ROO GROUP, INC.
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "AGREEMENT") is made and entered
into as of August 18, 2006, by and among ROO GROUP, INC., a Delaware
corporation (the "COMPANY"), and each of the purchasers listed on EXHIBIT A
attached hereto (collectively, the "PURCHASERS" and individually, a
"PURCHASER").
RECITALS
A. The Company desires to issue and sell to the Purchasers, and the
Purchasers desire to purchase from the Company, up to 5,000,000 units (each, a
"UNIT"), each Unit consisting of one share of common stock, par value $0.0001
per share, of the Company (the "COMMON STOCK"), and one half of one five-year
warrant to purchase one share of Common Stock, on the terms and subject to the
conditions set forth in this Agreement.
B. The Company and each Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("REGULATION D"), as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "SECURITIES ACT").
AGREEMENT
The parties hereto agree as follows:
1. AGREEMENT TO PURCHASE AND SELL STOCK.
(A) AUTHORIZATION. The Company's Board of Directors has authorized
the issuance and sale, pursuant to the terms and conditions of this Agreement,
of up to 5,000,000 Units, consisting of up to 5,000,000 shares of Common Stock
(the "PURCHASED SHARES") and five-year warrants to purchase up to 2,500,000
shares, substantially in the form attached hereto as Exhibit B. Each whole
warrant included in the Units shall be exercisable to purchase one share of
Common Stock at $2.00 per share (the "PURCHASED WARRANTS" and together with the
Purchased Shares, the "PURCHASED SECURITIES").
(B) AGREEMENT TO PURCHASE AND SELL SECURITIES. On the terms and
subject to the conditions contained in this Agreement, each Purchaser severally
agrees to purchase, and the Company agrees to sell and issue to each Purchaser,
at Closing (as defined below), that number of Units set forth on such
Purchaser's signature page. The purchase price of each Unit (the "PER UNIT
PRICE") shall be $1.25.
(C) USE OF PROCEEDS. The Company intends to apply the net proceeds
from the sale of the Purchased Securities for working capital and general
corporate purposes, as well as for strategic purposes in connection with
selected acquisitions that may be considered in the future to expand its product
and service offerings.
(D) OBLIGATIONS SEVERAL NOT JOINT. The obligations of each Purchaser
under this Agreement 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 this Agreement. Nothing
contained herein, and no action taken by any Purchaser pursuant hereto, 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 this Agreement. Each Purchaser shall be
entitled to independently protect and enforce its rights, including without
limitation the rights arising out of this Agreement, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose.
2. CLOSING. The closing of the purchase and sale of the Purchased
Securities shall take place at the offices of Sichenzia Ross Friedman Ference
LLP, 1065 Avenue of the Americas, New York, New York 10018 (the "SRFF OFFICES")
at 10:00 a.m. Eastern time on August 23, 2006, or at such other time and place
as the Company and Purchasers representing a majority of the Units to be
purchased mutually agree upon (which time and place are referred to in this
Agreement as the "CLOSING"). At the Closing, the Company shall, against delivery
of payment for the Purchased Securities by wire transfer of immediately
available funds in accordance with the Company's instructions, (a) authorize its
transfer agent to issue to each Purchaser one or more stock certificates (the
"CERTIFICATES") registered in the name of each Purchaser (or in such nominee
name(s) as designated by such Purchaser in the Stock Certificate Questionnaire
(attached hereto as Appendix I) (the "STOCK CERTIFICATE QUESTIONNAIRE"),
representing the appropriate number of Purchased Shares based on the number of
Units to be purchased by such Purchaser as set forth on such Purchaser's
signature page, and bearing the legend set forth in Section 4(j) herein and (b)
issue the appropriate number of Purchased Warrants based on the number of Units
to be purchased by such Purchaser as set forth on such Purchaser's signature
page. Closing documents may be delivered by facsimile with original signature
pages sent by overnight courier. The date of the Closing is referred to herein
as the Closing Date.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to each Purchaser that the statements in this Section 3
are true and correct, except as set forth in the SEC Documents (as defined
below):
(A) ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all corporate power and authority required to
(i) carry on its business as presently conducted and (ii) enter into this
Agreement and the other agreements, instruments and documents contemplated
hereby, and to consummate the transactions contemplated hereby and thereby. The
Company is qualified to do business and is in good standing in each jurisdiction
in which the failure to so qualify would have a Material Adverse Effect. As used
in this Agreement, "MATERIAL ADVERSE EFFECT" means a material adverse effect on,
or a material adverse change in, or a group of such effects on or changes in,
the business, operations, financial condition, results of operations, assets or
liabilities of the Company and its subsidiaries, taken as a whole.
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(B) CAPITALIZATION. The capitalization of the Company, without
listing the Purchased Securities to be purchased pursuant to this Agreement, is
as follows:
(I) The authorized capital stock of the Company consists of
500,000,000 shares of Common Stock, par value $0.0001 per share, and 10,000,000
shares of preferred stock, par value $0.0001 per share ("PREFERRED STOCK"), of
which 10,000,000 shares of Preferred Stock have been designated as Series A
Preferred Stock.
(II) As of August 11, 2006, the issued and outstanding capital
stock of the Company consisted of 13,176,436 shares of Common Stock and
10,000,000 shares of Series a Preferred Stock. The shares of issued and
outstanding capital stock of the Company have been duly authorized and validly
issued, are fully paid and nonassessable and have not been issued in violation
of or are not otherwise subject to any preemptive or other similar rights.
(III) As of August 11, 2006, the Company had (a) 2,638,050
shares of Common Stock reserved for issuance upon exercise of outstanding
options granted under the Company's 2004 Stock Option Plan, as amended (the
"OPTION Plan"); (b) 557,500 shares of Common Stock reserved for issuance upon
exercise of options not granted under the Option Plan; and (c) 1692,633 shares
of Common Stock reserved for issuance upon exercise of outstanding warrants.
(IV) As of August 11, 2006, the Company had 861,950 shares of
Common Stock available for future grant under the Option Plan.
With the exception of the foregoing in this Section 3(b) and except
as set forth in the Disclosure Letter attached hereto as EXHIBIT B (THE
"DISCLOSURE LETTER"), there are no outstanding subscriptions, options, warrants,
convertible or exchangeable securities or other rights granted to or by the
Company to purchase shares of Common Stock or other securities of the Company
and there are no commitments, plans or arrangements to issue any shares of
Common Stock or any security convertible into or exchangeable for Common Stock.
(C) SUBSIDIARIES. Except as set forth in the Disclosure
Letter, the Company does not have any subsidiaries, and, does not own any
capital stock of, assets comprising the business of, obligations of, or any
other interest (including any equity or partnership interest) in, any person or
entity.
(D) DUE AUTHORIZATION. All corporate actions on the part of
the Company necessary for the authorization, execution, delivery of, and the
performance of all obligations of the Company under this Agreement and the
authorization, issuance, reservation for issuance and delivery of all of the
Purchased Securities being sold under this Agreement have been taken, no further
consent or authorization of the Company or the Board of Directors or its
stockholders is required, and this Agreement constitutes the legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except (i) as may be limited by (A) applicable bankruptcy,
insolvency, reorganization or others laws of general application relating to or
affecting the enforcement of creditors' rights generally and (B) the effect of
rules of law governing the availability of equitable remedies and (ii) as rights
to indemnity or contribution may be limited under federal or state securities
laws or by principles of public policy thereunder.
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(E) VALID ISSUANCE OF PURCHASED SECURITIES.
(I) PURCHASED SHARES. The Purchased Shares will be, upon
payment therefor by the Purchasers in accordance with this Agreement, duly
authorized, validly issued, fully paid and non-assessable, free from all taxes,
liens, claims, encumbrances with respect to the issuance of such Purchased
Shares and will not be subject to any pre-emptive rights or similar rights.
(II) PURCHASED WARRANTS. The Purchased Warrants will be, upon
payment therefor by the Purchasers in accordance with this Agreement, duly
authorized and validly issued, free from all taxes, liens, claims, encumbrances
with respect to the issuance of such Purchased Warrants and will not be subject
to any pre-emptive rights or similar rights.
(III) UNDERLYING SHARES OF COMMON STOCK. The issuance of the
shares of Common Stock issued or issuable from time to time upon the exercise of
the Purchased Warrants (the "UNDERLYING SHARES") will be, and at all times prior
to such exercise, will have been, duly authorized, duly reserved for issuance
upon such exercise and payment of the exercise price of the Purchased Warrants,
and will be, upon such exercise and payment, validly issued, fully paid and
non-assessable free from all taxes, liens, claim, encumbrances with respect to
the issuance of such shares and will not be subject to any pre-emptive rights or
similar rights.
(IV) COMPLIANCE WITH SECURITIES LAWS. Subject to the accuracy
of the representations made by the Purchasers in Section 4 hereof, the Purchased
Securities (assuming no change in applicable law and no unlawful distribution of
the Purchased Securities by the Purchasers or other parties) will be issued to
the Purchasers in compliance with applicable exemptions from (A) the
registration and prospectus delivery requirements of the Securities Act and (B)
the registration and qualification requirements of all applicable securities
laws of the states of the United States.
(V) GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, or notice to, any federal, state or local governmental authority or
self regulatory agency on the part of the Company is required in connection with
the issuance of the Purchased Securities to the Purchasers, or the consummation
of the other transactions contemplated by this Agreement, except (A) such
filings as have been made prior to the date hereof, and (B) such additional
post-Closing filings as may be required to comply with applicable state and
federal securities laws.
(F) GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, or notice to, any federal, state or local governmental authority or
self regulatory agency on the part of the Company is required in connection with
the issuance of the Purchased Securities to the Purchasers, or the consummation
of the other transactions contemplated by this Agreement, except (i) such
filings as have been made prior to the date hereof and (ii) such additional
post-Closing filings as may be required to comply with applicable state and
federal securities laws.
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(G) NON-CONTRAVENTION. The execution, delivery and performance of
this Agreement by the Company, and the consummation by the Company of the
transactions contemplated hereby (including issuance of the Purchased
Securities), do not: (i) contravene or conflict with the Certificate of
Incorporation of the Company, as amended to date (the "CERTIFICATE OF
INCORPORATION"), or the Bylaws of the Company, as amended to date (the
"BYLAWS"); (ii) constitute a violation of any provision of any federal, state,
local or foreign law, rule, regulation, order or decree applicable to the
Company; or (iii) constitute a default or require any consent under, give rise
to any right of termination, cancellation or acceleration of, or to a loss of
any material benefit to which the Company is entitled under, or result in the
creation or imposition of any lien, claim or encumbrance on any assets of the
Company under, any material contract to which the Company is a party or any
material permit, license or similar right relating to the Company or by which
the Company may be bound or affected.
(H) LITIGATION. Except as set forth in the Disclosure Letter, there
is no action, suit, proceeding, claim, arbitration or investigation ("ACTION")
pending or, to the Company's knowledge, threatened in writing: (i) against the
Company, its activities, properties or assets, or any officer, director or
employee of the Company in connection with such officer's, director's or
employee's relationship with, or actions taken on behalf of, the Company, that
is reasonably likely to have a Material Adverse Effect on the Company; or (ii)
that seeks to prevent, enjoin, alter, challenge or delay the transactions
contemplated by this Agreement (including the issuance of the Purchased
Securities). The Company is not a party to or subject to the provisions of, any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality. No Action is currently pending nor does the Company intend to
initiate any Action that is reasonably likely to have a Material Adverse Effect
on the Company.
(I) COMPLIANCE WITH LAW AND CHARTER DOCUMENTS. The Company is not in
violation or default of any provisions of the Certificate of Incorporation or
the Bylaws. The Company has complied and is currently in compliance with all
applicable statutes, laws, rules, regulations and orders of the United States of
America and all states thereof, foreign countries and other governmental bodies
and agencies having jurisdiction over the Company's business or properties,
except for any instance of non-compliance that has not had, and would not
reasonably be expected to have, a Material Adverse Effect.
(J) MATERIAL NON-PUBLIC INFORMATION. The Company has not provided to
the Purchasers any material non-public information other than information
related to the transactions contemplated by this Agreement, all of which
information related to the transactions contemplated hereby shall be disclosed
by the Company pursuant to Section 9(m) hereof.
(K) SEC DOCUMENTS.
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(I) REPORTS. Except as set forth in the Disclosure Letter, the
Company has filed in a timely manner all reports, schedules, forms, statements
and other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), and the rules and regulations promulgated thereunder. The
Company has made available to the Purchasers prior to the date hereof copies of
its Annual Report on Form 10-SB for the fiscal year ended December 31, 2005 (the
"FORM 10-KSB"), its quarterly report on Form 10-QSB for the fiscal quarter ended
March 31, 2006 (the "FORM 10-QSB"), and any Current Report on Form 8-K for
events occurring since March 31, 2006 ("FORMS 8-K") filed by the Company with
the SEC (the Form 10-KSB, the Form 10-QSB and the Forms 8-K are collectively
referred to herein as the "SEC DOCUMENTS"). Each of the SEC Documents, as of the
respective dates thereof (or, if amended or superseded by a filing prior to the
Closing Date, then on the date of such filing), did not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements made therein, in light of the circumstances under which
they were made, not misleading. Each SEC Document, as it may have been
subsequently amended by filings made by the Company with the SEC prior to the
date hereof, complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the SEC promulgated thereunder
applicable to such SEC Document.
(II) SARBANES-OXLEY. The Chief Executive Officer and the Chief
Financial Officer of the Company have signed, and the Company has furnished to
the SEC, all certifications required by Sections 302 and 906 of the
Sarbanes-Oxley Act of 2002. Such certifications contain no qualifications or
exceptions to the matters certified therein and have not been modified or
withdrawn; and neither the Company nor any of its officers has received notice
from any governmental entity questioning or challenging the accuracy,
completeness, form or manner of filing or submission of such certifications. The
Company is otherwise in compliance in all material respects with all applicable
effective provisions of the Sarbanes-Oxley Act of 2002 and the rules and
regulations issued thereunder by the SEC.
(III) FINANCIAL STATEMENTS. The financial statements of the
Company in the SEC Documents present fairly, in accordance with United States
generally accepted accounting principles ("GAAP"), consistently applied, the
financial position of the Company as of the dates indicated, and the results of
its operations and cash flows for the periods therein specified, subject, in the
case of unaudited financial statements for interim periods, to normal year-end
audit adjustments.
(L) ABSENCE OF CERTAIN CHANGES SINCE THE BALANCE SHEET DATE. Except
as set forth in the Disclosure Letter, since March 31, 2006, the business and
operations of the Company have been conducted in the ordinary course consistent
with past practice, and there has not been:
(I) any declaration, setting aside or payment of any dividend
or other distribution of the assets of the Company with respect to any shares of
capital stock of the Company or any repurchase, redemption or other acquisition
by the Company or any subsidiary of the Company of any outstanding shares of the
Company's capital stock;
(II) any damage, destruction or loss, whether or not covered
by insurance, except for such occurrences, individually and collectively, that
have not had, and would not reasonably be expected to have, a Material Adverse
Effect;
(III) any waiver by the Company of a valuable right or of a
material debt owed to it, except for such waivers, individually and
collectively, that have not had, and would not reasonably be expected to have, a
Material Adverse Effect;
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(IV) any material change or amendment to, or any waiver of any
material right under a material contract or arrangement by which the Company or
any of its assets or properties is bound or subject;
(V) any change by the Company in its accounting principles,
methods or practices or in the manner in which it keeps its accounting books and
records, except any such change required by a change in GAAP or by the SEC; or
(VI) any other event or condition of any character, except for
such events and conditions that have not resulted, and are not expected to
result, either individually or collectively, in a Material Adverse Effect.
(M) INTELLECTUAL PROPERTY.
(I) Except as set forth in the Disclosure Letter, the Company
owns or possesses sufficient rights to use all patents, patent rights,
inventions, trade secrets, know-how, trademarks, service marks, trade names,
copyrights, information and other proprietary rights and processes
(collectively, "INTELLECTUAL PROPERTY"), which are necessary to conduct its
businesses as currently conducted free and clear of all liens, encumbrances and
other adverse claims, except where the failure to own or possess free and clear
of all liens, encumbrances and other adverse claims would not reasonably be
expected to result, either individually or in the aggregate, in a Material
Adverse Effect.
(II) The Company has not received any written notice of, and
has no knowledge of, any infringement of or conflict with rights of others with
respect to any Intellectual Property and the Company has no knowledge of any
infringement, misappropriation or other violation of any Intellectual Property
by any third party, which, in either case, either individually or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
reasonably be expected to have a Material Adverse Effect.
(III) To the Company's knowledge, none of the patent rights
owned or licensed by the Company are unenforceable or invalid.
(IV) Each employee, consultant and contractor of the Company
who has had access to the Intellectual Property has executed a valid and
enforceable agreement to maintain the confidentiality of such Intellectual
Property and assigning all rights to the Company to any inventions,
improvements, discoveries or information relating to the business of the
Company. The Company is not aware that any of its employees is obligated under
any contract (including licenses, covenants or commitments of any nature) or
other agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with their duties to the Company or
that would conflict with the Company's business.
(V) The Company is not subject to any "open source" or
"copyleft" obligations or otherwise required to make any public disclosure or
general availability of source code either used or developed by the Company.
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(N) REGISTRATION RIGHTS. Except as provided in Section 5 herein and
except as set forth in the Disclosure Letter, the Company is not currently
subject to any agreement providing any person or entity any rights (including
piggyback registration rights) to have any securities of the Company registered
with the SEC or registered or qualified with any other governmental authority.
(O) TITLE TO PROPERTY AND ASSETS. Except as set forth in the
Disclosure Letter, the properties and assets of the Company are owned by the
Company free and clear of all mortgages, deeds of trust, liens, charges,
encumbrances and security interests except for (i) statutory liens for the
payment of current taxes that are not yet delinquent and (ii) liens,
encumbrances and security interests that arise in the ordinary course of
business and do not in any material respect affect the properties and assets of
the Company. With respect to the property and assets it leases, the Company is
in compliance with such leases in all material respects.
(P) TAXES. The Company has filed or has valid extensions of the time
to file all necessary federal, state, and foreign income and franchise tax
returns due prior to the date hereof and has paid or accrued all taxes shown as
due thereon, and the Company has no knowledge of any material tax deficiency
that has been or might be asserted or threatened against it.
(Q) INSURANCE. The Company maintains insurance of the types and in
the amounts that the Company reasonably believes is prudent and adequate for its
business, all of which insurance is in full force and effect.
(R) 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.
(S) INTERNAL ACCOUNTING CONTROLS. The Company and its 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.
(T) TRANSACTIONS WITH OFFICERS AND DIRECTORS. Except as set forth in
the Disclosure Letter, none of the officers or directors of the Company has
entered into any transaction with the Company or any Subsidiary that would be
required to be disclosed pursuant to Item 404(a), (b) or (c) of Regulation S-K
of the SEC.
(U) GENERAL SOLICITATION. Neither the Company nor any other person
or entity authorized by the Company to act on its behalf has engaged in a
general solicitation or general advertising (within the meaning of Regulation D
of the Securities Act) of investors with respect to offers or sales of the
Purchased Securities.
(V) REGISTRATION STATEMENT MATTERS. The Company meets the
eligibility requirements for use of a registration statement on Form SB-2 for
the resale of the Purchased Shares and sale of the Underlying Shares by the
Purchasers. Assuming the completion and timely delivery of the Registration
Statement Questionnaire (attached hereto as Appendix II) (the "REGISTRATION
STATEMENT QUESTIONNAIRE") by each Purchaser to the Company, the Company is not
aware of any facts or circumstances that would prohibit or delay the preparation
and filing of a registration statement with respect to the Registrable Shares
(as defined below).
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(W) LISTING MATTERS. The Common Stock of the Company is listed on
the Over The Counter Bulletin Board (the "OTCBB") under the ticker symbol
"RGRP." The issuance and sale of the Purchased Securities under this Agreement
does not contravene the rules and regulations of the OTCBB.
(X) INVESTMENT COMPANY. The Company is not now, and after the sale
of the Purchased Securities under this Agreement and the application of the net
proceeds from the sale of the Purchased Securities described in Section 1(b)
herein will not be, an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
4. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF THE PURCHASERS.
Each Purchaser hereby represents and warrants to the Company, severally and not
jointly, and agrees that:
(A) ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Purchaser has
all corporate, membership or partnership power and authority required to enter
into this Agreement and the other agreements, instruments and documents
contemplated hereby, and to consummate the transactions contemplated hereby and
thereby.
(B) AUTHORIZATION. The execution of this Agreement has been duly
authorized by all necessary corporate, membership or partnership action on the
part of the Purchaser. This Agreement constitutes the Purchaser's legal, valid
and binding obligation, enforceable in accordance with its terms, except (i) as
may be limited by (A) applicable bankruptcy, insolvency, reorganization or other
laws of general application relating to or affecting the enforcement of
creditors' rights generally and (B) the effect of rules of law governing the
availability of equitable remedies and (ii) as rights to indemnity or
contribution may be limited under federal or state securities laws or by
principles of public policy thereunder.
(C) LITIGATION. There is no Action pending to which such Purchaser
is a party that is reasonably likely to prevent, enjoin, alter or delay the
transactions contemplated by this Agreement.
(D) PURCHASE FOR OWN ACCOUNT. The Purchased Securities are being
acquired for investment for the Purchaser's own account, not as a nominee or
agent, and not with a view to the public resale or distribution thereof within
the meaning of the Securities Act, without prejudice, however, to such
Purchaser's right at all times to sell or otherwise dispose of all or any part
of such securities in compliance with applicable federal and state securities
laws and as otherwise contemplated by this Agreement. The Purchaser also
represents that it has not been formed for the specific purpose of acquiring the
Purchased Securities.
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(E) INVESTMENT EXPERIENCE. The Purchaser understands that the
purchase of the Purchased Securities involves substantial risk. The Purchaser
has experience as an investor in securities of companies and acknowledges that
it can bear the economic risk of its investment in the Purchased Securities and
has such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of this investment in the Purchased
Securities and protecting its own interests in connection with this investment.
(F) ACCREDITED INVESTOR STATUS. The Purchaser is an "accredited
investor" within the meaning of Regulation D promulgated under the Securities
Act.
(G) RELIANCE UPON PURCHASER'S REPRESENTATIONS. The Purchaser
understands that the issuance and sale of the Purchased Securities to it will
not be registered under the Securities Act on the ground that such issuance and
sale will be exempt from registration under the Securities Act pursuant to
Section 4(2) thereof, and that the Company's reliance on such exemption is based
on each Purchaser's representations set forth herein.
(H) RECEIPT OF INFORMATION. The Purchaser has had an opportunity to
ask questions and receive answers from the Company regarding the terms and
conditions of the issuance and sale of the Purchased Securities and the
business, properties, prospects and financial condition of the Company and to
obtain any additional information requested and has received and considered all
information it deems relevant to make an informed decision to purchase the
Purchased Securities. Neither such inquiries nor any other investigation
conducted by or on behalf of such Purchaser or its representatives or counsel
shall modify, amend or affect such Purchaser's right to rely on the truth,
accuracy and completeness of such information and the Company's representations
and warranties contained in this Agreement.
(I) RESTRICTED SECURITIES. The Purchaser understands that the
Purchased Securities have not been registered under the Securities Act and will
not sell, offer to sell, assign, pledge, hypothecate or otherwise transfer any
of the Purchased Securities unless (i) pursuant to an effective registration
statement under the Securities Act, (ii) such holder provides the Company with
an opinion of counsel, in form and substance reasonably acceptable to the
Company, to the effect that a sale, assignment or transfer of the Purchased
Securities may be made without registration under the Securities Act and the
transferee agrees to be bound by the terms and conditions of this Agreement,
(iii) such holder provides the Company with reasonable assurances (in the form
of seller and broker representation letters) that the Purchased Shares or the
Underlying Shares, as the case may be, can be sold pursuant to Rule 144
promulgated under the Securities Act ("RULE 144") or (iv) pursuant to Rule
144(k) promulgated under the Securities Act following the applicable holding
period. Notwithstanding anything to the contrary contained in this Agreement,
including but not limited to in Section 5(c)(i) below, the Purchaser may
transfer (without restriction and without the need for an opinion of counsel)
the Purchased Shares or the Underlying Shares to its Affiliates (as defined
below) provided that each such Affiliate is an "accredited investor" under
Regulation D, and such Affiliate agrees to be bound by the terms and conditions
of this Agreement.
For the purposes of this Agreement, an "AFFILIATE" of any specified
Purchaser means any other person or entity directly or indirectly controlling,
controlled by or under direct or indirect common control with such specified
Purchaser. For purposes of this definition, "CONTROL" means the power to direct
the management and policies of such person or firm, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise.
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(J) LEGENDS.
(I) PURCHASED SHARES AND UNDERLYING SHARES. The Purchaser
agrees that the certificates for the Purchased Shares and Underlying Shares
shall bear the following legend and that the Purchaser will comply with the
restrictions on transfer set forth in such legend:
THESE SECURITIES HAVE NOT 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.
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 Purchased 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, if required under the terms of such arrangement, such Purchaser
may transfer pledged or secured Purchased Securities to the pledgees or secured
parties. 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 Purchased Securities may
reasonably request in connection with a pledge or transfer of the Purchased
Securities, 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.
In addition, the Purchaser agrees that the Company may place stop transfer
orders with its transfer agent with respect to such certificates in order to
implement the restrictions on transfer set forth in this Agreement. The
appropriate portion of the legend and the stop transfer orders will be removed
promptly upon delivery to the Company of such satisfactory evidence as
reasonably may be required by the Company that such legend or stop orders are
not required to ensure compliance with the Securities Act. In addition, upon the
declaration of the effectiveness of the Registration Statement which includes
the Purchased Securities, the Company shall cause its counsel to deliver a
blanket opinion to its transfer agent to cause the stock certificates evidencing
the Purchased Shares and Underlying Shares to be issued to the Purchasers free
of any 1933 Act restrictive legends assuming compliance with the prospectus
delivery requirements of Section 5 under the Securities Act of 1933.
-11-
(II) PURCHASED WARRANTS. The Purchaser agrees that Purchased
Warrants shall bear the following legend:
"THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT") OR WITH ANY STATE SECURITIES COMMISSION, AND MAY NOT BE
TRANSFERRED OR DISPOSED OF BY THE HOLDER IN THE ABSENCE OF A
REGISTRATION STATEMENT WHICH IS EFFECTIVE UNDER THE SECURITIES ACT
AND APPLICABLE STATE LAWS AND RULES, OR, UNLESS, IMMEDIATELY PRIOR
TO THE TIME SET FOR TRANSFER, SUCH TRANSFER MAY BE EFFECTED WITHOUT
VIOLATION OF THE SECURITIES ACT AND OTHER APPLICABLE STATE LAWS AND
RULES."
(III) The Company agrees, upon a Purchaser's reasonable
request, to reissue certificates representing any of the Purchased Shares and
Underlying Shares without the legend set forth above (i) while a registration
statement covering the resale of such securities is effective under the
Securities Act, (ii) following any sale of such securities pursuant to Rule 144
(assuming the transferor is not an affiliate of the Company), (iii) if such
Securities are eligible for sale under Rule 144(k) (to the extent that the
applicable Purchaser provides a certification or legal opinion to the Company to
that effect), or (iv) if such legend is not required under applicable
requirements of the Securities Act (including controlling judicial
interpretations and pronouncements issued by the Commission). Following the
effective date of a registration statement, which includes the Purchased
Securities, or at such earlier time as a legend is no longer required for the
Purchased Shares and the Underlying Shares, the Company will, promptly following
the delivery by a Purchaser to the Company or the Company's transfer agent of a
legended certificate representing such securities, deliver or cause to be
delivered to such Purchaser a certificate representing such securities that is
free from all restrictive legends.
(K) QUESTIONNAIRES. The Purchaser has completed or caused to be
completed the Stock Certificate Questionnaire and the Registration Statement
Questionnaire for use in preparation of the Registration Statement (as defined
in Section 5(a)(ii) below), and the answers to such questionnaires are true and
correct as of the date of this Agreement; provided, that the Purchasers shall be
entitled to update such information by providing written notice thereof to the
Company before the effective date of the Registration Statement.
(L) PROHIBITED TRANSACTIONS. (i) During the last thirty (30) days
prior to the date hereof, neither such Purchaser nor any Affiliate of such
Purchaser, foreign or domestic, has, directly or indirectly, effected or agreed
to effect any "short sale" (as defined in Rule 200 under Regulation SHO),
whether or not against the box, established any "put equivalent position" (as
defined in Rule 16a-1(h) under the 1934 Act) with respect to the Common Stock,
borrowed or pre-borrowed any shares of Common Stock, or granted any other right
(including, without limitation, any put or call option) with respect to the
Common Stock or with respect to any security that includes, relates to or
derived any significant part of its value from the Common Stock or otherwise
sought to hedge its position in the Securities (each, a "PROHIBITED
TRANSACTION")
-12-
(ii) Prior to the earliest to occur of (i) the termination of
this Agreement, (ii) the date the Registration Statement, as defined below, is
declared effective by the Securities and Exchange Commission or (iii) 120 days
from the Closing Date (150 days if the registration statement is reviewed by the
SEC) such Purchaser shall not, and shall cause its Affiliates not to, engage,
directly or indirectly, in (a) a Prohibited Transaction nor (b) any sale,
assignment, pledge, hypothecation, put, call, or other transfer of any of the
shares of Common Stock, warrants or other securities of the issuer acquired
hereunder.
5. FORM D FILING; REGISTRATION; COMPLIANCE WITH THE SECURITIES ACT.
(A) FORM D FILING; REGISTRATION OF THE PURCHASED SHARES AND
UNDERLYING SHARES. The Company hereby agrees that it shall:
(I) file in a timely manner a Form D relating to the sale of
the Purchased Securities under this Agreement, pursuant to Regulation D
promulgated under the Securities Act;
(II) prepare and file with the SEC as soon as practicable, and
in no event later than 30 days following the Closing, a registration statement
on Form S-3 (the "REGISTRATION STATEMENT"), to enable the resale of the
Purchased Shares and the sale of the Underlying Shares (together with any shares
of Common Stock issued as a dividend or other distribution with respect to, or
in exchange for, or in replacement of, the Purchased Shares or the Underlying
Shares, the "REGISTRABLE SHARES") by the Purchasers from time to time and use
all reasonable best efforts to cause such Registration Statement to be declared
effective as promptly as possible after filing, but in any event, within 90 days
following the Closing Date or, in the event of a review of the Registration
Statement by the SEC, within 120 days following the Closing Date, and to remain
continuously effective until the earlier of (A) the second anniversary of the
effective date of the Registration Statement, (B) the date on which all
Registrable Shares purchased by the Purchasers pursuant to this Agreement have
been sold thereunder or (C) the date on which the Registrable Shares can be sold
by nonaffiliates of the Company pursuant to Rule 144(k) promulgated under the
Securities Act (the "REGISTRATION PERIOD"). In the event that the Company does
not meet the requirements for the use of Form, the Company shall use such other
form as is available for such a registration, and shall convert such other form
to Form S-3, or file a replacement registration statement on Form S-3, promptly
after the first date on which it meets such requirements;
(III) prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
Prospectus (as defined below) used in connection therewith as may be necessary
to keep the Registration Statement effective at all times until the end of the
Registration Period;
(IV) furnish to the Purchasers with respect to the Registrable
Shares registered under the Registration Statement such reasonable number of
copies of any Prospectus (as defined below) in conformity with the requirements
of the Securities Act and such other documents as the Purchaser may reasonably
request, in order to facilitate the public sale or other disposition of all or
any of the Registrable Shares by the Purchasers;
-13-
(V) use its reasonable best efforts to file documents required
of the Company for normal blue sky clearance in states specified in writing by
the Purchasers; provided, however, that the Company shall not be required to
qualify to do business or consent to service of process in any jurisdiction in
which it is not now so qualified or has not so consented;
(VI) promptly notify the Purchasers in writing when the
Registration Statement has been declared effective;
(VII) promptly notify the Purchasers in writing of the
existence of any fact or the happening of any event, during the Registration
Period (but not as to the substance of any such fact or event), that makes any
statement of a material fact made in the Registration Statement, the Prospectus,
any amendment or supplement thereto, or any document incorporated by reference
therein untrue, or that requires the making of any additions to or changes in
the Registration Statement or the Prospectus in order to make the statements
therein not misleading (provided, however, that no notice by the Company shall
be required pursuant to this subsection (vii) in the event that the Company
either contemporaneously files a prospectus supplement to update the Prospectus
or a Form 8-K or other appropriate Exchange Act report that is incorporated by
reference into the Registration Statement, which, in either case, contains the
requisite information with respect to such material event that results in such
Registration Statement no longer containing any such untrue or misleading
statements);
(VIII) furnish to each Purchaser upon written request, from
the date of this Agreement until the end of the Registration Period, one copy of
its periodic reports filed with the SEC pursuant to the Exchange Act and the
rules and regulations promulgated thereunder; and
(IX) bear all expenses in connection with the procedures
described in paragraphs (i) through (viii) of this Section 5(a) and the
registration of the Registrable Shares pursuant to the Registration Statement
other than fees and expenses, if any, of legal counsel or other advisers to the
Purchasers or underwriting discounts, brokerage fees and commissions incurred by
the Purchasers, if any.
It shall be a condition precedent to the obligations of the Company to
take any action pursuant to this Section 5(a) with respect to Registrable Shares
held by a Purchaser that such Purchaser shall timely furnish to the Company a
completed Registration Statement Questionnaire on or before the Closing Date and
such other written information regarding itself, the Registrable Shares to be
sold by such Purchaser, and the intended method of disposition of the
Registrable Shares as shall be required to effect the registration of the
Registrable Shares. The Purchasers shall update such information as and when
necessary by written notice to the Company.
(B) LIQUIDATED DAMAGES.
-14-
(I) DELAY IN FILING OF REGISTRATION STATEMENT. In the event
that the Registration Statement is not filed with the SEC within 30 days
following the Closing Date, the Company shall pay to each Purchaser liquidated
damages (in addition to the rights and remedies available to each Purchaser
under applicable law and this Agreement), a rate equal to one percent per month
(pro rata on a 30-day basis) of the total purchase price of the Purchased
Securities purchased by such Purchaser pursuant to this Agreement, up to a
maximum, together with all payments made by the Company to such Purchaser
pursuant to this Section 5(b), of 10% of the total purchase price of the
Purchased Securities purchased by such Purchaser, until the Registration
Statement is filed with SEC. Such liquidated damages shall be payable within 10
days of the end of each one-month anniversary of the filing deadline set forth
in this section 5(b)(i).
(II) DELAY IN EFFECTIVENESS OF REGISTRATION STATEMENT. In the
event that the Registration Statement is not declared effective within 90 days
following the Closing Date or, in the event of a review of the Registration
Statement by the SEC, within 120 days following the Closing Date, the Company
shall pay to each Purchaser liquidated damages (in addition to the rights and
remedies available to each Purchaser under applicable law and this Agreement), a
rate equal to one percent per month (pro rata on a 30-day basis) of the total
purchase price of the Purchased Securities purchased by such Purchaser pursuant
to this Agreement, up to a maximum, together with all payments made by the
Company to such Purchaser pursuant to this Section 5(b), of 10% of the total
purchase price of the Purchased Securities purchased by such Purchaser, until
the Registration Statement is declared effective. Such liquidated damages shall
be payable within 10 days of the end of each one month anniversary of the
effectiveness deadline set forth in this Section 5(b)(ii).
(III) LAPSE IN EFFECTIVENESS OF REGISTRATION STATEMENT. In the
event that the Registration Statement is filed and declared effective but,
during the Registration Period, shall thereafter cease to be effective or
useable or the prospectus included in the Registration Statement (the
"PROSPECTUS", as amended or supplemented by any prospectus supplement and by all
other amendments thereto and all material incorporated by reference in such
Prospectus) ceases to be usable, in either case, in connection with resales of
Registrable Shares, without such lapse being cured within 10 business days (the
"CURE PERIOD") by a post-effective amendment to the Registration Statement, a
supplement to the Prospectus or a report filed with the SEC pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act or other action that cures such
lapse, then the Company shall pay to each Purchaser that at the time of such
lapse continues to hold Registrable Securities, liquidated damages (in addition
to the rights and remedies available to each Purchaser under applicable law and
this Agreement), for the period from and including the first day following the
expiration of the Cure Period until, but excluding, the earlier of (A) the date
on which such failure is cured and (B) the date on which the Registration Period
expires, at a rate equal to one percent per month (pro rata on a 30-day basis)
of the total purchase price of the Purchased Securities purchased by such
Purchaser that are held by such Purchaser at the time of such lapse pursuant to
this Agreement up to a maximum, together with all payments made by the Company
to such Purchaser pursuant to this Section 5(b), of 10% of the total purchase
price of the Purchased Securities purchased by such Purchaser. Such liquidated
damages shall be payable within ten days of the end of each one month
anniversary of the expiration of the Cure Period.
(IV) If at any time prior to the date on which the
Registration Statement has been declared effective the Company enters into an
agreement to issue equity securities to an investor that, in the reasonable,
good faith determination of the Company is a strategic investor, at a price per
share of Common Stock or Preferred Stock in excess of the Per Unit Price (as
adjusted for stock splits, stock combinations, and the like), the Company will
be granted a 30-day extension of the timeframes set forth in Sections 5(b)(i)
and 5(b)(ii) above, and no liquidated damages shall accrue during such 30-day
period.
-15-
(C) TRANSFER OF REGISTRABLE SHARES AFTER REGISTRATION; SUSPENSION.
(I) The Purchasers agree that they will not offer to sell or
make any sale, assignment, pledge, hypothecation or other transfer with respect
to the Registrable Shares that would constitute a sale within the meaning of the
Securities Act except pursuant to either (A) the Registration Statement, (B)
Rule 144 of the Securities Act or another 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. and that they will promptly
notify the Company of any changes in the information set forth in the
Registration Statement after it is prepared regarding the Purchaser or its plan
of distribution to the extent required by applicable law.
(II) In addition to any suspension rights under paragraph
(iii) below, upon the happening of any pending corporate development, public
filing with the SEC or similar event, that, in the judgment of Company's Board
of Directors, renders it advisable to suspend use of the Prospectus or upon the
request by an underwriter in connection with an underwritten public offering of
the Company's securities, the Company may, on not more than two occasions for
not more than 45 days on each such occasion, suspend use of the Prospectus, on
written notice to each Purchaser (which notice will not disclose the content of
any material non-public information and will indicate the date of the beginning
and end of the intended period of suspension, if known), in which case each
Purchaser shall discontinue disposition of Registrable Shares covered by the
Registration Statement or Prospectus until copies of a supplemented or amended
Prospectus are distributed to the Purchasers or until the Purchasers are advised
in writing by the Company that sales of Registrable Shares under the applicable
Prospectus may be resumed and have received copies of any additional or
supplemental filings that are incorporated or deemed incorporated by reference
in any such Prospectus. The suspension and notice thereof described in this
Section 5(c)(ii) shall be held in strictest confidence and shall not be
disclosed by the Purchasers.
(III) Subject to paragraph (iv) below, in the event of: (A)
any request by the SEC or any other federal or state governmental authority
during the period of effectiveness of the Registration Statement for amendments
or supplements to a Registration Statement or related prospectus or for
additional information; (B) the issuance by the SEC or any other federal or
state governmental authority of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that purpose;
(C) the receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the
Registrable Shares for sale in any jurisdiction or the initiation of any
proceeding for such purpose; or (D) any event or circumstance that necessitates
the making of any changes in the Registration Statement or Prospectus, or any
document incorporated or deemed to be incorporated therein by reference, so
that, in the case of the Registration Statement, it will not contain any untrue
statement of a material fact or any omission to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and that in the case of the Prospectus, it will not contain any untrue statement
of a material fact or any omission to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, then the Company shall
deliver a certificate in writing to the Purchasers (the "SUSPENSION NOTICE") to
the effect of the foregoing (which notice will not disclose the content of any
material non-public information and will indicate the date of the beginning and
end of the intended period of suspension, if known), and, upon receipt of such
Suspension Notice, the Purchasers will discontinue disposition of Registrable
Shares covered by to the Registration Statement or Prospectus (a "SUSPENSION")
until the Purchasers' receipt of copies of a supplemented or amended Prospectus
prepared and filed by the Company, or until the Purchasers are advised in
writing by the Company that the current Prospectus may be used, and have
received copies of any additional or supplemental filings that are incorporated
or deemed incorporated by reference in any such prospectus. In the event of any
Suspension, the Company will use its reasonable best efforts to cause the use of
the Prospectus so suspended to be resumed as soon as possible after delivery of
a Suspension Notice to the Purchasers.
-16-
(IV) Provided that a Suspension is not then in effect, the
Purchasers may sell Registrable Shares under the Registration Statement,
provided that the selling Purchaser arranges for delivery of a current
Prospectus to the transferee of such Registrable Shares to the extent such
delivery is required by applicable law.
(V) In the event of a sale of Registrable Shares by a
Purchaser, such Purchaser must also deliver to the Company's transfer agent,
with a copy to the Company, a certificate of subsequent sale reasonably
satisfactory to the Company, so that ownership of the Registrable Shares may be
properly transferred. The Company will cooperate to facilitate the timely
preparation and delivery of certificates (unless otherwise required by
applicable law) representing Registrable Shares sold.
(D) INDEMNIFICATION. For the purpose of this Section 5(d), the term
"REGISTRATION STATEMENT" shall include any preliminary or final Prospectus,
exhibit, supplement or amendment included in or relating to the Registration
Statement referred to in Section 5(a).
(I) INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless each of the Purchasers and each person, if any, who
controls any Purchaser within the meaning of the Securities Act, to the fullest
extent permitted by law, against any and all losses, claims, damages,
liabilities or expenses, joint or several, to which such Purchasers or such
controlling person may become subject, under the Securities Act, the Exchange
Act or any other federal or state statutory law or regulation, or at common law
or otherwise (including in settlement of any litigation, if such settlement is
effected with the written consent of the Company, which consent shall not be
unreasonably withheld), insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof as contemplated below) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, the Prospectus, or any amendment
or supplement thereto, or arise out of or are based upon the omission or alleged
omission to state in any of them a material fact required to be stated therein
or necessary to make the statements in any of them, in light of the
circumstances under which they were made, not misleading, and will reimburse
each Purchaser and each such controlling person for any reasonable legal and
other expenses as such reasonable expenses are incurred by such Purchaser or
such controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action; provided, however, that the Company will not be liable in any such case
to the extent that any such loss, claim, damage, liability, expense or action
arises out of or is based upon (A) an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement,
the Prospectus or any amendment to or supplement of the Registration Statement
or Prospectus made in reliance upon and in conformity with written information
furnished to the Company by or on behalf of the Purchaser expressly for use in
the Registration Statement or the Prospectus, (B) the failure of such Purchaser
to comply with the covenants and agreements contained in this Agreement
respecting resale of the Purchased Shares or the sale of the Underlying Shares
or (C) any untrue statement or omission of a material fact required to make such
statement not misleading in any Prospectus that is corrected in any subsequent
Prospectus that was delivered to the Purchaser before the pertinent sale or
sales by the Purchaser.
-17-
(II) INDEMNIFICATION BY THE PURCHASER. Each Purchaser will
severally and not jointly indemnify and hold harmless the Company, each of its
directors, each of its officers who signed the Registration Statement and each
person, if any, who controls the Company within the meaning of the Securities
Act, against any losses, claims, damages, liabilities or expenses to which the
Company, its directors, its officers who signed the Registration Statement and
any controlling persons may become subject, under the Securities Act, the
Exchange Act, or any other federal or state statutory law or regulation, or at
common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Purchaser, which consent
shall not be unreasonably withheld) insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof as contemplated below)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, the Prospectus, or
any amendment or supplement to the Registration Statement or Prospectus, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in the Registration Statement, the Prospectus, or any
amendment or supplement thereto, in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such Purchaser expressly
for use therein, and the Purchaser will reimburse the Company, each of its
directors, each of its officers who signed the Registration Statement, and any
controlling persons for any reasonable legal and other expense incurred by the
Company, its directors, its officers who signed the Registration Statement, and
any controlling persons, in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action; provided, however, that the Purchaser shall not be liable for any such
untrue statement or alleged untrue statement or omission or alleged omission
with respect to which the Purchaser has delivered to the Company in writing a
correction before the occurrence of the event from which such loss was incurred.
Notwithstanding the provisions of this Section 5(d), the Purchaser shall not be
liable for any indemnification obligation under this Agreement in excess of the
aggregate amount of net proceeds received by the Purchaser from the sale of the
Registrable Shares pursuant to the Registration Statement.
-18-
(III) INDEMNIFICATION PROCEDURE.
(A) Promptly after receipt by an indemnified party under this
Section 5(d) of notice of the threat or commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party under this Section 5(d), promptly notify the indemnifying
party in writing of the claim; but the omission so to notify the indemnifying
party will not relieve it from any liability that it may have to any indemnified
party for contribution or otherwise under the indemnity agreement contained in
this Section 5(d) or otherwise, to the extent it is not prejudiced as a result
of such failure.
(B) In case any such action is brought against any indemnified party
and such indemnified party seeks or intends to seek indemnity from an
indemnifying party, the indemnifying party will be entitled to participate in,
and, to the extent that it may wish, jointly with all other indemnifying parties
similarly notified, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party; provided, however, if the defendants in
any such action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that there may be a
conflict between the positions of the indemnifying party and the indemnified
party in conducting the defense of any such action or that there may be legal
defenses available to it or other indemnified parties that are different from or
additional to those available to the indemnifying party, the indemnified party
or parties shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on behalf of
such indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of its election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying party
will not be liable to such indemnified party under this Section 5(d) for any
legal or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof unless:
(I) the indemnified party shall have employed such counsel in
connection with the assumption of legal defenses in accordance with the proviso
to the preceding sentence (it being understood, however, that the indemnifying
party shall not be liable for the expenses of more than one separate counsel,
approved by such indemnifying party, representing all of the indemnified parties
who are parties to such action); or
(II) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after notice of commencement of the action
against the indemnified party,
in each of which cases the reasonable fees and expenses of counsel for the
indemnified party shall be at the expense of the indemnifying party.
(IV) CONTRIBUTION. If the indemnification provided for in this
Section 5(d) is required by its terms but is for any reason held to be
unavailable to, or is otherwise insufficient to hold harmless, an indemnified
party under this Section 5(d) with respect to any losses, claims, damages,
liabilities or expenses referred to in this Agreement, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of any losses, claims, damages, liabilities or expenses referred to
in this Agreement:
-19-
(A) in such proportion as is appropriate to reflect the relative
faults of the Company and the Purchaser in connection with the statements or
omissions or inaccuracies in the representations and warranties in this
Agreement that resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations, or
(B) if the allocation provided by clause (A) above is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative faults referred to in clause (A) above but the relative benefits
received by the Company and the Purchaser from the sale of the Purchased
Securities.
The respective relative benefits received by the Company on the one hand
and each Purchaser on the other shall be deemed to be in the same proportion as
the amount to which the consideration paid by such Purchaser to the Company
pursuant to this Agreement for the Purchased Securities purchased by such
Purchaser that were sold pursuant to the Registration Statement bears to the
difference (the "DIFFERENCE") between the amount such Purchaser paid for the
Purchased Securities that were sold pursuant to the Registration Statement and
the amount received by such Purchaser from such sale. The relative fault of the
Company and each Purchaser shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact or the inaccurate or the
alleged inaccurate material fact relates to information supplied by the Company
or by such Purchaser and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in Section 5(d)(iii), any reasonable legal
or other fees or expenses incurred by such party in connection with
investigating or defending any such action or claim. The provisions set forth in
Section 5(d)(iii) with respect to the notice of the threat or commencement of
any threat or action shall apply if a claim for contribution is to be made under
this Section 5(d)(iv); provided, however, that no additional notice shall be
required with respect to any threat or action for which notice has been given
under Section 5(d)(iii) for purposes of indemnification. The Company and each
Purchaser agree that it would not be just and equitable if contribution pursuant
to this Section 5(d)(iv) were determined solely by pro rata allocation (even if
the Purchasers were treated as one entity for such purpose) or by any other
method of allocation that does not take account of the equitable considerations
referred to in this paragraph. Notwithstanding the provisions of this Section
5(d)(iv), no Purchaser shall be required to contribute any amount in excess of
the amount by which the Difference exceeds the amount of any damages that such
Purchaser has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. The Purchasers' obligations to contribute pursuant
to this Section 5(d)(iv) are several and not joint.
(E) RULE 144 INFORMATION. For two years after the date of this
Agreement, the Company shall file in a timely manner all reports required to be
filed by it under the Securities Act and the Exchange Act and the rules and
regulations promulgated thereunder and shall take such further action to the
extent required to enable the Purchasers to sell the Purchased Shares and the
Underlying Shares pursuant to Rule 144 under the Securities Act (as such rule
may be amended from time to time).
-20-
6. ADVISORY FEE. The Purchasers acknowledge that the Company intends to
pay to Savvian LLC, Burnham Hill Partners, a division of Pali Capital, Inc.
("Burnham Hill") and Brimberg & Co. ("Brimberg") financial advisors, a fee in
respect of the sale of the Purchased Securities. Each of the parties to this
Agreement hereby represents that, on the basis of any actions and agreements by
it, there are no other brokers or finders entitled to compensation in connection
with the sale of the Purchased Securities to the Purchasers. The Company shall
indemnify and hold harmless the Purchasers from and against all fees,
commissions or other payments owing by the Company to Savvian LLC, Burnham Hill
and Brimberg or any other person or firm acting on behalf of the Company
hereunder.
7. CONDITIONS TO THE PURCHASER'S OBLIGATIONS AT THE CLOSING. The
obligations of the Purchasers under Section 1(b) of this Agreement are subject
to the fulfillment or waiver, on or before the Closing, of each of the following
conditions:
(A) REPRESENTATIONS AND WARRANTIES TRUE. Each of the representations
and warranties of the Company contained in Section 3 shall be true and correct
in all material respects on and as of the date hereof (provided, however, that
such materiality qualification shall only apply to representations or warranties
not otherwise qualified by materiality) and on and as of the date of the Closing
with the same effect as though such representations and warranties had been made
as of the Closing; provided, however, that if a representation and warranty is
made as of a specific date, it shall be true and correct in all material
respects only as of such date.
(B) PERFORMANCE. The Company shall have performed and complied in
all material respects with all agreements, obligations and conditions contained
in this Agreement that are required to be performed or complied with by it on or
before the Closing and shall have obtained all approvals, consents and
qualifications necessary to complete the purchase and sale described herein;
provided, however, that the Company may furnish to each Purchaser a facsimile
copy of the warrant representing the Purchased Warrants and the stock
certificate representing the Purchased Shares, with the original warrant and
stock certificate held in trust by counsel for the Company until delivery
thereof on the next business day.
(C) COMPLIANCE CERTIFICATE. The Company will have delivered to the
Purchasers a certificate signed on its behalf by its Chief Executive Officer or
Chief Financial Officer certifying that the conditions specified in Sections
7(a) and 7(b) hereof have been fulfilled.
(D) AGREEMENT. The Company shall have executed and delivered to the
Purchasers this Agreement.
(E) SECURITIES EXEMPTIONS. The offer and sale of the Purchased
Securities to the Purchasers pursuant to this Agreement shall be exempt from the
registration requirements of the Securities Act and the registration and/or
qualification requirements of all applicable state securities laws.
-21-
(F) NO SUSPENSION OF TRADING OR LISTING OF COMMON STOCK. The Common
Stock of the Company (i) shall be designated for quotation or listed on the
OTCBB and (ii) shall not have been suspended from trading on the OTCBB.
(G) GOOD STANDING CERTIFICATES. The Company shall have delivered to
the Purchasers a certificate of the Secretary of State of the State of Delaware,
dated as of a date within ten days of the date of the Closing, with respect to
the good standing of the Company.
(H) SECRETARY'S CERTIFICATE. The Company shall have delivered to the
Purchasers a certificate of the Company executed by the Company's Secretary
attaching and certifying to the truth and correctness of (i) the Certificate of
Incorporation, (ii) the Bylaws and (iii) the resolutions adopted by the
Company's Board of Directors in connection with the transactions contemplated by
this Agreement.
(I) OPINION OF COMPANY COUNSEL. The Purchasers will have received an
opinion on behalf of the Company, dated as of the date of the Closing, from
Sichenzia Ross Friedman Ference LLP, counsel to the Company, in the form
attached as EXHIBIT C.
(J) NO STATUTE OR RULE CHALLENGING TRANSACTION. No statute, rule,
regulation, executive order, decree, ruling, injunction, action, proceeding or
interpretation shall have been enacted, entered, promulgated, endorsed or
adopted by any court or governmental authority of competent jurisdiction or any
self-regulatory organization or the staff of any of the foregoing, having
authority over the matters contemplated hereby that questions the validity of,
or challenges or prohibits the consummation of, any of the transactions
contemplated by this Agreement.
(K) OTHER ACTIONS. The Company shall have executed such
certificates, agreements, instruments and other documents, and taken such other
actions as shall be customary or reasonably requested by the Purchasers in
connection with the transactions contemplated hereby.
8. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT THE CLOSING. The obligations
of the Company to the Purchasers under this Agreement are subject to the
fulfillment or waiver, on or before the Closing, of each of the following
conditions:
(A) REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of the Purchasers contained in Section 4 shall be true and correct in
all material respects on and as of the date hereof (provided, however, that such
materiality qualification shall only apply to representations and warranties not
otherwise qualified by materiality) and on and as of the date of the Closing
with the same effect as though such representations and warranties had been made
as of the Closing.
(B) PERFORMANCE. The Purchasers shall have performed and complied in
all material respects with all agreements, obligations and conditions contained
in this Agreement that are required to be performed or complied with by it on or
before the Closing and shall have obtained all approvals, consents and
qualifications necessary to complete the purchase and sale described herein.
-22-
(C) AGREEMENT. The Purchasers shall have executed and delivered to
the Company this Agreement (and Appendix I and Appendix II hereto).
(D) SECURITIES EXEMPTIONS. The offer and sale of the Purchased
Securities to the Purchasers pursuant to this Agreement shall be exempt from the
registration requirements of the Securities Act and the registration and/or
qualification requirements of all applicable state securities laws.
(E) PAYMENT OF PURCHASE PRICE. The Purchasers shall have delivered
to the Company by wire transfer of immediately available funds, full payment of
the purchase price for the Purchased Securities as specified in Section 1(b).
(F) OTHER ACTIONS. The Purchasers shall have executed such
certificates, agreements, instruments and other documents, and taken such other
actions as shall be customary or reasonably requested by the Company in
connection with the transactions contemplated hereby.
(G) NO STATUTE OR RULE CHALLENGING TRANSACTION. No statute, rule,
regulation, executive order, decree, ruling, injunction, action, proceeding or
interpretation shall have been enacted, entered, promulgated, endorsed or
adopted by any court or governmental authority of competent jurisdiction or any
self-regulatory organization or the staff of any of the foregoing, having
authority over the matters contemplated hereby that questions the validity of,
or challenges or prohibits the consummation of, any of the transactions
contemplated by this Agreement.
9. MISCELLANEOUS.
(A) SUCCESSORS AND ASSIGNS. The terms and conditions of this
Agreement will inure to the benefit of and be binding upon the respective
successors and permitted assigns of the parties. The Company shall not assign
this Agreement or any rights or obligations hereunder without the prior written
consent of the Purchasers holding a majority of the total aggregate number of
Purchased Shares and Underlying Shares then outstanding (excluding any shares
sold to the public pursuant to Rule 144 or otherwise). Any Purchaser may assign
its rights under this Agreement to any person to whom the Purchaser assigns or
transfers any Purchased Securities, provided that such transferee agrees in
writing to be bound by the terms and provisions of this Agreement, and such
transfer is in compliance with the terms and provisions of this Agreement and
permitted by federal and state securities laws.
(B) GOVERNING LAW. This Agreement will be governed by and construed
and enforced under the internal laws of the State of New York, without reference
to principles of conflict of laws or choice of laws. EACH PARTY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY
TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR
ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
-23-
(C) SURVIVAL. The representations and warranties of the Company and
the Purchasers contained in Sections 3 and 4 of this Agreement shall survive
until the second anniversary of the Closing Date.
(D) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
(E) HEADINGS. The headings and captions used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement. All references in this Agreement to sections,
paragraphs, exhibits and schedules will, unless otherwise provided, refer to
sections and paragraphs hereof and exhibits and schedules attached hereto, all
of which exhibits and schedules are incorporated herein by reference.
(F) NOTICES. Any notices and other communications required or
permitted under this Agreement shall be in writing and shall be delivered (i)
personally by hand or by courier, (ii) mailed by United States first-class mail,
postage prepaid or (iii) sent by facsimile directed (A) if to a Purchaser, at
such Purchaser's address or facsimile number set forth on such Purchaser's
signature page to this Agreement, or at such address or facsimile number as such
Purchaser may designate by giving at least ten days' advance written notice to
the Company or (B) if to the Company, to its address or facsimile number set
forth below, or at such other address or facsimile number as the Company may
designate by giving at least ten days' advance written notice to the Purchaser.
All such notices and other communications shall be deemed given upon (I) receipt
or refusal of receipt, if delivered personally, (II) three days after being
placed in the mail, if mailed, or (III) confirmation of facsimile transfer, if
faxed.
The address of the Company for the purpose of this Section 9(f) is as
follows:
ROO Group, Inc.
228 East 45th Street, 8th Floor
New York, NY 10017
Tel: (646) 352-0260
Fax: (646) 619-4074
Attention: Robert Petty
with a copy to:
Sichenzia Ross Friedman Ference LLP
1065 Avenue of the Americas
New York, NY 10018
Tel: (212) 930-9700
Fax: (212) 930-9725
Attention: Richard A. Friedman, Esq.
-24-
(G) AMENDMENTS AND WAIVERS. This Agreement may be amended and the
observance of any term of this Agreement may be waived only with the written
consent of the Company and the Purchasers holding a majority of the total
aggregate number of Purchased Shares and Underlying Shares then outstanding
(excluding any shares sold to the public pursuant to Rule 144 or otherwise). Any
amendment effected in accordance with this Section 9(g) will be binding upon the
Purchasers, the Company and their respective successors and permitted assigns.
(H) SEVERABILITY. If any provision of this Agreement is held to be
unenforceable under applicable law, such provision will be excluded from this
Agreement and the balance of the Agreement will be interpreted as if such
provision were so excluded and will be enforceable in accordance with its terms.
(I) ENTIRE AGREEMENT. This Agreement, together with all exhibits and
schedules hereto and thereto constitutes the entire agreement and understanding
of the parties with respect to the subject matter hereof and supersedes any and
all prior negotiations, correspondence, agreements, understandings, duties or
obligations between the parties with respect to the subject matter hereof.
(J) FURTHER ASSURANCES. From and after the date of this Agreement,
upon the request of the Company or the Purchasers, the Company and the
Purchasers will execute and deliver such instruments, documents or other
writings, and take such other actions, as may be reasonably necessary or
desirable to confirm and carry out and to effectuate fully the intent and
purposes of this Agreement.
(K) MEANING OF INCLUDE AND INCLUDING. Whenever in this Agreement the
word "include" or "including" is used, it shall be deemed to mean "include,
without limitation" or "including, without limitation," as the case may be, and
the language following "include" or "including" shall not be deemed to set forth
an exhaustive list.
(L) FEES, COSTS AND EXPENSES. All fees, costs and expenses
(including attorneys' fees and expenses) incurred by any party hereto in
connection with the preparation, negotiation and execution of this Agreement and
the exhibits and schedules hereto and the consummation of the transactions
contemplated hereby and thereby shall be the sole and exclusive responsibility
of such party; provided that the Company will pay the costs associated with any
filings with, or compliance with any of the requirements of any governmental
authorities.
(M) 8-K FILING AND PUBLICITY. As soon as practicable following the
execution of this Agreement but in no event later than 8:30 a.m. EST on the day
following the execution of this Agreement, the Company shall file a Current
Report on Form 8-K with the SEC describing the material terms of the
transactions contemplated by this Agreement and attaching this Agreement and the
press release referred to below as exhibits to such filing (the "8-K FILING"
including all attachments). Neither the Company nor any Purchaser shall issue
any press releases or any other public statements with respect to the
transactions contemplated by this Agreement; provided, however, that the Company
shall be entitled, without the prior approval of any Purchaser, to issue any
press release or make any other public disclosure (including a press release
(concerning the offering of the Purchased Securities) pursuant to Rule 135(c)
under the Securities Act) with respect to such transactions (i) in substantial
conformity with the 8-K Filing and (ii) as is required by applicable law and
regulations; and, provided further, that no such release may identify a
Purchaser unless such Purchaser has consented thereto in writing, or as required
by law.
-25-
(N) STOCK SPLITS, DIVIDENDS AND OTHER SIMILAR EVENTS. The provisions
of this Agreement shall be appropriately adjusted to reflect any stock split,
stock dividend, reorganization or other similar event that may occur with
respect to the Company after the date hereof.
(O) REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each Purchaser
and the Company will be entitled to specific performance under this Agreement.
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.
[Remainder of page intentionally left blank.]
* * *
-26-
The parties hereto have executed this Agreement as of the date and year
first above written.
ROO GROUP, INC.
By:
----------------------------
Robert Petty
Chief Executive Officer
[PURCHASER SIGNATURE PAGES TO FOLLOW]
SIGNATURE PAGE TO
SECURITIES PURCHASE AGREEMENT
DATED AS OF AUGUST ___, 2006
BY AND AMONG
ROO GROUP, INC.
AND EACH PURCHASER NAMED THEREIN
The undersigned hereby executes and delivers to Roo Group, Inc., the
Securities Purchase Agreement (the "AGREEMENT") to which this signature page is
attached, which Agreement and signature page, together with all counterparts of
such Agreement and signature pages of the other Purchasers named in such
Agreement, shall constitute one and the same document in accordance with the
terms of such Agreement.
Number of Units: __________
NAME OF PURCHASER
Signature:
---------------------------
By:
----------------------------------
Title:
-------------------------------
Address:
-----------------------------
-----------------------------
-----------------------------
Telephone:
-----------------------------
Fax:
---------------------------------
Tax ID Number:
-----------------------
EXHIBIT A
SCHEDULE OF PURCHASERS
Number of Purchased
Number of Purchased
Purchaser Name Shares Warrants Purchase Price
- -------------- --------- -------------------- --------------
TOTALS:
EXHIBIT B
FORM OF WARRANT
EXHIBIT C
DISCLOSURE LETTER
EXHIBIT D
OPINION OF COMPANY COUNSEL
APPENDIX I
STOCK CERTIFICATE QUESTIONNAIRE
Please provide us with the following information:
1. The exact name that the Securities are to be registered
in (this is the name that will appear on the stock
certificate(s)). You may use a nominee name if
appropriate: ----------------
2. The relationship between the Purchaser of the Securities
and the Registered Holder listed in response to item 1
above: ----------------
3. The mailing address of the Registered Holder listed in ----------------
response to item 1 above: ----------------
----------------
----------------
----------------
4. The Tax Identification Number of the Registered Holder
listed in response to item 1 above: ----------------
APPENDIX II
REGISTRATION STATEMENT QUESTIONNAIRE
In connection with the preparation of the Registration Statement, please
provide us with the following information regarding the Purchaser.
A. GENERAL INFORMATION
1. Please state your organization's name exactly as it should appear in
the Registration Statement:
2. Have you or your organization had any position, office or other
material relationship within the past three years with the Company or its
affiliates other than as disclosed in the Prospectus included in the
Registration Statement?
|_| Yes |_| No
If yes, please indicate the nature of any such relationships below:
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B. SECURITIES HOLDINGS
Please fill in all blanks in the following questions related to your
BENEFICIAL OWNERSHIP of the Company's capital stock. Generally, the term
"BENEFICIAL OWNERSHIP" refers to any direct or indirect interest in the
securities which entitles you to any of the rights or benefits of ownership,
even though you may not be the holder of record of the securities. For example,
securities held in "street name" over which you exercise voting or investment
power would be considered BENEFICIALLY OWNED by you. Other examples of indirect
ownership include ownership by a partnership in which you are a partner or by an
estate or trust of which you or any member of your IMMEDIATE FAMILY is a
beneficiary. Ownership of securities held in the names of your spouse, minor
children or other relatives who live in the same household may be attributed to
you.
================================================================================
PLEASE NOTE: IF YOU HAVE ANY REASON TO BELIEVE THAT ANY INTEREST IN
SECURITIES OF THE COMPANY WHICH YOU MAY HAVE, HOWEVER REMOTE, IS A BENEFICIAL
INTEREST, PLEASE DESCRIBE SUCH INTEREST. FOR PURPOSES OF RESPONDING TO THIS
QUESTIONNAIRE, IT IS PREFERABLE TO ERR ON THE SIDE OF INCLUSION RATHER THAN
EXCLUSION. WHERE THE SEC'S INTERPRETATION OF BENEFICIAL OWNERSHIP WOULD REQUIRE
DISCLOSURE OF YOUR INTEREST OR POSSIBLE INTEREST IN CERTAIN SECURITIES OF THE
COMPANY, AND YOU BELIEVE THAT YOU DO NOT ACTUALLY POSSESS THE ATTRIBUTES OF
BENEFICIAL OWNERSHIP, AN APPROPRIATE RESPONSE IS TO DISCLOSE THE INTEREST AND AT
THE SAME TIME DISCLAIM BENEFICIAL OWNERSHIP OF THE SECURITIES.
================================================================================
1. As of AUGUST 9, 2006, I owned outright (including shares registered in
my name individually or jointly with others, shares held in the name of a bank,
broker, nominee, depository or in "street name" for my account), the following
number of shares of the Company's capital stock: _________________.
2. In addition to the number of shares I own outright as indicated by my
answer to question B(1), as of AUGUST 9, 2006, I had or shared voting power or
investment power, directly or indirectly, through a contract, arrangement,
understanding, relationship or otherwise, over the following number of shares of
the Company's capital stock: _________________.
If the answer to this question B(2) was not "zero," please complete the
following: with whom shared; and the nature of the relationship and any
underlying voting trust agreement, investment arrangement or the like:
SHARED VOTING POWER:
================================================================================
NUMBER OF SHARES WITH WHOM SHARED NATURE OF RELATIONSHIP
================================================================================
================================================================================
SHARED INVESTMENT POWER:
================================================================================
NUMBER OF SHARES WITH WHOM SHARED NATURE OF RELATIONSHIP
================================================================================
================================================================================
As of OCTOBER 8, 2006, I will have the right to acquire ________ shares of
the Company's capital stock pursuant to outstanding stock options issued under
the Company's stock option plans and ______ shares pursuant to the exercise of
outstanding warrants (none, indicated by "0" above).
================================================================================
OPTIONS AND WARRANTS
CLASS NUMBER OF SHARES
================================================================================
================================================================================
(4) Please identify the natural person or persons who have voting and/or
investment control over the Company's securities that you own, and state whether
such person(s) disclaims beneficial ownership of the securities. For example, if
you are a general partnership, please identify the general partners in the
partnership.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
C. NASD QUESTIONS
1. Are you (i) a "member"(1) of the National Association of Securities
Dealers, Inc. (the "NASD"), (ii) an "affiliate"(2) of a member of the NASD,
(iii) a "person associated with a member" or an "associated person of a
member"(3) of the NASD or (iv) an immediate family member(4) of any of the
foregoing persons? IF yes, please identify the member and describe such
relationship (whether direct or indirect), and please respond to Question Number
2 below; IF NO, please proceed directly to Question Number 3.
(1) NASD defines a "member" as any broker or dealer admitted to membership
in the NASD, or any officer or partner or branch manager of such a member, or
any person occupying a similar status or performing a similar function for such
a member.
(2) The term "affiliate" means a person that directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is in common
control with, the person specified. Persons who have acted or are acting on
behalf of or for the benefit of a person include, but are not necessarily
limited to, directors, officers, employees, agents, consultants and sales
representatives. The following should apply for purposes of the foregoing:
(i) a person should be presumed to control a Member if the person
beneficially owns 10 percent or more the outstanding voting securities of a
Member which is a corporation, or beneficially owns a partnership interest in 10
percent or more of the distributable profits or losses of a Member which is a
partnership;
(ii) a Member should be presumed to control a person if the Member and
Persons Associated With a Member beneficially own 10 percent or more of the
outstanding voting securities of a person which is a corporation, or
beneficially own a partnership interest in 10 percent or more of the
distributable profits or losses of a person which is a partnership;
(iii) a person should be presumed to be under common control with a
Member if:
(1) the same person controls both the Member and another
person by beneficially owning 10 percent or more of the outstanding
voting securities of a Member or person which is a corporation, or by
beneficially owning a partnership interest in 10 percent or more of the
distributable profits or losses of a Member or person which is a
partnership; or
(2) a person having the power to direct or cause the direction
of the management or policies of the Member or such person also has the
power to direct or cause the direction of the management or policies of
the other entity in question.
(3) The NASD defines a "person associated with a member" or an "associated
person of a member" as being every sole proprietor, partner, equity owner,
officer, director or branch manager of any member, or any natural person
occupying a similar status or performing similar functions, or any natural
person engaged in the investment banking or securities business who directly or
indirectly controls or is controlled by such member (for example, any employee),
whether or not any such person is registered or exempt from registration with
the NASD.
(4) Immediate family includes parents, mother-in-law, father-in-law, husband
or wife, brother or sister, brother-in-law or sister-in-law, son-in-law or
daughter-in-law, and children, or any other person who is supported, directly or
indirectly, to a material extent, by a person associated with a member of the
NASD or any other broker/dealer.
(5) The term "underwriter or related person" includes underwriters,
underwriters' counsel, financial consultants and advisors, finders, members of
the selling or distribution group, and any and all other persons associated with
or related to any of such persons, including members of the immediate family of
such persons.
Yes _____ No _____
Description:
2. If you answered "yes" to Question Number 1, please furnish any
information as to whether any such member intends to participate in any capacity
in the public offering, including the details of such participation:
Description:
3. Are you or have you been an "underwriter or related person"(5) or a
person associated with an underwriter or related person, including, without
limitation, with respect to the proposed public offering? If yes, please
identify the underwriter or related person and describe such relationship
(whether direct or indirect).
Yes _____ No _____
Description:
4. If known, please describe in detail any underwriting compensations,
arrangements or dealings entered into during the previous twelve months, or
proposed to be consummated in the next twelve months, between (i) any
underwriter or related person, member of the NASD, affiliate of a member of the
NASD, person associated with a member or associated person of a member of the
NASD or any immediate family member thereof, on the one hand, and (ii) the
Company, or any director, officer or shareholder thereof, on the other hand,
which provides for the receipt of any item of value and/or the transfer of any
warrants, options or other securities from the Company to any such person (other
than the information relating to the arrangements with any investment firm or
underwriting organization which may participate in the proposed public
offering).
Description:
5. Have you purchased the securities in the ordinary course of business?
Yes _____ No _____
The answers to the foregoing questions are correctly stated to the best of my
information and belief. I shall advise the Company's outside counsel promptly of
any changes in the foregoing information.
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(Print name of Selling Security Holder)
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(Signature)
By: ______________________________________________________
(Name and title of signatory, if stockholder is an entity)
----------------------------------------------------------
(Date)