Exhibit 4.1
EXECUTION COPY
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this
“Agreement”
) is dated as of March 30, 2007, between
Health Benefits Direct Corporation
, a Delaware corporation (the
“Company”
), and the investors
identified on the signature pages hereto (each, an
“Investor”
and collectively, the
“Investors”
).
WHEREAS, the Company is offering on a “best efforts” basis in a private placement to
“accredited investors” (as such term in defined in Regulation D promulgated under the Securities
Act of 1933, as amended (the “
Securities Act
”)) of units (the “
Units
”) of up to 5,000,000
shares of
the Company’s common stock, $0.001 par value per share (the “
Common Stock
”) and five-year warrants
(all such warrants being the “
Warrants
”) to purchase shares of the Common Stock, in the form
attached hereto at
Exhibit A
;
WHEREAS, each Unit will be offered at a purchase price of $2.25 per Unit (the “
Per Unit
Purchase Price
”) and will consist of (i) one share of Common Stock and (ii) a Warrant to purchase
one-half (1/2) of one share of Common Stock;
WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to
Section 4(2) of the Securities Act and Rule 506 promulgated thereunder, the Company desires to
issue and sell to each Investor, and each Investor, severally and not jointly, desires to purchase
from the Company certain securities of the Company, as more fully described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for
other good and valuable consideration the receipt and adequacy of which are hereby acknowledged,
the Company and the Investors agree as follows:
ARTICLE I.
DEFINITIONS
1.1
Definitions
. In addition to the terms defined elsewhere in this Agreement, for
all purposes of this Agreement, the following terms shall have the meanings indicated in this
Section 1.1:
“Action”
means any action, suit, inquiry, notice of violation, proceeding (including any
partial proceeding such as a deposition) or investigation pending or threatened in writing against
or affecting the Company, any Subsidiary or any of their respective properties, or the Common
Stock, or any officers, directors or key employees of the Company or any of its Subsidiaries,
before or by any court, arbitrator, governmental or administrative agency, regulatory authority
(federal, state, county, local or foreign), stock market, stock exchange or trading facility.
“Affiliate”
means any Person that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with a Person, as such terms are used in
and construed under Rule 144.
“
Bloomberg
” means Bloomberg Financial Markets.
“Business Day”
means any day except Saturday, Sunday and any day which is a federal legal
holiday or a day on which banking institutions in the State of New York are authorized or required
by law or other governmental action to close.
“Closing”
means the closing of the purchase and sale of the Units pursuant to Article II.
“Closing Date”
means the Business Day immediately following the date on which all of the
conditions set forth in Sections 5.1 and 5.2 hereof are satisfied or waived, or such other date as
the parties may agree, provided that such conditions continue to be so satisfied or waived on such
Business Day.
“Commission”
means the Securities and Exchange Commission.
“Common Stock Equivalents”
means any securities of the Company or any subsidiary which entitle
the holder thereof to acquire Common Stock at any time, including without limitation, any debt,
preferred stock, rights, options, warrants or other instrument that is at any time convertible into
or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock or other
securities that entitle the holder to receive, directly or indirectly, Common Stock.
“Company Counsel”
means Morgan, Lewis & Bockius LLP.
“Company Deliverables”
has the meaning set forth in Section 2.2(a).
“Company Shares”
means the shares of Common Stock issued to the Investors by the Company
pursuant to this Agreement, including any securities into which such shares of Common Stock may
hereafter be reclassified or changed.
“Company’s IP”
has the meaning set forth in Section 3.1(p).
“Confidential Information”
means trade secrets, confidential information and know-how
(including but not limited to ideas, formulae, compositions, processes, procedures and techniques,
research and development information, computer program code, performance specifications, support
documentation, drawings, specifications, designs, business and marketing plans, and customer and
supplier lists and related information).
“Delaware Courts”
means the state and federal courts sitting in the City of Wilmington, State
of Delaware.
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“Disclosure Letter”
means any of the disclosures hereto containing information relating to the
Company pursuant to Article III and other provisions hereof that has been provided to the Investors
on the date hereof.
“Disclosure Materials”
has the meaning set forth in Section 3.1(h).
“Effective Date”
means the date that the Registration Statement filed pursuant to Section
2(a), 2(b) or 2(c) of the Registration Rights Agreement (as applicable) is first declared effective
by the Commission.
“Exchange Act”
means the Securities Exchange Act of 1934, as amended.
“GAAP”
means U.S. generally accepted accounting principles.
“Infringe”
has the meaning set forth in Section 3.1(p).
“Intellectual Property”
shall mean any or all of the following and all rights in, arising out
of, or associated therewith: (a) all United States, international and foreign registered patents
and applications therefor and all underlying patent rights, reissues, divisions, renewals,
extensions, provisionals, continuations and continuations-in-part thereof; (b) all inventions
(whether patentable or not), ideas, processes, invention disclosures, improvements, trade secrets,
proprietary information, know-how, technology, improvements, discoveries, technical data, customer
lists, proprietary processes and formulae, all source and object code, algorithms, architectures,
structures, display screens, layouts, development tools and all documentation and media
constituting, describing or relating to the above, including, without limitation, manuals,
memoranda and records; (c) all copyrights, copyrights registrations and applications therefor,
copyrightable material including derivative works, revisions, transformations and adaptations,
material that is subject to non-copyright disclosure protections, and all other works of authorship
and designs (whether or not copyrightable), and all other rights corresponding thereto throughout
the world; (d) all trade names, logos, trade dress, common law trademarks and service marks,
trademark and service mark registrations and applications therefor throughout the world; (e) domain
names; (f) web sites and related content; (g) intellectual property rights acquired by license or
agreement; (h) damages or benefits derived from any action arising out of or related to the
foregoing, including laws controlling computer and Internet rights; (i) all manuals, documentation
and materials relating to the above; and (j) any equivalent rights to any of the foregoing anywhere
in the world.
“Investment Amount”
means, with respect to each Investor, the Investment Amount indicated on
such Investor’s signature page to this Agreement.
“Investor Deliverables”
has the meaning set forth in Section 2.2(b).
“Investor Party”
has the meaning set forth in Section 4.7.
“License Agreements”
has the meaning set forth in Section 3.1(p).
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“Lien”
means any lien, charge, encumbrance, security interest, preemptive or similar rights,
right of first refusal or other restrictions of any kind, other than restrictions on the transfer
of securities arising under federal or state securities laws and regulations.
“Material Adverse Effect”
means any of (i) a material adverse effect on the legality, validity
or enforceability of any Transaction Document, (ii) a material adverse effect on operations
(including the results thereof), assets, liabilities, business or condition (financial or
otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse
impairment to the Company’s ability to perform on a timely basis its obligations under any
Transaction Document.
“Person”
means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any kind.
“
Principal Market
” means the National Association of Securities Dealers, Inc. OTC Bulletin
Board.
“Proceeding”
means an action, claim, suit, investigation or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition), whether commenced or
threatened.
“Registration Statement”
means a registration statement meeting the requirements set forth in
the Registration Rights Agreement and covering the resale by the Investors of the Registrable
Securities (as defined therein) to the extent provided for therein.
“Registration Rights Agreement”
means the Registration Rights Agreement, dated as of the date
of this Agreement, among the Company and the Investors, in the form of
Exhibit B
hereto.
“Rule 144”
means Rule 144 promulgated by the Commission pursuant to the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by
the Commission having substantially the same effect as such Rule.
“SEC Reports”
has the meaning set forth in Section 3.1(h).
“Securities”
means, collectively, the Company Shares, the Warrants, the Warrant Shares and the
Units.
“Short Sales”
include, without limitation, all “short sales” as defined in Rule 200 of
Regulation SHO and include all types of direct and indirect stock pledges, forward sale contracts,
options, puts, calls, short sales, swaps and similar arrangements (including on a total return
basis), and sales and other transactions through non-US broker dealers or foreign regulated brokers
having the effect of hedging the securities or investment made under this Agreement.
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“Subsidiary”
means any “significant subsidiary” as defined in Rule 1-02(w) of the Regulation
S-X promulgated by the Commission under the Exchange Act, including without limitation those
entities listed in Exhibit 21.1 to the Form 10-KSB.
“Trading Day”
means any day on which the Common Stock is traded on the Principal Market, or,
if the Principal Market is not the principal trading market for the Common Stock, then on the
principal securities exchange or securities market on which the Common Stock is then traded;
provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to
trade on such exchange or market for less than 4.5 hours or any
day that the Common Stock is suspended from trading during the final hour of trading on such
exchange or market (or if such exchange or market does not designate in advance the closing time of
trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York City
time).
“Trading Market”
means whichever of the New York Stock Exchange, the American Stock Exchange,
the Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq Capital Market or the
Principal Market on which the Common Stock is listed or quoted for trading on the date in question.
“Transaction Documents”
means this Agreement, the Registration Rights Agreement, the Warrants
and any other documents or agreements executed in connection with the transactions contemplated
hereunder.
“VWAP”
means, for any security as of any date, the dollar volume-weighted average price for
such security on the Principal Market (or, if the Principal Market is not the principal trading
market for the Common Stock, then on the principal securities exchange or securities market on
which the Common Stock is then traded) during the period beginning at 9:30:01 a.m., New York City
Time, and ending at 4:00:00 p.m., New York City Time, as reported by Bloomberg through its “Volume
at Price” function or, if the foregoing does not apply, the dollar volume-weighted average price of
such security in the over-the-counter market on the electronic bulletin board for such security
during the period beginning at 9:30:01 a.m., New York City Time, and ending at 4:00:00 p.m., New
York City Time, as reported by Bloomberg, or, if no dollar volume-weighted average price is
reported for such security by Bloomberg for such hours, the average of the highest closing bid
price and the lowest closing ask price of any of the market makers for such security as reported in
the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If VWAP cannot
be calculated for such security on such date on any of the foregoing bases, the VWAP of such
security on such date shall be the fair market value as mutually determined by the Company and the
Investor. If the Company and the Investor are unable to agree upon the fair market value of such
security, then they shall agree in good faith on a reputable investment bank to make such
determination of fair market value, whose determination shall be final and binding and whose fees
and expenses shall be borne by the Company. All such determinations shall be appropriately adjusted
for any share dividend, share split or other similar transaction during such period.
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“Warrant Shares”
mean the shares of Common Stock issuable upon the exercise of the Warrants
being sold under this Agreement.
ARTICLE II.
PURCHASE AND SALE
2.1
Closing
. Subject to the terms and conditions set forth in this Agreement, at the
Closing, the Company shall issue and sell to each Investor, and each Investor shall, severally and
not jointly, purchase from the Company, the Units representing such Investor’s Investment Amount.
The Closing shall take place at the offices of Morgan, Lewis & Bockius LLP, 1701 Market Street,
Philadelphia, PA 19103 on the Closing Date, or at such other location or time as the parties may
agree.
2.2
Closing Deliveries
. (a) At the Closing, the Company shall deliver or cause to be
delivered to each Investor the following (the
“Company Deliverables”
):
(i) an irrevocable letter of instruction to the Company’s transfer agent directing the
transfer agent to issue to such Investor a stock certificate representing a number of Company
Shares equal to such Investor’s Investment Amount divided by the Per Unit Purchase Price,
registered in the name of such Investor;
(ii) a certificate evidencing the formation and good standing of the Company issued by the
Secretary of State of Delaware as of a date within fifteen (15) days of the Closing Date;
(iii) a certified copy of the Certificate of Incorporation as certified by the Secretary of
State of the State of Delaware within fifteen (15) days of the Closing Date;
(iv) a certificate, executed by the Assistant Secretary of the Company and dated as of the
Closing Date, as to (i) the resolutions consistent with Section 3(c) as adopted by the Company’s
board of directors in a form reasonably acceptable to such Investor, (ii) the Certificate of
Incorporation and (iii) the Bylaws, each as in effect at the Closing;
(v) a Warrant, registered in the name of such Investor pursuant to which such Investor shall
have the right to acquire the number of shares of Common Stock equal to 50% of the number of
Company Shares issuable to such Investor pursuant to Section 2.2(a)(i);
(vi) the legal opinion of Company Counsel, in substantially the form previously provided to
the Investors, addressed to the Investors;
(vii) the Registration Rights Agreement and any other Transaction Documents which the Company
is required to execute hereunder, duly executed by the Company; and
(viii) such other documents relating to the transactions contemplated by this Agreement as
such Investor or its counsel may reasonably request.
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(b) At the Closing, each Investor shall deliver or cause to be delivered to the Company the
following (the
“Investor Deliverables”
):
(i) its Investment Amount, in United States dollars and in immediately available funds, by
wire transfer to an account designated in writing by the Company for such purpose attached hereto
at
Exhibit C
; and
(ii) the Registration Rights Agreement, duly executed by such Investor.
ARTICLE III.
REPRESENTATIONS AND
WARRANTIES
3.1
Representations and Warranties of the Company
. The Company hereby makes the
following representations and warranties to each Investor:
(a)
Subsidiaries
. The Company has no direct or indirect Subsidiaries other than as
specified in the SEC Reports. The Company owns, directly or indirectly, all of the capital stock
of each Subsidiary free and clear of any and all Liens, and all the issued and outstanding shares
of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free
of preemptive and similar rights. The Company or one of its Subsidiaries has the unrestricted
right to vote, and (subject to limitations imposed by applicable law) to receive dividends and
distributions on, all capital securities of its Subsidiaries as owned by the Company or such
Subsidiary.
(b)
Organization and Qualification
. The Company and each Subsidiary are duly
incorporated or otherwise organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with the requisite power and
authority to own and use its properties and assets and to carry on its business as currently
conducted and as presently proposed to be conducted, except in each case as would not, individually
or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect.
Neither the Company nor any Subsidiary is in violation of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational or charter documents. The
Company and each Subsidiary are duly qualified to conduct its respective businesses and are in good
standing as a foreign corporation or other entity in each jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, would not, individually or in
the aggregate, have or reasonably be expected to result in a Material Adverse Effect.
(c)
Authorization; Enforcement
. The Company has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by each of the Transaction
Documents and otherwise to carry out its obligations thereunder. The execution and delivery of
each of the Transaction Documents by the Company and the consummation by it of the transactions
contemplated hereby, including, without limitation, the issuance of the
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Securities and the
reservation for issuance and issuance of the Warrant Shares issuable upon exercise of the Warrants,
have been duly authorized by all necessary corporate action on the part of the Company and no
consent or further corporate action is required by the Company, its Board of Directors or its
stockholders in connection therewith. Each Transaction Document has been (or upon delivery will
have been) duly executed by the Company and, when delivered in accordance with the terms hereof,
will constitute the valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as rights to indemnity and contribution may be limited by state
or federal securities laws or the public policy underlying such laws, and except as such
enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors’ rights and remedies or by other equitable
principles of general application.
(d)
No Conflicts
. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the transactions contemplated
thereby do not and will not (i) conflict with or violate any provision of the Company’s or any
Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter
documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement,
credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or
other understanding to which the Company or any Subsidiary is a party or by which any property or
asset of the Company or any Subsidiary is bound or affected, or (iii) result in a violation of any
law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or
governmental authority to which the Company or a Subsidiary is subject (including federal and state
securities laws and regulations and the rules and regulations of the Principal Market), or by which
any property or asset of the Company or a Subsidiary is bound or affected; except in the case of
each of clauses (ii) and (iii), such as would not, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect.
(e)
Filings, Consents and Approvals
. The Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or make any filing or registration
with, any court or other federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the Transaction
Documents, other than (i) the filing with the Commission of one or more Registration Statements in
accordance with the requirements of the Registration Rights Agreement, (ii) filings required by
state securities laws, (iii) the filing of a Notice of Sale of Securities on Form D with the
Commission under Regulation D of the Securities Act, (iv) the filings required in accordance with
Sections 4.4 (and any related amendments to, or related prospectus supplements to, the Company’s
outstanding registration statement filed on Form SB-2) and 4.6, and (iv) those that have been made
or obtained prior to the date of this Agreement. The Company and its subsidiaries are unaware of
any facts or circumstances which might prevent the Company from obtaining or effecting any of the
registration, application or filings pursuant to this Section 3.1(e).
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(f)
Issuance of the Securities
. The Securities have been duly authorized and, when
issued and paid for in accordance with the Transaction Documents, will be duly and validly issued,
fully paid and nonassessable, free and clear of all Liens. The Company has reserved from its duly
authorized capital stock the shares of Common Shares issuable pursuant to this Agreement and the
Warrants in order to issue the Company Shares and the Warrant Shares. Upon exercise in accordance
with the Warrants, the Warrant Shares will be validly issued, fully paid and nonassessable and free
from all Liens, with the holders being entitled to all rights accorded to a holder of Common Stock.
Subject to the accuracy of the representations and warranties of the Investors in this Agreement,
the offer and issuance by the Company of the Securities is exempt from registration under the
Securities Act.
(g)
Capitalization
. Except as set forth in
Section 3.1(g) of the Disclosure
Letter
, the number of shares and type of all authorized, issued and outstanding capital stock
of the Company, and all shares of Common Stock reserved for issuance under the Company’s various
option and incentive plans, is specified in the SEC Reports. All of such outstanding shares are
duly authorized and have been, or upon issuance will be, validly issued and are fully paid and
nonassessable. Except as specified in
Section 3.1(g) of the Disclosure Letter
, no
securities of the Company are entitled to preemptive or similar rights, and no Person has any right
of first refusal, preemptive right, right of participation, or any similar right to participate in
the transactions contemplated by the Transaction Documents. Except as specified in
Section
3.1(g) of the Disclosure Letter
, there are no outstanding options, warrants, scrip rights to
subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights
or obligations convertible into or exchangeable for, or giving any Person any right to subscribe
for or acquire, any shares of Common Stock, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become bound to issue additional
shares of Common Stock, or securities or rights convertible or exchangeable into shares of Common
Stock. The issue and sale of the Securities will not, immediately or with the passage of time,
obligate the Company to issue shares of Common Stock or other securities to any Person (other than
the Investors) and will not result in a right of any holder of Company securities to adjust the
exercise, conversion, exchange or reset price under such securities (including, without limitation,
under any anti-dilution or similar provisions).
(h)
SEC Reports; Financial Statements
. The Company has filed all reports, schedules,
forms, statements and other documents required to be filed by it under the Securities Act and the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the twelve months preceding
the date hereof (or such shorter period as the Company was required by law to file such reports)
(the foregoing materials and all exhibits included therein and financial statements, notes and
schedules thereto and documents incorporated by reference therein being collectively referred to
herein as the
“SEC Reports”
and, together with the Disclosure Letter, the
“Disclosure Materials”
)
on a timely basis or has timely filed a valid extension of such time of filing and has filed any
such SEC Reports prior to the expiration of any such extension. The Company has made available to
the Investors or their respective representatives true, correct and complete copies of each of the
SEC Reports not available on the EDGAR system (if any). As of their respective dates, the SEC
Reports complied in all material respects with the requirements of the Securities Act and the
Exchange Act and the rules and regulations of the Commission
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promulgated thereunder, and none of
the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading. The financial statements
of the Company included in the SEC Reports comply in all material respects with applicable
accounting requirements and the rules and regulations of the Commission with respect thereto as in
effect at the time of filing (or amendment, as applicable). Such financial statements have been
prepared in accordance with GAAP, applied on a consistent basis, during the periods involved,
except as may be otherwise specified in such financial statements or the notes thereto, and fairly
present in all material respects the financial position of the Company and its consolidated
subsidiaries as of and for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in
the case of unaudited statements, to normal, immaterial, year-end audit adjustments or which
will not be material, either individually or in the aggregate.
(i)
Tax Status
. The Company and each of its Subsidiaries (i) has timely made or filed
all foreign, federal and state income and all other tax returns, reports and declarations required
by any jurisdiction to which it is subject, (ii) has timely paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined to be due on such returns,
reports and declarations, except those being contested in good faith and (iii) has set aside on its
books provision reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply, except in each case as would not
reasonably be expected to have a Material Adverse Effect. There are no unpaid taxes in any material
amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
(j)
Material Changes
. Since the date of the latest financial statements included in
the SEC Reports, except as set forth in the SEC Reports, (i) there has been no event, occurrence or
development that has had or that would reasonably be expected to result in a Material Adverse
Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A)
trade payables, accrued expenses and other liabilities incurred in the ordinary course of business
consistent with past practice and (B) liabilities not required to be reflected in the Company’s
financial statements pursuant to GAAP or required to be disclosed in filings made with the
Commission, (iii) the Company has not altered its method of accounting or the identity of its
auditors, (iv) the Company has not declared or made any dividend or distribution of cash or other
property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem
any shares of its capital stock, (v) the Company has not sold any assets outside of the ordinary
course of business, (vi) the Company has not made any material capital expenditures and (vi) the
Company has not issued any equity securities to any officer, director or Affiliate, except pursuant
to existing Company stock option plans. The Company does not have pending before the Commission any
request for confidential treatment of information. Neither the Company nor any of its Subsidiaries
has taken any steps to seek protection pursuant to any bankruptcy law nor does the Company have any
knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy
proceedings or any actual knowledge of any fact which would reasonably lead a creditor to do so.
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(k)
Litigation
. There is no Action which (i) adversely affects or challenges the
legality, validity or enforceability of any of the Transaction Documents against the Company or the
Securities or (ii) except as specifically disclosed in the SEC Reports, would, if there were an
unfavorable decision, individually or in the aggregate, have or reasonably be expected to result in
a Material Adverse Effect. Neither the Company nor any Subsidiary, nor any director or officer
thereof (in his or her capacity as such), is or has been the subject of any Action involving a
claim of violation of or liability under federal or state securities laws or a claim of breach of
fiduciary duty, except as specifically disclosed in the SEC Reports. There has not been, and to the
knowledge of the Company, there is not pending any investigation by the Commission involving the
Company or any current or former director or officer of the Company (in his or her capacity as
such). The Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any Subsidiary under the
Exchange Act or the Securities Act.
(l)
Labor Relations
. No material labor dispute exists or, to the knowledge of the
Company, is imminent with respect to any of the employees of the Company. Neither the Company nor
any of its Subsidiaries is a party to any collective bargaining agreement or employs any member of
a union. The Company and its Subsidiaries believe that their relations with their employees are
good. No executive officer (as defined in Rule 501(f) of the Securities Act) of the Company or any
of its Subsidiaries has notified the Company or any such Subsidiary that such officer intends to
leave the Company or any such Subsidiary or otherwise terminate such officer’s employment with the
Company or any such Subsidiary. No executive officer of the Company or any of its Subsidiaries is,
or is now expected to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any
other contract or agreement or any restrictive covenant, and the continued employment of each such
executive officer does not subject the Company or any of its Subsidiaries to any liability with
respect to any of the foregoing matters.
(m)
Compliance
. Neither the Company nor any Subsidiary (i) is in default under or in
violation of (and no event has occurred that has not been waived that, with notice or lapse of time
or both, would result in a default by the Company or any Subsidiary under), nor has the Company or
any Subsidiary received notice of a claim that it is in default under or that it is in violation
of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound (except to the extent such default or
violation has been waived), (ii) is in violation of any judgment, decree or order of any court,
arbitrator or governmental body, or (iii) is or has been in violation of any statute, ordinance,
rule or regulation of any governmental authority, including without limitation all foreign,
federal, state and local laws relating to taxes, pollution, environmental protection, occupational
health and safety, product quality and safety or employment and labor matters, except in each case
as would not, individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect. Without limiting the generality of the foregoing, the Company is not in
violation of any of the rules, regulations or requirements of the Principal Market and has no
knowledge of any facts or circumstances that could reasonably lead to delisting or suspension of
the Common Stock in the foreseeable future. The Company is in compliance with all effective
requirements of the Sarbanes-Oxley Act of 2002, as amended, and
11
the rules and regulations
thereunder, that are applicable to it, except where such noncompliance would not have or reasonably
be expected to result in a Material Adverse Effect.
(n)
Regulatory Permits
. The Company and the Subsidiaries possess all certificates,
authorizations, licenses and permits issued by the appropriate federal, state, local or foreign
regulatory authorities necessary to conduct their respective businesses as described in the SEC
Reports, except where the failure to possess any such certificates, authorizations, licenses or
permits would not, individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect, and neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate, authorization,
license or permit.
(o)
Title to Assets
. The Company and the Subsidiaries have good and marketable title
in fee simple to all real property owned by them that is material to their respective businesses
and good and marketable title in all personal property owned or used by them that is material to
their respective businesses, in each case free and clear of all Liens, except for Liens as do not
materially affect the value of such property and do not materially interfere with the use made and
proposed to be made of such property by the Company or any of its Subsidiaries. Any real property
and facilities held under lease by the Company or any of its Subsidiaries are held by them under
valid, subsisting and, to the Company’s knowledge, enforceable leases of which the Company and the
Subsidiaries are in compliance, except as would not, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect.
(p)
Patents and Trademarks
.
(i)
Section 3.1(p) of the Disclosure Letter
accurately sets forth all material
Intellectual Property that is owned and/or used in the business of the Company and its
Subsidiaries, viewed as a whole, as presently conducted (“
Company’s IP
”). No Intellectual Property
other than the Company’s IP is material to the business of the Company or any of its Subsidiaries
as presently conducted or as presently proposed to be conducted. The Company or one of its
Subsidiaries is the sole and exclusive owner of all right, title and interest in and to Company’s
IP (with no breaks in the chain of title thereof) free and clear of, to its knowledge, any claim,
security interest, lien, pledge, option, charge or encumbrance of any kind whatsoever. Company’s
IP has not been used or enforced or failed to be used or enforced in a manner that would result in
the abandonment, cancellation or unenforceability of any of Company’s material rights in and to
Company’s IP.
(ii) The Company has not transferred any rights or interest in, or granted any exclusive
license with respect to, any of the Company’s IP to any third party.
(iii) All of Company’s IP is currently in compliance in all material respects with all legal
requirements (including timely filings, proofs and payments of fees) and is, to the Company’s
knowledge, valid and enforceable. None of Company’s IP which is necessary for the conduct of
Company’s and each of its Subsidiaries’ respective businesses as currently conducted or as
currently proposed to be conducted has been or is now involved in any
12
pending or threatened
cancellation, dispute or litigation of which the Company is aware. No patent of the Company or its
Subsidiaries has been or is now involved in any interference, reissue, re-examination or opposition
proceeding.
(iv) All of the licenses and sublicenses and consent, royalty or other agreements concerning
Company’s IP which are necessary for the conduct of the Company’s and each of its Subsidiaries’
respective businesses as currently conducted or as currently proposed to be conducted to which the
Company or any Subsidiary is a party or by which any of their assets are bound (other than
generally commercially available, non-custom, off-the-shelf software application programs having a
retail acquisition price of less than $25,000 per license) (collectively, “
License Agreements
”) are
valid and binding obligations of the Company or its Subsidiaries that are parties thereto and, to
the Company’s knowledge, the other parties thereto,
enforceable in accordance with their terms, except to the extent that enforcement thereof may
be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other
similar laws affecting the enforcement of creditors’ rights generally, and there exists no event or
condition which, to the Company’s knowledge, will result in a material violation or breach of or
constitute (with or without due notice or lapse of time or both) a default by the Company or any of
its Subsidiaries under any such License Agreement.
(v) The Company and its Subsidiaries own or have the valid right to use all of the
Intellectual Property that is necessary for the operation of the Company’s and each of its
Subsidiaries’ respective businesses as currently conducted or as currently proposed to be
conducted. The Company and its Subsidiaries have a valid and enforceable right to use all third
party Intellectual Property and Confidential Information used or held for use as the Company’s IP.
(vi) To the best knowledge of the Company, the conduct of the Company’s and its Subsidiaries’
businesses as currently conducted does not infringe or otherwise impair or conflict with
(collectively, “
Infringe
”) any Intellectual Property rights of any third party or any
confidentiality obligation owed to a third party, and, to the Company’s knowledge, the Company’s IP
which are necessary for the conduct of Company’s and each of its Subsidiaries’ respective
businesses as currently conducted or as currently proposed to be conducted are not being Infringed
by any third party. There is no litigation or order pending or outstanding or, to the Company’s
knowledge, threatened or imminent, that seeks to limit or challenge or that concerns the ownership,
use, validity or enforceability of any of the Company’s IP or, to the Company’s knowledge, the
Company’s and its Subsidiaries’ use of any Intellectual Property or Confidential Information owned
by a third party, and, to the Company’s knowledge, there is no valid basis for the same.
(vii) The consummation of the transactions contemplated hereby and by the other Transaction
Documents will not result in the alteration, loss, impairment of or restriction on the Company’s or
any of its Subsidiaries’ ownership or right to use any of the Company’s IP which is necessary for
the conduct of Company’s and each of its Subsidiaries’ respective businesses as currently conducted
or as currently proposed to be conducted.
13
(q)
Insurance
. The Company and the Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as are prudent and
customary in the businesses in which the Company and the Subsidiaries are engaged. The Company has
no reason to believe that it will not be able to renew its and the Subsidiaries’ existing insurance
coverage as and when such coverage expires or to obtain similar coverage from similar insurers as
may be necessary to continue its business on terms consistent in all material respects with market
for similar size companies as the Company and its Subsidiaries for the lines of business of the
Company and its Subsidiaries at a cost that would not have a Material Adverse Effect. Neither the
Company nor any such Subsidiary has been refused any insurance coverage sought or applied for.
(r)
Transactions With Affiliates and Employees
. None of the officers or directors of
the Company and, to the knowledge of the Company, none of the employees of the
Company is presently a party to any transaction with the Company or any Subsidiary (other than
for ordinary course services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any entity in which any
officer, director, or any such employee has a substantial interest or is an officer, director,
trustee or partner, which in each case is required to be disclosed in the SEC Reports and has not
been so disclosed.
(s)
Internal Accounting Controls
. The Company and each of the Subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial statements in conformity
with generally accepted accounting principles and to maintain asset and liability accountability,
(iii) access to assets or incurrence of liabilities is permitted only in accordance with
management’s general or specific authorization, and (iv) the recorded accountability for assets and
liabilities is compared with the existing assets and liabilities at reasonable intervals and
appropriate action is taken with respect to any differences. The Company has established
disclosure controls and procedures (as defined in Exchange Act rules 13a-14 and 15d-14) for the
Company and designed such disclosure controls and procedures so that they are effective in ensuring
that information required to be disclosed by the Company in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported, within the time periods
specified in the rules and forms of the Commission, including, without limitation, controls and
procedures designed to ensure that material information relating to the Company, including its
Subsidiaries, is made known to the certifying officers by others within those entities,
particularly during the period in which the Company’s Form 10-KSB or 10-QSB, as the case may be, is
being prepared. The Company’s certifying officers have evaluated the effectiveness of the Company’s
controls and procedures in accordance with Item 307 of Regulation S-B under the Exchange Act for
the Company’s most recently ended fiscal quarter or fiscal year-end (such date, the
“Evaluation
Date”
). The Company presented in its most recently filed Form 10-KSB or Form 10-QSB the
conclusions of the certifying officers about the effectiveness of the disclosure controls and
procedures based on their evaluations as of the
14
Evaluation Date. Since the Evaluation Date, there
have been no significant changes in the Company’s internal controls (as such term is defined in
Item 308(c) of Regulation S-B under the Exchange Act) or, to the Company’s knowledge, in other
factors that would significantly affect the Company’s internal controls. Neither the Company nor
any of its Subsidiaries has received any written notice or correspondence from any accountant
relating to any potential material weakness in any part of the system of internal accounting
controls of the Company or any of its Subsidiaries.
(t)
Solvency
. Based on the financial condition of the Company as of the date here of
and as of the Closing Date (assuming that the Closing shall have occurred), (i) the Company’s
present fair saleable value of its assets exceeds the amount that will be required to be paid on or
in respect of the Company’s existing debts and other liabilities (including known contingent
liabilities) as they mature; (ii) the Company’s assets do not constitute unreasonably small capital
to carry on its business for the current fiscal year as now conducted and as proposed
to be conducted including its capital needs taking into account the particular capital
requirements of the business conducted by the Company, and projected capital requirements and
capital availability thereof; and (iii) the current cash flow of the Company, together with the
proceeds the Company would receive, were it to liquidate all of its assets, after taking into
account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect
of its debt when such amounts are required to be paid. The foregoing representation and warranty is
also true and correct as to the Company and the subsidiaries on a consolidated basis. Neither the
Company nor any subsidiary intends to incur debts beyond its or their ability to pay such debts as
they mature (taking into account the timing and amounts of cash to be payable on or in respect of
its or their debt).
(u)
Certain Fees
. Except as described in
Section 3.1(u) of the Disclosure
Letter
, no brokerage or finder’s fees or commissions are or will be payable by the Company to
any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or
other Person with respect to the transactions contemplated by this Agreement. The Investors shall
have no obligation with respect to any fees or with respect to any claims (other than such fees or
commissions owed by an Investor pursuant to written agreements executed by such Investor which fees
or commissions shall be the sole responsibility of such Investor) made by or on behalf of other
Persons for fees of a type contemplated in this Section 3.1(u) that may be due in connection with
the transactions contemplated by this Agreement.
(v)
Certain Registration Matters
. Assuming the accuracy of the Investors’
representations and warranties set forth in Section 3.2(b)-(e), no registration under the
Securities Act is required for the offer and sale of the Units by the Company to the Investors
under the Transaction Documents. The Company is eligible to register the Registrable Securities (as
defined in the Registration Rights Agreement) for resale by the Investors under Form SB-2
promulgated under the Securities Act, except to the extent that the Commission communicates to the
Company that such resale would not constitute a “secondary offering” permitted by Rule 415 of the
Securities Act (as to which the Company makes no representation or warranty, notwithstanding
anything contained in the Transaction Documents to the contrary). Except as specified in the
Registration Rights Agreement and in
Section 3.1(v) of the Disclosure Letter
, the
15
Company
has not granted or agreed to grant to any Person any rights (including “piggy-back” registration
rights) to have any securities of the Company registered with the Commission or any other
governmental authority that have not been satisfied.
(w)
Listing and Maintenance Requirements
. The Company has not, in the two years
preceding the date hereof, received notice from any Trading Market to the effect that the Company
is not in compliance with the listing or maintenance requirements thereof. The Company is, and has
no reason to believe that it will not in the foreseeable future continue to be, in compliance with
the listing and maintenance requirements for continued listing of the
Common Stock on the Trading Market on which the Common Stock is currently listed or quoted.
The issuance and sale of the Securities under the Transaction Documents does not contravene the
rules and regulations of the Trading Market on which the Common Stock is currently listed or
quoted, and no approval of the stockholders of the Company thereunder is required for the Company
to issue and deliver to the Investors the Securities contemplated by Transaction Documents.
(x)
Investment Company
. The Company is not, and is not an Affiliate of, and
immediately following the Closing will not have become, an “investment company,” an Affiliate of an
“investment company,” a company controlled by an “investment company” or an “affiliated person” of,
or “promoter” or “principal underwriter” for, an “investment company” within the meaning of the
Investment Company Act of 1940, as amended.
(y)
Application of Takeover Protections
. The Company and its Board of Directors have
taken all necessary action, if any, in order to render inapplicable any control share acquisition,
business combination, poison pill (including any distribution under a rights agreement) or other
similar anti-takeover provision under the Company’s Certificate of Incorporation (or similar
charter documents) or the laws of its state of incorporation that is or would become applicable to
any of the Investors as a direct result of the transactions contemplated by this Agreement,
including without limitation, the Company’s issuance of the Securities to the Investors. The
Company has not adopted a stockholder rights plan or similar arrangement relating to accumulations
of beneficial ownership of Common Stock or a change in control of the Company.
(z)
No Additional Agreements
. The Company does not directly or indirectly have any
agreement or understanding with any Investor with respect to the transactions contemplated by the
Transaction Documents other than as specified in the Transaction Documents and the Disclosure
Materials.
(aa)
Disclosure
. The Company confirms that neither it nor, to its knowledge, any
Person acting on its behalf has provided any Investor or its respective agents or counsel with any
information that the Company believes constitutes material, non-public information, except insofar
as the existence and terms of the proposed transactions hereunder and the information contained
herein or in the other Transaction Documents may constitute such information. The Company
understands and confirms that the Investors will rely on the foregoing representations and
warranties in effecting transactions in securities of the Company. The Company
16
acknowledges and
agrees that no Investor makes or has made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in Sections 3.2 and 4.14.
(bb)
Off Balance Sheet Arrangements
. There is no transaction, arrangement, or other
relationship between the Company or any of its Subsidiaries and an unconsolidated or other off
balance sheet entity that is required to be disclosed by the Company in its Exchange Act filings
and is not so disclosed and that would be reasonably likely to have a Material Adverse Effect.
(cc)
U.S. Real Property Holding Corporation
. The Company is not, and has never been, a
U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue
Code of 1986, as amended, and the Company shall so certify upon the request of any Investor.
(dd)
Foreign Corrupt Practices
. Neither the Company nor any of its Subsidiaries nor
any director, officer, agent, employee or other Person acting on behalf of the Company or any of
its Subsidiaries has, in the course of its actions for, or on behalf of, the Company or any of its
Subsidiaries (i) used any corporate funds for any unlawful contribution, gift, entertainment or
other unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful
payment to any foreign or domestic government official or employee from corporate funds; (iii)
violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as
amended; or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or employee, except in each case as
would not have a Material Adverse Effect.
3.2
Representations and Warranties of the Investors
. Each Investor hereby, for itself
and for no other Investor, represents and warrants to the Company as follows:
(a)
Organization; Authority
. Such Investor is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its organization with the
requisite corporate or partnership power and authority to enter into and to consummate the
transactions contemplated by the applicable Transaction Documents and otherwise to carry out its
obligations thereunder. The execution, delivery and performance by such Investor of the
transactions contemplated by this Agreement has been duly authorized by all necessary corporate or,
if such Investor is not a corporation, such partnership, limited liability company or other
applicable like action, on the part of such Investor. Each of this Agreement and the Registration
Rights Agreement has been duly executed by such Investor, and when delivered by such Investor in
accordance with the terms hereof, will constitute the valid and legally binding obligation of such
Investor, enforceable against it in accordance with its terms, except as rights to indemnity and
contribution may be limited by state or federal securities laws or the public policy underlying
such laws, and except as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the
enforcement of, creditors’ rights and remedies or by other equitable principles of general
application.
17
(b)
Investment Intent
. Such Investor is acquiring the Securities as principal for its
own account for investment purposes only and not with a view to or for distributing or reselling
such Securities or any part thereof, without prejudice, however, to such Investor’s right at all
times to sell or otherwise dispose of all or any part of such Securities in compliance with
applicable federal and state securities laws. Subject to the immediately preceding sentence,
nothing contained herein shall be deemed a representation or warranty by such Investor to hold the
Securities for any period of time. Such Investor is acquiring the Securities hereunder in the
ordinary course of its business. Such Investor does not have any agreement or understanding,
directly or indirectly, with any Person to distribute any of the Securities.
(c)
Investor Status
. At the time such Investor was offered the Securities, it was,
and at the date hereof it is, an “accredited investor” as defined in Rule 501(a) under the
Securities Act. Such Investor has completed and executed the Investor Questionnaire (attached to
this Agreement as
Exhibit D
attached hereto and incorporated herein as representations and
warranties of such Investor under this Section 3.2) and that the information contained in such
document is complete and accurate. Such Investor is not a registered broker-dealer under Section 15
of the Exchange Act. Such Investor, either alone or together with its representatives, has such
knowledge, sophistication and experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment. Such Investor is able to bear the economic risk
of an investment in the Securities and, at the present time, is able to afford a complete loss of
such investment.
(d)
General Solicitation
. Such Investor is not purchasing the Securities as a result
of any advertisement, article, notice or other communication regarding the Securities published in
any newspaper, magazine or similar media or broadcast over television or radio or presented at any
seminar or any other general solicitation or general advertisement.
(e)
Access to Information
. Such Investor acknowledges that it has reviewed the
Disclosure Materials and has been afforded (i) the opportunity to ask such questions as it has
deemed necessary of, and to receive answers from, representatives of the Company concerning the
terms and conditions of the offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Subsidiaries and their respective
financial condition, results of operations, business, properties, management and prospects
sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain such
additional information that the Company possesses or can acquire without unreasonable effort or
expense that is necessary to make an informed investment decision with respect to the investment.
Neither such inquiries nor any other investigation conducted by or on behalf of such Investor or
its representatives or counsel shall modify, amend or affect such Investor’s right to rely on the
truth, accuracy and completeness of the Disclosure Materials and the Company’s representations and
warranties contained in the Transaction Documents. Such Investor acknowledges that the Company’s
Chief Executive Officer and Chairman, Alvin H. Clemens, will be purchasing up to $2,250,000 in
Investment Amount of Units pursuant to this Agreement.
18
(f)
Certain Trading Activities
. Such Investor has not directly or indirectly, nor has
any Person acting on behalf of or pursuant to any understanding with such Investor, engaged in any
transactions in the securities of the Company (including, without limitations, any Short Sales
involving the Company’s securities or “locking-up” up borrow with respect to any of the Company’s
securities) since the earlier to occur of (1) the time that such Investor was first contacted by
the Company or any other Person regarding an investment in the Company and (2) the 30
th
day prior to the date of this Agreement. Such Investor does not as of the date hereof, and will
not immediately following the Closing, own 10% or more of the Company’s issued and outstanding
shares of Common Stock (calculated based on the assumption that all Equivalents owned by such
Investor, whether or not presently exercisable or convertible, have been fully exercised or
converted (as the case may be) without regard to any limitations on exercise or conversion
(including “blockers”) contained therein).
(g)
Independent Investment Decision
. Such Investor has independently evaluated the
merits of its decision to purchase Securities pursuant to this Agreement, and such Investor
confirms that it has not relied on the advice of any other Investor’s business and/or legal counsel
in making such decision.
(h)
Reliance
. Such Investor understands and acknowledges that: (i) the Securities are
being offered and sold to it without registration under the Securities Act in a private placement
that is exempt from the registration provisions of the Securities Act and (ii) the availability of
such exemption depends in part on, and the Company will rely upon the accuracy and truthfulness of,
the foregoing representations and such Investor hereby consents to such reliance.
(i)
Residency
. Such Investor is a resident of the jurisdiction set forth immediately
below such Investor’s name on the signature pages hereto.
The Company acknowledges and agrees that no Investor has made or makes any representations or
warranties with respect to the transactions contemplated hereby other than those specifically set
forth in this Section 3.2 and Section 4.14.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1
Reasonable Best Efforts
. Each party shall use its reasonable best efforts to
timely satisfy each of the conditions to be satisfied by it as provided in Sections 5.1 and 5.2 of
this Agreement.
4.2
Legends
.
(a)
Sales of Securities
. Securities may only be disposed of in compliance with state
and federal securities laws. In connection with any transfer of any Securities other than pursuant
to an effective registration statement, to the Company, to an Affiliate of an Investor or in
connection with a pledge as contemplated in Section 4.2(d), the Company may, pursuant to the
provisions of Section 4.2(e) below, require the transferor thereof to provide to the Company an
19
opinion of counsel selected by the transferor, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such transfer does not require
registration of such transferred Securities under the Securities Act.
(b)
Register
. The Company shall maintain at its principal executive offices (or such
other office or agency of the Company as it may designate by notice to each holder of Securities),
a register for the Securities in which the Company shall record the name and address of the Person
in whose name the Securities have been issued (including the name and address of each transferee)
and the number of Warrant Shares issuable upon exercise of the Warrants held by such Person. The
Company shall keep the register open and available at all times during business hours for
inspection of any Investor or its legal representatives.
(c)
Transfer Agent Instructions
. The Company shall issue irrevocable instructions to
its transfer agent, and any subsequent transfer agent, to issue certificates or credit
shares to the applicable balance accounts at The Depository Trust Company (“
DTC
”) (if DTC is
then offered by the Company and its transfer agent), registered in the name of each Investor or its
respective nominee(s), for the Company Shares and the Warrant Shares in such amounts as specified
from time to time by each Investor to the Company upon exercise of the Warrants. The Company
represents and warrants that no instruction other than the irrevocable instructions to its transfer
agent referred to in this Section 4.2(c) will be given by the Company to its transfer agent with
respect to the Securities and that the Securities shall otherwise be freely transferable on the
books and records of the Company, as applicable, and to the extent provided in this Agreement and
the other Transaction Documents, except as it may reasonably determine are necessary to comply or
to ensure compliance with those applicable laws that are enacted or modified after the Closing. If
an Investor effects a sale, assignment or transfer of the Securities in accordance with the terms
of the Transaction Documents, the Company shall permit the transfer and shall promptly instruct its
transfer agent to issue one or more certificates or credit shares to the applicable balance
accounts at DTC (if DTC is then offered by the Company and its transfer agent) in such name and in
such denominations as specified by such Investor to effect such sale, transfer or assignment. In
the event that such sale, assignment or transfer involves Securities sold, assigned or transferred
pursuant to an effective registration statement or in compliance with Rule 144 (provided that in
the case of a sale, transfer or assignment under Rule 144 the foregoing is not an “affiliate” of
the Company or any of its Subsidiaries (as defined in Rule 144)), the transfer agent shall issue
such Securities to the Investor, assignee or transferee, as the case may be, without any
restrictive legend in accordance with Section 4.2(e) below. The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to an Investor. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations under this Section
4.2(c) will be inadequate and agrees, in the event of a breach or threatened breach by the Company
of any provisions of this Section 4.2(c), that an Investor shall be entitled, in addition to all
other available remedies, to an order and/or injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic loss and without any
bond or other security being required. The Company shall cause its counsel to issue the legal
opinion referred to in the irrevocable transfer agent instructions required to be delivered
pursuant to the terms of the Registration Rights Agreement to the Company’s transfer agent on each
Effective Date. Any fees (with respect to the transfer agent,
20
counsel to the Company or otherwise)
associated with the issuance of such opinion or the removal of any legends on any of the Securities
shall be borne by the Company.
(d) Certificates evidencing the Securities will contain the following legend, until such time
as they are not required under Section 4.1(e):
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (I) (A) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (B) AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED
BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF
WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY OR (II) RULE 144 OR RULE 144A
UNDER THE SECURITIES ACT. NOTWITHSTANDING THE FOREGOING, THESE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.
The Company acknowledges and agrees that an Investor may from time to time pledge, and/or
grant a security interest in some or all of the Securities in accordance with all applicable
federal and state securities laws pursuant to a bona fide margin agreement in connection with a
bona fide margin account and, if required under the terms of such agreement or account, such
Investor may transfer pledged or secured Securities to the pledgees or secured parties. Such a
pledge or transfer would not be subject to approval or consent of the Company and no legal opinion
of legal counsel to the pledgee, secured party or pledgor shall be required in connection with the
pledge, but such legal opinion may be required in connection with a subsequent transfer by the
pledgee or secured party following default by such Investor or otherwise. No notice shall be
required of such pledge. At the appropriate Investor’s expense, the Company will execute and
deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably
request in connection with a pledge or transfer of the Securities.
(e) Certificates evidencing the Securities shall not contain any legend (including the legend
set forth in Section 4.1(d)) at such time as an Investor has provided reasonable evidence to the
Company (including any customary broker’s or selling stockholder’s letters but expressly excluding
an opinion of counsel other than with respect to clauses (iv) or (v) below), that: (i) there has
been a sale of such Securities pursuant to an effective registration statement (including the
Registration Statement(s)), (ii) there has been a sale of such Securities pursuant to Rule 144
(assuming the transferor is not an Affiliate of the Company), (iii) such Securities are then
eligible for sale under Rule 144(k), (iv) in connection with a sale, assignment
21
or other transfer
(other than under Rule 144) provided such Investor provides the Company with an opinion of counsel
to such Investor, in a reasonably acceptable form, to the effect that such sale, assignment or
transfer of the Securities may be made without registration under the applicable requirements of
the Securities Act or (v) if such legend is not required under applicable requirements of the
Securities Act (including, without limitation, controlling judicial interpretations and
pronouncements issued by the Commission). Following such time as restrictive legends are not
required to be placed on certificates representing Securities pursuant to the preceding sentence,
the Company will, no later than three (3) Trading Days following the delivery by an Investor to the
Company or the Company’s transfer agent of a certificate representing Securities containing a
restrictive legend and the foregoing evidence (and opinion if applicable), deliver or cause to be
delivered to such Investor a certificate representing such Securities that is free from all
restrictive and other legends or credit the balance account of such Investor’s or such Investor’s
nominee with DTC (if DTC is then offered by the Company and its transfer agent) with a number of
shares of Common Stock equal to the number of Company Shares or Warrant Shares represented by the
certificate so delivered by such Investor (the date by which such certificate is required to be
delivered to such Investor or such shares were required to
be credited to such Investor’s account with DTC (as the case may be) pursuant to the foregoing
is referred to herein as the “
Required Delivery Date
”). The Company may not make any notation on
its records or give instructions to any transfer agent of the Company that enlarge the restrictions
on transfer set forth in this Section, except as it may reasonably determine are necessary or
appropriate to comply or to ensure compliance with those applicable laws that are enacted or
modified after the Closing.
4.3
Form D and Blue Sky
. The Company agrees to file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof to each Investor who
requests one promptly after such filing. The Company shall, on or before the Closing Date, take
such action as the Company shall reasonably determine is necessary in order to obtain an exemption
for, or to, qualify the Securities for sale to the Investors at the Closing pursuant to this
Agreement under applicable securities or “Blue Sky” laws of the states of the United States (or to
obtain an exemption from such qualification), and shall provide evidence of any such action so
taken to the Investors on or prior to the Closing Date. The Company shall make all filings and
reports relating to the offer and sale of the Securities required under applicable securities or
“Blue Sky” laws of the states of the United States following the Closing Date.
4.4
Furnishing of Information
. As long as any Investor owns any of the Securities,
until the consummation of a Fundamental Transaction (as defined in the Warrants) where the Company
is no longer publicly traded following such Fundamental Transaction (the “
Reporting Period
”), the
Company covenants to use reasonable best efforts (i) to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to the Exchange Act and (ii) to 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 no longer require or otherwise permit such termination. Without
limiting any of the Company’s obligations under the Registration Rights Agreement, during the
Reporting Period, if the Company is not required to file reports pursuant to such laws, it will use
reasonable best efforts to prepare and furnish to the Investors and make
22
publicly available in
accordance with Rule 144(c) such information as is required for the Investors to sell the
Securities under Rule 144. Without limiting any of the Company’s obligations under the Registration
Rights Agreement, the Company further covenants during the Reporting Period that it will use
reasonable best efforts take such further action as any holder of Securities may reasonably
request, all to the extent required from time to time to enable such Person to sell the Securities
in compliance with Rule 144.
4.5
Integration
. The Company shall not sell, offer for sale or solicit offers to buy
or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act)
that would be integrated with the offer or sale of the Securities in a manner that would require
the registration under the Securities Act of the sale of the Securities to the Investors, or that
would be integrated with the offer or sale of the Securities for purposes of the rules and
regulations of any Trading Market in a manner that would require stockholder approval of the sale
of the securities to the Investors.
4.6
Securities Laws Disclosure; Publicity
. By 5:30 p.m. (New York City time) on the
Trading Day following the execution of this Agreement, and by 5:30 p.m. (New York City time)
on the Trading Day following the Closing Date (unless the Closing Date occurs on the same date
as the execution of this Agreement, in which case only one press release will be required), the
Company shall issue press releases disclosing the transactions contemplated hereby (and the
material terms hereof) and the Closing. On the Trading Day following the execution of this
Agreement, the Company will file a Current Report on Form 8-K disclosing the material terms of the
Transaction Documents (and attach as exhibits thereto the Transaction Documents), and on the
Trading Day following the Closing Date the Company will file an additional Current Report on Form
8-K to disclose the Closing (unless the Closing Date occurs on the same date as the execution of
this Agreement, in which case only one Form 8-K will be required).
4.7
Indemnification of Investors
. In addition to the indemnity provided in the
Registration Rights Agreement, the Company will indemnify and hold each Investor and its directors,
officers, stockholders, partners, employees, members and direct or indirect investors and any of
the foregoing Persons’ agents or other representatives (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement) (each, an
“Investor
Party"
) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages,
costs, expenses, actions, causes of action, suits, penalties and fees, including all judgments,
amounts paid in settlements, court costs and reasonable out-of-pocket attorneys’ fees and costs of
investigation (collectively,
“Losses"
) that any such Investor Party may suffer or incur as a result
of, arising out of or relating to (a) any misrepresentation, breach or inaccuracy of any
representation, warranty, covenant, obligation or agreement made by the Company in any Transaction
Document or (b) any cause of action, suit or claim brought or made against any Investor Party by a
third party (including for these purposes a derivative action brought on behalf of the Company) and
arising out of or resulting from (i) the execution, delivery, performance or enforcement of the
Transaction Documents, (ii) any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of the issuance of the Securities, or (iii) the status of
such Investor Party or holder of the Securities as an investor in the Company pursuant to the
transactions contemplated by the Transaction
23
Documents; provided, that an Investor Party shall not
be entitled to indemnification to the extent any of the foregoing is caused by such Investor
Party’s gross negligence, material violation of law or regulation or willful misconduct. In
addition to the indemnity contained herein, the Company will reimburse each Investor Party for its
reasonable out-of-pocket legal and other expenses (including the reasonable out-of-pocket cost of
any investigation, preparation and travel in connection therewith) as incurred in connection
therewith, as promptly as practicable after such expenses are incurred and invoiced.
4.8
Non-Public Information
. The Company covenants and agrees that neither it nor any
of its subsidiaries, nor other Person acting on its or their behalf will provide any Investor or
its agents or counsel with any material, non-public information regarding the Company or any of its
subsidiaries without first notifying such Investor, except as provided for in Section 4.15 hereof.
The Company understands and confirms that each Investor shall be relying on the foregoing covenant
in effecting transactions in securities of the Company.
4.9
Listing of Securities
. The Company shall promptly secure the listing of all of the
Registrable Securities upon each national securities exchange and automated quotation system, if
any, upon which the Common Stock is then listed (subject to official notice of issuance) and
shall maintain such listing of all Registrable Securities from time to time issuable under the
terms of the Transaction Documents on such exchange or automated quotation system or another
Trading Market. The Company shall use reasonable best efforts to maintain the Common Stock’s
authorization for quotation on the Principal Market. The Company agrees, (i) if the Company applies
to have the Common Stock traded on any other Trading Market, it will include in such application
the Company Shares and the Warrant Shares, and will take such other action as is necessary or
desirable to cause the Company Shares and the Warrant Shares to be listed on such other Trading
Market as promptly as possible, and (ii) it will use reasonable best efforts to take all action
that it believes is reasonably necessary to continue the listing and trading of its Common Stock on
a Trading Market and to comply in all material respects with the Company’s reporting, filing and
other obligations under the bylaws or rules of the applicable Trading Market. Neither the Company
nor any of its subsidiaries shall take any action which it believes could be reasonably expected to
result in the delisting or suspension of the Common Stock on any Trading Market. The Company shall
pay all fees and expenses in connection with satisfying its obligations under this Section 4.9.
4.10
Use of Proceeds
. The Company will use the net proceeds from the sale of the Units
hereunder for working capital purposes and not for the satisfaction of any portion of the Company’s
debt (other than payment of trade payables and accrued expenses in the ordinary course of the
Company’s business and consistent with prior practices), or to redeem any Common Stock or
Equivalents or any other debt or equity securities of the Company or any of its subsidiaries.
4.11
Additional Issuances of Securities
. The Company agrees that for the period
commencing on the date hereof and ending ninety (90) days after the Closing, neither the Company
nor any of its subsidiaries shall directly or indirectly issue, offer, sell, grant any option to
24
purchase, or otherwise dispose of (or announce any issuance, offer, sale, grant or any option to
purchase or other disposition of) any of their respective equity or equity equivalent securities,
including, without limitation, any debt, preferred stock, rights, options, warrants or other
instrument that is at any time and under any circumstances convertible into or exchangeable for, or
otherwise entitles the holder thereof to receive, capital stock and other securities of the Company
(including, without limitation, Common Stock Equivalents) (collectively with such capital stock or
other securities of the Company, “
Equivalents
”) (any such issuance, offer, sale, grant, disposition
or announcement being referred to as a “
Subsequent Placement
”). Notwithstanding the foregoing, this
Section 4.11 shall not apply in respect of the issuance of (A) Common Stock or standard options to
purchase Common Stock issued to directors, officers, employees or consultants of the Company in
connection with their service as directors or officers of the Company, their employment by the
Company or their retention as consultants by the Company pursuant to an equity compensation program
or other contract or arrangement approved by the Board of Directors of the Company (or the
compensation committee of the Board of Directors of the Company), provided that all such issuances
after the date hereof pursuant to this clause (A) do not, in the aggregate, exceed more than 10% of
the Common Stock issued and outstanding immediately prior to the date hereof, (B) Common Stock or
standard warrants (including so-called penny warrants) to purchase Common Stock in connection with
strategic alliances, acquisitions, mergers, strategic partnerships, joint ventures, vendor and
supplier arrangements and as equity kickers in lease and financing transactions, the primary
purpose of which is not to raise capital, and which are approved in good faith by the
Company’s Board of Directors, provided that all such issuances after the date hereof pursuant to
this clause (B) do not, in the aggregate, exceed more than 10% of the Common Stock issued and
outstanding immediately prior to the date hereof, (C) shares issued upon the conversion or exercise
of Equivalents issued prior to the date hereof, provided that such Equivalents have not been
amended since the date of this Agreement to increase the number of shares issuable thereunder or to
lower the exercise or conversion price thereof or otherwise materially change the terms or
conditions thereof in any manner that adversely affects any of the Investors, (D) shares issued or
issuable by reason of a dividend, stock split or other distribution on Common Stock or (E) the
Warrant Shares (each of the foregoing in clauses (A) through (E), collectively the “
Excluded
Securities
”).
4.12
Conduct of Business
. The business of the Company and its Subsidiaries shall not
be conducted in violation of any law, ordinance or regulation of any governmental entity, except
where such violations would not result, either individually or in the aggregate, in a Material
Adverse Effect.
4.13
Variable Rate Transaction
. From the date hereof until 12 months after the
Closing, the Company shall be prohibited from effecting or entering into an agreement to effect any
Subsequent Placement involving a “Variable Rate Transaction.” The term “
Variable Rate Transaction
”
shall mean a transaction in which the Company (i) issues or sells any Equivalents either (A) at a
conversion, exercise or exchange rate or other price that is based upon and/or varies with the
trading prices of or quotations for the shares of Common Stock at any time after the initial
issuance of such Equivalents, or (B) with a conversion, exercise or exchange price that is subject
to being reset at some future date after the initial issuance of such Equivalents or upon the
occurrence of specified or contingent events directly or indirectly related to the business of
25
the
Company or the market for the Common Stock, other than pursuant to a customary “weighted average”
or “full ratchet” anti-dilution provision or (ii) enters into any agreement (including, but not
limited to, an equity line of credit) whereby the Company may sell securities at a future
determined price (other than customary “pre-emptive” or “participation” rights). Each Investor
shall be entitled to obtain injunctive relief against the Company to preclude any such issuance,
which remedy shall be in addition to any right to collect damages.
4.14
Trading Restrictions
. Each Investor represents and warrants to, and covenants
with, the Company that it will not (and its Affiliates acting on its behalf or pursuant to any
understanding with it will not) engage in or effect, directly or indirectly, any transactions in
any securities of the Company (including, without limitation, any Short Sales, “locking-up” borrow
or hedging activities involving the Company’s securities) during the period commencing on the date
hereof and ending on the earlier to occur of (i) one (1) year after the Effective Date of the
initial Registration Statement covering the Registrable Securities to be filed by the Company
pursuant to Section 2(a) of the Registration Rights Agreement, (ii) two years from the Closing and
(iii) the date this Agreement is terminated pursuant to Section 6.2. In furtherance (and without
limitation) of the foregoing, during such restricted period, neither such Investor nor any of such
Affiliates, (a) will directly or indirectly, sell, agree to sell, grant any call option or purchase
any put option with respect to, pledge, borrow or otherwise dispose of any securities of the
Company, or (b) will establish or increase any “put equivalent position” or liquidate or
decrease any “call equivalent position” with respect to any such securities (in each case
within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated
thereunder), or otherwise enter into any swap, derivative or other transaction or arrangement that
transfers to another, in whole or in part, any economic consequence of ownership of any such
securities, whether or not such transaction is to be settled by delivery of any such securities,
other securities, cash or other consideration. Notwithstanding the foregoing, it is understood and
agreed that nothing contained in this Section 4.14 shall prohibit such Investor (or such
Affiliates) from (1) purchasing or agreeing to purchase unrestricted securities of the Company or
securities which are covered by an effective registration statement and the prospectus included
therein is available for use on the date of such purchase (including through block trades or
privately negotiated transactions), (2) purchasing or agreeing to purchase securities of the
Company pursuant to Section 4.15 or otherwise from the Company, (3) exercising any or all Warrants
to acquire Warrant Shares or otherwise acting under or enforcing, or receiving any right or benefit
or adjustment under, the Warrants, (4) selling or agreeing to sell “long” securities of the Company
(because such Investor or such Affiliate is “deemed to own such securities” pursuant to paragraph
(b) of Rule 200 under Regulation SHO), including, without limitation, (I) any Company Shares,
Warrants or Warrant Shares acquired hereunder or pursuant to the transactions contemplated hereby
or any of the Transaction Documents or (II) securities acquired after the date hereof in accordance
with this paragraph, (5) pledging or hypothecating any securities of the Company in connection with
leverage arrangements engaged in by such Investor (or such Affiliates) without the purpose of
transferring economic risk relating to such securities or (6) from transferring any of the
Securities to any Affiliate who agrees in writing to be bound by this Section 4.14, in each case,
provided such sale is in compliance with all applicable securities laws and following the public
announcement of the transaction contemplated hereby pursuant to Section 4.6.
26
4.15
Participation Right
. From the date hereof until 24 months after the Closing, the
Company shall not effect any Subsequent Placement unless the Company shall have first complied with
this Section 4.15. The Company acknowledges and agrees that the right set forth in this Section
4.15 is a right granted by the Company to the Co-Investment Fund II L.P., for so long as it or any
of its affiliates in the aggregate holds at least one percent of the Common Stock Deemed
Outstanding (as defined in the Warrants) (the “
Designated Investor
”).
(a) The Company shall deliver to the Designated Investor a written notice (the “
Offer Notice
”)
of any proposed or intended issuance or sale or exchange (the “
Offer
”) of the securities being
offered (the “
Offered Securities
”) in a Subsequent Placement, which Offer Notice shall (w) identify
and describe the Offered Securities, (x) describe the price and other terms upon which they are to
be issued, sold or exchanged, and the number or amount of the Offered Securities to be issued, sold
or exchanged, (y) identify the Persons (if known) to which or with which the Offered Securities are
to be offered, issued, sold or exchanged and (z) offer to issue and sell to or exchange with the
Designated Investor in accordance with the terms of the Offer the Designated Investor’s pro rata
portion of the Offered Securities, calculated by dividing (i) the number of shares of Common Stock
Deemed Outstanding (as defined in the Warrants) owned by the Designated Investor as of immediately
prior to the Offer, by (ii) the Common Stock Deemed Outstanding (as defined in the Warrants) (such
pro rata portion, the “
Basic Amount
”).
(b) To accept an Offer, in whole or in part, the Designated Investor must deliver a written
notice to the Company prior to the end of the third (3
rd
) Business Day after such
Designated Investor’s receipt of the Offer Notice (the “
Offer Period
”), setting forth the portion
of the Designated Investor’s Basic Amount that such Designated Investor elects to purchase (the
"
Notice of Acceptance
”).
(c) The Company shall have twenty (20) Business Days from the expiration of the Offer Period
above to offer, issue, sell or exchange all or any part of such Offered Securities as to which a
Notice of Acceptance has not been given by the Designated Investor (the “
Refused Securities
”)
pursuant to a definitive agreement(s) (the “
Subsequent Placement Agreement
”), but only to the
offerees described in the Offer Notice (if so described therein) and only upon terms and conditions
(including, without limitation, unit prices and interest rates) that are not materially more
favorable (when viewed on an aggregate basis) to the acquiring Person or Persons or materially less
favorable (when viewed on an aggregate basis) to the Company than those set forth in the Offer
Notice.
(d) Upon the closing of the issuance, sale or exchange of all or less than all of the Refused
Securities, the Designated Investor shall acquire from the Company, subject to the terms and
conditions specified in the Offer Notice, and the Company shall issue to the Designated Investor,
the number or amount of Offered Securities specified in the Notices of Acceptance, subject to the
terms and conditions specified in the Offer Notice. The purchase by the Designated Investor of any
Offered Securities is subject in all cases to the preparation, execution and delivery by the
Company and the Designated Investor of a separate purchase
27
agreement relating to such Offered
Securities reasonably satisfactory in form and substance to the Designated Investor and its counsel
and the Company and its counsel.
(e) The Company and the Designated Investor agree that if the Designated Investor elects to
participate in the Offer, neither the Subsequent Placement Agreement with respect to such Offer nor
any other transaction documents related thereto (collectively, the “
Subsequent Placement
Documents
”) shall include any term or provisions whereby such Designated Investor shall be required
to agree to any restrictions on trading as to any securities of the Company owned by such
Designated Investor prior to such Subsequent Placement more restrictive in any material respect
than the restrictions contained in the Transaction Documents.
(f) Notwithstanding anything to the contrary in this Section 4.15 and unless otherwise agreed
to by such Designated Investor, the Company shall either confirm in writing to such Designated
Investor that the transaction with respect to the Subsequent Placement has been abandoned or shall
publicly disclose its intention to issue the Offered Securities, in either case in such a manner
such that such Designated Investor will not be in possession of any material, non-public
information, by the thirtieth (30
th
) Business Day following delivery of the Offer Notice
(or any later follow-up Offer Notice or offer terms provided pursuant to the terms of this Section
4.15(b) (the “
Public Notice Date
”). If by the Public Notice Date, no public disclosure regarding a
transaction with respect to the Offered Securities has been made, and no notice regarding the
abandonment of such transaction has been received by such Designated Investor, such transaction
shall be deemed to have been abandoned.
(g) The restrictions contained in this Section 4.15 shall not apply in connection with the
issuance of any Excluded Securities (as defined herein or as defined in the Warrants).
(h) Notwithstanding anything contained in this Section 4.15 to the contrary, to the extent
that a purchase by the Designated Investor of its Basic Amount, with respect to a particular Offer
would result in the Designated Investor or any of its affiliates beneficially owning in excess of
9.99% (the “
Maximum Limit
”) of the outstanding shares of Common Stock immediately following the
consummation of such purchase by the Designated Investor and the simultaneous consummation of the
purchases by all other Persons subscribing for Offered Securities in such Offer, then the Basic
Amount so elected to be purchased by the Designated Investor shall be reduced to an amount of
securities that would not result in the Designated Investor or any of its affiliates beneficially
owning in excess of the Maximum Limit immediately following the consummation of such purchase by
the Designated Investor and the simultaneous consummation of the purchases by all other Persons
subscribing for Offered Securities in such Offer. No prior inability of the Designated Investor to
exercise its rights under this Section 4.15, either in whole or in part, shall have any effect on
the applicability of the provisions of this paragraph with respect to any subsequent determination
of exercisability. For the purposes of this paragraph, beneficial ownership and all determinations
and calculations (including, without limitation, with respect to calculations of percentage
ownership) shall be determined in accordance with Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder. The provisions of this paragraph shall be implemented in a
manner otherwise than in
28
strict conformity with the terms of this paragraph to correct this
paragraph (or any portion hereof) which may be defective or inconsistent with the intended Maximum
Limit beneficial ownership limitation herein contained or to make changes or supplements necessary
or desirable to properly give effect to such Maximum Limit limitation. The holders of Common Stock
shall be third party beneficiaries of this paragraph and the Company may not waive this paragraph
without the consent of holders of a majority of its Common Stock. For purposes of this Section
4.15, in determining the number of outstanding shares of Common Stock, the Designated Investor may
rely on the number of outstanding shares of Common Stock as reflected in (1) the Company’s most
recent Form 10-K (or Form 10-KSB), Form 10-Q (or Form 10-QSB), Current Report on Form 8-K or other
public filing with the Commission (as the case may be), (2) a more recent public announcement by
the Company or (3) any other notice by the Company or the Company’s transfer agent setting forth
the number of shares of Common Stock outstanding. For any reason at any time during an Offer
Period, upon the written or oral request of a Designated Investor, the Company shall within two (2)
Trading Days confirm to the Designated Investor the number of shares of Common Stock then
outstanding, including by virtue of any prior conversion or exercise of convertible or exercisable
securities into Common Stock, including, without limitation, securities issued pursuant to this
Agreement. By written notice to the Company, a Designated Investor may increase or decrease the
Maximum Limit to any other percentage not in excess of 9.99% specified in such notice; provided
that any such increase will not be effective until the sixty-first (61
st
) day after such
notice is delivered to the Company.
ARTICLE V.
CONDITIONS PRECEDENT TO CLOSING
5.1
Conditions Precedent to the Obligations of the Investors to Purchase Securities
.
The obligation of each Investor to acquire the Securities at the Closing is subject to the
satisfaction, or waiver by such Investor, at or before the Closing, of each of the following
conditions:
(a)
Representations and Warranties
. Each and every representation and warranty of the
Company contained herein shall be true and correct in all respects as of the date when made and in
all material respects as of the Closing Date as though originally made on and as of such date
(except for representations and warranties qualified by materiality or Material Adverse Effect,
which shall be true and correct in all respects). Such Investor shall have received a certificate,
executed by the Chief Executive Officer of the Company, dated as of the Closing Date, to the
foregoing effect and as to such other matters as may be reasonably requested by such Investor;
(b)
Performance
. The Company shall have performed, satisfied and complied in all
respects with all covenants, agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by it at or prior to the Closing. Such Investor shall have
received a certificate, executed by the Chief Executive Officer of the Company, dated as of the
Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested
by such Investor;
29
(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 that prohibits the consummation of any of the transactions
contemplated by the Transaction Documents;
(d)
Adverse Changes
. Since the date of execution of this Agreement, no event or
series of events shall have occurred that reasonably would have or result in a Material Adverse
Effect;
(e)
No Suspensions of Trading in Common Stock; Listing
. Trading in the Common Stock
shall not have been suspended (or threatened to be suspended) by the Commission or any Trading
Market (except for any suspensions of trading of not more than one Trading Day solely to permit
dissemination of material information regarding the Company) at any time since the date of
execution of this Agreement, and the Common Stock shall have been at all times since such date
listed for trading on a Trading Market. The Common Stock shall be designated for quotation or
listed on the Principal Market and any required approval of the Principal Market to list the
Company Shares and the Warrant Shares shall have been obtained by the Company;
(f)
Company Deliverables
. The Company shall have delivered the Company Deliverables
in accordance with Section 2.2(a);
(g)
Consents and Approvals
. The Company shall have obtained all governmental,
regulatory or third party consents and approvals, if any, necessary for the sale of the Securities,
including without limitation, any of those required by the Principal Market; and
(h)
Timing
. The Closing shall have occurred no later than March 30, 2007.
5.2
Conditions Precedent to the Obligations of the Company to sell Securities
. The
obligation of the Company to sell the Units at the Closing is subject to the satisfaction, or
waiver by the Company, at or before the Closing, of each of the following conditions:
(a)
Representations and Warranties
. The representations and warranties of each
Investor contained herein shall be true and correct in all material respects as of the date when
made and as of the Closing Date as though made on and as of such date;
(b)
Performance
. Each Investor shall have performed, satisfied and complied in all
material respects with all covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by such Investor at or prior to the Closing;
(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 that prohibits the consummation of any of the transactions
contemplated by the Transaction Documents;
30
(d)
Investor Deliverables
. Each Investor shall have delivered its Investor
Deliverables in accordance with Section 2.2(b); and
(e)
Timing
. The Closing shall have occurred no later than March 30, 2007.
ARTICLE VI.
MISCELLANEOUS
6.1
Fees and Expenses
. Except as specified in
Section 6.1 of the Disclosure
Letter
, each party shall pay the fees and expenses of its advisers, counsel, accountants and
other experts, if any, and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of the Transaction Documents.
6.2
Termination
. In the event that the Closing shall not have occurred with respect
to an Investor on or before March 30, 2007 due to the Company’s or such Investor’s failure to
satisfy the conditions set forth in Sections 5.1 and 5.2 above (and a non-breaching party’s failure
to waive such unsatisfied condition(s)), any such non-breaching party shall have the right to
terminate its obligations under this Agreement with respect to such breaching party at the close of
business on such date without liability of such non-breaching party to any other party; provided,
however, that the abandonment of the sale and purchase of the Securities shall be applicable only
to such non-breaching party providing such written notice; provided further, notwithstanding any
such termination the Company shall remain obligated to reimburse the non-breaching Investors for
the expenses described in Section 6.1 above. Nothing contained in this Section 6.2 shall be deemed
to release any party from any liability for any breach by such party of the terms and provisions of
this Agreement or the other Transaction Documents or to impair the right of any party to compel
specific performance by any other party of its obligations under this Agreement or the other
Transaction Documents.
6.3
Entire Agreement
. The Transaction Documents, together with the exhibits,
schedules and the Disclosure Letter thereto, contain the entire understanding of the parties with
respect to the subject matter hereof and supersede all prior agreements, understandings,
discussions and representations, oral or written, with respect to such subject matter, which the
parties acknowledge have been merged into such documents, exhibits and schedules. The Company
confirms that, except for the investment in the Securities as set forth in this Agreement, no
Investor has made any commitment or promise or has any other obligation to provide any financing to
the Company or otherwise.
6.4
Notices
. Any and all notices or other communications or deliveries required or
permitted to be provided hereunder shall be in writing and shall be deemed given and effective on
the earliest of (a) the date of transmission, if such notice or communication is delivered via
facsimile (provided the sender receives a machine-generated confirmation of successful
transmission) at the facsimile number specified in this Section 6.4 prior to 6:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number specified in this
Section 6.4 on a day that is not a Trading Day or later than 6:30 p.m. (New York City time) on any
Trading Day, (c) the Trading Day following the date of mailing, if sent by U.S. nationally
31
recognized overnight courier service (with next day delivery specified), or (d) upon actual receipt
by the party to whom such notice is required to be given. The address for such notices and
communications shall be as follows:
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If to the Company:
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Health Benefits Direct Corporation
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150 N. Radnor-Chester Road, Radnor, PA 19087
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Facsimile: (484) 654-2223
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Attn: Chief Financial Officer
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With copies to:
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Health Benefits Direct Corporation
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150 N. Radnor-Chester Road, Radnor, PA 19087
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Facsimile: (484) 654-2223
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Attn: Vice President and General Counsel
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Morgan, Lewis & Bockius LLP
1701 Market Street, Philadelphia, PA 19103
Facsimile: (215) 963-5001
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Attn: James W. McKenzie, Jr., Esq.
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If to an Investor:
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To the address set forth under such Investor’s name on the signature pages hereof;
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or such other address as may be designated in writing hereafter, in the same manner, by such
Person.
6.5
Amendments; Waivers; No Additional Consideration
. No provision of any Transaction
Document may be waived or amended except in a written instrument signed by the
Company and the Investors holding a majority of the Securities (or, with respect to Section
4.15 hereof, in lieu thereof the consent of the Designated Investor), provided that any party shall
have the right to provide a waiver with regards to itself. No waiver of any default with respect
to any provision, condition or requirement of any Transaction Document shall be deemed to be a
continuing waiver in the future or a waiver of any subsequent default or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of either party to
exercise any right hereunder in any manner impair the exercise of any such right. No consideration
shall be offered or paid to any Investor to amend or consent to a waiver or modification of any
provision of any Transaction Document unless the same consideration is also offered to all
Investors who then hold the Securities; provided that with respect to Section 4.15 hereof, such
consideration may be offered or paid solely to the Designated Investor and not any other Investors.
No such amendment or waiver (unless given pursuant to the foregoing provisos) shall be effective to
the extent that it applies to less than all of the holders of the Securities then outstanding.
6.6
Construction
. The headings herein are for convenience only, do not constitute a
part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.
32
The language used in this Agreement will be deemed to be the language chosen by the parties to
express their mutual intent, and no rules of strict construction will be applied against any party.
This Agreement shall be construed as if drafted jointly by the parties, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any
provisions of this Agreement or any of the Transaction Documents.
6.7
Successors and Assigns
. This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and permitted assigns. The Company may not assign this
Agreement or any rights or obligations hereunder without the prior written consent of the
Investors. Any Investor may assign any or all of its rights under this Agreement and the other
Transaction Documents to any Person to whom such Investor assigns or transfers any Securities,
(other than any rights under Section 4.15 hereof, which are not assignable or transferable except
by the Designated Investor to any affiliate of the Designated Investor) provided such assignee or
transferee agrees in writing to be bound, with respect to the assigned or transferred Securities,
by the provisions hereof that apply to the “Investors,” in which event such assignee or transferee
shall be deemed to be an Investor hereunder with respect to such assigned rights.
6.8
No Third-Party Beneficiaries
. This Agreement is intended for the benefit of the
parties hereto and their respective successors and permitted assigns and is not for the benefit of,
nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in
Section 4.7 (as to each Investor Party).
6.9
Governing Law
. All questions concerning the construction, validity, enforcement
and interpretation of this Agreement shall be governed by and construed and enforced in accordance
with the internal laws of the State of Delaware, without regard to the principles of conflicts of
law thereof. Each party agrees that all Proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Agreement and any other Transaction Documents
(whether brought against a party hereto or its respective Affiliates, employees or agents) shall be
commenced exclusively in the Delaware Courts. Each party hereto
hereby irrevocably submits to the exclusive jurisdiction of the Delaware Courts for the
adjudication of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any Proceeding,
any claim that it is not personally subject to the jurisdiction of any such Delaware Court, or that
such Proceeding has been commenced in an improper or inconvenient forum. Each party hereto hereby
irrevocably waives personal service of process and consents to process being served in any such
Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with
evidence of delivery) to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent
permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out
of or relating to this Agreement or the transactions contemplated hereby. If either party shall
commence a Proceeding to enforce any provisions of a Transaction Document, then the prevailing
party in such Proceeding shall be reimbursed by the other party
33
for its reasonable out-of-pocket
attorneys’ fees and other reasonable out-of-pocket costs and expenses incurred with the
investigation, preparation and prosecution of such Proceeding.
6.10
Survival
. The representations, warranties, agreements and covenants contained
herein shall survive the Closing and the delivery of the Securities. Each Investor shall be
responsible only for its own representations, warranties, agreements and covenants hereunder.
6.11
Execution
. This Agreement may be executed in two or more counterparts, all of
which when taken together shall be considered one and the same agreement and shall become effective
when counterparts have been signed by each party and delivered to the other party, it being
understood that both parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and binding obligation of
the party executing (or on whose behalf such signature is executed) with the same force and effect
as if such facsimile signature page were an original thereof.
6.12
Severability
. If any provision of this Agreement is held to be invalid or
unenforceable in any respect, the validity and enforceability of the remaining terms and provisions
of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt
to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon
so agreeing, shall incorporate such substitute provision in this Agreement.
6.13
Rescission and Withdrawal Right
. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) the Transaction Documents, whenever
any Investor exercises a right, election, demand or option under a Transaction Document and the
Company does not timely perform its related obligations within the periods therein provided, then
such Investor may rescind or withdraw, in its sole discretion from time to time upon written notice
to the Company, any relevant notice, demand or election in whole or in part without prejudice to
its future actions and rights.
6.14
Replacement of Securities
. If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued
in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution
therefor, a new certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument under such
circumstances shall also pay any reasonable third-party costs associated with the issuance of such
replacement Securities. If a replacement certificate or instrument evidencing any Securities is
requested due to a mutilation thereof, the Company may require delivery of such mutilated
certificate or instrument as a condition precedent to any issuance of a replacement.
6.15
Remedies
. In addition to being entitled to exercise all rights provided herein or
granted by law, including recovery of damages, each of the parties hereto will be entitled to
specific performance under the Transaction Documents. The parties agree that monetary damages may
not be adequate compensation for any loss incurred by reason of any breach of obligations described
in the foregoing sentence and hereby agrees to waive in any action for specific performance of any
such obligation the defense that a remedy at law would be adequate.
34
The Company therefore agrees
that the Investors shall be entitled to specific performance and temporary and permanent injunctive
relief in any such case without the necessity of proving actual damages and without posting a bond
or any other type of security.
6.16
Payment Set Aside
. To the extent that the Company makes a payment or payments to
any Investor pursuant to any Transaction Document or an Investor enforces or exercises its rights
thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any
part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the
Company, a trustee, receiver or any other person under any law (including, without limitation, any
bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent
of any such restoration the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.
6.17
Independent Nature of Investors’ Obligations and Rights
. The obligations of each
Investor under the Transaction Documents are several and not joint with the obligations of any
other Investor, and no Investor shall be responsible in any way for the performance of the
obligations of any other Investor under any Transaction Document. The decision of each Investor to
purchase Securities pursuant to the Transaction Documents has been made by such Investor
independently of any other Investor. Nothing contained herein or in any other Transaction Document,
and no action taken by any Investor pursuant hereto or thereto, shall be deemed to constitute the
Investors as a partnership, an association, a joint venture or any other kind of group or entity,
or create a presumption that the Investors are in any way acting in concert or as a group or entity
with respect to such obligations or the transactions contemplated by the Transaction Documents or
any other matters, and the Company acknowledges that, to its knowledge, the Investors are not
acting in concert or as a group with respect to such obligations or the transactions contemplated
by the Transaction Documents. Each Investor acknowledges that no other Investor has acted as agent
for such Investor in connection with such Investor
making its investment hereunder and that no other Investor will be acting as agent of such
Investor in connection with monitoring such Investor’s investment in the Securities or enforcing
its rights under the Transaction Documents. The Company and each Investor confirms that each
Investor has independently participated with the Company in the negotiation of the transaction
contemplated hereby with the advice of its own counsel and advisors. Each Investor shall be
entitled to independently protect and enforce its rights, including, without limitation, the rights
arising out of this Agreement or out of any other Transaction Documents, and it shall not be
necessary for any other Investor to be joined as an additional party in any proceeding for such
purpose. The use of a single agreement to effectuate the purchase and sale of the Securities
contemplated hereby was solely in the control of the Company, not the action or decision of any
Investor, and was done solely for the convenience of the Company and not because it was required or
requested to do so by any Investor. It is expressly understood and agreed that each provision
contained in this Agreement and in each other Transaction Document is between the Company and an
Investor, solely, and not between the Company and the Investors collectively and not between and
among Investors.
35
6.18
Delivery of Securities
. Notwithstanding anything contained in this Agreement or any
other Transaction Document to the contrary, unless otherwise directed in writing by the applicable
Investor, the Company shall, and shall cause its agents and representatives to, deliver all of such
Investor’s Securities purchased pursuant to this Agreement (and all securities which are issuable
to the Investor pursuant to the terms of this Agreement or any other Transaction Document) to the
address for delivery of Securities set forth on such Investor’s signature page to this Agreement,
and copies of the certificates representing such securities shall be sent to such Investor to the
address of such Investor as set forth on such Investor’s
signature page to this Agreement.
6.19
Further Assurances
. Each party shall do and perform, or cause to be done and performed, all
such further acts and things, and shall execute and deliver all such other agreements,
certificates, instruments and documents, as any other party may reasonably request in order to
carry out the intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOLLOW]
36
IN WITNESS WHEREOF, the parties have executed this Securities Purchase Agreement as of the
date first written above.
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Health Benefits Direct Corporation
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Name:
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Title:
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[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOR INVESTORS FOLLOW]
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IN WITNESS WHEREOF, the parties have executed this Securities Purchase Agreement as of the
date first written above.
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[
NAME OF INVESTOR]
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By:
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Name:
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Title:
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ADDRESS FOR NOTICE
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c/o:
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Street:
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City/State/Zip:
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Attention:
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DELIVERY INSTRUCTIONS
(if different from above)
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c/o:
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Street:
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City/State/Zip:
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Attention:
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Exhibit A
[FORM OF WARRANT]
Exhibit B
[FORM OF REGISTRATION RIGHTS AGREEMENT]
Exhibit C
WIRE TRANSFER INSTRUCTIONS
J.P. Morgan Chase
55 Water Street
New York, NY
A/C # 323 836 909
ABA # 021 000 021
American Stock Transfer & Trust Company
As Escrow Agent for
Oppenheimer/Health Benefits Direct
Exhibit D
Health Benefits Direct Corporation
Confidential Purchaser Questionnaire
Before any sale of Shares or Warrants by Health Benefits Direct Corporation can be made to
you, this Questionnaire must be completed and returned to Oppenheimer & Co. Inc. Attn:
Investment Banking Department, 125 Broad St., New York, NY 10004, FAX: 212-425-2028
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1.
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IF YOU ARE AN INDIVIDUAL PLEASE FILL IN THE IDENTIFICATION QUESTIONS IN (A) IF YOU
ARE AN ENTITY PLEASE FILL IN THE IDENTIFICATION QUESTIONS IN (B)
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A.
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INDIVIDUAL IDENTIFICATION QUESTIONS
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Name
(Exact name as it should appear on stock certificate)
Residence Address
Home Telephone Number
Fax Number
Date of Birth
Social Security Number
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B.
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IDENTIFICATION QUESTIONS FOR ENTITIES
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Name
(Exact name as it will appear on stock certificate)
Address of Principal Place of Business
State (or Country) of Formation or Incorporation
Contact Person
Telephone Number ( )
Type of Entity
(corporation, partnership, trust, etc.)
Was entity formed for the purpose of this investment?
Yes
o
No
o
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2.
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DESCRIPTION OF INVESTOR
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The following information is required to ascertain whether you would be deemed an
“accredited investor” as defined in Rule 501 of Regulation D under the Securities Act.
Please check whether you are any of the following:
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o
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a corporation or partnership with total assets in excess of $5,000,000,
not organized for the purpose of this particular investment
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o
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private business development company as defined in Section 202(a)(22) of the
Investment Advisers Act of 1940, a U.S. venture capital fund which invests
primarily through private placements in non-publicly traded securities and
makes available (either directly or through co-investors) to the portfolio
companies significant guidance concerning management, operations or business
objectives
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o
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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
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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
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o
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a trust not organized to make this particular investment, with total assets
in excess of $5,000,000 whose purchase is directed by a sophisticated person
as described in Rule 506(b)(2)(ii) of the Securities Act of 1933 and who
completed item 4 below of this questionnaire
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o
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a bank as defined in Section 3(a)(2) or a savings and loan association or
other institution defined in Section 3(a)(5)(A) of the Securities Act of
1933 acting in either an individual or fiduciary capacity
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o
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an insurance company as defined in Section 2(13) of the Securities Act of
1933
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an employee benefit plan within the meaning of Title I of the Employee
Retirement Income Security Act of 1974 (i) whose investment decision is made
by a fiduciary which is either a bank, savings and loan association,
insurance company, or registered investment advisor,
or
(ii) whose
total assets exceed $5,000,000, or (iii) if a self-directed plan, whose
investment decisions are made solely by a person who is an accredited
investor and who completed Part I of this questionnaire;
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a charitable, religious, educational or other organization described in
Section 501(c)(3) of the Internal Revenue Code, not formed for the purpose
of this investment, with total assets in excess of $5,000,000
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an entity not located in the U.S. none of whose equity owners are U.S.
citizens or U.S. residents
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a broker or dealer registered under Section 15 of the Securities Exchange
Act of 1934
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a plan having assets exceeding $5,000,000 established and maintained by a
government agency for its employees
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an individual who had individual income from all sources during each of the
last two years in excess of $200,000
or
the joint income of you and
your spouse (if married) from all sources during each
of such years in excess of $300,000 and who reasonably excepts that
either
your own income from all sources during the current year will
exceed $200,000
or
the joint income of you and your spouse (if
married) from all sources during the current year will exceed $300,000
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o
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an individual whose net worth as of the date you purchase the securities
offered, together with the net worth of your spouse, be in excess of
$1,000,000
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o
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an entity in which all of the equity owners are accredited investors
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3.
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BUSINESS, INVESTMENT AND EDUCATIONAL EXPERIENCE
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Occupation
Number of Years
Present Employer
Position/Title
Educational Background
Frequency of prior investment (check one in each column):
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Venture
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Stocks & Bonds
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Investments
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Capital
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Frequently
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Occasionally
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Never
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The above information is true and correct. The undersigned recognizes that the Company and its
counsel are relying on the truth and accuracy of such information in reliance on the exemption
contained in Subsection 4(2) of the Securities Act of 1933, as amended, and Regulation D
promulgated thereunder. The undersigned agrees to notify the Company promptly of any changes in
the foregoing information, which may occur prior to the investment.
Executed at
, on , 2007
Exhibit 4.2
EXECUTION COPY
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this
“Agreement”
) is made and entered into as of March 30,
2007, by and among
Health Benefits Direct Corporation
, a Delaware corporation (the
“Company”
), and
the investors signatory hereto (each a
“Investor”
and collectively, the
“Investors”
).
This Agreement is made pursuant to the Securities Purchase Agreement, dated as of the date
hereof among the Company and the Investors (the “
Purchase Agreement
”).
In consideration of the mutual covenants contained in this Agreement, and for other good and
valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and
the Investors hereby agree as follows, with the intent to be legally bound hereby:
1.
Definitions
. Capitalized terms used and not otherwise defined herein that are
defined in the Purchase Agreement shall have the meanings given such terms in the Purchase
Agreement. As used in this Agreement, the following terms shall have the respective meanings set
forth in this Section 1:
“Common Stock”
means the common stock, par value $0.001 per share, of the Company.
“Effective Date”
means the date that the Registration Statement filed pursuant to Section
2(a), 2(b) or 2(c) of this Agreement is first declared effective by the Commission.
“Effectiveness Date”
means: (a) with respect to the initial Registration Statement required to
be filed to cover the resale by the Holders of the Registrable Securities the 90th calendar day
after the Pricing Date (or the 150th calendar day after the Pricing Date in the event that such
Registration Statement is subject to review by the Commission) and (b) with respect to any
additional Registration Statements that may be required pursuant to Section 2(b) or 2(c) hereof,
the 90th calendar day following the date on which the Company first knows, or reasonably should
have known, that such additional Registration Statement is required under such Section (or the
150th calendar day after such date in the event that such Registration Statement is subject to
review by the Commission).
“Effectiveness Period”
shall have the meaning set forth in Section 2(a).
“Exchange Act”
means the Securities Exchange Act of 1934, as amended.
“Filing Date”
means, with respect to the initial Registration Statement required to be filed
to cover the resale by the Holders of the Registrable Securities, within 30 days following the
later of (i) the date the Company is initially required to file its Form 10-KSB for the fiscal year
ended December 31, 2006 with the Commission (without any extensions), or (ii) the Pricing
Date.
“Holder”
or
“Holders”
means an Investor or Investors (as the case may be), or any transferee
or assignee of any Registrable Securities, to whom an Investor assigns its rights under this
Agreement and who agrees to become bound by the provisions of this Agreement in accordance with the
Purchase Agreement and any transferee or assignee thereof to whom a transferee or assignee of any
Registrable Securities assigns its rights under this Agreement and who agrees to become bound by
the provisions of this Agreement in accordance with the Purchase Agreement.
“Indemnified Party”
shall have the meaning set forth in Section 5(c).
“Indemnifying Party”
shall have the meaning set forth in Section 5(c).
“Losses”
shall have the meaning set forth in Section 5(a).
“Pricing Date”
means the date of this Agreement.
“Proceeding”
means an action, claim, suit, investigation or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition), whether commenced or
threatened.
“Prospectus”
means the prospectus included in a Registration Statement (including, without
limitation, a prospectus that includes any information previously omitted from a prospectus filed
as part of an effective registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by such Registration
Statement, and all other amendments and supplements to such prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be incorporated by reference in
such prospectus.
“
register
,” “
registered
,” and “
registration
” refer to a registration effected by preparing and
filing one or more Registration Statements (as defined below) in compliance with the Securities Act
and pursuant to Rule 415 and the declaration of effectiveness of such Registration Statement(s) by
the Commission.
“Registrable Securities”
means (i) the Shares, (ii) the Warrant Shares and (iii) any
securities issued or issuable with respect to the securities referenced in (i) or (ii) above,
including, without limitation, as a result of any stock dividend, stock split or other
distribution, recapitalization, merger, consolidation, reorganization, exchange or similar event or
otherwise (without regard to any limitations on exercises of the Warrants).
“Registration Statement”
means the initial registration statement required to be filed under
the Securities Act in accordance with Section 2(a) and any additional registration statement(s)
required to be filed under Sections 2(b) or 2(c), including (in each case) the Prospectus,
amendments and supplements to such registration statements or Prospectus, including pre- and
post-effective amendments, all exhibits thereto, and all material incorporated by reference or
deemed to be incorporated by reference in such registration statements.
-2-
“Rule 144”
means Rule 144 promulgated by the Commission pursuant to the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by
the Commission having substantially the same effect as such Rule.
“Rule 415”
means Rule 415 promulgated by the Commission pursuant to the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by
the Commission having substantially the same effect as such Rule.
“Rule 424”
means Rule 424 promulgated by the Commission pursuant to the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by
the Commission having substantially the same effect as such Rule.
“Securities Act”
means the Securities Act of 1933, as amended.
“Shares”
means the shares of Common Stock issued or issuable to the Investors by the Company
pursuant to the Purchase Agreement.
“Warrants”
means the Common Stock purchase warrants issued or issuable to the Investors
pursuant to the Purchase Agreement.
“Warrant Shares”
means the shares of Common Stock issued or issuable upon exercise of the
Warrants.
2.
Registration
.
(a) As soon as reasonably practicable, but in no event later than the Filing Date, the Company
shall prepare and file with the Commission a Registration Statement on Form SB-2 covering the
resale of all Registrable Securities not already covered by an existing and effective Registration
Statement for an offering to be made on a continuous basis pursuant to Rule 415. The Registration
Statement shall contain (except if otherwise required pursuant to written comments received from
the Commission upon a review of such Registration Statement) the “Plan of Distribution” attached
hereto as Annex A. The Company shall use its reasonable best efforts to cause the Registration
Statement to be declared effective under the Securities Act as soon as practicable but, in any
event, no later than the Effectiveness Date, and shall use its reasonable best efforts to keep the
Registration Statement effective under the Securities Act until the date which is two years after
the date that the Registration Statement is declared effective by the Commission or such earlier
date when all Registrable Securities covered by the Registration Statement have been sold or may be
sold without volume restrictions pursuant to Rule 144(k) promulgated under the Securities Act (the
“Effectiveness Period”
).
(b) If for any reason the Commission does not permit all of the Registrable Securities to be
included in the Registration Statement filed pursuant to Section 2(a), or for any other reason any
Registrable Securities are not permitted by the Commission to be included on a Registration
Statement filed under this Agreement, then the Company shall prepare and file as soon as possible
after the date on which the Commission shall indicate as being the first date or time that such
filing may be made, an additional Registration Statement covering the resale of all Registrable
Securities not already covered by an existing and effective Registration Statement for an offering
to be made on a continuous basis at the market pursuant to Rule 415 or otherwise as
-3-
may be acceptable to a Holder whose Registrable Securities were not registered for resale.
Each such Registration Statement shall contain (except if otherwise required pursuant to written
comments received from the Commission upon a review of such Registration Statement) the “Plan of
Distribution” attached hereto as Annex A. The Company shall use its reasonable best efforts to
cause each such Registration Statement to be declared effective under the Securities Act as soon as
possible but, in any event, no later than its Effectiveness Date, and shall use its reasonable best
efforts to keep such Registration Statement effective under the Securities Act during the entire
Effectiveness Period.
(c) If at any time during the Effectiveness Period, less than 95% of the then Registrable
Securities are then registered on a Registration Statement(s), then the Company shall file as soon
as reasonably practicable, but in any event not later than 30 days after less than 95% of the
Registrable Securities are then registered on a Registration Statement, subject to any restrictions
imposed by Rule 415, an additional Registration Statement covering the resale by the Holders of not
less than 100% of the number of then Registrable Securities. The calculation set forth in the
foregoing sentence shall be made without regard to any limitation on the exercise of the Warrants
and such calculation shall assume that the Warrants are then exercisable for shares of Common Stock
at the then prevailing applicable Exercise Price (as defined in the Warrants).
(d) If: (i) a Registration Statement covering all of the Registrable Securities required to be
covered thereby is not filed by the Company with the Commission on or prior to the Filing Date (or
the applicable filing date if the Registration Statement is not the initial Registration Statement
required to be filed under Section 2(a)), (ii) a Registration Statement is not declared effective
by the Commission on or prior to its required Effectiveness Date (it being understood that if the
Company shall not have filed a “final” prospectus for the Registration Statement with the SEC under
Rule 424(b) in accordance with Section 2(g) below (whether or not such a prospectus is technically
required by such rule), the Company shall not be deemed to have satisfied this clause (ii)), (iii)
the Company fails to file a request for the acceleration of the Effectiveness Date of the
applicable Registration Statement as required by Section 3(c), (iv) there is a suspension or
delisting of the Company’s Common Stock (or the Company fails to timely list all the Registrable
Securities) on its principal trading market or exchange, (v) after its Effective Date, other than
during an Allowable Grace Period (as defined below), such Registration Statement ceases to be
effective and available for use by the Holders as to any Registrable Securities to which it is
required to cover at any time prior to the expiration of its Effectiveness Period for up to no more
than 3 consecutive Trading Days (or 20 Trading Days in any 12 month period in the aggregate) (any
such failure or breach being referred to as an
“Event
,
”
and for purposes of clauses (i)-(iv), on
the date on which such Event occurs, or for purposes of clause (v), the date on which the Allowable
Grace Period or other specified period is exceeded, being referred to as
“Event Date”
), then, in
addition to any other rights available to the Holders under this Agreement or under applicable law:
(x) on each such Event Date the Company shall pay to each Holder an amount in cash, as partial
damages and not as a penalty, equal to 1.5% of the aggregate Investment Amount paid by such Holder
pursuant to the Purchase Agreement; and (y) on each 30-day anniversary of each such Event Date (if
the applicable Event shall not have been cured by such date) until the applicable Event is cured,
the Company shall pay to each Holder an amount in cash, as partial damages and not as a penalty,
equal to 1.5% of the aggregate Investment Amount paid by such Holder pursuant to the Purchase
Agreement. The partial damages pursuant to the terms hereof shall apply on a pro rata basis for any
portion of a month
-4-
prior to the cure of an Event. Notwithstanding the foregoing, in no event shall the partial
damages under this Section 2(d) exceed an amount equal to 20% of the aggregate Investment Amounts.
(e) Notwithstanding anything to the contrary contained in this Agreement, in the event the
staff of the Commission (the “
Staff
”) or the Commission seeks to characterize any offering pursuant
to a Registration Statement filed pursuant to this Agreement as constituting an offering of
securities by or on behalf of the Company, or in any other manner, such that the Staff or the
Commission do not permit such Registration Statement to become effective and used for resales in a
manner that does not constitute such an offering and that permits the continuous resale at the
market by the Holders participating therein (or as otherwise may be acceptable to each Holder)
without being named therein as an “underwriter,” then the Company shall reduce the number of shares
to be included in such Registration Statement by all Holders until such time as the Staff and the
Commission shall so permit such Registration Statement to become effective as aforesaid. In
making such reduction, the Company shall reduce the number of shares to be included by all Holders
on a pro rata basis (based upon the number of Registrable Securities otherwise required to be
included for each Holder) unless the inclusion of shares by a particular Holder or a particular set
of Holders are resulting in the Staff or the Commission’s “by or on behalf of the Company” offering
position, in which event the shares held by such Holder or set of Holders shall be the only shares
subject to reduction (and if by a set of Holders on a pro rata basis by such Holders or on such
other basis as would result in the exclusion of the least number of shares by all such Holders).
In addition, in the event that the Staff or the Commission requires any Holder seeking to sell
securities under a Registration Statement filed pursuant to this Agreement to be specifically
identified as an “underwriter” in order to permit such Registration Statement to become effective,
and such Holder does not consent to being so named as an underwriter in such Registration
Statement, then in each such case, the Company shall reduce the total number of Registrable
Securities to be registered on behalf of such Holder, until such time as the Staff or the
Commission does not require such identification or until such Holder accepts such identification
and the manner thereof. Any reduction pursuant to this paragraph will first reduce all Registrable
Securities other than those issued pursuant to the Purchase Agreement and in the event of any
reduction pursuant to this paragraph, no Holder shall have any claim against the Company as a
result of such reduction and any Event or other delay or breach of this Agreement occurring
primarily due to such action by the Staff or the Commission and any such relating reduction shall
not require the Company to pay any partial damages pursuant to Section 2(d) hereof or otherwise
provide the basis for any claim by any Holder against the Company pursuant to the Transaction
Documents (it being understood that the foregoing does not constitute a waiver of Section 3.2(f) of
the Securities Purchase Agreement by any Holder or the obligations of the Company under this
paragraph and elsewhere in relation thereto). In the event of any reduction in Registrable
Securities pursuant to this paragraph, an affected Holder shall have the right to require, upon
delivery of a written request to the Company signed by the Holder, the Company to file a
registration statement within 30 days of such request (subject to any restrictions imposed by Rule
415 or required by the Staff or the Commission) for re-sale by such Holder in a manner acceptable
to such Holder, and the Company shall following such request cause to be and keep effective such
registration statement in the same manner as otherwise contemplated in this Agreement for
registration statements hereunder, in each case until such time as:
(i) all Registrable Securities
held by such Holder have been registered pursuant to an effective Registration Statement in a
manner acceptable to such Holder or (ii) the Registrable Securities may be resold by such Holder
without restriction (including volume limitations) pursuant to Rule
-5-
144(k) of the Securities Act (taking account of any Staff position with respect to “affiliate”
status) or (iii) the Holder agrees to be named as an underwriter in any such Registration Statement
in a manner acceptable to Holder as to all Registrable Securities held by such Holder and that have
not theretofore been included in a Registration Statement under this Agreement (it being understood
that the special demand right under this sentence may be exercised by a Holder multiple times and
with respect to limited amounts of Registrable Securities in order to permit the re-sale thereof by
such Holder as contemplated above).
(f) In the event that Form SB-2 is not available for the registration of the resale of
Registrable Securities hereunder, the Company shall use reasonable best efforts to (i) register the
resale of the Registrable Securities on another appropriate form reasonably acceptable to the
Holders and (ii) undertake to register the Registrable Securities on Form SB-2 as soon as such form
is available, provided that the Company shall use reasonable best efforts to maintain the
effectiveness of the Registration Statement then in effect until such time as a Registration
Statement on Form SB-2 covering the Registrable Securities has been declared effective by the
Commission. In the event the Company becomes eligible to register the Registrable Securities on
Form S-3, the Company shall use reasonable best efforts to promptly register the Registrable
Securities on Form S-3, provided that the Company shall use reasonable best efforts to maintain the
effectiveness of the Registration Statement(s) then in effect until such time as a Registration
Statement on Form S-3 covering the Registrable Securities has been declared effective by the
Commission.
(g) By 5:30 p.m. on the Trading Day immediately following the Effective Date of each
Registration Statement, the Company shall file with the Commission in accordance with Rule 424
under the Securities Act the final prospectus to be used in connection with sales pursuant to such
Registration Statement.
3.
Registration Procedures
In connection with the Company’s registration obligations hereunder, the Company shall:
(a) Not less than five (5) Trading Days prior to the filing of a Registration Statement or any
related Prospectus or any amendment or supplement thereto (except for any amendment or supplement
thereto related to the filing of an Annual Report on Form 10-K (or 10-KSB), Quarterly Reports on
Form 10-Q (or 10-QSB), Current Reports on Form 8-K, and any similar or successor reports), the
Company shall furnish to the Holders copies of such document, as proposed to be filed in
substantially final form. The Company shall (A) permit each Holder to review and comment upon (i)
each Registration Statement at least five (5) Trading Days prior to its filing with the Commission,
provided that such comments are received by the Company no later than three (3) Trading Days after
providing such Registration Statement for review, and (ii) all amendments and supplements to all
Registration Statements (except for any amendment or supplement thereto related to the filing of an
Annual Report on Form 10-K (or 10-KSB), Quarterly Reports on Form 10-Q (or 10-QSB), Current Reports
on Form 8-K, and any similar or successor reports) within a reasonable number of days prior to
their filing with the Commission, provided that such comments are received by the Company no later
than three (3) Trading Days after providing such amendment or supplement for review, and (B) shall
consider all such
reasonable comments in good faith.
-6-
(b) (i) Prepare and file with the Commission such amendments, including post-effective
amendments, to each Registration Statement and the Prospectus used in connection therewith as may
be necessary to keep such Registration Statement continuously effective as to the applicable
Registrable Securities for its Effectiveness Period and prepare and file with the Commission such
additional Registration Statements in order to register for resale under the Securities Act all of
the Registrable Securities; (ii) cause the related Prospectus to be amended or supplemented by any
required Prospectus supplement, and as so supplemented or amended to be filed pursuant to Rule 424;
(iii) respond as promptly as reasonably possible to any comments received from the Commission with
respect to each Registration Statement or any amendment thereto and, as promptly as reasonably
possible provide the Holders true and complete copies of all correspondence from and to the
Commission relating to such Registration Statement that pertain to the Holders as a Selling
Stockholder or to the Plan of Distribution, but would not result in the disclosure to the Holders
of material, non-public information concerning the Company or any of its subsidiaries; and (iv)
comply in all material respects with the provisions of the Securities Act and the Exchange Act with
respect to the Registration Statements and the disposition of all Registrable Securities covered by
each Registration Statement. In the case of amendments and supplements to a Registration Statement
which are required to be filed pursuant to this Agreement (including pursuant to this Section 3(b))
by reason of the Company filing a report on Form 10-Q (or Form 10-QSB) or Form 10-K (or Form
10-KSB) or any analogous report under the Exchange Act, the Company shall have incorporated such
report by reference into such Registration Statement, if applicable, or shall file such amendments
or supplements with the Commission on the same day on which the Exchange Act report is filed, if
practicable. The Company shall ensure that each Registration Statement (including any amendments
or supplements thereto and prospectuses contained therein) shall not contain any untrue statement
of a material fact or omit to state a material fact required to be stated therein, or necessary to
make the statements therein (in the case of prospectuses, in the light of the circumstances in
which they were made) not misleading.
(c) Notify the Holders Counsel (which may occur electronically and any other notifications or
documents required to be provided to a Holder or any other party hereunder may be provided
electronically pursuant to the notice provisions contained herein) as promptly as reasonably
possible and (if requested by any such Person) confirm such notice in writing no later than one
three (3) Trading Days following the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to a Registration Statement is proposed to be filed or is filed; (B) when
the Commission notifies the Company whether there will be a “review” of a Registration Statement or
post-effective amendment and whenever the Commission comments in writing on such Registration
Statement or post-effective amendment (the Company shall provide true and complete copies thereof
and all written responses thereto to each of the Holders, but not information which the Company
believes in good faith would constitute material, non-public information); and (C) with respect to
each Registration Statement or any post-effective amendment, when the same has become effective;
(ii) of any request by the Commission or any other Federal or state governmental authority for
amendments or supplements to a Registration Statement or Prospectus or for additional information
that pertains to the Holders as a Selling Stockholder or to the Plan of Distribution; (iii) of the
issuance by the Commission of any stop order or other suspension of the effectiveness of a
Registration Statement covering any or all of
-7-
the Registrable Securities or the initiation of any Proceedings for that purpose; (iv) of the
receipt by the Company of any notification with respect to the suspension of the qualification or
exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or
the initiation or threatening of any Proceeding for such purpose; and (v) of the occurrence of any
event or passage of time that makes the financial statements included in a Registration Statement
ineligible for inclusion therein or any statement made in such Registration Statement or Prospectus
or any document incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires any revisions to such Registration Statement, Prospectus or other
documents so that, in the case of such Registration Statement or the Prospectus, as the case may
be, it will not contain any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company shall submit to the
Commission, within two (2) Trading Days after the date that the Company learns that no review of a
particular Registration Statement will be made by the Staff or the Commission or that such Staff
has no further comments on a particular Registration Statement (as the case may be); provided that
the financial information included in such Registration Statement meets all applicable SEC
requirements.
(d) Use its reasonable best efforts to avoid the issuance of, or, if issued, obtain the
withdrawal of (i) any stop order or other suspension of the effectiveness of a Registration
Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of
the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment and, if
such an order or suspension is issued, to obtain the withdrawal of such order or suspension at the
earliest practicable moment and each Holder who holds Registrable Securities being sold of the
issuance of such order and the resolution thereof or its receipt of actual notice of the initiation
or threat of any proceeding for such purpose.
(e) Furnish to each Holder, without charge, at least one conformed copy of each Registration
Statement and each amendment thereto and all exhibits to the extent requested by such Person
(including those previously furnished) promptly after the filing of such documents with the
Commission.
(f) Promptly deliver to each Holder, without charge, as many copies of each Prospectus or
Prospectuses (including each form of prospectus) and each amendment or supplement thereto as such
Persons may reasonably request from time to time and such other documents as such Holder may
reasonably request from time to time in order to facilitate the disposition of the Registrable
Securities owned by such Holder. The Company hereby consents to the use of such Prospectus and
each amendment or supplement thereto by each of the selling Holders in connection with the offering
and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement
thereto.
(g) Prior to any resale of Registrable Securities, use its reasonable best efforts to (i)
register or qualify or cooperate with the selling Holders in connection with the registration or
qualification (or exemption from such registration or qualification) of such Registrable Securities
for offer and sale under the securities or Blue Sky laws of those specific jurisdictions within the
United States which the Holders may reasonably request from time to time in writing to the Company,
(ii) keep each such registration or qualification (or exemption therefrom)
-8-
effective during the Effectiveness Period and (iii) do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions of the Registrable
Securities covered by the Registration Statements; provided, that the Company shall not be required
to qualify generally to do business in any jurisdiction where it is not then so qualified or
subject the Company to any material tax in any such jurisdiction where it is not then so subject.
The Company shall promptly notify each Holder of the receipt by the Company of any notification
with respect to the suspension of the registration or qualification of any of the Registrable
Securities for sale under the securities or Blue Sky laws of any jurisdiction in the United States
or its receipt of actual notice of the initiation or threatening of any proceeding for such
purpose.
(h) Cooperate with the Holders to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be delivered to a transferee pursuant to the
Registration Statements, which certificates shall be free, to the extent permitted by the Purchase
Agreement, of all restrictive legends, and to enable such Registrable Securities to be in such
denominations and registered in such names as any such Holders may request.
(i) Upon the occurrence of any event contemplated by Section 3(c)(v), as promptly as
reasonably possible, prepare a supplement or amendment, including a post-effective amendment, to
the affected Registration Statements or a supplement to the related Prospectus or any document
incorporated or deemed to be incorporated therein by reference, and file any other required
document so that, as thereafter delivered, no Registration Statement nor any Prospectus will
contain an untrue statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(j) Each Holder agrees to furnish to the Company a completed Selling Questionnaire in the form
attached to this Agreement as
Annex B
(a
“Selling Holder Questionnaire”
). The Company shall
not be required to include the Registrable Securities of a Holder in a Registration Statement and
shall not be required to pay any partial or other damages under Section 2(d) hereof to such Holder
who fails to furnish to the Company a fully completed Selling Holder Questionnaire at least five
(5) Trading Days prior to the Filing Date).
(k) If requested by a Holder, the Company shall as soon as practicable after receipt of notice
from such Holder and subject to Section 3(p) hereof, use reasonable best efforts to (i) incorporate
in a prospectus supplement or post-effective amendment such information as a Holder reasonably
requests to be included therein relating to the sale and distribution of Registrable Securities,
including, without limitation, information with respect to the number of Registrable Securities
being offered or sold, the purchase price being paid therefor and any other terms of the offering
of the Registrable Securities to be sold in such offering; (ii) make all required filings of such
prospectus supplement or post-effective amendment after being notified of the matters to be
incorporated in such prospectus supplement or post-effective amendment; and (iii) supplement or
make amendments to any Registration Statement if reasonably requested by a Holder holding any
Registrable Securities.
(l) The Company shall use its reasonable best efforts to cause the Registrable Securities
covered by a Registration Statement to be registered with or approved by such other governmental
agencies or authorities as may be necessary to consummate the disposition of such
Registrable Securities.
-9-
(m) The Company shall otherwise use its reasonable best efforts to comply with all applicable
rules and regulations of the Commission in connection with any registration hereunder. Within one
(1) Trading Day after a Registration Statement which covers Registrable Securities is declared
effective by the Commission, the Company shall deliver, and shall cause legal counsel for the
Company to deliver, to the transfer agent for such Registrable Securities (with copies to the
Holders whose Registrable Securities are included in such Registration Statement) confirmation that
such Registration Statement has been declared effective by the Commission in a customary form.
(p) Notwithstanding anything to the contrary herein (but subject to the last sentence of this
Section 3(p), at any time after the Effective Date of the initial Registration Statement required
to be filed hereunder pursuant to Section 2(a), the Company may delay the disclosure of material,
non-public information concerning the Company the disclosure of which at the time is not, in the
good faith determination of the Board of Directors of the Company, in the best interest of the
Company and is not, in the opinion of Board of Directors of the Company, after consultation with
the Company’s counsel, otherwise required (a “
Grace Period
”); provided, that the Company shall
promptly (i) notify the Holders in writing of the existence of material, non-public information
giving rise to a Grace Period (provided that in each notice the Company will not disclose the
content of such material, non-public information to the Holders) and the date on which the Grace
Period will begin, and (ii) notify the Holders in writing of the date on which the Grace Period
ends; and, provided that no Grace Period shall exceed thirty (30) consecutive days and during any
three hundred sixty five (365) day period such Grace Periods shall not exceed an aggregate of sixty
(60) days and the first day of any Grace Period must be at least two (2) Trading Days after the
last day of any prior Grace Period (each, an “
Allowable Grace Period
”); provided further, that no
Allowable Grace Period may exist during the first thirty (30) Trading Days after the Effective Date
of the initial Registration Statement required to be filed hereunder pursuant to Section 2(a). For
purposes of determining the length of a Grace Period above, the Grace Period shall begin on and
include the date the Holders receive the notice referred to in clause (i) and shall end on and
include the later of the date the Holders receive the notice referred to in clause (ii) and the
date referred to in such notice. Notwithstanding anything to the contrary contained in this Section
3(p), the Company shall cause its transfer agent to deliver shares of Common Stock to a transferee
of a Holder in accordance with the terms of the Purchase Agreement in connection with any sale of
Registrable Securities with respect to which such Holder has entered into a contract for sale, and
delivered a copy of the prospectus included as part of the applicable Registration Statement (to
the extent required under applicable securities laws), prior to such Holder’s receipt of the notice
of a Grace Period and for which such Holder has not yet settled.
4.
Registration Expenses
. All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall be borne by the Company whether or not any
Registrable Securities are sold pursuant to a Registration Statement. The fees and expenses
referred to in the foregoing sentence shall include, without limitation, (i) all registration and
filing fees (including, without limitation, fees and expenses (A) with respect to filings required
to be made with any Trading Market on which the Common Stock is then listed for trading, and (B) in
compliance with applicable state securities or Blue Sky laws), (ii) printing expenses
-10-
(including, without limitation, expenses of printing certificates for Registrable Securities
and of printing prospectuses if the printing of prospectuses is reasonably requested by the holders
of a majority of the Registrable Securities included in the Registration Statement), (iii)
messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company,
(v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and
expenses of all other Persons retained by the Company in connection with the consummation of the
transactions contemplated by this Agreement. In addition, the Company shall be responsible for all
of its internal expenses incurred in connection with the consummation of the transactions
contemplated by this Agreement (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of any annual audit and
the fees and expenses incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder.
5.
Indemnification
.
(a)
Indemnification by the Company
. The Company shall, notwithstanding any
termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors,
agents, investment advisors, partners, members, employees, agents and representatives of each of
them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act) and officers, directors, agents, investment advisors,
partners, members, employees, agents and representatives of each such controlling Person (each an
“Indemnified Person”), to the fullest extent permitted by applicable law, from and against any and
all losses, claims, damages, liabilities, judgments, fines, penalties, charges, amounts paid in
settlement, costs and expenses, joint or several, (including, without limitation, reasonable
out-of-pocket costs of preparation and reasonable attorneys’ fees and expenses) (collectively,
“
Losses
”), as incurred, arising out of or relating to (i) any untrue or alleged untrue statement of
a material fact contained in any Registration Statement, any Prospectus or any form of prospectus
or in any amendment or supplement thereto, in any preliminary prospectus or in any filing made in
connection with the qualification of the offering under the securities or other Blue Sky laws of
any jurisdiction in which Registrable Securities are offered, or arising out of or relating to any
omission or alleged omission of a material fact required to be stated therein or necessary to make
the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto,
in light of the circumstances under which they were made) not misleading, except to the extent, but
only to the extent, that (1) such untrue statements or omissions are based solely upon information
regarding such Holder furnished in writing to the Company by such Holder expressly for use therein,
or to the extent that such information relates to such Holder or such Holder’s proposed method of
distribution of Registrable Securities and was reviewed and expressly approved in writing by such
Holder expressly for use in the Registration Statement, such Prospectus or such form of Prospectus
or in any amendment or supplement thereto (it being understood that the Holder has approved Annex A
hereto for this purpose) or (2) in the case of an occurrence of an event of the type specified in
Section 3(c)(ii)-(v), the use by such Holder of an outdated or defective Prospectus after the
Company has notified such Holder in writing that the Prospectus is outdated or defective and prior
to the receipt by such Holder of an Advice or an amended or supplemented Prospectus, but only if
and to the extent that following the receipt of the Advice or the amended or supplemented
Prospectus the misstatement or omission giving rise to such Loss would have been corrected and no
grounds for such Loss would have existed; or (ii) any violation or alleged violation by the Company
of the Securities Act, the Exchange Act, any
-11-
other law, including, without limitation, any state securities law, or any rule or regulation
thereunder relating to the offer or sale of the Registrable Securities pursuant to a Registration
Statement. The Company shall notify the Holders promptly of the institution, threat or assertion of
any Proceeding of which the Company is aware in connection with the transactions contemplated by
this Agreement. Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemni
fied Person and shall survive the transfer of any
of the Registrable Securities by any of the Holders.
(b)
Indemnification by Holders
. Each Holder shall, severally and not jointly,
indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person
who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of
the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to
the fullest extent permitted by applicable law, from and against all Losses, as incurred, arising
solely out of or based solely upon: (x) such Holder’s failure to comply with the prospectus
delivery requirements of the Securities Act to the extent applicable or (y) any untrue statement of
a material fact contained in any Registration Statement, any Prospectus, or any form of prospectus,
or in any amendment or supplement thereto, or arising solely out of or based solely upon any
omission of a material fact required to be stated therein or necessary to make the statements
therein not misleading to the extent, but only to the extent that, (1) such untrue statements or
omissions are based solely upon information regarding such Holder furnished in writing to the
Company by such Holder expressly for use therein, or to the extent that such information relates to
such Holder or such Holder’s proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in the Registration
Statement (it being understood that the Holder has approved Annex A hereto for this purpose), such
Prospectus or such form of Prospectus or in any amendment or supplement thereto or (2) in the case
of an occurrence of an event of the type specified in Section 3(c)(ii)-(v), the use by such Holder
of an outdated or defective Prospectus after the Company has notified such Holder in writing that
the Prospectus is outdated or defective and prior to the receipt by such Holder of an Advice or an
amended or supplemented Prospectus, but only if and to the extent that following the receipt of the
Advice or the amended or supplemented Prospectus the misstatement or omission giving rise to such
Loss would have been corrected and no grounds for such Loss would have existed. In no event shall
the liability of any selling Holder hereunder be greater in amount than the dollar amount of the
net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to
such indemnification obligation. The indemnity agreement contained in this Section 5(b) and the
agreement with respect to contribution contained in Section 5(d) shall not apply to amounts paid in
settlement of any Losses if such settlement is effected without the prior written consent of the
applicable Holder, which consent shall not be unreasonably withheld or delayed.
(c)
Conduct of Indemnification Proceedings
. If any Proceeding shall be brought or
asserted against any Person entitled to indemnity hereunder (an “
Indemnified Party
”), such
Indemnified Party shall promptly notify the Person from whom indemnity is sought (the “
Indemnifying
Party
”) in writing, and the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees
and expenses incurred in connection with defense thereof; provided, that the failure of any
Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations
or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be
-12-
finally determined by a court of competent jurisdiction (which determination is not subject to
appeal or further review) that such failure shall have proximately and materially adversely
prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel in any such Proceeding
and to participate in the defense thereof, but the fees and expenses of such counsel shall be at
the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in
writing to pay such fees and expenses; (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such
Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding
(including any impleaded parties) include both such Indemnified Party and the Indemnifying Party,
and such Indemnified Party shall have been advised by counsel that a conflict of interest is likely
to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party
(in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects
to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall
not have the right to assume the defense thereof and such counsel shall be at the expense of the
Indemnifying Party); provided that the Indemnifying Party shall not be liable for the fees and
expenses of more than one separate firm of attorneys at any time for all Indemnified Parties. The
Indemnified Party shall reasonably cooperate with the Indemnifying Party in connection with any
negotiation or defense of any such action or Losses 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 Losses. The Indemnifying Party shall keep the Indemnified Party reasonably
apprised at all times as to the status of the defense or any settlement negotiations with respect
thereto. The Indemnifying Party shall not be liable for any settlement of any such Proceeding
effected without its written consent, which consent shall not be unreasonably withheld. No
Indemnifying Party shall, without the prior written consent of the Indemnified Party, which consent
shall not be unreasonably withheld, effect any settlement of any pending Proceeding in respect of
which any Indemnified Party is a party, unless such settlement includes an unconditional release of
such Indemnified Party from all liability on claims that are the subject matter of such Proceeding.
All reasonable out-of-pocket fees and expenses of the Indemnified Party (including reasonable
out-of-pocket fees and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid
to the Indemnified Party, as incurred, within ten (10) Trading Days of written notice thereof to
the Indemnifying Party (regardless of whether it is ultimately determined that an Indemnified Party
is not entitled to indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to the extent it is
finally judicially determined that such Indemnified Party is not entitled to indemnification
hereunder).
No Person involved in the sale of Registrable Securities who is guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act) in connection with
such sale shall be entitled to indemnification from any Person involved in such sale of Registrable
Securities who is not guilty of fraudulent misrepresentation.
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The indemnity agreements contained herein shall be in addition to (i) any cause of
action or similar right of the Indemnified Party against the Indemnifying Party or others, and
(ii) any liabilities the Indemnifying Party may be subject to pursuant to the law.
(d)
Contribution
. If a claim for indemnification under Section 5(a) or 5(b) is
unavailable to an Indemnified Party (by reason of public policy or otherwise), then each
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in
connection with the actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such Indemnifying Party and
Indemnified Party shall be determined by reference to, among other things, whether any action in
question, including any untrue or alleged untrue statement of a material fact or omission or
alleged omission of a material fact, has been taken or made by, or relates to information supplied
by, such Indemnifying Party or Indemnified Party, and the parties’ relative intent, knowledge,
access to information and opportunity to correct or prevent such action, statement or omission.
The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 5(c), any reasonable out-of-pocket attorneys’ fees or
expenses or other reasonable out-of-pocket fees or expenses incurred by such party in connection
with any Proceeding to the extent such party would have been indemnified for such fees or expenses
if the indemnification provided for in this Section was available to such party in accordance with
its terms.
The parties hereto agree that it would not be just and equitable if contribution pursuant to
this Section 5(d) were determined by pro rata allocation or by any other method of allocation that
does not take into account the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 5(d), (i) no Holder shall be required to
contribute, in the aggregate, any amount in excess of the amount by which the net proceeds actually
received by such Holder from the sale of the Registrable Securities subject to the Proceeding
exceeds the amount of any damages that such Holder has otherwise been required to pay, or would
otherwise be required to pay under Section 5(b), by reason of such untrue or alleged untrue
statement or omission or alleged omission; (ii) no contribution shall be made under circumstances
where the maker would not have been liable for indemnification under the fault standards set forth
in Section 5 hereof and (iii) no Person involved in the sale of Registrable Securities which Person
is guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities
Act) in connection with such sale shall be entitled to contribution from any Person involved in
such sale of Registrable Securities who was not guilty of fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section are in addition to any
liability that the Indemnifying Parties may have to the Indemnified Parties.
6.
Reports Under the Exchange Act
. With a view to making available to the Holders the
benefits of Rule 144 promulgated under the Securities Act or any other similar rule or regulation
of the Commission that may at any time permit the Holders to sell securities of the Company to the
public without registration, the Company agrees to use reasonable best efforts to:
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(a) make and keep public information available, as those terms are understood and defined in
Rule 144;
(b) file with the Commission in a timely manner all reports and other documents required of
the Company under the Securities Act and the Exchange Act so long as the Company remains subject to
such requirements (it being understood that nothing herein shall limit the Company’s obligations
under the Purchase Agreement) and the filing of such reports and other documents is required for
the applicable provisions of Rule 144; and
(c) furnish to each Holder so long as such Holder owns Registrable Securities, promptly upon
request, (i) a written statement by the Company, if true, that it has complied with the reporting
requirements of Rule 144, the Securities Act and the Exchange Act, (ii) a copy of the most recent
annual or quarterly report of the Company and such other reports and documents so filed by the
Company if such reports are not publicly available via EDGAR, and (iii) such other information as
may be reasonably requested to permit the Holders to sell such securities pursuant to Rule 144
without registration.
7.
Miscellaneous
.
(a)
Remedies
. In the event of a breach by the Company or by a Holder, of any of their
obligations under this Agreement, each Holder or the Company, as the case may be, in addition to
being entitled to exercise all rights granted by law and under this Agreement, including recovery
of damages, will be entitled to specific performance of its rights under this Agreement (without
the obligation to post a bond or any other type of security). The Company and each Holder agree
that monetary damages would not provide adequate compensation for any losses incurred by reason of
a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the
event of any action for specific performance in respect of such breach, it shall waive the defense
that a remedy at law would be adequate.
(b)
No Piggyback on Registrations
. Except as set forth on Schedule 7(b) attached
hereto, neither the Company nor any of its security holders (other than the Holders in such
capacity pursuant hereto) may include securities of the Company in a Registration Statement
required to be filed hereunder other than the Registrable Securities, provided that no securities
set forth on Schedule 7(b) may be included in a Registration Statement if including any such
securities would adversely affect any of the Holders. The Company shall not after the date hereof
until the initial Effective Date enter into any agreement providing any such right to any of its
security holders.
(c)
Compliance
. Each Holder covenants and agrees that it will comply with any
prospectus delivery requirements of the Securities Act as applicable to it and otherwise comply
with all applicable securities laws in connection with sales of Registrable Securities pursuant to
the Registration Statement.
(d)
Discontinued Disposition
. Each Holder agrees by its acquisition of such
Registrable Securities that, upon receipt of a notice from the Company of the occurrence of any
event of the kind described in clauses (ii) through (v) of Section 3(c), such Holder will forthwith
discontinue disposition of such Registrable Securities under the Registration Statement until such
-15-
Holder’s receipt of the copies of the supplemented Prospectus and/or amended Registration
Statement or until it is advised in writing (the
“Advice”
) by the Company that the use of the
applicable Prospectus may be resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by reference in such
Prospectus or Registration Statement. The Company may provide appropriate stop orders to enforce
the provisions of this paragraph. Notwithstanding anything to the contrary in this Section 7(d),
the Company shall cause its transfer agent to deliver shares of Common Stock to a transferee of a
Holder in accordance with the terms of the Purchase Agreement in connection with any sale of
Registrable Securities with respect to which such Holder has entered into a contract for sale, and
delivered a copy of the prospectus included as part of the applicable Registration Statement (to
the extent required under applicable securities laws) prior to such Holder’s receipt of a notice
from the Company of the happening of any event of the kind described in Section 3(c)(ii)-(v).
(e)
Amendments and Waivers
. No provision of this Agreement may be waived or amended
except in a written instrument signed by the Company and the Holders of no less than a majority of
the outstanding Registrable Securities; provided that any party shall have the right to provide a
waiver with regard to itself. No waiver of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver
of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right.
(f)
Notices
. Any and all notices or other communications or deliveries required or
permitted to be provided hereunder shall be in writing or via e-mail and shall be deemed given and
effective on the earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile or e-mail at the facsimile telephone number or e-mail address, as
applicable, specified in this Section prior to 6:30 p.m. (New York City time) on a Trading Day,
(ii) the Trading Day after the date of transmission, if such notice or communication is delivered
via facsimile or e-mail at the facsimile telephone number or e-mail address, as applicable,
specified in this Agreement later than 6:30 p.m. (New York City time) on any date and earlier than
11:59 p.m. (New York City time) on such date, (iii) the Trading Day following the date of mailing,
if sent by nationally recognized overnight courier service (with next day delivery specified), or
(iv) upon actual receipt by the party to whom such notice is required to be given. The address for
such notices and communications shall be as follows:
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If to the Company:
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Health Benefits Direct Corporation
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150 N. Radnor-Chester Road, Radnor, PA 19087
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Facsimile: (484) 654-2223
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Attn: Chief Financial Officer
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With copies to:
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Health Benefits Direct Corporation
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150 N. Radnor-Chester Road, Radnor, PA 19087
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Facsimile: (484) 654-2223
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Attn: Vice President and General Counsel
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Morgan, Lewis & Bockius LLP
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1701 Market Street, Philadelphia, PA 19103
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Facsimile: (215) 963-5001
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Attn: James W. McKenzie, Jr., Esq.
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If to an Investor:
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To the address, e-mail address or facsimile number set forth
under such Investor’s name
on the signature pages hereof;
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If to any other Person who is then the registered Holder:
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To the address, e-mail address or facsimile number of such
Holder as it appears in the stock transfer books of the
Company
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or such other address, e-mail address or facsimile number as may be designated hereafter, in the
same manner, by such Person.
(g)
Successors and Assigns
. This Agreement shall inure to the benefit of and be
binding upon the successors and permitted assigns of each of the parties and shall inure to the
benefit of each Holder. The Company may not assign its rights or obligations hereunder without the
prior written consent of each Holder. Each Holder may assign their respective rights hereunder in
the manner and to the Persons as permitted under the Purchase Agreement.
(h)
Execution and Counterparts
. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original and, all of which
taken together shall constitute one and the same Agreement. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with the same force and
effect as if such facsimile signature were the original thereof. Each pronoun herein shall be
deemed to include the masculine, feminine, neuter, singular and plural forms thereof. The terms
“
including
,” “
includes
,” “
include
” and words of like import shall be
construed broadly as if followed by the words “without limitation.” The terms “
herein
,”
“
hereunder
,” “
hereof
” and words of like import refer to this entire Agreement
instead of just the provision in which they are found.
(i)
Governing Law
. All questions concerning the construction, validity, enforcement
and interpretation of this Agreement shall be governed by and construed and enforced in accordance
with the internal laws of the State of Delaware, without regard to the principles of conflicts of
law thereof. Each party agrees that all Proceedings concerning the interpretations, enforcement and
defense of the transactions contemplated by this Agreement (whether brought against a party hereto
or its respective Affiliates, employees or agents) shall be commenced exclusively in the state and
federal courts sitting in the City of Wilmington, State of Delaware, (the “
Delaware Courts
”). Each
party hereto hereby irrevocably submits to the exclusive jurisdiction of the Delaware Courts for
the adjudication of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any Proceeding, any claim that it is not personally
-17-
subject to the jurisdiction of any Delaware Court, or that such Proceeding has been commenced
in an improper or inconvenient forum. Each party hereto hereby irrevocably waives personal service
of process and consents to process being served in any such Proceeding by mailing a copy thereof
via registered or certified mail or overnight delivery (with evidence of delivery) to such party at
the address in effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner permitted by law.
Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any
and all right to trial by jury in any Proceeding arising out of or relating to this Agreement or
the transactions contemplated hereby. If either party shall commence a Proceeding to enforce any
provisions of this Agreement, then the prevailing party in such Proceeding shall be reimbursed by
the other party for its attorneys’ fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such Proceeding.
(j)
Cumulative Remedies
. The remedies provided herein are cumulative and not exclusive
of any remedies provided by law.
(k)
Severability
. If any term, provision, covenant or restriction of this Agreement is
held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in
full force and effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative means to achieve the
same or substantially the same result as that contemplated by such term, provision, covenant or
restriction. It is hereby stipulated and declared to be the intention of the parties that they
would have executed the remaining terms, provisions, covenants and restrictions without including
any of such that may be hereafter declared invalid, illegal, void or unenforceable.
(l)
Headings
. The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof.
(m)
Entire Agreement
. This Agreement, the other Transaction Documents (as defined in
the Purchase Agreement), the schedules and exhibits attached hereto and thereto and the instruments
referenced herein and therein constitute the entire agreement among the parties hereto with respect
to the subject matter hereof and thereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein and therein. This Agreement, the
other Transaction Documents, the schedules and exhibits attached hereto and thereto and the
instruments referenced herein and therein supersede all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof and thereof.
(n)
Independent Nature of Holders’ Obligations and Rights
. The obligations of each
Holder under this Agreement and the other Transaction Documents are several and not joint with the
obligations of any other Holder, and no Holder shall be responsible in any way for the performance
of the obligations of any other Holder under this Agreement or any other Transaction Document.
Nothing contained herein or in any other Transaction Document, and no action taken by any Holder
pursuant hereto or thereto, shall be deemed to constitute the Holders as a partnership, an
association, a joint venture or any other kind of group or entity, or create a presumption that the
Holders are in any way acting in concert or as a group or entity with respect
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to such obligations or the transactions contemplated by the Transaction Documents or any
matters, and the Company acknowledges that the Holders are not acting in concert or as a group with
respect to such obligations or the transactions contemplated by this Agreement or any of the other
the Transaction Documents. Each Holder shall be entitled to independently protect and enforce its
rights, including, without limitation, the rights arising out of this Agreement or out of any other
Transaction Documents, and it shall not be necessary for any other Holder to be joined as an
additional party in any proceeding for such purpose. The use of a single agreement with respect to
the obligations of the Company contained herein was solely in the control of the Company, not the
action or decision of any Holder, and was done solely for the convenience of the Company and not
because it was required or requested to do so by any Holder.
(o)
No Strict Construction
. The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent and no rules of strict
construction will be applied against any party.
(p)
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, other than the Persons referred
to in Section 5 hereof.
(q)
Further Assurances
. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents as any other party may reasonably request in
order to carry out the intent and accomplish the purposes of this Agreement and the consummation of
the transactions contemplated hereby.
[
signature page follows
]
-19-
IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the
date first written above.
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HEALTH BENEFITS DIRECT CORPORATION
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By:
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Name:
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Title:
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[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES OF INVESTORS TO FOLLOW]
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IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the
date first written above.
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[INVESTOR]
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By:
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Name:
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Title:
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Address for Notice:
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Facsimile No.:
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*E-mail:
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Attn:
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By providing an e-mail address, the party listed above hereby consents to electronic delivery of
the documents and notices required to be delivered pursuant to this Agreement.
-21-
Annex A
Plan of Distribution
We are registering the shares offered by this prospectus on behalf of the selling
stockholders. The selling stockholders, which as used herein includes donees, pledgees, transferees
or other successors-in-interest selling shares of common stock or interests in shares of common
stock received after the date of this prospectus from a selling stockholder as a gift, pledge,
partnership distribution or other transfer, may, from time to time, sell, transfer or otherwise
dispose of any or all of their shares of common stock or interests in shares of common stock on any
stock exchange, market or trading facility on which the shares are traded or in private
transactions. These dispositions may be at fixed prices, at prevailing market prices at the time of
sale, at prices related to the prevailing market price, at varying prices determined at the time of
sale, or at negotiated prices. To the extent any of the selling stockholders gift, pledge or
otherwise transfer the shares offered hereby, such transferees may offer and sell the shares from
time to time under this prospectus, provided that this prospectus has been amended under Rule
424(b)(3) or other applicable provision of the Securities Act to include the name of such
transferee in the list of selling stockholders under this prospectus.
The selling stockholders may use any one or more of the following methods when disposing of
shares or interests therein:
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•
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ordinary brokerage transactions and transactions in
which the broker-dealer solicits purchasers;
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block trades in which the broker-dealer will attempt
to sell the shares as agent, but may position and
resell a portion of the block as principal to
facilitate the transaction;
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•
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purchases by a broker-dealer as principal and resale
by the broker-dealer for its account;
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an exchange distribution in accordance with the rules of the applicable exchange;
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privately negotiated transactions;
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short sales;
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through the writing or settlement of options or
other hedging transactions, whether through an
options exchange or otherwise;
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broker-dealers may agree with the selling
stockholders to sell a specified number of such shares at a stipulated price per share;
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a combination of any such methods of sale; and
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any other method permitted pursuant to applicable law.
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The selling stockholders may, from time to time, pledge or grant a security interest in some
or all of the shares of common stock owned by them and, if they default in the performance of their
secured obligations, the pledgees or secured parties may offer and sell the shares of common stock,
from time to time, under this prospectus, or under an amendment to this prospectus under Rule
424(b)(3) or other applicable provision of the Securities Act amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest as selling
stockholders under this prospectus.
In connection with the sale of our common stock or interests therein, the selling stockholders
may enter into hedging transactions with broker-dealers or other financial institutions, which may
in turn engage in short sales of the common stock in the course of hedging the positions they
assume. The selling stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common stock to broker-dealers
that in turn may sell these securities. The selling stockholders may also enter into option or
other transactions with broker-dealers or other financial institutions or the creation of one or
more derivative securities which require the delivery to such broker-dealer or other financial
institution of shares offered by this prospectus, which shares such broker-dealer or other
financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect
such transaction).
The aggregate proceeds to the selling stockholders from the sale of the common stock offered
by them will be the purchase price of the common stock less discounts or commissions, if any. Each
of the selling stockholders reserves the right to accept and, together with their agents from time
to time, to reject, in whole or in part, any proposed purchase of common stock to be made directly
or through agents. We will not receive any of the proceeds from this offering. Upon any exercise of
the warrants by payment of cash, however, we will receive the exercise price of the warrants.
The selling stockholders also may resell all or a portion of the shares in open market
transactions in reliance upon Rule 144 under the Securities Act of 1933, provided that they meet
the criteria and conform to the requirements of that rule.
The selling shareholders might be, and any broker-dealers that act in connection with the sale
of securities will be, deemed to be “underwriters” within the meaning of Section 2(11) of the
Securities Act, and any commissions received by such broker-dealers and any profit on the resale of
the securities sold by them while acting as principals will be deemed to be underwriting discounts
or commissions under the Securities Act.
To the extent required, the shares of our common stock to be sold, the names of the selling
stockholders, the respective purchase prices and public offering prices, the names of any agents,
dealer or underwriter, any applicable commissions or discounts with respect to a particular offer
will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this prospectus.
-23-
In order to comply with the securities laws of some states, if applicable, the common stock
may be sold in these jurisdictions only through registered or licensed brokers or dealers. In
addition, in some states the common stock may not be sold unless it has been registered or
qualified for sale or an exemption from registration or qualification requirements is available and
is complied with.
We have advised the selling stockholders that the anti-manipulation rules of Regulation M
under the Exchange Act, to the extent applicable, may apply to sales of shares in the market and to
the activities of the selling stockholders and their affiliates. In addition, we will make copies
of this prospectus (as it may be supplemented or amended from time to time) available to the
selling stockholders for the purpose of satisfying the prospectus delivery requirements of the
Securities Act, to the extent applicable. The selling stockholders may indemnify any broker-dealer
that participates in transactions involving the sale of the shares against certain liabilities,
including liabilities arising under the Securities Act.
We have agreed to indemnify the selling stockholders against liabilities, including
liabilities under the Securities Act and state securities laws, relating to the registration of the
shares offered by this prospectus.
We have agreed with the selling stockholders to keep the registration statement that includes
this prospectus effective until the date which is two years after the date that the registration
statement is declared effective by the SEC or such earlier date when all of the shares covered by
this prospectus have been disposed of pursuant to and in accordance with the registration statement
or have been sold or may be sold without volume restrictions pursuant to Rule 144(k) under the
Securities Act.
-24-
Annex B
Selling Stockholder Questionnaire
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To:
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Health Benefits Direct Corporation
150 North Radnor-Chester Road
Radnor Financial Center, Suit B101
Radnor, Pennsylvania 19087
Attention: Mr. Pete Zografakis
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Pursuant to Section 3 of the Registration Rights Agreement, the undersigned hereby furnishes
to the Company the following information for use by the Company in connection with the preparation
of the Registration Statement contemplated by the Registration Rights Agreement.
(1) Name and Contact Information:
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Full legal name of record holder:
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Address of record holder:
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Social Security Number or Taxpayer identification number of record holder:
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Identity of beneficial owner (if
different than record holder):
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Name of contact person:
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Telephone number of contact person:
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Fax number of contact person:
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E-mail address of contact person:
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(2)
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Beneficial Ownership of Registrable Securities:
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(a)
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Number of Registrable Securities owned by Selling
Stockholder:
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(b)
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Number of Registrable Securities requested to be registered:
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(3)
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Beneficial Ownership of Other Securities of the Company Owned by the Selling
Stockholder:
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Except as set forth below in this Item (3), the undersigned is not the
beneficial or registered owner of any securities of the Company other than
the Registrable Securities listed above in Item (2)(a).
Type and amount of other securities beneficially owned by the Selling
Stockholder:
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(4)
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Relationships with the Company:
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Except as set forth below, neither the undersigned nor any of its
affiliates, officers, directors or principal equity holders (5% or more) has
held any position or office or has had any other material relationship with
the Company (or its predecessors or affiliates) during the past three years.
State any exceptions here:
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(5)
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Plan of Distribution:
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Except as set forth below, the undersigned intends to distribute pursuant to
the Registration Statement the Registrable Securities listed above in Item
(2) in accordance with the “Plan of Distribution” section set forth therein:
State any exceptions here:
-26-
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(6)
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Selling Stockholder Affiliations:
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(a) Is the Selling Stockholder a registered broker-dealer?
(b) Is the Selling Stockholder an affiliate of a registered
broker-dealer(s)? (For purposes of this response, an “affiliate” of, or
person “affiliated” with, a specified person, is a person that directly, or
indirectly through one or more intermediaries, controls or is controlled by,
or is under common control with, the person specified.)
(c) If the answer to Item (6)(b) is yes, identify the registered
broker-dealer(s) and describe the nature of the affiliation(s):
(d) If the answer to Item (6)(b) is yes, did the Selling Stockholder acquire
the Registrable Securities in the ordinary course of business (if not,
please explain)?
(e) If the answer to Item (6)(b) is yes, did the Selling Stockholder, at the
time of purchase of the Registrable Securities, have any agreements, plans
or understandings, directly or indirectly, with any person to distribute the
Registrable Securities (if yes, please explain)?
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(7)
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Voting or Investment Control over the Registrable Securities:
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If the Selling Stockholder is not a natural person, please identify the
natural person or persons who have voting or investment control over the
Registrable Securities listed in Item (2) above:
The undersigned hereby acknowledges that the undersigned shall indemnify the Company and each
of its directors and officers against, and hold the Company and each of its directors and officers
harmless from, any losses, claims, damages, expenses or liabilities (including reasonable attorneys
fees) to which the Company or its directors and officers may become subject by reason of any
statement or omission in the Registration Statement made in reliance upon, or in conformity with, a
written statement by the undersigned, including the information furnished in this Questionnaire by
the undersigned.
-27-
By signing below, the undersigned consents to the disclosure of the information contained
herein in its answers to Items (1) through (7) above and the inclusion of such information in the
Registration Statement, any amendments thereto and the related prospectus. The undersigned
understands that such information will be relied upon by the Company in connection with the
preparation or amendment of the Registration Statement and the related prospectus.
The undersigned has reviewed the answers to the above questions and affirms that the same are
true, complete and accurate. THE UNDERSIGNED AGREES TO NOTIFY THE COMPANY IMMEDIATELY OF ANY
CHANGES IN THE FOREGOING INFORMATION.
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Dated:
, 2007
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Signature of Record Holder
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(Please sign your name in exactly the same
manner as the certificate(s) for the shares
being registered)
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-28-
Schedule 7(b)
Shares of Common Stock underlying the securities covered by the following registration rights:
Registration Rights Agreement, dated July 17, 2006, by and between the Company and Dickerson
Employee Benefits.
Registration Rights Agreement, dated May 31, 2006, by and between the Company and Realtime
Solutions Group, L.L.C.
Registration Rights Agreement, dated July 17, 2006, by and between the Company and Dickerson
Employee Benefits.
Registration Rights Agreement, dated July 20, 2006, by and between the Company and Peter J. Gries.
The Placement Agents have piggyback registration rights with respect to the shares of Common Stock
underlying their Placement Agent Warrants.
-29-
Exhibit 4.3
FORM OF WARRANT
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES HAVE BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (I) (A) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (B) AN AVAILABLE EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE
WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR
TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY OR (II) RULE
144 OR RULE 144A UNDER THE SECURITIES ACT. NOTWITHSTANDING THE FOREGOING, THESE SECURITIES AND THE
SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT SECURED BY SUCH SECURITIES.
HEALTH BENEFITS DIRECT CORPORATION
WARRANT
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Warrant No. [ ]
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Date of Original Issuance: March 30, 2007
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Health Benefits Direct Corporation
, a Delaware corporation (the
“Company”
), hereby certifies
that, for value received, ______ or its registered assigns (the
“Holder”
), is entitled to
purchase from the Company up to a total of [ ] shares of common stock, $0.001 par value per share
(the
“Common Stock”
), of the Company (each such share, a
“Warrant Share”
and all such shares, the
“Warrant Shares”
) at an exercise price equal to $3.00 per share (as adjusted from time to time as
provided herein, the
“Exercise Price”
), at any time and from time to time on or after the date
hereof and to and including the earlier to occur of (a) the Call Event Expiration Date (as defined
below) and (b) March 30, 2012 (the earlier to occur of (a) and (b), the
“Expiration Date”
), and
subject to the terms and conditions set forth herein. This warrant and any warrants issued in
exchange, transfer or replacement hereof, are referred to herein as the “
Warrant
.”
1.
Definitions
. In addition to the terms defined elsewhere in this Warrant,
capitalized terms that are not otherwise defined herein shall have the meanings given to such terms
in the Securities Purchase Agreement dated as of March 30, 2007 by and among the Company and the
investors thereto (the “
Securities Purchase Agreement
”).
2.
Registration of Warrant
. The Company shall register this Warrant, upon records to
be maintained by the Company for that purpose (the
“Warrant Register”
), in the name of the record
Holder hereof from time to time. The Company may deem and treat the registered Holder
of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any
distribution to the Holder, and for all other purposes, absent actual notice to the contrary.
3.
Registration of Transfers
. The Company shall register the transfer of any portion
of this Warrant in the Warrant Register, upon surrender of this Warrant, with the Form of
Assignment attached hereto duly completed and signed, to the Company at its address specified
herein. Upon any such registration or transfer, a new Warrant to purchase Common Stock, in
substantially the form of this Warrant (any such new Warrant, a
“New Warrant”
), evidencing the
portion of this Warrant so transferred shall be issued to the transferee and a New Warrant
evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the
transferring Holder. The acceptance of the New Warrant by the transferee thereof shall be deemed
the acceptance by such transferee of all of the rights and obligations of a holder of a Warrant.
4.
Exercise and Duration of Warrants
. This Warrant shall be exercisable by the
registered Holder at any time and from time to time on or after the date hereof to and including
the Expiration Date. At 11:59 p.m., New York City time on the Expiration Date, subject to Section
12, the portion of this Warrant not exercised (or called) prior thereto shall be and become void
and of no value.
5.
Delivery of Warrant Shares; Disposition of Warrants and Warrant Shares
.
(a) To effect exercises hereunder, the Holder shall not be required to physically surrender
this Warrant. Execution and delivery via facsimile of the Exercise Notice with respect to less than
all of the Warrant Shares shall have the same effect as cancellation of the original Warrant and
issuance of a New Warrant evidencing the right to purchase the remaining number of Warrant Shares.
Execution and delivery via facsimile of the Exercise Notice for all of the Warrant Shares shall
have the same effect as cancellation of the original Warrant after delivery of the Warrant Shares.
Upon such delivery of the attached Exercise Notice to the Company (with the attached Warrant Shares
Exercise Log) at its address for notice set forth herein and upon (1) payment of the
then-applicable Exercise Price multiplied by the number of Warrant Shares that the Holder intends
to purchase hereunder or (2) notifying the Company that this Warrant is being exercised pursuant to
a Cashless Exercise (as defined below), the Company shall on or before the third (3
rd
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Trading Day after receipt thereof issue and deliver to the Holder, a certificate for the Warrant
Shares issuable upon such exercise. The Company shall, upon request of the Holder and subsequent to
the date on which a registration statement covering the resale of the Warrant Shares has been
declared effective by the Securities and Exchange Commission, use commercially reasonable efforts
to deliver Warrant Shares hereunder electronically through the Depository Trust Corporation or
another established clearing corporation performing similar functions (“
DTC
”), if available,
provided, that, the Company may, but will not, be required to change its transfer agent if its
current transfer agent cannot deliver Warrant Shares electronically through the DTC. A “
Date of
Exercise
” means the date on which the Holder shall have delivered to the Company: (i) the Exercise
Notice (with the Warrant Exercise Log attached to it) via facsimile, appropriately completed and
duly signed and (ii) payment of the Exercise Price for the number of Warrant Shares so indicated by
the Holder to be purchased (or notice of a Cashless Exercise) as provided above. On the Date of
Exercise, the Holder shall be deemed for all corporate purposes to have become the holder of record
of the
2
Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date
such Warrant Shares are credited to the Holder’s DTC account or the date of delivery of the
certificates evidencing such Warrant Shares (as the case may be).
(b) The Company’s obligations to issue and deliver Warrant Shares in accordance with the terms
hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to
enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any
judgment against any Person or any action to enforce the same, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other
Person of any obligation to the Company or any violation or alleged violation of law by the Holder
or any other Person, and irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with the issuance of Warrant Shares. Nothing
herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law
or in equity including, without limitation, a decree of specific performance and/or injunctive
relief with respect to the Company’s failure to timely deliver certificates representing shares of
Common Stock upon exercise of this Warrant or to credit such shares to the Holder’s DTC account (as
the case may be) as required pursuant to the terms hereof.
(c) The Warrants and Warrant Shares (collectively, the “
Securities
”) may only be disposed of
in compliance with state and federal securities laws and the provisions related to transfer and
other provisions related to the Securities set forth in the Securities Purchase Agreement,
including without limitation, Sections 4.2 and 4.14 thereof.
(d) The Warrants shall contain the legend set forth above and the stock certificates
evidencing the Warrant Shares will contain the following legend, until such time as they are not
required under the conditions described in the Securities Purchase Agreement:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO (I) (A) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (B)
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL
OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY OR (II) RULE 144 OR RULE 144A UNDER THE SECURITIES ACT. NOTWITHSTANDING
THE FOREGOING, THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT
SECURED BY SUCH SECURITIES.
6.
Charges, Taxes and Expenses
. Issuance and delivery of certificates for shares of
Common Stock upon exercise of this Warrant shall be made without charge to the Holder for any issue
or transfer tax, transfer agent fee or other similar incidental tax or expense in respect of the
issuance of such certificates, all of which such taxes and expenses shall be paid by the Company;
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provided, however, that the Company shall not be required to pay any tax which may be payable
in respect of any transfer involved in the registration of any certificates for Warrant Shares or
Warrants in a name other than that of the Holder or any of its affiliates. The Holder shall be
responsible for all other tax liability that may arise as a result of holding or transferring this
Warrant or receiving Warrant Shares upon exercise hereof.
7.
Replacement of Warrant
. If this Warrant is mutilated, lost, stolen or destroyed,
the Company shall issue or cause to be issued in exchange and substitution for and upon
cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon
receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and a
customary and reasonable indemnity (which shall not include a surety bond), if requested.
Applicants for a New Warrant under such circumstances shall also comply with such other reasonable
procedures and pay such other reasonable third-party costs as the Company may prescribe. If a New
Warrant is requested as a result of a mutilation of this Warrant, then the Holder shall deliver
such mutilated Warrant to the Company as a condition precedent to the Company’s obligation to issue
the New Warrant.
8.
Reservation of Warrant Shares
. The Company covenants that it will at all times
reserve and keep available out of the aggregate of its authorized but unissued and otherwise
unreserved Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon
exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable
and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other
contingent purchase rights of Persons other than the Holder (taking into account the adjustments
and restrictions of
Section 9
). The Company covenants that all Warrant Shares so issuable
and deliverable shall, upon issuance and the payment of the applicable Exercise Price (or notice of
a Cashless Exercise) in accordance with the terms hereof, be duly and validly authorized, issued
and fully paid and nonassessable. If, notwithstanding the foregoing, and not in limitation thereof,
at any time while any of the Warrants (as defined in the Securities Purchase Agreement) remain
outstanding the Company does not have a sufficient number of authorized and unreserved shares of
Common Stock to satisfy its obligation to reserve for issuance upon exercise of the Warrants at
least a number of shares of Common Stock equal to the maximum number of shares of Common Stock as
shall from time to time be necessary to effect the exercise of all of the Warrants then outstanding
(the “
Required Reserve Amount
”) (an “
Authorized Share Failure
”), then the Company shall as promptly
as practicable thereafter take all action necessary to increase the Company’s authorized shares of
Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount
for the Warrants then outstanding. Without limiting the generality of the foregoing sentence, as
promptly as practicable after the date of the occurrence of an Authorized Share Failure, the
Company shall hold a meeting of its stockholders for the approval of an increase in the number of
authorized shares of Common Stock. In connection with such meeting, the Company shall provide each
stockholder with a proxy statement and shall use its reasonable best efforts to solicit its
stockholders’ approval of such increase in authorized shares of Common Stock and to cause its board
of directors to recommend to the stockholders that they approve such proposal.
9.
Certain Adjustments
. The Exercise Price and number of Warrant Shares issuable upon
exercise of this Warrant are subject to adjustment from time to time as set forth in this
Section 9
.
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(a)
Stock Dividends and Splits
. If the Company, at any time while this Warrant is
outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any
class of capital stock that is payable in shares of Common Stock, (ii) subdivides outstanding
shares of Common Stock into a larger number of shares, or (iii) combines outstanding shares of
Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of Common Stock
outstanding immediately before such event and of which the denominator shall be the number of
shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to
clause (i) of this paragraph shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution, and any adjustment
pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the
effective date of such subdivision or combination. If any event requiring an adjustment under this
paragraph occurs during the period that an Exercise Price is calculated hereunder, then the
calculation of such Exercise Price shall be adjusted appropriately to reflect such event.
(b)
Fundamental Transactions
. If, at any time while this Warrant is outstanding, (1)
the Company effects any merger or consolidation of the Company with or into another Person, (2) the
Company effects any sale of all or substantially all of its assets in one or a series of related
transactions, (3) any tender offer or exchange offer (whether by the Company or another Person) is
completed pursuant to which holders of Common Stock are permitted to tender or exchange their
shares for other securities, cash or property, or (4) the Company effects any reclassification of
the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively
converted into or exchanged for other securities, cash or property (in any such case, a
“Fundamental Transaction”
), then the Holder shall have the right thereafter to receive, upon
exercise of this Warrant, the same amount and kind of securities, cash or property as it would have
been entitled to receive upon the occurrence of such Fundamental Transaction if it had been,
immediately prior to such Fundamental Transaction, the holder of the number of Warrant Shares then
issuable upon exercise in full of this Warrant (the
“Alternate Consideration”
). For purposes of
any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply
to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect
of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the
Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative
value of any different components of the Alternate Consideration. If holders of Common Stock are
given any choice as to the securities, cash or property to be received in a Fundamental
Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it
receives upon any exercise of this Warrant following such Fundamental Transaction. The terms of
any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring
any such surviving entity to comply with the provisions of this paragraph (b) and insuring that the
Warrant (or any such replacement security) will be similarly adjusted upon any subsequent
transaction analogous to a Fundamental Transaction.
(c)
Adjustment upon Issuance of shares of Common Stock
. If and whenever on or after
the date of the Securities Purchase Agreement but prior to the date that is two years after the
date of the Securities Purchase Agreement, the Company issues or sells, or in accordance with this
Section 9 is deemed to have issued or sold, any shares of Common Stock
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(including the issuance or sale of shares of Common Stock owned or held by or for the account
of the Company, but excluding any Excluded Securities, for a consideration per share (the “
New
Issuance Price
”) less than a price (the “
Applicable Price
”) equal to the Exercise Price in effect
immediately prior to such issue or sale or deemed issuance or sale (the foregoing a
“Dilutive
Issuance”
), then immediately after such Dilutive Issuance, the Exercise Price then in effect shall
be reduced to an amount equal to the product of (A) the Exercise Price in effect immediately prior
to such Dilutive Issuance and (B) the quotient determined by dividing (1) the sum of (I) the
product derived by multiplying the Exercise Price in effect immediately prior to such Dilutive
Issuance and the number of shares of Common Stock Deemed Outstanding immediately prior to such
Dilutive Issuance plus (II) the consideration, if any, received by the Company upon such Dilutive
Issuance, by (2) the product derived by multiplying (I) the Exercise Price in effect immediately
prior to such Dilutive Issuance by (II) the number of shares of Common Stock Deemed Outstanding
immediately after such Dilutive Issuance. For purposes of determining the adjusted Exercise Price
under this Section 9(c), the following shall be applicable:
(i)
Issuance of Options
. If the Company in any manner grants or sells any
Options and the lowest price per share for which one share of Common Stock is issuable upon
the exercise of any such Option or upon conversion, exercise or exchange of any Convertible
Securities issuable upon exercise of any such Option is less than the Applicable Price, then
such share of Common Stock shall be deemed to be outstanding and to have been issued and
sold by the Company at the time of the granting or sale of such Option for such price per
share. For purposes of this Section 9(c)(i), the “lowest price per share for which one share
of Common Stock is issuable upon the exercise of any such Options or upon conversion,
exercise or exchange of any Convertible Securities issuable upon exercise of any such
Option” shall be equal to the sum of the lowest amounts of consideration (if any) received
or receivable by the Company with respect to any one share of Common Stock upon the granting
or sale of the Option, upon exercise of the Option and upon conversion, exercise or exchange
of any Convertible Security issuable upon exercise of such Option. Except as contemplated
below, no further adjustment of the Exercise Price shall be made upon the actual issuance of
such shares of Common Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such shares of Common Stock upon conversion, exercise
or exchange of such Convertible Securities.
(ii)
Issuance of Convertible Securities
. If the Company in any manner issues
or sells any Convertible Securities and the lowest price per share for which one share of
Common Stock is issuable upon the conversion, exercise or exchange thereof is less than the
Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to
have been issued and sold by the Company at the time of the issuance or sale of such
Convertible Securities for such price per share. For the purposes of this Section 9(c)(ii),
the “lowest price per share for which one share of Common Stock is issuable upon the
conversion, exercise or exchange thereof” shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to one share of
Common Stock upon the issuance or sale of the Convertible Security and upon conversion,
exercise or exchange of such Convertible Security. Except as contemplated below, no further
adjustment of the Exercise Price shall be made upon the actual issuance of such shares of
Common Stock upon conversion, exercise or
6
exchange of such Convertible Securities, and if any such issue or sale of such
Convertible Securities is made upon exercise of any Options for which adjustment of this
Warrant has been or is to be made pursuant to other provisions of this Section 9(c), except
as contemplated below, no further adjustment of the Exercise Price shall be made by reason
of such issue or sale.
(iii)
Change in Option Price or Rate of Conversion
. If the purchase or exercise
price provided for in any Options, the additional consideration, if any, payable upon the
issue, conversion, exercise or exchange of any Convertible Securities, or the rate at which
any Convertible Securities are convertible into or exercisable or exchangeable for shares of
Common Stock increases or decreases at any time, the Exercise Price in effect at the time of
such increase or decrease shall be adjusted to the Exercise Price which would have been in
effect at such time had such Options or Convertible Securities provided for such increased
or decreased purchase price, additional consideration or increased or decreased conversion
rate, as the case may be, at the time initially granted, issued or sold. For purposes of
this Section 9(c)(iii), if the terms of any Option or Convertible Security that was
outstanding as of the date of issuance of this Warrant are increased or decreased in the
manner described in the immediately preceding sentence, then such Option or Convertible
Security and the shares of Common Stock deemed issuable upon exercise, conversion or
exchange thereof shall be deemed to have been issued as of the date of such increase or
decrease. No adjustment pursuant to this Section 9(c) shall be made if such adjustment would
result in an increase of the Exercise Price then in effect.
(iv)
Calculation of Consideration Received
. In case any Option is issued in
connection with the issue or sale of other securities of the Company, together comprising
one integrated transaction in which no specific consideration is allocated to such Options
by the parties thereto, the Options will be deemed to have been issued for a consideration
of $0.01. If any shares of Common Stock, Options or Convertible Securities are issued or
sold or deemed to have been issued or sold for cash, the consideration received therefor
will be deemed to be the net amount received by the Company therefor. If any shares of
Common Stock, Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of such consideration received by the Company will be the fair value
of such consideration, except where such consideration consists of securities, in which case
the amount of consideration received by the Company for each such security will be the VWAP
of such security for the five (5) Trading Day Period immediately preceding the date of
receipt. If any shares of Common Stock, Options or Convertible Securities are issued to the
owners of the non-surviving entity in connection with any merger in which the Company is the
surviving entity, the amount of consideration therefor will be deemed to be the fair value
of such portion of the net assets and business of the non-surviving entity as is
attributable to such shares of Common Stock, Options or Convertible Securities, as the case
may be. The fair value of any consideration other than cash or securities will be determined
jointly by the Company and the Holder. If such parties are unable to reach agreement within
ten (10) days after the occurrence of an event requiring valuation (the “
Valuation Event”
),
the fair value of such consideration will be determined within five (5) Trading Days after
the tenth (10
th
) day following the Valuation Event by an independent, reputable
appraiser jointly selected by the Company and the Holder. The determination of such
appraiser shall be final and binding upon all
7
parties absent manifest error and the fees and expenses of such appraiser shall be
borne by the Company.
(v)
Record Date
. If the Company takes a record of the holders of shares of
Common Stock for the purpose of entitling them (A) to receive a dividend or other
distribution payable in shares of Common Stock, Options or in Convertible Securities or (B)
to subscribe for or purchase shares of Common Stock, Options or Convertible Securities, then
such record date will be deemed to be the date of the issue or sale of the shares of Common
Stock deemed to have been issued or sold upon the declaration of such dividend or the making
of such other distribution or the date of the granting of such right of subscription or
purchase (as the case may be).
(d)
Number of Warrant Shares
. Simultaneously with any adjustment to the Exercise Price
pursuant to paragraphs (a) or (c) of this Section, unless waived in writing by the Holder with
respect to a particular adjustment, the number of Warrant Shares that may be purchased upon
exercise of this Warrant shall be increased or decreased proportionately, so that after such
adjustment the aggregate Exercise Price payable hereunder for the adjusted number of Warrant Shares
shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment.
(e)
Calculations
. All calculations under this
Section 9
shall be made to the
nearest cent or the nearest 1/100
th
of a share, as applicable. The number of shares of
Common Stock outstanding at any given time shall not include shares owned or held by or for the
account of the Company, and the disposition of any such shares shall be considered an issue or sale
of Common Stock.
(f)
Notice of Adjustments
. Upon the occurrence of each adjustment pursuant to this
Section 9
, the Company at its expense will promptly compute such adjustment in accordance
with the terms of this Warrant and promptly prepare a certificate setting forth such adjustment,
including a statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares
or other securities issuable upon exercise of this Warrant (as applicable), describing the
transactions giving rise to such adjustments and showing in detail the facts upon which such
adjustment is based. Upon written request of a Holder, the Company will promptly deliver a copy of
each such certificate to the Holder and to the Company’s transfer agent.
(g)
Notice of Corporate Events
. If the Company (i) declares a dividend or any other
distribution of cash, securities or other property in respect of its Common Stock, including,
without limitation, any granting of rights or warrants to subscribe for or purchase any capital
stock of the Company or any subsidiary, (ii) authorizes or approves, enters into any agreement
contemplating or solicits stockholder approval for any Fundamental Transaction or (iii) authorizes
the voluntary dissolution, liquidation or winding up of the affairs of the Company, then the
Company shall deliver to the Holder a notice describing the material terms and conditions of such
transaction, at least 10 calendar days prior to the applicable record or effective date on which a
Person would need to hold Common Stock in order to participate in or vote with respect to such
transaction, and the Company will take all steps reasonably necessary in order to insure that the
Holder is given the practical opportunity to exercise this Warrant prior to such time so as to
participate in or vote with respect to such transaction; provided, however, that the
8
failure to deliver such notice or any defect therein shall not affect the validity of the
corporate action required to be described in such notice. To the extent that any notice provided
hereunder constitutes, or contains, material, non-public information, the Company shall
simultaneously file such notice pursuant to a Current Report on Form 8-K.
10.
Payment of Exercise Price
. The Holder shall pay the Exercise Price by delivery to
the Company of immediately available funds. Notwithstanding anything contained herein to the
contrary, the Holder may, in its sole discretion, unless a Preliminary Call Event has occurred
prior to such Exercise Date (and only for so long as such Preliminary Call Event is continuing) or
the Company has timely delivered an effective notice of a Call Event to the Holder prior to the
Exercise Date, exercise this Warrant in whole or in part and, in lieu of making the cash payment
otherwise contemplated to be made to the Company upon such exercise in payment of the aggregate
Exercise Price, elect instead to receive upon such exercise the “Net Number” of shares of Common
Stock determined according to the following formula (a “
Cashless Exercise
”):
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Net Number =
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(A x B) — (A x C)
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B
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For purposes of the foregoing formula:
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A= the total number of shares with respect to which this Warrant is then being
exercised.
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B= the VWAP of the shares of Common Stock for the 5 Trading Day period immediately
preceding the date of the Exercise Notice.
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C= the Exercise Price then in effect for the applicable Warrant Shares at the time
of such exercise.
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11.
No Rights as Stockholder
. Until the exercise of this Warrant, the Holder shall
not have or exercise any rights by virtue hereof as a stockholder of the Company. In addition,
nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to
purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the
Company, whether such liabilities are asserted by the Company or by creditors of the Company.
Notwithstanding this Section 11, the Company shall provide the Holder with copies of the same
notices and other information given to the stockholders of the Company generally, contemporaneously
with the giving thereof to the stockholders.
12.
Call Event
. At any point after which the VWAP of the Common Stock for a minimum of
20 consecutive Trading Days shall have been equal to at least two times (2x) the Exercise Price (a
“
Call Event
”), the Company may, at its option, provide written notice of such Call Event to all,
but not less than all, holders of Warrants (as defined in the Securities Purchase Agreement) within
10 Trading Days after the occurrence of the Call Event, in which case, the date that is ten
business days after the Company has provided such written notice to all such holders of a Call
Event shall be the “
Call Event Expiration Date.
” For the avoidance of doubt, at 11:59 p.m., New
York City time on the Call Event Expiration Date, the portion of this Warrant
not exercised prior thereto shall be and become void and of no value as further set forth
below in
9
this Section 12. Notwithstanding the foregoing, a notice of a Call Event shall not be
effective with respect to the Holder unless (i) one or more Registration Statement(s) covering all
of the shares issuable upon exercise of the Warrants held by the Holder (other than such shares
which are properly excluded therefrom pursuant to the terms of the Registration Rights Agreement)
is (or are, as the case may be) effective and is (or are, as the case may be) not then suspended
and no stop order is in effect with respect thereto, and the Holder is able to sell all such shares
pursuant to such Registration Statement(s) through the Call Event Expiration Date, (ii) on each
Trading Day during the thirty (30) Trading Day period immediately preceding the Call Event
Expiration Date (the “
Requisite Period
”), all of the shares of Common Stock issuable upon exercise
of the Warrants held by the Holder are freely tradable, without restriction (subject to compliance
with prospectus delivery requirements to the extent applicable), on an Eligible Market (other than
such shares which are properly excluded from one or more Registration Statements pursuant to the
terms of the Registration Rights Agreement), (iii) on each day during the Requisite Period, the
shares of Common Stock issuable upon exercise of the Warrants held by the Holder are designated for
listing on an Eligible Market and shall not have been suspended from trading on such exchange and
(iv) the Company shall have, at all times during the Requisite Period, delivered shares of Common
Stock upon exercise of the Warrants held by a Holder on a timely basis in accordance with the
provisions of the Securities Purchase Agreement and this Warrant. For purposes of Section 10
hereof, “
Preliminary Call Event
” shall occur at any point after which the VWAP of the Common Stock
for a minimum of 10 consecutive Trading Days shall have been equal to at least two times (2x) the
Exercise Price and the other conditions of a Call Event set forth above capable of being satisfied
prior to such point are satisfied (including, without limitation, that one or more Registration
Statement(s) covering all of the shares issuable upon exercise of the Warrants held by the Holder
(other than such shares which are properly excluded therefrom pursuant to the terms of the
Registration Rights Agreement) is (or are, as the case may be) effective and is (or are, as the
case may be) not then suspended and no stop order is in effect with respect thereto).
13.
No Fractional Shares
. No fractional shares of Warrant Shares will be issued in
connection with any exercise of this Warrant. In lieu of any fractional shares which would,
otherwise be issuable, the Company shall pay cash equal to the product of such fraction multiplied
by the VWAP of the shares of Common Stock for the 5 Trading Day period immediately preceding the
Date of Exercise.
14.
Notices
. Any and all notices or other communications or deliveries hereunder
(including, without limitation, any Exercise Notice) shall be in writing and shall be deemed given
and effective on the earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile number specified in this Section prior to 5:30 p.m. (New
York City time) on a Trading Day, (ii) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number specified in this
Section on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any
Trading Day, (iii) the Trading Day following the date of mailing, if sent by nationally recognized
overnight courier service with next day delivery specified, or (iv) upon actual receipt by the
party to whom such notice is required to be given. The addresses for such communications shall be:
(i) if to the Company, to Health Benefits Direct Corporation, Health Benefits Direct Corporation,
150 N. Radnor-Chester Road, Radnor, PA 19087, Facsimile: (484)
654-2212, Attention: Chief Financial Officer, or such other address as the Company shall so
10
notify the Holder, or (ii) if to the Holder, to the address or facsimile number appearing on the
Warrant Register or such other address or facsimile number as the Holder may provide to the Company
in accordance with this Section.
15.
Warrant Agent
. The Company shall serve as warrant agent under this Warrant. Upon
10 days’ notice to the Holder, the Company may appoint a new warrant agent. Any corporation into
which the Company or any new warrant agent may be merged or any corporation resulting from any
consolidation to which the Company or any new warrant agent shall be a party or any corporation to
which the Company or any new warrant agent transfers substantially all of its corporate trust or
shareholders services business shall be a successor warrant agent under this Warrant without any
further act. Any such successor warrant agent shall promptly cause notice of its succession as
warrant agent to be mailed (by first class mail, postage prepaid) to the Holder at the Holder’s
last address as shown on the Warrant Register.
16.
Additional Definitions
. For purposes of this Warrant, the following terms shall
have the following meanings:
(a) “
Bloomberg
” means Bloomberg Financial Markets.
(b)
“Common Stock Deemed Outstanding”
means, at any given time, the number of shares of Common
Stock actually outstanding at such time, plus the number of shares of Common Stock deemed to be
outstanding pursuant to Sections 9(c))(i) and (ii) hereof regardless of whether the Options or
Convertible Securities are actually exercisable at such time.
(c) “
Convertible Securities
” means any stock or securities (other than Options) directly or
indirectly convertible into or exercisable or exchangeable for shares of Common Stock.
(d) “
Eligible Market
” means the Principal Market, The New York Stock Exchange, Inc., the
Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq Capital Market or the American
Stock Exchange.
(e) “
Excluded Securities”
means Options, Convertible Securities or Common Stock issued or
issuable: (i) upon exercise of the Warrants, (ii) upon conversion of any Options or Convertible
Securities which are outstanding on the date hereof, (iii) pursuant to any equity compensation plan
or arrangement, or (iv) in connection with mergers, acquisitions, strategic business partnerships
or alliances, joint ventures, bank financings (or similar financings), vendor, supplier and
consulting arrangements, equipment or other leases or other transactions, the primary purpose of
which, in the reasonable judgment of the Company’s Board of Directors, is not to raise additional
equity capital or convertible debt.
(f) “
Options
” means any rights, warrants or options to subscribe for or purchase shares of
Common Stock or Convertible Securities.
(g) “
Person
” means an individual, a limited liability company, a partnership, a joint venture,
a corporation, a trust, an unincorporated organization, any other entity and a government or any
department or agency thereof.
11
(h) “
Principal Market
” means the National Association of Securities Dealers, Inc. OTC Bulletin
Board.
(i) “
Successor Entity
” means the Person formed by, resulting from or surviving any Fundamental
Transaction.
(j) “
Trading Day
” means any day on which the Common Stock is traded on the Principal Market,
or, if the Principal Market is not the principal trading market for the Common Stock, then on the
principal securities exchange or securities market on which the Common Stock is then traded;
provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to
trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is
suspended from trading during the final hour of trading on such exchange or market (or if such
exchange or market does not designate in advance the closing time of trading on such exchange or
market, then during the hour ending at 4:00:00 p.m., New York time).
(k) “
VWAP
” means, for any security as of any date, the dollar volume-weighted average price
for such security on the Principal Market (or, if the Principal Market is not the principal trading
market for such security, then on the principal securities exchange or securities market on which
such security is then traded) during the period beginning at 9:30:01 a.m., New York City Time, and
ending at 4:00:00 p.m., New York City Time, as reported by Bloomberg through its “Volume at Price”
function or, if the foregoing does not apply, the dollar volume-weighted average price of such
security in the over-the-counter market on the electronic bulletin board for such security during
the period beginning at 9:30:01 a.m., New York City Time, and ending at 4:00:00 p.m., New York City
Time, as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such
security by Bloomberg for such hours, the average of the highest closing bid price and the lowest
closing ask price of any of the market makers for such security as reported in the “pink sheets” by
Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If VWAP cannot be calculated for
such security on such date on any of the foregoing bases, the VWAP of such security on such date
shall be the fair market value as mutually determined by the Company and the Holder. If the Company
and the Holder are unable to agree upon the fair market value of such security, then such dispute
shall be resolved in accordance with the procedures in Section 20.
All such determinations shall be appropriately adjusted for any share dividend, share split or
other similar transaction during such period.
17.
Rights Upon Distribution of Assets
. If the Company shall declare or make any
dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares
of Common Stock, by way of return of capital or otherwise (including, without limitation, any
distribution of cash, stock or other securities, property or options by way of a dividend, spin
off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction)
(a “
Distribution
”), at any time after the issuance of this Warrant, then, in each such case, the
Holder will be entitled to participate in such Distribution to the same extent that the Holder
would have participated therein if the Holder had held the number of shares of Common Stock
acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise
contained hereof, including without limitation, the Maximum Percentage) immediately before the date
on which a record is taken for such Distribution, or, if no such record is taken, the date
12
as of which the record holders of shares of Common Stock are to be determined for the
participation in such Distribution (provided, however, that to the extent that Holder’s right to
participate in any such Distributions would result in Holder exceeding the Maximum Percentage, then
Holder shall not be entitled to participate in such Distribution to such extent (or the beneficial
ownership of any such shares of Common Stock as a result of such Distribution to such extent) and
such Distribution to such extent shall be held in abeyance for the benefit of Holder until such
time, if ever, as its right thereto would not result in Holder exceeding the Maximum Percentage).
18.
Purchase Rights
. In addition to any adjustments pursuant to Section 9 above, if
at any time the Company grants, issues or sells any Options, Convertible Securities or rights to
purchase stock, warrants, securities or other property pro rata to the record holders of any class
of shares of Common Stock (the “
Purchase Rights
”), then the Holder will be entitled to acquire,
upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder
could have acquired if the Holder had held the number of shares of Common Stock acquirable upon
complete exercise of this Warrant (without regard to any limitations on exercise contained herein,
including without limitation, the Maximum Percentage) immediately before the date on which a record
is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken,
the date as of which the record holders of shares of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights (provided, however, that to the extent that Holder’s
right to participate in any such Purchase Right would result in Holder exceeding the Maximum
Percentage, then Holder shall not be entitled to participate in such Purchase Right to such extent
(or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such
extent) and such Purchase Right to such extent shall be held in abeyance for Holder until such
time, if ever, as its right thereto would not result in Holder exceeding the Maximum Percentage).
19.
Noncircumvention
. The Company hereby covenants and agrees that the Company will
not, by amendment of its Certificate of Incorporation, bylaws or through any reorganization,
transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of this Warrant, and will at all times in good faith carry out all the provisions
of this Warrant and take all action as may be required to protect the rights of the Holder.
Without limiting the generality of the foregoing, the Company (i) shall not increase the par value
of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price
then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon
the exercise of this Warrant, and (iii) shall, so long as any of the Warrants are outstanding, take
all action necessary to reserve and keep available out of its authorized and unissued shares of
Common Stock, solely for the purpose of effecting the exercise of the Warrants, the maximum number
of shares of Common Stock as shall from time to time be necessary to effect the exercise of the
Warrants then outstanding (without regard to any limit on exercise contained therein).
20.
Miscellaneous
.
(a) This Warrant shall be binding on and inure to the benefit of the parties hereto and their
respective permitted successors and assigns. Subject to the preceding sentence,
13
nothing in this Warrant shall be construed to give to any Person other than the Company and
the Holder any legal or equitable right, remedy or cause of action under this Warrant. This
Warrant may be amended only in writing signed by the Company and the Holder and their successors
and assigns.
(b) All questions concerning the construction, validity, enforcement and interpretation of
this Warrant shall be governed by and construed and enforced in accordance with the internal laws
of the State of Delaware, without regard to the principles of conflicts of law thereof. Each party
agrees that all legal proceedings concerning the interpretations, enforcement and defense of this
Warrant and the transactions herein contemplated (
“Proceedings”
) (whether brought against a party
hereto or its respective Affiliates, employees or agents) shall be commenced exclusively in the
state and federal courts sitting in the City of Wilmington, State of Delaware (the “
Delaware
Courts
”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the
Delaware Courts for the adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not
to assert in any Proceeding, any claim that it is not personally subject to the jurisdiction of any
Delaware Court, or that such Proceeding has been commenced in an improper or inconvenient forum.
Each party hereto hereby irrevocably waives personal service of process and consents to process
being served in any such Proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in effect for notices
to it under this Warrant and agrees that such service shall constitute good and sufficient service
of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any
right to serve process in any manner permitted by law. Each party hereto hereby irrevocably
waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in
any legal proceeding arising out of or relating to this Warrant or the transactions contemplated
hereby. If either party shall commence a Proceeding to enforce any provisions of this Warrant, then
the prevailing party in such Proceeding shall be reimbursed by the other party for its attorneys’
fees and other costs and expenses incurred with the investigation, preparation and prosecution of
such Proceeding.
(c) The headings herein are for convenience only, do not constitute a part of this Warrant and
shall not be deemed to limit or affect any of the provisions hereof.
(d) In case any one or more of the provisions of this Warrant shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining terms and provisions
of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt
in good faith to agree upon a valid and enforceable provision which shall be a commercially
reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision
in this Warrant.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its authorized
officer as of the date first indicated above.
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HEALTH BENEFITS DIRECT CORPORATION
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By:
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Name:
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Title:
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15
HEALTH BENEFITS DIRECT CORPORATION
WARRANT ORIGINALLY ISSUED MARCH 30, 2007
WARRANT NO. [ ]
EXERCISE NOTICE
TO HEALTH BENEFITS DIRECT CORPORATION
:
The undersigned holder hereby exercises the right to purchase
of the
shares of Common Stock (“
Warrant Shares
”) of Health Benefits Direct Corporation, Inc., a Delaware
corporation (the “
Company
”). Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Warrant.
1. Form of Exercise Price. The Holder intends that payment of the Exercise Price shall be
made as:
______
a “
Cash Exercise
” with respect to
Warrant
Shares; and/or
______
a “
Cashless Exercise
” with respect to
Warrant
Shares.
2. Payment of Exercise Price. In the event that the holder has elected a Cash Exercise with
respect to some or all of the Warrant Shares to be issued pursuant hereto, the holder shall pay the
aggregate Exercise Price in the sum of $___to the Company in accordance with the
terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to holder, or its designee or agent
as specified below, ___Warrant Shares in accordance with the terms of the Warrant.
Delivery shall be made to holder, or for its benefit, to the following address:
Date: _______________ __, ______
Name of Registered Holder
By:
Name:
Title:
Warrant Shares Exercise Log
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Number of
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Number of Warrant
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Warrant Shares
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Shares Available to be
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Number of Warrant Shares
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Remaining to
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Date
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Exercised
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Exercised
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be Exercised
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HEALTH BENEFITS DIRECT CORPORATION
WARRANT ORIGINALLY ISSUED [___________]
WARRANT NO. [ ]
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
the right represented by the above-captioned Warrant to purchase
shares of Common Stock to which such Warrant relates and appoints
attorney to transfer said right on the books of the Company with full power of substitution in the
premises.
Dated: _______________, ____
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(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
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Address of Transferee
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In the presence of:
Exhibit 4.4
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES HAVE
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION
FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.
HEALTH BENEFITS DIRECT CORPORATION
WARRANT
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Warrant No. PA-[___]
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Date of Original Issuance: March 30, 2007
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Health Benefits Direct Corporation
, a Delaware corporation (the
“Company"
), hereby certifies
that, for value received,
or its registered assigns (the
“Holder"
), is entitled
to purchase from the Company up to a total of [ ] shares of common stock, $0.001 par value per
share (the
“Common Stock"
), of the Company (each such share, a
“Warrant Share”
and all such shares,
the
“Warrant Shares"
) at an exercise price equal to $
per share
[Greater of $2.70 or the
closing bid price of the Company’s common stock immediately prior to closing]
(as adjusted from
time to time as provided in Section 9, the
“Exercise Price"
), at any time and from time to time
from and after the six-month anniversary of the date hereof and through and including March ___,
2010 (the
“Expiration Date"
), and subject to the following terms and conditions:
1.
Definitions
. In addition to the terms defined elsewhere in this Warrant,
capitalized terms that are not otherwise defined herein shall have the meanings given to such terms
in the Securities Purchase Agreement dated as of March 30, 2007 by and among the Company and the
investors thereto (the
“Securities Purchase Agreement"
).
2.
Registration of Warrant
. The Company shall register this Warrant, upon records to
be maintained by the Company for that purpose (the
“Warrant Register"
), in the name of the record
Holder hereof from time to time. The Company may deem and treat the registered Holder of this
Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to
the Holder, and for all other purposes, absent actual notice to the contrary.
3.
Registration of Transfers
. The Company shall register the transfer of any portion
of this Warrant in the Warrant Register, upon surrender of this Warrant, with the Form of
Assignment attached hereto duly completed and signed, to the Company at its address specified
herein. Upon any such registration or transfer, a new Warrant to purchase Common Stock, in
substantially the form of this Warrant (any such new Warrant, a
“New Warrant”
), evidencing the
portion of this Warrant so transferred shall be issued to the transferee and a New Warrant
evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the
transferring Holder. The acceptance of the New Warrant by the
transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations of a holder of a Warrant.
4.
Exercise and Duration of Warrants
. This Warrant shall be exercisable by the
registered Holder at any time and from time to time on or after the six-month anniversary of the
date hereof to and including the Expiration Date. At 5:30 p.m., New York City time on the
Expiration Date, the portion of this Warrant not exercised prior thereto shall be and become void
and of no value.
5.
Delivery of Warrant Shares; Disposition of Warrants and Warrant Shares
.
(a) To effect exercises hereunder, the Holder shall not be required to physically surrender
this Warrant unless the aggregate Warrant Shares represented by this Warrant is being exercised.
Upon delivery of the attached Exercise Notice to the Company (with the attached Warrant Shares
Exercise Log) at its address for notice set forth herein and upon payment of the Exercise Price
multiplied by the number of Warrant Shares that the Holder intends to purchase hereunder, the
Company shall as promptly as practicable thereafter issue and deliver to the Holder, a certificate
for the Warrant Shares issuable upon such exercise. The Company shall, upon request of the Holder
and subsequent to the date on which a registration statement covering the resale of the Warrant
Shares has been declared effective by the Securities and Exchange Commission, use commercially
reasonable efforts to deliver Warrant Shares hereunder electronically through the Depository Trust
Corporation or another established clearing corporation performing similar functions, if available,
provided, that, the Company may, but will not be required to change its transfer agent if its
current transfer agent cannot deliver Warrant Shares electronically through the Depository Trust
Corporation. A “
Date of Exercise
” means the date on which the Holder shall have delivered to the
Company: (i) the Exercise Notice (with the Warrant Exercise Log attached to it), appropriately
completed and duly signed and (ii) if such Holder is not utilizing the cashless exercise provisions
set forth in this Warrant, payment of the Exercise Price for the number of Warrant Shares so
indicated by the Holder to be purchased.
(b) The Company’s obligations to issue and deliver Warrant Shares in accordance with the terms
hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to
enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any
judgment against any Person or any action to enforce the same, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other
Person of any obligation to the Company or any violation or alleged violation of law by the Holder
or any other Person, and irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with
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the issuance of Warrant Shares. Nothing herein shall limit a Holder’s right to pursue any
other remedies available to it hereunder, at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief with respect to the Company’s failure to
timely deliver certificates representing shares of Common Stock upon exercise of the Warrant as
required pursuant to the terms hereof.
(c) The Warrants and Warrant Shares (collectively, the “
Securities
”) may only be disposed of
in compliance with state and federal securities laws. In connection with any transfer of the
Securities other than pursuant to an effective registration statement, to the Company, to an
affiliate of a Holder or in connection with a pledge as contemplated below, the Company may require
the transferor thereof to provide to the Company an opinion of counsel selected by the transferor,
the form and substance of which opinion shall be reasonably satisfactory to the Company, to the
effect that such transfer does not require registration of such transferred Securities under the
Securities Act of 1933, as amended (the “
Securities Act
”).
(d) The Warrants shall contain the legend set forth above and the stock certificates
evidencing the Warrant Shares will contain the following legend, until such time as they are not
required under the conditions described below:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL
OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY.
(e) The Company acknowledges and agrees that a Holder may from time to time pledge, and/or
grant a security interest in some or all of the Securities in accordance with all applicable
federal and state securities laws pursuant to a bona fide margin agreement in connection with a
bona fide margin account and, if required under the terms of such agreement or account, such Holder
may transfer pledged or secured Securities to the pledgees or secured parties. Such a pledge or
transfer would not be subject to approval or consent of the Company and no legal opinion of legal
counsel to the pledgee, secured party or pledgor shall be required in connection with the pledge,
but such legal opinion may be required in connection with a subsequent transfer by the pledgee or
secured party following default by the Investor or otherwise. No notice shall be required of such
pledge. At the appropriate Holder’s expense, the Company will execute and deliver such reasonable
documentation as a pledgee or secured party of Securities may reasonably request in connection with
a pledge or transfer of the Securities including the preparation and filing of any required
prospectus supplement under Rule 424(b)(3) of the Securities Act or other applicable provision of
the Securities Act to appropriately amend the list of Selling Stockholders thereunder.
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(f) Certificates evidencing the Warrant Shares shall not contain any legend at such time as a
Holder has provided evidence to the Company (including any customary broker’s or selling
stockholder’s letters) that: (i) there has been a sale of such Warrant Shares pursuant to an
effective registration statement, (ii) there has been a sale of such Warrant Shares pursuant to
Rule 144 (assuming the transferor is not an affiliate of the Company), or (iii) such Warrant shares
are then eligible for sale under Rule 144(k). Following such time as restrictive legends are not
required to be placed on certificates representing Warrant Shares pursuant to the preceding
sentence, the Company will, promptly following the delivery by a Holder to the Company or the
Company’s transfer agent of a certificate representing Warrant Shares containing a restrictive
legend and the foregoing evidence, deliver or cause to be delivered to such Holder a certificate
representing such Warrant shares that is free from all restrictive and other legends. The Company
may not make any notation on its records or give instructions to any transfer agent of the Company
that enlarge the restrictions on transfer set forth in this Section, except as it may reasonably
determine are necessary or appropriate to comply or to ensure compliance with those applicable laws
that are enacted or modified after the date of initial issuance of this Warrant.
6.
Charges, Taxes and Expenses
. Issuance and delivery of certificates for shares of
Common Stock upon exercise of this Warrant shall be made without charge to the Holder for any issue
or transfer tax, transfer agent fee or other similar incidental tax or expense in respect of the
issuance of such certificates, all of which such taxes and expenses shall be paid by the Company;
provided, however, that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the registration of any certificates for Warrant Shares or
Warrants in a name other than that of the Holder. The Holder shall be responsible for all other
tax liability that may arise as a result of holding or transferring this Warrant or receiving
Warrant Shares upon exercise hereof.
7.
Replacement of Warrant
. If this Warrant is mutilated, lost, stolen or destroyed,
the Company shall issue or cause to be issued in exchange and substitution for and upon
cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon
receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and
customary and reasonable indemnity (which shall not include a surety bond), if requested.
Applicants for a New Warrant under such circumstances shall also comply with such other reasonable
regulations and procedures and pay such other reasonable third-party costs as the Company may
prescribe. If a New Warrant is requested as a result of a mutilation of this Warrant, then the
Holder shall deliver such mutilated Warrant to the Company as a condition precedent to the
Company’s obligation to issue the New Warrant.
8.
Reservation of Warrant Shares
. The Company covenants that it will at all times
reserve and keep available out of the aggregate of its authorized but unissued and otherwise
unreserved Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon
exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable
and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other
contingent purchase rights of persons other than the Holder (taking into account the adjustments
and restrictions of
Section 9
). The Company covenants that all Warrant Shares so issuable
and deliverable shall, upon issuance and the payment of the applicable Exercise Price in
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accordance with the terms hereof, be duly and validly authorized, issued and fully paid and
nonassessable.
9.
Certain Adjustments
. The Exercise Price and number of Warrant Shares issuable upon
exercise of this Warrant are subject to adjustment from time to time as set forth in this
Section 9
.
(a)
Stock Dividends and Splits
. If the Company, at any time while this Warrant is
outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any
class of capital stock that is payable in shares of Common Stock, (ii) subdivides outstanding
shares of Common Stock into a larger number of shares, or (iii) combines outstanding shares of
Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of Common Stock
outstanding immediately before such event and of which the denominator shall be the number of
shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to
clause (i) of this paragraph shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution, and any adjustment
pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the
effective date of such subdivision or combination. If any event requiring an adjustment under this
paragraph occurs during the period that an Exercise Price is calculated hereunder, then the
calculation of such Exercise Price shall be adjusted appropriately to reflect such event.
(b)
Fundamental Transactions
. If, at any time while this Warrant is outstanding, (1)
the Company effects any merger or consolidation of the Company with or into another Person, (2) the
Company effects any sale of all or substantially all of its assets in one or a series of related
transactions, (3) any tender offer or exchange offer (whether by the Company or another Person) is
completed pursuant to which holders of Common Stock are permitted to tender or exchange their
shares for other securities, cash or property, or (4) the Company effects any reclassification of
the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively
converted into or exchanged for other securities, cash or property (in any such case, a
“Fundamental Transaction"
), then the Holder shall have the right thereafter to receive, upon
exercise of this Warrant, the same amount and kind of securities, cash or property as it would have
been entitled to receive upon the occurrence of such Fundamental Transaction if it had been,
immediately prior to such Fundamental Transaction, the holder of the number of Warrant Shares then
issuable upon exercise in full of this Warrant (the
“Alternate Consideration"
). For purposes of
any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply
to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect
of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the
Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative
value of any different components of the Alternate Consideration. If holders of Common Stock are
given any choice as to the securities, cash or property to be received in a Fundamental
Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it
receives upon any exercise of this Warrant following such Fundamental Transaction. The terms of
any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring
any such successor or surviving entity to comply with the provisions of this paragraph (b) and
insuring that the Warrant
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(or any such replacement security) will be similarly adjusted upon any subsequent transaction
analogous to a Fundamental Transaction.
(c)
Number of Warrant Shares
. Simultaneously with any adjustment to the Exercise
Price pursuant to paragraph (a) of this Section, the number of Warrant Shares that may be purchased
upon exercise of this Warrant shall be increased or decreased proportionately, so that after such
adjustment the aggregate Exercise Price payable hereunder for the adjusted number of Warrant Shares
shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment.
(d)
Calculations
. All calculations under this
Section 9
shall be made to the
nearest cent or the nearest 1/100
th
of a share, as applicable. The number of shares of
Common Stock outstanding at any given time shall not include shares owned or held by or for the
account of the Company, and the disposition of any such shares shall be considered an issue or sale
of Common Stock.
(e)
Notice of Adjustments
. Upon the occurrence of each adjustment pursuant to this
Section 9
, the Company at its expense will promptly compute such adjustment in accordance
with the terms of this Warrant and prepare a certificate setting forth such adjustment, including a
statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares or other
securities issuable upon exercise of this Warrant (as applicable), describing the transactions
giving rise to such adjustments and showing in detail the facts upon which such adjustment is
based. Upon written request, the Company will promptly deliver a copy of each such certificate to
the Holder and to the Company’s Transfer Agent.
(f)
Notice of Corporate Events
. If the Company (i) declares a dividend or any other
distribution of cash, securities or other property in respect of its Common Stock, including
without limitation any granting of rights or warrants to subscribe for or purchase any capital
stock of the Company or any Subsidiary, (ii) authorizes or approves, enters into any agreement
contemplating or solicits stockholder approval for any Fundamental Transaction or (iii) authorizes
the voluntary dissolution, liquidation or winding up of the affairs of the Company, then the
Company shall deliver to the Holder a notice describing the material terms and conditions of such
transaction, at least 10 calendar days prior to the applicable record or effective date on which a
Person would need to hold Common Stock in order to participate in or vote with respect to such
transaction, and the Company will take all steps reasonably necessary in order to insure that the
Holder is given the practical opportunity to exercise this Warrant prior to such time so as to
participate in or vote with respect to such transaction; provided, however, that the failure to
deliver such notice or any defect therein shall not affect the validity of the corporate action
required to be described in such notice.
10.
Payment of Exercise Price
. The Holder may pay the Exercise Price in one of the
following manners:
(a)
Cash Exercise
. The Holder may deliver immediately available
funds; or
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(b)
Cashless Exercise
. The Holder may notify the Company in an Exercise Notice of its
election to utilize cashless exercise, in which event the Company shall issue to the Holder the
number of Warrant Shares determined as follows:
X = Y [(A-B)/A]
where:
X = the number of Warrant Shares to be issued to the Holder.
Y = the number of Warrant Shares with respect to which this Warrant
is being exercised.
A = the average of the closing prices for the five Trading Days
immediately prior to (but not including) the Exercise Date.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended, understood and
acknowledged that the Warrant Shares issued in a cashless exercise transaction shall be deemed to
have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to
have commenced, on the date this Warrant was originally issued.
11.
No Rights as Stockholder
. Until the exercise of this Warrant, the Holder shall
not have or exercise any rights by virtue hereof as a stockholder of the Company.
12.
Piggyback Registration Rights
. If at any time during the period beginning on the
date hereof and ending on the earlier to occur of the date that all of the Warrant Shares have been
sold and reissued free of a restrictive legend or the date that all of the Warrant Shares may be
sold without volume restrictions pursuant to Rule 144(k) promulgated under the Securities Act, as
determined by the Company, the Company shall determine to register under the Securities Act any of
its securities (other than on Form S-8 or Form S-4 or their then equivalents and other than shares
to be issued solely (i) in connection with any acquisition of any entity or business (ii) upon the
exercise of stock options, or (iii) pursuant to employee benefit plans), it shall send to each
holder of Warrant Shares, including each holder who has the right to acquire Warrant Shares,
written notice of such determination and, if within ten (10) days after receipt of such notice,
such holder shall so request in writing, the Company shall use its commercially reasonable efforts
to include in such registration statement all or any part of the Warrant Shares such holder
requests to be registered therein; provided that, if, in connection with any offering involving an
underwriting of Common Stock to be issued by the Company, the managing underwriter shall prohibit
the inclusion of shares of Common Stock by selling holders in such registration statement or shall
impose a limitation on the number of shares of such Common Stock which may be included in any such
registration statement because, in its judgment, such limitation is necessary to effect an orderly
public distribution, and such limitation is imposed pro rata with respect to all securities whose
holders have a contractual, incidental (“
piggyback
”) right to include such securities in the
registration statement and as to which inclusion has been requested pursuant to such right and
there is first excluded from such registration statement all shares of Common Stock sought to be
included therein by (i) any holder thereof not having any
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such contractual, incidental registration rights, and (ii) any holder thereof having
contractual, incidental registration rights subordinate and junior to the rights of the holders of
Warrant Shares, the Company shall then be obligated to include in such registration statement only
such limited portion (which may be none) of the Warrant Shares with respect to which such holder
has requested inclusion hereunder. In addition, the registration rights and related rights
provided by this Section 12 shall not be applicable to any registration statement contemplated by
the Registration Rights Agreement (as defined in the Securities Purchase Agreement) covering
Registrable Securities (as defined in the Registration Rights Agreement).
13.
No Fractional Shares
. No fractional shares of Warrant Shares will be issued in
connection with any exercise of this Warrant. In lieu of any fractional shares which would,
otherwise be issuable, the Company shall pay cash equal to the product of such fraction multiplied
by the Market Price of one Warrant Share on the date of exercise. “
Market Price
” as of a
particular date (the “
Valuation Date
”) shall mean the following: (a) if the Common Stock are then
listed on a U.S. national stock exchange, the closing sale price of one share of Common Stock on
such exchange on the last trading day prior to the Valuation Date; (b) if the Common Stock are then
quoted on the National Association of Securities Dealers, Inc. OTC Bulletin Board (the “
Bulletin
Board
”) or such similar quotation system or association (such as Pink Sheets LLC), the closing sale
price of one share of Common Stock on the Bulletin Board or such other quotation system or
association on the last trading day prior to the Valuation Date or, if no such closing sale price
is available, the average of the high bid and the low asked price quoted thereon on the last
trading day prior to the Valuation Date; or (c) if the Common Stock are not then listed on a
national stock exchange or quoted on the Bulletin Board or such other quotation system or
association, the fair market value of one share of Common Stock as of the Valuation Date, as
determined in good faith by the Board of Directors of the Company.
14.
Notices
. Any and all notices or other communications or deliveries hereunder
(including, without limitation, any Exercise Notice) shall be in writing and shall be deemed given
and effective on the earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile number specified in this Section prior to 5:30 p.m. (New
York City time) on a Trading Day, (ii) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number specified in this
Section on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any
Trading Day, (iii) the Trading Day following the date of mailing, if sent by nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required
to be given. The addresses for such communications shall be: (i) if to the Company, to Health
Benefits Direct Corporation, Health Benefits Direct Corporation, 150 N. Radnor-Chester Road,
Radnor, PA 19087, Facsimile: (484) 654-2212, Attention: Chief Financial Officer, or such other
address as the Company shall so notify the Holder, or (ii) if to the Holder, to the address or
facsimile number appearing on the Warrant Register or such other address or facsimile number as the
Holder may provide to the Company in accordance with this Section.
15.
Warrant Agent
. The Company shall serve as warrant agent under this Warrant. Upon
10 days’ notice to the Holder, the Company may appoint a new warrant agent. Any corporation into
which the Company or any new warrant agent may be merged or any corporation resulting from any
consolidation to which the Company or any new warrant agent shall be a party or any corporation to
which the Company or any new warrant agent transfers
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substantially all of its corporate trust or shareholders services business shall be a
successor warrant agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be mailed (by first class
mail, postage prepaid) to the Holder at the Holder’s last address as shown on the Warrant Register.
16.
Representations of Holder
. By acceptance hereof, the Holder hereby represents and
warrants to the Company as follows:
(a) The Holder represents and warrants that it is acquiring the Warrant and the Warrant Shares
solely for its account for investment and not with a view to or for sale or distribution of said
Warrant or Warrant Shares or any part thereof. The Holder also represents that the entire legal
and beneficial interests of the Warrant and Warrant Shares the Holder is acquiring is being
acquired for its account only. The Holder is an “accredited investor” as defined in Rule 501(a)
under the Securities Act.
(b) The Holder understands that the Warrant and the Warrant Shares have not been registered
under the Securities Act on the basis that no distribution or public offering of the stock of the
Company is to be effected. The Holder realizes that the basis for the exemption may not be present
if, notwithstanding its representations, the Holder has a present intention of acquiring the
securities for a fixed or determinable period in the future, selling (in connection with a
distribution or otherwise), granting any participation in, or otherwise distributing the
securities. The Holder has no such present intention.
(c) The Holder recognizes that the Warrant and the Warrant Shares must be held indefinitely
unless they are subsequently registered under the Securities Act or an exemption from such
registration is available. The Holder recognizes that the Company has no obligation to register
the Warrant or the Warrant Shares of the Company (except as provided for herein), or to comply
with any exemption from such registration.
(d) The Holder is aware that neither the Warrant nor the Warrant Shares may be sold pursuant
to Rule 144 adopted under the Securities Act unless certain conditions are met, including, among
other things, the existence of a public market for the shares, the availability of certain current
public information about the Company, the resale following the required holding period under Rule
144 and the number of shares being sold during any three month period not exceeding specified
limitations. Holder is aware that the conditions for resale set forth in Rule 144 have not been
satisfied.
17.
Miscellaneous
.
(a) This Warrant shall be binding on and inure to the benefit of the parties hereto and their
respective successors and assigns. Subject to the preceding sentence, nothing in this Warrant
shall be construed to give to any Person other than the Company and the Holder any legal or
equitable right, remedy or cause of action under this Warrant. This Warrant may be amended only in
writing signed by the Company and the Holder and their successors and assigns.
(b) All questions concerning the construction, validity, enforcement and interpretation of
this Warrant shall be governed by and construed and enforced in
accordance
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with the internal laws of the State of Delaware, without regard to the principles of conflicts
of law thereof. Each party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of this Warrant and the transactions herein
contemplated (
“Proceedings”
)
(whether brought against a party hereto or its respective Affiliates, employees or agents) may be
commenced non-exclusively in the state and federal courts sitting in the City of Wilmington, State
of Delaware (the “
Delaware Courts
”). Each party hereto hereby irrevocably submits to the
non-exclusive jurisdiction of the Delaware Courts for the adjudication of any dispute hereunder or
in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby
irrevocably waives, and agrees not to assert in any Proceeding, any claim that it is not personally
subject to the jurisdiction of any Delaware Court, or that such Proceeding has been commenced in an
improper or inconvenient forum. Each party hereto hereby irrevocably waives personal service of
process and consents to process being served in any such Proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Warrant and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner permitted by law.
Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any
and all right to trial by jury in any legal proceeding arising out of or relating to this Warrant
or the transactions contemplated hereby. If either party shall commence a Proceeding to enforce
any provisions of this Warrant, then the prevailing party in such Proceeding shall be reimbursed by
the other party for its attorney’s fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such Proceeding.
(c) The headings herein are for convenience only, do not constitute a part of this Warrant and
shall not be deemed to limit or affect any of the provisions hereof.
(d) In case any one or more of the provisions of this Warrant shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining terms and provisions
of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt
in good faith to agree upon a valid and enforceable provision which shall be a commercially
reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision
in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its authorized
officer as of the date first indicated above.
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HEALTH BENEFITS DIRECT CORPORATION
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By:
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Name:
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Title:
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11
HEALTH BENEFITS DIRECT CORPORATION
WARRANT ORIGINALLY ISSUED [
]
WARRANT NO. [ ]
EXERCISE NOTICE
TO HEALTH BENEFITS DIRECT CORPORATION
:
The
undersigned hereby irrevocably elects to purchase
shares of Common Stock
pursuant to the above captioned Warrant, and, if such Holder is not utilizing the cashless exercise
provisions set forth in the Warrant, encloses herewith $
in cash, certified or official
bank check or checks or other immediately available funds, which sum represents the aggregate
Exercise Price (as defined in the Warrant) for the number of shares of Common Stock to which this
Exercise Notice relates, together with any applicable taxes payable by the undersigned pursuant to
the Warrant.
By its delivery of this Exercise Notice, the undersigned represents and warrants to the
Company that (i) the aforesaid shares of Common Stock are being acquired for the account of the
undersigned for investment and not with a view to, or for resale in connection with, the
distribution thereof and that the undersigned has no present intention of distributing or reselling
such shares; (ii) the undersigned is aware of the Company’s business affairs and financial
condition and has acquired sufficient information about the Company to reach an informed and
knowledgeable decision regarding its investment in the Company; (iii) the undersigned is
experienced in making investments of this type and has such knowledge and background in financial
and business matters that the undersigned is capable of evaluating the merits and risks of this
investment and protecting the undersigned’s own interests; (iv) the undersigned is an “accredited
investor” as defined in Regulation D under the Securities Act of 1933, as amended (the “
Securities
Act
”); and (v) the undersigned understands that the shares of Common Stock issuable upon exercise
of this Warrant have not been registered under the Securities, by reason of a specific exemption
from the registration provisions of the Securities Act, which exemption depends upon, among other
things, the bona fide nature of the investment intent as expressed herein, and, because such
securities have not been registered under the Securities Act, they must be held indefinitely unless
subsequently registered under the Securities Act or an exemption from such registration is
available; (v) the undersigned is aware that the aforesaid shares of Common Stock may not be sold
pursuant to Rule 144 adopted under the Securities Act unless certain conditions are met and until
the undersigned has held the shares for the number of years prescribed by Rule 144; and (vi) the
undersigned agrees not to make any disposition of all or any part of the aforesaid shares of Common
Stock unless and until there is then in effect a registration statement under the Securities Act
covering such proposed disposition and such disposition is made in accordance with said
registration statement, or the undersigned has provided the Company with an opinion of counsel
satisfactory to the Company, stating that such registration is not required.
The undersigned requests that certificates for the shares of Common Stock issuable upon this
exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
(Please print name and address)
Warrant Shares Exercise Log
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Number of
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Number of Warrant
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Warrant Shares
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Shares Available to be
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Number of Warrant Shares
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Remaining to
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Date
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Exercised
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Exercised
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be Exercised
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HEALTH BENEFITS DIRECT CORPORATION
WARRANT ORIGINALLY ISSUED [___________]
WARRANT NO. [ ]
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
the right represented by the above-captioned Warrant to purchase
shares of Common Stock to which such Warrant relates and appoints
attorney to transfer said right on the books of the Company with full power of substitution in the
premises.
Dated:
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(Signature must conform in all respects to name of
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holder as specified on the face of the Warrant)
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Address of Transferee
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In the presence of:
