EXHIBIT 4.1
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of the date of acceptance set
forth below (this "Agreement"), is entered into by and between NATURAL HEALTH
TRENDS CORP., a Florida corporation, with headquarters located at 380 Lashley
Street, Longmont, CO 80501 (the "Company"), and each entity named on a signature
page hereto (each, a "Buyer") (each agreement with a Buyer being deemed a
separate and independent agreement between the Company and such Buyer, except
that each Buyer acknowledges and consents to the rights granted to each other
Buyer under such agreement and the Transaction Agreements, as defined below,
referred to therein).
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and delivering this
Agreement in accordance with and in reliance upon the exemption from securities
registration afforded, inter alia, by Regulation S ("Regulation S") as
promulgated by the United States Securities and Exchange Commission (the "SEC")
under the Securities Act of 1933, as amended (the "1933 Act"), and/or Section
4(2) of the 1933 Act; and
WHEREAS, the Buyer wishes to purchase, upon the terms and subject to the
conditions of this Agreement, shares of Series J Convertible Preferred Stock,
$.001par value, and having a liquidation preference of $1,000 per share, of the
Company (the "Convertible Preferred Stock") which will be convertible into
shares of Common Stock, $.001 par value per share of the Company (the "Common
Stock"), upon the terms and subject to the conditions of such Convertible
Preferred Stock, together with the Warrants (as defined below) exercisable for
the purchase of shares of Common Stock (the "Warrant Shares"), and subject to
acceptance of this Agreement by the Company; and
WHEREAS, the Convertible Preferred Stock and the Shares (as those terms
are defined below) have not been registered under the 1933 Act and may not be
offered or sold in the United States or to U.S. Persons, other than distributors
(as such terms are defined in Regulation S), unless the Convertible Preferred
Stock or the Shares, as the case may be, are registered under the 1933 Act, or
an exemption or safe harbor from the registration provisions of the 1933 Act is
available;
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
a. Purchase; Certain Definitions.
(i) The undersigned hereby agrees to purchase from the Company Convertible
Preferred Stock having a liquidation preference in the amount set forth on the
Buyer's signature page
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of this Agreement (the "Preferred Stock"), out of a total offering of $1,000,000
of such Convertible Preferred Stock, and having the terms and conditions set
forth in the Statement of Designations of the Series J Convertible Preferred
Stock of the Company attached hereto as Annex I (the "Certificate of
Designations").
(ii) The purchase price to be paid by the Buyer shall be equal to the
amount set forth on the Buyer's signature page of this Agreement, and shall be
payable in United States Dollars.
b. Certain Definitions. As used herein, each of the following terms has
the meaning set forth below, unless the context otherwise requires:
(i) "Securities" means the Preferred Stock, the Warrants and the Common
Stock issuable upon conversion of the Preferred Stock or the exercise of the
Warrants.
(ii) "Purchase Price" means the purchase price for the Preferred Stock.
(iii) "Closing Date" means the date of the closing of the purchase and
sale of the Preferred Stock, as provided herein.
(iv) "Buyer's Allocable Share" means the fraction of which the numerator
is the liquidation preference of the Buyer's Preferred Stock specified on the
Buyer's signature page of this Agreement and the denominator is $1,000,000.
(v) "Effective Date" means the effective date of the Registration
Statement covering the Registrable Securities (as those terms are defined in the
Registration Rights Agreement defined below).
(vi) "Converted Shares" means the shares of Common Stock issuable upon
conversion of the Preferred Stock.
(vii) "Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants.
(viii) "Shares" means the shares of Common Stock representing any or all
of the Converted Shares and the Warrant Shares.
(ix) As used herein, the term "Market Price of the Common Stock" means the
average closing bid price of the Common Stock for the three (3) trading days
(which need not be consecutive) during the period of the twenty (20) trading
days ending on the trading day immediately before the date indicated in the
relevant provision hereof (unless a different relevant period is specified in
the relevant provision) for which the closing bid price of the Common Stock (as
reported by Bloomberg, LP or, if not so reported, as reported by the securities
exchange or automated quotation system on which the Common Stock is listed or on
the over-the-counter market) were the lowest.
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(x) "Person" means any living person or any entity, such as, but not
necessarily limited to, a corporation, partnership or trust.
(xi) "Affiliate" means, with respect to a specific Person referred to in
the relevant provision, another Person who or which controls or is controlled by
or is under common control with such specified Person.
(xii) "Transaction Agreements" means the Securities Purchase Agreement,
the Registration Rights Agreement (as defined below), the Certificate of
Designations, the Warrants, and the Joint Escrow Instructions (as defined
below).
c. Form of Payment; Delivery of Certificates.
(i) The Buyer shall pay the Purchase Price for the Preferred Stock by
delivering immediately available good funds in United States Dollars to the
escrow agent (the "Escrow Agent") identified in the Joint Escrow Instructions
attached hereto as Annex II (the "Joint Escrow Instructions") on the date prior
to the Closing Date.
(ii) No later than the Closing Date, but in any event promptly following
payment by the Buyer to the Escrow Agent of the Purchase Price, the Company
shall deliver one or more certificates representing the Preferred Stock and, if
relevant to the transactions to be consummated on that Closing Date, the
Warrants to be issued hereunder, each duly executed on behalf of the Company and
issued in the name of the Buyer (collectively, the "Certificates") to the Escrow
Agent. Time is of the essence with respect to such delivery, and failure by the
Company to make such delivery shall allow the Buyer to cancel this Agreement.
(iii) By signing this Agreement, each of the Buyer and the Company,
subject to acceptance by the Escrow Agent, agrees to all of the terms and
conditions of, and becomes a party to, the Joint Escrow Instructions, all of the
provisions of which are incorporated herein by this reference as if set forth in
full.
d. Method of Payment. Payment into escrow of the Purchase Price shall be
made by wire transfer of funds to:
Bank of New York
350 Fifth Avenue
New York, New York 10001
ABA# 021000018
For credit to the account of Krieger & Prager LLP, Esqs.
Account No.: [To be provided to the Buyer by Krieger & Prager LLP]
Re: Natural Health Trends Transaction
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Not later than 5:00 p.m., New York time, on the date which is three (3) New York
Stock Exchange ("NYSE") trading days after the Company shall have accepted this
Agreement and returned a signed counterpart of this Agreement to the Escrow
Agent by facsimile, the Buyer shall deposit with the Escrow Agent the Purchase
Price for the Preferred Stock in immediately available funds. Time is of the
essence with respect to such payment, and failure by the Buyer to make such
payment, shall allow the Company to cancel this Agreement.
e. Escrow Property. The Purchase Price and the Certificates delivered to
the Escrow Agent as contemplated by Sections 1(c) and (d) hereof are referred to
as the "Escrow Property."
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees with, the
Company as follows:
a. Without limiting Buyer's right to sell the Common Stock pursuant to the
Registration Statement, the Buyer is purchasing the Preferred Stock and the
Warrants and will be acquiring the Shares for its own account for investment
only and not with a view towards the public sale or distribution thereof and not
with a view to or for sale in connection with any distribution thereof.
b. (i) The Buyer is not a U.S. Person as that term is defined under
Regulation S, and is not controlled, directly or indirectly, by a U.S. Person.
(ii) The Buyer is outside the United States as of the date of the
execution and delivery of this Agreement.
(iii) The Buyer is purchasing the Preferred Stock for its own
account and not on behalf of any U.S. Person, and the Buyer is the sole
beneficial owner of the Preferred Stock, and has not pre-arranged any sale of
the Securities with any purchaser or purchasers in the United States.
(iv) The Buyer understands that the Preferred Stock and the Shares
may not be transferred, offered or sold in the United States or to a U.S. Person
or citizen of the United States prior to the end of the one (1) year
Distribution Compliance Period (the "Restricted Period") commencing on the later
of (A) the date the Preferred Stock are first offered to persons other than
Distributors (as defined in Regulation S) or (B) the date of the final closing
of the Offering of the Preferred Stock by the Company. The Buyer acknowledges
that the Company may not allow a transfer of the Preferred Stock in the United
States or to a U.S. Person or citizen of the United States if, in the Company's
opinion, Regulation S or any other applicable state, federal or foreign
securities laws have not been complied with.
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(v) The Buyer understands that in the view of the SEC the statutory
basis for the exemption claimed for this transaction would not be present if the
offering of Preferred Stock, and the Shares issuable upon conversion thereof,
although in technical compliance with Regulation S, is part of a plan or scheme
to evade the registration provisions of the 1933 Act. The Buyer is acquiring the
Preferred Stock for investment purposes and has no present intention to sell the
Preferred Stock, or the Shares issuable upon conversion thereof, in the United
States or to a U.S. Person or for the account or benefit of a U.S. Person either
now or after the expiration of the Restricted Period, except pursuant to
registration thereof or an exemption or safe harbor from registration.
(vi) The Buyer is not an underwriter of, or dealer in, the
Securities, and the Buyer is not participating, pursuant to a contractual
agreement, in the distribution of the Securities.
(vii) No offer to sell the Preferred Stock has been made to the
Buyer within the United States, and the Buyer is not and will not be in the
United States as of the date of execution and delivery of this Agreement.
(viii) If the Buyer is a corporation or a partnership, the Buyer was
not (A) formed principally for the purpose of acquiring the Preferred Stock or
the Shares, or any other securities not registered under the Act, or (B)
organized or incorporated under the laws of any state or jurisdiction of the
United States.
(ix) The Buyer is not subscribing for the Preferred Stock as a
result of or subsequent to any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or broadcast
over television or radio, or presented at any seminar or meeting, or any
solicitation of a subscription by person previously not known to the Buyer in
connection with investment securities generally.
(x) The Buyer is purchasing the Preferred Stock for its own account
and/or for accounts over which the Buyer has discretionary authority, and not on
behalf of or for the account of any person or entity who or which is a U.S.
Person or citizen of the United States and not with a view to resale or
distribution or any present intention to resell or distribute the Preferred
Stock or the Shares in violation of any applicable securities laws. Anything
herein contained to the contrary notwithstanding, for the purposes of this
Agreement, the term "Buyer" shall mean the undersigned, and, if applicable, any
person or entity for whom or which the undersigned is subscribing for Preferred
Stock pursuant to discretionary authority granted to the undersigned.
(xi) The Buyer is not purchasing the Preferred Stock with the
present intention of "distributing" the Preferred Stock on behalf of the Company
or on behalf of a "distributor" as defined in Regulation S, or any of their
affiliates, in the United States or to a U.S. Person.
(xii) The Buyer is not a "distributor" as defined in Regulation S.
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(xiii) To the knowledge of the Buyer, no activity has been
undertaken by the Company or any person acting on its behalf for the purpose of,
or that could reasonably be expected to have the effect of, conditioning the
market for the Preferred Stock or the Shares in the United States.
(xiv) The Buyer understands that, except as set forth in the
Registration Rights Agreement, the Company is under no obligation to register
the Preferred Stock or the Shares under the Act, or to assist the Buyer in
complying with the Act or the securities laws of any state of the United States
or of any foreign jurisdiction.
(xv) The Buyer does not have a short position in the Shares or
otherwise have a hedge against the risk of purchasing the Preferred Stock and
will not have a short position in the Shares or otherwise hedge the risk of
holding the Preferred Stock at any time prior to the expiration of the
Restricted Period.
(xvi) If at any time after the expiration of the Restricted Period
the Buyer wishes to transfer or attempts to transfer the Preferred Stock or the
Shares to a U.S. Person, the Buyer agrees to notify the Company if at such time
it is either an "underwriter," "dealer," distributor," or an "affiliate" of the
Company (as such terms are defined in the federal securities laws of the United
States or the regulations promulgated hereunder, including, but not limited to,
Regulation S), or if such transfer is being made as part of a plan or scheme to
evade the registration provisions of the Act.
(xvii) In the event that the Buyer desires to offer or sell the
Preferred Stock or the Shares, such offer or sale shall at all times comply with
the Act and rules and regulations promulgated thereunder, including Regulation
S, and all other applicable state, federal and foreign securities laws. Subject
to effective registration of the Shares, the Buyer agrees not, prior to the
expiration of the Restricted Period, to sell the Preferred Stock or Shares to or
for the account or benefit of a U.S. Person, to a citizen of the United States
or in the United States, except in compliance with the Act and the applicable
rules and regulations promulgated thereunder and thereafter the Buyer agrees not
to sell the Preferred Stock or Shares in the United States except in compliance
with the Act and the applicable rules and regulations promulgated thereunder,
including Regulation S, and all applicable state, federal and foreign securities
laws.
c. The Buyer is (i) an "accredited investor" as that term is defined in
Rule 501 of the General Rules and Regulations under the 1933 Act by reason of
Rule 501(a)(3), (ii) experienced in making investments of the kind described in
this Agreement and the related documents, (iii) able, by reason of the business
and financial experience of its officers (if an entity) and professional
advisors (who are not affiliated with or compensated in any way by the Company
or any of its affiliates or selling agents), to protect its own interests in
connection with the transactions described in this Agreement, and the related
documents, and (iv) able to afford the entire loss of its investment in the
Securities.
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d. All subsequent offers and sales of the Preferred Stock and the Shares
by the Buyer shall be made pursuant to registration of the Shares under the 1933
Act or pursuant to an exemption from registration.
e. The Buyer understands that the Securities are being offered and sold to
it in reliance on 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 Preferred Stock. In
particular, the Buyer understands that the Company is relying on the rules
governing offers and sales made outside the United States pursuant to Regulation
S. Rules 901 through 904 of Regulation S govern this transaction. The Buyer will
notify the Company immediately upon the occurrence of any material change in the
information regarding the Buyer contained herein occurring prior to the issuance
of Converted Shares.
f. The Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Preferred Stock and the offer of
the Shares which have been requested by the Buyer, including those set forth on
Annex V hereto. The Buyer and its advisors, if any, have been afforded the
opportunity to ask questions of the Company and have received complete and
satisfactory answers to any such inquiries. Without limiting the generality of
the foregoing, the Buyer has also had the opportunity to obtain and to review
the Company's (1) Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1998, (2) Quarterly Reports on Form 10-QSB for the fiscal quarters
ended March 31, June 30, 1999, and September 30, 1999, respectively, (3) Current
Reports on Form 8-K filed on January 25, 1999 and February 19, 1999, as amended
as filed on May 5, 1999, (4) Definitive Proxy Statement filed on January 25,
1999, and (5) Registration Statement on Form S-1/A filed on November 12, 1999
(collectively, the "Company's SEC Documents").
g. The Buyer understands that its investment in the Securities involves a
high degree of risk.
h. The Buyer understands that no United States federal or state agency or
any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities.
i, The Buyer hereby covenants that it will comply with all laws and
regulations in each foreign jurisdiction in which it purchases, offers, sells or
delivers the Securities, or has in its possession or distributes any offering
material.
j. This Agreement has been duly and validly authorized, executed and
delivered on behalf of the Buyer and is a valid and binding agreement of the
Buyer enforceable in accordance with its terms, subject as to enforceability to
general principles of equity and to bankruptcy, insolvency, moratorium and other
similar laws affecting the enforcement of creditors' rights generally.
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3. COMPANY REPRESENTATIONS, ETC. The Company represents and warrants to
the Buyer as of the date hereof and as of each Closing Date that, except as
otherwise provided in the Company Disclosure Materials attached hereto as Annex
V hereto:
a. Concerning the Preferred Stock and the Shares. The Preferred Stock has
been duly authorized, and when issued and paid for in accordance with the terms
of this Agreement, will be duly and validly issued, fully paid and
non-assessable and will not subject the holder thereof to personal liability
solely by reason of acquiring the Preferred Stock hereunder. There are no
preemptive rights of any stockholder of the Company, as such, to acquire the
Preferred Stock, the Warrants or the Shares.
b. Reporting Company Status. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Florida and
has the requisite corporate power to own its properties and to carry on its
business as now being conducted. The Company is duly qualified as a foreign
corporation to do business and is in good standing in each jurisdiction where
the nature of the business conducted or property owned by it makes such
qualification necessary, other than those jurisdictions in which the failure to
so qualify would not have a material adverse effect on the business, operations
or financial condition or results of operation of the Company and its
subsidiaries taken as a whole. The Company is a "Reporting Issuer" as defined by
Rule 902 of Regulation S. The Company has registered its stock and is obligated
to file reports pursuant to Section 12 of the 1934 Act. The Common Stock is
listed and traded on The NASDAQ/SmallCap Market. The Company has received no
notice, either oral or written, with respect to the continued eligibility of the
Common Stock for such listing, and the Company has maintained all requirements
for the continuation of such listing.
c. Authorized Shares. The authorized capital stock of the Company consists
of (i) 50,000,000 shares of Common Stock, $.001 par value per share, of which
approximately 7,860,000 shares had been issued as of the date hereof and (ii)
1,500,000 shares of Preferred Stock, par value $.001 per share, of which shares
have been issued as of the date hereof as provided in Annex V annexed hereto.
All issued and outstanding shares of Common Stock have been duly authorized and
validly issued and are fully paid and nonassessable. The Company has sufficient
authorized and unissued shares of Common Stock as may be necessary to effect the
issuance of the Shares. The Shares have been duly authorized and, when issued
upon conversion of, or as dividends on, the Preferred Stock or upon exercise of
the Warrants, each in accordance with its respective terms, will be duly and
validly issued, fully paid and non-assessable and will not subject the holder
thereof to personal liability by reason of being such holder.
d. Securities Purchase Agreement; Registration Rights Agreement and Stock.
This Agreement and the Registration Rights Agreement, the form of which is
attached hereto as Annex IV (the "Registration Rights Agreement"), and the
transactions contemplated thereby, have been duly and validly authorized by the
Company. This Agreement has been duly executed and delivered by the Company and
this Agreement is, and each of the other Transaction Agreements,
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when executed and delivered by the Company, will be, a valid and binding
agreement of the Company enforceable in accordance with their respective terms,
subject as to enforceability to general principles of equity and to bankruptcy,
insolvency, moratorium, and other similar laws affecting the enforcement of
creditors' rights generally.
e. Non-contravention. The execution and delivery of this Agreement and the
Registration Rights Agreement by the Company, the issuance of the Securities,
and the consummation by the Company of the other transactions contemplated by
this Agreement, the Registration Rights Agreement, and the Preferred Stock do
not and will not conflict with or result in a breach by the Company of any of
the terms or provisions of, or constitute a default under (i) the certificate of
incorporation or by-laws of the Company, each as currently in effect, (ii) any
indenture, mortgage, deed of trust, or other material agreement or instrument to
which the Company is a party or by which it or any of its properties or assets
are bound, including any listing agreement for the Common Stock except as herein
set forth, (iii) to its knowledge, any existing applicable law, rule, or
regulation or any applicable decree, judgment, or order of any court, United
States federal or state regulatory body, administrative agency, or other
governmental body having jurisdiction over the Company or any of its properties
or assets, or (iv) the Company's listing agreement for its Common Stock, except
such conflict, breach or default which would not have a material adverse effect
on the business, operations, condition (financial or otherwise), or results of
operations of the Company and its subsidiaries, taken as a whole, or on the
transactions contemplated herein.
f. Approvals. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, or stock
exchange or market or the stockholders of the Company is required to be obtained
by the Company for the issuance and sale of the Securities to the Buyer as
contemplated by this Agreement, except such authorizations, approvals and
consents that have been obtained.
g. SEC Filings. None of the Company's SEC Documents contained, at the time
they were filed, any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
made therein in light of the circumstances under which they were made, not
misleading. The Company has since January 1, 1999 timely filed all requisite
forms, reports and exhibits thereto with the SEC.
h. Absence of Certain Changes. Since December 31, 1998, there has been no
material adverse change and no material adverse development in the business,
properties, operations, condition (financial or otherwise), or results of
operations of the Company, except as disclosed in the Company's SEC Documents.
Since December 31, 1998, except as provided in the Company's SEC Documents, the
Company has not (i) incurred or become subject to any material liabilities
(absolute or contingent) except liabilities incurred in the ordinary course of
business consistent with past practices; (ii) discharged or satisfied any
material lien or encumbrance or paid any material obligation or liability
(absolute or contingent), other than current liabilities paid in the ordinary
course of business consistent with past practices; (iii) declared or made any
payment or distribution of cash or other property to stockholders with respect
to its capital stock, or purchased or redeemed,
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or made any agreements to purchase or redeem, any shares of its capital stock;
(iv) sold, assigned or transferred any other tangible assets, or canceled any
debts or claims, except in the ordinary course of business consistent with past
practices; (v) suffered any substantial losses or waived any rights of material
value, whether or not in the ordinary course of business, or suffered the loss
of any material amount of existing business; (vi) made any changes in employee
compensation, except in the ordinary course of business consistent with past
practices; or (vii) experienced any material problems with labor or management
in connection with the terms and conditions of their employment.
i. Full Disclosure. There is no fact known to the Company (other than
general economic conditions known to the public generally or as disclosed in the
Company's SEC Documents) that has not been disclosed in writing to the Buyer
that (i) would reasonably be expected to have a material adverse effect on the
business, operations, condition (financial or otherwise), or results of
operations of the Company and its subsidiaries, taken as a whole , (ii) would
reasonably be expected to materially and adversely affect the ability of the
Company to perform its obligations pursuant to this Agreement or any of the
agreements contemplated hereby (collectively, including this Agreement, the
"Transaction Agreements"), or (iii) would reasonably be expected to materially
and adversely affect the value of the rights granted to the Buyer in the
Transaction Agreements.
j. Absence of Litigation. Except as set forth in the Company's SEC
Documents, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board or body pending or, to the knowledge of the
Company, threatened against or affecting the Company, wherein an unfavorable
decision, ruling or finding would have a material adverse effect on the
properties, business, operations, condition (financial or otherwise), or results
of operation of the Company and its subsidiaries taken as a whole or the
transactions contemplated by any of the Transaction Agreements or which would
adversely affect the validity or enforceability of, or the authority or ability
of the Company to perform its obligations under, any of the Transaction
Agreements.
k. Absence of Events of Default. Except as set forth in Section 3(e)
hereof, no Event of Default (or its equivalent term), as defined in the
respective agreement to which the Company is a party, and no event which, with
the giving of notice or the passage of time or both, would become an Event of
Default (or its equivalent term) (as so defined in such agreement), has occurred
and is continuing, which would have a material adverse effect on the business,
operations, condition (financial or otherwise), or results of operations of the
Company and its subsidiaries, taken as a whole.
l. Prior Issues. Except as disclosed in the Company's SEC Documents,
during the twelve (12) months preceding the date hereof, the Company has not
issued any convertible securities. The presently outstanding unconverted
principal amount of each such issuance as at the date hereof are set forth in
Annex V.
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m. No Undisclosed Liabilities or Events. The Company has no liabilities or
obligations other than those disclosed in the Company's SEC Documents or those
incurred in the ordinary course of the Company's business since December 31,
1998, and which individually or in the aggregate, do not or would not have a
material adverse effect on the properties, business, operations, condition
(financial or otherwise), or results of operations of the Company and its
subsidiaries, taken as a whole. No event or circumstances has occurred or exists
with respect to the Company or its properties, business, operations, condition
(financial or otherwise), or results of operations, which, under applicable law,
rule or regulation, requires public disclosure or announcement prior to the date
hereof by the Company but which has not been so publicly announced or disclosed.
There are no proposals currently under consideration or currently anticipated to
be under consideration by the Board of Directors or the executive officers of
the Company (other than the transactions contemplated by the Transaction
Agreements) which proposal would (x) change the certificate of incorporation or
other charter document or by-laws of the Company, each as currently in effect,
with or without shareholder approval, which change would reduce or otherwise
adversely affect the rights and powers of the shareholders of the Common Stock
or (y) materially or substantially change the business, assets or capital of the
Company, including its interests in subsidiaries.
n. Dilution. The number of Shares issuable upon conversion of the
Preferred Stock and the exercise of the Warrants may increase substantially in
certain circumstances, including, but not necessarily limited to, the
circumstance wherein the trading price of the Common Stock declines prior to the
conversion of the Preferred Stock. The Company's executive officers and
directors have studied and fully understand the nature of the Securities being
sold hereby and recognize that they have a potential dilutive effect. The board
of directors of the Company has concluded, in its good faith business judgment,
that such issuance is in the best interests of the Company and its shareholders.
The Company specifically acknowledges that its obligation to issue the Shares
upon conversion of the Preferred Stock and upon exercise of the Warrants is
binding upon the Company and enforceable regardless of the dilution such
issuance may have on the ownership interests of other shareholders of the
Company, and the Company will honor every Notice of Conversion (as defined in
the Certificate of Designations) relating to the conversion of the Preferred
Stock and every Notice of Exercise Form (as contemplated by the Warrants)
relating to the exercise of the Warrants unless the Company is subject to an
injunction (which injunction was not sought by the Company) prohibiting the
Company from doing so.
o. Offshore Transaction. The Company has not offered or sold the Preferred
Stock to any person in the United States, or, to the best knowledge of the
Company any identifiable groups of U.S. citizens abroad, or any U.S. Person as
that term is defined in Regulation S. At the time the buy order for the
Preferred Stock was originated, the Company and/or its agents reasonably
believed the Buyer was outside the United States and was not a U.S. Person.
p. No Directed Selling Efforts. In regard to this transaction, the Company
has not conducted any "direct selling efforts" as that term is defined in Rule
902 of Regulation S nor has the Company conducted any general solicitation
relating to the offer and sale of the within securities to persons resident
within the United States or elsewhere.
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q. Brokers, Finders. The Company has taken no action which would give rise
to any claim by any person for brokerage commission, finder's fees or similar
payments by Buyer relating to this Agreement or the transactions contemplated
hereby. Buyer shall have no obligation with respect to such fees or with respect
to any claims made by or on behalf of other Persons for fees of a type
contemplated in this Section 3(q) that may be due in connection with the
transactions contemplated hereby. The Company shall indemnify and hold harmless
each of Buyer, its employees, officers, directors, agents, and partners, and
their respective affiliates, from and against all claims, losses, damages, costs
(including the costs of preparation and attorney's fees) and expenses suffered
in respect of any such claimed or existing fees, as and when incurred.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. Transfer Restrictions. The Buyer acknowledges that (1) the Preferred
Stock have not been and are not being registered under the provisions of the
1933 Act and, except as provided in the Registration Rights Agreement, the
Shares have not been and are not being registered under the 1933 Act, and may
not be transferred unless (A) subsequently registered thereunder or (B) the
Buyer shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company, to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration; (2) any sale of the Securities made in
reliance on Rule 144 promulgated under the 1933 Act may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale 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 used in the 1933 Act, may require compliance with
some other exemption under the 1933 Act or the rules and regulations of the SEC
thereunder; and (3) neither the Company nor any other person is under any
obligation to register the Securities (other than to the extent contemplated by
the Registration Rights Agreement) under the 1933 Act or to comply with the
terms and conditions of any exemption thereunder.
b. Restrictive Legend. The Buyer acknowledges and agrees that the
Preferred Stock and the Warrants, and, until such time as the Common Stock has
been registered under the 1933 Act as contemplated by the Registration Rights
Agreement and sold in accordance with an effective Registration Statement or an
applicable exemption from registration, certificates and other instruments
representing any of the Securities shall bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of any such Securities):
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED
FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES OR AN OPINION OF COUNSEL OR OTHER EVIDENCE
ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
12
The legend set forth above shall be promptly removed, and the Company shall
issue a certificate without such legend to the holder of any such Securities
upon which such legend is stamped, if, unless otherwise required by federal or
state securities laws, (i) such Securities are registered for resale under the
Securities Act and are sold in accordance with an effective Registration
Statement, or (ii) such holder provides the Company with reasonable assurances
that such Securities can be sold pursuant to Rule 144(k) promulgated under the
Securities Act. The Company shall bear the cost of the removal of any legend as
anticipated by this Section 4.
c. Registration Rights Agreement. The parties hereto agree to enter into
the Registration Rights Agreement on or before the Closing Date.
d. Filings. (i) The Company undertakes and agrees to make all necessary
filings in connection with the sale of the Securities to the Buyer under any
United States laws and regulations applicable to the Company, or by any domestic
securities exchange or trading market, and to provide a copy thereof to the
Buyer promptly after such filing.
(ii) Subject to the conditions of the immediately following sentence, the
Company undertakes and agrees to take all steps necessary to have a meeting and
vote of the stockholders of the Company no later than the Meeting Date (as
defined below) regarding authorization of the Company's issuance to the holders
of the Preferred Stock and Warrants of shares of Common Stock in excess of
twenty percent (20%) of the outstanding shares of Common Stock on the date of
this Agreement in accordance with NASDAQ Rule 4310(c)(25)(H)(i) or Rule
4460(i)(1), as may be applicable. The term "Meeting Date" means the date which
is the earlier of (x) seventy-five (75) days after the date on which the Company
has issued, after the date of this Agreement, shares of Common Stock which, in
the aggregate equal or exceed ten percent (10%) of the outstanding shares of
Common Stock on the date hereof or (y) the date on which the Company holds its
next regular or special stockholders meeting. The Company will recommend to the
stockholders that such authorization be granted and will seek proxies from
stockholders not attending the meeting naming a director or officer of the
Company as such stockholder's proxy and directing the proxy to vote, or giving
the proxy the authority to vote, in favor of such authorization.
e. Reporting Status. So long as the Buyer beneficially owns any of the
Securities, the Company shall file all reports required to be filed with the SEC
pursuant to Section 13 or 15(d) of the 1934 Act, and the Company shall not
terminate 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 will take all reasonable action under its control to
obtain and to continue the listing and trading of its Common Stock (including,
without limitation, all Registrable Securities) on The NASDAQ/SmallCap Market
and will comply in all material respects with the Company's reporting, filing
and other obligations under the by-laws or rules of the National Association of
Securities Dealers, Inc. ("NASD") or The NASDAQ/SmallCap Market.
f. Use of Proceeds. The Company will use the proceeds from the sale of the
Preferred Stock (excluding amounts paid by the Company for legal fees, finder's
fees and escrow fees in connection with the sale of the Preferred Stock) for
internal working capital purposes, and, unless
13
specifically consented to in advance in each instance by the Buyer, the Company
shall not, directly or indirectly, use such proceeds for any loan to or
investment in any other corporation, partnership enterprise or other person or
for the repayment of any outstanding loan by the Company to any other party.
g. Available Shares. The Company shall have at all times authorized and
reserved for issuance, free from preemptive rights, shares of Common Stock
sufficient to yield the aggregate of (i) one hundred fifty percent (150%) of the
number of shares of Common Stock issuable at conversion as may be required to
satisfy the conversion rights of the Buyer pursuant to the terms and conditions
of the Certificate of Designations or to represent payment of dividends on the
Preferred Stock and (ii) the number of shares issuable upon exercise as may be
required to satisfy the exercise rights of the Buyer pursuant to the terms and
conditions of the Warrants.
h. Warrants. The Company agrees to issue to the Buyer on the Closing Date
transferable warrants (the "Warrants") for the purchase of a number of shares of
Common Stock equal to(x) twenty percent (20%) of the Purchase Price, as
indicated on the Buyer's signature page to this Agreement, divided by (y) 110%
of the closing bid price of the Common Stock (as reported by Bloomberg, LP) on
the trading day immediately before the Closing Date. The Warrants shall bear an
exercise price per share equal to 110% of the closing bid price of the Common
Stock (as reported by Bloomberg, LP) on the trading day immediately before the
Closing Date (subject to adjustment as provided in the Warrant). The Warrants
will expire on the last day of the calendar month in which the fifth anniversary
of the Closing Date occurs. The Warrants shall be in the form annexed hereto as
Annex VI, together with (x) registration rights as provided in the Registration
Rights Agreement and (y) piggy-back registration rights after the effectiveness
of the Registration Statement expires, as contemplated by the Registration
Rights Agreement.
i. Limitation on Issuance of Shares. If applicable to the Company, the
Company may be limited in the number of shares of Common Stock it may issue by
virtue of (i) the number of authorized shares or (ii) the applicable rules and
regulations of the principal securities market on which the Common Stock is
listed or traded, including, but not necessarily limited to, NASDAQ Rule
4310(c)(25)(H)(i) or Rule 4460(i)(1), as may be applicable (collectively, the
"Cap Regulations"). Without limiting the other provisions thereof, the Preferred
Stock shall provide that (i) the Company will take all steps reasonably
necessary to be in a position to issue shares of Common Stock on conversion of
the Preferred Stock without violating the Cap Regulations and (ii) if, despite
taking such steps, the Company still can not issue such shares of Common Stock
without violating the Cap Regulations, the holder of a share of Preferred Stock
which can not be converted as result of the Cap Regulations after all such
shares of Preferred Stock which can be converted under the Cap Regulations have
been converted (each such share, an "Unconverted Share") shall have the option,
exercisable in such holder's sole and absolute discretion, to elect either of
the following remedies:
(x) if permitted by the Cap Regulations, require the Company to
issue shares of Common Stock in accordance with such holder's notice of
conversion at a conversion purchase price equal to the average of the
closing price per share of Common Stock for any five (5) consecutive
trading days (subject to certain equitable
14
adjustments for certain events occurring during such period) during the
sixty (60) trading days immediately preceding the date of notice of
conversion; or
(y) require the Company to redeem such Unconverted Share for an
amount (the "Cap Limitation Redemption Amount"), payable in cash, equal
to:
V x M
------
CP
where:
"V" means the liquidation preference of the Unconverted Share plus
any accrued but unpaid dividends thereon;
"CP" means the conversion price in effect on the date of redemption
(the "Redemption Date") specified in the notice from the holder of the
Unconverted Share electing this remedy; and
"M" means the highest closing price per share of the Common Stock
during the period beginning on the Redemption Date and ending on the date
of payment of the Cap Limitation Redemption Amount.
A holder of more than one Unconverted Share may elect one of the above remedies
with respect to some of such Unconverted Shares and the other remedy with
respect to other Unconverted Shares. The Cap Limitation Redemption Amount
payable under the provisions of this Section 4(i) shall be payable within thirty
(30) days of the Redemption Date. The Certificate of Designations shall contain
provisions substantially consistent with the above terms, with such additional
provisions as may be consented to by the Buyer. The provisions of this paragraph
are not intended to limit the scope of the provisions otherwise included in the
Certificate of Designations.
j. Right of First Refusal, Special Dilution Protection. (i) The Company
covenants and agrees that, if during the period from the date hereof through and
including the date which is two hundred forty (240) days after the Effective
Date, the Company offers to enter into any transaction other than an
underwritten public offering (a "New Transaction") for the sale of New Common
Stock, the Company shall notify the Buyer in writing of all of the terms of such
offer (a "New Transaction Offer"). The Buyer shall have the right (the "Right of
First Refusal"), exercisable by written notice given to the Company by the close
of business on the third business day after the Buyer's receipt of the New
Transaction Offer (the "Right of First Refusal Expiration Date"), to participate
in all or any part of the New Transaction Offer on the terms so specified.
(ii) If, and only if, the Buyer does not exercise the Right of First
Refusal in full, the Company may consummate the remaining portion of the New
Transaction with any New Investor
15
on the terms specified in the New Transaction Offer within twenty (20) days of
the Right of First Refusal Expiration Date.
(iii) If the terms of the New Transaction to be consummated with such
other party differ from the terms specified in the New Transaction Offer so that
the terms are more beneficial in any respect to the New Investor, the Company
shall give the Buyer a New Transaction Offer relating to the terms of the New
Transaction, as so changed, and the Buyer's Right of First Refusal and the
preceding terms of this Section 4(j) shall apply with respect to such changed
terms.
(iv) If there is more than one Buyer signatory to this Agreement, the
preceding provisions of this Section 4(j) shall apply pro rata among them (based
on their relative Buyer's Allocable Shares), except that, to the extent any such
Buyer does not exercise its Right of First Refusal in full (a "Declining
Buyer"), the remaining Buyer or Buyers who or which have exercised their own
Right of First Refusal in full, shall have the right (pro rata among them based
on their relative Buyer's Allocable Shares, if more than one) to exercise all or
a portion of such Declining Buyer's unexercised Right of Refusal.
(v) In the event the New Transaction is consummated for the sale of New
Common Stock or the issuance of warrants or other rights to purchase New Common
Stock with such third party at any time prior to the expiration of two hundred
forty (240) days after the Effective Date on terms providing for (x) either a
sale price equal to or computed based on, or a determination of a conversion
price based on, a lower percentage of the then current market price (howsoever
defined or computed) than provided in the Certificate of Designations for
determining the Conversion Rate or a lower Fixed Price (as defined in the
Certificate of Designations, but howsoever defined or computed in the New
Transaction documents) and/or (y) the issuance of warrants at an exercise price
lower than that provided in the Warrants and/or for a greater number of shares
per dollar paid or invested by such third party to or in the Company, the terms
of the Certificate of Designations (or other documentation affecting the terms
of the Preferred Stock) and the Warrants (whether previously issued and/or
converted or not) shall be modified to (i) reduce the relevant Conversion Rate,
Fixed Price or Warrant exercise price and/or (ii) increase the number of shares
covered by the Warrants, in each instance to be equal to that provided in the
New Transaction as so consummated (provided, however, that such increased
Warrants shall have the same exercise price formula as the New Transaction
warrants).
k. Reimbursement. If (i) any Buyer, other than by reason of its gross
negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by any stockholder of the Company,
in connection with or as a result of the consummation of the transactions
contemplated by the Transaction Agreements, or if such Buyer is impleaded in any
such action, proceeding or investigation by any Person, or (ii) any Buyer, other
than by reason of its gross negligence or willful misconduct or by reason of its
trading of the Common Stock in a manner that is illegal under the federal
securities laws, becomes involved in any capacity in any action, proceeding or
investigation brought by the SEC against or involving the Company or in
connection with or as a result of the consummation of the transactions
contemplated by the
16
Transaction Agreements, or if such Buyer is impleaded in any such action,
proceeding or investigation by any Person, then in any such case, the Company
will reimburse such Buyer for its reasonable legal and other expenses (including
the cost of any investigation and preparation) incurred in connection therewith,
as such expenses are incurred. The reimbursement obligations of the Company
under this paragraph shall be in addition to any liability which the Company may
otherwise have, shall extend upon the same terms and conditions to any
Affiliates of the Buyers who are actually named in such action, proceeding or
investigation, and partners, directors, agents, employees and controlling
persons (if any), as the case may be, of the Buyers and any such Affiliate, and
shall be binding upon and inure to the benefit of any successors, assigns, heirs
and personal representatives of the Company, the Buyers and any such Affiliate
and any such Person. The Company also agrees that neither any Buyer nor any such
Affiliate, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any person asserting claims on behalf of or
in right of the Company in connection with or as a result of the consummation of
the Transaction Agreements except to the extent that any losses, claims,
damages, liabilities or expenses incurred by the Company result from the gross
negligence or willful misconduct of such Buyer.
5. TRANSFER AGENT INSTRUCTIONS.
a. The Company warrants that, with respect to the Securities, other than
the stop transfer instructions to give effect to Section 4(a) hereof, it will
give its transfer agent no instructions inconsistent with instructions to issue
Common Stock from time to time upon conversion of the Preferred Stock in such
amounts as specified from time to time by the Company to the transfer agent,
bearing the restrictive legend specified in Section 4(b) of this Agreement prior
to registration of the Shares under the 1933 Act, registered in the name of the
Buyer or its nominee and in such denominations to be specified by the Buyer in
connection with each conversion of the Preferred Stock. Except as so provided,
the Shares shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement, the Registration
Rights Agreement, and applicable law. Nothing in this Section shall affect in
any way the Buyer's obligations and agreement to comply with all applicable
securities laws upon resale of the Securities. If the Buyer provides the Company
with an opinion of counsel reasonably satisfactory to the Company that
registration of a resale by the Buyer of any of the Securities in accordance
with clause (1)(B) of Section 4(a) of this Agreement is not required under the
1933 Act, the Company shall (except as provided in clause (2) of Section 4(a) of
this Agreement) permit the transfer of the Securities and, in the case of the
Converted Shares or the Warrant Shares, as the case may be, promptly instruct
the Company's transfer agent to issue one or more certificates for Common Stock
without legend in such name and in such denominations as specified by the Buyer.
b. Subject to the provisions of this Agreement, the Company will permit
the Buyer to exercise its right to convert the Preferred Stock in the manner
contemplated by the Certificate of Designations.
c. The Company understands that a delay in the issuance of the Shares of
Common Stock beyond the Delivery Date (as defined in the Certificate of
Designations) could result
17
in economic loss to the Buyer. As compensation to the Buyer for such loss, the
Company agrees to pay late payments to the Buyer for late issuance of Shares
upon Conversion in accordance with the following schedule (where "No. Business
Days Late" is defined as the number of business days beyond three (3) business
days from the Delivery Date):
Late Payment For Each $10,000
of Liquidation Preference or Dividend
No. Business Days Late Amount Being Converted
---------------------- -------------------------------------
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 +$200 for each Business
Day Late beyond 10 days
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand. For purposes of this Section 5(c), in connection
with a Mandatory Conversion (as defined in the Certificate of Designations), the
term "Delivery Date" shall refer to the earlier of (i) the Delivery Date
determined in relation to a Notice of Conversion actually submitted by the Buyer
to the Company or (ii) the fourth or sixth business date, as the case may be,
after written notice from the Buyer that the delivery of shares to the Buyer in
connection with the Mandatory Conversion has not been accomplished. The Company
shall pay any payments incurred under this Section in immediately available
funds upon demand. Nothing herein shall limit the Buyer's right to pursue actual
damages for the Company's failure to issue and deliver the Common Stock to the
Buyer. Furthermore, in addition to any other remedies which may be available to
the Buyer, in the event that the Company fails for any reason to effect delivery
of such shares of Common Stock within three (3) business days after the Delivery
Date, the Buyer will be entitled to revoke the relevant Notice of Conversion by
delivering a notice to such effect to the Company whereupon the Company and the
Buyer shall each be restored to their respective positions immediately prior to
delivery of such Notice of Conversion.
d. If, by the relevant Delivery Date, the Company fails for any reason to
deliver the Shares to be issued upon conversion of Preferred Stock and after
such Delivery Date, the holder of the Preferred Stock being converted (a
"Converting Holder") purchases, in an arm's-length open market transaction or
otherwise, shares of Common Stock (the "Covering Shares") in order to make
delivery in satisfaction of a sale of Common Stock by the Converting Holder (the
"Sold Shares"), which delivery such Converting Holder anticipated to make using
the Shares to be issued upon such conversion (a "Buy-In"), the Converting Holder
shall have the right, to require the Company to pay to the Converting Holder, in
addition to the amounts contemplated in other provisions of the
18
Transaction Agreements, and not in lieu of any such other amounts, the Buy-In
Adjustment Amount (as defined below). The "Buy-In Adjustment Amount" is the
amount equal to the excess, if any, of (x) the Converting Holder's total
purchase price (including brokerage commissions, if any) for the Covering Shares
over (y) the net proceeds (after brokerage commissions, if any) received by the
Converting Holder from the sale of the Sold Shares. The Company shall pay the
Buy-In Adjustment Amount to the Company in immediately available funds
immediately upon demand by the Converting Holder. By way of illustration and not
in limitation of the foregoing, if the Converting Holder purchases shares of
Common Stock having a total purchase price (including brokerage commissions) of
$11,000 to cover a Buy-In with respect to shares of Common Stock it sold for net
proceeds of $10,000, the Buy-In Adjustment Amount which Company will be required
to pay to the Converting Holder will be $1,000.
e. In lieu of delivering physical certificates representing the Common
Stock issuable upon conversion, provided the Company's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer program, upon request of the Buyer and its compliance with the
provisions contained in this paragraph, so long as the certificates therefor do
not bear a legend and the Buyer thereof is not obligated to return such
certificate for the placement of a legend thereon, the Company shall use its
best efforts to cause its transfer agent to electronically transmit the Common
Stock issuable upon conversion to the Buyer by crediting the account of Buyer's
Prime Broker with DTC through its Deposit Withdrawal Agent Commission system.
f. If, at any time the Company challenges, disputes or denies the right of
a holder of Preferred Stock to effect a conversion of the Preferred Stock into
Common Stock or otherwise dishonors or rejects any Conversion Notice delivered
in accordance with the terms of this Agreement or the Certificate of
Designations or any exercise of any Warrant in accordance with its terms
("Warrant Exercise"), then such holder shall have the right, by written notice
to the Company, to require the Company to promptly redeem the Preferred Stock
for cash at a redemption price (the "Mandatory Purchase Amount") equal to (x)
one hundred forty-five percent (145%) of the liquidation preference of the
unconverted Preferred Stock held by such holder plus (y) all accrued but unpaid
dividends on the Preferred Stock through the date of payment of the Mandatory
Purchase Amount. Under any of the circumstances set forth above, the Company
shall be responsible for the payment of all costs and expenses of such holder,
including, but not necessarily limited to, reasonable legal fees and expenses,
as and when incurred in connection with such holder's disputing any such action
or pursuing such holder's rights hereunder (in addition to any other rights such
holder may have hereunder or otherwise). The Mandatory Purchase Amount will be
payable to such holder in cash within five (5) business days from the date such
holder gives the Company written notice that it is exercising its rights under
this paragraph.
g. The holder of any Preferred Stock shall be entitled to exercise its
conversion privilege with respect to the Preferred Stock notwithstanding the
commencement of any case under 11 U.S.C. ss.101 et seq. (the "Bankruptcy Code").
In the event the Company is a debtor under the Bankruptcy Code, the Company
hereby waives, to the fullest extent permitted, any rights to relief it may have
under 11 U.S.C. ss.362 in respect of such holder's conversion privilege. The
Company hereby waives, to the fullest extent permitted, any rights to relief it
may have under 11 U.S.C. ss.362
19
in respect of the conversion of the Preferred Stock. The Company agrees, without
cost or expense to such holder, to take or to consent to any and all action
necessary to effectuate relief under 11 U.S.C. ss.362.
h. The Company will authorize its transfer agent to give information
relating to the Company directly to the Buyer or the Buyer's representatives
upon the request of the Buyer or any such representative , to the extent such
information relates to (i) the status of shares of Common Stock issued or
claimed to be issued to the Buyer in connection with a Notice of Conversion, or
(ii) the number of outstanding shares of Common Stock of all stockholders as of
a current or other specified date. The Company will provide the Buyer with a
copy of the authorization so given to the transfer agent.
6. CLOSING DATES.
a. The Closing Date shall occur on the date which is the first NYSE
trading day after each of the conditions contemplated by Sections 7 and 8 hereof
shall have either been satisfied or been waived by the party in whose favor such
conditions run.
b. The closing of the purchase and issuance of Preferred Stock shall occur
on the Closing Date at the offices of the Escrow Agent and shall take place no
later than 3:00 P.M., New York time, on such day or such other time as is
mutually agreed upon by the Company and the Buyer.
c. Notwithstanding anything to the contrary contained herein, the Escrow
Agent will be authorized to release the Escrow Funds to the Company and to
others and to release the other Escrow Property on the Closing Date upon
satisfaction of the conditions set forth in Sections 7 and 8 hereof and as
provided in the Joint Escrow Instructions.
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell the Preferred
Stock to the Buyer pursuant to this Agreement on the Closing Date is conditioned
upon:
a. The Buyer's execution and delivery of this Agreement and the other
Transaction Agreements contemplated to be signed by the Buyer;
b. Delivery by the Buyer to the Escrow Agent of good funds as payment in
full of an amount equal to the Purchase Price for the Preferred Stock in
accordance with this Agreement;
c. The accuracy on the Closing Date of the representations and warranties
of the Buyer contained in this Agreement, each as if made on such date, and the
performance by the Buyer on or before such date of all covenants and agreements
of the Buyer required to be performed on or before such date;
20
d. There shall not be in effect any law, rule or regulation prohibiting or
restricting the transactions contemplated hereby or requiring any consent or
approval which shall not have been obtained; and
e. From and after the date hereof to and including the Closing Date, the
trading of the Common Stock shall not have been suspended by the SEC or the NASD
and trading in securities generally on The NASDAQ/SmallCap Market shall not have
been suspended or limited, nor shall minimum prices been established for
securities traded on The NASDAQ/SmallCap Market, nor shall there be any outbreak
or escalation of hostilities involving the United States or any material adverse
change in any financial market that in either case in the reasonable judgment of
the Company makes it impracticable or inadvisable to sell the Preferred Stock.
8. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase the
Preferred Stock on the Closing Date is conditioned upon:
a. The adoption of the Certificate of Designations by all necessary
corporate action of the Company and the filing of all filings necessary to
effectuate the Certificate of Designations as a part of the charter documents of
the Company;
b. The execution and delivery of this Agreement and the Registration
Rights Agreement by the Company;
c. Delivery by the Company to the Escrow Agent of the Certificates in
accordance with this Agreement;
d. The accuracy in all material respects on the Closing Date of the
representations and warranties of the Company contained in this Agreement, each
as if made on such date, and the performance by the Company on or before such
date of all covenants and agreements of the Company required to be performed on
or before such date;
e. On the Closing Date, the Registration Rights Agreement shall be in full
force and effect and the Company shall not be in default thereunder;
f. On the Closing Date, the Buyer shall have received an opinion of
counsel for the Company, dated such Closing Date, in form, scope and substance
reasonably satisfactory to the Buyer, substantially to the effect set forth in
Annex III attached hereto;
g. There shall not be in effect any law, rule or regulation prohibiting or
restricting the transactions contemplated hereby or requiring any consent or
approval which shall not have been obtained;
h. From and after the date hereof to and including the Closing Date, the
trading of the Common Stock shall not have been suspended by the SEC or the NASD
and trading in securities generally on The NASDAQ/SmallCap Market shall not have
been suspended or limited,
21
nor shall minimum prices been established for securities traded on The
NASDAQ/SmallCap Market, nor shall there be any outbreak or escalation of
hostilities involving the United States or any material adverse change in any
financial market that in either case in the reasonable judgment of the Buyer
makes it impracticable or inadvisable to purchase the Preferred Stock.
9. GOVERNING LAW: MISCELLANEOUS.
a. This Agreement shall be governed by and interpreted in accordance with
the laws of the State of New York for contracts to be wholly performed in such
state and without giving effect to the principles thereof regarding the conflict
of laws. Each of the parties consents to the jurisdiction of the federal courts
whose districts encompass any part of the City of New York or the state courts
of the State of New York sitting in the City of New York in connection with any
dispute arising under this Agreement and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on forum non
conveniens, to the bringing of any such proceeding in such jurisdictions. To the
extent determined by such court, the Company shall reimburse the Buyer for any
reasonable legal fees and disbursements incurred by the Buyer in enforcement of
or protection of any of its rights under any of the Transaction Agreements.
b. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
c. This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties hereto.
d. All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
e. A facsimile transmission of this signed Agreement shall be legal and
binding on all parties hereto.
f. This Agreement may be signed in one or more counterparts, each of which
shall be deemed an original.
g. The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement.
h. If any provision of this Agreement shall be invalid or unenforceable in
any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.
i. This Agreement may be amended only by an instrument in writing signed
by the party to be charged with enforcement thereof.
22
j. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof.
10. NOTICES. Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be deemed effectively
given on the earliest of
(a) the date delivered, if delivered by personal delivery as against
written receipt therefor or by confirmed facsimile transmission,
(b) the seventh business day after deposit, postage prepaid, in the United
States Postal Service by registered or certified mail, or
(c) the third business day after mailing by domestic or international
express courier, with delivery costs and fees prepaid,
in each case, addressed to each of the other parties thereunto entitled at the
following addresses (or at such other addresses as such party may designate by
ten (10) days' advance written notice similarly given to each of the other
parties hereto):
COMPANY: Natural Health Trends Corp.
380 Lashley Street
Longmont, CO 80501
Attn: Mark Woodburn
Telephone No.: (303) 682-4637
Telecopier No.: (303) 682-4236
with a copy to:
Silverman, Collura & Chernis, P.C.
381 Park Avenue South, Suite 1601
New York, NY 10016
Attn: Martin C. Licht, Esq.
Telephone No.: (212) 779-8600
Telecopier No.: (212) 779-8858
BUYER: At the address set forth on the signature page of this
Agreement.
with a copy to:
Krieger & Prager LLP, Esqs.
39 Broadway
Suite 1440
New York, NY 10006
Attn: Samuel Krieger, Esq.
Telephone No.: (212) 363-2900
Telecopier No. (212) 363-2999
23
ESCROW AGENT: Krieger & Prager LLP, Esqs.
39 Broadway
Suite 1440
New York, NY 10006
Attn: Samuel Krieger, Esq.
New York, New York 10016
Telephone No.: (212) 363-2900
Telecopier No. (212) 363-2999
11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's and the
Buyer's representations and warranties herein shall survive the execution and
delivery of this Agreement and the delivery of the Certificates and the Warrants
and the payment of the Purchase Price, and shall inure to the benefit of the
Buyer and the Company and their respective successors and assigns.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK.]
24
IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyer by
one of its officers thereunto duly authorized as of the date set forth below.
LIQUIDATION PREFERENCE OF PREFERRED STOCK: $
--------------------
PURCHASE PRICE OF PREFERRED STOCK: $
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SIGNATURES FOR ENTITIES
IN WITNESS WHEREOF, the undersigned represents that the foregoing
statements are true and correct and that it has caused this Securities Purchase
Agreement to be duly executed on its behalf this __________ day _________, 2000.
- -------------------------------- ------------------------------------
Address Printed Name of Subscriber
- -------------------------------- By:
---------------------------------
Telecopier No. (Signature of Authorized Person)
------------------
------------------------------------
- -------------------------------- ------------------------------------
Jurisdiction of Incorporation Printed Name and Title
or Organization
As of the date set forth below, the undersigned hereby accepts this Agreement
and represents that the foregoing statements are true and correct and that it
has caused this Securities Purchase Agreement to be duly executed on its behalf.
NATURAL HEALTH TRENDS CORP.
By:
-------------------------------
Title:
----------------------------
Date: ,2000
-----------------------------