) violated in any material respect any provision
of the Foreign Corrupt Practices Act of 1977, as amended.
(ee) ACCOUNTANTS. The Company's accountants are set forth on
SCHEDULE 3.1(EE) of the Disclosure Schedule. To the knowledge of the
Company, such accountants, who the Company expects will express their
opinion with respect to the financial statements to be included in the
Company's Annual Report on Form 10-KSB for the year ended December 31,
2006 are a registered public accounting firm as required by the Exchange
Act.
(ff) SENIORITY. As of the Closing Date, no Indebtedness or other
claim against the Company is senior to the Debentures in right of payment,
whether with respect to interest or upon liquidation or dissolution, or
otherwise, other than indebtedness secured by purchase money security
interests (which is senior only as to underlying assets covered thereby)
and capital lease obligations (which is senior only as to the property
covered thereby).
17
(gg) 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 the accountants and lawyers
formerly or presently employed by the Company and the Company is current
with respect to any fees owed to its accountants and lawyers.
(hh) ACKNOWLEDGMENT REGARDING PURCHASERS' PURCHASE OF Securities.
The Company acknowledges and agrees that each of the Purchasers is acting
solely in the capacity of an arm's length purchaser with respect to the
Transaction Documents and the transactions contemplated thereby. The
Company further acknowledges that no Purchaser is acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with
respect to the Transaction Documents and the transactions contemplated
thereby and any advice given by any Purchaser or any of their respective
representatives or agents in connection with the Transaction Documents and
the transactions contemplated thereby is merely incidental to the
Purchasers' purchase of the Securities. The Company further represents to
each Purchaser that the Company's decision to enter into this Agreement
and the other Transaction Documents has been based solely on the
independent evaluation of the transactions contemplated hereby by the
Company and its representatives.
(ii) ACKNOWLEDGEMENT REGARDING PURCHASERS' TRADING ACTIVITY.
Anything in this Agreement or elsewhere herein to the contrary
notwithstanding (except for Sections 3.2(f) and 4.16 hereof), it is
understood and acknowledged by the Company (i) that none of the Purchasers
have been asked to agree, nor has any Purchaser agreed, to desist from
purchasing or selling, long and/or short, securities of the Company, or
"derivative" securities based on securities issued by the Company or to
hold the Securities for any specified term; (ii) that past or future open
market or other transactions by any Purchaser, including Short Sales, and
specifically including, without limitation, Short Sales or "derivative"
transactions, before or after the closing of this or future private
placement transactions, may negatively impact the market price of the
Company's publicly-traded securities; (iii) that any Purchaser, and
counter-parties in "derivative" transactions to which any such Purchaser
is a party, directly or indirectly, presently may have a "short" position
in the Common Stock, and (iv) that each Purchaser shall not be deemed to
have any affiliation with or control over any arm's length counter-party
in any "derivative" transaction. The Company further understands and
acknowledges that (a) one or more Purchasers may engage in hedging
activities at various times during the period that the Securities are
outstanding, including, without limitation, during the periods that the
value of the Underlying Shares deliverable with respect to Securities are
being determined and (b) such hedging activities (if any) could reduce the
value of the existing stockholders' equity interests in the Company at and
after the time that the hedging activities are being conducted. The
Company acknowledges that such aforementioned hedging activities do not
constitute a breach of any of the Transaction Documents.
(jj) REGULATION M COMPLIANCE. The Company has not, and to its
knowledge no one acting on its behalf has, (i) taken, directly or
indirectly, any action designed to cause or to result in the stabilization
or manipulation of the price of any security of the Company to facilitate
18
the sale or resale of any of the Securities, (ii) sold, bid for,
purchased, or paid any compensation for soliciting purchases of, any of
the securities of the Company or (iii) paid or agreed to pay to any person
any compensation for soliciting another to purchase any other securities
of the Company, other than, in the case of clauses (ii) and (iii),
compensation paid to the Company's placement agent in connection with the
placement of the Securities.
3.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:
(a) ORGANIZATION; AUTHORITY. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder. The execution, delivery and
performance by such Purchaser of the transactions contemplated by this
Agreement have been duly authorized by all necessary corporate or similar
action on the part of such Purchaser. Each Transaction Document to which
it is a party has been duly executed by such Purchaser, and when delivered
by such Purchaser in accordance with the terms hereof, will constitute the
valid and legally binding obligation of such Purchaser, enforceable
against it in accordance with its terms, except (i) as limited by general
equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or
other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.
(b) OWN ACCOUNT. Such Purchaser understands that the Securities are
"restricted securities" and have not been registered under the Securities
Act or any applicable state securities law and is acquiring the Securities
as principal for its own account and not with a view to or for
distributing or reselling such Securities or any part thereof in violation
of the Securities Act or any applicable state securities law, has no
present intention of distributing any of such Securities in violation of
the Securities Act or any applicable state securities law and has no
direct or indirect arrangement or understandings with any other persons to
distribute or regarding the distribution of such Securities (this
representation and warranty not limiting such Purchaser's right to sell
the Securities pursuant to the Registration Statement or otherwise in
compliance with applicable federal and state securities laws) in violation
of the Securities Act or any applicable state securities law. Such
Purchaser is acquiring the Securities hereunder in the ordinary course of
its business.
(c) PURCHASER STATUS. At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is, and on each date on
which it exercises any Warrants or converts any Debentures it will be
either: (i) an "accredited investor" as defined in Rule 501(a)(1), (a)(2),
19
(a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a "qualified
institutional buyer" as defined in Rule 144A(a) under the Securities Act.
Such Purchaser is not required to be registered as a broker-dealer under
Section 15 of the Exchange Act.
(d) EXPERIENCE OF SUCH PURCHASER. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the
Securities, and has so evaluated the merits and risks of such investment.
Such Purchaser is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete loss of
such investment.
(e) GENERAL SOLICITATION. Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement.
(f) SHORT SALES AND CONFIDENTIALITY PRIOR TO THE DATE HEREOF. Other
than the transaction contemplated hereunder, such Purchaser has not
directly or indirectly, nor has any Person acting on behalf of or pursuant
to any understanding with such Purchaser, executed any disposition,
including Short Sales, in the securities of the Company during the period
commencing from the time that such Purchaser first received a term sheet
(written or oral) from the Company or any other Person setting forth the
material terms of the transactions contemplated hereunder until the date
hereof ("DISCUSSION TIME"). Notwithstanding the foregoing, in the case of
a Purchaser that is a multi-managed investment vehicle whereby separate
portfolio managers manage separate portions of such Purchaser's assets and
the portfolio managers have no direct knowledge of the investment
decisions made by the portfolio managers managing other portions of such
Purchaser's assets, the representation set forth above shall only apply
with respect to the portion of assets managed by the portfolio manager
that made the investment decision to purchase the Securities covered by
this Agreement. Other than to other Persons party to this Agreement, such
Purchaser has maintained the confidentiality of all disclosures made to it
in connection with this transaction (including the existence and terms of
this transaction).
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 TRANSFER RESTRICTIONS.
(a) The Securities may only be disposed of in compliance with state
and federal securities laws. In connection with any transfer of Securities
other than pursuant to an effective registration statement or Rule 144, to
the Company or to an Affiliate of a Purchaser or in connection with a
pledge as contemplated in Section 4.1(b), the Company may require the
transferor thereof to provide to the Company an opinion of counsel
selected by the transferor and reasonably acceptable to the Company, the
form and substance of which opinion shall be reasonably satisfactory to
20
the Company, to the effect that such transfer does not require
registration of such transferred Securities under the Securities Act. As a
condition of transfer, any such transferee shall agree in writing to be
bound by the terms of this Agreement and shall have the rights of a
Purchaser under this Agreement and the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is required
by this Section 4.1, of a legend on any of the Securities in the following
form:
[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES
ARE [EXERCISABLE] [CONVERTIBLE]] HAVE BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT,
THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION]
OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
The Company acknowledges and agrees that a Purchaser may from time
to time pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the
Securities to a financial institution that is an "accredited investor" as
defined in Rule 501(a) under the Securities Act and who agrees to be bound
by the provisions of this Agreement and the Registration Rights Agreement
and, if required under the terms of such arrangement, such Purchaser may
transfer pledged or secured Securities to the pledgees or secured parties.
Such a pledge or transfer would not be subject to approval of the Company
and no legal opinion of legal counsel of the pledgee, secured party or
pledgor shall be required in connection therewith. Further, no notice
shall be required of such pledge. At the appropriate Purchaser's expense,
the Company will execute and deliver such reasonable documentation as a
pledgee or secured party of Securities may reasonably request in
connection with a pledge or transfer of the Securities, including, if the
Securities are subject to registration pursuant to the Registration Rights
Agreement, the preparation and filing of any required prospectus
supplement under Rule 424(b)(3) under the Securities Act or other
applicable provision of the Securities Act to appropriately amend the list
of Selling Stockholders thereunder.
21
(c) Certificates evidencing the Underlying Shares shall not contain
any legend (including the legend set forth in Section 4.1(b) hereof): (i)
while a registration statement (including the Registration Statement)
covering the resale of such security is effective under the Securities
Act, or (ii) following any sale of such Underlying Shares pursuant to Rule
144, or (iii) if such Underlying Shares are eligible for sale under Rule
144(k), or (iv) if such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission). The Company shall
cause its counsel to issue a legal opinion to the Company's transfer agent
promptly after the Effective Date if required by the Company's transfer
agent to effect the removal of the legend hereunder. If all or any portion
of a Debenture or Warrant is converted or exercised (as applicable) at a
time when there is an effective registration statement to cover the resale
of the Underlying Shares, or if such Underlying Shares may be sold under
Rule 144(k) or if such legend is not otherwise required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission) then such Underlying
Shares shall be issued free of all legends. The Company agrees that
following the Effective Date or at such time as such legend is no longer
required under this Section 4.1(c), it will, no later than three Trading
Days following the delivery by a Purchaser to the Company or the Company's
transfer agent of a certificate representing Underlying Shares, as
applicable, issued with a restrictive legend (such third Trading Day, the
"LEGEND REMOVAL DATE"), deliver or cause to be delivered to such Purchaser
a certificate representing such shares that is free from all restrictive
and other legends. The Company may not make any notation on its records or
give instructions to any transfer agent of the Company that enlarge the
restrictions on transfer set forth in this Section. Certificates for
Underlying Shares subject to legend removal hereunder shall be transmitted
by the transfer agent of the Company to the Purchasers by crediting the
account of the Purchaser's prime broker with the Depository Trust Company
System.
(d) In addition to such Purchaser's other available remedies, the
Company shall pay to a Purchaser, in cash, as partial liquidated damages
and not as a penalty, for each $1,000 of Underlying Shares (based on the
VWAP of the Common Stock on the date such Securities are submitted to the
Company's transfer agent) delivered for removal of the restrictive legend
and subject to Section 4.1(c), $10 per Trading Day (increasing to $20 per
Trading Day 5 Trading Days after such damages have begun to accrue) for
each Trading Day after the Legend Removal Date until such certificate is
delivered without a legend. Nothing herein shall limit such Purchaser's
right to pursue actual damages for the Company's failure to deliver
certificates representing any Securities as required by the Transaction
Documents, and such Purchaser shall have the right to pursue all remedies
available to it at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief.
(e) Each Purchaser, severally and not jointly with the other
Purchasers, agrees that the removal of the restrictive legend from
certificates representing Securities as set forth in this Section 4.1 is
predicated upon the Company's reliance that the Purchaser will sell any
Securities pursuant to either the registration requirements of the
Securities Act, including any applicable prospectus delivery requirements,
or an exemption therefrom, and that if Securities are sold pursuant to a
Registration Statement, they will be sold in compliance with the plan of
distribution set forth therein.
22
4.2 ACKNOWLEDGMENT OF DILUTION. The Company acknowledges that the
issuance of the Securities may result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market conditions.
The Company further acknowledges that its obligations under the Transaction
Documents, including without limitation its obligation to issue the Underlying
Shares pursuant to the Transaction Documents, are unconditional and absolute and
not subject to any right of set off, counterclaim, delay or reduction,
regardless of the effect of any such dilution or any claim the Company may have
against any Purchaser and regardless of the dilutive effect that such issuance
may have on the ownership of the other stockholders of the Company.
4.3 FURNISHING OF INFORMATION. As long as any Purchaser owns Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to the Exchange Act. As long as any
Purchaser owns Securities, if the Company is not required to file reports
pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and
make publicly available in accordance with Rule 144(c) such information as is
required for the Purchasers to sell the Securities under Rule 144. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request, to the extent required from time to time to
enable such Person to sell such Securities without registration under the
Securities Act within the requirements of the exemption provided by Rule 144.
4.4 INTEGRATION. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market.
4.5 CONVERSION AND EXERCISE PROCEDURES. The form of Notice of Exercise
included in the Warrants and the form of Notice of Conversion included in the
Debentures set forth the totality of the procedures required of the Purchasers
in order to exercise the Warrants or convert the Debentures. No additional legal
opinion or other information or instructions shall be required of the Purchasers
to exercise their Warrants or convert their Debentures. The Company shall honor
exercises of the Warrants and conversions of the Debentures and shall deliver
Underlying Shares in accordance with the terms, conditions and time periods set
forth in the Transaction Documents.
4.6 SECURITIES LAWS DISCLOSURE; PUBLICITY. The Company shall, by 8:30
a.m. Eastern time on the Trading Day following the date hereof, issue press
release describing the material terms of the Transaction Documents, and shall
file a Current Report on Form 8-K disclosing the material terms of the
transactions contemplated hereby, and attaching the Transaction Documents
thereto, within the period required by Commission regulations. The Company and
each Purchaser shall
23
consult with each other in issuing any other press releases with respect to the
transactions contemplated hereby, and neither the Company nor any Purchaser
shall issue any such press release or otherwise make any such public statement
without the prior consent of the Company, with respect to any press release of
any Purchaser, or without the prior consent of each Purchaser, with respect to
any press release of the Company, which consent shall not unreasonably be
withheld or delayed, except if such disclosure is required by law, in which case
the disclosing party shall promptly provide the other party with prior notice of
such public statement or communication. Notwithstanding the foregoing, the
Company shall not publicly disclose the name of any Purchaser, or include the
name of any Purchaser in any filing with the Commission or any regulatory agency
or Trading Market, without the prior written consent of such Purchaser, except
(i) as required by federal securities law in connection with (A) any
registration statement contemplated by the Registration Rights Agreement and (B)
the filing of final Transaction Documents (including signature pages thereto)
with the Commission and (ii) to the extent such disclosure is required by law or
Trading Market regulations, in which case the Company shall provide the
Purchasers with prior notice of such disclosure permitted under this subclause
(ii).
4.7 SHAREHOLDER RIGHTS PLAN. No claim will be made or enforced by the
Company or, with the consent of the Company, any other Person, that any
Purchaser is an "Acquiring Person" under any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or similar anti-takeover plan or arrangement in effect or hereafter adopted by
the Company, or that any Purchaser could be deemed to trigger the provisions of
any such plan or arrangement, by virtue of receiving Securities under the
Transaction Documents or under any other agreement between the Company and the
Purchasers.
4.8 NON-PUBLIC INFORMATION. Except with respect to the material terms
and conditions of the transactions contemplated by the Transaction Documents,
the Company covenants and agrees that neither it nor any other Person acting on
its behalf will provide any Purchaser or its agents or counsel with any
information that the Company believes constitutes material non-public
information, unless prior thereto such Purchaser shall have executed a written
agreement regarding the confidentiality and use of such information. The Company
understands and confirms that each Purchaser shall be relying on the foregoing
representations in effecting transactions in securities of the Company.
4.9 USE OF PROCEEDS. Except as set forth on SCHEDULE 4.9 attached
hereto, the Company shall use the net proceeds from the sale of the Securities
hereunder for working capital purposes and not for the satisfaction of any
portion of the Company's debt (other than payment of trade payables in the
ordinary course of the Company's business and prior practices), to redeem any
Common Stock or Common Stock Equivalents or to settle any outstanding
litigation.
4.10 REIMBURSEMENT. If any Purchaser becomes involved in any capacity in
any Proceeding by or against any Person who is a stockholder of the Company
(except as a result of sales, pledges, margin sales and similar transactions by
such Purchaser to or with any other stockholder), solely as a result of such
Purchaser's acquisition of the Securities under this Agreement, the Company will
reimburse such Purchaser for its reasonable legal and other expenses (including
the cost of any investigation preparation and travel in connection therewith)
24
incurred in connection therewith, as such expenses are incurred. The
reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Purchasers who are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Purchasers and any such Affiliate, and shall be binding upon and
inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company solely as a result of acquiring the Securities under
this Agreement.
4.11 INDEMNIFICATION OF PURCHASERS. Subject to the provisions of this
Section 4.11, the Company will indemnify and hold each Purchaser and its
directors, officers, shareholders, members, partners, employees and agents (and
any other Persons with a functionally equivalent role of a Person holding such
titles notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling person (each, a
"PURCHASER PARTY") harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against a
Purchaser, or any of them or their respective Affiliates, by any stockholder of
the Company who is not an Affiliate of such Purchaser, with respect to any of
the transactions contemplated by the Transaction Documents (unless such action
is based upon a breach of such Purchaser's representations, warranties or
covenants under the Transaction Documents or any agreements or understandings
such Purchaser may have with any such stockholder or any violations by the
Purchaser of state or federal securities laws or any conduct by such Purchaser
which constitutes fraud, gross negligence, willful misconduct or malfeasance).
If any action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, such Purchaser Party shall
promptly notify the Company in writing, and the Company shall have the right to
assume the defense thereof with counsel of its own choosing reasonably
acceptable to the Purchaser Party. Any Purchaser Party shall have the right to
employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Purchaser Party except to the extent that (i) the employment thereof has
been specifically authorized by the Company in writing, (ii) the Company has
failed after a reasonable period of time to assume such defense and to employ
counsel or (iii) in such action there is, in the reasonable opinion of such
separate counsel, a material conflict on any material issue between the position
of the Company and the position of such Purchaser Party, in which case the
Company shall be responsible for the reasonable fees and expenses of no more
than one such separate counsel. The Company will not be liable to any Purchaser
Party under this Agreement (i) for any settlement by a Purchaser Party effected
without the Company's prior written consent, which shall not be unreasonably
25
withheld or delayed; or (ii) to the extent, but only to the extent that a loss,
claim, damage or liability is attributable to any Purchaser Party's breach of
any of the representations, warranties, covenants or agreements made by such
Purchaser Party in this Agreement or in the other Transaction Documents. The
Company shall not effect any settlement affecting a Purchaser Party without the
Purchaser Party's prior consent, which shall not be unreasonably withheld or
delayed.
4.12 RESERVATION AND LISTING OF SECURITIES.
(a) The Company shall maintain a reserve from its duly authorized
shares of Common Stock for issuance pursuant to the Transaction Documents
in such amount as may be required to fulfill its obligations in full under
the Transaction Documents.
(b) If, on any date, the number of authorized but unissued (and
otherwise unreserved) shares of Common Stock is less than the Required
Minimum on such date, then the Board of Directors of the Company shall use
commercially reasonable efforts to amend the Company's certificate or
articles of incorporation to increase the number of authorized but
unissued shares of Common Stock to at least the Required Minimum at such
time, as soon as possible and in any event not later than the 75th day
after such date.
(c) The Company shall, if applicable: (i) in the time and manner
required by the principal Trading Market, prepare and file with such
Trading Market an additional shares listing application covering a number
of shares of Common Stock at least equal to the Required Minimum on the
date of such application, (ii) take all steps necessary to cause such
shares of Common Stock to be approved for listing on such Trading Market
as soon as possible thereafter, (iii) provide to the Purchasers evidence
of such listing, and (iv) maintain the listing of such Common Stock on any
date at least equal to the Required Minimum on such date on such Trading
Market or another Trading Market.
(d) The Company shall submit a proposal to its shareholders at the
Company's next special or annual meeting of shareholders, whichever comes
first, to effect the Authorized Share Approval which will permit
conversion in full of all Debentures and the exercise of all Warrants. The
Company's board of directors shall recommend that shareholders vote "for"
such proposal.
4.13 PARTICIPATION IN FUTURE FINANCING.
(a) From the date hereof until the date that no Debentures remain
outstanding, upon any issuance by the Company or any of its Subsidiaries
of Common Stock or Common Stock Equivalents (a "SUBSEQUENT FINANCING"),
each Purchaser shall have the right to participate in up to an amount of
the Subsequent Financing equal to 100% of the Subsequent Financing (the
"PARTICIPATION MAXIMUM") on the same terms, conditions and price provided
for in the Subsequent Financing.
(b) At least 5 Trading Days prior to the closing of the Subsequent
Financing, the Company shall deliver to each Purchaser a written notice of
its intention to effect a Subsequent Financing ("PRE-NOTICE"), which
26
Pre-Notice shall ask such Purchaser if it wants to review the details of
such financing (such additional notice, a "SUBSEQUENT FINANCING NOTICE").
Upon the request of a Purchaser, and only upon a request by such
Purchaser, for a Subsequent Financing Notice, the Company shall promptly,
but no later than 1 Trading Day after such request, deliver a Subsequent
Financing Notice to such Purchaser. The Subsequent Financing Notice shall
describe in reasonable detail the proposed terms of such Subsequent
Financing, the amount of proceeds intended to be raised thereunder, the
Person or Persons through or with whom such Subsequent Financing is
proposed to be effected, and attached to which shall be a term sheet or
similar document relating thereto.
(c) Any Purchaser desiring to participate in such Subsequent
Financing must provide written notice to the Company by not later than
5:30 p.m. (New York City time) on the 5th Trading Day after all of the
Purchasers have received the Pre-Notice that the Purchaser is willing to
participate in the Subsequent Financing, the amount of the Purchaser's
participation, and that the Purchaser has such funds ready, willing, and
available for investment on the terms set forth in the Subsequent
Financing Notice. If the Company receives no notice from a Purchaser as of
such 5th Trading Day, such Purchaser shall be deemed to have notified the
Company that it does not elect to participate.
(d) If by 5:30 p.m. (New York City time) on the 5th Trading Day
after all of the Purchasers have received the Pre-Notice, notifications by
the Purchasers of their willingness to participate in the Subsequent
Financing (or to cause their designees to participate) is, in the
aggregate, less than the total amount of the Subsequent Financing, then
the Company may effect the remaining portion of such Subsequent Financing
on the terms and with the Persons set forth in the Subsequent Financing
Notice.
(e) If by 5:30 p.m. (New York City time) on the 5th Trading Day
after all of the Purchasers have received the Pre-Notice, the Company
receives responses to a Subsequent Financing Notice from Purchasers
seeking to purchase more than the aggregate amount of the Participation
Maximum, each such Purchaser shall have the right to purchase its Pro Rata
Portion (as defined below) of the Participation Maximum. "PRO RATA
PORTION" is the ratio of (x) the Subscription Amount of Securities
purchased on the Closing Date by a Purchaser participating under this
Section 4.13 and (y) the sum of the aggregate Subscription Amounts of
Securities purchased on the Closing Date by all Purchasers participating
under this Section 4.13.
(f) The Company must provide the Purchasers with a second Subsequent
Financing Notice, and the Purchasers will again have the right of
participation set forth above in this Section 4.13, if the Subsequent
Financing subject to the initial Subsequent Financing Notice is not
consummated for any reason on the terms set forth in such Subsequent
Financing Notice within 60 Trading Days after the date of the initial
Subsequent Financing Notice.
(g) Notwithstanding the foregoing, this Section 4.13 shall not apply
in respect of an Exempt Issuance.
27
4.14 SUBSEQUENT EQUITY SALES.
(a) From the date hereof until 90 days after the Effective Date,
without the prior written consent of the holders of majority in principal
amount of the Debentures, neither the Company nor any Subsidiary shall
issue shares of Common Stock or Common Stock Equivalents; PROVIDED,
HOWEVER, the 90 day period set forth in this Section 4.14 shall be
extended for the number of Trading Days during such period in which (i)
trading in the Common Stock is suspended by any Trading Market, or (ii)
following the Effective Date, the Registration Statement is not effective
or the prospectus included in the Registration Statement may not be used
by the Purchasers for the resale of the Underlying Shares.
(b) From the date hereof until such time as no Purchaser holds any
of the Securities, the Company shall be prohibited from effecting or
entering into an agreement to effect any Subsequent Financing involving a
"Variable Rate Transaction". The term "VARIABLE RATE TRANSACTION" shall
mean a transaction in which the Company issues or sells (i) any debt or
equity securities that are convertible into, exchangeable or exercisable
for, or include the right to receive additional shares of Common Stock
either (A) at a conversion, exercise or exchange rate or other price that
is based upon and/or varies with the trading prices of or quotations for
the shares of Common Stock at any time after the initial issuance of such
debt or equity securities, or (B) with a conversion, exercise or exchange
price that is subject to being reset at some future date after the initial
issuance of such debt or equity security or upon the occurrence of
specified or contingent events directly or indirectly related to the
business of the Company or the market for the Common Stock or (ii) enters
into any agreement, including, but not limited to, an equity line of
credit, whereby the Company may sell securities at a future determined
price.
(c) Notwithstanding the foregoing, this Section 4.14 shall not apply
in respect of an Exempt Issuance, except that no Variable Rate Transaction
shall be an Exempt Issuance.
4.15 EQUAL TREATMENT OF PURCHASERS. No consideration shall be offered or
paid to any Person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. Further, the
Company shall not make any payment of principal or interest on the Debentures in
amounts which are disproportionate to the respective principal amounts
outstanding on the Debentures at any applicable time. For clarification
purposes, this provision constitutes a separate right granted to each Purchaser
by the Company and negotiated separately by each Purchaser, and is intended for
the Company to treat the Purchasers as a class and shall not in any way be
construed as the Purchasers acting in concert or as a group with respect to the
purchase, disposition or voting of Securities or otherwise.
4.16 SHORT SALES AND CONFIDENTIALITY AFTER THE DATE HEREOF. Each
Purchaser severally and not jointly with the other Purchasers covenants that
neither it nor any Affiliate acting on its behalf or pursuant to any
understanding with it will execute any Short Sales during the period commencing
at the Discussion Time
28
and ending at the time that the transactions contemplated by this Agreement are
first publicly announced as described in Section 4.6. Each Purchaser, severally
and not jointly with the other Purchasers, covenants that until such time as the
transactions contemplated by this Agreement are publicly disclosed by the
Company as described in Section 4.6, such Purchaser will maintain the
confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this transaction). Each
Purchaser understands and acknowledges, severally and not jointly with any other
Purchaser, that the Commission currently takes the position that coverage of
short sales of shares of the Common Stock "against the box" prior to the
Effective Date of the Registration Statement with the Securities is a violation
of Section 5 of the Securities Act, as set forth in Item 65, Section A, of the
Manual of Publicly Available Telephone Interpretations, dated July 1997,
compiled by the Office of Chief Counsel, Division of Corporation Finance.
Notwithstanding the foregoing, 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 as described in Section 4.6. Notwithstanding the
foregoing, in the case of a Purchaser that is a multi-managed investment vehicle
whereby separate portfolio managers manage separate portions of such Purchaser's
assets and the portfolio managers have no direct knowledge of the investment
decisions made by the portfolio managers managing other portions of such
Purchaser's assets, the covenant set forth above shall only apply with respect
to the portion of assets managed by the portfolio manager that made the
investment decision to purchase the Securities covered by this Agreement.
4.17 FORM D; BLUE SKY FILINGS. The Company agrees to timely file a Form D
with respect to the Securities as required under Regulation D and to provide a
copy thereof, promptly upon request of any Purchaser. The Company shall take
such action as the Company shall reasonably determine is necessary in order to
obtain an exemption for, or to qualify the Securities for, sale to the
Purchasers at the Closing under applicable securities or "Blue Sky" laws of the
states of the United States, and shall provide evidence of such actions promptly
upon request of any Purchaser.
4.18 CAPITAL CHANGES. Until the one year anniversary of the Effective
Date, the Company shall not undertake a reverse or forward stock split or
reclassification of the Common Stock without the prior written consent of the
Purchasers holding a majority in principal amount outstanding of the Debentures.
4.19 CONSENT TO TRANSACTION DOCUMENTS. The Purchaser acknowledge, agree
and consent to the transactions contemplated under the Transaction Documents and
waive any breach or conflict with any prior agreements between the Company and
any of the Purchasers.
4.20 AMENDMENT TO SECURITY AGREEMENT. The parties hereby acknowledge and
agree that the definition of "Obligations" under the Security Agreement is
hereby amended and restated as follows: ""OBLIGATIONS" MEANS ALL OF THE
LIABILITIES AND OBLIGATIONS (PRIMARY, SECONDARY, DIRECT, CONTINGENT, SOLE, JOINT
OR SEVERAL) DUE OR TO BECOME DUE, OR THAT ARE NOW OR MAY BE HEREAFTER CONTRACTED
OR ACQUIRED, OR OWING TO, OF ANY DEBTOR TO THE SECURED PARTIES, INCLUDING,
WITHOUT LIMITATION, ALL OBLIGATIONS UNDER THIS AGREEMENT, THE DEBENTURES, THE
ORIGINAL ISSUE DISCOUNT SECURED CONVERTIBLE DEBENTURES DUE FEBRUARY 14, 2010,
MAY 8, 2010 AND SEPTEMBER __, 2010, ANY EXISTING OR FUTURE CREDIT LINE OR OTHER
29
LOAN FACILITY, THE GUARANTY AND ANY OTHER INSTRUMENTS, AGREEMENTS OR OTHER
DOCUMENTS EXECUTED AND/OR DELIVERED IN CONNECTION HEREWITH OR THEREWITH, IN EACH
CASE, WHETHER NOW OR HEREAFTER EXISTING, VOLUNTARY OR INVOLUNTARY, DIRECT OR
INDIRECT, ABSOLUTE OR CONTINGENT, LIQUIDATED OR UNLIQUIDATED, WHETHER OR NOT
JOINTLY OWED WITH OTHERS, AND WHETHER OR NOT FROM TIME TO TIME DECREASED OR
EXTINGUISHED AND LATER INCREASED, CREATED OR INCURRED, AND ALL OR ANY PORTION OF
SUCH OBLIGATIONS OR LIABILITIES THAT ARE PAID, TO THE EXTENT ALL OR ANY PART OF
SUCH PAYMENT IS AVOIDED OR RECOVERED DIRECTLY OR INDIRECTLY FROM ANY OF THE
SECURED PARTIES AS A PREFERENCE, FRAUDULENT TRANSFER OR OTHERWISE AS SUCH
OBLIGATIONS MAY BE AMENDED, SUPPLEMENTED, CONVERTED, EXTENDED OR MODIFIED FROM
TIME TO TIME. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE TERM
"OBLIGATIONS" SHALL INCLUDE, WITHOUT LIMITATION: (I) PRINCIPAL OF, AND INTEREST
ON THE DEBENTURES AND THE LOANS EXTENDED PURSUANT THERETO; (II) ANY AND ALL
OTHER FEES, INDEMNITIES, COSTS, OBLIGATIONS AND LIABILITIES OF THE DEBTORS FROM
TIME TO TIME UNDER OR IN CONNECTION WITH THIS AGREEMENT, THE DEBENTURES, THE
GUARANTY AND ANY OTHER INSTRUMENTS, AGREEMENTS OR OTHER DOCUMENTS EXECUTED
AND/OR DELIVERED IN CONNECTION HEREWITH OR THEREWITH; AND (III) ALL AMOUNTS
(INCLUDING BUT NOT LIMITED TO POST-PETITION INTEREST) IN RESPECT OF THE
FOREGOING THAT WOULD BE PAYABLE BUT FOR THE FACT THAT THE OBLIGATIONS TO PAY
SUCH AMOUNTS ARE UNENFORCEABLE OR NOT ALLOWABLE DUE TO THE EXISTENCE OF A
BANKRUPTCY, REORGANIZATION OR SIMILAR PROCEEDING INVOLVING ANY DEBTOR."
ARTICLE V.
MISCELLANEOUS
5.1 TERMINATION. This Agreement may be terminated by any Purchaser, as
to such Purchaser's obligations hereunder only and without any effect whatsoever
on the obligations between the Company and the other Purchasers, by written
notice to the other parties, if the Closing has not been consummated on or
before September 21, 2007; PROVIDED, HOWEVER, that no such termination will
affect the right of any party to ▇▇▇ for any breach by the other party (or
parties).
5.2 FEES AND EXPENSES. At the Closing, the Company has agreed to reimburse
FWS and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Frome ▇▇▇▇▇▇▇▇▇▇ & Wolosky LLP for their respective
reasonable legal fees and expenses. Except as expressly set forth in the
Transaction Documents to the contrary, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall pay all transfer agent fees, stamp taxes and other taxes and duties levied
in connection with the delivery of any Securities to the Purchasers.
5.3 ENTIRE AGREEMENT. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.4 NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
30
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 5:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the 2nd Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached
hereto.
5.5 AMENDMENTS; WAIVERS. No provision of this Agreement may be waived,
modified, supplemented or amended except in a written instrument signed, in the
case of an amendment, by the Company and two-thirds in interest of the
Purchasers (based on the then-outstanding principal amount of the Debentures)
or, in the case of a waiver, by the party against whom enforcement of any such
waived provision is sought. No waiver of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of any party to exercise any right hereunder in any manner
impair the exercise of any such right.
5.6 HEADINGS. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
5.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser (other than by merger). Any
Purchaser may assign any or all of its rights under this Agreement to any Person
to whom such Purchaser assigns or transfers any Securities, provided such
transferee agrees in writing to be bound, with respect to the transferred
Securities, by the provisions of the Transaction Documents that apply to the
"Purchasers".
5.8 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.11.
5.9 GOVERNING LAW. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
31
herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or is an inconvenient venue for such proceeding. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any other manner permitted by law. The parties hereby waive
all rights to a trial by jury. If either party shall commence an action or
proceeding to enforce any provisions of the Transaction Documents, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its reasonable attorneys' fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such action or
proceeding.
5.10 SURVIVAL. The representations, warranties, covenants and other
agreements contained herein shall survive the Closing and the delivery, exercise
and/or conversion of the Securities, as applicable for the applicable statue of
limitations.
5.11 EXECUTION. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission or by e-mail delivery of a ".pdf" format
data file, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile or ".pdf" signature page were an original
thereof.
5.12 SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their commercially reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.
5.13 RESCISSION AND WITHDRAWAL RIGHT. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) any of
the other 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; PROVIDED,
HOWEVER, in the case of a rescission of a conversion of a Debenture or exercise
of a Warrant, the Purchaser shall be required to return any shares of Common
Stock subject to any such rescinded conversion or exercise notice.
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5.14 REPLACEMENT OF SECURITIES. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof (in the case of mutilation), 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. The
applicant for a new certificate or instrument under such circumstances shall
also pay any reasonable third-party costs (including customary indemnity)
associated with the issuance of such replacement Securities.
5.15 REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations contained in the Transaction Documents and hereby agrees to waive
and not to assert in any action for specific performance of any such obligation
the defense that a remedy at law would be adequate.
5.16 PAYMENT SET ASIDE. To the extent that the Company makes a payment or
payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
5.17 USURY. To the extent it may lawfully do so, the Company hereby
agrees not to insist upon or plead or in any manner whatsoever claim, and will
resist any and all efforts to be compelled to take the benefit or advantage of,
usury laws wherever enacted, now or at any time hereafter in force, in
connection with any claim, action or proceeding that may be brought by any
Purchaser in order to enforce any right or remedy under any Transaction
Document. Notwithstanding any provision to the contrary contained in any
Transaction Document, it is expressly agreed and provided that the total
liability of the Company under the Transaction Documents for payments in the
nature of interest shall not exceed the maximum lawful rate authorized under
applicable law (the "Maximum Rate"), and, without limiting the foregoing, in no
event shall any rate of interest or default interest, or both of them, when
aggregated with any other sums in the nature of interest that the Company may be
obligated to pay under the Transaction Documents exceed such Maximum Rate. It is
agreed that if the maximum contract rate of interest allowed by law and
applicable to the Transaction Documents is increased or decreased by statute or
any official governmental action subsequent to the date hereof, the new maximum
contract rate of interest
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allowed by law will be the Maximum Rate applicable to the Transaction Documents
from the effective date forward, unless such application is precluded by
applicable law. If under any circumstances whatsoever, interest in excess of the
Maximum Rate is paid by the Company to any Purchaser with respect to
indebtedness evidenced by the Transaction Documents, such excess shall be
applied by such Purchaser to the unpaid principal balance of any such
indebtedness or be refunded to the Company, the manner of handling such excess
to be at such Purchaser's election.
5.18 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 or non-performance of the obligations
of any other Purchaser under any Transaction Document. Nothing contained herein
or in any other 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 shall be entitled to independently protect
and enforce its rights, including without limitation the rights arising out of
this Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose. Each Purchaser has been represented by its own
separate legal counsel in their review and negotiation of the Transaction
Documents. For reasons of administrative convenience only, Purchasers and their
respective counsel have chosen to communicate with the Company through FWS. FWS
does not represent all of the Purchasers but only Midsummer. The Company has
elected to provide all Purchasers with the same terms and Transaction Documents
for the convenience of the Company and not because it was required or requested
to do so by the Purchasers.
5.19 LIQUIDATED DAMAGES. The Company's obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.
5.20 CONSTRUCTION. The parties agree that each of them and/or their
respective counsel has reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto.
(SIGNATURE PAGES FOLLOW)
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IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
HARTVILLE GROUP, INC. Address for Notice:
------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇
▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
By: Attn:
------------------------------------- Fax:
Name: e-mail:
Title:
With a copy to (which shall not constitute notice):
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
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[PURCHASER SIGNATURE PAGES TO HTVL SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Name of Purchaser: ___________ Islandia, L.P.___________________________________
SIGNATURE OF AUTHORIZED SIGNATORY OF PURCHASER: ________________________________
Name of Authorized Signatory: ______ ▇▇▇▇▇ ▇. Berner____________________________
Title of Authorized Signatory: _Vice-President of ▇▇▇▇ ▇▇▇▇, Inc., G.P._________
Email Address of Purchaser: ______ ▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇.▇▇▇________________________
Facsimile of Purchaser: ___(▇▇▇) ▇▇▇-▇▇▇▇_______________________________________
Address for Notice of Purchaser: Islandia, L.P.
C/o ▇▇▇▇ ▇▇▇▇, Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Address for Delivery of Securities for Purchaser (if not same as above):
Subscription Amount: 1,000,000
Warrant Shares: 8,438,818
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
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