SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of July 18,
2005, by and among ROO Group, Inc., a Delaware corporation, with headquarters
located at ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (the
"Company"), and each of the purchasers set forth on the signature pages hereto
(the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this Agreement
in reliance upon an exemption from securities registration afforded by the rules
and regulations as promulgated by the United States Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the "1933
Act");
B. Buyers desire to purchase and the Company desires to issue and sell,
upon the terms and conditions set forth in this Agreement (i) 8% convertible
notes of the Company, in the form attached hereto as Exhibit "A", in the
aggregate principal amount of Two Million Five Hundred Thousand Dollars
($2,500,000) (together with any note(s) issued in replacement thereof or as a
dividend thereon or otherwise with respect thereto in accordance with the terms
thereof, the "Notes"), convertible into shares of common stock, $.0001 par value
per share, of the Company (the "Common Stock"), upon the terms and subject to
the limitations and conditions set forth in such Notes and (ii) warrants, in the
form attached hereto as Exhibit "B", to purchase Five Million (5,000,000) shares
of Common Stock (the "Warrants").
C. Each Buyer wishes to purchase, upon the terms and conditions stated in
this Agreement, such principal amount of Notes and number of Warrants as is set
forth immediately below its name on the signature pages hereto; and
D. Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement, in
the form attached hereto as Exhibit "C" (the "Registration Rights Agreement"),
pursuant to which the Company has agreed to provide certain registration rights
under the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws.
NOW THEREFORE, the Company and each of the Buyers severally (and not
jointly) hereby agree as follows:
1. PURCHASE AND SALE OF NOTES AND WARRANTS.
a. Purchase of Notes and Warrants. On the Closing Date (as defined
below), the Company shall issue and sell to each Buyer and each Buyer severally
agrees to purchase from the Company such principal amount of Notes and number of
Warrants as is set forth immediately below such Buyer's name on the signature
pages hereto, which, together with the subsequent closings provided in Section
1(d) below, aggregate Two Million Five Hundred Thousand Dollars ($2,500,000)
principal amount of Notes and Warrants to purchase an aggregate of 5,000,000
shares of Common Stock.
b. Form of Payment. On the Closing Date (as defined below), (i) each
Buyer shall pay the purchase price for the Notes and the Warrants to be issued
and sold to it at the Closing (as defined below) (the "Purchase Price") by wire
transfer of immediately available funds to the Company, in accordance with the
Company's written wiring instructions, against delivery of the Notes in the
principal amount equal to the Purchase Price and the number of Warrants as is
set forth immediately below such Buyer's name on the signature pages hereto, and
(ii) the Company shall deliver such Notes and Warrants duly executed on behalf
of the Company, to such Buyer, against delivery of such Purchase Price.
c. Closing Date. Subject to the satisfaction (or written waiver) of
the conditions thereto set forth in Section 6 and Section 7 below, the date and
time of the issuance and sale of the Notes and the Warrants pursuant to this
Agreement (the "Closing Date") shall be 12:00 noon, Eastern Standard Time on
July [ ], 2005 or such other mutually agreed upon time. The closing of the
transactions contemplated by this Agreement (the "Closing") shall occur on the
Closing Date at such location as may be agreed to by the parties.
d. Subsequent Closings. On the final business day of each month
beginning in August 2005 and ending in June 2006 (each, a "Funding Date"), the
Company shall issue and sell to the Buyers and the Buyers severally agree to
purchase from the Company an aggregate of One Hundred Seventy-Seven Thousand Two
Hundred Seventy-Two and Seventy-Three Cents ($177,272.73) principal amount of
Notes and Warrants to purchase an aggregate of 354,546 shares of Common Stock.
On each Funding Date, the Buyers will transfer an aggregate of One Hundred
Seventy-Seven Thousand Two Hundred Seventy-Two and Seventy-Three Cents
($177,272.73) by wire transfer of immediately available funds to the Company. In
addition, on each Funding Date, an authorized officer of the Company shall
deliver to the Buyers a closing certificate in form and substance satisfactory
to the Buyers. Notwithstanding the foregoing: (i) the aggregate $2,500,000
principal amount of Notes and the Warrants to purchase an aggregate of 5,000,000
shares of Common Stock shall be sold by the Company and purchased by the Buyer
and the final Funding Date shall be no later than five (5) business days after
effectiveness of the Registration Statement (as defined in the Registration
Rights Agreement entered into among the Company and the Buyers on the date
hereof; and (ii) either the Company or a majority-in-interest of the Buyers may
terminate their obligations under this Section 1(d) upon thirty (30) days
written notice to the other party.
2. BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer severally (and not
jointly) represents and warrants to the Company solely as to such Buyer that:
a. Investment Purpose. As of the date hereof, the Buyer is
purchasing the Notes and the shares of Common Stock issuable upon conversion of
or otherwise pursuant to the Notes (including, without limitation, such
additional shares of Common Stock, if any, as are issuable (i) on account of
interest on the Notes, (ii) as a result of the events described in Sections 1.3
and 1.4(g) of the Notes and Section 2(c) of the Registration Rights Agreement or
(iii) in payment of the Standard Liquidated Damages Amount (as defined in
Section 2(f) below) pursuant to this Agreement, such shares of Common Stock
being collectively referred to herein as the "Conversion Shares") and the
Warrants and the shares of Common Stock issuable upon exercise thereof (the
"Warrant Shares" and, collectively with the Notes, Warrants and Conversion
Shares, the "Securities") for its own account and not with a present view
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towards the public sale or distribution thereof, except pursuant to sales
registered or exempted from registration under the 1933 Act; provided, however,
that by making the representations herein, the Buyer does not agree to hold any
of the Securities for any minimum or other specific term and reserves the right
to dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act.
b. Accredited Investor Status. The Buyer is an "accredited investor"
as that term is defined in Rule 501(a) of Regulation D (an "Accredited
Investor").
c. Reliance on Exemptions. The Buyer understands that the Securities
are being offered and sold to it in reliance upon specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying upon the truth and accuracy of, and the Buyer's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of the Buyer to acquire the
Securities.
d. Information. The Buyer and its advisors, if any, have been, and
for so long as the Notes and Warrants remain outstanding will continue to be,
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by the Buyer or its advisors. The Buyer and its
advisors, if any, have been, and for so long as the Notes and Warrants remain
outstanding will continue to be, afforded the opportunity to ask questions of
the Company. Notwithstanding the foregoing, the Company has not disclosed to the
Buyer any material nonpublic information and will not disclose such information
unless such information is disclosed to the public prior to or promptly
following such disclosure to the Buyer. Neither such inquiries nor any other due
diligence investigation conducted by Buyer or any of its advisors or
representatives shall modify, amend or affect Buyer's right to rely on the
Company's representations and warranties contained in Section 3 below. The Buyer
understands that its investment in the Securities involves a significant degree
of risk.
e. Governmental Review. The Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
f. Transfer or Re-sale. The Buyer understands that (i) except as
provided in the Registration Rights Agreement, the sale or re-sale of the
Securities has not been and is not being registered under the 1933 Act or any
applicable state securities laws, and the Securities may not be transferred
unless (a) the Securities are sold pursuant to an effective registration
statement under the 1933 Act, (b) the Buyer shall have delivered to the Company
an opinion of counsel that shall be in form, substance and scope customary for
opinions of counsel in comparable transactions to the effect that the Securities
to be sold or transferred may be sold or transferred pursuant to an exemption
from such registration, which opinion shall be accepted by the Company, (c) the
Securities are sold or transferred to an "affiliate" (as defined in Rule 144
promulgated under the 1933 Act (or a successor rule) ("Rule 144")) of the Buyer
who agrees to sell or otherwise transfer the Securities only in accordance with
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this Section 2(f) and who is an Accredited Investor, (d) the Securities are sold
pursuant to Rule 144, or (e) the Securities are sold pursuant to Regulation S
under the 1933 Act (or a successor rule) ("Regulation S"), and the Buyer shall
have delivered to the Company an opinion of counsel that shall be in form,
substance and scope customary for opinions of counsel in corporate transactions,
which opinion shall be accepted by the Company; (ii) any sale of such Securities
made in reliance on Rule 144 may be made only in accordance with the terms of
said Rule and further, if said Rule is not applicable, any re-sale of such
Securities under circumstances in which the seller (or the person through whom
the sale is made) may be deemed to be an underwriter (as that term is defined in
the ▇▇▇▇ ▇▇▇) may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and (iii) neither the
Company nor any other person is under any obligation to register such Securities
under the 1933 Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder (in each case, other than pursuant to the
Registration Rights Agreement). Notwithstanding the foregoing or anything else
contained herein to the contrary, the Securities may be pledged as collateral in
connection with a bona fide margin account or other lending arrangement. In the
event that the Company does not accept the opinion of counsel provided by the
Buyer with respect to the transfer of Securities pursuant to an exemption from
registration, such as Rule 144 or Regulation S, within three (3) business days
of delivery of the opinion to the Company, the Company shall pay to the Buyer
liquidated damages of three percent (3%) of the outstanding amount of the Notes
per month plus accrued and unpaid interest on the Notes, prorated for partial
months, in cash or shares at the option of the Buyer ("Standard Liquidated
Damages Amount"). If the Buyer elects to be paid the Standard Liquidated Damages
Amount in shares of Common Stock, such shares shall be issued at the Conversion
Price at the time of payment.
g. Legends. The Buyer understands that the Notes and the Warrants
and, until such time as the Conversion Shares and Warrant Shares have been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement or otherwise may be sold pursuant to Rule 144 or Regulation S without
any restriction as to the number of securities as of a particular date that can
then be immediately sold, the Conversion Shares and Warrant Shares may bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of the certificates for such Securities):
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The securities may not be
sold, transferred or assigned in the absence of an effective registration
statement for the securities under said Act, or an opinion of counsel, in
form, substance and scope customary for opinions of counsel in comparable
transactions, that registration is not required under said Act or unless
sold pursuant to Rule 144 or Regulation S under said Act."
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by applicable state securities laws, (a)
such Security is registered for sale under an effective registration statement
filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 or
Regulation S without any restriction as to the number of securities as of a
particular date that can then be immediately sold, or (b) such holder provides
the Company with an opinion of counsel, in form, substance and scope customary
for opinions of counsel in comparable transactions, to the effect that a public
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sale or transfer of such Security may be made without registration under the
1933 Act, which opinion shall be accepted by the Company so that the sale or
transfer is effected or (c) such holder provides the Company with reasonable
assurances that such Security can be sold pursuant to Rule 144 or Regulation S.
The Buyer agrees to sell all Securities, including those represented by a
certificate(s) from which the legend has been removed, in compliance with
applicable prospectus delivery requirements, if any.
h. Authorization; Enforcement. This Agreement and the Registration
Rights Agreement have been duly and validly authorized. This Agreement has been
duly executed and delivered on behalf of the Buyer, and this Agreement
constitutes, and upon execution and delivery by the Buyer of the Registration
Rights Agreement, such agreement will constitute, valid and binding agreements
of the Buyer enforceable in accordance with their terms.
i. Residency. The Buyer is a resident of the jurisdiction set forth
immediately below such Buyer's name on the signature pages hereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to each Buyer that:
a. Organization and Qualification. The Company and each of its
Subsidiaries (as defined below), if any, is a corporation duly organized, and,
except as set forth on Schedule 3(a), validly existing and in good standing
under the laws of the jurisdiction in which it is incorporated, with full power
and authority (corporate and other) to own, lease, use and operate its
properties and to carry on its business as and where now owned, leased, used,
operated and conducted. Schedule 3(a) sets forth a list of all of the
Subsidiaries of the Company and the jurisdiction in which each is incorporated.
The Company and each of its Subsidiaries is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which its ownership or use of property or the nature of the business conducted
by it makes such qualification necessary except where the failure to be so
qualified or in good standing would not have a Material Adverse Effect.
"Material Adverse Effect" means any material adverse effect on the business,
operations, assets, financial condition or prospects of the Company or its
Subsidiaries, if any, taken as a whole, or on the transactions contemplated
hereby or by the agreements or instruments to be entered into in connection
herewith. "Subsidiaries" means any corporation or other organization, whether
incorporated or unincorporated, in which the Company owns, directly or
indirectly, any equity or other ownership interest.
b. Authorization; Enforcement. (i) The Company has all requisite
corporate power and authority to enter into and perform this Agreement, the
Registration Rights Agreement, the Notes and the Warrants and to consummate the
transactions contemplated hereby and thereby and to issue the Securities, in
accordance with the terms hereof and thereof, (ii) the execution and delivery of
this Agreement, the Registration Rights Agreement, the Notes and the Warrants by
the Company and the consummation by it of the transactions contemplated hereby
and thereby (including without limitation, the issuance of the Notes and the
Warrants and the issuance and reservation for issuance of the Conversion Shares
and Warrant Shares issuable upon conversion or exercise thereof) have been duly
authorized by the Company's Board of Directors and no further consent or
authorization of the Company, its Board of Directors, or its shareholders is
5
required, (iii) this Agreement has been duly executed and delivered by the
Company by its authorized representative, and such authorized representative is
the true and official representative with authority to sign this Agreement and
the other documents executed in connection herewith and bind the Company
accordingly, and (iv) this Agreement constitutes, and upon execution and
delivery by the Company of the Registration Rights Agreement, the Notes and the
Warrants, each of such instruments will constitute, a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms.
c. Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of (i) 500,000,000 shares of Common Stock, of
which 222,891,117 shares are issued and outstanding, 50,000,000 shares are
reserved for issuance pursuant to the Company's stock option plans, 227,108,883
shares are reserved for issuance pursuant to securities (other than the Notes
and the Warrants) exercisable for, or convertible into or exchangeable for
shares of Common Stock and 0 shares are currently reserved for issuance upon
conversion of the Notes and exercise of the Warrants (subject to adjustment
pursuant to the Company's covenant set forth in Section 4(h) below); and (ii)
20,000,000 shares of preferred stock, of which 9,500,000 shares are issued and
outstanding. All of such outstanding shares of capital stock are, or upon
issuance will be, duly authorized, validly issued, fully paid and nonassessable.
No shares of capital stock of the Company are subject to preemptive rights or
any other similar rights of the shareholders of the Company or any liens or
encumbrances imposed through the actions or failure to act of the Company.
Except as disclosed in Schedule 3(c), as of the effective date of this
Agreement, (i) there are no outstanding options, warrants, scrip, rights to
subscribe for, puts, calls, rights of first refusal, agreements, understandings,
claims or other commitments or rights of any character whatsoever relating to,
or securities or rights convertible into or exchangeable for any shares of
capital stock of the Company or any of its Subsidiaries, or arrangements by
which the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries,
(ii) there are no agreements or arrangements under which the Company or any of
its Subsidiaries is obligated to register the sale of any of its or their
securities under the 1933 Act (except the Registration Rights Agreement) and
(iii) there are no anti-dilution or price adjustment provisions contained in any
security issued by the Company (or in any agreement providing rights to security
holders) that will be triggered by the issuance of the Notes, the Warrants, the
Conversion Shares or Warrant Shares. The Company has furnished to the Buyer true
and correct copies of the Company's Certificate of Incorporation as in effect on
the date hereof ("Certificate of Incorporation"), the Company's By-laws, as in
effect on the date hereof (the "By-laws"), and the terms of all securities
convertible into or exercisable for Common Stock of the Company and the material
rights of the holders thereof in respect thereto. The Company shall provide the
Buyer with a written update of this representation signed by the Company's Chief
Executive or Chief Financial Officer on behalf of the Company as of the Closing
Date.
d. Issuance of Shares. Except as disclosed in Schedule 3(d), the
Conversion Shares and Warrant Shares are duly authorized and reserved for
issuance and, upon conversion of the Notes and exercise of the Warrants in
accordance with their respective terms, will be validly issued, fully paid and
non-assessable, and free from all taxes, liens, claims and encumbrances with
respect to the issue thereof and shall not be subject to preemptive rights or
other similar rights of shareholders of the Company and will not impose personal
liability upon the holder thereof.
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e. Acknowledgment of Dilution. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock upon the
issuance of the Conversion Shares and Warrant Shares upon conversion of the Note
or exercise of the Warrants. The Company further acknowledges that its
obligation to issue Conversion Shares and Warrant Shares upon conversion of the
Notes or exercise of the Warrants in accordance with this Agreement, the Notes
and the Warrants is absolute and unconditional regardless of the dilutive effect
that such issuance may have on the ownership interests of other shareholders of
the Company.
f. No Conflicts. Except as disclosed in Schedule 3(f), the
execution, delivery and performance of this Agreement, the Registration Rights
Agreement, the Notes, the Security Agreement and the Warrants by the Company and
the consummation by the Company of the transactions contemplated hereby and
thereby (including, without limitation, the issuance and reservation for
issuance of the Conversion Shares and Warrant Shares) will not (i) conflict with
or result in a violation of any provision of the Certificate of Incorporation or
By-laws or (ii) violate or conflict with, or result in a breach of any provision
of, or constitute a default (or an event which with notice or lapse of time or
both could become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture, patent,
patent license or instrument to which the Company or any of its Subsidiaries is
a party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations
and regulations of any self-regulatory organizations to which the Company or its
securities are subject) applicable to the Company or any of its Subsidiaries or
by which any property or asset of the Company or any of its Subsidiaries is
bound or affected (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect). Neither the
Company nor any of its Subsidiaries is in violation of its Certificate of
Incorporation, By-laws or other organizational documents and neither the Company
nor any of its Subsidiaries is in default (and no event has occurred which with
notice or lapse of time or both could put the Company or any of its Subsidiaries
in default) under, and neither the Company nor any of its Subsidiaries has taken
any action or failed to take any action that would give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Subsidiaries is a
party or by which any property or assets of the Company or any of its
Subsidiaries is bound or affected, except for possible defaults as would not,
individually or in the aggregate, have a Material Adverse Effect. The businesses
of the Company and its Subsidiaries, if any, are not being conducted, and shall
not be conducted so long as a Buyer owns any of the Securities, in violation of
any law, ordinance or regulation of any governmental entity. Except as
specifically contemplated by this Agreement and as required under the 1933 Act
and any applicable state securities laws, the Company is not required to obtain
any consent, authorization or order of, or make any filing or registration with,
any court, governmental agency, regulatory agency, self regulatory organization
or stock market or any third party in order for it to execute, deliver or
perform any of its obligations under this Agreement, the Registration Rights
Agreement, the Notes or the Warrants in accordance with the terms hereof or
thereof or to issue and sell the Notes and Warrants in accordance with the terms
hereof and to issue the Conversion Shares upon conversion of the Notes and the
Warrant Shares upon exercise of the Warrants. Except as disclosed in Schedule
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3(f), all consents, authorizations, orders, filings and registrations which the
Company is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof. The Company is not in
violation of the listing requirements of the Over-the-Counter Bulletin Board
(the "OTCBB") and does not reasonably anticipate that the Common Stock will be
delisted by the OTCBB in the foreseeable future. The Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing.
g. SEC Documents; Financial Statements. Except as disclosed in
Schedule 3(g), the Company has timely filed all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC pursuant
to the reporting requirements of the Securities Exchange Act of 1934, as amended
(the "1934 Act") (all of the foregoing filed prior to the date hereof and all
exhibits included therein and financial statements and schedules thereto and
documents (other than exhibits to such documents) incorporated by reference
therein, being hereinafter referred to herein as the "SEC Documents"). The
Company has delivered to each Buyer true and complete copies of the SEC
Documents, except for such exhibits and incorporated documents. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. None of the
statements made in any such SEC Documents is, or has been, required to be
amended or updated under applicable law (except for such statements as have been
amended or updated in subsequent filings prior the date hereof). As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
United States generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements) and fairly present in all material respects the
consolidated financial position of the Company and its consolidated Subsidiaries
as of the dates thereof and the consolidated results of their operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). Except as set forth in the
financial statements of the Company included in the SEC Documents, the Company
has no liabilities, contingent or otherwise, other than (i) liabilities incurred
in the ordinary course of business subsequent to December 31, 2004 and (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in such financial statements, which, individually or in the aggregate,
are not material to the financial condition or operating results of the Company.
h. Absence of Certain Changes. Since December 31, 2004, there has
been no material adverse change and no material adverse development in the
assets, liabilities, business, properties, operations, financial condition,
results of operations or prospects of the Company or any of its Subsidiaries.
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i. Absence of Litigation. There is no action, suit, claim,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened against or
affecting the Company or any of its Subsidiaries, or their officers or directors
in their capacity as such, that could have a Material Adverse Effect. Schedule
3(i) contains a complete list and summary description of any pending or
threatened proceeding against or affecting the Company or any of its
Subsidiaries, without regard to whether it would have a Material Adverse Effect.
The Company and its Subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing.
j. Patents, Copyrights, etc. The Company and each of its
Subsidiaries owns or possesses the requisite licenses or rights to use all
patents, patent applications, patent rights, inventions, know-how, trade
secrets, trademarks, trademark applications, service marks, service names, trade
names and copyrights ("Intellectual Property") necessary to enable it to conduct
its business as now operated (and, except as set forth in Schedule 3(j) hereof,
to the best of the Company's knowledge, as presently contemplated to be operated
in the future); there is no claim or action by any person pertaining to, or
proceeding pending, or to the Company's knowledge threatened, which challenges
the right of the Company or of a Subsidiary with respect to any Intellectual
Property necessary to enable it to conduct its business as now operated (and,
except as set forth in Schedule 3(j) hereof, to the best of the Company's
knowledge, as presently contemplated to be operated in the future); to the best
of the Company's knowledge, the Company's or its Subsidiaries' current and
intended products, services and processes do not infringe on any Intellectual
Property or other rights held by any person; and the Company is unaware of any
facts or circumstances which might give rise to any of the foregoing. The
Company and each of its Subsidiaries have taken reasonable security measures to
protect the secrecy, confidentiality and value of their Intellectual Property.
k. No Materially Adverse Contracts, Etc. Neither the Company nor any
of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a
party to any contract or agreement which in the judgment of the Company's
officers has or is expected to have a Material Adverse Effect.
l. Tax Status. Except as set forth on Schedule 3(l), the Company and
each of its Subsidiaries has made or filed all federal, state and foreign income
and all other tax returns, reports and declarations required by any jurisdiction
to which it is subject (unless and only to the extent that the Company and each
of its Subsidiaries has set aside on its books provisions reasonably adequate
for the payment of all unpaid and unreported taxes) and has paid all taxes and
other governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any such
9
claim. The Company has not executed a waiver with respect to the statute of
limitations relating to the assessment or collection of any foreign, federal,
state or local tax. Except as set forth on Schedule 3(l), none of the Company's
tax returns is presently being audited by any taxing authority.
m. Certain Transactions. Except as set forth on Schedule 3(m) and
except for arm's length transactions pursuant to which the Company or any of its
Subsidiaries makes payments in the ordinary course of business upon terms no
less favorable than the Company or any of its Subsidiaries could obtain from
third parties and other than the grant of stock options disclosed on Schedule
3(c), none of the officers, directors, or employees of the Company is presently
a party to any transaction with the Company or any of its Subsidiaries (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 corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
n. Disclosure. All information relating to or concerning the Company
or any of its Subsidiaries set forth in this Agreement and provided to the
Buyers pursuant to Section 2(d) hereof and otherwise in connection with the
transactions contemplated hereby is true and correct in all material respects
and the Company has not omitted to state any material fact necessary in order to
make the statements made herein or therein, in light of the circumstances under
which they were made, not misleading. No event or circumstance has occurred or
exists with respect to the Company or any of its Subsidiaries or its or their
business, properties, prospects, operations or financial conditions, which,
under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed (assuming for this purpose that the Company's reports filed under the
1934 Act are being incorporated into an effective registration statement filed
by the Company under the 1933 Act).
o. Acknowledgment Regarding Buyers' Purchase of Securities. The
Company acknowledges and agrees that the Buyers are acting solely in the
capacity of arm's length purchasers with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that no Buyer
is acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereby and any statement made by any Buyer or any of their respective
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is not advice or a recommendation and is merely incidental
to the Buyers' purchase of the Securities. The Company further represents to
each Buyer that the Company's decision to enter into this Agreement has been
based solely on the independent evaluation of the Company and its
representatives.
p. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales in any security or solicited any offers to
buy any security under circumstances that would require registration under the
1933 Act of the issuance of the Securities to the Buyers. The issuance of the
10
Securities to the Buyers will not be integrated with any other issuance of the
Company's securities (past, current or future) for purposes of any shareholder
approval provisions applicable to the Company or its securities.
q. No Brokers. The Company has taken no action which would give rise
to any claim by any person for brokerage commissions, transaction fees or
similar payments relating to this Agreement or the transactions contemplated
hereby.
r. Permits; Compliance. The Company and each of its Subsidiaries is
in possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate its properties and to carry on its business
as it is now being conducted (collectively, the "Company Permits"), and there is
no action pending or, to the knowledge of the Company, threatened regarding
suspension or cancellation of any of the Company Permits. Neither the Company
nor any of its Subsidiaries is in conflict with, or in default or violation of,
any of the Company Permits, except for any such conflicts, defaults or
violations which, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect. Since December 31, 2004, neither the
Company nor any of its Subsidiaries has received any notification with respect
to possible conflicts, defaults or violations of applicable laws, except for
notices relating to possible conflicts, defaults or violations, which conflicts,
defaults or violations would not have a Material Adverse Effect.
s. Environmental Matters.
(i) Except as set forth in Schedule 3(s), there are, to the
Company's knowledge, with respect to the Company or any of its Subsidiaries or
any predecessor of the Company, no past or present violations of Environmental
Laws (as defined below), releases of any material into the environment, actions,
activities, circumstances, conditions, events, incidents, or contractual
obligations which may give rise to any common law environmental liability or any
liability under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 or similar federal, state, local or foreign laws and
neither the Company nor any of its Subsidiaries has received any notice with
respect to any of the foregoing, nor is any action pending or, to the Company's
knowledge, threatened in connection with any of the foregoing. The term
"Environmental Laws" means all federal, state, local or foreign laws relating to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata), including, without limitation, laws relating to emissions, discharges,
releases or threatened releases of chemicals, pollutants contaminants, or toxic
or hazardous substances or wastes (collectively, "Hazardous Materials") into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.
(ii) Other than those that are or were stored, used or
disposed of in compliance with applicable law, no Hazardous Materials are
contained on or about any real property currently owned, leased or used by the
Company or any of its Subsidiaries, and no Hazardous Materials were released on
or about any real property previously owned, leased or used by the Company or
11
any of its Subsidiaries during the period the property was owned, leased or used
by the Company or any of its Subsidiaries, except in the normal course of the
Company's or any of its Subsidiaries' business.
(iii) Except as set forth in Schedule 3(s), there are no
underground storage tanks on or under any real property owned, leased or used by
the Company or any of its Subsidiaries that are not in compliance with
applicable law.
t. Title to Property. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 3(t) or such
as would not have a Material Adverse Effect. Any real property and facilities
held under lease by the Company and its Subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as would not have
a Material Adverse Effect.
u. Insurance. The Company and each of its Subsidiaries are insured
by insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such 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 at a cost that would not have a Material
Adverse Effect. The Company has provided to Buyer true and correct copies of all
policies relating to directors' and officers' liability coverage, errors and
omissions coverage, and commercial general liability coverage.
v. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's board of directors, 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 generally
accepted accounting principles 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.
w. Foreign Corrupt Practices. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any Subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977,
as amended, or made any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment to any foreign or domestic government official or
employee.
12
x. Solvency. The Company (after giving effect to the transactions
contemplated by this Agreement) is solvent (i.e., its assets have a fair market
value in excess of the amount required to pay its probable liabilities on its
existing debts as they become absolute and matured) and currently the Company
has no information that would lead it to reasonably conclude that the Company
would not, after giving effect to the transaction contemplated by this
Agreement, have the ability to, nor does it intend to take any action that would
impair its ability to, pay its debts from time to time incurred in connection
therewith as such debts mature. The Company did not receive a qualified opinion
from its auditors with respect to its most recent fiscal year end and, after
giving effect to the transactions contemplated by this Agreement, does not
anticipate or know of any basis upon which its auditors might issue a qualified
opinion in respect of its current fiscal year.
y. No Investment Company. The Company is not, and upon the issuance
and sale of the Securities as contemplated by this Agreement will not be an
"investment company" required to be registered under the Investment Company Act
of 1940 (an "Investment Company"). The Company is not controlled by an
Investment Company.
z. Breach of Representations and Warranties by the Company. If the
Company breaches any of the representations or warranties set forth in this
Section 3, and in addition to any other remedies available to the Buyers
pursuant to this Agreement, the Company shall pay to the Buyer the Standard
Liquidated Damages Amount in cash or in shares of Common Stock at the option of
the Company, until such breach is cured. If the Company elects to pay the
Standard Liquidated Damages Amounts in shares of Common Stock, such shares shall
be issued at the Conversion Price at the time of payment.
4. COVENANTS.
a. Best Efforts. The parties shall use their best efforts to satisfy
timely each of the conditions described in Section 6 and 7 of this Agreement.
b. Form D; Blue Sky Laws. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to the Buyers at the
applicable closing pursuant to this Agreement under applicable securities or
"blue sky" laws of the states of the United States (or to obtain an exemption
from such qualification), and shall provide evidence of any such action so taken
to each Buyer on or prior to the Closing Date.
c. Reporting Status; Eligibility to Use Form S-3, SB-2 or Form S-1.
The Company's Common Stock is registered under Section 12(g) of the 1934 Act.
The Company represents and warrants that it meets the requirements for the use
of Form SB-2 (or if the Company is not eligible for the use of Form SB-2 as of
the Filing Date (as defined in the Registration Rights Agreement), the Company
may use the form of registration for which it is eligible at that time) for
registration of the sale by the Buyer of the Registrable Securities (as defined
in the Registration Rights Agreement). So long as the Buyer beneficially owns
any of the Securities, the Company shall timely file all reports required to be
filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate
13
its status as an issuer required to file reports under the 1934 Act even if the
1934 Act or the rules and regulations thereunder would permit such termination.
The Company further agrees to file all reports required to be filed by the
Company with the SEC in a timely manner so as to become eligible, and thereafter
to maintain its eligibility, for the use of Form S-3. The Company shall issue a
press release describing the materials terms of the transaction contemplated
hereby as soon as practicable following the Closing Date but in no event more
than two (2) business days of the Closing Date, which press release shall be
subject to prior review by the Buyers. The Company agrees that such press
release shall not disclose the name of the Buyers unless expressly consented to
in writing by the Buyers or unless required by applicable law or regulation, and
then only to the extent of such requirement.
d. Use of Proceeds. The Company shall use the proceeds from the sale
of the Notes and the Warrants in the manner set forth in Schedule 4(d) attached
hereto and made a part hereof and shall not, directly or indirectly, use such
proceeds for any loan to or investment in any other corporation, partnership,
enterprise or other person (except in connection with its currently existing
direct or indirect Subsidiaries).
e. Future Offerings. Subject to the exceptions described below, the
Company will not, without the prior written consent of a majority-in-interest of
the Buyers, not to be unreasonably withheld, during the period (the "Lock-up
Period") beginning on the Closing Date and ending one hundred and eighty (180)
days from the Closing Date, negotiate or contract with any party to obtain
additional equity financing (including debt financing with an equity component)
that involves (A) the issuance of Common Stock at a discount to the market price
of the Common Stock on the date of issuance (taking into account the value of
any warrants or options to acquire Common Stock issued in connection therewith)
or (B) the issuance of convertible securities that are convertible into an
indeterminate number of shares of Common Stock or (C) the issuance of warrants.
In addition, subject to the exceptions described below, the Company will not
conduct any equity financing (including debt with an equity component) ("Future
Offerings") during the period beginning on the Closing Date and ending two (2)
years after the end of the Lock-up Period unless it shall have first delivered
to each Buyer, at least ten (10) business days prior to the closing of such
Future Offering, written notice describing the proposed Future Offering,
including the terms and conditions thereof and proposed definitive documentation
to be entered into in connection therewith, and providing each Buyer an option
during the five (5) business day period following delivery of such notice to
purchase its pro rata share (based on the ratio that the aggregate principal
amount of Notes purchased by it hereunder bears to the aggregate principal
amount of Notes purchased hereunder) of the securities being offered in the
Future Offering on the same terms as contemplated by such Future Offering (the
limitations referred to in this sentence and the preceding sentence are
collectively referred to as the "Capital Raising Limitations"). In the event the
terms and conditions of a proposed Future Offering are amended in any respect
after delivery of the notice to the Buyers concerning the proposed Future
Offering, the Company shall deliver a new notice to each Buyer describing the
amended terms and conditions of the proposed Future Offering and each Buyer
thereafter shall have an option during the five (5) business day period
following delivery of such new notice to purchase its pro rata share of the
securities being offered on the same terms as contemplated by such proposed
Future Offering, as amended. The foregoing sentence shall apply to successive
amendments to the terms and conditions of any proposed Future Offering. The
Capital Raising Limitations shall not apply to any transaction involving (i)
14
current negotiations and/or current proposed financings of the Company through
▇▇▇▇ ▇▇▇▇▇▇ which the Buyers are aware of (ii) issuances of securities in a firm
commitment underwritten public offering (excluding a continuous offering
pursuant to Rule 415 under the 1933 Act), (iii) issuances of securities as
consideration for a merger, consolidation or purchase of assets, or in
connection with any strategic partnership or joint venture (the primary purpose
of which is not to raise equity capital), or in connection with the disposition
or acquisition of a business, product or license by the Company or (iv)
issuances of restricted securities at a discount to the market price of the
Company's Common Stock, provided that no registration rights are given to such
purchaser. The Capital Raising Limitations also shall not apply to the issuance
of securities upon exercise or conversion of the Company's options, warrants or
other convertible securities outstanding as of the date hereof or to the grant
of additional options or warrants, or the issuance of additional securities,
under any Company stock option or restricted stock plan approved by the
shareholders of the Company.
f. Expenses. At the Closing, the Company shall reimburse Buyers for
expenses incurred by them in connection with the negotiation, preparation,
execution, delivery and performance of this Agreement and the other agreements
to be executed in connection herewith ("Documents"), including, without
limitation, attorneys' and consultants' fees and expenses, transfer agent fees,
fees for stock quotation services, fees relating to any amendments or
modifications of the Documents or any consents or waivers of provisions in the
Documents, fees for the preparation of opinions of counsel, escrow fees, and
costs of restructuring the transactions contemplated by the Documents. When
possible, the Company must pay these fees directly, otherwise the Company must
make immediate payment for reimbursement to the Buyers for all fees and expenses
immediately upon written notice by the Buyer or the submission of an invoice by
the Buyer If the Company fails to reimburse the Buyer in full within three (3)
business days of the written notice or submission of invoice by the Buyer, the
Company shall pay interest on the total amount of fees to be reimbursed at a
rate of 15% per annum.
g. Financial Information. The Company agrees to send the following
reports to each Buyer until such Buyer transfers, assigns, or sells all of the
Securities: (i) within ten (10) days after the filing with the SEC, a copy of
its Annual Report on Form 10-KSB, its Quarterly Reports on Form 10-QSB and any
Current Reports on Form 8-K; (ii) within one (1) day after release, copies of
all press releases issued by the Company or any of its Subsidiaries; and (iii)
contemporaneously with the making available or giving to the shareholders of the
Company, copies of any notices or other information the Company makes available
or gives to such shareholders.
h. Authorization and Reservation of Shares. Except as disclosed in
Schedule 3(d), the Company shall at all times have authorized, and reserved for
the purpose of issuance, a sufficient number of shares of Common Stock to
provide for the full conversion or exercise of the outstanding Notes and
Warrants and issuance of the Conversion Shares and Warrant Shares in connection
therewith (based on the Conversion Price of the Notes or Exercise Price of the
Warrants in effect from time to time) and as otherwise required by the Notes.
The Company shall not reduce the number of shares of Common Stock reserved for
issuance upon conversion of Notes and exercise of the Warrants without the
consent of each Buyer. The Company shall at all times maintain the number of
shares of Common Stock so reserved for issuance at an amount ("Reserved Amount")
equal to no less than two (2) times the number that is then actually issuable
15
upon full conversion of the Notes and upon exercise of the Warrants (based on
the Conversion Price of the Notes or the Exercise Price of the Warrants in
effect from time to time). If at any time the number of shares of Common Stock
authorized and reserved for issuance ("Authorized and Reserved Shares") is below
the Reserved Amount, the Company will promptly take all corporate action
necessary to authorize and reserve a sufficient number of shares, including,
without limitation, calling a special meeting of shareholders to authorize
additional shares to meet the Company's obligations under this Section 4(h), in
the case of an insufficient number of authorized shares, obtain shareholder
approval of an increase in such authorized number of shares, and voting the
management shares of the Company in favor of an increase in the authorized
shares of the Company to ensure that the number of authorized shares is
sufficient to meet the Reserved Amount. If the Company fails to obtain such
shareholder approval within thirty (30) days following the date on which the
Reserved Amount exceeds the number ofAuthorized and Reserved Shares, the Company
shall pay to the Borrower the Standard Liquidated Damages Amount, in cash or in
shares of Common Stock at the option of the Buyer. If the Buyer elects to be
paid the Standard Liquidated Damages Amount in shares of Common Stock, such
shares shall be issued at the Conversion Price at the time of payment. In order
to ensure that the Company has authorized a sufficient amount of shares to meet
the Reserved Amount at all times, the Company must deliver to the Buyer at the
end of every month a list detailing (1) the current amount of shares authorized
by the Company and reserved for the Buyer; and (2) amount of shares issuable
upon conversion of the Notes and upon exercise of the Warrants and as payment of
interest accrued on the Notes for one year. If the Company fails to provide such
list within five (5) business days of the end of each month, the Company shall
pay the Standard Liquidated Damages Amount, in cash or in shares of Common Stock
at the option of the Buyer, until the list is delivered. If the Buyer elects to
be paid the Standard Liquidated Damages Amount in shares of Common Stock, such
shares shall be issued at the Conversion Price at the time of payment.
i. Listing. The Company shall promptly secure the listing of the
Conversion Shares and Warrant Shares upon each national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and, so long as any Buyer owns
any of the Securities, shall maintain, so long as any other shares of Common
Stock shall be so listed, such listing of all Conversion Shares and Warrant
Shares from time to time issuable upon conversion of the Notes or exercise of
the Warrants. The Company will obtain and, so long as any Buyer owns any of the
Securities, maintain the listing and trading of its Common Stock on the OTCBB or
any equivalent replacement exchange, the Nasdaq National Market ("Nasdaq"), the
Nasdaq SmallCap Market ("Nasdaq SmallCap"), the New York Stock Exchange
("NYSE"), or the American Stock Exchange ("AMEX") and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the National Association of Securities Dealers ("NASD") and
such exchanges, as applicable. The Company shall promptly provide to each Buyer
copies of any notices it receives from the OTCBB and any other exchanges or
quotation systems on which the Common Stock is then listed regarding the
continued eligibility of the Common Stock for listing on such exchanges and
quotation systems.
16
j. Corporate Existence. So long as a Buyer beneficially owns any
Notes or Warrants, the Company shall maintain its corporate existence and shall
not sell all or substantially all of the Company's assets, except in the event
of a merger or consolidation or sale of all or substantially all of the
Company's assets, where the surviving or successor entity in such transaction
(i) assumes the Company's obligations hereunder and under the agreements and
instruments entered into in connection herewith and (ii) is a publicly traded
corporation whose Common Stock is listed for trading on the OTCBB, Nasdaq,
Nasdaq SmallCap, NYSE or AMEX.
k. Stockholder Approval. The Company shall file a proxy or
information statement with the SEC no later than July 30, 2005 and use its best
efforts to obtain, on or before August 30, 2005, such approvals of the Company's
stockholders as may be required to issue all of the shares of Common Stock
issuable upon conversion or exercise of, or otherwise with respect to, the Notes
and the Warrants in accordance with Delaware law and any applicable rules or
regulations of the OTCBB and Nasdaq, either through a reverse stock split of the
Common Stock or an increase in authorized capital (the "Stockholder Approval").
The Company shall furnish to each Buyer and its legal counsel promptly (but in
no event less than two (2) business days) before the same is filed with the SEC,
one copy of the proxy or information statement and any amendment thereto, and
shall deliver to each Buyer promptly each letter written by or on behalf of the
Company to the SEC or the staff of the SEC, and each item of correspondence from
the SEC or the staff of the SEC, in each case relating to such proxy or
information statement (other than any portion thereof which contains information
for which the Company has sought confidential treatment). The Company will
promptly (but in no event more than five (5) business days) respond to any and
all comments received from the SEC (which comments shall promptly be made
available to each Buyer). The Company shall comply with the filing and
disclosure requirements of Section 14 under the 1934 Act in connection with the
Stockholder Approval. The Company represents and warrants that its Board of
Directors has approved the proposal contemplated by this Section 4(l) and shall
indicate such approval in the proxy or information statement used in connection
with the Stockholder Approval.
l. No Integration. The Company shall not make any offers or sales of
any security (other than the Securities) under circumstances that would require
registration of the Securities being offered or sold hereunder under the 1933
Act or cause the offering of the Securities to be integrated with any other
offering of securities by the Company for the purpose of any stockholder
approval provision applicable to the Company or its securities.
m. Breach of Covenants. If the Company breaches any of the covenants
set forth in this Section 4, and in addition to any other remedies available to
the Buyers pursuant to this Agreement, the Company shall pay to the Buyers the
Standard Liquidated Damages Amount, in cash or in shares of Common Stock at the
option of the Company, until such breach is cured. If the Company elects to pay
the Standard Liquidated Damages Amount in shares, such shares shall be issued at
the Conversion Price at the time of payment.
5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable
instructions to its transfer agent to issue certificates, registered in the name
of each Buyer or its nominee, for the Conversion Shares and Warrant Shares in
such amounts as specified from time to time by each Buyer to the Company upon
conversion of the Notes or exercise of the Warrants in accordance with the terms
thereof (the "Irrevocable Transfer Agent Instructions"). Prior to registration
of the Conversion Shares and Warrant Shares under the 1933 Act or the date on
17
which the Conversion Shares and Warrant Shares may be sold pursuant to Rule 144
without any restriction as to the number of Securities as of a particular date
that can then be immediately sold, all such certificates shall bear the
restrictive legend specified in Section 2(g) of this Agreement. The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(f) hereof (in the case of the Conversion Shares and
Warrant Shares, prior to registration of the Conversion Shares and Warrant
Shares under the 1933 Act or the date on which the Conversion Shares and Warrant
Shares may be sold pursuant to Rule 144 without any restriction as to the number
of Securities as of a particular date that can then be immediately sold), will
be given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement and the Registration Rights Agreement.
Nothing in this Section shall affect in any way the Buyer's obligations and
agreement set forth in Section 2(g) hereof to comply with all applicable
prospectus delivery requirements, if any, upon re-sale of the Securities. If a
Buyer provides the Company with (i) an opinion of counsel in form, substance and
scope customary for opinions in comparable transactions, to the effect that a
public sale or transfer of such Securities may be made without registration
under the 1933 Act and such sale or transfer is effected or (ii) the Buyer
provides reasonable assurances that the Securities can be sold pursuant to Rule
144, the Company shall permit the transfer, and, in the case of the Conversion
Shares and Warrant Shares, promptly instruct its transfer agent to issue one or
more certificates, free from restrictive legend, in such name and in such
denominations as specified by such Buyer. The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to the Buyers, by
vitiating the intent and purpose of the transactions contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Section 5 may be inadequate and agrees, in the event of a
breach or threatened breach by the Company of the provisions of this Section,
that the Buyers shall be entitled, in addition to all other available remedies,
to an injunction restraining any breach and requiring immediate transfer,
without the necessity of showing economic loss and without any bond or other
security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of the
Company hereunder to issue and sell the Notes and Warrants to a Buyer at the
Closing is subject to the satisfaction, at or before the Closing Date of each of
the following conditions thereto, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion:
a. The applicable Buyer shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Company.
b. The applicable Buyer shall have delivered the Purchase Price in
accordance with Section 1(b) above.
c. The representations and warranties of the applicable Buyer shall
be true and correct in all material respects as of the date when made and as of
the Closing Date as though made at that time (except for representations and
18
warranties that speak as of a specific date), and the applicable Buyer shall
have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the applicable Buyer at or prior to the Closing
Date.
d. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The obligation of
each Buyer hereunder to purchase the Notes and Warrants at the Closing is
subject to the satisfaction, at or before the Closing Date of each of the
following conditions, provided that these conditions are for such Buyer's sole
benefit and may be waived by such Buyer at any time in its sole discretion:
a. The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Buyer.
b. The Company shall have delivered to such Buyer duly executed
Notes (in such denominations as the Buyer shall request) and Warrants in
accordance with Section 1(b) above.
c. The Irrevocable Transfer Agent Instructions, in form and
substance satisfactory to a majority-in-interest of the Buyers, shall have been
delivered to and acknowledged in writing by the Company's Transfer Agent.
d. The representations and warranties of the Company shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at such time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date. The Buyer shall
have received a certificate or certificates, executed by the chief executive
officer of the Company, dated as of the Closing Date, to the foregoing effect
and as to such other matters as may be reasonably requested by such Buyer
including, but not limited to certificates with respect to the Company's
Certificate of Incorporation, By-laws and Board of Directors' resolutions
relating to the transactions contemplated hereby.
e. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
f. No event shall have occurred which could reasonably be expected
to have a Material Adverse Effect on the Company.
19
g. The Conversion Shares and Warrant Shares shall have been
authorized for quotation on the OTCBB and trading in the Common Stock on the
OTCBB shall not have been suspended by the SEC or the OTCBB.
h. The Buyer shall have received an opinion of the Company's
counsel, dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer and in substantially the same form as Exhibit "D"
attached hereto.
i. The Buyer shall have received an officer's certificate described
in Section 3(c) above, dated as of the Closing Date.
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. THIS AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICT OF LAWS. THE PARTIES HERETO HEREBY SUBMIT TO THE
EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK,
NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS AGREEMENT, THE
AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH PARTIES FURTHER AGREE
THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED
IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR
PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL
NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER
THIS AGREEMENT SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING
ATTORNEYS' FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH
DISPUTE.
b. Counterparts; Signatures by Facsimile. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an original
but all of which shall constitute one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other party. This Agreement, once executed by a party, may be delivered to the
other party hereto by facsimile transmission of a copy of this Agreement bearing
the signature of the party so delivering this Agreement.
c. Headings. The headings of this Agreement are for convenience of
reference only and shall not form part of, or affect the interpretation of, this
Agreement.
20
d. Severability. In the event that any provision of this Agreement
is invalid or unenforceable under any applicable statute or rule of law, then
such provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any provision hereof which may prove invalid or unenforceable under any law
shall not affect the validity or enforceability of any other provision hereof.
e. Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.
f. Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile and shall be effective five days
after being placed in the mail, if mailed by regular United States mail, or upon
receipt, if delivered personally or by courier (including a recognized overnight
delivery service) or by facsimile, in each case addressed to a party. The
addresses for such communications shall be:
If to the Company:
ROO Group, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to (which shall not constitute notice):
Sichenzia ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to a Buyer: To the address set forth immediately below such Buyer's
name on the signature pages hereto.
21
With a copy to:
▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
Each party shall provide notice to the other party of any change in
address.
g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. Neither
the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, subject to Section 2(f), any Buyer may assign its
rights hereunder to any person that purchases Securities in a private
transaction from a Buyer or to any of its "affiliates," as that term is defined
under the 1934 Act, without the consent of the Company.
h. Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. Survival. The representations and warranties of the Company and
the agreements and covenants set forth in Sections 3, 4, 5 and 8 shall survive
the closing hereunder notwithstanding any due diligence investigation conducted
by or on behalf of the Buyers. The Company agrees to indemnify and hold harmless
each of the Buyers and all their officers, directors, employees and agents for
loss or damage arising as a result of or related to any breach or alleged breach
by the Company of any of its representations, warranties and covenants set forth
in Sections 3 and 4 hereof or any of its covenants and obligations under this
Agreement or the Registration Rights Agreement, including advancement of
expenses as they are incurred.
j. Publicity. The Company and each of the Buyers shall have the
right to review a reasonable period of time before issuance of any press
releases, SEC, OTCBB or NASD filings, or any other public statements with
respect to the transactions contemplated hereby; provided, however, that the
Company shall be entitled, without the prior approval of each of the Buyers, to
make any press release or SEC, OTCBB (or other applicable trading market) or
NASD filings with respect to such transactions as is required by applicable law
and regulations (although each of the Buyers shall be consulted by the Company
in connection with any such press release prior to its release and shall be
provided with a copy thereof and be given an opportunity to comment thereon).
k. Further Assurances. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
22
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. No Strict Construction. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
m. Remedies. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Buyers by vitiating the
intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Agreement will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Agreement, that the
Buyers shall be entitled, in addition to all other available remedies at law or
in equity, and in addition to the penalties assessable herein, to an injunction
or injunctions restraining, preventing or curing any breach of this Agreement
and to enforce specifically the terms and provisions hereof, without the
necessity of showing economic loss and without any bond or other security being
required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
23
IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused
this Agreement to be duly executed as of the date first above written.
ROO GROUP, INC.
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇
-----------------------------
▇▇▇▇▇▇ ▇▇▇▇▇
Chief Executive Officer
AJW PARTNERS, LLC
By: SMS Group, LLC
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-----------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Manager
RESIDENCE: Delaware
ADDRESS: ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Notes: $77,000
Number of Warrants: 154,000
Aggregate Purchase Price: $77,000
24
NEW MILLENNIUM CAPITAL PARTNERS II, LLC
By: First Street Manager II, LLC
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Manager
RESIDENCE: New York
ADDRESS: ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Notes: $8,800
Number of Warrants: 17,600
Aggregate Purchase Price: $8,800
25
AJW OFFSHORE, LTD.
By: First Street Manager II, LLC
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-----------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Manager
RESIDENCE: Cayman Islands
ADDRESS: ▇.▇. ▇▇▇ ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇, B.W.I.
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Notes: $281,050
Number of Warrants: 562,100
Aggregate Purchase Price: $281,050
26
AJW QUALIFIED PARTNERS, LLC
By: AJW Manager, LLC
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Manager
RESIDENCE: New York
ADDRESS: ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Notes: $183,150
Number of Warrants: 366,300
Aggregate Purchase Price: $183,150
27
Disclosure Schedules
to
Securities Purchase Agreement
(Prepared in connection with Notes and Warrants sold by the Company to the
Buyers under the Securities Purchase Agreement dated July 18, 2005 (the "2005
Securities Purchase Agreement"). Capitalized terms not defined herein shall have
the meaning given to such terms in the 2005 Securities Purchase Agreement.)
July 18, 2005
Schedule 3(a)
Organization and Qualification
ROO Media Corporation, a Delaware corporation
ROO Media (Aust.) Pty Ltd., an Australia corporation
ROO Media Europe Ltd., incorporated in London
ROO Broadcasting Ltd., an Australia corporation
Reality Group Pty Ltd., an Australia corporation
Undercover Media (Aust.) Pty Ltd., an Australia corporation
ROO TV Pty Ltd., an Australia corporation
Bickhams Media, Inc., a Delaware corporation
▇▇▇▇▇▇▇▇▇.▇▇▇ Networks, Inc., a wholly owned subsidiary of Bickhams Media, Inc.
and a California corporation
Schedule 3(c)
Capitalization
Outstanding Options:
---------------------------------------- ------------- ---------- --------------------------
Exercise
Name qty Price ($) Notes
---------------------------------------- ------------- ---------- --------------------------
Options issued under Company
Stock Option Plan
---------------------------------------- ------------- ---------- --------------------------
▇▇▇▇▇▇ ▇▇▇▇▇ 6,000,000 0.13 Chairman CEO
---------------------------------------- ------------- ---------- --------------------------
Director ROO Media
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 3,000,000 0.12 Corporation
---------------------------------------- ------------- ---------- --------------------------
▇▇▇▇▇ ▇▇▇▇▇ 3,000,000 0.13 Director & CFO
---------------------------------------- ------------- ---------- --------------------------
Marc Mulgram 500,000 0.16
---------------------------------------- ------------- ---------- --------------------------
Tristan Place 500,000 0.12
---------------------------------------- ------------- ---------- --------------------------
▇▇▇▇ ▇▇▇▇▇▇▇ 200,000 0.12
---------------------------------------- ------------- ---------- --------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 50,000 0.16
---------------------------------------- ------------- ---------- --------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 50,000 0.16
---------------------------------------- ------------- ---------- --------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇ 50,000 0.16
---------------------------------------- ------------- ---------- --------------------------
▇▇▇▇▇ ▇▇▇▇▇ 100,000 0.16
---------------------------------------- ------------- ---------- --------------------------
Upon meeting selected
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 6,000,000 0.10 Milestones
---------------------------------------- ------------- ---------- --------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 250,000 0.10
---------------------------------------- ------------- ---------- --------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 150,000 0.10
---------------------------------------- ------------- ---------- --------------------------
---------------------------------------- ------------- ---------- --------------------------
Options not under Plan
---------------------------------------- ------------- ---------- --------------------------
Kensington Capital 2,000,000 0.05
---------------------------------------- ------------- ---------- --------------------------
Legend Merchant 1,500,000 0.05
---------------------------------------- ------------- ---------- --------------------------
Legend Merchant 2,500,000 0.10
---------------------------------------- ------------- ---------- --------------------------
▇▇▇▇▇ Family Trust 675,000 0.10
---------------------------------------- ------------- ---------- --------------------------
▇▇▇▇▇ ▇▇▇▇▇ 200,000 0.10
---------------------------------------- ------------- ---------- --------------------------
Strategic Growth 7,000,000 0.20
---------------------------------------- ------------- ---------- --------------------------
---------------------------------------- ------------- ---------- --------------------------
Total Options Issued 37,325,000
---------------------------------------- ------------- ---------- --------------------------
Outstanding Convertible Debt and Warrants:
The Company entered into a securities purchase agreement with four
accredited investors (the NIR Group) on September 10, 2004 for the sale of (i)
$3,000,000 in callable secured convertible notes and (ii) warrants to purchase
3,000,000 shares of common stock. The investors provided the Company aggregate
gross proceeds of $3,000,000 as follows:
o $1,000,000 was disbursed on September 13, 2004;
o $1,000,000 was disbursed on November 26, 2004, after filing a
registration statement covering the number of shares of common stock
underlying the secured convertible notes and the warrants; and
o $1,000,000 was disbursed on February 9, 2004, after effectiveness of
the registration statement.
The callable secured convertible notes bear interest at 8%, mature two
years from the date of issuance, and are convertible into our common stock, at
the investors' option, at the lower of:
o $0.20; or
o 65% of the average of the three lowest intraday trading prices for
the common stock on the Over-The-Counter Bulletin Board for the 20
trading days before but not including the conversion date.
The full principal amount of the callable secured convertible notes are
due upon a default under the terms of the callable secured convertible notes.
The warrants are exercisable until five years from the date of issuance at
a purchase price of $0.10 per share. The investors may exercise the warrants on
a cashless basis if the shares of common stock underlying the warrants are not
then registered pursuant to an effective registration statement. In the event
the investors exercise the warrants on a cashless basis, then the Company will
not receive any proceeds. In addition, the exercise price of the warrants will
be adjusted in the event the Company issues common stock at a price below
market, with the exception of any securities issued as of the date of the
warrants or issued in connection with the callable secured convertible notes
issued pursuant to the securities purchase agreement.
Outstanding Preferred Stock:
On March 17, 2005, the Company issued 6,000,000 shares of Series A
Preferred Stock to its Chief Executive Officer, ▇▇▇▇▇▇ ▇▇▇▇▇, and 1,500,000
shares of Series A Preferred Stock to its Chief Financial Officer, ▇▇▇▇▇ ▇▇▇▇▇.
These shares have a combined valuation of $750,000. These shares were issued as
a performance bonus to Messrs. ▇▇▇▇▇ and ▇▇▇▇▇ for, among other things, their
role in helping expand and grow the Company's business operations.
Also on March 17, 2005, the Company issued and aggregate of 2,000,000
shares of Series A Preferred Stock to two accredited investors as consideration
for investor relations services. These shares have a combined valuation of
$200,000.
Beginning two years from the date of issuance of the Series A Preferred
Stock, each one share of Series A Preferred Stock is convertible, at the option
of the holder, into two shares of the Company's common stock. However, holders
cannot convert any share of Series A Preferred Stock if the market price of the
Company's common stock is below $0.40 per share. If prior to two years from the
date of issuance, there is a sale or other disposition of all or substantially
all of the Company's assets, a transaction or series of related transactions in
which more than 50% of the voting power of the Company is disposed of, or upon a
consolidation, merger or other business combination where the Company is not the
survivor, then immediately prior to such event each holder of Series A Preferred
Stock may convert any or all of such holder's shares of Series A Preferred Stock
into common stock as described above. In such event, if the market price of the
Company's common stock is below $0.40 per share, then each share of Series A
Preferred Stock will convert into such shares of common stock equal to (x) two,
multiplied by (y) the closing price of the common stock on the date of the event
triggering a conversion, divided by $.20.
Registration Rights:
As described under "▇▇▇▇▇▇ ▇▇▇▇▇ Note Purchase Agreement" under
Schedule 3(m) hereof, the Company has agreed to register the resale of common
stock issuable by ▇▇▇▇▇▇ ▇▇▇▇▇ to certain security holders. The Company is
contractually obligated to file such registration statement by November 25,
2005. This transaction will be included in the registration statement required
to be filed by the Company pursuant to the Registration Rights Agreement dated
July 18, 2005.
Schedule 3(d)
Issuance of Shares
As of the Closing Date, the Company's Certificate of Incorporation does
not authorize the Company to issue a sufficient number of shares of Common Stock
to cover the issuance of the Conversion Shares and the Warrant Shares. As
required by Section 4(h) of the 2005 Securities Purchase Agreement, the Company
will promptly take all corporate action necessary to authorize and reserve a
sufficient number of shares, including, without limitation, calling a special
meeting of shareholders to authorize additional shares to meet the Company's
obligations under such Section 4(h) within 30 days of the Closing Date.
Schedule 3(f)
Conflicts
This agreement may conflict with registration rights described in
Schedule 3(c) and Schedule 3(m) hereof.
As described in Schedule 3(d), the Company's Certificate of
Incorporation does not authorize the Company issue a sufficient number of shares
of Common Stock to cover the issuance of the Conversion Shares and the Warrant
Shares.
Schedule 3(g)
SEC Documents; Financial Statements
The Company untimely filed a current report on Form 8-K reporting the
purchase of all of the outstanding shares of common stock of Bickhams Media,
Inc., a Delaware corporation.
The Company untimely filed a current report on Form 8-K reporting
entering into a new lease agreement and changing the location of its principal
executive office in New York.
Schedule 3(i)
Absence of Litigation
None.
Schedule 3(j)
Patents, Copyrights, etc.
None.
Schedule 3(l)
Tax Status
The Company is currently delinquent in paying a withholding tax in
Australia. The approximate amount of the delinquent payment is USD $100,000.
Schedule 3(m)
Certain Transactions
January 7, 2003 Loan Agreement:
On January 7, 2003, ROO Media Corporation entered into a new loan
agreement with Mr. ▇▇▇▇▇▇ ▇▇▇▇▇ to replace a loan agreement entered into with
▇▇. ▇▇▇▇▇ dated July 29, 2001. The interest on the loan is 10% per annum and the
outstanding balance as of June 30, 2004 was $516,000. ▇▇. ▇▇▇▇▇ has agreed that
no demand for payment will be made to the company through December 13, 2004 and
any principle repayment during any month above $20,000 will require board
approval. The loan is secured by all of the assets of ROO Media. The loan is
subordinate to the first priority interest granted to the Secured Party (as
defined in the Security Agreement, dated September 10, 2004, with NIR Group and
the Intellectual Property Security Agreement, dated September 10, 2004, with NIR
Group) in and to the Collateral (as defined in the Security Agreement, dated
September 10, 2004, with NIR Group) and the Intellectual Property (as defined in
the Intellectual Property Security Agreement, dated September 10, 2004, with NIR
Group). This loan is evidenced partially by the promissory note described below
under "▇▇▇▇▇▇ ▇▇▇▇▇ Note Purchase Agreement."
Purchase of Bickhams Media, Inc.:
On September 10, 2004, the Company entered into an agreement to
purchase of all of the outstanding shares of common stock of Bickhams Media,
Inc. from Avenue Group, Inc. Avenue Group is a founding shareholder of the
Company and currently owns approximately 17% of the Company's outstanding common
stock. Also, in connection with the purchase of Bickhams Media, the Company
agreed to guaranty all of the obligations of ▇▇▇▇▇▇▇▇▇.▇▇▇ Networks, Inc. under
a promissory note of VideoDome that was issued to Avenue Group in October 2003
in the principal amount of $290,000. The Company's management believes that the
terms of this transaction were at least as favorable as could have been obtained
from an unrelated third party.
Series A Preferred Stock:
On March 17, 2005, the Company issued 6,000,000 shares of Series A
Preferred Stock to its Chief Executive Officer, ▇▇▇▇▇▇ ▇▇▇▇▇, and 1,500,000
shares of Series A Preferred Stock to its Chief Financial Officer, ▇▇▇▇▇ ▇▇▇▇▇.
These shares have a combined valuation of $750,000. These shares were issued as
a performance bonus to Messrs. ▇▇▇▇▇ and ▇▇▇▇▇ for, among other things, their
role in helping expand and grow the Company's business operations.
▇▇▇▇▇▇ ▇▇▇▇▇ Note Purchase Agreement:
On May 18, 2005, the Company entered into a note purchase agreement
with ▇▇▇▇▇▇ ▇▇▇▇▇, the Company's Chairman and Chief Executive Officer. In
consideration for gross proceeds of $600,000, the Company incurred a debt
payable to ▇▇. ▇▇▇▇▇ in the amount of $600,000. The Company paid transaction
fees totaling $92,500, which includes a $60,000 placement agent fee in
connection with the sale by ▇▇. ▇▇▇▇▇ of $600,000 principal amount of secured
convertible promissory notes (described below) and $32,500 in legal fees in
connection with the below transactions. As evidence of the $600,000 debt and a
prior existing $500,000 debt payable to ▇▇. ▇▇▇▇▇, the Company issued ▇▇. ▇▇▇▇▇
a promissory note in the principal amount of $1,100,000. The principal sum of
$1,100,000 plus interest at the rate of 10% per annum calculated beginning June
1, 2005 is due to be re-paid on December 31, 2005. The Company's obligations
under the promissory note are secured by a subordinated security interest in all
of the Company's assets.
On May 19, 2005, the Company applied $200,000 of the $600,000 gross
proceeds from ▇▇. ▇▇▇▇▇'▇ loan to redeem $142,857 principal amount of the
Company's outstanding $3,000,000 principal amount of callable secured
convertible notes issued to the NIR Group. As consideration for the redemption,
the holders of the callable secured convertible notes agreed not to convert any
amount due under the callable secured convertible notes at a conversion price
less than $0.10 per share for a 60-day period ending July 18, 2005. A complete
description of the material terms of the Company's agreement with the holders of
the callable secured convertible notes is described in a Form 8-K which was
filed with the Securities and Exchange Commission on May 12, 2005.
In connection with the above loan from ▇▇. ▇▇▇▇▇ to the Company, ▇▇.
▇▇▇▇▇ personally sold an aggregate of $600,000 principal amount of secured
convertible promissory notes to certain investors. The secured convertible
promissory notes are convertible into common stock held by ▇▇. ▇▇▇▇▇ at a price
of $.0.025 per share. ▇▇. ▇▇▇▇▇'▇ obligations under the secured convertible
promissory notes are secured by a subordinated security interest in the
$1,100,000 principal amount promissory note payable by the Company to ▇▇. ▇▇▇▇▇.
The secured convertible promissory notes bear interest at a rate of 8% per
annum. .
As partial consideration for the loan from ▇▇. ▇▇▇▇▇, the Company
entered into a registration rights agreement, pursuant to which the Company
agreed to prepare and file a registration statement providing for the resale of
the shares of common stock issuable upon conversion of the secured convertible
promissory notes, including shares of common stock that may be issued as
interest payments under the secured convertible promissory notes. If the
registration statement is not filed by November 25, 2005 or declared effective
by December 25, 2005, ▇▇. ▇▇▇▇▇ must pay liquidated damages equal to 2% per
calendar month or portion thereof of aggregate $600,000 aggregate principal
amount of the secured convertible promissory notes. Any liquidated damages may
be paid in ▇▇. ▇▇▇▇▇'▇ option in cash or shares of common stock of the Company
which are owned by ▇▇. ▇▇▇▇▇.
Schedule 3(s)
Environmental Matters
None.
Schedule 3(t)
Title to Property
The Company has granted a security interest in certain of the Company's
assets to the investors described in Schedule 3(c) hereof under "Outstanding
Convertible Debt and Warrants."
As described in Schedule 3(m) hereof under "January 7, 2003 Loan
Agreement" and under "▇▇▇▇▇▇ ▇▇▇▇▇ Note Purchase Agreement," the Company has
granted a subordinated security interesting certain of the Company's assets to
▇▇▇▇▇▇ ▇▇▇▇▇ in connection with a $1.1 million principal amount promissory note.
Schedule 4(d)
Use of Proceeds
Proceeds planned for use outside the normal operations of the company:
The Company intends to pay a delinquent withholding tax in the amount
of approximately $100,000 in Australia.
The Company intends to us the remaining proceeds for working capital
purposes, including but not limited to: filing a registration statement covering
the Registrable Securities (as defined in the Registration Rights Agreement,
dated July 18, 2005), research and development expenses, sales and marketing
expenses, and general and administrative expenses.