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PLACEMENT
PURCHASE AGREEMENT
BY AND AMONG
GILMAN + CIOCIA, INC.
AND
THE PURCHASERS
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Dated: August 20, 2007
Table of Contents
Page
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1. Purchase and Sale of Offered Shares........................................1
2. Closing; Payment and Delivery..............................................1
3. Representations and Warranties of the Company..............................2
4. Representations and Warranties of the Purchasers..........................11
4.1 Authorization.....................................................11
4.2 Purchase Entirely for Own Account.................................12
4.3 General Solicitation..............................................12
4.4 Short Sales and Confidentiality...................................12
4.5 Disclosure of Information.........................................12
4.6 Restricted Securities.............................................12
4.7 Release of Funds..................................................13
4.8 Purchasers' Indemnification of the Company........................13
5. Conditions to the Purchasers' Obligations.................................13
5.1 Representations, Warranties, Covenants and Agreements.............13
5.2 Opinions of Counsel...............................................13
5.3 Good Standing Certificate.........................................13
5.4 Secretary's Certificate...........................................14
5.5 No Litigation.....................................................14
5.6 No Suspension of Trading..........................................14
5.7 No Adverse Market Actions.........................................14
5.8 Officer's Certificate.............................................14
5.9 Registration Rights Agreement.....................................14
5.10 Investor Purchase Agreement.......................................14
5.11 Shareholder Agreement.............................................14
5.12 Wachovia Approval.................................................14
5.13 MetLife Escrow Release............................................15
5.14 No Material Adverse Effect........................................15
5.15 Employment Agreements.............................................15
6. Conditions to the Company's Obligations...................................15
6.1 Consents..........................................................15
6.2 Investor Purchase Agreement.......................................15
6.3 Shareholder Agreement.............................................15
6.4 Registration Rights Agreement.....................................15
6.5 Investor Qualification Statement..................................15
7. Covenants and Agreements of the Parties...................................16
8. Indemnification...........................................................17
9. Miscellaneous.............................................................18
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Table of Contents
(continued)
Page
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9.1 Survival of Warranties............................................18
9.2 Successors and Assigns............................................18
9.3 Governing Law.....................................................18
9.4 Submission to Jurisdiction; Waiver of Jury Trial..................18
9.5 Counterparts......................................................18
9.6 Titles and Subtitles..............................................18
9.7 Notices...........................................................18
9.8 Certain Fees and Reimbursements...................................19
9.9 Amendments and Waivers............................................19
9.10 Severability......................................................19
9.11 Entire Agreement..................................................19
9.12 Publicity.........................................................20
9.13 Further Assurances................................................20
9.14 Independent Nature of Purchasers' Obligations and Rights..........20
9.15 Termination of Agreement..........................................20
ii
PLACEMENT
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (the "Agreement") is made as of the 20th day of
August 2007, by and among Gilman + Ciocia, Inc., a Delaware corporation
("Company"), and the investors listed on Schedule I (the "Schedule of
Purchasers") attached hereto ("Purchasers").
W I T N E S S E T H:
WHEREAS, pursuant to the provisions of this Agreement, the Company desires
to sell to the Purchasers, and the Purchasers desire to purchase from the
Company, 40,000,000 shares (the "Offered Shares") of the Company's common stock,
par value $.01 per share (the "Common Stock"), at a price of $.10 per Offered
Share; and
WHEREAS, the Company and each Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Section 4(2) of the Securities Act of 1933, as amended ("Securities Act"),
and Rule 506 of Regulation D ("Regulation D") as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act;
and
WHEREAS, the Purchasers and their permitted transferees will be entitled
to the benefits of a Registration Rights Agreement dated as of the Closing (as
defined herein) by and among the Company and the Purchasers (the "Registration
Rights Agreement"); and
NOW THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties do hereby
agree as follows:
1. Purchase and Sale of Offered Shares. On the basis of the
representations and warranties contained in this Agreement and subject to its
terms and conditions, the Purchasers hereby agree, severally and not jointly, to
purchase from the Company, and the Company hereby agrees to issue and sell to
the Purchasers, an aggregate of 40,000,000 Offered Shares, for an aggregate
purchase price per Purchaser equal to $.10 multiplied by the number of Offered
Shares purchased by such Purchaser (the "Purchase Price"), as set forth opposite
such Purchaser's name on the Schedule of Purchasers (the "Purchase").
2. Closing; Payment and Delivery.
(a) Unless this Agreement is terminated in accordance with Section
9.15 hereof, the closing of the Purchase (the "Closing") shall occur as soon as
is reasonably practicable after the date that the closing conditions set forth
in Sections 5 and 6 hereof are satisfied (or waived by the party entitled to
waive such condition), but in no event later than August 31, 2007, unless
extended by the Company (the "Closing Date") either (i) at the offices of Blank
Rome LLP, The Chrysler Building, 405 Lexington Avenue, 24th Floor, New York, New
York 10174 or such other location as the parties may mutually agree or (ii) by
mail.
(b) At the Closing, the Purchase Price shall be released to the
Company from the escrow account (the "Escrow Account") established pursuant to
the escrow agreement dated as of the date hereof by and among the Company and
the Purchasers (the "Escrow Agreement") against delivery of certificates
representing the Offered Shares subscribed to hereunder, with any transfer taxes
payable in connection with the transfer of the Offered Shares to the Purchasers
duly paid, registered in the names of the Purchasers as set forth on the
Schedule of Purchasers attached as Schedule I to this Agreement to the Company
on behalf of the Purchasers.
(c) Each Purchaser shall deliver the aggregate purchase price set
forth opposite such Purchaser's name on the Schedule of Purchasers to the Escrow
Account by either (i) delivery of a duly executed Debt Conversion Agreement in
substantially the form annexed hereto as Exhibit A (the "Debt Conversion
Agreement"), or (ii) wire transfer in United States dollars in immediately
available funds to the Escrow Account, or (iii) a combination of both of
subsections (i) and (ii).
(d) The Offered Shares delivered for the account of each Purchaser
shall be registered in such names and in such denominations as requested in
writing by such Purchaser not later than two full business days prior to the
Closing Date.
3. Representations and Warranties of the Company. The Company hereby makes
the following representations and warranties to each Purchaser as of the date
hereof and the Closing Date. Each of the representations and warranties are
qualified in their entirety by the information contained in the Disclosure
Schedules to the extent that it is reasonably apparent from the text of such
disclosed information that it relates to, or is an exception to, such
representation or warranty.
(a) As of their respective dates, each document filed by the Company
with the SEC pursuant to the Exchange Act of 1934, as amended, (the "Exchange
Act") or the Securities Act, as any of such documents may have been subsequently
amended by filings made by the Company with the SEC prior to the Closing Date
(the "SEC Documents"), complied in all material respects with the requirements
of the Exchange Act and the applicable rules and regulations of the SEC
thereunder and none of the SEC Documents contains, and on the Closing Date, none
of the SEC Documents will contain, any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(b) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, with full power
and authority, corporate and other to own or lease, as the case may be, and
operate its properties, whether tangible or intangible, and to conduct its
business as described in the SEC Documents and is duly qualified as a foreign
corporation to transact business and is in good standing in each jurisdiction in
which the conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to be so
qualified or be in good standing would not, individually or in the aggregate,
have (i) a material and adverse effect on the consummation of the transactions
contemplated by any Transaction Document or the enforceability of any
Transaction Document (as defined in Section 3(f)) against the Company, or (ii) a
material and adverse effect on the results of operations, assets, prospects,
business or condition of the Company and the Subsidiaries, taken as a whole,
(either of (i) or (ii), a "Material Adverse Effect").
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(c) The Company's subsidiaries are set forth in the Disclosure
Schedules (the "Subsidiaries"). Unless the context requires otherwise, all
references to the Company include the Subsidiaries. Each Subsidiary is an entity
duly incorporated or otherwise organized, validly existing and in good standing
under the laws of its state of incorporation or organization (as applicable) as
set forth in the Disclosure Schedules, with full power and authority, corporate
and other, to own or lease, as the case may be, and operate its properties,
whether tangible or intangible, and to conduct its business as currently
conducted. Each Subsidiary is duly qualified as a foreign corporation or other
entity to transact business and is in good standing in each jurisdiction in
which the conduct of its business or the ownership or leasing of property
requires such qualification, except to the extent that the failure to be so
qualified or be in good standing could not reasonably be expected to have a
Material Adverse Effect. The Company owns all of the issued and outstanding
shares of capital stock (or other equity or ownership interests) of each
Subsidiary, such ownership is free and clear of any security interests, liens,
encumbrances, claims, charges, pre-emptive rights and any similar rights of
third parties, all of such shares have been duly authorized and validly issued,
fully paid and non-assessable, and all of such shares were issued in compliance
with applicable state and federal securities law.
(d) The Company does not presently own, directly or indirectly, an
interest in any corporation, association, or other business entity, and is not a
party to any joint venture, partnership, or similar arrangement, other than the
Subsidiaries.
(e) Set forth in the Disclosure Schedules is (i) the authorized
capital stock of the Company, (ii) the number of shares of capital stock issued
and outstanding, (iii) the number of shares of capital stock issuable pursuant
to the Company's stock plans; and (iv) the number of shares of capital stock
issuable and reserved for issuance pursuant to securities exercisable for, or
convertible into or exchangeable for any shares of capital stock of the Company.
The Company has not issued any capital stock since its most recently filed
periodic report under the Exchange Act, other than pursuant to the exercise of
employee stock options under the Company's stock option plans, the issuance of
shares of Common Stock to employees pursuant to the Company's employee stock
option plan and pursuant to the conversion or exercise of any outstanding
securities of the Company or the Subsidiaries which would entitle the holder
thereof to acquire at any time Common Stock, including, without limitation, any
debt, preferred stock, rights, options, warrants or other instrument that is at
any time convertible into or exercisable or exchangeable for, or otherwise
entitles the holder thereof to receive, Common Stock ("Common Stock
Equivalents"). No Person has any right of first refusal, preemptive right, right
of participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents. Except as set forth in the Disclosure
Schedules, there are no outstanding options, warrants, script rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exercisable or
exchangeable for, or giving any person any right to subscribe for or acquire,
any shares of Common Stock, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of any capital stock of any of the Subsidiaries, any
Common Stock or any Common Stock Equivalents. The issuance and sale of the
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Offered Shares will not obligate the Company to issue shares of Common Stock or
other securities to any Person (other than the Purchasers) and will not result
in a right of any holder of Company securities to adjust the exercise,
conversion, exchange or reset price under such securities. All of the
outstanding shares of capital stock of the Company are validly issued, fully
paid and non-assessable, have been issued in compliance with all federal and
state securities laws, and none of such outstanding shares was issued in
violation of any preemptive rights, similar rights to subscribe for or purchase
securities or any rights of third parties. No further approval or authorization
of any stockholder, the Board of Directors of the Company or others is required
for the issuance and sale of the Offered Shares. Except for the Shareholder
Agreement (as defined in Section 5.11), there are no stockholders agreements,
voting agreements or other agreements with respect to any of the Company's
securities to which the Company is a party or, to the knowledge of the Company,
between or among any of the Company's securityholders.
(f) Each of this Agreement, the Escrow Agreement, the Registration
Rights Agreement and the Shareholder Agreement (the "Transaction Documents") has
been duly authorized, executed and delivered by, and is a valid and binding
agreement of, the Company enforceable in accordance with its terms, subject to
applicable bankruptcy, reorganization, insolvency, moratorium and similar laws
affecting creditors' rights generally (including, without limitation, statutory
or other laws regarding fraudulent preferential transfers) and equitable
principles of general applicability and except as rights to indemnification and
contribution under the Registration Rights Agreement may be limited under
applicable law and by public policy.
(g) The execution and delivery by the Company, and the performance
by the Company of its obligations under the Transaction Documents will not
conflict with or contravene in any material respect, cause a breach or violation
of or default under, any provision of applicable law or the certificate of
incorporation or by-laws of the Company or any agreement or other instrument
binding upon the Company or any Subsidiary that is material to the Company and
the Subsidiaries, taken as a whole, for which a waiver or consent has not been
obtained, or any judgment, order or decree of any governmental body, agency or
court having jurisdiction over the Company, or any Subsidiary, and no consent,
approval, authorization or order of, or qualification with, any governmental
body or agency is required for the performance by the Company of its obligations
under the Transaction Documents, except such as may be required by the
securities or Blue Sky laws of the various states in connection with the offer
and sale of the Offered Shares and by Federal and state securities laws with
respect to the obligations of the Company under the Registration Rights
Agreement or such the failure of which to obtain could not reasonably be
expected to have a Material Adverse Effect.
(h) There has not occurred any material adverse change, or any
development involving a prospective adverse change, in the condition, financial
or otherwise, or in the earnings, business, operations or prospects of the
Company and the Subsidiaries, taken as a whole, whether or not arising in the
ordinary course of business since June 30, 2006. Since June 30, 2006, neither
the Company nor any Subsidiary has entered into any transaction or incurred any
liabilities, contingent or otherwise, other than those in the ordinary course of
business consistent (including as to amount and nature) with past practices,
none of which, individually or in the aggregate, have had or could reasonably be
expected to have a Material Adverse Effect. Without limiting the foregoing,
since June 30, 2006, there has not been:
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(i) any declaration or payment of any dividend, or any
authorization or payment of any distribution, on any of the capital stock of the
Company, or any redemption or repurchase of any securities of the Company;
(ii) any material damage, destruction or loss, whether or not
covered by insurance to any assets or properties of the Company or its
Subsidiaries;
(iii) any waiver, not in the ordinary course of business, by
the Company or any Subsidiary of a material right or of a material debt owed to
it;
(iv) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company or a Subsidiary, except
in the ordinary course of business and which is not material to the assets,
properties, financial condition, operating results or business of the Company
and its Subsidiaries taken as a whole (as such business is presently conducted
and as it is proposed to be conducted);
(v) any change or amendment to the Company's Certificate of
Incorporation or by-laws, or material change to any material contract or
arrangement by which the Company or any Subsidiary is bound or to which any of
their respective assets or properties is subject;
(vi) the loss of the services of any key employee, or material
change in the composition or duties of the senior management of the Company or
any Subsidiary; or
(vii) the loss or threatened loss of any customer or supplier
(i) representing more than 5% of the revenues or expenditures of the Company and
its Subsidiaries taken as a whole or (ii) which has had or could reasonably be
expected to have a Material Adverse Effect.
(i) None of the Company nor any Subsidiary is in violation of (i)
its charter or by-laws or in default in the performance of any obligation,
agreement, covenant or condition contained in any indenture, loan agreement,
mortgage, lease or (ii) other agreement or instrument that is material to the
Company and the Subsidiaries taken as a whole to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary or any of their
properties is bound, except in the case of (ii) for such defaults that could not
reasonably be expected to, singly or in the aggregate, have a Material Adverse
Effect
(j) There are no legal or governmental investigations, proceedings,
orders, judgments, writs, injunctions, decrees or demands pending or, to the
Company's knowledge, threatened to which the Company or any Subsidiary is a
party or to which any of the properties of the Company or any Subsidiary is
subject other than governmental investigations, proceedings, orders, judgments,
writs, injunctions, decrees or demands other than any governmental proceedings,
orders, judgments, writs, injunctions, decrees or demands that could not
reasonably be expected to, singly or in the aggregate, have a Material Adverse
Effect.
(k) The Company and each Subsidiary (i) is in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
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hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) has received all permits, licenses or other
approvals required of it under applicable Environmental Laws to conduct its
business, (iii) is in compliance with all material terms and conditions of any
such permit, license or approval, (iv) is in compliance with any provisions of
the employee Retirement Income Security Act of 1974, as amended, ("ERISA") or
the rules and regulations promulgated thereunder and (v) is in compliance with
any provisions of the Foreign Corrupt Practice Act or the rules and regulations
promulgated thereunder, except, with respect to clauses (i) through (iii), where
such noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals, or failure to comply with the terms and conditions
of such permits, licenses or approvals, could not reasonably be expected to,
singly or in the aggregate, have a Material Adverse Effect.
(l) There are no significant costs or liabilities to the Company or
any Subsidiary associated with Environmental Laws (including, without
limitation, any capital or operating expenditures required for clean-up, closure
of properties or compliance with Environmental Laws or any permit, license or
approval, any related constraints on operating activities and any potential
liabilities to third parties). Neither the Company nor any Subsidiary owns or
operates any real property contaminated with any substance that is subject to
any Environmental Laws, is liable for any off-site disposal or contamination
pursuant to any Environmental Laws, or is subject to any claim relating to any
Environmental Laws, which violation, contamination, liability or claim has had
or could reasonably be expected to have a Material Adverse Effect, singly or in
the aggregate; and there is no pending or, to the Company's knowledge,
threatened investigation that might lead to such a claim.
(m) None of the Company nor any Subsidiary is, and giving effect to
the offering and sale of the Offered Shares and the application of the proceeds
thereof will be, required to register as an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.
(n) None of the Company, any Subsidiary nor any of its affiliates
(as defined in Rule 501(b) of Regulation D, each an "Affiliate") has directly,
or through any agent, (i) sold, offered for sale, solicited offers to buy or
otherwise negotiated in respect of, any security (as defined in the Securities
Act) which is or will be integrated with the sale of the Offered Shares in a
manner that would require the registration under the Securities Act of the
Offered Shares or which would adversely affect the reliance by the Company on
Section 4(2) of the Securities Act for the exemption of the Offered Shares from
registration under the Securities Act or (ii) offered, solicited offers to buy
or sold the Offered Shares by any form of general solicitation or general
advertising (as those terms are used in Regulation D) or in any manner involving
a public offering within the meaning of Section 4(2) of the Securities Act.
(o) The books, records and accounts of the Company in all material
respects accurately and fairly reflect, in reasonable detail, the transactions
in the assets of, and the results of operations of, the Company. The Company
maintains a system of accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with management's
general or specific authorization, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets, (iii)
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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 existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(p) Each of the Company and each Subsidiary owns or possesses, or
has the right to use, all material patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures),
trademarks, service marks and trade names currently employed or required by it
in connection with the business currently conducted by it as described in the
SEC Documents. To the Company's knowledge, there are no valid and enforceable
United States patents that are infringed by the business currently conducted by
the Company or any Subsidiary, or as currently proposed to be conducted by the
Company or any Subsidiary, which infringement, if determined adversely to the
Company or any of its Subsidiaries, could reasonably be expected to have a
Material Adverse Effect. The Company is not aware of any basis for a finding
that the Company does not have valid title or license rights to the patents and
patent applications that the Company or any Subsidiary purports to own or
license, and, none of the Company nor any Subsidiary has been notified that it
is subject to any judgment, order, writ, injunction or decree of any court or
any Federal, state, local, foreign or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, or any
arbitrator, nor has it entered into or is it a party to any contract, which
restricts or impairs the use of any of the foregoing which could reasonably be
expected to have a Material Adverse Effect. Neither the Company nor any
Subsidiary has received any written notice of, infringement of or conflict with
asserted rights of any third party with respect to the business currently
conducted by it as described in the SEC Documents and which could reasonably be
expected to, singly or in the aggregate, have a Material Adverse Effect if the
subject of an unfavorable decision, ruling or finding, and the Company has no
knowledge of any facts or circumstances that would serve as a reasonable basis
for any such claims.
(q) Other than with respect to Environmental Laws and ERISA (which
are governed by Section 3(l) above) each of the Company and each Subsidiary has
such permits, licenses, consents, exemptions, franchises, authorizations and
other approvals (each, an "Authorization") of, and has made all filings with and
notices to, all appropriate federal, state, local or foreign governmental or
regulatory authorities and self regulatory organizations and all courts and
other tribunals, as are necessary to own, lease, license and operate its
respective properties and to conduct its business, except to the extent such
failure to be valid and in full force and effect or to be in compliance of any
such event or the presence of any such restriction could not reasonably be
expected to have, singly or in the aggregate, a Material Adverse Effect. Each
such Authorization is valid and in full force and effect and the Company and
each Subsidiary is in compliance with all the material terms and conditions
thereof and with the rules and regulations of the authorities and governing
bodies having jurisdiction with respect thereto, and no event has occurred
(including, without limitation, the receipt of any notice from any authority or
governing body) which allows or, after notice or lapse of time or both, would
allow, revocation, suspension or termination of any such Authorization or
results or, after notice or lapse of time or both, would result in any other
impairment of the rights of the holder of any such Authorization.
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(r) The financial statements included or incorporated by reference
in the Company's Form 10-K for the fiscal year ended June 30, 2006 and the
Company's Form 10-Q for the quarterly period ended December 31, 2006 (the "Most
Recent SEC Documents") as the same may have been amended prior to the date
hereof, together with related schedules and notes, present fairly in all
material respects the financial position, results of operations and changes in
financial position of the Company and its consolidated subsidiaries on the basis
stated therein at the respective dates or for the respective periods to which
they apply; such statements and related schedules and notes have been prepared
in accordance with generally accepted accounting principles consistently applied
throughout the periods involved, except as disclosed therein; and the other
financial and statistical information and data set forth in the Most Recent SEC
Documents are, in all material respects, accurately presented and prepared on a
basis consistent with such financial statements and the books and records of the
Company. The financial information set forth under the captions "Financial
Statements and Supplementary Data" and "Financial Information" in the Most
Recent SEC Documents are derived from the accounting records of the Company and
its subsidiaries, have been computed on a basis consistent with the audited
financial statements in the Most Recent SEC Documents and fairly present in all
material respects, on the basis stated in the Most Recent SEC Documents, the
information included therein. The Company maintains and will continue to
maintain a standard system of accounting established and administered in
accordance with generally accepted accounting principles consistently applied
and the applicable requirements of the Exchange Act.
(s) There are no existing or, to the Company's knowledge, threatened
material labor disputes with the employees of the Company or any Subsidiary.
(t) The Company and the Subsidiaries are in material compliance with
all applicable laws, rules, regulations, orders, licenses, judgments, writs,
injunctions and decrees in each state in which the Company's and the
Subsidiaries' services are marketed.
(u) None of the Company nor any Subsidiary has received any written
communication notifying the Company or such Subsidiary as to the termination or
threatened termination or modification or threatened modification of any
agreement material to the business of the Company or any Subsidiary or of any
agreement described in the SEC Documents.
(v) Each of the Company and each Subsidiary has timely prepared and
filed all material Federal, state, local and foreign tax returns which are
required to be filed through the date hereof, which returns are true and correct
in all material respects, or have received extensions thereof, and have paid all
taxes shown on such returns and all assessments received by them (other than
taxes being contested in good faith and for which adequate reserves have been
established) to the extent that the same are material and have become due,
except for such assessments which could not reasonably be expected to be
material to the Company and the Subsidiaries taken as a whole. All tax
liabilities are adequately provided for on the books of the Company and the
Subsidiaries and all charges, accruals and reserves on the books of the Company
and the Subsidiaries in respect of taxes for all fiscal periods are adequate in
all material respects. To the Company's knowledge, there are no tax audits or
investigations pending. All taxes and other assessments and levies that the
Company or any Subsidiary is required to withhold or to collect for payment have
been duly withheld and collected and paid to the proper governmental entity or
third party when due. There are no tax liens or claims pending which if
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adversely determined could reasonably be expected to have, singly or in the
aggregate, a Material Adverse Effect, or, to the Company's knowledge, threatened
against the Company or any Subsidiary or any of their respective assets or
property. There are no outstanding tax sharing agreements or other such
arrangements between the Company and any Subsidiary or other corporation or
entity.
(w) Each of the Company and each Subsidiary is insured against such
losses and risks and in such amounts, including with respect to errors and
omissions and director and officer policies, the coverages for which are set
forth in the Disclosure Schedule, that is customary for comparably situated
companies in the businesses in which it is engaged and the Company reasonably
believes such insurance coverage to be adequate against all liabilities, claims
and risks against which it is customary for comparably situated companies to
insure. All policies of insurance and fidelity or surety bonds insuring the
Company, any Subsidiary or the Company's or any Subsidiary's businesses, assets,
employees, officers and directors which are necessary or advisable for the
conduct of the business of the Company and its Subsidiaries are in full force
and effect. The Company and each Subsidiary is in compliance with the terms of
such policies and instruments in all material respects. The Company has no
reason to believe that it and the Subsidiaries will not be able to renew their
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business.
(x) Each of the Company and each Subsidiary has good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by it, in each case free and clear of all liens,
encumbrances and defects except such as do not materially affect the value of
such property and do not materially interfere with the use made and proposed to
be made of such property by the Company or such Subsidiary. Any real property
and buildings held under lease by the Company and each Subsidiary is held by it
under valid, subsisting and enforceable leases with such exceptions as are not
material and do not materially interfere with the use made and proposed to be
made of such property and buildings by the Company or such Subsidiary.
(y) Except as set forth in the Disclosure Schedules, (i) since June
30, 2004, the Company has timely filed with the SEC all annual reports on Form
10-K, all quarterly reports on Form 10-Q and all current reports on Form 8-K
required to be filed under the Exchange Act, (ii) the Company is and, as of the
time of the Closing will be, current in its reporting obligations under the
Exchange Act and (iii) the Company and its Subsidiaries have not been notified
of any pending investigations of the Company or any of its Subsidiaries by the
SEC. To the Company's knowledge, the Company has responded to all comments
raised by the SEC with respect to the Company's reports, registration statements
and other filings made with the SEC to the SEC's satisfaction, and no comments
which (i) could have an adverse effect on the Company's consolidated financial
condition or results of operations (past or future), (ii) could require a
restatement of previously filed financial statements or (iii) could prevent the
Company from using a form that would otherwise be available to it, remain
unresolved with the SEC.
(z) There is and there has been no failure on the part of the
Company and the Subsidiaries or, to the Company's knowledge, any of the officers
or directors of the Company or any Subsidiary to comply in all material respects
with the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in
connection therewith.
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(aa) Except as set forth in the Investor Questionnaire Statement (as
defined in Section 6.5), the Company has not distributed and will not distribute
any offering material in connection with the offering and sale of the Offered
Shares.
(bb) Neither the Company nor any of its Affiliates has directly or
indirectly, solicited any offer to buy, sold or offered to sell or otherwise
negotiated in respect of, or will solicit an offer to buy, sell or offer to
sell, or otherwise negotiate in respect of any security which might be
integrated with the sale of the Offered Shares in a manner that would require
the Offered Shares to be registered under the Securities Act. There are no
persons with registration rights or similar rights to have any securities
registered by the Company under the Securities Act. No registration under the
Securities Act of the Offered Shares is required for the sale of the Offered
Shares to the Purchasers under this Agreement, assuming the accuracy of the
Purchasers' representations, warranties and agreements set forth in Section 4.
(cc) The Company has established and maintains disclosure controls
and procedures (as such term is in defined in Rule 13a-14 and 15d-14 under the
Exchange Act); such disclosure controls and procedures are designed to ensure
that material information relating to the Company, including its consolidated
subsidiaries, is made known to the Company's Chief Executive Officer and its
Chief Accounting Officer by others within those entities, and such disclosure
controls and procedures are reasonably effective to perform the functions for
which they were established, subject to the limitation of any such control
system; the Company's auditors and the Board of Directors of the Company have
been advised of: (i) any significant deficiencies in the Company's ability to
record, process, summarize, and report financial data; and (ii) any fraud,
whether or not material, that involves management or other employees who have a
role in the Company's internal controls; any material weaknesses in internal
controls have been identified for the Company's auditors and have been delivered
to the Purchasers prior to the date hereof; and since the date of the most
recent evaluation of such disclosure controls and procedures, there have been no
significant changes in internal controls or in other factors that could
significantly affect internal controls, including any corrective actions with
regard to significant deficiencies and material weaknesses.
(dd) The Company has caused or will cause to be timely filed with
each applicable jurisdiction corresponding to the principal place of business of
each Purchaser (as same has been provided by such Purchasers) all appropriate
documentation required for the registration of the Purchase under applicable
state law or required to secure an exemption from such registration
requirements.
(ee) At the Closing, upon receipt of payment therefor, the Offered
Shares will have been duly and validly authorized, issued and paid for pursuant
to this Agreement, will be validly issued, fully paid and non-assessable, and
shall be free and clear of all encumbrances and restrictions and pre-emptive or
other similar rights of third parties (other than those created by the
Purchasers), except for restrictions on transfer set forth in the Transaction
Documents or imposed by applicable securities laws.
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(ff) Except as set forth in the Disclosure Schedules, there are no
pending actions, suits or proceedings against or affecting the Company, its
Subsidiaries or any of its or their properties; and to the Company's knowledge,
no such investigations, actions, suits or proceedings have been threatened in
writing except those which, if determined in a manner adverse to the Company or
any of its Subsidiaries, could not reasonably be expected to have, singly or in
the aggregate, a Material Adverse Effect.
(gg) Neither the Company nor any of its Subsidiaries nor, to the
Company's knowledge, any of their respective current stockholders or current or
former directors, officers, employees, acting on behalf of the Company or any
Subsidiary, has on behalf of the Company or any Subsidiary or in connection with
their respective businesses: (a) used any corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity; (b) made any direct or indirect unlawful payments to any
governmental officials or employees from corporate funds; (c) established or
maintained any unlawful or unrecorded fund of corporate monies or other assets;
(d) made any false or fictitious entries on the books and records of the Company
or any Subsidiary; or (e) made any unlawful bribe, rebate, payoff, influence
payment, kickback or other unlawful payment of any nature.
(hh) Except as set forth in the Disclosure Schedules, (i) no officer
or director of the Company or any of its Subsidiaries, nor any stockholder
owning 5% or more of the Company's outstanding shares of Common Stock (fully
diluted), are presently, directly or indirectly, whether individually or through
one or more of its Affiliates, a party to any transaction with the Company or
any Subsidiary (other than as holders of stock options issued pursuant to the
Company's employee stock option plans, and for services rendered as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer or director or, to the Company's knowledge, any entity in which any
officer or director has a substantial interest or is an officer, director,
trustee or partner. Set forth in the Disclosure Schedules is a list of any
indebtedness (with accurate amounts) owed to any officer or director of the
Company or any Subsidiary (or any indebtedness owed to any entity in which any
such officer or director has a substantial interest) and all other obligations
(matured or contingent) between such Persons.
(ii) The Company and its Subsidiaries maintain a commercially
reasonable system of controls to ensure that it and its employees use current
best industry practices in connection with the businesses that the Company and
its Subsidiaries are engaged in.
4. Representations and Warranties of the Purchasers. Each of the
Purchasers, severally and not jointly, hereby represents and warrants to the
Company as of the date hereof as to itself that:
4.1 Authorization. The Transaction Documents to which such Purchaser
is a signatory constitute valid and legally binding obligations of the
Purchaser, enforceable in accordance with their respective terms, except (a) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium, and
other laws of general application affecting enforcement of creditors' rights
generally, (b) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies, and (c) to the
extent the indemnification provisions contained in the Transaction Documents may
be limited by applicable federal or state laws.
-11-
4.2 Purchase Entirely for Own Account. The Offered Shares acquired
by each Purchaser will be acquired for investment for such Purchaser's own
account. Each Purchaser has full power and authority to enter into this
Agreement.
4.3 General Solicitation. Such Purchaser is not purchasing the
Offered Shares as a result of any advertisement, article, notice or other
communication regarding the Offered Shares published in any newspaper, magazine
or similar media or broadcast over television or radio or presented at any
seminar or any other general solicitation or general advertisement.
4.4 Short Sales and Confidentiality. Other than the transaction
contemplated hereunder, such Purchaser has not directly or indirectly, nor has
any person acting on behalf of or pursuant to any understanding with such
Purchaser, executed any disposition, including Short Sales as defined in Rule
200 of Regulation SHO under the Exchange Act (but not including the location
and/or reservation of borrowable shares of Common Stock), in the securities of
the Company during the period commencing from the time that such Purchaser first
received a term sheet from the Company or any other Person setting forth the
material terms of the transactions contemplated hereunder until the date hereof.
Such Purchaser has maintained the confidentiality of all disclosures made to it
in connection with this transaction (including the existence and terms of this
transaction).
4.5 Disclosure of Information. It acknowledges that it has received
all the information that it has requested relating to the Company and the
purchase of the Offered Shares and further represents that it has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the Purchase. The foregoing, however, does not limit or
modify the representations and warranties of the Company in Section 3 of this
Agreement or the right of the Purchaser to rely thereon.
4.6 Restricted Securities. It understands that the Offered Shares
are characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering, and that under such laws and applicable regulations
such securities may be resold without registration under the Securities Act,
only in certain limited circumstances. In this connection, it represents that it
is familiar with SEC Rule 144, as presently in effect, and understands the
resale limitations imposed thereby and by the Securities Act. The undersigned
agrees to the imprinting of the following (or a substantially similar) legend on
any certificate representing the Offered Shares:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD EXCEPT
(i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR (ii) UPON THE DELIVERY BY
THE HOLDER TO THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY
SATISFACTORY TO COUNSEL FOR THE COMPANY, STATING THAT AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS
IS AVAILABLE FOR THE OFFER AND SALE OF SUCH SECURITIES.
-12-
4.7 Release of Funds. It hereby acknowledges and agrees that the
Purchase Price for the Offered Shares being purchased by it hereunder has been
wired by the Purchaser to the Escrow Agent (as defined in the Escrow Agreement),
on the date of this Agreement and that, upon the Escrow Agent's receipt of
executed (by the Company and such Purchaser) copies of this Agreement, the
conditions set forth in Sections 5 and 6 below and a disbursement instruction
from the Company covering such Purchase Price funds ("Disbursement Letter"), the
Escrow Agent will wire transfer such Purchase Price funds in accordance with the
Disbursement Letter, provided, however, that if no Disbursement Letter is
received by the Escrow Agent on or prior to October 31, 2007 with respect to
such Purchaser's funds, such funds shall be returned without interest to the
Purchaser.
4.8 Purchasers' Indemnification of the Company. Each Purchaser
hereby indemnifies and holds the Company and its officers, directors and agents
free from any liability they may incur (including the costs of defending any
legal action brought against any of the foregoing parties) as a result of any
breach by such Purchaser of the representations of the Purchaser set forth in
this Section 4.
5. Conditions to the Purchasers' Obligations. The obligations of each
Purchaser to purchase and pay for the Offered Shares set forth opposite its name
on the Schedule of Purchasers on the Closing Date are subject to the following
conditions:
5.1 Representations, Warranties, Covenants and Agreements. The
representations and warranties of the Company contained in this Agreement or in
any certificate of any officer of the Company delivered pursuant to this
Agreement shall be true and correct as of the date of this Agreement (or as of
the date of the certificate, as the case may be) and as of the Closing Date
(unless such representations and warranties expressly relate to a specified
date, in which case they shall be true and correct as of the specified date) and
the Company shall have complied with all of the agreements and satisfied all of
the conditions on its part to be performed or satisfied hereunder on or before
such Closing Date.
5.2 Opinions of Counsel. The Company shall have delivered to the
Purchasers on the Closing Date (i) the opinion of Blank Rome LLP, counsel for
the Company, dated such Closing Date, to the effect set forth in EXHIBIT B
attached hereto, and (ii) the opinion of Ted Finkelstein, General Counsel of the
Company, to the effect set forth in EXHIBIT C attached hereto.
5.3 Good Standing Certificate. The Company shall have delivered to
the Purchasers, on the Closing Date a certificate, dated as of a reasonably
current date prior to such Closing, issued by the proper authority in Delaware
to the effect that the Company is legally existing and in good standing.
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5.4 Secretary's Certificate. The Company shall have delivered to the
Purchasers on the Closing Date a certificate, dated as of the Closing Date,
executed by the Secretary of the Company certifying the resolutions adopted by
the Company's board of directors which approve all of the transactions
contemplated by this Agreement.
5.5 No Litigation. No judgment, writ, order, injunction, award or
decree of or by any court, or judge, justice or magistrate, including any
bankruptcy court or judge, or any order of or by any governmental authority,
shall have been issued, and no action or proceeding shall have been instituted
by any governmental authority enjoining, preventing or seeking to enjoin the
consummation of the transactions contemplated hereby or in the other Transaction
Documents.
5.6 No Suspension of Trading. No stop order or suspension of trading
shall have been imposed by the SEC or any other governmental or regulatory body
with respect to public trading in the Common Stock.
5.7 No Adverse Market Actions. 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 trading market or the staff of any of the
foregoing, having authority over the matters contemplated hereby which questions
the validity of, or challenges or prohibits the consummation of, any of the
transactions contemplated by this Agreement.
5.8 Officer's Certificate. The Company shall have delivered to the
Purchasers on the Closing Date a certificate, dated the Closing Date, and signed
by an executive officer of the Company, certifying to the fulfillment of the
conditions specified in Sections 5.1, 5.3, 5.6 and 5.7.
5.9 Registration Rights Agreement. The Company and each Purchaser
shall have duly executed and delivered the Registration Rights Agreement in the
form attached hereto as EXHIBIT D.
5.10 Investor Purchase Agreement. The conditions set forth in
Sections 5 and 6 of the stock purchase agreement dated April 25, 2007 (the
"Investor Purchase Agreement") by and among the Company and the purchasers set
forth on Schedule I thereto (the "Investor Purchasers") shall have been met and
there shall be no default by any of the Investor Purchasers.
5.11 Shareholder Agreement. The shareholder agreement to be entered
into as of the Closing Date by and among the Company and the shareholders set
forth on Schedule I and Schedule II thereto and the Schedule of Purchasers
hereto (the "Shareholder Agreement") shall have been duly executed and delivered
by the parties thereto.
5.12 Wachovia Approval. The Company shall have obtained the consent
required of Wachovia Bank, National Association in respect of the transactions
contemplated by the Transaction Documents.
-14-
5.13 MetLife Escrow Release. Pursuant to that certain letter
agreement dated April 23, 2007 between the Company and MetLife Insurance Company
of Connecticut ("MetLife"), the Company shall in the Disbursement Letter
authorize and direct the Escrow Agent to pay MetLife $2,375,000 from the Escrow
Account (the "MetLife Escrow Release").
5.14 No Material Adverse Effect. From the date of this Agreement to
the Closing Date no Material Adverse Effect shall have occurred.
5.15 Employment Agreement. Michael Ryan shall have entered into an
employment agreement with the Company reasonably satisfactory to the Board and
the Investor Purchasers.
6. Conditions to the Company's Obligations. The obligations of the Company
to issue and sell the Offered Shares to the Purchasers on the Closing Date are
subject to the accuracy of the representations and warranties of the Purchasers
contained in this Agreement, the Investor Qualification Statement or in any
certificate or other document delivered by the Purchasers pursuant to this
Agreement and to the following further conditions:
6.1 Consents. The Company shall have (a) prepared and filed a proxy
statement after providing the Purchasers counsel with a reasonable opportunity
to review and comment thereon and duly called and given notice of a special
meeting of its stockholders (the "Stockholders Meeting") for the purpose of
voting and approving (i) the transactions contemplated by the Transaction
Documents and the Placement Purchase Agreement, such approval shall have been
granted by the holders of a majority of the shares voting on such transactions,
and (ii) an increase in the authorized capital stock of the Company to
500,000,000 shares of Common Stock, such approval shall have been granted by a
majority of the stockholders entitled to vote at such Stockholders Meeting (the
"Stockholders Consent") and (b) obtained any and all consents, permits,
approvals, registrations and waivers necessary for consummation of the
transactions contemplated by the Transaction Documents, except for registration
of the Offered Shares under the Securities Act pursuant to the Registration
Rights Agreement (as defined in Section 5.9).
6.2 Investor Purchase Agreement. The closing conditions set forth in
Sections 5 and 6 of the Investor Purchase Agreement shall have been met and
there shall be no default by any of the Investor Purchasers.
6.3 Shareholder Agreement. The Shareholder Agreement shall have been
duly executed and delivered by the parties thereto.
6.4 Registration Rights Agreement. The Company and each Purchaser
shall have duly executed and delivered the Registration Rights Agreement in the
form attached hereto as EXHIBIT D.
6.5 Investor Qualification Statement. Each Purchaser shall have duly
executed and delivered the Investor Qualification Statement in the form attached
hereto as EXHIBIT E.
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7. Covenants and Agreements of the Parties.
(a) The Company covenants as follows:
(i) The Company will not solicit any offer to buy or offer or
sell the Offered Shares by means of any form of general solicitation or general
advertising (as those terms are used in Regulation D) or in any manner involving
a public offering within the meaning of Section 4(2) of the Securities Act that
would be integrated with the purchase.
(ii) Neither the Company nor any of its Affiliates will take
any action prohibited by Regulation M under the Exchange Act in connection with
the sale and distribution of the Offered Shares contemplated hereby.
(iii) As soon as practicable after the Closing Date, the Board
shall establish and maintain a Compensation Committee and an Audit Committee
which shall be comprised of three (3) independent members of the Board, one of
which shall be a director nominated by the Investor Purchasers.
(iv) The Company shall not use more than an aggregate of
$62,500 of the net proceeds of the sale of the Offered Shares to repay the
Wachovia Debt in the principal amount of $50,000 and a fee in the amount of
$12,500 and shall not use any of the proceeds of the sale of Offered Shares or
the Rights Offering to repay indebtedness to any Affiliate of the Company or its
Subsidiaries.
(v) The Company will take such actions as may be reasonably
required to carry out the provisions of this Agreement and the other Transaction
Documents.
(b) Each Purchaser hereby consents to the Company's conducting a
rights offering of up to $2,000,000 aggregate amount of Common Stock, subject to
increase with the consent of the Investor Purchasers, to its stockholders to
purchase up to ten (10) shares of Common Stock for each share of Common Stock
held by such stockholder at the same price at which the Offered Shares are being
purchased pursuant to this Agreement, provided that the amount of shares shall
be reduced on a pro rata basis if the aggregate subscriptions exceed $2,000,000
(the "Rights Offering"). Each Purchaser hereby waives any rights to participate
in such Rights Offering and will execute any such document or agreement
reasonably requested by the Company acknowledging its waiver of its right to
participate in such Rights Offering.
(c) Each management stockholder set forth on Schedule 7(c) hereto
hereby waives any rights to participate in such Rights Offering and will execute
any such document or agreement reasonably requested by the Company acknowledging
its waiver of its right to participate in such Rights Offering.
(d) The Company shall be permitted to use any cash proceeds received
from the sale of shares of Common Stock pursuant to this Purchase Agreement to
repay indebtedness or accrued and unpaid compensation to Affiliates.
-16-
8. Indemnification.
(a) The Company agrees to indemnify and hold harmless each Scheduled
Purchaser (individually, the "Indemnified Person" or collectively the
"Indemnified Person") from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any pending or
threatened action, proceeding or claim) (i) caused by any untrue statement or
alleged untrue statement of a material fact contained in the SEC Documents (as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto), (ii) caused by any omission or alleged omission to state
in the SEC Documents a material fact necessary to make the statements therein in
the light of the circumstances under which they were made not misleading, (iii)
that arise out of or are based upon any breach of any representation or warranty
contained in any of the Transaction Documents, (iv) or any breach of any
agreement, obligation or covenant of the Company contained in any of the
Transaction Documents, (v) arising out of the transactions contemplated by this
Agreement and the other Transaction Documents, and (vi) arising out of the
Rights Offering. Notwithstanding the foregoing, no payment in respect of Section
8(a)(iii) shall be made by the Company to the Purchasers unless and until the
aggregate of all indemnification claims of the Purchasers under Section
8(a)(iii) or 8(a)(iv) exceeds $75,000 (the "Indemnification Threshold") upon
which the Purchasers shall be entitled to whatever indemnification they would be
entitled to under Section 8(a)(iii) or 8(a)(iv) without regards to the
Indemnification Threshold.
(b) Promptly after receipt of notice of the commencement of any
action in respect of which indemnity may be sought against the Company under
this Section 7, the Indemnified Person will promptly notify the Company in
writing of the commencement thereof, and the Company will, subject to the
provisions hereinafter stated, assume the defense of such action (including the
employment of counsel reasonably satisfactory to the Indemnified Person and the
payment of expenses in connection with such defense) insofar as such action
relates to an alleged liability in respect of which indemnity may be sought
against the Company under this Section; provided, however, that the failure of
any Indemnified Person so to notify the Company shall not relieve the Company of
its obligations hereunder except to the extent that the Company is materially
prejudiced by such failure to notify. After notice from the Company of its
election to assume the defense of such claim or action, and provided it
continues to meet its obligations hereunder, the Company shall no longer be
liable to the Indemnified Person under this Section for any legal or other
expenses subsequently incurred by the Indemnified Person in connection with the
defense thereof other than reasonable costs incurred prior to the Company
assuming the defense of such action; provided, however, that if in the
reasonable good faith judgment of the Indemnified Person or Persons, because of
a conflict of interest of the counsel employed by Company, to be represented by
separate counsel, the Indemnified Person or Persons shall have the right to
employ separate counsel to represent the Indemnified Persons who may be subject
to liability arising out of any claim in respect of which indemnity may be
sought by the Indemnified Persons thereof against the Company, in which event
the reasonable fees and expenses of one such separate counsel to represent all
of the Indemnified Persons shall be borne by the Company. Without the prior
written consent of the Indemnified Person, the Company shall not effect any
settlement of any pending or threatened proceeding in respect of which any
Indemnified Person is or could have been a party and indemnity could have been
sought hereunder by such Indemnified Party, unless such settlement includes an
unconditional release of such Indemnified Person from all liability arising out
of such proceeding.
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9. Miscellaneous.
9.1 Survival of Warranties. All of the representations and
warranties made herein shall survive the execution and delivery of this
Agreement for a period of two (2) years.
9.2 Successors and Assigns. This Agreement is personal to each of
the parties and may not be assigned without the written consent of the other
parties. The provisions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and permitted assigns of the parties.
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and permitted
assigns any rights, remedies, obligations, or liabilities under or by reason of
this Agreement, except as expressly provided in this Agreement.
9.3 Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York.
9.4 Submission to Jurisdiction; Waiver of Jury Trial. No proceeding
related to this Agreement or the transactions contemplated hereby may be
commenced, prosecuted or continued in any court other than the courts of the
State of New York located in the City and County of New York or in the United
States District Court for the Southern District of New York, which courts shall
have jurisdiction over the adjudication of such matters, and each of the Company
and each Purchaser hereby irrevocably and unconditionally consent to the
jurisdiction of such courts and personal service with respect thereto, waive any
objection to the laying of venue of any such litigation in such courts and agree
not to plead or claim that such litigation brought in any courts has been
brought in an inconvenient forum. Each of the Company and each Purchaser hereby
waive all right to trial by jury in any proceeding (whether based upon contract,
tort or otherwise) in any way arising out of or relating to this Agreement.
9.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement, once
executed by a party, may be delivered to the other party hereto by facsimile
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.
9.6 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
9.7 Notices. Unless otherwise provided, any notice, authorization,
request or demand required or permitted to be given under this Agreement shall
be given in writing and shall be deemed effectively given upon personal delivery
to the party to be notified or three (3) days following deposit with the United
States Post Office, by registered or certified mail, postage prepaid, or one
business day after it is sent by an overnight delivery service, or when sent by
facsimile with machine confirmation of delivery addressed as follows:
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If to the Purchasers to:
The address set forth opposite their name on the Schedule of
Purchasers.
If to Company:
Gilman + Ciocia, Inc.
11 Raymond Avenue
Poughkeepsie, New York 12603
Attn: Legal Department
Fax: (845) 622-3638
In either case, with a copy to:
Blank Rome LLP
405 Lexington Avenue, 23rd Floor
New York, New York 10174
Attention: Robert J. Mittman, Esq.
Fax: (212) 885-5001
Any party may change its address for such communications by giving notice
thereof to the other parties in conformity with this Section.
9.8 Certain Fees and Reimbursements. Each party represents that it
neither is nor will be obligated for any finders' or brokers' fee or commission
in connection with this transaction.
9.9 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and Purchasers
holding Offered Shares evidencing, in the aggregate, an amount equal to not less
than 50.1% of the aggregate number of Common Stock then outstanding. Any
amendment or waiver effected in accordance with this paragraph shall be binding
upon each holder of any securities purchased under this Agreement at the time
outstanding (including securities into which such securities are convertible),
each future holder of all such securities, and the Company.
9.10 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of this Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
9.11 Entire Agreement. This Agreement and the documents referred to
herein constitute the entire agreement among the parties and no party shall be
liable or bound to any other party in any manner by any warranties,
representations, or covenants except as specifically set forth herein or
therein.
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9.12 Publicity. No public release or announcement concerning the
transactions contemplated hereby shall be issued by the Purchasers without the
prior consent of the Company.
9.13 Further Assurances. The parties shall execute and deliver all
such further instruments and documents and take all such other actions as may
reasonably be required to carry out the transactions contemplated hereby and to
evidence the fulfillment of the agreements herein contained.
9.14 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. The decision of each Purchaser to
purchase Offered Shares pursuant to the Transaction Documents has been made by
such Purchaser independently of any other Purchaser. Nothing contained herein or
in any Transaction Document, and no action taken by any Purchaser pursuant
thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Purchaser are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. Each Purchaser acknowledges that no other Purchaser has
acted as agent for such Purchaser in connection with making its investment
hereunder and that no Purchaser will be acting as agent of such Purchaser in
connection with monitoring its investment in the Securities or enforcing its
rights under the Transaction Documents. Each Purchaser shall be entitled to
independently protect and enforce its rights, including, without limitation, the
rights arising out of this Agreement or out of the other Transaction Documents,
and it shall not be necessary for any other Purchaser to be joined as an
additional party in any proceeding for such purpose.
9.15 Termination of Agreement. Either the Company or the Purchasers
may terminate this Agreement if (A) either (i) the Closing has not occurred on
or prior to October 31, 2007 or (ii) the conditions to Closing of such party (as
set forth in Sections 5 or 6) shall become impossible to satisfy without waiver
thereof by such party, and (B) the party seeking to terminate the Agreement has
not breached the Agreement in any material respect. Upon termination of this
Agreement pursuant to this Section 9.15, all funds being held in the Escrow
Account shall be returned to the Purchasers. In the event of the termination of
this Agreement pursuant to this Section 9.15, this Agreement shall forthwith
become void and there shall be no liability on the part of any party hereto in
respect of such termination; provided, that nothing contained herein shall
relieve any party from liability with respect to (x) any breach of this
Agreement occurring prior to such termination or (y) any obligation under
Section 8 hereof.
-20-
IN WITNESS WHEREOF, the parties have executed this Purchase Agreement as
of the date first above written.
GILMAN + CIOCIA, INC.
By: /s/ Ted H. Finkelstein
------------------------
Name: Ted H. Finkelstein
Title: Vice President
[SIGNATURE PAGES OF PURCHASERS FOLLOW]
-21-
Purchaser signature page with respect to Purchase Agreement between Gilman +
Ciocia, Inc. and the several Purchasers dated August 16, 2007.
PURCHASER: Prime Partners II, LLC
Signed on August 13, 2007
----------------------------------
By: /s/ Ralph A. Porpora
------------------------------
Name: Ralph A. Porpora
Title: Member and Manager
Address and phone number of Purchaser: 11 Raymond Avenue
-------------------------------
Poughkeepsie, NY 12603
-------------------------------
-------------------------------
-------------------------------
Principal Contact at Purchaser: Ralph A. Porpora
-------------------------------
Telephone Number of Principal Contact: 845-485-3338
-------------------------------
Email of Principal Contact: rporpora@primefs.com
-------------------------------
Tax ID No. of Purchaser: 26-0706398
-------------------------------
Dollar Amount of Offered Shares subscribed for by the Purchaser: $1,542,000
---------------
Number of Offered Shares subscribed for by the Purchaser: 15,420,000
---------------
-22-
SCHEDULE I
PURCHASERS
DISCLOSURE
SCHEDULES TO
PURCHASE AGREEMENT
DATED August 20, 2007
Annexed to the Registrant's Form 8-K dated May 1, 2007, incorporated by
reference herein.
EXHIBIT A
FORM OF DEBT CONVERSION AGREEMENT
Annexed as Exhibit 10.2 on the Registrant's Form 8-K dated August 24, 2007,
incorporated by reference herein.
EXHIBIT B
FORM OF BLANK ROME OPINION
Annexed to the Registrant's Form 8-K dated May 1, 2007, incorporated by
reference herein.
EXHIBIT C
FORM OF COMPANY COUNSEL LEGAL OPINION
Annexed to the Registrant's Form 8-K dated May 1, 2007, incorporated by
reference herein.
EXHIBIT D
FORM OF REGISTRATION RIGHTS AGREEMENT
Annexed as Exhibit 10.4 on the Registrant's Form 8-K dated August 24, 2007,
incorporated by reference herein.
EXHIBIT E
FORM OF INVESTOR QUALIFICATION STATEMENT
EXHIBIT E
Investor Qualification Statement
Gilman + Ciocia, Inc.
11 Raymond Avenue
Poughkeepsie, New York 12603
The information contained in this Investor Qualification Statement (the
"Statement") is being furnished to you to enable you to determine whether the
undersigned qualifies as an "accredited investor," as such term is defined in
Regulation D ("Regulation D") promulgated under the Securities Act of 1933, as
amended (the "Securities Act").
The undersigned understands that: (i) you will rely upon the information
contained herein for purposes of such determination and (ii) this Statement is
not an offer to purchase any securities of Gilman + Ciocia, Inc. ("Gilman"). The
undersigned represents to you that (i) the information contained herein is
complete and accurate and may be relied upon by you and (ii) the undersigned
will notify you immediately of any material change in any of such information.
All information furnished is for the sole use by you and your counsel and
will be held in confidence by you and such counsel, except that this Statement
may be furnished to such parties as you deem desirable to establish compliance
with federal or state securities laws.
The undersigned hereby represents and warrants as follows:
A. Administrative Information
NUMBER OF SHARES OF COMMON STOCK OF GILMAN HELD
NAME(S) IN WHICH SECURITIES OF GILMAN ARE TO BE HELD:
1. ______________________________________________________________
First Name Initial Last Name
2. ______________________________________________________________
Name of Trust, Corporation or Other Entity
SOCIAL SECURITY NUMBER(S): OR TAX IDENTIFICATION NUMBER(S):
1. ____________________ ______________________________
2. ____________________ ______________________________
Manner in which title is to be held (please check one):
________ Individual Ownership Other (if trust, give name, date
________ Community Property and beneficiaries; if an estate,
________ Joint Tenant with Rights give names of estate and
in Survivor executor(s): ___________________
________________________________
________________________________
________ Tenants in Common
________ Partnership
________ Corporation
Limited Liability Company
INVESTOR TELEPHONE NUMBERS: HOME/CELL PHONE: ________________________
Area Code
BUSINESS: ________________________
Area Code
INVESTOR ADDRESS:
________________________________________________________________________________
________________________________________________________________________________
City State Zip Code
B. Accredited Investor Suitability Representation
The undersigned must complete the paragraph or paragraphs below, which
describes the suitability requirement under which the undersigned intends to
qualify as an "accredited investor". Initial and complete in full all paragraphs
that apply to the undersigned below. If none of the paragraphs in this Section B
apply to you, you must complete Section C below. If at least one of the
paragraphs in this Section B apply to you, then you do not need to complete
Section C.
________ 1. Net Worth Suitability
This suitability requirement may be selected only by individuals and NOT
by a corporation, partnership, trust, estate, unincorporated association or
other entity.
The undersigned represents and warrants that his or her individual net
worth, or net worth with spouse, exceeds $1,000,000 as of the date of this
Statement.
________ 2. Annual Net Income Suitability
This suitability requirement may be selected only by individuals, and NOT
by a corporation, partnership, trust, estate, unincorporated associated or other
entity.
The undersigned represents and warrants that his or her individual net
income was in excess of $200,000 in each of the two most recent years (i.e.,
years ended on December 31, 2006 and 2005), and he or she reasonably expects his
or her net income to be in excess of $200,000 in the current year (i.e., the
year ending on December 31, 2007); in the alternative, the undersigned
represents that his or her joint income with his or her spouse was in excess of
$300,000 for each of the two most recent years (i.e., years ended on December
31, 2006 and 2005), and he or she reasonably expects such joint net income to be
in excess of $300,000 for the current year (i.e., the year ending on December
31, 2007).
________ 3. The undersigned represents and warrants that he or she is a
director, executive officer, or general partner of Gilman.
________ 4. Entity Suitability
The undersigned represents and warrants that it is a corporation, a
partnership, a limited liability company, an unincorporated association or a
trust, and that each owner of an equity interest in the entity or each
beneficiary of the trust, satisfied the suitability requirements of either
paragraph 1 (net worth) or paragraph 2 (net income) or paragraph (3) (executive
officer or director).
________ 5. Certain Qualified Organizations
The undersigned represents and warrants that it is (check one):
________ a. A bank (as defined in Section 3(a)(2) of the Securities
Act).
________ b. A private business development company as defined in
Section 202(a)(22) of the Investment Advisors Act of
1940.
________ c. An organization described in Section 501(c)(3) of the
Internal Revenue Code (tax exempt organization), a
corporation or similar business trust or partnership,
not formed for the specific purpose of making this
investment, having total assets in excess of $5,000,000
as of the date of this Statement.
________ d. Any trust, with total assets in excess of $5,000,000 as
of the date of this Statement, not formed for the
specific purpose of making this investment, whose
purchase is directed by a "sophisticated person"(1) as
described in Rule 506(b)(2)(ii) of Regulation D.
C. Sophisticated Investor Representation
Even though a prospective investor fails to meet the criteria set forth in
items 1 through 5 of Section B above, under certain circumstances, Gilman may
accept as an investor who Gilman determines, in its sole discretion, either
alone or with their purchaser representative(s), has such knowledge and
experience in financial and business matters that he or she is capable of
evaluating the merits and risks of an investment in securities of Gilman.
Please provide the following information:
1. College: ____________________ Degree: ______ Year: _______
Graduate School: ____________ Degree: ______ Year: _______
2. Nature of Business/or Employment: ____________________________
Position and Duties: _________________________________________
Please list any other prior occupations or duties during the
past 5 years:
______________________________________________________________
______________________________________________________________
3. I have personally invested in excess of $_________ over the
past 5 years, including investments during such period in
excess of $_________ in securities with limited liquidity.
4. I consider myself to be an experienced and sophisticated
investor.
Yes ___________ No ___________
5. I understand the full nature and risk of investment in
securities of Gilman and I feel I can afford the complete loss
of the investment.
Yes ___________ No ___________
6. Stated below are the types of investments I have made in the
past 5 years, with particular attention to investment in
securities with limited liquidity.
______________________________________________________________
______________________________________________________________
- ----------
(1) A "sophisticated person" has such knowledge and experience in financial and
business matters that he is capable of evaluating the merits and risks of the
prospective investment.
7. I will have an attorney, accountant, investment advisor or
other consultant review an investment in securities of Gilman.
Yes ___________ No ___________
If yes, please indicate name and business address or each such
advisor:
Name: __________________________ Telephone: ________________
Profession or Occupation: ____________________________________
Firm: ________________________________________________________
Address: _____________________________________________________
8. I will designate a purchaser representative* to assist me in
evaluating the merits and risks of an investment in securities
of Gilman.
Yes ___________ No ___________
If yes, please indicate name and business address:
Name: __________________________ Telephone: ________________
Profession or Occupation: ____________________________________
Firm: ________________________________________________________
Address: _____________________________________________________
The undersigned hereby acknowledges, represents and warrants to, and
agrees with, the Company (severally and not jointly) as follows:
i. The undersigned is acquiring the securities for the undersigned's own
account as principal, for investment purposes only, and not with a view to, or
for, resale, distribution or fractionalization thereof, in whole or in part, and
no other person has a direct or indirect beneficial interest in such securities.
ii. The undersigned acknowledges its understanding that the issuance of
the securities is intended to be exempt from registration under the Act by
virtue of Section 4(2) of the Securities Act of 1933, as amended (the "Act") and
the provisions of Regulation D thereunder.
iii. The undersigned, either alone or together with its representatives,
has such knowledge, sophistication and experience in business and financial
matters so as to be capable of evaluating the merits and risks of the
prospective investment in the securities, and has so evaluated the merits and
risks of such investment.
iv. The undersigned has the financial ability to bear the economic risk of
his investment, has adequate means for providing for his current needs and
personal contingencies and has no need for liquidity with respect to his
investment in the Company.
v. The undersigned has received and reviewed the materials set forth on
Schedule I hereto and has made an independent investigation of the Company's
business, been provided an opportunity to obtain additional information
concerning the Company undersigned deems necessary to make an investment
decision and all other information to the extent the Company possesses such
information or can acquire it without unreasonable effort or expense.
- ----------
* The purchaser representative must also provide the information in Section C.
vi. The undersigned represents, warrants and agrees that undersigned will
not sell or otherwise transfer the securities unless registered under the Act or
in reliance upon an exemption therefrom, and fully understands and agrees that
undersigned must bear the economic risk of his purchase for an indefinite period
of time because, among other reasons, the securities or underlying securities
have not been registered under the Act or under the securities laws of certain
states and, therefore, cannot be resold, pledged, assigned or otherwise disposed
of unless they are subsequently registered under the Act and under the
applicable securities laws of such states or an exemption from such registration
is available. The undersigned also understands that the Company is under no
obligation to register the securities on his behalf or to assist the undersigned
in complying with any exemption from registration under the Act. The undersigned
further understands that sales or transfers of the securities or underlying
securities are restricted by the provisions of state securities laws.
IN WITNESS WHEREOF, the undersigned has executed this Statement this _____
day of ______________, 2007.
___________________________________________________
(Signature)
___________________________________________________
(Printed or typed name)
(Title if signing on behalf of an entity)
___________________________________________________
(Second signature--required if securities of Gilman
will be held in more than one name)
___________________________________________________
(Printed or typed name)
(Title if signing on behalf of an entity)