SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
October 21, 2005 among OneTravel Holdings, Inc., a Delaware corporation (the
"Company"), and each purchaser identified on the signature pages hereto (each,
including its successors and assigns, a "Purchaser" and collectively the
"Purchasers").
WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act") and Rule 506 promulgated thereunder, the Company desires to
issue and sell to each Purchaser, and each Purchaser, severally and not jointly,
desires to purchase from the Company, securities of the Company as more fully
described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agree
as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement: (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Debentures (as defined herein), and (b) the
following terms have the meanings indicated in this Section 1.1:
"Action" shall have the meaning ascribed to such term in Section
3.1(j).
"Affiliate" means any Person that, directly or indirectly through
one or more intermediaries, controls or is controlled by or is under
common control with a Person, as such terms are used in and construed
under Rule 144 under the Securities Act. With respect to a Purchaser, any
investment fund or managed account that is managed on a discretionary
basis by the same investment manager as such Purchaser will be deemed to
be an Affiliate of such Purchaser.
"Closing" means the closing of the purchase and sale of the
Securities pursuant to Section 2.1.
"Closing Date" means the Trading Day when all of the Transaction
Documents have been executed and delivered by the applicable parties
thereto, and all conditions precedent to (i) the Purchasers' obligations
to pay the Subscription Amount and (ii) the Company's obligations to
deliver the Securities have been satisfied or waived.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, par value
$0.04 per share, and any other class of securities into which such
securities may hereafter have been reclassified or changed into.
"Common Stock Equivalents" means any securities of the Company or
the Subsidiaries which would entitle the holder thereof to acquire at any
time Common Stock, including, without limitation, any debt, preferred
stock, rights, options, warrants or other instrument that is at any time
convertible into or exercisable or exchangeable for, or otherwise entitles
the holder thereof to receive, Common Stock.
"Company Counsel" means Katten Muchin Rosenman LLP.
"Conversion Price" shall have the meaning ascribed to such term in
the Debentures.
"Debentures" means, the 9% Secured Convertible Debentures due,
subject to the terms therein, three years from their date of issuance,
issued by the Company to the Purchasers hereunder, in the form of Exhibit
A.
"Disclosure Schedules" shall have the meaning ascribed to such term
in Section 3.1.
"Effective Date" means the date that the initial Registration
Statement filed by the Company pursuant to the Registration Rights
Agreement is first declared effective by the Commission.
"Escrow Agent" shall have the meaning set forth in the Escrow
Agreement.
"Escrow Agreement" shall mean the Escrow Agreement in substantially
the form of Exhibit E hereto executed and delivered contemporaneously with
this Agreement.
"Evaluation Date" shall have the meaning ascribed to such term in
Section 3.1(r).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Exempt Issuance" means the issuance of (a) shares of Common Stock
or options to employees, officers or directors of the Company or any
Subsidiary pursuant to any stock or option plan of the Company or any
Subsidiary (i) existing on the date hereof, or (ii) duly adopted by a
majority of the non-employee members of the Board of Directors of the
Company or a majority of the members of a committee of non-employee
directors established for such purpose following the date hereof, (b)
securities upon the exercise or exchange of or conversion of any
Securities issued hereunder and/or securities exercisable or exchangeable
for or convertible into shares of Common Stock issued and outstanding on
the date of this Agreement, provided that such securities have not been
amended (other than any change which is automatic or otherwise required in
accordance with the terms of such securities) since the date of this
Agreement to increase the number of such securities or to decrease the
exercise, exchange or conversion price of any such securities and (c)
securities issued pursuant to acquisitions or strategic transactions,
provided any such issuance shall only be to a Person which is, itself or
through its subsidiaries or business(es) owned, an operating company in a
business synergistic with the business of the Company and in which the
Company reasonably expects to receive benefits in addition to the
investment of funds, but shall not include a transaction in which the
Company is issuing securities primarily for the purpose of raising capital
or to an entity whose primary business is investing in securities.
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"Farequest Note" means that certain Secured Convertible Promissory
Note issued by Farequest as of March 27, 2004 in the principal amount of
$1,300,000 to CSDH Holdings, LLC.
"Farequest Note Documents" means the Farequest Note and that certain
Security Agreement, dated as of March 27, 2004, by and between Farequest
and CSDH Holdings, LLC.
"FW" means Feldman Weinstein LLP with offices located at 420
Lexington Avenue, Suite 2620, New York, New York 10170-0002.
"GAAP" shall have the meaning ascribed to such term in Section
3.1(h).
"Intellectual Property Rights" shall have the meaning ascribed to
such term in Section 3.1(o).
"Legend Removal Date" shall have the meaning ascribed to such term
in Section 4.1(c).
"Liens" means a lien, charge, security interest, encumbrance, right
of first refusal, preemptive right or other restriction.
"Material Adverse Effect" shall have the meaning assigned to such
term in Section 3.1(b).
"Material Permits" shall have the meaning ascribed to such term in
Section 3.1(m).
"Maximum Rate" shall have the meaning ascribed to such term in
Section 5.17.
"OneTravel Sellers" means collectively, Amadeus Americas, Inc.
Avanti Management, Inc., Libra Securities, LLC and Terra Networks
Asociadas, S.L.
"Participation Maximum" shall have the meaning ascribed to such term
in Section 4.12.
"Permitted Liens" shall have the meaning ascribed to such term in
the Debentures.
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"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
"Pre-Notice" shall have the meaning ascribed to such term in Section
4.12.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Purchaser Party" shall have the meaning ascribed to such term in
Section 4.10.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated the date hereof, among the Company and the Purchasers, in
the form of Exhibit B attached hereto.
"Registration Statement" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering
the resale of the Underlying Shares by each Purchaser as provided for in
the Registration Rights Agreement.
"Required Approvals" shall have the meaning ascribed to such term in
Section 3.1(e).
"Required Minimum" means, as of any date, the maximum aggregate
number of shares of Common Stock then issued or potentially issuable in
the future pursuant to the Transaction Documents, including any Underlying
Shares issuable upon exercise or conversion in full of all Warrants and
Debentures (including Underlying Shares issuable as payment of interest),
ignoring any conversion or exercise limits set forth therein, and assuming
that the Conversion Price is at all times on and after the date of
determination 75% of the then Conversion Price on the Trading Day
immediately prior to the date of determination.
"Rule 144" means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"SEC Reports" shall have the meaning ascribed to such term in
Section 3.1(h).
"Securities" means the Debentures, the Warrants, the Warrant Shares
and the Underlying Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Agreement" means the Security Agreement, dated the date
hereof, among the Company, the Subsidiary Guarantors and the Purchasers,
in the form of Exhibit G attached hereto.
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"Security Documents" means the Security Agreement and the Subsidiary
Guarantee and any other documents and filings contemplated thereunder,
including all UCC-1 financing statements.
"Seller Note Documents" means the Seller Notes and those certain
Security Agreements, dated as of April 15, 2005, by and between the
Company and each of the OneTravel Sellers.
"Seller Notes" means those certain Promissory Notes issued by the
Company on April 15, 2005 in aggregate principal amount of $12,500,000 to
the OneTravel Sellers.
"Shareholder Approval" means such approval as may be required by the
applicable rules and regulations of the American Stock Exchange (or any
successor entity) from the shareholders of the Company with respect to the
transactions contemplated by the Transaction Documents, including the
issuance of all of the Underlying Shares and shares of Common Stock
issuable upon exercise of the Warrants in excess of 19.99% of the issued
and outstanding Common Stock on the Closing Date.
"Short Sales" shall include all "short sales" as defined in Rule 200
of Regulation SHO under the Exchange Act.
"Subscription Amount" means, as to each Purchaser, the aggregate
amount to be paid for Debentures and Warrants purchased hereunder as
specified below such Purchaser's name on the signature page of this
Agreement and next to the heading "Subscription Amount", in United States
Dollars and in immediately available funds.
"Subsequent Financing" shall have the meaning ascribed to such term
in Section 4.12.
"Subsequent Financing Notice" shall have the meaning ascribed to
such term in Section 4.12.
"Subsidiary" means any subsidiary of the Company as set forth on
Schedule 3.1(a).
"Subsidiary Guarantee" means the Subsidiary Guarantee, dated the
date hereof, among each of the Subsidiary Guarantors and the Purchasers,
in the form of Exhibit H attached hereto.
"Subsidiary Guarantors" means each of the Farequest Holdings, Inc.,
a Delaware corporation, and OneTravel, Inc., a Texas corporation.
"Trading Day" means a day on which the Common Stock is traded on a
Trading Market.
"Trading Market" means the following markets or exchanges on which
the Common Stock is listed or quoted for trading on the date in question:
the Nasdaq SmallCap Market, the American Stock Exchange, the New York
Stock Exchange or the Nasdaq National Market.
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"Transaction Documents" means this Agreement, the Debentures, the
Warrants, the Registration Rights Agreement, all Security Documents, the
Escrow Agreement and any other documents or agreements executed in
connection with the transactions contemplated hereunder.
"Underlying Shares" means the shares of Common Stock issued and
issuable upon conversion of the Debentures and upon exercise of the
Warrants and issued and issuable in lieu of the cash payment of interest
on the Debentures in accordance with the terms of the Debentures.
"VWAP" means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or
quoted on a Trading Market, the daily volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the Trading
Market on which the Common Stock is then listed or quoted as reported by
Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. Eastern
Time to 4:00 p.m. Eastern Time or such other time as the Trading Market
publicly announces as the official closing time of the Trading Market; (b)
if the Common Stock is not then listed or quoted on a Trading Market and
if prices for the Common Stock are then quoted on the OTC Bulletin Board,
the volume weighted average price of the Common Stock for such date (or
the nearest preceding date) on the OTC Bulletin Board; (c) if the Common
Stock is not then listed or quoted on the OTC Bulletin Board and if prices
for the Common Stock are then reported in the "Pink Sheets" published by
the Pink Sheets, LLC (or a similar organization or agency succeeding to
its functions of reporting prices), the most recent bid price per share of
the Common Stock so reported; or (d) in all other cases, the fair market
value of a share of Common Stock as determined by an independent appraiser
selected in good faith by the Purchasers and reasonably acceptable to the
Company.
"Warrants" means collectively the Common Stock purchase warrants, in
the form of Exhibit C delivered to the Purchasers at the Closing in
accordance with Section 2.2(a) hereof, which Warrants shall be exercisable
beginning 181 days after the date hereof and have a term of exercise equal
to five years.
"Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1 Closing. On the Closing Date, upon the terms and subject to the
conditions set forth herein, concurrent with the execution and delivery of this
Agreement by the parties hereto, the Company agrees to sell, and each Purchaser
agrees to purchase in the aggregate, severally and not jointly, up to
$13,500,000 principal amount of the Debentures. Each Purchaser shall deliver to
the Company via wire transfer or a certified check immediately available funds
equal to their Subscription Amount and the Company shall deliver to each
Purchaser their respective Debenture and Warrants as determined pursuant to
Section 2.2(a) and the other items set forth in Section 2.2 issuable at the
Closing. Upon satisfaction of the conditions set forth in Sections 2.2 and 2.3,
the Closing shall occur at the offices of the Escrow Agent, or such other
location as the parties shall mutually agree.
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2.2 Deliveries.
(a) On or prior to the Closing Date, the Company shall have
delivered or caused to be delivered to the Escrow Agent the following:
(i) this Agreement duly executed by the Company;
(ii) a legal opinion of Company Counsel, in the form of
Exhibit D attached hereto;
(iii) a Debenture with a principal amount equal to such
Purchaser's Subscription Amount, registered in the name of such
Purchaser;
(iv) a Warrant registered in the name of such Purchaser to
purchase up to a number of shares of Common Stock equal to 40% of
such Purchaser's Subscription Amount divided by the Conversion
Price, with an exercise price equal to the Conversion Price, subject
to adjustment therein;
(v) the Registration Rights Agreement duly executed by the
Company;
(vi) the Escrow Agreement duly executed by the Company; and
(vii) the Security Agreement, duly executed by the Company and
the Subsidiary Guarantors, along with all other Security Documents.
(b) On the Closing Date, each Purchaser shall deliver or cause to be
delivered to the Escrow Agent the following:
(i) this Agreement duly executed by such Purchaser;
(ii) such Purchaser's Subscription Amount by wire transfer to
the account as specified in writing by the Company;
(iii) the Escrow Agreement duly executed by such Purchaser;
and
(iv) the Registration Rights Agreement duly executed by such
Purchaser.
2.3 Closing Conditions.
(a) The obligations of the Company hereunder in connection with the
Closing are subject to the following conditions being met:
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(i) the accuracy in all material respects when made and on the
Closing Date of the representations and warranties of the Purchasers
contained herein;
(ii) all obligations, covenants and agreements of the
Purchasers required to be performed at or prior to the Closing Date
shall have been performed; and
(iii) the delivery by the Purchasers of the items set forth in
Section 2.2(b) of this Agreement.
(b) The respective obligations of the Purchasers hereunder in
connection with the Closing are subject to the following conditions being
met:
(i) the accuracy in all material respects on the Closing Date
of the representations and warranties of the Company contained
herein;
(ii) all obligations, covenants and agreements of the Company
required to be performed at or prior to the Closing Date shall have
been performed;
(iii) the delivery by the Company of the items set forth in
Section 2.2(a) of this Agreement;
(iv) there shall have been no Material Adverse Effect with
respect to the Company since the date hereof;
(v) receipt by the Escrow Agent of Subscription Amounts of not
less than $10,000,000 in the aggregate on or before October 31,
2005; and
(vi) from the date hereof to the Closing Date, trading in the
Common Stock shall not have been suspended by the Commission (except
for any suspension of trading of limited duration agreed to by the
Company, which suspension shall be terminated prior to the Closing),
and, at any time prior to the Closing Date, trading in securities
generally as reported by Bloomberg Financial Markets shall not have
been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported by such service,
or on any Trading Market, nor shall a banking moratorium have been
declared either by the United States or New York State authorities
nor shall there have occurred any material outbreak or escalation of
hostilities or other national or international calamity of such
magnitude in its effect on, or any material adverse change in, any
financial market which, in each case, in the reasonable judgment of
each Purchaser, makes it impracticable or inadvisable to purchase
the Debentures at the Closing.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth in
the SEC Reports (as defined in Section 3.1(h)), or under the corresponding
section of the disclosure schedules delivered to the Purchasers concurrently
herewith (the "Disclosure Schedules") which Disclosure Schedules shall be deemed
a part hereof, the Company hereby makes the representations and warranties set
forth below to each Purchaser.
(a) Subsidiaries. All of the direct and indirect subsidiaries of the
Company are set forth on Schedule 3.1(a). The Company owns, directly or
indirectly, all of the capital stock or other equity interests of each
Subsidiary free and clear of any Liens and all the issued and outstanding
shares of capital stock of each Subsidiary are validly issued and are
fully paid, non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities.
(b) Organization and Qualification. The Company and each of the
Subsidiaries is an entity duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the jurisdiction
of its incorporation or organization (as applicable), with the requisite
power and authority to own and use its properties and assets and to carry
on its business as currently conducted. Neither the Company nor any
Subsidiary is in violation or default of any of the provisions of its
respective certificate or articles of incorporation, bylaws or other
organizational or charter documents. Each of the Company and the
Subsidiaries is duly qualified to conduct business and is in good standing
as a foreign corporation or other entity in each jurisdiction in which the
nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in
good standing, as the case may be, could not have or reasonably be
expected to result in (i) a material adverse effect on the legality,
validity or enforceability of any Transaction Document, (ii) a material
adverse effect on the results of operations, assets, business, or
condition (financial or otherwise) of the Company and the Subsidiaries,
taken as a whole, or (iii) a material adverse effect on the Company's
ability to perform in any material respect on a timely basis its
obligations under any Transaction Document (any of (i), (ii) or (iii), a
"Material Adverse Effect") and no Proceeding has been instituted in any
such jurisdiction revoking, limiting or curtailing or seeking to revoke,
limit or curtail such power and authority or qualification.
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder. The
execution and delivery of each of the Transaction Documents by the Company
and the consummation by it of the transactions contemplated thereby have
been duly authorized by all necessary action on the part of the Company
and no further action is required by the Company, its board of directors
or its stockholders in connection therewith other than in connection with
the Required Approvals. Each Transaction Document has been (or upon
delivery will have been) duly executed by the Company and, when delivered
in accordance with the terms hereof and thereof, will constitute the valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms except (i) as limited by general equitable
principles and applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors' rights generally, (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions
may be limited by applicable law.
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(d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company
of the other transactions contemplated hereby and thereby do not and will
not: (i) conflict with or violate any provision of the Company's or any
Subsidiary's certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) conflict with, or constitute
a default (or an event that with notice or lapse of time or both would
become a default) under, result in the creation of any Lien (except as
contemplated by the Security Documents) upon any of the properties or
assets of the Company or any Subsidiary, or give to others any rights of
termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any material agreement, credit
facility, debt or other material instrument (evidencing a Company or
Subsidiary debt or otherwise) or other material understanding to which the
Company or any Subsidiary is a party or by which any property or asset of
the Company or any Subsidiary is bound or affected, or (iii) subject to
the Required Approvals, conflict with or result in a violation of any law,
rule, regulation, order, judgment, injunction, decree or other restriction
of any court or governmental authority to which the Company or a
Subsidiary is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company or a
Subsidiary is bound or affected; except in the case of each of clauses
(ii) and (iii), such as could not have or reasonably be expected to result
in a Material Adverse Effect.
(e) Filings, Consents and Approvals. The Company is not required to
obtain any consent, waiver, authorization or order of, give any notice to,
or make any filing or registration with, any court or other federal,
state, local or other governmental authority or other Person in connection
with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) filings required pursuant to Section
4.6, (ii) the filing with the Commission of the Registration Statement,
(iii) the notice and/or application(s) to each applicable Trading Market
for the issuance and sale of the Debentures and Warrants and the listing
of the Underlying Shares for trading thereon in the time and manner
required thereby, (iv) the filing of Form D with the Commission and such
filings as are required to be made under applicable state securities laws
and (v) Shareholder Approval (collectively, the "Required Approvals").
(f) Issuance of the Securities. The Securities are duly authorized
and, when issued and paid for in accordance with the applicable
Transaction Documents, will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company other
than restrictions on transfer provided for in the Transaction Documents.
The Underlying Shares, when issued in accordance with the terms of the
Transaction Documents, will be validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company. The
Company has reserved from its duly authorized capital stock a number of
shares of Common Stock for issuance of the Underlying Shares at least
equal to the Required Minimum on the date hereof.
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(g) Capitalization. The capitalization of the Company is as set
forth on Schedule 3.1(g). The Company has not issued any capital stock
since its most recently filed periodic report under the Exchange Act,
other than pursuant to the exercise of employee stock options under the
Company's stock option plans, the issuance of shares of Common Stock to
employees pursuant to the Company's employee stock purchase plan and
pursuant to the conversion or exercise of outstanding Common Stock
Equivalents. No Person has any right of first refusal, preemptive right,
right of participation, or any similar right to participate in the
transactions contemplated by the Transaction Documents. Except as a result
of the purchase and sale of the Securities, there are no outstanding
options, warrants, script rights to subscribe to, calls or commitments of
any character whatsoever relating to, or securities, rights or obligations
convertible into or exercisable or exchangeable for, or giving any Person
any right to subscribe for or acquire, any shares of Common Stock, or
contracts, commitments, understandings or arrangements by which the
Company or any Subsidiary is or may become bound to issue additional
shares of Common Stock or Common Stock Equivalents. The issuance and sale
of the Securities will not obligate the Company to issue shares of Common
Stock or other securities to any Person (other than the Purchasers) and
will not result in a right of any holder of Company securities to adjust
the exercise, conversion, exchange or reset price under such securities.
All of the outstanding shares of capital stock of the Company are validly
issued, fully paid and nonassessable, have been issued in compliance with
all federal and state securities laws, and none of such outstanding shares
was issued in violation of any preemptive rights or similar rights to
subscribe for or purchase securities. No further approval or authorization
of any stockholder, the Board of Directors of the Company or others is
required for the issuance and sale of the Securities. There are no
stockholders agreements, voting agreements or other similar agreements
with respect to the Company's capital stock to which the Company is a
party or, to the knowledge of the Company, between or among any of the
Company's officers, directors or stockholders which hold at least 5% of
the Company's outstanding Common Stock.
(h) SEC Reports; Financial Statements. The Company has filed all
reports, schedules, forms, statements and other documents required to be
filed by it under the Securities Act and the Exchange Act, including
pursuant to Section 13(a) or 15(d) thereof, for the two years preceding
the date hereof (or such shorter period as the Company was required by law
to file such material) (the foregoing materials, including the exhibits
thereto and documents incorporated by reference therein, being
collectively referred to herein as the "SEC Reports") on a timely basis or
has received a valid extension of such time of filing and has filed any
such SEC Reports prior to the expiration of any such extension. As of
their respective dates, the SEC Reports complied in all material respects
with the requirements of the Securities Act and the Exchange Act and the
rules and regulations of the Commission promulgated thereunder, and none
of the SEC Reports, when filed, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading. The
financial statements of the Company included in the SEC Reports comply in
all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in effect
at the time of filing. Such financial statements have been prepared in
accordance with United States generally accepted accounting principles
applied on a consistent basis during the periods involved ("GAAP"), except
as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects
the financial position of the Company and its consolidated subsidiaries as
of and for the dates thereof and the results of operations and cash flows
for the periods then ended, subject, in the case of unaudited statements,
to normal, immaterial, year-end audit adjustments.
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(i) Material Changes. Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically
disclosed in the SEC Reports, (i) there has been no event, occurrence or
development that has had or that could reasonably be expected to result in
a Material Adverse Effect, (ii) the Company has not incurred any
liabilities (contingent or otherwise) other than (A) trade payables and
accrued expenses incurred in the ordinary course of business consistent
with past practice, (B) liabilities not required to be reflected in the
Company's financial statements pursuant to GAAP or required to be
disclosed in filings made with the Commission and (C) liabilities that
have not had or that would not reasonably be expected to result in a
Material Adverse Effect, (iii) the Company has not altered its method of
accounting, (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its
capital stock and (v) the Company has not issued any equity securities to
any officer, director or Affiliate, except pursuant to existing Company
stock option plans. The Company does not have pending before the
Commission any request for confidential treatment of information.
(j) Litigation. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company, any Subsidiary or
any of their respective properties before or by any court, arbitrator,
governmental or administrative agency or regulatory authority (federal,
state, county, local or foreign) (collectively, an "Action") which (i)
adversely affects or challenges the legality, validity or enforceability
of any of the Transaction Documents or the Securities or (ii) is
reasonably expected to result in a Material Adverse Effect. Neither the
Company nor any Subsidiary, nor any director or officer thereof, is or has
been the subject of any Action involving a claim of violation of or
liability under federal or state securities laws or a claim of breach of
fiduciary duty. There has not been, and to the knowledge of the Company,
there is not pending or contemplated, any investigation by the Commission
involving the Company or any current or former director or officer of the
Company. The Commission has not issued any stop order or other order
suspending the effectiveness of any registration statement filed by the
Company or any Subsidiary under the Exchange Act or the Securities Act.
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(k) Labor Relations. No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees
of the Company which could reasonably be expected to result in a Material
Adverse Effect.
(l) Compliance. Neither the Company nor any Subsidiary (i) is in
default under or in material violation of (and no event has occurred that
has not been waived that, with notice or lapse of time or both, would
result in a default by the Company or any Subsidiary under), nor has the
Company or any Subsidiary received notice of a claim that it is in default
under or that it is in violation of, any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party or
by which it or any of its properties is bound (whether or not such default
or violation has been waived), (ii) is in violation of any order of any
court, arbitrator or governmental body, or (iii) is or has been in
violation of any statute, rule or regulation of any governmental
authority, including without limitation all foreign, federal, state and
local laws applicable to its business except in each case as could not
reasonably be expected to have a Material Adverse Effect.
(m) Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate
federal, state, local or foreign regulatory authorities necessary to
conduct their respective businesses as described in the SEC Reports,
except where the failure to possess such permits could not have or
reasonably be expected to result in a Material Adverse Effect ("Material
Permits"), and neither the Company nor any Subsidiary has received any
notice of proceedings relating to the revocation or modification of any
Material Permit.
(n) Title to Assets. None of the Company nor any of the Subsidiaries
own any real estate. The Company and the Subsidiary Guarantors have good
and marketable title in all personal property owned by them that is
material to the business of the Company and the Subsidiary Guarantors, in
each case free and clear of all Liens, except for (i) Liens in connection
with the Seller Notes, (ii) Liens in connection with the Farequest Note,
in the case of Farequest Holdings, Inc., (iii) Liens as do not materially
affect the value of such property and do not materially interfere with the
use made and proposed to be made of such property by the Company and the
Subsidiary Guarantors, and (iv) Permitted Liens. Any real property and
facilities held under lease by the Company and the Subsidiary Guarantors
are held by them under valid, subsisting and enforceable leases of which
the Company and the Subsidiary Guarantors are in compliance.
(o) Patents and Trademarks. The Company and the Subsidiaries have,
or have rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, copyrights, licenses
and other similar rights necessary or material for use in connection with
their respective businesses as described in the SEC Reports and which the
failure to so have could reasonably be expected to have a Material Adverse
Effect (collectively, the "Intellectual Property Rights"). Neither the
Company nor any Subsidiary has received a written notice that the
Intellectual Property Rights used by the Company or any Subsidiary
violates or infringes upon the rights of any Person. To the knowledge of
the Company, all such Intellectual Property Rights are enforceable and
there is no existing infringement by another Person of any of the
Intellectual Property Rights of the Company or its Subsidiaries.
13
(p) Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses
in which the Company and the Subsidiaries are engaged, including, but not
limited to, directors and officers insurance coverage as set forth on
Schedule 3.1(p). To the best knowledge of the Company, such insurance
contracts and policies are accurate and complete. Neither the Company nor
any Subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to
continue its business.
(q) Transactions With Affiliates and Employees. Except as set forth
in the SEC Reports, none of the officers or directors of the Company and,
to the knowledge of the Company, none of the employees of the Company is
presently a party to any transaction with the Company or any Subsidiary
(other than for services as employees, officers and directors), including
any contract, agreement or other arrangement providing for the furnishing
of services to or by, providing for rental of real or personal property to
or from, or otherwise requiring payments to or from any officer, director
or such employee or, to the knowledge of the Company, any entity in which
any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner, in each case in excess of
$60,000 other than (i) for payment of salary or consulting fees for
services rendered, (ii) reimbursement for expenses incurred on behalf of
the Company and (iii) for other employee benefits, including stock option
agreements under any stock option plan of the Company.
(r) Sarbanes-Oxley; Internal Accounting Controls. The Company is in
material compliance with all provisions of the Sarbanes-Oxley Act of 2002
which are applicable to it as of the Closing Date. The Company and the
Subsidiaries maintain a system of internal accounting controls sufficient
to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management's
general or specific authorization, and (iv) the recorded accountability
for assets is compared with the existing assets at reasonable intervals
and appropriate action is taken with respect to any differences. The
Company has established disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed
such disclosure controls and procedures to ensure that material
information relating to the Company, including its Subsidiaries, is made
known to the certifying officers by others within those entities,
particularly during the period in which the Company's Form 10-K or 10-Q,
as the case may be, is being prepared. The Company's certifying officers
have evaluated the effectiveness of the Company's disclosure controls and
procedures in accordance with Item 307 of Regulation S-K under the
Exchange Act as of the Company's most recent fiscal quarter-end or fiscal
year-end (such date, the "Evaluation Date"). The Company presented in its
most recently filed periodic report under the Exchange Act the conclusions
of the certifying officers about the effectiveness of the disclosure
controls and procedures based on their evaluations as of the Evaluation
Date. Since the Evaluation Date, there have been no changes in the
Company's internal controls (as such term is defined in Rule 13a-15(7)
under the Exchange Act) that has materially affected or is reasonably
likely to materially affect the Company's internal controls over financial
reporting.
14
(s) Certain Fees. No brokerage or finder's fees or commissions are
or will be payable by the Company to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or other
Person with respect to the transactions contemplated by the Transaction
Documents. The Purchasers shall have no obligation with respect to any
fees or with respect to any claims made by or on behalf of other Persons
against the Company or its Subsidiaries or any of their respective
directors or officers for fees of a type contemplated in this Section that
may be due in connection with the transactions contemplated by the
Transaction Documents.
(t) Private Placement. Assuming the accuracy of the Purchasers'
representations and warranties set forth in Section 3.2, no registration
under the Securities Act is required for the offer and sale of the
Securities by the Company to the Purchasers as contemplated hereby. The
issuance and sale of the Securities hereunder does not contravene the
rules and regulations of the Trading Market.
(u) Investment Company. The Company is not, and is not an Affiliate
of, and immediately after receipt of payment for the Securities, it will
not be or be an Affiliate of, an "investment company" within the meaning
of the Investment Company Act of 1940, as amended. The Company shall
conduct its business in a manner so that it will not become subject to the
Investment Company Act.
(v) Registration Rights. Other than each of the Purchasers, no
Person has any right to cause the Company to effect the registration under
the Securities Act of any securities of the Company.
(w) Listing and Maintenance Requirements. The Company's Common Stock
is registered pursuant to Section 12(g) of the Exchange Act, and the
Company has taken no action designed to, or which to its knowledge is
likely to have the effect of, terminating the registration of the Common
Stock under the Exchange Act nor has the Company received any notification
that the Commission is contemplating terminating such registration. The
Company has not, in the 12 months preceding the date hereof, received
notice from any Trading Market on which the Common Stock is or has been
listed or quoted to the effect that the Company is not in compliance with
the listing or maintenance requirements of such Trading Market. The
Company is, and has no reason to believe that it will not in the
foreseeable future continue to be, in compliance with all such listing and
maintenance requirements.
15
(x) Application of Takeover Protections. The Company and its Board
of Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other
similar anti-takeover provision under the Company's Certificate of
Incorporation (or similar charter documents) or the laws of its state of
incorporation that is or could become applicable to the Purchasers as a
result of the Purchasers and the Company fulfilling their obligations or
exercising their rights under the Transaction Documents, including without
limitation as a result of the Company's issuance of the Securities and the
Purchasers' ownership of the Securities.
(y) Disclosure. The Company confirms that neither it nor any other
Person acting on its behalf has provided any of the Purchasers or their
agents or counsel with any information that constitutes or might
constitute material, nonpublic information. The Company understands and
confirms that the Purchasers will rely on the foregoing representations
and covenants in effecting transactions in securities of the Company. All
disclosure provided to the Purchasers regarding the Company, its business
and the transactions contemplated hereby, including the Disclosure
Schedules to this Agreement, furnished by or on behalf of the Company with
respect to the representations and warranties made herein are true and
correct with respect to such representations and warranties and do not
contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading. The
Company acknowledges and agrees that no Purchaser makes or has made any
representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in Section 3.2
hereof.
(z) No Integrated Offering. Assuming the accuracy of the Purchasers'
representations and warranties set forth in Section 3.2, neither the
Company, nor any of its affiliates, nor any Person acting on its or their
behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, under circumstances
that would cause this offering of the Securities to be integrated with
prior offerings by the Company for purposes of the Securities Act or any
applicable shareholder approval provisions, including, without limitation,
under the rules and regulations of any Trading Market on which any of the
securities of the Company are listed or designated.
(aa) Indebtedness. The SEC Reports set forth as of the dates thereof
all outstanding secured and unsecured Indebtedness of the Company or any
Subsidiary, or for which the Company or any Subsidiary has commitments.
For the purposes of this Agreement, "Indebtedness" shall mean (a) any
liabilities for borrowed money or amounts owed in excess of $50,000 (other
than trade accounts payable incurred in the ordinary course of business),
(b) all guaranties, endorsements and other contingent obligations in
respect of Indebtedness of others, whether or not the same are or should
be reflected in the Company's balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business; and
(c) the present value of any lease payments in excess of $50,000 due under
leases required to be capitalized in accordance with GAAP. Neither the
Company nor any Subsidiary is in default with respect to any Indebtedness.
16
(bb) Tax Status. Except for matters that would not, individually or
in the aggregate, have or reasonably be expected to result in a Material
Adverse Effect, the Company and each Subsidiary has filed all necessary
federal, state and foreign income and franchise tax returns and has paid
or accrued all taxes shown as due thereon, and the Company has no
knowledge of a tax deficiency which has been asserted or threatened
against the Company or any Subsidiary.
(cc) No General Solicitation. Neither the Company nor any person
acting on behalf of the Company has offered or sold any of the Securities
by any form of general solicitation or general advertising. The Company
has offered the Securities for sale only to the Purchasers and certain
other "accredited investors" within the meaning of Rule 501 under the
Securities Act.
(dd) Foreign Corrupt Practices. Neither the Company, nor to the
knowledge of the Company, any agent or other person acting on behalf of
the Company, has (i) directly or indirectly, used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to
foreign or domestic political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to any foreign or
domestic political parties or campaigns from corporate funds, (iii) failed
to disclose fully any contribution made by the Company (or made by any
person acting on its behalf of which the Company is aware) which is in
violation of law, or (iv) violated in any material respect any provision
of the Foreign Corrupt Practices Act of 1977, as amended.
(ee) Accountants. The Company's accountants are set forth on
Schedule 3.1(ff) of the Disclosure Schedule. To the knowledge of the
Company, such accountants, who the Company expects will express their
opinion with respect to the financial statements to be included in the
Company's Annual Report on Form 10-K for the year ended June 30, 2005 are
a registered public accounting firm as required by the Securities Act.
(ff) Seniority. As of the Closing Date, no indebtedness or other
equity of the Company is senior to the Debentures in right of payment,
whether with respect to interest or upon liquidation or dissolution, or
otherwise, other than indebtedness secured by purchase money security
interests (which is senior only as to underlying assets covered thereby
and proceeds thereof) and capital lease obligations (which is senior only
as to the property covered thereby and proceeds thereof).
(gg) No Disagreements with Accountants and Lawyers. There are no
disagreements of any kind presently existing, or reasonably anticipated by
the Company to arise, between the accountants and lawyers formerly or
presently employed by the Company and the Company is current with respect
to any fees owed to its accountants and lawyers.
17
(hh) Acknowledgment Regarding Purchasers' Purchase of Securities.
The Company acknowledges and agrees that each of the Purchasers is acting
solely in the capacity of an arm's length purchaser with respect to the
Transaction Documents and the transactions contemplated hereby. The
Company further acknowledges that no Purchaser is acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with
respect to this Agreement and the transactions contemplated hereby and any
advice given by any Purchaser or any of their respective representatives
or agents in connection with this Agreement and the transactions
contemplated hereby is merely incidental to the Purchasers' purchase of
the Securities. The Company further represents to each Purchaser that the
Company's decision to enter into this Agreement has been based solely on
the independent evaluation of the transactions contemplated hereby by the
Company and its representatives.
(ii) Acknowledgement Regarding Purchasers' Trading Activity.
Anything in this Agreement or elsewhere herein to the contrary
notwithstanding (except for Section 4.15 and 3.2(f) hereof), it is
understood and agreed by the Company (i) that none of the Purchasers have
been asked to agree, nor has any Purchaser agreed, to desist from
purchasing or selling, long and/or short, securities of the Company, or
"derivative" securities based on securities issued by the Company or to
hold the Securities for any specified term; (ii) that past or future open
market or other transactions by any Purchaser, including Short Sales, and
specifically including, without limitation, Short Sales or "derivative"
transactions, before or after the closing of this or future private
placement transactions, may negatively impact the market price of the
Company's publicly-traded securities; (iii) that any Purchaser, and
counter parties in "derivative" transactions to which any such Purchaser
is a party, directly or indirectly, presently may have a "short" position
in the Common Stock, and (iv) that each Purchaser shall not be deemed to
have any affiliation with or control over any arm's length counter-party
in any "derivative" transaction. The Company further understands and
acknowledges that except as provided in Sections 4.15 and 3.2(f), (a) one
or more Purchasers may engage in hedging activities at various times
during the period that the Securities are outstanding, including, without
limitation, during the periods that the value of the Underlying Shares
deliverable with respect to Securities are being determined and (b) such
hedging activities (if any) could reduce the value of the existing
stockholders' equity interests in the Company at and after the time that
the hedging activities are being conducted. The Company acknowledges that
such aforementioned hedging activities do not constitute a breach of any
of the Transaction Documents.
(jj) Manipulation of Price. The Company has not, and to its
knowledge no one acting on its behalf has (i) taken, directly or
indirectly, any action designed to cause or to result in the stabilization
or manipulation of the price of any security of the Company to facilitate
the sale or resale of any of the Securities, (ii) sold, bid for,
purchased, or, paid any compensation for soliciting purchases of, any of
the Securities (other than for the placement agent's placement of the
Securities) or (iii) paid or agreed to pay to any person any compensation
for soliciting another to purchase any other securities of the Company.
18
3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:
(a) Organization; Authority. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder. The execution, delivery and
performance by such Purchaser of the transactions contemplated by this
Agreement have been duly authorized by all necessary corporate or similar
action on the part of such Purchaser. Each Transaction Document to which
it is a party has been duly executed by such Purchaser, and when delivered
by such Purchaser in accordance with the terms hereof, will constitute the
valid and legally binding obligation of such Purchaser, enforceable
against it in accordance with its terms, except (i) as limited by general
equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or
other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.
(b) Own Account. Such Purchaser understands that the Securities are
"restricted securities" and have not been registered under the Securities
Act or any applicable state securities law and is acquiring the Securities
as principal for its own account and not with a view to or for
distributing or reselling such Securities or any part thereof in violation
of the Securities Act or any applicable state securities law, has no
present intention of distributing any of such Securities in violation of
the Securities Act or any applicable state securities law and has no
arrangement or understanding with any other persons regarding the
distribution of such Securities (this representation and warranty not
limiting such Purchaser's right to sell the Securities pursuant to the
Registration Statement or otherwise in compliance with applicable federal
and state securities laws) in violation of the Securities Act or any
applicable state securities law. Such Purchaser is acquiring the
Securities hereunder in the ordinary course of its business. Such
Purchaser does not have any agreement or understanding, directly or
indirectly, with any Person to distribute any of the Securities.
(c) Purchaser Status. At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is, and on each date on
which it exercises any Warrants or converts any Debentures it will be an
"accredited investor" as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7)
or (a)(8) under the Securities Act. Such Purchaser is not required to be
registered as a broker-dealer under Section 15 of the Exchange Act.
(d) Experience of Such Purchaser. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the
Securities, and has so evaluated the merits and risks of such investment.
Such Purchaser is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete loss of
such investment.
19
(e) General Solicitation. Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement.
(f) Short Sales and Confidentiality Prior To The Date Hereof. Other
than the transaction contemplated hereunder, such Purchaser has not
directly or indirectly, nor has any Person acting on behalf of or pursuant
to any understanding with such Purchaser, executed any Short Sales in the
securities of the Company during the period commencing from October 1,
2005 until the date hereof ("Discussion Time"). Notwithstanding the
foregoing, in the case of a Purchaser that is a multi-managed investment
vehicle whereby separate portfolio managers manage separate portions of
such Purchaser's assets and the portfolio managers have no direct
knowledge of the investment decisions made by the portfolio managers
managing other portions of such Purchaser's assets, the representation set
forth above shall only apply with respect to the portion of assets managed
by the portfolio manager that made the investment decision to purchase the
Securities covered by this Agreement. Other than to other Persons party to
this Agreement, such Purchaser has maintained the confidentiality of all
disclosures made to it in connection with this transaction (including the
existence and terms of this transaction).
(g) Access to Information. Such Purchaser acknowledges and agrees
that it has access to the SEC Reports and has reviewed such filings as
such Purchaser has deemed necessary or desirable including the Company's
most recently filed Annual Report on Form 10-K and Quarterly Report on
Form 10-Q. Each Purchaser and its respective representatives have been
afforded an opportunity to ask such questions of the officers, employees,
agents, accountants and representatives of the Company concerning the
business, operations, financial condition, assets, liabilities, and other
relevant matters as such Purchaser and its representatives have deemed
necessary or desirable, and each Purchaser hereby confirms that it or its
agents have been given all such information as has been requested in order
to evaluate the merits and risks of the prospective investment
contemplated hereby and that it does not desire any additional
information. Without limiting the foregoing, each Purchaser specifically
acknowledges that it has had the opportunity to review the Company's SEC
Reports.
(h) Risk Factors. Such Purchaser understands and acknowledges that
an investment in the Debentures and Warrants is highly speculative and
includes a high degree of risk including, but not limited to, those risks
specifically set forth in both the Company's most recently filed Annual
Report on Form 10-K and the Registration Statement on Form S-3/A, file no.
333-124931, filed by the Company with the Commission on August 3, 2005.
20
The Company acknowledges and agrees that each Purchaser does not
make or has not made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth
in this Section 3.2.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) The Securities may only be disposed of in compliance with state
and federal securities laws. In connection with any transfer of Securities
other than pursuant to an effective registration statement or Rule 144, to
the Company or to an affiliate of a Purchaser or in connection with a
pledge as contemplated in Section 4.1(b), the Company may require the
transferor thereof to provide to the Company an opinion of counsel
selected by the transferor and reasonably acceptable to the Company, the
form and substance of which opinion shall be reasonably satisfactory to
the Company, to the effect that such transfer does not require
registration of such transferred Securities under the Securities Act. As a
condition of transfer, any such transferee shall agree in writing to be
bound by the terms of this Agreement and shall have the rights of a
Purchaser under this Agreement and the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is required
by this Section 4.1(b), of a legend on any of the Securities in the
following form:
[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES
ARE [EXERCISABLE] [CONVERTIBLE]] HAVE BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT,
THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION]
OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
The Company acknowledges and agrees that a Purchaser may from time
to time pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the
Securities to a financial institution that is an "accredited investor" as
defined in Rule 501(a) under the Securities Act and who agrees to be bound
by the provisions of this Agreement and the Registration Rights Agreement
and, if required under the terms of such arrangement, such Purchaser may
transfer pledged or secured Securities to the pledgees or secured parties.
Such a pledge or transfer would not be subject to approval of the Company
and no legal opinion of legal counsel of the pledgee, secured party or
pledgor shall be required in connection therewith. Further, no notice
shall be required of such pledge. At the appropriate Purchaser's expense,
the Company will execute and deliver such reasonable documentation as a
pledgee or secured party of Securities may reasonably request in
connection with a pledge or transfer of the Securities, including, if the
Securities are subject to registration pursuant to the Registration Rights
Agreement, the preparation and filing of any required prospectus
supplement under Rule 424(b)(3) under the Securities Act or other
applicable provision of the Securities Act to appropriately amend the list
of Selling Stockholders thereunder.
21
(c) Certificates evidencing the Underlying Shares shall not contain
any legend (including the legend set forth in Section 4.1(b) hereof): (i)
while a registration statement (including the Registration Statement)
covering the resale of such security is effective under the Securities
Act, or (ii) following any sale of such Underlying Shares pursuant to Rule
144, or (iii) if such Underlying Shares are eligible for sale under Rule
144(k), or (iv) if such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission). The Company shall
cause its counsel to issue a legal opinion to the Company's transfer agent
promptly after the Effective Date if required by the Company's transfer
agent to effect the removal of the legend hereunder. If all or any portion
of a Debenture or Warrant is converted or exercised (as applicable) at a
time when there is an effective registration statement to cover the resale
of the Underlying Shares, or if such Underlying Shares may be sold under
Rule 144(k) or if such legend is not otherwise required under applicable
requirements of the Securities Act (including judicial interpretations
thereof) then such Underlying Shares shall be issued free of all legends.
The Company agrees that following the Effective Date or at such time as
such legend is no longer required under this Section 4.1(c), it will, no
later than three Trading Days following the delivery by a Purchaser to the
Company or the Company's transfer agent of a certificate representing
Underlying Shares, as applicable, issued with a restrictive legend (such
third Trading Day, the "Legend Removal Date"), deliver or cause to be
delivered to such Purchaser a certificate representing such shares that is
free from all restrictive and other legends. The Company may not make any
notation on its records or give instructions to any transfer agent of the
Company that enlarge the restrictions on transfer set forth in this
Section. Certificates for Securities subject to legend removal hereunder
shall be transmitted by the transfer agent of the Company to the
Purchasers by crediting the account of the Purchaser's prime broker with
the Depository Trust Company System.
(d) In addition to such Purchaser's other available remedies, the
Company shall pay to a Purchaser, in cash, as partial liquidated damages
and not as a penalty, for each $1,000 of Underlying Shares (based on the
VWAP of the Common Stock on the date such Securities are submitted to the
Company's transfer agent) delivered for removal of the restrictive legend
and subject to Section 4.1(c), $10 per Trading Day (increasing to $20 per
Trading Day 5 Trading Days after such damages have begun to accrue) for
each Trading Day after the Legend Removal Date until such certificate is
delivered without a legend. Nothing herein shall limit such Purchaser's
right to pursue actual damages for the Company's failure to deliver
certificates representing any Securities as required by the Transaction
Documents, and such Purchaser shall have the right to pursue all remedies
available to it at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief.
22
(e) Each Purchaser, severally and not jointly with the other
Purchasers, agrees that the removal of the restrictive legend from
certificates representing Securities as set forth in this Section 4.1 is
predicated upon the Company's reliance that the Purchaser will sell,
transfer or otherwise dispose of any Securities only pursuant to either
the registration requirements of the Securities Act, including any
applicable prospectus delivery requirements, or an exemption therefrom,
and each Purchaser hereby agrees not to otherwise sell, transfer or
dispose of any Securities.
(f) Until the one year anniversary of the Effective Date, the
Company shall not undertake a reverse or forward stock split or
reclassification of the Common Stock without the prior written consent of
the Purchasers holding a majority in principal amount outstanding of the
Debentures.
4.2 Acknowledgment of Dilution. The Company acknowledges that the issuance
of the Securities may result in dilution of the outstanding shares of Common
Stock, which dilution may be substantial under certain market conditions. The
Company further acknowledges that its obligations under the Transaction
Documents, including without limitation its obligation to issue the Underlying
Shares pursuant to the Transaction Documents, are unconditional and absolute
(subject to the terms and conditions of such Transaction Documents) and not
subject to any right of set off, counterclaim, delay or reduction, regardless of
the effect of any such dilution or any claim the Company may have against any
Purchaser and regardless of the dilutive effect that such issuance may have on
the ownership of the other stockholders of the Company.
4.3 Furnishing of Information. As long as any Purchaser owns Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to the Exchange Act. As long as any
Purchaser owns Securities, if the Company is not required to file reports
pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and
make publicly available in accordance with Rule 144(c) such information as is
required for the Purchasers to sell the Securities under Rule 144. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request, all to the extent required from time to time
to enable such Person to sell such Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144.
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4.4 Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market.
4.5 Conversion and Exercise Procedures. The form of Notice of Exercise
included in the Warrants and the form of Notice of Conversion included in the
Debentures set forth the totality of the procedures required of the Purchasers
in order to exercise the Warrants or convert the Debentures. No additional legal
opinion or other information or instructions shall be required of the Purchasers
to exercise their Warrants or convert their Debentures. The Company shall honor
exercises of the Warrants and conversions of the Debentures and shall deliver
Underlying Shares in accordance with the terms, conditions and time periods set
forth in the Transaction Documents.
4.6 Securities Laws Disclosure; Publicity. The Company shall (a) by 8:30
a.m. Eastern time on the Trading Day following the date hereof, issue a Current
Report on Form 8-K, reasonably acceptable to each Purchaser disclosing the
material terms of the transactions contemplated hereby, and shall attach the
Transaction Documents thereto and (b) if the Closing Date is not the date
hereof, by 8:30 a.m. Eastern time on the Trading Day following the Closing Date,
issue a Current Report on Form 8-K, reasonably acceptable to each Purchaser
disclosing that the Closing has occurred and the aggregate Subscription Amount
received by the Company. The Company and each Purchaser shall consult with each
other in issuing any other press releases with respect to the transactions
contemplated hereby, and neither the Company nor any Purchaser shall issue any
such press release or otherwise make any such public statement without the prior
consent of the Company, with respect to any press release of any Purchaser, or
without the prior consent of each Purchaser, with respect to any press release
of the Company, which consent shall not unreasonably be withheld, except if such
disclosure is required by law, in which case the disclosing party shall promptly
provide the other party with prior notice of such public statement or
communication. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Purchaser, or include the name of any Purchaser in any
filing with the Commission or any regulatory agency or Trading Market, without
the prior written consent of such Purchaser, except (i) as required by federal
securities law in connection with the registration statement contemplated by the
Registration Rights Agreement and (ii) to the extent such disclosure is required
by law or Trading Market regulations, in which case the Company shall provide
the Purchasers with prior notice of such disclosure permitted under subclause
(i) or (ii).
4.7 Shareholder Rights Plan. No claim will be made or enforced by the
Company or, to the knowledge of the Company, any other Person that any Purchaser
is an "Acquiring Person" under any shareholder rights plan or similar plan or
arrangement in effect or hereafter adopted by the Company, or that any Purchaser
could be deemed to trigger the provisions of any such plan or arrangement, by
virtue of receiving Securities under the Transaction Documents or under any
other agreement between the Company and the Purchasers existing as of the
Closing Date. The Company shall conduct its business in a manner so that it will
not become subject to the Investment Company Act.
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4.8 Non-Public Information. The Company covenants and agrees that neither
it nor any other Person acting on its behalf will provide any Purchaser or its
agents or counsel with any information that the Company believes constitutes
material non-public information, unless prior thereto such Purchaser shall have
executed a written agreement regarding the confidentiality and use of such
information. The Company understands and confirms that each Purchaser shall be
relying on the foregoing representations in effecting transactions in securities
of the Company.
4.9 Use of Proceeds. Except as set forth on Schedule 4.9 attached hereto,
the Company shall use the net proceeds from the sale of the Securities hereunder
for working capital purposes and not for the satisfaction of any portion of the
Company's debt (other than payment of trade payables in the ordinary course of
the Company's business and prior practices), to redeem any Common Stock or
Common Stock Equivalents or to settle any outstanding litigation.
4.10 Indemnification of Purchasers. Subject to the provisions of this
Section 4.10, the Company will indemnify and hold the Purchasers and their
directors, officers, shareholders, members, partners, employees and agents
(each, a "Purchaser Party") harmless from any and all losses, liabilities,
obligations, claims, contingencies, damages, costs and expenses, including all
judgments, amounts paid in settlements, court costs and reasonable attorneys'
fees and costs of investigation that any such Purchaser Party may suffer or
incur as a result of or relating to (a) any breach of any of the
representations, warranties, covenants or agreements made by the Company in this
Agreement or in the other Transaction Documents or (b) any action instituted
against a Purchaser, or any of them or their respective Affiliates, by any
stockholder of the Company who is not an Affiliate of such Purchaser, with
respect to any of the transactions contemplated by the Transaction Documents
(unless such action is based upon a breach of such Purchaser's representations,
warranties or covenants under the Transaction Documents or any agreements or
understandings such Purchaser may have with any such stockholder or any
violations by the Purchaser of state or federal securities laws or any conduct
by such Purchaser which constitutes fraud, gross negligence, willful misconduct
or malfeasance). If any action shall be brought against any Purchaser Party in
respect of which indemnity may be sought pursuant to this Agreement, such
Purchaser Party shall promptly notify the Company in writing, and the Company
shall have the right to assume the defense thereof with counsel of its own
choosing. Any Purchaser Party shall have the right to employ separate counsel in
any such action and participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Purchaser Party except
to the extent that (i) the employment thereof has been specifically authorized
by the Company in writing, (ii) the Company has failed after a reasonable period
of time to assume such defense and to employ counsel or (iii) with respect to
such action such separate counsel provides written advice that a material
conflict exists on any material issue between the position of the Company and
the position of such Purchaser Party. The Company will not be liable to any
Purchaser Party under this Agreement (i) for any settlement by a Purchaser Party
effected without the Company's prior written consent, which shall not be
unreasonably withheld or delayed; or (ii) to the extent, but only to the extent
that a loss, claim, damage or liability is attributable to any Purchaser Party's
breach of any of the representations, warranties, covenants or agreements made
by the Purchasers in this Agreement or in the other Transaction Documents.
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4.11 Reservation and Listing of Securities; Shareholder Approval.
(a) The Company shall maintain a reserve from its duly authorized
shares of Common Stock for issuance pursuant to the Transaction Documents
in such amount as may be required to fulfill its obligations in full under
the Transaction Documents.
(b) If, on any date, the number of authorized but unissued (and
otherwise unreserved) shares of Common Stock is less than the Required
Minimum on such date, then the Board of Directors of the Company shall use
commercially reasonable efforts to amend the Company's certificate or
articles of incorporation to increase the number of authorized but
unissued shares of Common Stock to at least the Required Minimum at such
time, as soon as possible and in any event not later than the 100th day
after such date.
(c) The Company shall: (i) in the time and manner required by the
Trading Market, prepare and file with such Trading Market an additional
shares listing application covering a number of shares of Common Stock at
least equal to the Required Minimum on the date of such application, (ii)
take all steps necessary to cause such shares of Common Stock to be
approved for listing on the Trading Market as soon as possible thereafter,
(iii) provide to the Purchasers evidence of such listing, and (iv)
maintain the listing of such Common Stock on any date at least equal to
the Required Minimum on such date on such Trading Market or another
Trading Market.
(d) On or before the next annual meeting of the Company's
shareholders, the Company shall seek Shareholder Approval, with the
recommendation of the Company's Board of Directors that such proposal be
approved, and the Company shall solicit proxies from its shareholders in
connection therewith in the same manner as all other management proposals
in such proxy statement and all management appointed proxy holders shall
vote their proxies in favor of such proposal. If the Company does not
obtain Shareholder Approval at the first meeting, the Company shall call a
meeting every month thereafter to seek Shareholder Approval until the
earlier of the date Shareholder Approval is obtained or the Debentures are
no longer outstanding.
4.12 Participation in Future Financing.
(a) From the date hereof until the date that is the 12 month
anniversary of the Effective Date, upon any financing by the Company or
any of its Subsidiaries of Common Stock or Common Stock Equivalents (a
"Subsequent Financing"), each Purchaser shall have the right to
participate in up to an amount of the Subsequent Financing equal to the
Participation Maximum (as defined below).
(b) At least 5 Trading Days prior to the closing of the Subsequent
Financing, the Company shall deliver to each Purchaser a written notice of
its intention to effect a Subsequent Financing ("Pre-Notice"), which
Pre-Notice shall ask such Purchaser if it wants to review the details of
such financing (such additional notice, a "Subsequent Financing Notice").
Upon the request of a Purchaser, and only upon a request by such
Purchaser, for a Subsequent Financing Notice, the Company shall promptly,
but no later than 1 Trading Day after such request, deliver a Subsequent
Financing Notice to such Purchaser. The Subsequent Financing Notice shall
describe in reasonable detail the proposed terms of such Subsequent
Financing, the amount of proceeds intended to be raised thereunder, the
Person with whom such Subsequent Financing is proposed to be effected, and
attached to which shall be a term sheet or similar document relating
thereto.
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(c) Any Purchaser desiring to participate in such Subsequent
Financing must provide written notice to the Company by not later than
5:30 p.m. (New York City time) on the 5th Trading Day after all of the
Purchasers have received the Pre-Notice that the Purchaser is willing to
participate in the Subsequent Financing, the amount of the Purchaser's
participation, and that the Purchaser has such funds ready, willing, and
available for investment on the terms set forth in the Subsequent
Financing Notice. If the Company receives no notice from a Purchaser as of
such 5th Trading Day, such Purchaser shall be deemed to have notified the
Company that it does not elect to participate.
(d) If by 5:30 p.m. (New York City time) on the 5th Trading Day
after all of the Purchasers have received the Pre-Notice, notifications by
the Purchasers of their willingness to participate in the Subsequent
Financing (or to cause their designees to participate) is, in the
aggregate, less than the total amount of the Subsequent Financing, then
the Company may effect the remaining portion of such Subsequent Financing
on the terms and to the Persons set forth in the Subsequent Financing
Notice.
(e) If by 5:30 p.m. (New York City time) on the 5th Trading Day
after all of the Purchasers have received the Pre-Notice, the Company
receives responses to a Subsequent Financing Notice from Purchasers
seeking to purchase, in the aggregate, more than 50% of the Subsequent
Financing (the "Participation Maximum"), each such Purchaser shall have
the right to purchase the greater of (a) their Pro Rata Portion (as
defined below) of the Participation Maximum and (b) the difference between
the Participation Maximum and the aggregate amount of participation by all
other Purchasers. "Pro Rata Portion" is the ratio of (x) the Subscription
Amount of Securities purchased on the Closing Date by a Purchaser
participating under this Section 4.12 and (y) the sum of the aggregate
Subscription Amounts of Securities purchased on the Closing Date by all
Purchasers participating under this Section 4.12.
(f) The Company must provide the Purchasers with a second Subsequent
Financing Notice, and the Purchasers will again have the right of
participation set forth above in this Section 4.12, if the Subsequent
Financing subject to the initial Subsequent Financing Notice is not
consummated for any reason on the terms set forth in such Subsequent
Financing Notice within 60 Trading Days after the date of the initial
Subsequent Financing Notice.
(g) Notwithstanding the foregoing, this Section 4.12 shall not apply
in respect of an Exempt Issuance.
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4.13 Subsequent Equity Sales.
(a) Other than in connection with a financing transaction all or
substantially all of the proceeds of which is used to satisfy, pay and
discharge in full the Company's obligations under the Seller Notes, from
the date hereof until 90 days after the Effective Date, neither the
Company nor any Subsidiary shall issue shares of Common Stock or Common
Stock Equivalents; provided, however, the 90 day period set forth in this
Section 4.13 shall be extended for the number of Trading Days during such
period in which (i) trading in the Common Stock is suspended by any
Trading Market, or (ii) following the Effective Date, the Registration
Statement is not effective or the prospectus included in the Registration
Statement may not be used by the Purchasers for the resale of the
Underlying Shares.
(b) From the date hereof until such time as no Purchaser holds any
of the Securities, the Company shall be prohibited from consummating any
Subsequent Financing involving a "Variable Rate Transaction". The term
"Variable Rate Transaction" shall mean a transaction in which the Company
issues or sells (i) any debt or equity securities that are convertible
into, exchangeable or exercisable for, or include the right to receive
additional shares of Common Stock either (A) at a conversion, exercise or
exchange rate or other price that is based upon and/or varies with the
trading prices of or quotations for the shares of Common Stock at any time
after the initial issuance of such debt or equity securities, or (B) other
than with respect to customary "weighted-average," "full-ratchet" or
similar anti-dilution provisions, with a conversion, exercise or exchange
price that is subject to being reset at some future date after the initial
issuance of such debt or equity security or upon the occurrence of
specified or contingent events directly or indirectly related to the
business of the Company or the market for the Common Stock or (ii) enters
into any agreement, including, but not limited to, an equity line of
credit, whereby the Company may sell securities at a future determined
price.
(c) Unless Shareholder Approval has been obtained and deemed
effective, the Company shall not make any issuance whatsoever of Common
Stock or Common Stock Equivalents at a price below $2.50 (subject to
adjustment for forward and reverse stock splits, recapitalizations and the
like). Any Purchaser shall be entitled to obtain injunctive relief against
the Company to preclude any such issuance, which remedy shall be in
addition to any right to collect damages.
(d) Notwithstanding the foregoing, this Section 4.13 shall not apply
in respect of an Exempt Issuance, except that no Variable Rate Transaction
shall be an Exempt Issuance.
4.14 Equal Treatment of Purchasers. No consideration shall be offered or
paid to any person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. Further, the
Company shall not make any payment of principal or interest on the Debentures in
amounts which are disproportionate to the respective principal amounts
outstanding on the Debentures at any applicable time. For clarification
purposes, this provision constitutes a separate right granted to each Purchaser
by the Company and negotiated separately by each Purchaser, and is intended for
the Company to treat the Purchasers as a class and shall not in any way be
construed as the Purchasers acting in concert or as a group with respect to the
purchase, disposition or voting of Securities or otherwise.
28
4.15 Short Sales and Confidentiality After The Date Hereof. Each Purchaser
severally and not jointly with the other Purchasers covenants that neither it
nor any affiliates acting on its behalf or pursuant to any understanding with it
has heretofore or will execute any Short Sales during the period after the
Discussion Time and ending at the time that the transactions contemplated by
this Agreement are first publicly announced as described in Section 4.6. Each
Purchaser, severally and not jointly with the other Purchasers, covenants that
until such time as the transactions contemplated by this Agreement are publicly
disclosed by the Company as described in Section 4.6, such Purchaser has
heretofore and will maintain, the confidentiality of all disclosures made to it
in connection with this transaction (including the existence and terms of this
transaction). Each Purchaser understands and acknowledges, severally and not
jointly with any other Purchaser, that the Commission currently takes the
position that coverage of short sales of shares of the Common Stock "against the
box" prior to the Effective Date of the Registration Statement with the
Securities is a violation of Section 5 of the Securities Act, as set forth in
Item 65, Section 5 under Section A, of the Manual of Publicly Available
Telephone Interpretations, dated July 1997, compiled by the Office of Chief
Counsel, Division of Corporation Finance. Notwithstanding the foregoing, no
Purchaser makes any representation, warranty or covenant hereby that it will not
engage in Short Sales in the securities of the Company after the time that the
transactions contemplated by this Agreement are first publicly announced as
described in Section 4.6. Notwithstanding the foregoing, in the case of a
Purchaser that is a multi-managed investment vehicle whereby separate portfolio
managers manage separate portions of such Purchaser's assets and the portfolio
managers have no direct knowledge of the investment decisions made by the
portfolio managers managing other portions of such Purchaser's assets, the
covenant set forth above shall only apply with respect to the portion of assets
managed by the portfolio manager that made the investment decision to purchase
the Securities covered by this Agreement.
ARTICLE V.
MISCELLANEOUS
5.1 Termination. This Agreement may be terminated by any Purchaser, as to
such Purchaser's obligations hereunder only and without any effect whatsoever on
the obligations between the Company and the other Purchasers, by written notice
to the other parties, if the Closing has not been consummated on or before
October 21, 2005; provided, however, that no such termination will affect the
right of any party to sue for any breach by the other party (or parties). This
Agreement may be terminated by the Company, by written notice to the other
parties, if the Closing conditions set forth in Section 2.3 (a) are not
satisfied on or before October 21, 2005; provided, however, that such
termination will not affect the right of the Company to sue for any breach by
any Purchaser hereunder.
5.2 Fees and Expenses. Except as expressly set forth in the Transaction
Documents to the contrary, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement. The Company shall pay all transfer
agent fees, stamp taxes and other taxes and duties levied in connection with the
delivery of any Securities.
29
5.3 Entire Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.4 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 5:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the 2nd Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) if delivered other than
by facsimile or such courier service, upon actual receipt by the party to whom
such notice is required to be given. The address for such notices and
communications shall be as set forth on the signature pages attached hereto.
5.5 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Company and Purchasers who purchased at least, in the aggregate, 66% of the
Subscription Amounts or, in the case of a waiver, by the party against whom
enforcement of any such waiver is sought. No waiver of any default with respect
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right.
5.6 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
5.7 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser. Any Purchaser may assign
any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided such transferee agrees
in writing to be bound, with respect to the transferred Securities, by the
provisions hereof that apply to the "Purchasers".
30
5.8 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.10.
5.9 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or inconvenient venue for such proceeding. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. The parties hereby waive all
rights to a trial by jury. If either party shall commence an action or
proceeding to enforce any provisions of the Transaction Documents, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its attorneys' fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.
5.10 Survival. The representations and warranties contained herein shall
survive the Closing and the delivery, exercise and/or conversion of the
Securities, as applicable for the applicable statue of limitations.
5.11 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
5.12 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
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5.13 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its obligations with respect to such exercise within the periods therein
provided, then such Purchaser may rescind or withdraw, in its sole discretion
from time to time prior to the Company's performance of such obligations
(whether or not timely) upon written notice to the Company, any relevant notice,
demand or election in whole or in part without prejudice to its future actions
and rights.
5.14 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested and, in the case of mutilation, delivery of such
certificate or instrument to the Company. The applicants for a new certificate
or instrument under such circumstances shall also pay any reasonable third-party
costs associated with the issuance of such replacement Securities.
5.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
5.16 Payment Set Aside. To the extent that the Company makes a payment or
payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
32
5.17 Usury. To the extent it may lawfully do so, the Company hereby agrees
not to insist upon or plead or in any manner whatsoever claim, and will resist
any and all efforts to be compelled to take the benefit or advantage of, usury
laws wherever enacted, now or at any time hereafter in force, in connection with
any claim, action or proceeding that may be brought by any Purchaser in order to
enforce any right or remedy under any Transaction Document. Notwithstanding any
provision to the contrary contained in any Transaction Document, it is expressly
agreed and provided that the total liability of the Company under the
Transaction Documents for payments in the nature of interest shall not exceed
the maximum lawful rate authorized under applicable law (the "Maximum Rate"),
and, without limiting the foregoing, in no event shall any rate of interest or
default interest, or both of them, when aggregated with any other sums in the
nature of interest that the Company may be obligated to pay under the
Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum
contract rate of interest allowed by law and applicable to the Transaction
Documents is increased or decreased by statute or any official governmental
action subsequent to the date hereof, the new maximum contract rate of interest
allowed by law will be the Maximum Rate applicable to the Transaction Documents
from the effective date forward, unless such application is precluded by
applicable law. If under any circumstances whatsoever, interest in excess of the
Maximum Rate is paid by the Company to any Purchaser with respect to
indebtedness evidenced by the Transaction Documents, such excess shall be
applied by such Purchaser to the unpaid principal balance of any such
indebtedness or be refunded to the Company, the manner of handling such excess
to be at such Purchaser's election.
5.18 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose. Each Purchaser has been represented by its own separate legal counsel
in their review and negotiation of the Transaction Documents. For reasons of
administrative convenience only, Purchasers and their respective counsel have
chosen to communicate with the Company through FW. FW does not represent all of
the Purchasers but only HPC Capital, the placement agent for the transaction.
The Company has elected to provide all Purchasers with the same terms and
Transaction Documents for the convenience of the Company and not because it was
required or requested to do so by the Purchasers.
5.19 Liquidated Damages. The Company's obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.
33
5.20 Construction. The parties agree that each of them and/or their
respective counsel has reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto.
(Signature Pages Follow)
34
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
ONETRAVEL HOLDINGS, INC. Address for Notice:
By: /s/ Marc E. Bercoon 5775 Peachtree Dunwoody Road
-------------------------- Building G, Suite 300
Name: Marc E. Bercoon Atlanta, GA 30346
Title: President Attn: President
Fax #: (404) 943-1094
With a copy to (which shall not constitute notice):
Katten Muchin Rosenman
525 West Monroe Street
Chicago, Illinois 60661-3693
Attn: Matthew S. Brown
Fax #: (312) 902-1061
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
35
[PURCHASER SIGNATURE PAGES TO OTV SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Name of Purchaser: ________________________________________________________
Signature of Authorized Signatory of Purchaser: ________________________________
Name of Authorized Signatory: __________________________________________________
Title of Authorized Signatory: _________________________________________________
Email Address of Purchaser:________________________________________________
Address for Notice of Purchaser:
Address for Delivery of Securities for Purchaser (if not same as above):
Subscription Amount:
Warrant Shares:
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
36
DISCLOSURE SCHEDULES
TO
SECURITIES PURCHASE AGREEMENT
by and among
ONETRAVEL HOLDINGS, INC.
and
THE PURCHASERS
dated October 21, 2005
37
Pursuant to that certain Securities Purchase Agreement (the "Agreement"), dated
as of October 21, 2005, by and among OneTravel Holdings, Inc., a Delaware
corporation (the "Company"), and the purchasers identified on the signature
pages thereto, the Company provides the following Disclosure Schedules.
Capitalized terms used herein and not otherwise defined shall have the meanings
set forth in the Agreement. Section references are to sections in the Agreement
pursuant to which the information is being disclosed.
The inclusion of any item in the Disclosure Schedules does not constitute a
representation by the Company that such items are material to the Company nor is
such inclusion an admission of liability to any party.
In accordance with the Agreement, the Company hereby provides the information
hereinafter set forth.
38
Schedule 3.1(a)
1. Company subsidiaries and Company equity ownership thereof:
Entity State of Incorporation Ownership Percentage
- ------ ---------------------- --------------------
Active Subsidiaries:
- --------------------
Farequest Holdings, Inc. Delaware 100
OneTravel, Inc. Texas 100
Inactive Subsidiaries:
- ----------------------
FS SunTours, Inc. Delaware 100
DM Marketing, Inc. Delaware 100
Avenel Ventures, Inc. Nevada 100
eStorefronts.net Corp. New York less than 100
Premiere Shoe Group, LLC New York 75
11thHourVacations.com South Carolina 100
Flightserv, Inc. Delaware 100
FS Tours, Inc. Delaware 100
Logisoft Delaware 100
PDK Properties, Inc. Georgia 100
Internet Aviation Services
Limited, Ltd. Nevada 100
Gateway Development Corp. New York 100
Capital First Holdings, Inc.
of Georgia Georgia 100
2. The capital stock of each Subsidiary owned by the Company is subject to
the following Liens:
a. Liens in favor of the holders of the Seller Notes under the Seller
Note Documents;
b. Liens in favor of the Agent (as defined in the Security Agreement)
for the benefit of the Purchasers; and
c. Permitted Liens.
39
Schedule 3.1(g)
1. Capitalization of the Company is as follows:
Common Stock ($.04 par value): 50,000,000 shares authorized; 10,753,432 shares
outstanding as of October 14, 2005; 13,121 treasury shares.
Preferred Stock ($.01 par value): 10,000,000 shares authorized; 669.50 shares
outstanding as of October 19, 2005.
2. Outstanding Common Stock Equivalents of the Company are as follows:
a. 1,057,554 shares of common stock underlying warrants exercisable at
$5.50 per share issued in February 2005;
b. 1,818,181 shares of common stock underlying the Seller Notes;
c. 2,262,548 shares of common stock underlying warrants exercisable at
$5.50 per share issued in April 2005;
d. 339,382 shares of common stock underlying warrants exercisable at
$6.05 per share issued in April 2005;
e. 285,454 shares of common stock issuable upon conversion of series A
preferred stock;
f. 1,194,287 shares of common stock underlying warrants other than as
listed above exercisable at a weighted average price of $27.80 per
share;
g. options for 185,255 shares of common stock issued under the
Company's stock option plans;
h. additional shares of common stock are also issuable in connection
with the Farequest acquisition upon conversion of outstanding series
A preferred stock; and
i. up to 2,000,000 shares of common stock are unissued but reserved for
issuance under the Company's stock option plans.
3. The issuance and sale of the Securities may trigger the anti-dilution
rights of certain of the Company's warrantholders, other than the warrants
issued in February 2005 and April 2005 described in 3.1(g)(2) above.
4. Shareholder Approval will be required for the issuance of the Underlying
Shares at a price less than the original Conversion Price, in the case of
the Debentures, or the initial Exercise Price, in the case of the Warrant.
40
Schedule 3.1(h)
1. The Company failed to file its Annual Report on Form 10-K for the fiscal
year ended June 30, 2005 on a timely basis, and on October 19, 2005
received a notice of failure to satisfy continued listing standards from
the American Stock Exchange with respect thereto.
2. The Company failed to file Current Reports on Form 8-K on a timely basis.
3. The carrying value of the Company's warrant obligation set forth in the
Company's Amendment No. 2 to Annual Report on Form 10-K for the fiscal
year ended June 30, 2004 may be required to be restated.
41
Schedule 3.1(i)
(i) 1. The Company failed to file its Annual Report on Form 10-K for the
fiscal year ended June 30, 2005 on a timely basis, and on October
19, 2005 received a notice of failure to satisfy continued listing
standards from the American Stock Exchange with respect thereto.
2. The carrying value of the Company's warrant obligation set forth in
the Company's Amendment No. 2 to Annual Report on Form 10-K for the
fiscal year ended June 30, 2004 may be required to be restated.
(ii) 1. The Company entered into a loan agreement with its chairman, William
A. Goldstein, for an unsecured loan of up to $1,000,000 in September
2005.
(iii) 1. The carrying value of the Company's warrant obligation set forth in
the Company's Amendment No. 2 to Annual Report on Form 10-K for the
fiscal year ended June 30, 2004 may be required to be restated.
42
Schedule 3.1(j)
1. The Company failed to file its Annual Report on Form 10-K for the fiscal
year ended June 30, 2005 on a timely basis, and on October 19, 2005
received a notice of failure to satisfy continued listing standards from
the American Stock Exchange with respect thereto.
43
Schedule 3.1(l)
1. The Company failed to file its Annual Report on Form 10-K for the fiscal
year ended June 30, 2005 on a timely basis, and on October 19, 2005
received a notice of failure to satisfy continued listing standards from
the American Stock Exchange with respect thereto.
2. The Company failed to file Current Reports on Form 8-K on a timely basis.
3. FS SunTours, Inc. is in default under or in material violation of
substantially all of the material agreements to which its is a party or by
which any of its properties are bound, and it has received notices of
claims with respect thereto.
44
Schedule 3.1(m)
1. The Company failed to file its Annual Report on Form 10-K for the fiscal
year ended June 30, 2005 on a timely basis, and on October 19, 2005
received a notice of failure to satisfy continued listing standards from
the American Stock Exchange with respect thereto.
45
Schedule 3.1(n)
1. Liens in connection with the Seller Notes;
2. Liens in connection with the Farequest Note, in the case of Farequest
Holdings, Inc.; and
3. Permitted Liens.
46
Schedule 3.1(p)
1. The Company's directors and officers insurance coverage may be less than
the aggregate Subscription Amount.
47
Schedule 3.1(q)
1. The Company entered into a loan agreement with its chairman, William A.
Goldstein, for an unsecured loan of up to $1,000,000 in September 2005.
48
Schedule 3.1(s)
1. Broker's or Finder's fees or commissions are payable under the Escrow
Agreement.
49
Schedule 3.1(t)
1. Shareholder Approval will be required for the issuance of the Underlying
Shares at a price less than the original Conversion Price, in the case of
the Debentures, or the initial Exercise Price, in the case of the Warrant.
50
Schedule 3.1(w)
1. The Company failed to file its Annual Report on Form 10-K for the fiscal
year ended June 30, 2005 on a timely basis, and on October 19, 2005
received a notice of failure to satisfy continued listing standards from
the American Stock Exchange with respect thereto.
2. The Company may not be, and may not in the foreseeable future be, in
compliance with listing and maintenance requirements of the Trading Market
with respect to net worth requirements.
51
Schedule 3.1(v)
1. Each of the securityholders described as selling securityholders or
selling stockholders in the following registration statements on Form S-3
filed by the Company with the Commission have the right to cause the
Company to effect the registration under the Securities Act of the
securities of the Company described in such registration statement:
a. Registration No. 333-124931;
b. Registration No. 333-120047;
c. Registration No. 333-111526;
d. Registration No. 333-57178; and
e. the registration statement on Form S-3 filed by the Company on March
16, 2001.
52
Schedule 3.1(y)
1. The Company delivered a draft of its Annual Report on Form 10-K to certain
of he Purchasers or their agents or counsel which contains information
which constitutes or might constitute material, nonpublic information.
2. The information set forth in these Disclosure Schedules constitutes or
might constitute material, nonpublic information.
53
Schedule 3.1(aa)
1. The obligations, indebtedness and liens pursuant to the Seller Notes;
2. The obligations, indebtedness and liens pursuant to the Farequest Note, in
the case of Farequest Holdings, Inc.;
3. The Company entered into a loan agreement with its chairman, William A.
Goldstein, for an unsecured loan of up to $1,000,000 in September 2005.
4. FS SunTours, Inc. is in default with respect to substantially all of its
Indebtedness.
5. See attached Indebtedness Schedule.
54
OneTravel Holdings, Inc.
Indebtedness
October 20, 2005
Entity Description
------ -----------
Onetravel Holdings, Inc. Amadeus & Terra - Onetravel.com purchase note $ 13,026,860
Onetravel Holdings, Inc. Goldstein note 1,000,000
Onetravel Holdings, Inc. Goldfarb 105,000
FS Suntours, Inc. (d/b/a Suntrips) MyTravel Canada services agreement note 7,122,917(a)
FS Suntours, Inc. (d/b/a Suntrips) MyTravel Canada purchase note 1,000,000(a)
FS Suntours, Inc. (d/b/a Suntrips) Capital Lease 60,347
Farequest Holdings, Inc. Auto loans 350,743
Farequest Holdings, Inc. CS Holdings note 1,000,000
Onetravel.com, Inc. Capital Lease 6,930
---------------
$ 23,672,796
===============
Note 1:
-------
(a)The MyTravel Canada notes are recorded on
the financial statements net of imputed
interest. The discounts on the notes are
as follows as of the measurement date.
Discount on MyTravel Canada services agreement note (1,660,566)
Discount on MyTravel Canada sale note (399,341)
Note 2:
-------
Onetravel Holdings, Inc. and/or its subsidiaries have issued Letters of
Credit to certain service providers in the ordinary course of business.
All LOC's are fully collateralized by deposits held by OneTravel
Holdings, Inc. or its subsidiaries. The LOC's currently issued are:
MyTravel Canada $ 500,000
Ryan Airlines 750,000
Airline Reporting Corporation 140,000
Delta Airlines 65,000
Scott & Associates (Office Building Lease) 250,000
55
Schedule 3.1(ee)
1. BDO Seidman, LLP are the Company's accountants.
56
Schedule 3.1(ff)
1. Obligations and liabilities of the Company under the Seller Note
Documents.
2. Obligations and liabilities of Farequest Holdings, Inc. under the
Farequest Note Documents.
57
Schedule 3.1(jj)
1. The satisfaction of placement agent's fees by the payment of cash and/or
the issuance of securities thereto in connection with sales of securities
by the Company described in the SEC Reports.
58
Schedule 4.9
The Company currently expects to use the proceeds from the issuance and sale of
the Debentures as follows:
1. $3,000,000 budgeted for financing obligations in connection with the
contemplated FS SunTours, Inc. d/b/a Sun Trips sale.
2. $2,500,000 budgeted for collateral needs for merchant account.
3. Approximately $1,000,000 for repayment of interim loans provided by
William Goldstein, the Chairman & CEO of the Company, pending the closing
of the financing; no interest will be paid or accrued and no other
consideration for the loans will be made.
4. $500,000 budgeted for interest on the Seller Notes; this amount assumes
the Seller Notes are not repaid prior to March 15, 2006.
5. $1,000,000 budgeted for technology enhancements.
6. Approximately $1,215,000 budgeted for interest payments on Debentures.
7. The balance for general working capital purposes.
59