COMMON STOCK PURCHASE
AGREEMENT
Dated as of December 28, 2005
by and among
ROO GROUP, INC.
and
THE PURCHASERS LISTED ON EXHIBIT A
TABLE OF CONTENTS
Page
----
ARTICLE I Purchase and Sale of Common Stock and Warrants......................................1
Section 1.1 Purchase and Sale of Common Stock and Warrants......................................1
Section 1.2 Purchase Price and Closing..........................................................1
ARTICLE II Representations and Warranties......................................................2
Section 2.1 Representations and Warranties of the Company.......................................2
Section 2.2 Representations and Warranties of the Purchasers...................................12
ARTICLE III Covenants..........................................................................15
Section 3.1 Securities Compliance..............................................................15
Section 3.2 Registration and Listing...........................................................16
Section 3.3 Inspection Rights..................................................................16
Section 3.4 Compliance with Laws...............................................................16
Section 3.5 Keeping of Records and Books of Account............................................16
Section 3.6 Reporting Requirements.............................................................16
Section 3.7 Other Agreements...................................................................17
Section 3.8 Use of Proceeds....................................................................16
Section 3.9 Reporting Status...................................................................16
Section 3.10 Disclosure of Transaction..........................................................16
Section 3.11 Disclosure of Material Information.................................................17
Section 3.12 Form D.............................................................................17
Section 3.13 No Integrated Offerings............................................................17
Section 3.14 Pledge of Shares...................................................................17
Section 3.15 Application for Nasdaq Listing.....................................................18
Section 3.16 Subsequent Financings; Right of Participation......................................18
ARTICLE IV Conditions.........................................................................19
Section 4.1 Conditions Precedent to the Obligation of the Company to Close and
to Sell the Shares.................................................................19
Section 4.2 Conditions Precedent to the Obligation of the Purchasers to Close
and to Purchase the Shares.........................................................20
ARTICLE V Certificate Legend.................................................................22
Section 5.1 Legend.............................................................................20
ARTICLE VI Indemnification....................................................................23
Section 6.1 General Indemnity..................................................................23
Section 6.2 Indemnification Procedure..........................................................23
ARTICLE VII Miscellaneous......................................................................25
Section 7.1 Fees and Expenses..................................................................25
Section 7.2 Specific Performance; Consent to Jurisdiction; Venue...............................25
Section 7.3 Entire Agreement; Amendment........................................................25
Section 7.4 Notices............................................................................26
Section 7.5 Waivers............................................................................27
Section 7.6 Headings...........................................................................27
Section 7.7 Successors and Assigns.............................................................27
Section 7.8 No Third Party Beneficiaries.......................................................27
Section 7.9 Governing Law......................................................................27
Section 7.10 Survival...........................................................................27
Section 7.11 Counterparts.......................................................................27
Section 7.12 Publicity..........................................................................27
Section 7.13 Severability.......................................................................28
Section 7.14 Further Assurances.................................................................28
COMMON STOCK PURCHASE AGREEMENT
This COMMON STOCK PURCHASE AGREEMENT this ("Agreement"), dated as of
December 28, 2005 by and among ROO Group, Inc., a Delaware corporation (the
"Company"), and the purchasers listed on Exhibit A hereto (each a "Purchaser"
and collectively, the "Purchasers"), for the purchase and sale of shares of the
Company's common stock, par value $0.0001 per share (the "Common Stock") by the
Purchasers.
The parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF COMMON STOCK AND WARRANTS
Section 1.1 Purchase and Sale of Common Stock and Warrants.
(a) Upon the following terms and conditions, the Company shall issue
and sell to the Purchasers, and the Purchasers shall purchase from the Company,
shares of Common Stock (the "Shares") at a price per share of $3.00. The minimum
purchase price hereunder shall be no less than $3,000,000 (the "Minimum Purchase
Price"). The aggregate purchase price sold hereunder shall be the sum of the
Minimum Purchase Price and the aggregate purchase price of any Shares sold in
excess of the Minimum Purchase Price (the "Purchase Price"). Each Purchaser
shall invest a minimum of $100,000 provided that the Company may accept
investments of less than $100,000 upon the mutual agreement of the Company and
Xxxxxxx Xxxx Partners, LLC, a division of Pali Capital, Inc. The Company and the
Purchasers are executing and delivering this Agreement in accordance with and in
reliance upon the exemption from securities registration afforded by Section
4(2) of the U.S. Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder (the "Securities Act"), including Regulation
D ("Regulation D"), and/or upon such other exemption from the registration
requirements of the Securities Act as may be available with respect to any or
all of the investments to be made hereunder.
(b) Upon the following terms and conditions, each Purchaser shall be
issued Warrants, in substantially the form attached hereto as Exhibit C (the
"Warrants"), to purchase a number of shares of Common Stock equal to forty
percent (40%) of the number of shares of Common Stock purchased by each
Purchaser, as set forth opposite such Purchaser's name on Exhibit A hereto. The
Warrants shall have an exercise price per share equal to $4.00 and a term of
five (5) years as adjusted pursuant to the terms and provisions of the Warrant.
The number of shares of Common Stock issuable upon exercise of the Warrants
issuable to each Purchaser is set forth opposite such Purchaser's name on
Exhibit A attached hereto. Any shares of Common Stock issuable upon exercise of
the Warrants (and such shares when issued) are herein referred to as the
"Warrant Shares". The Shares, the Warrants and the Warrant Shares are sometimes
collectively referred to herein as the "Securities".
Section 1.2 Purchase Price and Closing. In consideration of and in
express reliance upon the representations, warranties, covenants, terms and
conditions of this Agreement, the Company agrees to issue and sell to the
Purchasers and, in consideration of and in express reliance upon the
representations, warranties, covenants, terms and conditions of this Agreement,
the Purchasers, severally but not jointly, agree to purchase the number of
Shares and Warrants, in each case, set forth opposite their respective names on
Exhibit A. The closing of the purchase and sale of the Shares and Warrants to be
acquired by the Purchasers from the Company under this Agreement shall take
place at the offices of Xxxxxx Xxxxx Xxxxxxxx & Xxxxxxx LLP, 0000 Xxxxxx xx xxx
Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000 (the "Closing") at 10:00 a.m. on December
___, 2005 or at such time and on such date as the Purchasers and the Company may
agree upon (the "Closing Date"), provided, that all of the conditions set forth
in Article IV hereof and applicable to the Closing shall have been fulfilled or
waived in accordance herewith. At the Closing, the Company shall deliver or
cause to be delivered to each Purchaser (i) a certificate registered in the name
of the Purchaser representing the number of Shares as is set forth opposite the
name of such Purchaser on Exhibit A and (ii) any other deliveries as required by
Article IV. At the Closing, each Purchaser shall deliver its portion of the
Purchase Price by wire transfer to an account designated by the Company.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Company. The Company
hereby represents and warrants to the Purchasers as follows, as of the date
hereof and the Closing Date, except as set forth on the Schedule of Exceptions
attached hereto with each numbered Schedule corresponding to the section number
herein:
(a) Organization, Good Standing and Power. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware and has the requisite corporate power to own, lease and
operate its properties and assets and to conduct its business as it is now being
conducted. The Company does not have any Subsidiaries (as defined in Section
2.1(g)) or own securities of any kind in any other entity except as set forth on
Schedule 2.1(g) hereto. The Company and each such Subsidiary (as defined in
Section 2.1(g)) is duly qualified to do business as a foreign corporation and is
in good standing in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary except for
any jurisdiction(s) (alone or in the aggregate) in which the failure to be so
qualified will not have a Material Adverse Effect. For the purposes of this
Agreement, "Material Adverse Effect" means any effect on the business, results
of operations, prospects, assets or condition (financial or otherwise) of the
Company that is material and adverse to the Company and its subsidiaries and/or
any condition, circumstance, or situation that would prohibit or otherwise
materially interfere with the ability of the Company from entering into and
performing any of its obligations under the Transaction Documents (as defined
below) in any material respect.
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(b) Authorization; Enforcement. The Company has the requisite corporate
power and authority to enter into and perform this Agreement, the Warrants, the
Escrow Agreement by and among the Company, the Purchasers and the escrow agent,
dated as of the date hereof, substantially in the form of Exhibit B hereto (the
"Escrow Agreement") and that certain Registration Rights Agreement by and among
the Company and the Purchasers, dated as of the date hereof, substantially in
the form of Exhibit D attached hereto (the "Registration Rights Agreement" and,
together with the Escrow Agreement, the Warrants and this Agreement, the
"Transaction Documents") and to issue and sell the Shares and Warrants in
accordance with the terms hereof and to complete the transactions contemplated
by the Transaction Documents. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby have been duly and validly authorized by all
necessary corporate action and no further consent or authorization of the
Company, its Board of Directors or stockholders is required. When executed and
delivered by the Company, each of the Transaction Documents shall constitute a
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, reorganization, moratorium, liquidation, conservatorship,
receivership or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application.
(c) Capitalization. The authorized capital stock of the Company as of
December ____, 2005 is set forth on Schedule 2.1(c) hereto. All of the
outstanding shares of the Common Stock and any other outstanding security of the
Company have been duly and validly authorized and validly issued, fully paid and
nonassessable and were issued in accordance with the registration or
qualification provisions of the Securities Act, or pursuant to valid exemptions
therefrom. Except as set forth in this Agreement and as set forth on Schedule
2.1(c) hereto, no shares of Common Stock or any other security of the Company
are entitled to preemptive rights, registration rights, rights of first refusal
or similar rights and there are no outstanding options, warrants, scrip, rights
to subscribe to, call or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company. Furthermore, except as set forth in this Agreement and as set forth on
Schedule 2.1(c) hereto, there are no contracts, commitments, understandings, or
arrangements by which the Company is or may become bound to issue additional
shares of the capital stock of the Company or options, securities or rights
convertible into shares of capital stock of the Company. Except for customary
transfer restrictions contained in agreements entered into by the Company in
order to sell restricted securities or as provided on Schedule 2.1(c) hereto,
the Company is not a party to or bound by any agreement or understanding
granting registration or anti-dilution rights to any person with respect to any
of its equity or debt securities. Except as set forth on Schedule 2.1(c), the
Company is not a party to, and it has no knowledge of, any agreement or
understanding restricting the voting or transfer of any shares of the capital
stock of the Company.
(d) Issuance of Shares. The Shares to be issued at the Closing have
been duly authorized by all necessary corporate action and, when paid for and
issued in accordance with the terms hereof, the Shares will be validly issued,
fully paid and nonassessable and free and clear of all liens, encumbrances and
rights of refusal of any kind and the holders shall be entitled to all rights
accorded to a holder of Common Stock. When the Warrant Shares are issued and
paid for in accordance with the terms of the Warrants, such shares will be duly
authorized by all necessary corporate action and validly issued and outstanding,
fully paid and nonassessable and free and clear of all liens, encumbrances and
rights of refusal of any kind and the holders shall be entitled to all rights
accorded to a holder of Common Stock.
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(e) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby do not and will not (i) violate any
provision of the Company's Certificate of Incorporation (the "Certificate") or
Bylaws (the "Bylaws"), each as amended to date, or any Subsidiary's comparable
charter documents, (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, mortgage, deed of trust, indenture, note, bond,
license, lease agreement, instrument or obligation to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries' respective properties or assets are bound, or (iii) result in a
violation of any federal, state, local or foreign statute, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations) applicable to the Company or any of its Subsidiaries or by which
any property or asset of the Company or any of its Subsidiaries is bound or
affected, except, in all cases, other than violations pursuant to clauses (i) or
(iii) (with respect to federal and state securities laws) above, except, for
such conflicts, defaults, terminations, amendments, acceleration, cancellations
and violations as would not, individually or in the aggregate, have a Material
Adverse Effect. Neither the Company nor any of its Subsidiaries is required
under federal, state, foreign or local law, rule or regulation to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under the Transaction Documents or issue and sell the Shares
in accordance with the terms hereof (other than any filings, consents and
approvals which may be required to be made by the Company under applicable state
and federal securities laws, rules or as may be required for the Company to
carry out its obligations under the Registration Rights Agreement).
(f) Commission Documents, Financial Statements. The Common Stock of the
Company is registered pursuant to Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, except as disclosed
on Schedule 2.1(f) hereto, the Company has timely filed all reports, schedules,
forms, statements and other documents required to be filed by it with the
Securities and Exchange Commission (the "Commission") pursuant to the reporting
requirements of the Exchange Act, including pursuant to Sections 13, 14 or 15(d)
thereof (all of the foregoing and all exhibits included therein and financial
statement and schedules thereto, including filings incorporated by reference
therein being referred to herein as the "Commission Documents"). At the times of
their respective filings, the Form 10-QSB for the fiscal quarters ended March
31, 2005, June 30, 2005 and September 30, 2005 (collectively, the "Form 10-QSB")
and the Form 10-KSB for the fiscal year ended December 31, 2004 (the "Form
10-KSB") complied in all material respects with the requirements of the Exchange
Act and the rules and regulations of the Commission promulgated thereunder, and
the Form 10-QSB and Form 10-KSB at the time of their respective filings did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. As of their respective dates, the financial statements of the
Company included in the Commission Documents were complete and correct in all
material respects and complied with applicable accounting requirements and the
published rules and regulations of the Commission or other applicable rules and
regulations with respect thereto. Such financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
("GAAP") applied on a consistent basis during the periods involved (except (i)
as may be otherwise indicated in such financial statements or the Notes thereto
or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements), and fairly present
in all material respects the financial position of the Company and its
Subsidiaries as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments).
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(g) Subsidiaries. Schedule 2.1(g) hereto sets forth each Subsidiary of
the Company, showing the jurisdiction of its incorporation or organization and
showing the percentage of each person's ownership of the outstanding stock or
other interests of such Subsidiary. For the purposes of this Agreement,
"Subsidiary" shall mean any corporation or other entity of which 100% of the
securities or other ownership interest having ordinary voting power (absolutely
or contingently) for the election of directors or other persons performing
similar functions are at the time owned directly or indirectly by the Company
and/or any of its other Subsidiaries. All of the outstanding shares of capital
stock of each Subsidiary have been duly authorized and validly issued, and are
fully paid and nonassessable. There are no outstanding preemptive, conversion or
other rights, options, warrants or agreements granted or issued by or binding
upon any Subsidiary for the purchase or acquisition of any shares of capital
stock of any Subsidiary or any other securities convertible into, exchangeable
for or evidencing the rights to subscribe for any shares of such capital stock.
Neither the Company nor any Subsidiary is subject to any obligation (contingent
or otherwise) to repurchase or otherwise acquire or retire any shares of the
capital stock of any Subsidiary or any convertible securities, rights, warrants
or options of the type described in the preceding sentence except as set forth
on Schedule 2.1(g) hereto. Neither the Company nor any Subsidiary is party to,
nor has any knowledge of, any agreement restricting the voting or transfer of
any shares of the capital stock of any Subsidiary.
(h) No Material Adverse Change. Since December 31, 2004, the Company
has not experienced or suffered any Material Adverse Effect, except as disclosed
on Schedule 2.1(h) hereto.
(i) No Undisclosed Liabilities. Except as disclosed on Schedule 2.1(i)
hereto, since December 31, 2004, neither the Company nor any of its Subsidiaries
has incurred any liabilities, obligations, claims or losses (whether liquidated
or unliquidated, secured or unsecured, absolute, accrued, contingent or
otherwise) other than those incurred in the ordinary course of the Company's or
its Subsidiaries respective businesses or which, individually or in the
aggregate, are not reasonably likely to have a Material Adverse Effect. Since
December 31, 2004, except as disclosed in Commission Documents, none of the
Company or any of its Subsidiaries has participated in any transaction material
to the condition of the Company which is outside of the ordinary course of its
business.
(j) No Undisclosed Events or Circumstances. Since December 31, 2004,
except as disclosed on Schedule 2.1(j) hereto, no event or circumstance has
occurred or exists with respect to the Company or its Subsidiaries or their
respective businesses, properties, operations or financial condition, which,
under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed.
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(k) Indebtedness. Schedule 2.1(k) hereto sets forth as of the date
hereof all outstanding secured and unsecured Indebtedness of the Company or any
Subsidiary, or for which the Company or any Subsidiary has commitments. For the
purposes of this Agreement, "Indebtedness" shall mean (a) any liabilities for
borrowed money or amounts owed in excess of $150,000 (other than trade accounts
payable incurred in the ordinary course of business), (b) all guaranties,
endorsements and other contingent obligations in respect of liabilities for
borrowed money of others in excess of $150,000, whether or not the same are or
should be reflected in the Company's balance sheet (or the notes thereto),
except guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business; and (c)
the present value of any lease payments in excess of $25,000 due under leases
required to be capitalized in accordance with GAAP. Neither the Company nor any
Subsidiary is in default with respect to any Indebtedness.
(l) Title to Assets. Each of the Company and the Subsidiaries has good
and valid title to all of its real and personal property reflected in the
Commission Documents, free and clear of any mortgages, pledges, charges, liens,
security interests or other encumbrances, except for those indicated on Schedule
2.1(l) hereto or such that, individually or in the aggregate, do not cause a
Material Adverse Effect. All said leases of the Company and each of its
Subsidiaries are valid and subsisting and in full force and effect.
(m) Actions Pending. There is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or other proceeding pending
or, to the knowledge of the Company, threatened against the Company or any
Subsidiary which questions the validity of this Agreement or any of the other
Transaction Documents or any of the transactions contemplated hereby or thereby
or any action taken or to be taken pursuant hereto or thereto. Except as set
forth on Schedule 2.1(m) hereto, there is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or other proceeding pending
or, to the knowledge of the Company, threatened against or involving the
Company, any Subsidiary or any of their respective properties or assets, which
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect. There are no outstanding orders, judgments,
injunctions, awards or decrees of any court, arbitrator or governmental or
regulatory body against the Company or any Subsidiary or any officers or
directors of the Company or any Subsidiary in their capacities as such, which
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
(n) Compliance with Law. The business of the Company and the
Subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except as set forth in the Commission Documents or on Schedule
2.1(n) hereto or such that, individually or in the aggregate, the noncompliance
therewith could not reasonably be expected to have a Material Adverse Effect.
The Company and each of its Subsidiaries have all franchises, permits, licenses,
consents and other governmental or regulatory authorizations and approvals
necessary for the conduct of its business as now being conducted by it unless
the failure to possess such franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
6
(o) Taxes. Except as set forth on Schedule 2.1(o) hereto, the Company
and each of the Subsidiaries has accurately prepared and filed all federal,
state and other tax returns required by law to be filed by it, has paid all
taxes shown to be due and all additional assessments, and adequate provisions
have been and are reflected in the financial statements of the Company and the
Subsidiaries for all current taxes and other charges to which the Company or any
Subsidiary is subject and which are not currently due and payable. Except as
disclosed on Schedule 2.1(o) hereto, none of the federal income tax returns of
the Company or any Subsidiary has been audited by the Internal Revenue Service.
The Company has no knowledge of any additional assessments, adjustments or
contingent tax liability (whether federal or state) of any nature whatsoever,
whether pending or threatened against the Company or any Subsidiary for any
period, nor of any basis for any such assessment, adjustment or contingency.
(p) Certain Fees. Except as set forth on Schedule 2.1(p) hereto, the
Company has not employed any broker or finder or incurred any liability for any
brokerage or investment banking fees, commissions, finders' structuring fees,
financial advisory fees or other similar fees in connection with the Transaction
Documents.
(q) Disclosure. Neither this Agreement or the Schedules hereto nor any
other documents, certificates or instruments furnished to the Purchasers by or
on behalf of the Company or any Subsidiary in connection with the transactions
contemplated by this Agreement contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements made
herein or therein, in the light of the circumstances under which they were made
herein or therein, not misleading.
(r) Operation of Business. Except as set forth on Schedule 2.1(r)
hereto, the Company and each of the Subsidiaries owns or possesses the rights to
use all patents, trademarks, domain names (whether or not registered) and any
patentable improvements or copyrightable derivative works thereof, websites and
intellectual property rights relating thereto, service marks, trade names,
copyrights, licenses and authorizations which are necessary for the conduct of
its business as now conducted without any conflict or infringement with the
rights of others.
(s) Environmental Compliance. Except as disclosed on Schedule 2.1(s)
hereto, the Company and each of its Subsidiaries have obtained all material
approvals, authorization, certificates, consents, licenses, orders and permits
or other similar authorizations of all governmental authorities, or from any
other person, that are required under any Environmental Laws. "Environmental
Laws" shall mean all applicable laws relating to the protection of the
environment including, without limitation, all requirements pertaining to
reporting, licensing, permitting, controlling, investigating or remediating
emissions, discharges, releases or threatened releases of hazardous substances,
chemical substances, pollutants, contaminants or toxic substances, materials or
wastes, whether solid, liquid or gaseous in nature, into the air, surface water,
groundwater or land, or relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of hazardous
7
substances, chemical substances, pollutants, contaminants or toxic substances,
material or wastes, whether solid, liquid or gaseous in nature. Except as set
forth on Schedule 2.1(s) hereto, the Company has all necessary governmental
approvals required under all Environmental Laws and used in its business or in
the business of any of its Subsidiaries, except for such instances as would not
individually or in the aggregate have a Material Adverse Effect. The Company and
each of its Subsidiaries are also in compliance with all other limitations,
restrictions, conditions, standards, requirements, schedules and timetables
required or imposed under all Environmental Laws. Except for such instances as
would not individually or in the aggregate have a Material Adverse Effect, there
are no past or present events, conditions, circumstances, incidents, actions or
omissions relating to or in any way affecting the Company or its Subsidiaries
that violate or would be reasonably likely to violate any Environmental Law
after the Closing or that would be reasonably likely to give rise to any
environmental liability, or otherwise form the basis of any claim, action,
demand, suit, proceeding, hearing, study or investigation (i) under any
Environmental Law or (ii) based on or related to the manufacture, processing,
distribution, use, treatment, storage (including, without limitation,
underground storage tanks), disposal, transport or handling, or the emission,
discharge, release or threatened release of any hazardous substance.
(t) Books and Records; Internal Accounting Controls. The records and
documents of the Company and its Subsidiaries accurately reflect in all material
respects the information relating to the business of the Company and its
Subsidiaries, the location and collection of their assets, and the nature of all
transactions giving rise to the obligations or accounts receivable of the
Company or any Subsidiary. The Company and each of 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, (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate actions are taken with respect to any
differences and (v) accounts, notes and other receivables and inventory are
recorded accurately, and proper and adequate procedures are implemented to
effect the collection thereof on a current and timely basis. Except as set forth
on Schedule 2.1(t) hereto, there are no significant deficiencies or material
weaknesses in the design or operation of internal controls over financial
reporting that would reasonably be expected to adversely affect the Company's
ability to record, process, summarize and report financial information, and
there is no fraud, whether or not material, that involves management or, to the
knowledge of the Company, other employees who have a significant role in the
Company's internal controls and the Company has provided to the Purchaser copies
of any written materials relating to the foregoing.
(u) Material Agreements. Except for the Transaction Documents (with
respect to clause (i) only), as disclosed in the Commission Documents or as set
forth on Schedule 2.1(u) hereto, or as would not be reasonably likely to have a
Material Adverse Effect, (i) the Company and each of its Subsidiaries have
performed all obligations required to be performed by them to date under any
written or oral contract, instrument, agreement, commitment, obligation, plan or
arrangement, filed or required to be filed with the Commission (the "Material
Agreements"), (ii) neither the Company nor any of its Subsidiaries has received
any notice of default under any Material Agreement and, (iii) to the best of the
Company's knowledge, neither the Company nor any of its Subsidiaries is in
default under any Material Agreement.
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(v) Transactions with Affiliates. Except as set forth on Schedule
2.1(v) hereto, there are no loans, leases, agreements, contracts, royalty
agreements, management contracts or arrangements or other continuing
transactions between (a) the Company, any Subsidiary or any of their respective
customers or suppliers on the one hand, and (b) on the other hand, any officer,
employee, consultant or director of the Company, or any of its Subsidiaries, or
any person owning any capital stock of the Company or any Subsidiary or any
member of the immediate family of such officer, employee, consultant, director
or stockholder or any corporation or other entity controlled by such officer,
employee, consultant, director or stockholder, or a member of the immediate
family of such officer, employee, consultant, director or stockholder which, in
each case, is required to be disclosed in the Commission Documents or in the
Company's most recently filed definitive proxy statement on Schedule 14A, that
is not so disclosed in the Commission Documents or in such proxy statement.
(w) Securities Act of 1933. Based in material part upon the
representations and warranties of the Purchasers contained in Section 2.2
hereof, the Company has complied and will comply with all applicable federal and
state securities laws in connection with the offer, issuance and sale of the
Shares hereunder. Neither the Company nor anyone acting on its behalf, directly
or indirectly, has or will sell, offer to sell or solicit offers to buy any of
the Shares or similar securities to, or solicit offers with respect thereto
from, or enter into any negotiations relating thereto with, any person, or has
taken or will take any action so as to bring the issuance and sale of any of the
Shares under the registration provisions of the Securities Act and applicable
state securities laws, and neither the Company nor any of its affiliates, nor
any person acting on its or their behalf, has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D under
the Securities Act) in connection with the offer or sale of any of the Shares.
(x) Governmental Approvals. Except for the filing of any notice prior
or subsequent to the Closing that may be required under applicable state and/or
federal securities laws (which if required, shall be filed on a timely basis),
no authorization, consent, approval, license, exemption of, filing or
registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, is or will be necessary
for, or in connection with, the execution or delivery of the Shares, or for the
performance by the Company of its obligations under the Transaction Documents.
(y) Employees; Labor Relations. Neither the Company nor any Subsidiary
has any collective bargaining arrangements or agreements covering any of its
employees, except as set forth on Schedule 2.1(y) hereto or disclosed in the
Commission Documents. Except as set forth on Schedule 2.1(y) hereto or disclosed
in the Commission Documents, neither the Company nor any Subsidiary has any
employment contract, agreement regarding proprietary information,
non-competition agreement, non-solicitation agreement, confidentiality
agreement, or any other similar contract or restrictive covenant, relating to
the right of any officer, employee or consultant to be employed or engaged by
the Company or such Subsidiary required to be disclosed in the Commission
Documents that is not so disclosed. Since
9
December 31, 2004, no officer, consultant or key employee of the Company or any
Subsidiary whose termination, either individually or in the aggregate, would be
reasonably likely to have a Material Adverse Effect, has terminated or, to the
knowledge of the Company, has any present intention of terminating his or her
employment or engagement with the Company or any Subsidiary. Except as could not
reasonably be expected to have a Material Adverse Effect, (i) neither the
Company nor any of its Subsidiaries is engaged in any unfair labor practice,
(ii) there is no strike, labor dispute, slowdown or stoppage pending or, to the
knowledge of the Company, threatened against the Company or any of its
Subsidiaries, and (iii) neither the Company nor any of its Subsidiaries is a
party to any collective bargaining agreement or contract.
(z) Absence of Certain Developments. Except as provided on Schedule
2.1(z) hereto, since December 31, 2004, neither the Company nor any Subsidiary
has:
(i) issued any stock, bonds or other corporate securities or any right,
options or warrants with respect thereto;
(ii) borrowed any amount in excess of $150,000 or incurred or become
subject to any other liabilities in excess of $150,000 (absolute or contingent)
except current liabilities incurred in the ordinary course of business which are
comparable in nature and amount to the current liabilities incurred in the
ordinary course of business during the comparable portion of its prior fiscal
year, as adjusted to reflect the current nature and volume of the business of
the Company and its Subsidiaries;
(iii) discharged or satisfied any lien or encumbrance in excess of
$150,000 or paid any obligation or liability (absolute or contingent) in excess
of $150,000, other than current liabilities paid in the ordinary course of
business;
(iv) declared or made any payment or distribution of cash or other
property to stockholders with respect to its stock, or purchased or redeemed, or
made any agreements so to purchase or redeem, any shares of its capital stock,
in each case in excess of $50,000 individually or $100,000 in the aggregate;
(v) sold, assigned or transferred any other tangible assets, or
canceled any debts or claims, in each case in excess of $150,000, except in the
ordinary course of business;
(vi) sold, assigned or transferred any patent rights, trademarks, trade
names, copyrights, trade secrets or other intangible assets or intellectual
property rights in excess of $250,000, or disclosed any proprietary confidential
information to any person except to customers in the ordinary course of business
or to the Purchasers or their representatives;
(vii) suffered any material losses or waived any rights of material
value, whether or not in the ordinary course of business, or suffered the loss
of any material amount of prospective business;
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(viii) made any changes in employee compensation except in the ordinary
course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that aggregate
in excess of $150,000; (x) entered into any material transaction, whether or not
in the ordinary course of business;
(xi) made charitable contributions or pledges in excess of $10,000;
(xii) suffered any material damage, destruction or casualty loss,
whether or not covered by insurance;
(xiii) experienced any material problems with labor or management in
connection with the terms and conditions of their employment; or
(xiv) entered into an agreement, written or otherwise, to take any of
the foregoing actions.
(aa) Public Utility Holding Company Act and Investment Company Act
Status. The Company is not a "holding company" or a "public utility company" as
such terms are defined in the Public Utility Holding Company Act of 1935, as
amended. The Company is not, and as a result of and immediately upon the Closing
will not be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
(bb) ERISA. No liability to the Pension Benefit Guaranty Corporation
has been incurred with respect to any Plan by the Company or any of its
Subsidiaries which is or would be materially adverse to the Company and its
Subsidiaries. The execution and delivery of this Agreement and the issuance and
sale of the Shares and the Warrants will not involve any transaction which is
subject to the prohibitions of Section 406 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or in connection with which a tax
could be imposed pursuant to Section 4975 of the Internal Revenue Code of 1986,
as amended, provided that, if any of the Purchasers, or any person or entity
that owns a beneficial interest in any of the Purchasers, is an "employee
pension benefit plan" (within the meaning of Section 3(2) of ERISA) with respect
to which the Company is a "party in interest" (within the meaning of Section
3(14) of ERISA), the requirements of Sections 407(d)(5) and 408(e) of ERISA, if
applicable, are met. As used in this Section 2.1(bb), the term "Plan" shall mean
an "employee pension benefit plan" (as defined in Section 3 of ERISA) which is
or has been established or maintained, or to which contributions are or have
been made, by the Company or any Subsidiary or by any trade or business, whether
or not incorporated, which, together with the Company or any Subsidiary, is
under common control, as described in Section 414(b) or (c) of the Code.
11
(cc) Anti-takeover Device. Neither the Company nor any of its
Subsidiaries has any outstanding shareholder rights plan or "poison pill" or any
similar arrangement. There are no provisions of any anti-takeover or business
combination statute applicable to the Company, the Certificate and the Bylaws
which would preclude the issuance and sale of the Shares and the consummation of
the other transactions contemplated by this Agreement or any of the other
Transaction Documents.
(dd) Independent Nature of Purchasers. The Company acknowledges that
the obligations of each Purchaser under the Transaction Documents 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 the Transaction Documents and the Company shall not be
excused from performance of its obligations to any Purchaser under the
Transaction Documents as a result of nonperformance or breach by any other
Purchaser. The Company acknowledges that the decision of each Purchaser to
purchase Shares pursuant to this Agreement has been made by such Purchaser
independently of any other purchaser and independently of any information,
materials, statements or opinions as to the business, affairs, operations,
assets, properties, liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company or of its Subsidiaries which may have
made or given by any other Purchaser or by any agent or employee of any other
Purchaser, and no Purchaser or any of its agents or employees shall have any
liability to any Purchaser (or any other person) relating to or arising from any
such information, materials, statements or opinions. The Company acknowledges
that nothing contained herein, or in any Transaction Document, and no action
taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute
the Purchasers as a partnership, an association, a joint venture or any other
kind of entity, or create a presumption that the Purchasers are in any way
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. The Company acknowledges
that 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. The Company acknowledges that for reasons of administrative convenience
only, the Transaction Documents have been prepared by counsel for one of the
Purchasers and such counsel does not represent all of the Purchasers but only
such Purchaser and the other Purchasers have retained their own individual
counsel with respect to the transactions contemplated hereby. The Company
acknowledges that it has elected to provide all Purchasers with the same terms
and Transaction Documents for the convenience of the Company and not because it
was required or requested to do so by the Purchasers. The Company acknowledges
that such procedure with respect to the Transaction Documents in no way creates
a presumption that the Purchasers are in any way acting in concert or as a group
with respect to the Transaction Documents or the transactions contemplated
hereby or thereby.
(ee) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the Shares
pursuant to this Agreement to be integrated with prior offerings by the Company
for purposes of the Securities Act which would prevent the Company from selling
the Shares pursuant to Regulation D and Rule 506 thereof under the Securities
Act, or any applicable
12
exchange-related stockholder approval provisions, nor will the Company or any of
its affiliates or subsidiaries take any action or steps that would cause the
offering of the Shares to be integrated with other offerings if such other
offering, if integrated, would cause the offer and sale of the Shares not to be
exempt from registration pursuant to Regulation D and Rule 506 thereof under the
Securities Act. The Company does not have any registration statement pending
before the Commission or currently under the Commission's review and, except as
disclosed in Schedule 2.1(z), since March 1, 2005, the Company has not offered
or sold any of its equity securities or debt securities convertible into shares
of Common Stock.
(ff) Xxxxxxxx-Xxxxx Act. The Company is in compliance with the
applicable provisions of the Xxxxxxxx-Xxxxx Act of 2002 (the "Xxxxxxxx-Xxxxx
Act"), and the rules and regulations promulgated thereunder, that are effective
and for which compliance by the Company is required as of the date hereof and
intends to comply with other applicable provisions of the Xxxxxxxx-Xxxxx Act,
and the rules and regulations promulgated thereunder, upon the effectiveness of
such provisions or the date by which compliance therewith by the Company is
required.
Section 2.2 Representations and Warranties of the Purchasers. Each of
the Purchasers hereby represents and warrants to the Company with respect solely
to itself and not with respect to any other Purchaser as follows as of the date
hereof and as of the Closing Date:
(a) Organization and Standing of the Purchasers. If the Purchaser is an
entity, such Purchaser is a corporation, limited liability company or
partnership duly incorporated or organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization.
(b) Authorization and Power. Such Purchaser has the requisite power and
authority to enter into and perform the Transaction Documents and to purchase
the Shares being sold to it hereunder. The execution, delivery and performance
of the Transaction Documents by such Purchaser and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
corporate, partnership or other action, and no further consent or authorization
of such Purchaser or its Board of Directors, stockholders, partners or members,
as the case may be, is required. When executed and delivered by the Purchasers,
the other Transaction Documents shall constitute valid and binding obligations
of such Purchaser enforceable against such Purchaser in accordance with their
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation, conservatorship,
receivership or similar laws relating to, or affecting generally the enforcement
of, creditor's rights and remedies or by other equitable principles of general
application.
(c) No Conflict. The execution, delivery and performance of the
Transaction Documents by such Purchaser and the consummation by such Purchaser
of the transactions contemplated thereby and hereby do not and will not (i)
violate any provision of such Purchaser's charter or organizational documents,
(ii) conflict with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, mortgage, deed of trust, indenture, note, bond, license, lease
agreement, instrument or obligation to which such Purchaser is a party or by
which such Purchaser's respective
13
properties or assets are bound, or (iii) result in a violation of any federal,
state, local or foreign statute, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations) applicable to such
Purchaser or by which any property or asset of such Purchaser are bound or
affected, except, in all cases, other than violations pursuant to clauses (i) or
(iii) (with respect to federal and state securities laws) above, for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, materially and
adversely affect such Purchaser's ability to perform its obligations under the
Transaction Documents.
(d) Acquisition for Investment. Such Purchaser is purchasing the
Securities solely for its own account and not with a view to or for sale in
connection with distribution. Such Purchaser does not have a present intention
to sell any of the Securities nor a present arrangement (whether or not legally
binding) or intention to effect any distribution of any of the Securities, to or
through any person or entity; provided, however, that by making the
representations herein, such Purchaser does not agree to hold the Securities for
any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with Federal and state securities laws
applicable to such disposition. Such Purchaser acknowledges that it (i) has such
knowledge and experience in financial and business matters such that Purchaser
is capable of evaluating the merits and risks of Purchaser's investment in the
Company, (ii) is able to bear the financial risks associated with an investment
in the Securities and (iii) has been given full access to such records of the
Company and the Subsidiaries and to the officers of the Company and the
Subsidiaries as it has deemed necessary or appropriate to conduct its due
diligence investigation.
(e) Rule 144. Such Purchaser understands that the Securities must be
held indefinitely unless such Securities are registered under the Securities Act
or an exemption from registration is available. Such Purchaser acknowledges that
such person is familiar with Rule 144 of the rules and regulations of the
Commission, as amended, promulgated pursuant to the Securities Act ("Rule 144"),
and that such Purchaser has been advised that Rule 144 permits resales only
under certain circumstances. Such Purchaser understands that to the extent that
Rule 144 is not available, such Purchaser will be unable to sell any Securities
without either registration under the Securities Act or the existence of another
exemption from such registration requirement.
(f) General. Such Purchaser understands that the Securities are being
offered and sold in reliance on a transactional exemption from the registration
requirements of federal and state securities laws and the Company is relying
upon the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of such Purchaser set forth herein in order
to determine the applicability of such exemptions and the suitability of such
Purchaser to acquire the Securities. Such Purchaser understands that no United
States federal or state agency or any government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
(g) No General Solicitation. Such Purchaser acknowledges that the
Securities were not offered to such Purchaser by means of any form of general or
public solicitation or general advertising, or publicly disseminated
advertisements or sales literature, including (i) any advertisement, article,
notice or other communication published in any newspaper,
14
magazine, or similar media, or broadcast over television or radio, or (ii) any
seminar or meeting to which such Purchaser was invited by any of the foregoing
means of communications. Such Purchaser, in making the decision to purchase the
Securities, has relied upon independent investigation made by it and the
representations, warranties and agreements set forth in the Transaction
Documents and has not relied on any information or representations made by third
parties.
(h) Accredited Investor. Such Purchaser is an "accredited investor" (as
defined in Rule 501 of Regulation D), and such Purchaser has such experience in
business and financial matters that it is capable of evaluating the merits and
risks of an investment in the Securities. Such Purchaser is not required to be
registered as a broker-dealer under Section 15 of the Exchange Act and such
Purchaser is not a broker-dealer. Such Purchaser acknowledges that an investment
in the Securities is speculative and involves a high degree of risk. Such
Purchaser has completed or caused to be completed the Investor Questionnaire
Certification attached hereto as Exhibit E certifying as to its status as an
"accredited investor" and understands that the Company is relying upon the truth
and accuracy of such information set forth therein to determine the suitability
of such Purchaser to acquire the Securities.
(i) Certain Fees. The Purchasers have not employed any broker or finder
or incurred any liability for any brokerage or investment banking fees,
commissions, finders' structuring fees, financial advisory fees or other similar
fees in connection with the Transaction Documents.
(j) Independent Investment. No Purchaser has agreed to act with any
other Purchaser for the purpose of acquiring, holding, voting or disposing of
the Securities purchased hereunder for purposes of Section 13(d) under the
Exchange Act, and each Purchaser is acting independently with respect to its
investment in the Securities.
(k) Short Sales. Each Purchaser covenants that neither it nor any
affiliates acting on its behalf or pursuant to any understanding with it will
execute any Short Sales (as defined below) during the period after the date that
such Purchaser first received a term sheet from the Company or any other person
or entity setting forth the material terms of the transactions contemplated
hereunder until the date that the transactions contemplated by this Agreement
are first publicly announced as described in Section 3.10. For purposes hereof,
"Short Sales" shall include all "short sales" as defined in Rule 200 of
Regulation SHO under the Exchange Act.
ARTICLE III
COVENANTS
The Company covenants with each Purchaser as follows, which covenants
are for the benefit of each Purchaser and their respective permitted assignees.
Section 3.1 Securities Compliance. The Company shall notify the
Commission in accordance with its rules and regulations, of the transactions
contemplated by any of the Transaction Documents and shall take all other
necessary action and proceedings as may be required and permitted by applicable
law, rule and regulation, for the legal and valid issuance of the Shares to the
Purchasers, or their respective subsequent holders.
15
Section 3.2 Registration and Listing. The Company shall cause its
Common Stock to continue to be registered under Sections 12(b) or 12(g) of the
Exchange Act, to comply in all respects with its reporting and filing
obligations under the Exchange Act, to comply with all requirements related to
any registration statement filed pursuant to this Agreement, and to not take any
action or file any document (whether or not permitted by the Securities Act or
the rules promulgated thereunder) to terminate or suspend such registration or
to terminate or suspend its reporting and filing obligations under the Exchange
Act or Securities Act, except as permitted herein. The Company will take all
action necessary to continue the listing or trading of its Common Stock on the
OTC Bulletin Board or any successor market. Subject to the terms of the
Transaction Documents, the Company further covenants that it will take such
further action as the Purchasers may reasonably request, all to the extent
required from time to time to enable the Purchasers to sell the Shares without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144 promulgated under the Securities Act. Upon the request of
the Purchasers, the Company shall deliver to the Purchasers a written
certification of a duly authorized officer as to whether it has complied with
such requirements.
Section 3.3 Inspection Rights. The Company shall permit, during normal
business hours and upon reasonable request and reasonable notice, each Purchaser
or any employees, agents or representatives thereof, so long as such Purchaser
shall be obligated hereunder to purchase the Shares or shall beneficially own
any Shares or Warrant Shares, for purposes reasonably related to such
Purchaser's interests as a stockholder to examine and make reasonable copies of
the records and books of account of, and visit and inspect the properties,
assets, operations and business of the Company and any Subsidiary, and to
discuss the affairs, finances and accounts of the Company and any Subsidiary
with any of its officers, consultants, directors, and key employees.
Section 3.4 Compliance with Laws. The Company shall comply, and cause
each Subsidiary to comply, with all applicable laws, rules, regulations and
orders, noncompliance with which would be reasonably likely to have a Material
Adverse Effect.
Section 3.5 Keeping of Records and Books of Account. The Company shall
keep and cause each Subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
Subsidiaries.
Section 3.6 Reporting Requirements. If the Company ceases to file its
periodic reports with the Commission, or if the Commission ceases making these
periodic reports available via the Internet without charge, then the Company
shall, promptly after filing with the Commission, furnish the following to each
Purchaser so long as such Purchaser shall be obligated hereunder to purchase the
Securities or shall beneficially own Securities:
(a) Quarterly Reports filed with the Commission on Form 10-QSB;
16
(b) Annual Reports filed with the Commission on Form 10-KSB; and
(c) Copies of all notices, information and proxy statements in
connection with any meetings, that are, in each case, provided to holders of
shares of Common Stock, contemporaneously with the delivery of such notices or
information to such holders of Common Stock.
Section 3.7 Other Agreements. The Company shall not enter into any
agreement in which the terms of such agreement would restrict or impair the
right or ability of the Company or any Subsidiary to perform its obligations
under any Transaction Document.
Section 3.8 Use of Proceeds. The net proceeds from the sale of the
Securities will be used by the Company for working capital and general corporate
purposes.
Section 3.9 Reporting Status. So long as a Purchaser beneficially owns
any of the Securities, the Company shall timely file all reports required to be
filed with the Commission pursuant to the Exchange Act, and the Company shall
not terminate its status as an issuer required to file reports under the
Exchange Act even if the Exchange Act or the rules and regulations thereunder
would permit such termination.
Section 3.10 Disclosure of Transaction. The Company shall issue a press
release describing the material terms of the transactions contemplated hereby
(the "Press Release") as soon as practicable after the Closing but in no event
later than twenty-four hours after the Closing; provided, however, that if the
Closing occurs after 4:00 P.M. Eastern Time on any Trading Day, the Company
shall issue the Press Release no later than 9:00 A.M. Eastern Time on the first
Trading Day following the Closing Date. The Company shall also file with the
Commission a Current Report on Form 8-K (the "Form 8-K") describing the material
terms of the transactions contemplated hereby (and attaching as exhibits thereto
this Agreement, the Registration Rights Agreement, the Escrow Agreement, and the
Press Release) as soon as practicable following such Closing Date but in no
event more than two (2) Trading Days following such Closing Date, which Press
Release and Form 8-K shall be subject to prior review and comment by the
Purchasers. "Trading Day" means any day during which the OTC Bulletin Board (or
other principal exchange on which the Common Stock is traded) shall be open for
trading.
Section 3.11 Disclosure of Material Information. The Company covenants
and agrees that neither it nor any other person acting on its behalf has
provided or will provide any Purchaser or its agents or counsel with any
information that the Company believes constitutes material non-public
information, unless prior thereto such Purchaser shall have executed a written
agreement regarding the confidentiality and use of such information. The Company
understands and confirms that each Purchaser shall be relying on the foregoing
representations in effecting transactions in securities of the Company.
Section 3.12 Form D. The Company agrees to file a Form D with respect
to the Shares as required by Rule 506 under Regulation D and to provide a copy
thereof to the Purchasers promptly after such filing.
17
Section 3.13 No Integrated Offerings. The Company shall not make any
offers or sales of any security (other than the Shares being offered or sold
hereunder) under circumstances that would require registration of the Shares
being offered or sold hereunder under the Securities Act.
Section 3.14 Pledge of Securities. The Company acknowledges and agrees
that the Securities may be pledged by a Purchaser in connection with a bona fide
margin agreement or other loan or financing arrangement that is secured by the
Securities. The pledge of the Securities shall not be deemed to be a transfer,
sale or assignment of the Securities hereunder, and no Purchaser effecting a
pledge of the Securities shall be required to provide the Company with any
notice thereof or otherwise make any delivery to the Company pursuant to this
Agreement or any other Transaction Document; provided that a Purchaser and its
pledgee shall be required to comply with the provisions of Article V hereof in
order to effect a sale, transfer or assignment of the Securities to such
pledgee. At the Purchasers' expense, the Company hereby agrees to execute and
deliver such documentation as a pledgee of the Securities may reasonably request
in connection with a pledge of the Securities to such pledgee by a Purchaser.
Section 3.15 Application for Nasdaq Listing. Within 60 days of meeting
the listing requirements of The Nasdaq SmallCap Market, the Company shall file
an initial listing application for its Common Stock to be listed on The Nasdaq
SmallCap Market. Within 60 days of meeting the listing requirements of The
Nasdaq National Market, the Company shall file an initial listing application
for its Common Stock to be listed on The Nasdaq National Market.
Section 3.16 Subsequent Financings; Right of Participation. (a) During
the period commencing on the Closing Date and ending on the date that is
eighteen (18) months following the Closing Date, the Company covenants and
agrees to promptly notify (in no event later than ten (10) trading days after
making or receiving an applicable offer) in writing (a "Rights Notice") the
Purchasers of the terms and conditions of any proposed offer or sale to, or
exchange with (or other type of distribution to) any third party (a "Subsequent
Financing"), of Common Stock or any securities convertible, exercisable or
exchangeable into Common Stock, including convertible preferred and debt
securities (collectively, the "Financing Securities"). The Rights Notice shall
describe, in reasonable detail, the proposed Subsequent Financing, the proposed
closing date of the Subsequent Financing, which shall not be within twenty (20)
calendar days from the date the Rights Notice is given nor later than forty five
(45) calendar days from the date the Rights Notice is given, including, without
limitation, all of the material terms and conditions thereof and proposed
definitive documentation to be entered into in connection therewith. The Rights
Notice shall provide each Purchaser an option (the "Rights Option") during the
ten (10) trading days following delivery of the Rights Notice (the "Option
Period") to purchase up to its pro rata share of its Purchase Price, together
with the other Purchasers exercising the Rights Option, for up to fifty percent
(50%) of the amount of the securities being offered in such Subsequent Financing
on the same, absolute terms and conditions as contemplated by such Subsequent
Financing (the "First Refusal Rights"). If any Purchaser elects not to
participate in such Subsequent Financing, the other Purchasers may participate
on a pro-rata basis so long as such participation in the aggregate does not
exceed fifty percent (50%) of the total amount of the Subsequent Financing. For
18
purposes of this Section, all references to "pro rata" means, for any Purchaser
electing to participate in such Subsequent Financing, the percentage obtained by
dividing (x) the total number of Shares purchased by such Purchaser at the
Closing by (y) the total number of Shares purchased by all of the participating
Purchasers at the Closing. Delivery of any Rights Notice constitutes a
representation and warranty by the Company that there are no other material
terms and conditions, arrangements, agreements or otherwise except for those
disclosed in the Rights Notice, to provide additional compensation to any party
participating in any proposed Subsequent Financing, including, but not limited
to, additional compensation based on changes in the Purchase Price or any type
of reset or adjustment of a purchase or conversion price or to issue additional
securities at any time after the closing date of a Subsequent Financing. If the
Company does not receive notice of exercise of the Rights Option from any of the
Purchasers within the Option Period, the Company shall have the right to close
the Subsequent Financing on the scheduled closing date with a third party (and,
if applicable, with such Purchasers as shall have exercised their Rights
Option); provided that all of the material terms and conditions of the closing
are the same as those provided to the Purchasers in the Rights Notice. If the
closing of the proposed Subsequent Financing does not occur within 60 days from
the date the Rights Notice is given, any closing of the contemplated Subsequent
Financing or any other Subsequent Financing shall be subject to all of the
provisions of this Section, including, without limitation, the delivery of a new
Rights Notice.
(b) For purposes of this Agreement, a Permitted Financing (as defined
hereinafter) shall not be considered a Subsequent Financing. A "Permitted
Financing" shall mean (1) securities issued (other than for cash) in connection
with a merger, acquisition, or consolidation, (2) securities issued pursuant to
a bona fide firm underwritten public offering of the Company's securities, (3)
securities issued pursuant to the conversion or exercise of convertible or
exercisable securities issued or outstanding on or prior to the date hereof or
issued pursuant to this Agreement, (4) the Warrant Shares, (5) securities issued
in connection with bona fide strategic license agreements or other partnering
arrangements so long as such issuances are not for the purpose of raising
capital, (6) Common Stock issued or options to purchase Common Stock granted or
issued pursuant to the Company's stock option plans as they now exist and
employee stock purchase plans as they now exist, and (7) any warrants issued to
the placement agent and its designees for the transactions contemplated by this
Agreement.
ARTICLE IV
CONDITIONS
Section 4.1 Conditions Precedent to the Obligation of the Company to
Close and to Sell the Securities. The obligation hereunder of the Company to
close and issue and sell the Securities to the Purchasers at the Closing Date is
subject to the satisfaction or waiver, at or before the Closing of the
conditions set forth below. These conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion.
(a) Accuracy of the Purchasers' Representations and Warranties. The
representations and warranties of each Purchaser shall be true and correct in
all material respects as of the date when made and as of the Closing Date as
though made at that time, except for representations and warranties that are
expressly made as of a particular date, which shall be true and correct in all
material respects as of such date.
19
(b) Performance by the Purchasers. Each Purchaser shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by such Purchaser at or prior to the Closing Date.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(d) Delivery of Purchase Price. The Purchasers shall have delivered to
the Company the Purchase Price for the Shares to be purchased by each Purchaser.
(e) Delivery of Transaction Documents. The Transaction Documents to
which the Purchasers are a party shall have been duly executed by the Purchasers
and delivered to the Company.
(f) Escrow Agreement. The Escrow Agreement shall have been executed and
delivered by the Purchasers and the escrow agent to the Company.
(g) Written Consent of Stockholders. The Company shall have received
the written consent of the holders of a majority of the Registrable Securities
(as defined in the separate Registration Rights Agreements dated as of August
19, 2005 and October 20, 2005) to register the securities listed on Schedule II
of the Registration Rights Agreement.
Section 4.2 Conditions Precedent to the Obligation of the Purchasers to
Close and to Purchase the Securities. The obligation hereunder of each Purchaser
to purchase the Securities and consummate the transactions contemplated by this
Agreement is subject to the satisfaction or waiver, at or before the Closing
Date, of each of the conditions set forth below. These conditions are for the
Purchaser's sole benefit and may be waived by the Purchaser at any time in its
sole discretion.
(a) Accuracy of the Company's Representations and Warranties. Each of
the representations and warranties of the Company in this Agreement and the
Registration Rights Agreement shall be true and correct in all respects as of
the Closing Date, except for representations and warranties that speak as of a
particular date, which shall be true and correct in all respects as of such
date.
(b) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing Date.
20
(c) No Suspension, Etc. Trading in the Common Stock shall not have been
suspended by the Commission or the OTC Bulletin Board (except for any suspension
of trading of limited duration agreed to by the Company, which suspension shall
be terminated prior to the Closing), and, at any time prior to the Closing Date,
trading in securities generally as reported by Bloomberg Financial Markets
("Bloomberg") shall not have been suspended or limited, or minimum prices shall
not have been established on securities whose trades are reported by Bloomberg,
or on the New York Stock Exchange, nor shall a banking moratorium have been
declared either by the United States or New York State authorities.
(d) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(e) No Proceedings or Litigation. No action, suit or proceeding before
any arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been threatened, against
the Company or any Subsidiary, or any of the officers, directors or affiliates
of the Company or any Subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.
(f) Opinion of Counsel. The Purchasers shall have received an opinion
of counsel to the Company, dated the date of such Closing, substantially in the
form of Exhibit F hereto, with such exceptions and limitations as shall be
reasonably acceptable to counsel to the Purchasers.
(g) Shares and Warrants. At or prior to the Closing, the Company shall
have delivered to the Purchasers certificates representing the Shares and
Warrants (in each case in such denominations as each Purchaser may request)
being acquired by the Purchasers at the Closing.
(h) Secretary's Certificate. The Company shall have delivered to the
Purchasers a secretary's certificate, dated as of the Closing Date, as to (i)
the resolutions adopted by the Board of Directors approving the transactions
contemplated hereby, (ii) the Certificate, (iii) the Bylaws, each as in effect
at the Closing, and (iv) the authority and incumbency of the officers of the
Company executing the Transaction Documents and any other documents required to
be executed or delivered in connection therewith.
(i) Officer's Certificate. On the Closing Date, the Company shall have
delivered to the Purchasers a certificate signed by an executive officer on
behalf of the Company, dated as of such Closing Date, confirming the accuracy of
the Company's representations, warranties and its compliance with covenants as
of the Closing Date and confirming the compliance by the Company with the
conditions precedent set forth in paragraphs (b)-(e) of this Section 4.2 as of
the Closing Date (provided that, with respect to the matters in paragraphs (d)
and (e) of this Section 4.2, such confirmation shall be based on the knowledge
of the executive officer after due inquiry).
21
(j) Registration Rights Agreement. As of the Closing Date, the Company
shall have duly executed and delivered the Registration Rights Agreement in the
form of Exhibit D attached hereto.
(k) Material Adverse Effect. No Material Adverse Effect shall have
occurred at or before the Closing Date.
(l) Escrow Agreement. As of the Closing Date, the Company and the
escrow agent shall have executed and delivered the Escrow Agreement to the
Purchasers.
(m) Written Consent of Stockholders. The Company shall have received
the written consent of the holders of a majority of the Registrable Securities
(as defined in the separate Registration Rights Agreements dated as of August
19, 2005 and October 20, 2005) to register the securities listed on Schedule II
of the Registration Rights Agreement.
ARTICLE V
CERTIFICATE LEGEND
Section 5.1 Legend. Each certificate representing the Securities shall
be stamped or otherwise imprinted with a legend substantially in the following
form (in addition to any legend required by applicable state securities or "blue
sky" laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE
SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR ROO GROUP,
INC. SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT REGISTRATION OF
SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
The Company agrees to reissue certificates representing any of the
Shares or Warrant Shares, without the legend set forth above if at such time,
prior to making any transfer of any such Shares or Warrant Shares, such holder
thereof shall give written notice to the Company describing the manner and terms
of such transfer and removal as the Company may reasonably request. Such
proposed transfer and removal will not be effected until: (a) either (i) the
Company has received an opinion of counsel reasonably satisfactory to the
Company, to the effect that the registration of the Shares or Warrant Shares
under the Securities Act is not required in connection with such proposed
transfer, (ii) a registration statement under the Securities Act covering such
proposed disposition has been filed by the Company with the Commission and has
become and remains effective under the Securities Act, (iii) the Company has
received other evidence reasonably satisfactory to the Company that such
registration and qualification under the Securities Act and state securities
laws are not required, or (iv) the holder provides the Company with reasonable
assurances that such security can be sold pursuant to Rule
22
144 under the Securities Act; and (b) either (i) the Company has received an
opinion of counsel reasonably satisfactory to the Company, to the effect that
registration or qualification under the securities or "blue sky" laws of any
state is not required in connection with such proposed disposition, or (ii)
compliance with applicable state securities or "blue sky" laws has been effected
or a valid exemption exists with respect thereto. The Company will respond to
any such notice from a holder within five (5) business days. In the case of any
proposed transfer under this Section 5.1, the Company will use reasonable
efforts to comply with any such applicable state securities or "blue sky" laws,
but shall in no event be required, (x) to qualify to do business in any state
where it is not then qualified, or (y) to take any action that would subject it
to tax or to the general service of process in any state where it is not then
subject. The restrictions on transfer contained in this Section 5.1 shall be in
addition to, and not by way of limitation of, any other restrictions on transfer
contained in any other section of this Agreement. Whenever a certificate
representing the Shares or Warrant Shares is required to be issued to a
Purchaser without a legend, in lieu of delivering physical certificates
representing the Shares or Warrant Shares, provided the Company's transfer agent
is participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer program, the Company shall use its reasonable best efforts
to cause its transfer agent to electronically transmit the Shares or Warrant
Shares to a Purchaser by crediting the account of such Purchaser's Prime Broker
with DTC through its Deposit Withdrawal Agent Commission ("DWAC") system (to the
extent not inconsistent with any provisions of this Agreement).
ARTICLE VI
INDEMNIFICATION
Section 6.1 General Indemnity. The Company agrees to indemnify and hold
harmless the Purchasers (and their respective directors, officers, affiliates,
agents, successors and assigns) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys' fees, charges and disbursements) incurred by
the Purchasers and their directors, officers, affiliates, agents, successors and
assigns as a result of any inaccuracy in or breach of the representations,
warranties or covenants made by the Company herein. Each Purchaser severally but
not jointly agrees to indemnify and hold harmless the Company and its directors,
officers, affiliates, agents, successors and assigns from and against any and
all losses, liabilities, deficiencies, costs, damages and expenses (including,
without limitation, reasonable attorneys' fees, charges and disbursements)
incurred by the Company and its directors, officers, affiliates, agents,
successors and assigns as a direct result of any inaccuracy in or breach of the
representations, warranties or covenants made by such Purchaser herein. The
maximum aggregate liability of each Purchaser pursuant to its indemnification
obligations under this Article VI shall not exceed the portion of the Purchase
Price paid by such Purchaser hereunder.
Section 6.2 Indemnification Procedure. Any party entitled to
indemnification under this Article VI (an "indemnified party") will give written
notice to the indemnifying party of any matters giving rise to a claim for
indemnification; provided, that the failure of any indemnified party to give
notice as provided herein shall not relieve the indemnifying party of
23
its obligations under this Article VI except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. In case any such
action, proceeding or claim is brought against an indemnified party in respect
of which indemnification is sought hereunder, the indemnifying party shall be
entitled to participate in and, unless in the reasonable judgment of the
indemnifying party a conflict of interest between it and the indemnified party
exists with respect to such action, proceeding or claim (in which case the
indemnifying party shall be responsible for the reasonable fees and expenses of
one separate counsel for the indemnified parties), to assume the defense thereof
with counsel reasonably satisfactory to the indemnified party. In the event that
the indemnifying party advises an indemnified party that it will not contest
such a claim for indemnification hereunder, or fails, within thirty (30) days of
receipt of any indemnification notice to notify, in writing, such person of its
election to defend, settle or compromise, at its sole cost and expense, any
action, proceeding or claim (or discontinues its defense at any time after it
commences such defense), then the indemnified party may, at its option, defend,
settle or otherwise compromise or pay such action or claim. In any event, unless
and until the indemnifying party elects in writing to assume and does so assume
the defense of any such claim, proceeding or action, the indemnified party's
costs and expenses arising out of the defense, settlement or compromise of any
such action, claim or proceeding shall be losses subject to indemnification
hereunder. The indemnified party shall cooperate fully with the indemnifying
party in connection with any negotiation or defense of any such action or claim
by the indemnifying party and shall furnish to the indemnifying party all
information reasonably available to the indemnified party which relates to such
action or claim. The indemnifying party shall keep the indemnified party fully
apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. If the indemnifying party elects to defend
any such action or claim, then the indemnified party shall be entitled to
participate in such defense with counsel of its choice at its sole cost and
expense. The indemnifying party shall not be liable for any settlement of any
action, claim or proceeding effected without its prior written consent which
consent shall not be unreasonably withheld. Notwithstanding anything in this
Article VI to the contrary, the indemnifying party shall not, without the
indemnified party's prior written consent, settle or compromise any claim or
consent to entry of any judgment in respect thereof which imposes any future
obligation on the indemnified party or which does not include, as an
unconditional term thereof, the giving by the claimant or the plaintiff to the
indemnified party of a release from all liability in respect of such claim. The
indemnification required by this Article VI shall be made by periodic payments
of the amount thereof during the course of investigation or defense, as and when
bills are received or expense, loss, damage or liability is incurred, so long as
the indemnified party irrevocably agrees to refund such moneys if it is
ultimately determined by a court of competent jurisdiction that such party was
not entitled to indemnification. The indemnity agreements contained herein shall
be in addition to (a) any cause of action or similar rights of the indemnified
party against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.
24
ARTICLE VII
MISCELLANEOUS
Section 7.1 Fees and Expenses. Each party shall pay the fees and
expenses of its advisors, counsel, accountants and other experts, if any, and
all other expenses, incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement, provided
that the Company shall pay all actual attorneys' fees and expenses (including
disbursements and out-of-pocket expenses) up to a maximum of $15,000 for one
counsel to the Purchasers incurred by the Purchasers in connection with (i) the
preparation, negotiation, execution and delivery of this Agreement and the other
Transaction Documents and the transactions contemplated thereunder, which
payment shall be made at Closing, (ii) the filing and declaration of
effectiveness by the Commission of the Registration Statement (as defined in the
Registration Rights Agreement) and (iii) any amendments, modifications or
waivers of this Agreement or any of the other Transaction Documents. In
addition, the Company shall pay all reasonable fees and expenses incurred by the
Purchasers in connection with the enforcement of this Agreement or any of the
other Transaction Documents, including, without limitation, all reasonable
attorneys' fees and expenses.
Section 7.2 Specific Performance; Consent to Jurisdiction; Venue.
(a) The Company and the Purchasers acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement or the other Transaction Documents are not performed in accordance
with their specific terms or are otherwise breached. It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent or
cure breaches of the provisions of this Agreement or the other Transaction
Documents and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.
(b) The parties agree that venue for any dispute arising under this
Agreement will lie exclusively in the state or federal courts located in New
York County, New York, and the parties irrevocably waive any right to raise
forum non conveniens or any other argument that New York is not the proper
venue. The parties irrevocably consent to personal jurisdiction in the state and
federal courts of the state of New York. The Company and each Purchaser consent
to process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing in this Section 7.2 shall affect
or limit any right to serve process in any other manner permitted by law. The
Company and the Purchasers hereby agree that the prevailing party in any suit,
action or proceeding arising out of or relating to the Securities, this
Agreement or the Registration Rights Agreement, shall be entitled to
reimbursement for reasonable legal fees from the non-prevailing party.
Section 7.3 Entire Agreement; Amendment. This Agreement and the
Transaction Documents contain the entire understanding and agreement of the
parties with respect to the matters covered hereby and, except as specifically
set forth herein or in the other
25
Transaction Documents, neither the Company nor any Purchaser make any
representation, warranty, covenant or undertaking with respect to such matters,
and they supersede all prior understandings and agreements with respect to said
subject matter, all of which are merged herein. Following the Closing, no
provision of this Agreement may be waived or amended other than by a written
instrument signed by the Company and the Purchasers holding at least a majority
of all Shares then held by the Purchasers. Any amendment or waiver effected in
accordance with this Section 7.3 shall be binding upon each Purchaser (and their
permitted assigns) and the Company.
Section 7.4 Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telecopy or facsimile at the
address or number designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be:
If to the Company: Xxxxxx Xxxxx
c/o ROO Group, Inc.
000 Xxxx 00xx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, XX 00000
Tel. No.: (000) 000-0000 Fax No.: (646)
619-4074
with copies to (which shall not constitute notice):
Sichenzia Xxxx Xxxxxxxx Xxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxxx, Esq.
Tel No.: (000) 000-0000
Fax No.: (000) 000-0000
If to any Purchaser: At the address of such Purchaser set forth
on Exhibit A to this Agreement.
with copies to: Xxxxxx Xxxxx Xxxxxxxx & Xxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxxxxxx X. Xxxxxxx
Tel No.: (000) 000-0000
Fax No.: (000) 000-0000
26
Any party hereto may from time to time change its address for notices
by giving written notice of such changed address to the other parties hereto.
Section 7.5 Waivers. No waiver by any party of any default with respect
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such right
accruing to it thereafter.
Section 7.6 Headings. The article, section and subsection headings in
this Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 7.7 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
After the Closing, the assignment by a party to this Agreement of any rights
hereunder shall not affect the obligations of such party under this Agreement.
Subject to Section 5.1 hereof and subject to Section 7(h) of the Registration
Rights Agreement, the Purchasers may assign the Shares and its rights under this
Agreement and the other Transaction Documents and any other rights hereto and
thereto without the consent of the Company.
Section 7.8 No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
Section 7.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to any of the conflicts of law principles which would result in
the application of the substantive law of another jurisdiction. This Agreement
shall not be interpreted or construed with any presumption against the party
causing this Agreement to be drafted.
Section 7.10 Survival. The representations and warranties of the
Company and the Purchasers shall survive the execution and delivery hereof and
the Closing until the third anniversary of the Closing Date except the
agreements and covenants set forth in Articles I, III, V, VI and VII of this
Agreement shall survive the execution and delivery hereof and the Closing.
Section 7.11 Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart.
Section 7.12 Publicity. Except as discussed in the Registration
Statement (as defined in the Registration Rights Agreement), the Company agrees
that it will not disclose, and will not include in any public announcement, the
names of the Purchasers without the consent of the Purchasers, which consent
shall not be unreasonably withheld or delayed, or unless and until such
disclosure is required by law, rule or applicable regulation, and then only to
the extent of such requirement.
27
Section 7.13 Severability. The provisions of this Agreement are
severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement and this Agreement shall be reformed and construed as if such
invalid or illegal or unenforceable provision, or part of such provision, had
never been contained herein, so that such provisions would be valid, legal and
enforceable to the maximum extent possible.
Section 7.14 Further Assurances. From and after the date of this
Agreement, upon the request of the Purchasers or the Company, the Company and
each Purchaser shall execute and deliver such instruments, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement and the
Registration Rights Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
28
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date first above
written.
ROO GROUP, INC.
By:_____________________________________
Name: Xxxxx Xxxxx
Title: Chief Financial Officer
PURCHASER:
By:_____________________________________
Name:
Title:
Schedule of Exceptions
to
Common Stock Purchase Agreement
(Prepared in connection with Shares sold by the Company to the Purchasers under
the Common Stock Purchase Agreement dated December 28, 2005 (the "December 2005
Purchase Agreement"). Capitalized terms not defined herein shall have the
meaning given to such terms in the December 2005 Purchase Agreement.)
December 28, 2005
Schedule 2.1(c)
Capitalization
Authorized Capital Stock:
As of December 28, 2005, the authorized capital stock of the Company
consists of (i) 500,000,000 shares of Common Stock, of which approximately
11,232,448 shares are issued and outstanding; and (ii) 20,000,000 shares of
preferred stock, of which 10,000,000 shares are designated as Series A Preferred
Stock of which 9,500,000 shares are issued and outstanding.
Outstanding Options:
--------------------------------------------------------------------------------------------------
Exercise
Name Qty Price ($) Notes
--------------------------------------------------------------------------------------------------
Options issued under Company Stock Option
Plan
--------------------------------------------------------------------------------------------------
Xxxxxx Xxxxx 120,000 2.00 Chairman CEO
--------------------------------------------------------------------------------------------------
Xxxxx Xxxxx 60,000 2.00 Director & CFO
--------------------------------------------------------------------------------------------------
Xxxxxx Xxxxx and Xxxxx Xxxxx to be issued Upon meeting selected
against agreed milestones 600,000 2.00 Milestones
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
Other Staff Members 99,050 2.00
--------------------------------------------------------------------------------------------------
Other Staff to be issued against agreed Upon meeting selected
milestones 904,000 2.00 Milestones
--------------------------------------------------------------------------------------------------
Options not under Plan
--------------------------------------------------------------------------------------------------
Consultants Options 587,500 3.17 Average Exercise Price
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
Total Options Issued 2,370,550
--------------------------------------------------------------------------------------------------
Warrants:
As of December 28, 2005, the Company had the following warrants
outstanding:
The Company is required to issue placement agent warrants to purchase
an aggregate of 150,000 shares of Common Stock, exercisable for a period of five
years from the date of issuance at a purchase price of $1.50 per share (the
"Issuable Placement Agent Warrants"). The warrant holders may exercise these
warrants on a cashless basis if the shares of Common Stock underlying the
warrants are not then registered pursuant to an effective registration
statement.
Warrants to purchase an aggregate of 60,000 shares of Common Stock,
exercisable until five years from the date of issuance (October 11,
2005) at a purchase price of $1.50 per share. The holders may exercise
these warrants on a cashless basis if the shares of Common Stock
underlying the warrants are not then registered pursuant to an
effective registration statement.
Warrants to purchase an aggregate of 383,333 shares of Common Stock,
exercisable until five years from the date of issuance (August 23, 2005) at a
purchase price of $1.50 per share, as adjusted (the "August 2005 $1.50
Warrants"). The warrant holders may exercise these warrants on a cashless basis
if the shares of Common Stock underlying the warrants are not then registered
pursuant to an effective registration statement.
Warrants to purchase an aggregate of 48,000 shares of Common Stock,
exercisable until five years from the date of issuance (August 23, 2005) at a
purchase price of $1.25 per share, as adjusted (the "August 2005 $1.25
Warrants"). The warrant holders may exercise these warrants on a cashless basis
if the shares of Common Stock underlying the warrants are not then registered
pursuant to an effective registration statement.
Warrants to purchase an aggregate of 22,000 shares of Common Stock,
exercisable until five years from the date of issuance (July 18, 2005) at a
purchase price of $10.00 per share, as adjusted (the "July 2005 Warrants"). The
warrant holders may exercise these warrants on a cashless basis if the shares of
Common Stock underlying the warrants are not then registered pursuant to an
effective registration statement. These warrants have antidilution rights.
Warrants to purchase an aggregate of 60,000 shares of Common Stock
exercisable until five years from the date of issuance (1/3 were issued
September 10, 2004, 1/3 were issued November 23, 2004 and 1/3 were issued
February 3, 2005) at a purchase price of $5.00 per share, as adjusted. The
holders may exercise these warrants on a cashless basis if the shares of Common
Stock underlying the warrants are not then registered pursuant to an effective
registration statement. These warrants have antidilution rights.
Outstanding Preferred Stock:
On March 17, 2005, the Company issued 6,000,000 shares of Series A
Preferred Stock to its Chief Executive Officer, Xxxxxx Xxxxx, and 1,500,000
shares of Series A Preferred Stock to its Chief Financial Officer, Xxxxx Xxxxx.
These shares have a combined valuation of $750,000. These shares were issued as
a performance bonus to Messrs. Xxxxx and Xxxxx for, among other things, their
role in helping expand and grow the Company's business operations.
Also on March 17, 2005, the Company issued an aggregate of 2,000,000
shares of Series A Preferred Stock to two accredited investors as consideration
for investor relations services. These shares have a combined valuation of
$200,000.
Beginning two years from the date of issuance of the Series A Preferred
Stock, each one share of Series A Preferred Stock is convertible, at the option
of the holder, into 0.04 shares of the Company's common stock. However, holders
cannot convert any share of Series A Preferred Stock if the market price of the
Company's common stock is below $3.00 per share.
Registration Rights:
The Company is required to file a registration statement registering
the resale of shares of Common Stock issuable upon exercise of the July 2005
Warrants, within 30 days from receipt of a written demand from the warrant
holders for the Company to do so.
As described under "Xxxxxx Xxxxx Note Purchase Agreement" under
Schedule 2.1(i) hereof, the Company has agreed to register the resale of Common
Stock issuable by Xxxxxx Xxxxx to certain security holders. The Company is
contractually obligated to file such registration statement by November 25,
2005. This transaction will be included in the registration statement required
to be filed by the Company pursuant to the Registration Rights Agreement.
The Company has agreed to register the resale of approximately
3,833,333 shares of Common Stock sold to investors on August 23, 2005. The
Company is contractually obligated to file such registration statement by
November 19, 2005. This transaction will be included in the registration
statement required to be filed by the Company pursuant to the Registration
Rights Agreement.
The Company has agreed to register the resale of approximately
1,500,000 shares of Common Stock sold to investors on October 20, 2005. The
Company is contractually obligated to file such registration statement by
October 7, 2005. This transaction will be included in the registration statement
required to be filed by the Company pursuant to the Registration Rights
Agreement.
The Issuable Placement Agent Warrants, the August 2005 $1.25 Warrants
and the August 2005 $1.50 Warrants have piggyback registration rights. The sale
of Common Stock issuable upon exercise of these warrants will be included in the
registration statement required to be filed by the Company pursuant to the
Registration Rights Agreement.
The Company has agreed to register the resale of 359,280 shares of
Common Stock that may be issuable by the Company as payment of the Share
Variance (defined under "Reality Group Pty Ltd." under Schedule 2.1(v). The
Company is contractually obligated to file such registration statement by
November 27, 2005.
The shares underlying the placement agent warrants described in
Schedule 2.1(p) will have standard piggyback registration rights, a cashless
exercise provision, will be non-redeemable and will be included in the
registration statement required to be filed by the Company pursuant to the
Registration Rights Agreement.
Schedule 2.1(e)
No Conflicts
The Registration Rights Agreement conflicts with certain of the
registration rights described in Schedule 2.1(c).
Schedule 2.1(f)
Commission Documents; Financial Statements
The Company untimely filed a current report on Form 8-K reporting the
purchase of all of the outstanding shares of common stock of Bickhams Media,
Inc., a Delaware corporation.
The Company untimely filed a current report on Form 8-K reporting
entering into a new lease agreement and changing the location of its principal
executive office in New York.
Schedule 2.1(g)
Subsidiaries
ROO Media Corporation, a Delaware corporation and wholly owned subsidiary of the
Company
ROO Media (Aust.) Pty Ltd., an Australia corporation and wholly owned subsidiary
of the Company
ROO Broadcasting Ltd., an Australia corporation and wholly owned subsidiary of
the Company
Undercover Media (Aust.) Pty Ltd., an Australia corporation and wholly owned
subsidiary of the Company
ROO TV Pty Ltd., an Australia corporation and wholly owned subsidiary of the
Company
Bickhams Media, Inc., a Delaware corporation and wholly owned subsidiary of the
Company
XxxxxXxxx.xxx Networks, Inc., a wholly owned subsidiary of Bickhams Media, Inc.
and a California corporation
Schedule 2.1(h)
No Material Adverse Change
None.
Schedule 2.1(i)
No Undisclosed Liabilities
Xxxxxx Xxxxx Note Purchase Agreement:
On May 18, 2005, the Company entered into a note purchase agreement
with Xxxxxx Xxxxx, the Company's Chairman and Chief Executive Officer. In
consideration for gross proceeds of $600,000, the Company incurred a debt
payable to Xx. Xxxxx in the amount of $600,000. The Company paid transaction
fees totaling $92,500, which includes a $60,000 placement agent fee in
connection with the sale by Xx. Xxxxx of $600,000 principal amount of secured
convertible promissory notes (described below) and $32,500 in legal fees in
connection with the below transactions. As evidence of the $600,000 debt and a
prior existing $500,000 debt payable to Xx. Xxxxx, the Company issued Xx. Xxxxx
a promissory note in the principal amount of $1,100,000. The principal sum of
$1,100,000 plus interest at the rate of 10% per annum calculated beginning June
1, 2005 is due to be re-paid on December 31, 2005. The Company's obligations
under the promissory note are secured by a subordinated security interest in all
of the Company's assets. In October 2005, the Company's Chairman and Chief
Executive Officer converted $600,000 of the $1,100,000 principal amount
promissory note into shares of the Company's Common Stock at a price of $1.50
per share.
On May 19, 2005, the Company applied $200,000 of the $600,000 gross
proceeds from Xx. Xxxxx'x loan to redeem $142,857 principal amount of the
Company's outstanding $3,000,000 principal amount of callable secured
convertible notes issued to the NIR Group. As consideration for the redemption,
the holders of the callable secured convertible notes agreed not to convert any
amount due under the callable secured convertible notes at a conversion price
less than $0.10 per share for a 60-day period ending July 18, 2005. A complete
description of the material terms of the Company's agreement with the holders of
the callable secured convertible notes is described in a Form 8-K which was
filed with the Securities and Exchange Commission on May 12, 2005.
In connection with the above loan from Xx. Xxxxx to the Company, Xx.
Xxxxx personally sold an aggregate of $600,000 principal amount of secured
convertible promissory notes to certain investors. The secured convertible
promissory notes are convertible into common stock held by Xx. Xxxxx at a price
of $1.25 per share, as adjusted. Xx. Xxxxx'x obligations under the secured
convertible promissory notes are secured by a security interest in the
$1,100,000 principal amount promissory note payable by the Company to Xx. Xxxxx.
The secured convertible promissory notes bear interest at a rate of 8% per
annum.
As partial consideration for the loan from Xx. Xxxxx, the Company
entered into a registration rights agreement, pursuant to which the Company
agreed to prepare and file a registration statement providing for the resale of
the shares of common stock issuable upon conversion of the secured convertible
promissory notes, including shares of common stock that may be issued as
interest payments under the secured convertible promissory notes. If the
registration statement is not filed by November 25, 2005 or declared effective
by December 25, 2005, Xx. Xxxxx must pay liquidated damages equal to 2% per
calendar month or portion thereof of aggregate $600,000 aggregate principal
amount of the secured convertible promissory notes. Any liquidated damages may
be paid in Xx. Xxxxx'x option in cash or shares of common stock of the Company
which are owned by Xx. Xxxxx.
July 2005 Securities Purchase Agreement:
On July 18, 2005, the Company entered into a Securities Purchase
Agreement with four accredited investors (the NIR Group) for the sale of up to:
(i) $2,500,000 in callable secured convertible notes; and (ii) warrants to
purchase up to 5,000,000 shares of Common Stock. The investors are obligated to
provide the Company with the funds as follows: (i) $550,000 was disbursed on
July 19, 2005; and (ii) approximately $177,273 will be disbursed on the final
business day of each month beginning in August 2005 and ending June 2006.
However, the entire $2,500,000 must be funded by the investors within five
business days after effectiveness of a registration statement covering the
number of shares of Common Stock underlying the callable secured convertible
notes and the warrants. All outstanding callable secured convertible notes held
by the NIR Group were repaid on August 23, 2005.
The warrants are exercisable until five years from the date of issuance
at a purchase price of $10.00 per share, as adjusted. The investors may exercise
the warrants on a cashless basis if the shares of Common Stock underlying the
warrants are not then registered pursuant to an effective registration
statement. The warrants have antidilution rights.
Schedule 2.1(j)
No Undisclosed Events and Circumstances
None.
Schedule 2.1(k)
Indebtedness
See the disclosure under "Xxxxxx Xxxxx Note Purchase Agreement" under
Schedule 2.1(i).
Schedule 2.1(l)
Title to Assets
As described in Schedule 2.1(i) under "Xxxxxx Xxxxx Note Purchase
Agreement," the Company has granted a security interest in certain of the
Company's assets to Xxxxxx Xxxxx, the Company's Chairman and Chief Executive
Officer, in connection with a $1.1 million principal amount promissory note. As
of December 28, 2005, the outstanding balance of such promissory note was
$350,000.
Schedule 2.1(m)
Actions Pending
None.
Schedule 2.1(n)
Compliance with Law
None.
Schedule 2.1(o)
Taxes
None.
Schedule 2.1(p)
Certain Fees
The Company has entered into an agreement with Xxxxxxx Hill Partners
("Xxxxxxx"), pursuant to which, in connection with the Transaction Documents,
the Company must pay Xxxxxxx a cash fee equal to 10% of the gross proceeds up to
$3 million and 8% of the gross proceeds in excess of $3 million. In addition,
the Company must issue Xxxxxxx or its assigns placement agent warrants in an
amount equal to 10% of the securities issued in connection with the Transaction
Documents. The placement agent warrants will be exercisable at the Per Share
Purchase Price and will expire five years from the issuance date of the
placement agent warrants. The shares underlying the placement agent warrants
will have standard piggyback registration rights, a cashless exercise provision,
will be non-redeemable and will be included in the registration statement
required to be filed by the Company pursuant to the Registration Rights
Agreement.
Schedule 2.1(r)
Operation of Business
See the disclosure under Schedule 2.1(l).
Schedule 2.1(s)
Environmental Compliance
None.
Schedule 2.1(t)
Books and Records; Internal Accounting Controls
None.
Schedule 2.1(u)
Material Agreements
None.
Schedule 2.1(v)
Transactions with Affiliates
January 7, 2003 Loan Agreement:
On January 7, 2003, ROO Media Corporation entered into a new loan
agreement with Mr. Xxxxxx Xxxxx to replace a loan agreement entered into with
Xx. Xxxxx dated July 29, 2001. The interest on the loan is 10% per annum and the
outstanding balance as of September 30, 2005 was $950,000. Xx. Xxxxx has agreed
that no demand for payment will be made to the company through December 13, 2004
and any principal repayment during any month above $20,000 will require board
approval. The loan is secured by all of the assets of ROO Media. This loan is
evidenced partially by the promissory note described below under "Xxxxxx Xxxxx
Note Purchase Agreement."
Reality Group Pty Ltd.
Pursuant to a Stock Purchase Agreement dated as of March 11, 2004 (the
"Reality Purchase Agreement") between the Company and the shareholders (the "RGP
Shareholders") of Reality Group Pty Ltd., a corporation formed under the laws of
Australia ("RGP"), the Company purchased 80% of the outstanding ordinary shares
of RPG. As consideration for this purchase, the Company issued 8,360,000 shares
(167,200 shares post one-for-50 reverse split) of common stock to the RGP
Shareholders.
During the period ending twelve months after the RGP Shareholders may
sell their Company shares under Rule 144 (the "Guarantee Period"), the
RGP Shareholders have the option (the "Buy-back Option") to buy back an
aggregate of 29 RGP shares, or such number of RGP shares as shall
decrease the ownership percentage of the Company in RGP to 51% (the
"Buy-back Shares"), from the Company. The consideration for such
Buy-back Shares shall be 2,280 (post one-for-50 reverse split) Company
shares.
Pursuant to the March 11, 2004 Stock Purchase Agreement, the Company
guaranteed (the "Guarantee") that the RGP Shareholders will be able to sell
their Company shares, pursuant to the volume restrictions set forth in Rule 144,
for greater than or equal to US$0.30 per share (pre one-for-50 reverse split)
during the Guarantee Period. In the event that the RGP Shareholders are unable
to sell their Company shares for greater than or equal to US$0.30 per share (pre
one-for-50 reverse split) during the Guarantee Period, a share variance (the
"Share Variance") will be determined based on the difference between (a) the
number of Company shares to be sold multiplied by US$0.30 per share (pre
one-for-50 reverse split) and (b) the number of Company shares to be sold
multiplied by the closing sale price of the Company's shares on the trading day
immediately prior to the day that a RGP Shareholder notifies the Company of its
enforcement of the Guarantee. In the event that a RGP Shareholder enforces the
Guarantee, the Company, in its sole discretion, may pay the Share Variance to
the RGP Shareholder in one of the following ways: (1) in cash; (2) the Company
shall authorize the Escrow Agent (as defined in the March 11, 2004 Stock
Purchase Agreement) to return to the RGP Shareholders on a pro rata basis that
amount of Company shares, based on a share valuation of US$20,900 per RGP
ordinary share, that shall constitute the Share Variance; or (3) if mutually
agreeable to the RGP Shareholders, in shares of common stock of the Company
based on the average closing sale price of shares of common stock of the Company
during the previous fifteen (15) trading days. The shares issuable by the
Company as payment of the Share Variance will be included in the registration
statement required to be filed by the Company pursuant to the Registration
Rights Agreement.
On October 28, 2005, the Company entered into an amendment (the
"Amendment") to the Reality Purchase Agreement. Pursuant to the Amendment, the
RGP Shareholders agreed to exercise their buyback option effective January 1,
2006 at which date the Company must sell to the RGP Shareholders such number of
shares of Reality Group's common stock so as to reduce the Company's ownership
of Reality Group to 51%. The RGP shareholders further agreed that the Share
Variance shall be calculated based upon a closing sale price of $2.50 and the
Share Variance equals $1,263,500.
The Company paid $200,000 of the $1,263,500 Share Variance in cash and
issued 425,400 shares (the "Variance Shares") of the Company's Common Stock as
payment of the remaining $1,063,500 based on a stock price of $2.50 per share.
The Company guaranteed (the "Variance Guarantee") the RGP Shareholders that they
will be able to sell their Exchange Shares (as defined in the Reality Purchase
Agreement and as described in a Form 8-K filed by the Company on May 17, 2004)
and Variance Shares for a price equal to or greater than $2.50 per share for a
period of 14 days after the earliest date that the RGP Shareholders can publicly
sell their shares of the Company's Common Stock (the "Variance Guarantee
Period"). In the event the RGP Shareholders are unable to sell any of the
Exchange Shares or the Variance Shares for a price equal to or greater than
$2.50 per share during the Variance Guarantee Period, then the Company must
issue them such number of shares of Common Stock equal to: (x) the applicable
number of Variance and/or Exchange Shares multiplied by $2.50, less (y) the
applicable number of Variance and/or Exchange Shares multiplied by the average
closing sale price of the Company's Common Stock on the OTC Bulletin Board
during the Variance Guarantee Period, divided by (z) the average closing sale
price of the Company's Common Stock on the OTC Bulletin Board during the
Variance Guarantee Period. Notwithstanding the above agreements, if at any time
during the Variance Guarantee Period an offer is presented to a RGP Shareholder
to purchase their Variance Shares for a price equal to or greater than $2.50 per
share and such shareholder does not accept the offer, then the Company's
obligations pursuant to the Variance Guarantee shall be automatically terminated
with respect to such shareholder. The Company agreed to prepare and file a
registration statement providing for the resale of 359,280 of the Variance
Shares by November 27, 2005.
Purchase of Bickhams Media, Inc.:
On September 10, 2004, the Company entered into an agreement to
purchase of all of the outstanding shares of common stock of Bickhams Media,
Inc. from Avenue Group, Inc. Avenue Group is a founding shareholder of the
Company and currently owns approximately 17% of the Company's outstanding common
stock. Also, in connection with the purchase of Bickhams Media, the Company
agreed to guaranty all of the obligations of XxxxxXxxx.xxx Networks, Inc. under
a promissory note of VideoDome that was issued to Avenue Group in October 2003
in the principal amount of $290,000. These obligations are required to be
re-paid by the Company twelve months after the date of the agreement. The
Company's management believes that the terms of this transaction were at least
as favorable as could have been obtained from an unrelated third party.
Series A Preferred Stock:
On March 17, 2005, the Company issued 6,000,000 shares of Series A
Preferred Stock to its Chief Executive Officer, Xxxxxx Xxxxx, and 1,500,000
shares of Series A Preferred Stock to its Chief Financial Officer, Xxxxx Xxxxx.
These shares have a combined valuation of $750,000. These shares were issued as
a performance bonus to Messrs. Xxxxx and Xxxxx for, among other things, their
role in helping expand and grow the Company's business operations.
Xxxxxx Xxxxx Note Purchase Agreement:
See the disclosure under Schedule 2.1(i) under "Xxxxxx Xxxxx Note
Purchase Agreement."
Purchase of Factory 212 Pty Ltd.
On October 28, 2005, the Company entered into an agreement with ROO
Broadcasting Limited, a wholly owned subsidiary of the Company ("ROO
Broadcasting"), and the shareholders of Factory 212 Pty Ltd. ("Factory212"),
pursuant to which ROO Broadcasting acquired 51% of the outstanding ordinary
shares of Factory212.
As consideration for the ordinary shares of Factory212, the Company
issued 10,000 shares (the "Initial Shares") of the Company's Common Stock to the
Factory212 shareholders. Subject to the conditions described below, the Company
may issue additional shares ("Additional Shares") of common stock to the
Factory212 shareholders, issuable after December 31, 2007, calculated as
follows:
51% of [(1 * Factory212 Revenue) + (4 * Factory212 Earnings)]
-------------------------------------------------------------
Average ROO Share Price
where: "Factory212 Revenue" means the xxxxxxxx less all media and third party
supplier costs of Factory212 for the twelve month period ending December 31,
2007; "Factory212 Earnings" means the earnings of Factory212 before tax and
after deduction of interest and all other expenses for the twelve month period
ending December 31, 2007; and "Average ROO Share Price" means the average price
of the Company's Common Stock during the final five trading days of December
2007.
If the Company does not issue the maximum number of Additional Shares,
ROO Media's 51% ownership of Factory212 will be reduced on a pro rata basis by
the difference between the maximum number of Additional Shares and the actual
number of Additional Shares issued. If the Company does not issue any Additional
Shares, ROO Media will relinquish all of its 51% ownership of Factory212.
However, if the Factory212 Earnings are greater than 15% of the Factory212
Revenue and the number of Additional Shares to be issued are less than 4.9% of
the then current outstanding shares of common stock of the Company, the Company
must proceed with issuing the maximum number of Additional Shares in accordance
with the above formula.
The acquisition of Factory212 was conditioned upon the parties entering
into the Amendment described above under "Reality Group Pty Ltd." If the Company
fails to meet its material obligations under the terms of the Amendment, then
the Company and ROO Media agreed that the Factory212 shareholders may in their
sole discretion require the ROO Media to relinquish all of its ownership of
Factory212. In such event, the Company agreed that the Factory 212 shareholders
shall be entitled to retain ownership of their Initial Shares.
Schedule 2.1(y)
Employees; Labor Relations
None.
Schedule 2.1(z)
Absence of Certain Developments
Corporate Securities:
The Company has borrowed an aggregate gross amount of $1,550,000 and
issued an aggregate principal amount of $1,550,000 callable secured convertible
notes and related warrants to purchase an aggregate of 42,000 shares (post
one-for-50 reverse split) of Common Stock, and Common Stock pursuant to
conversions of outstanding callable secured convertible notes. On August 23,
2005, all outstanding callable secured convertible notes were repaid by the
Company totaling in excess of $3,000,000. A related lien on the Company's assets
was terminated on August 23, 2005.
The Company has issued shares of Series A Preferred Stock described
under "Outstanding Preferred Stock" under Schedule 2.1(c).
The Company has issued a promissory note to Xxxxxx Xxxxx, the Company's
Chairman and Chief Executive Officer, described under "Xxxxxx Xxxxx Note
Purchase Agreement" under Schedule 2.1(i).
In addition to the above, the Company has issued the following
securities since December 31, 2004:
On March 1, 2005 the Company issued 140,000 options (post one-for-50
reverse split) to Strategic Growth with an exercise price of $5.00, as adjusted,
valued under the Black-Scholes method as $190,456 as payment for investor
relations consulting services.
On May 9, 2005 the requirements of the second milestone in the stock
purchase agreement with Bickhams Media and Xxxxxx and Xxxxxx Xxxxxxxxx dated
November 1, 2004 being Commercial Launch of combined platform ROO Media and
VideoDome Media Manager platform having been met the Company authorized the
payment of $100,000 and that 40,000 shares (post one-for-50 reverse split) of
common stock of the Company be issued.
On August 23, 2005, the Company sold approximately 3,833,333 shares
(post one-for-50 reverse split) of Common Stock to accredited investors at a
price of $1.50 per share, as adjusted.
On August 23, 2005, the Company issued warrants to purchase an
aggregate of approximately 383,333 shares (post one-for-50 reverse split) of
Common Stock, exercisable until five years from the date of issuance at a
purchase price of $1.50 per share, as adjusted.
On August 23, 2005, the Company issued warrants to purchase an
aggregate of 48,000 shares (post one-for-50 reverse split) of Common Stock,
exercisable until five years from the date of issuance at a purchase price of
$1.25 per share, as adjusted.
In October 2005, the Company issued shares of Common Stock described
under "Purchase of Factory 212 Pty Ltd." under Schedule 2.1(v).
On October 11, 2005, the Company issued warrants to purchase an
aggregate of 60,000 shares of Common Stock exercisable until five years from the
date of issuance at a purchase price of $1.50 per share.
On October 21, 2005, the Company sold 1,500,000 shares of Common Stock
to accredited investors at a price of $1.50 per share.
On October 21, 2005, the Company `s Chief Executive Officer, President
and Chairman of the Board, Xxxxxx Xxxxx, converted $600,000 of a $1,100,000 note
payable to him into 400,000 shares of common stock at a conversion price of
$1.50 per share.
On December 2, 2005 the Company issued 260,000 options to Strategic
Growth with an exercise price of $3.00 and adjusted the exercise price on the
existing options to $3.00, as payment for investor relations consulting
services.
On December 2, 2005 the Company issued 50,000 options to Brimberg & Co.
with an exercise price of $3.00, as payment for investor relations consulting
services.
Material Transactions Not Described Elsewhere in this Schedule 2.1(z):
On March 9, 2005, the Company amended its certificate of incorporation
to designate the rights of Series A Preferred Stock.
On April 1, 2005, the Company entered into a sublease for and on June
7, 2005 moved its principal executive office to premises located at 000 Xxxx
00xx Xxxxxx 0xx Xxxxx Xxx Xxxx, XX 00000.
On September 30, 2005, the Company filed a certificate of amendment to
its certificate of incorporation to effect a one-for-50 reverse split of the
outstanding shares of the Company's Common Stock. The effective date of the
reverse stock split was October 3, 2005.
On September 30, 2005, the Company amended the terms of its Series A
Preferred Stock to provide that: (1) the holders thereof may not convert shares
of Series A Preferred Stock if the market price of the Common Stock is below
$3.00 per share; and (2) removing the following restriction on the holders
thereof from converting shares of Series A Preferred Stock immediately prior to
a change in control of the Company:
"if at the time of a conversion under this Section 5.2 the market price
of the Common Stock is below $0.40 per share, then each share of Series
A Preferred Stock shall convert into such number of shares of Common
Stock equal to (x) two (2), multiplied by (y) the closing price of the
Common Stock on the date of the event triggering an automatic
conversion under this Section 5.2 divided by $0.20."
As described under "Reality Group Pty Ltd." under Schedule 2.1(v), on
October 28, 2005, the Company entered into an Amendment amending the terms of
the Reality Purchase Agreement.
As described under "Purchase of Factory 212 Pty Ltd." under Schedule
2.1(v), on October 28, 2005, the Company entered into an agreement to purchase
51% of the outstanding ordinary shares of Factory 212 Pty Ltd.
EXHIBIT A
LIST OF PURCHASERS
Names and Addresses Number of Shares and Warrants
of Purchasers Purchased
EXHIBIT B
ESCROW AGREEMENT
EXHIBIT C
FORM OF WARRANT
EXHIBIT D
FORM OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT E
INVESTOR QUESTIONNAIRE CERTIFICATION
ROO GROUP, INC.
INVESTOR QUESTIONNAIRE
(ALL INFORMATION WILL BE TREATED CONFIDENTIALLY)
To: ROO Group, Inc.
This Investor Questionnaire ("Questionnaire") must be completed by each
potential investor in connection with the offer and sale of the shares of
restricted common stock and warrants to purchase shares of common stock of ROO
Group, Inc. (the "Securities"). The Securities are being offered and sold by ROO
Group, Inc. (the "Company") without registration under the Securities Act of
1933, as amended (the "Act"), and the securities laws of certain states, in
reliance on the exemptions contained in Section 4(2) of the Act and on
Regulation D promulgated thereunder and in reliance on similar exemptions under
applicable state laws. The Company must determine that a potential investor
meets certain suitability requirements before offering or selling Securities to
such investor. The purpose of this Questionnaire is to assure the Company that
each investor will meet the applicable suitability requirements. The information
supplied by you will be used in determining whether you meet such criteria, and
reliance upon the private offering exemptions from registration is based in part
on the information herein supplied.
This Questionnaire does not constitute an offer to sell or a solicitation of an
offer to buy any security. Your answers will be kept strictly confidential.
However, by signing this Questionnaire, you will be authorizing the Company to
provide a completed copy of this Questionnaire to such parties as the Company
deems appropriate in order to ensure that the offer and sale of the Securities
will not result in a violation of the Act or the securities laws of any state
and that you otherwise satisfy the suitability standards applicable to
purchasers of the Securities. All potential investors must answer all applicable
questions and complete, date and sign this Questionnaire. Please print or type
your responses and attach additional sheets of paper if necessary to complete
your answers to any item.
A. BACKGROUND INFORMATION
Name:___________________________________________________________________________
Address of Principal Residence (or Principal Place of Business if investor is an
entity):
--------------------------------------------------------------------------------
(Number and Street)
--------------------------------------------------------------------------------
(City)___ (State) (Zip Code)
Telephone Number: _________________________
If an individual:
Age: __________ Citizenship: ____________
If a corporation, partnership, limited liability company, trust or other entity:
Type of entity:_________________________________________________________________
State of formation:______________________ Date of formation: _________________
Social Security or Taxpayer Identification No.__________________________________
B. STATUS AS ACCREDITED INVESTOR
The undersigned is an "accredited investor" as such term is defined in
Regulation D under the Act, and at the time of the offer and sale of the
Securities the undersigned falls and will fall within one or more of the
following categories (Please initial one or more, as applicable): (1)
----------------------
(1) As used in this Questionnaire, the term "net worth" means the
excess of total assets over total liabilities. In computing net worth for the
purpose of subsection (4), the principal residence of the investor must be
valued at cost, including cost of improvements, or at recently appraised value
by an institutional lender making a secured loan, net of encumbrances. In
determining income, the investor should add to the investor's adjusted gross
income any amounts attributable to tax exempt income received, losses claimed as
a limited partner in any limited partnership, contributions to an XXX or XXXXX
retirement plan, alimony payments, and any amount by which income from long-term
capital gains has been reduced in arriving at adjusted gross income.
____ (1) a bank as defined in Section 3(a)(2) of the Act, or a savings and loan
association or other institution as defined in Section 3(a)(5)(A) of the Act
whether acting in its individual or fiduciary capacity; a broker or dealer
registered pursuant to Section 15 of the Securities Exchange Act of 1934; an
insurance company as defined in Section 2(13) of the Act; an investment company
registered under the Investment Company Act of 1940 or a business development
company as defined in Section 2(a)(48) of that Act; a Small Business Investment
Company licensed by the U.S. Small Business Administration under Section 301(c)
or (d) of the Small Business Investment Act of 1958; a plan established and
maintained by a state, its political subdivisions, or any agency or
instrumentality of a state or its political subdivisions for the benefit of its
employees, if such plan has total assets in excess of $5,000,000; an employee
benefit plan within the meaning of the Employee Retirement Income Security Act
of 1974, if the investment decision is made by a plan fiduciary, as defined in
Section 3(21) of such Act, which is either a bank, savings and loan association,
insurance company, or registered investment adviser, or if the employee benefit
plan has total assets in excess of $5,000,000 or, if a self-directed plan, with
the investment decisions made solely by persons that are accredited investors;
____ (2) a private business development company as defined in Section 202(a)(22)
of the Investment Advisers Act of 1940;
____ (3) an organization described in Section 501(c)(3) of the Internal Revenue
Code of 1986, as amended, corporation, Massachusetts or similar business trust,
or partnership, not formed for the specific purpose of acquiring the Securities
offered, with total assets in excess of $5,000,000;
____ (4) a natural person whose individual net worth, or joint net worth with
that person's spouse, at the time of such person's purchase of the Securities
exceeds $1,000,000;
____ (5) a natural person who had an individual income in excess of $200,000 in
each of the two most recent years or joint income with that person's spouse in
excess of $300,000 in each of those years and has a reasonable expectation of
reaching the same income level in the current year;
____ (6) a trust, with total assets in excess of $5,000,000, not formed for the
specific purpose of acquiring the Securities offered, whose purchase is directed
by a sophisticated person as described in Rule 506(b)(2)(ii) of Regulation D;
and
____ (7) an entity in which all of the equity owners are accredited investors
(as defined above).
IN WITNESS WHEREOF, the undersigned has executed this Questionnaire this ____
day of __________, 2005, and declares under oath that it is truthful and
correct.
______________________________________________________
Print Name
By: __________________________________________________
Signature
Title: _______________________________________________
(required for any purchaser that is a
corporation, partnership, limited liability
company, trust or other entity)
EXHIBIT F
FORM OF OPINION
1. The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware and has the requisite
corporate power to own, lease and operate its properties and assets, and to
carry on its business as presently conducted. The Company is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the failure to so qualify would have a Material Adverse Effect.
2. The Company has the requisite corporate power and authority to enter
into and perform its obligations under the Transaction Documents and to issue
the Shares, the Warrants and (except as hereafter stated) the Warrant Shares
issuable upon exercise of the Warrants. The execution, delivery and performance
of each of the Transaction Documents by the Company and the consummation by it
of the transactions contemplated thereby have been duly and validly authorized
by all necessary corporate action and no further consent or authorization of the
Company, its Board of Directors or its stockholders is required. Each of the
Transaction Documents have been duly executed and delivered and each of the
Transaction Documents constitutes a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its respective terms.
The Shares and the Warrant Shares are not subject to any preemptive rights under
the Certificate of Incorporation or the Bylaws.
3. The Shares and Warrants have been duly authorized and, the Shares
when delivered against payment in full as provided in the Purchase Agreement,
will be validly issued, fully paid and nonassessable. The Shares and Warrant
Shares have been reserved for issuance.
4. The execution, delivery and performance of and compliance with the
terms of the Transaction Documents and the issuance of the Shares do not (a)
violate any provision of the Certificate of Incorporation or Bylaws, (b)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material agreement,
mortgage, deed of trust, indenture, note, bond, license, lease agreement,
instrument or obligation to which the Company is a party and which is known to
us, (c) create or impose a lien, charge or encumbrance on any property of the
Company under any agreement or any commitment known to us to which the Company
is a party or by which the Company is bound or by which any of its respective
properties or assets are bound, or (d) result in a violation of any Federal,
state, local or foreign statute, rule, regulation, order, judgment, injunction
or decree (including Federal and state securities laws and regulations)
applicable to the Company or by which any property or asset of the Company is
bound or affected, except, in all cases other than violations pursuant to
clauses (a) and (d) above, for such conflicts, default, terminations,
amendments, acceleration, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect.
5. No consent, approval or authorization of or designation, declaration
or filing with any governmental authority on the part of the Company is required
under Federal, state or local law, rule or regulation in connection with the
valid execution, delivery and performance of the Transaction Documents, or the
offer, sale or issuance of the Shares other than filings as may be required by
applicable Federal and state securities laws.
6. To our knowledge, there is no action, suit, claim, investigation or
proceeding pending or threatened against the Company which questions the
validity of the Agreement or the transactions contemplated thereby or any action
taken or to be taken pursuant thereto. There is no action, suit, claim,
investigation or proceeding pending, or to our knowledge, threatened, against or
involving the Company or any of its properties or assets and which, if adversely
determined, is reasonably likely to result in a Material Adverse Effect. There
are no outstanding orders, judgments, injunctions, awards or decrees of any
court, arbitrator or governmental or regulatory body against the Company or any
officers or directors of the Company in their capacities as such.
7. The offer, issuance and sale of the Shares and the Warrants are
exempt from the registration requirements of the Securities Act of 1933, as
amended.
8. The Company is not, and as a result of and immediately upon Closing
will not be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.