UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of
the
Securities Exchange Act of 1934
Date of
report (Date of earliest event reported): September 30,
2010
Health Benefits Direct
Corporation
(Exact
name of registrant as specified in charter)
Delaware
|
333-123081
|
98-0438502
|
(State
or other jurisdiction of incorporation)
|
(Commission
File
Number)
|
(IRS
Employer
Identification
No.)
|
150
N. Radnor-Chester Road
Suite
B-101
Radnor,
Pennsylvania 19087
(Address
of principal executive offices)
(484)
654-2200
(Registrant's
telephone number, including area code)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (
see
General
Instruction A.2 below):
¨
|
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
|
¨
|
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|
¨
|
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
|
¨
|
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
|
Item 1.01.
Entry into a Material Definitive Agreement
Private
Placement
On September 30, 2010, Health Benefits
Direct Corporation, a Delaware corporation (the “
Company
”), entered
into and completed a private placement (the “
Private Placement
”)
with certain accredited investors (the “
Investors
”),
including Independence Blue Cross, a Pennsylvania hospital plan corporation
(“
Independence Blue
Cross
”), for an aggregate of 1,800,001 shares (each, a “
Preferred Share
”) of
its Series B Convertible Preferred Stock, par value $0.001 per share (“
Preferred Stock
”),
and warrants (“
Warrants
”) to
purchase 18,000,010 shares of its Common Stock, par value $0.001 (“
Common Stock
”),
pursuant to the terms of a securities purchase agreement (the “
Purchase
Agreement
”).
Pursuant to the Purchase Agreement, the
Company agreed to sell to the investors 1,800,001 investment units (each, a
“
Unit
”) in the
Private Placement at a per Unit purchase price equal to $3.00. Each Unit sold in
the Private Placement consisted of one share of Preferred Stock and a Warrant to
purchase ten shares of Common Stock at an initial exercise price of $0.15 per
share, subject to adjustment.
Under the terms of the Purchase
Agreement, and subject to the approval of the Company’s shareholders of an
amendment to the Certificate of Incorporation of the Company to increase the
number of shares of authorized Common Stock of the Company, the Company has
agreed to sell an additional 200,000 Units to the Investors following the
Closing on the same terms and conditions described above (the “
Subsequent
Closing
”). In addition, the Company anticipates selling up to
an additional 33,334 Units to an investor following the Closing on the same
terms and conditions described above.
The Preferred Stock is entitled to vote
as a single class with the holders of the Company’s Common Stock, with each
Preferred Share having the right to 20 votes. Upon the liquidation,
sale or merger of the Company, each Preferred Share is entitled to receive an
amount equal to the greater of (A) a liquidation preference equal to the
Preferred Stock original issue price, subject to certain customary adjustments,
or (B) the amount such Preferred Share would receive if it participated
pari
passu
with the holders of
Common Stock on an as-converted basis. Each Preferred Share is
convertible into 20 shares of Common Stock (the “
Shares
”). For
so long as any Preferred Shares are outstanding, the vote or consent of the
Holders of at least two-thirds of the Preferred Shares is required to approve
(Y) any amendment to the Company’s certificate of incorporation or bylaws that
would adversely alter the voting powers, preferences or special rights of the
Preferred Stock or (Z) any amendment to the Company’s certificate of
incorporation to create any shares of capital stock that rank senior to the
Preferred Stock. In addition to the voting rights described above,
for so long as 1,000,000 Preferred Shares are outstanding, the vote or consent
of the holders of at least two-thirds of the Preferred Shares is required to
effect or validate any merger, sale of substantially all of the assets of the
Company or other fundamental transaction, unless such transaction, when
consummated, will provide the holders of Preferred Stock with an amount per
share equal to the Preferred Stock original issue price plus any declared but
unpaid dividends.
The closing of the Private Placement
was subject to customary closing conditions. The gross proceeds from the closing
of the initial portion of the Private Placement were $5.4 million and the
Company intends to use the net proceeds of the Private Placement for working
capital purposes.
The Warrants provide that the holders
thereof shall have the right at any time prior to the earlier of (i) ten
business days’ after the Company has properly provided written notice to all
such holders of a Call Event (as defined below) and (ii) September 30, 2015, to
acquire up to a total of 18,000,010 shares of Common Stock of the Company (each
a “
Warrant
Share
”) upon the payment of $0.15 per Warrant Share (the “
Exercise
Price
”). The Company also has the right, at any point after
which the volume weighted average trading price per share of the Preferred Stock
for a minimum of 20 consecutive trading days is equal to at least eight times
the Exercise Price per share, provided that certain other conditions have been
satisfied, to call the outstanding Warrants (a “
Call Event
”), in
which case such Warrants will expire if not exercised within ten business days
thereafter. The Warrants also include full ratchet anti-dilution
adjustment provisions for issuances of securities below $0.15 per share of
Common Stock during the first two years following the date of issuance of the
Warrants, subject to customary exceptions.
In connection with the signing of the
Purchase Agreement, the Company and the Investors also entered into a
registration rights agreement (the “
Registration Rights
Agreement
”). Under the terms of the Registration Rights Agreement, the
Company agreed to prepare and file with the SEC, within 30 days following
the receipt of a demand notice of a holder of Registrable Securities, a
registration statement on Form S-1 (the “
Registration
Statement
”) covering the resale of the Shares and the Warrant Shares
(collectively, the “
Registrable
Securities
”). Subject to limited exceptions, the Company also agreed to
use its reasonable best efforts to cause the Registration Statement to be
declared effective under the Securities Act of 1933, as amended (the “
Securities Act
”), as
soon as practicable but, in any event, no later than 60 days following the
date of the filing of the Registration Statement (or 120 days following the
date of the filing of the Registration Statement in the event the Registration
Statement is subject to review by the SEC), and agreed to use its reasonable
best efforts to keep the Registration Statement effective under the Securities
Act until the date that all of the Registrable Securities covered by the
Registration Statement have been sold or may be sold without volume restrictions
pursuant to Rule 144(b)(i) promulgated under the Securities Act. In
addition, if the Company proposes to register any of its securities under the
Securities Act in connection with the offering of such securities for cash, the
Company shall, at such time, promptly give each holder of Registrable Securities
notice of such intent, and such holders shall have the option to register their
Registrable Securities on such additional registration statement. The
Registration Rights Agreement also provides for payment of partial damages to
the Investor under certain circumstances relating to failure to file or obtain
or maintain effectiveness of the Registration Statement, subject to
adjustment.
The Company also agreed, pursuant to
the terms of the Purchase Agreement, that for a period of 90 days after the
effective date (the “
Initial Standstill
”)
of the Purchase Agreement, the Company shall not, subject to certain exceptions,
offer, sell, grant any option to purchase, or otherwise dispose of any equity
securities or equity equivalent securities, 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, capital stock and other securities of the
Company.
The Purchase Agreement also provides
for a customary participation right for the Investors, subject to certain
exceptions and limitations, which grants the Investors the right to participate
in any future capital raising financings of the Company occurring prior to
September 30, 2012. The Investors may participate in such financings
at a level based on the Investors’ ownership percentage of the Company on a
fully-diluted basis prior to such financing.
In connection with the Private
Placement, the Company also entered into a Letter Agreement (the “
Letter Agreement
”)
with Independence Blue Cross, dated September 30, 2010, pursuant to which
Company agreed to create one vacancy on the Company’s Board by increasing the
size of the Board from ten to eleven directors. The Company also agreed to take
all necessary action to appoint a director designated by Independence Blue Cross
upon the earlier to occur of the Subsequent Closing or November 30, 2010, who
will serve in such capacity until the expiration of the term at the Company’s
2011 annual meeting of stockholders. In addition, the Company agreed to include
Independence Blue Cross’ designee on the Board’s slate of nominees for election
as directors of the Company and to use its best efforts to cause the election of
such individual for so long as Independence Blue Cross holds either (i) shares
of the Preferred Stock in an amount equal to fifty percent (50%) or more of the
number of shares of the Preferred Stock purchased under the Purchase Agreement
or (ii) shares of the Common Stock in an amount equal to fifty percent (50%) or
more of the number of shares of the Common Stock that Independence Blue Cross is
entitled to receive upon conversion of the Preferred Stock acquired under the
Purchase Agreement.
Also in connection with the Private
Placement, the Company agreed to amend the warrants issued to Co-Investment Fund
II, L.P. (“
Co-Investment
”) in
connection with the Company’s January 2009 private placement (the “
2009 Warrants
”) and
the warrants issued to Co-Investment and other investors in connection with the
Company’s March 2010 rights offering (the “
2010 Warrants
” and
together with the 2009 Warrants, the “
Prior
Warrants
”). Pursuant to addendums and certificates of
adjustment to the 2009 Warrants (the “
2009 Warrant
Amendments
”) and addendums and certificates of adjustment to the 2010
Warrants (the “
2010
Warrant Amendments
”), the expiration dates of the anti-dilution
provisions of the Prior Warrants were extended to the expiration date of the
anti-dilution provisions of the Warrants. In addition, pursuant to
the terms of the Prior Warrants, the exercise price of the Prior Warrants was
reduced to $0.15 and the aggregate number of shares of Common Stock issuable
under the Prior Warrants was increased from 25,535,000 to
34,046,667.
The foregoing is a summary of the terms
of the Purchase Agreement, the Registration Rights Agreement, the Warrants, the
Letter Agreement, the 2009 Warrant Amendments and the 2010 Warrant Amendments
and does not purport to be complete. This summary is qualified in its entirety
by reference to the full text of each of the Certificate of Designation, the
Purchase Agreement, the Registration Rights Agreement, a form of the Warrants,
the Letter Agreement, a form of the 2009 Warrant Amendments and a form of the
2010 Warrant Amendments, which are attached hereto as Exhibits 3.1, 4.1, 4.2,
4.3, 10.1, 10.2 and 10.3, respectively, and are incorporated by reference
herein.
Item 3.02 Unregistered Sales of
Equity Securities.
The description of the Purchase
Agreement, the Registration Rights Agreement and the Warrants in Item 1.01
of this Report are hereby incorporated into this Item 3.02 by
reference.
The Preferred Stock and Warrants are
being offered and sold to institutional and other accredited investors without
registration under the Securities Act or any state securities laws. The Company
is relying on the exemption from the registration requirements of the Securities
Act by virtue of Section 4(2) thereof and Regulation D promulgated
thereunder. Each of the certificates representing shares of Preferred Stock to
be issued and sold in the Private Placement and each of the Warrants contain
restrictive legends preventing the sale, transfer or other disposition of such
Preferred Shares and Warrants, as the case may be, unless registered under the
Securities Act or sold pursuant to an exemption therefrom. As described in
Item 1.01 of this current report, the Company has agreed to file a
Registration Statement for the resale of the Shares and the Warrant Shares. This
current report is not an offer to sell or the solicitation of an offer to buy
shares of Preferred Stock or other securities of the Company.
Item
5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal
Year.
On September 30, 2010, the Company
filed the Certificate of Designation with the Secretary of State of the State of
Delaware. The Certificate of Designation was approved by the Company’s Board of
Directors on September 9, 2010 and became effective upon filing. The Certificate
of Designation provides for the terms of the Preferred Stock issued pursuant to
the Purchase Agreement discussed in response to Item 1.01 of this current report
on Form 8-K.
The Certificate of Designation is
attached hereto as Exhibit 3.1 and is incorporated herein by
reference.
Item 8.01 Other
Events.
On October 1, 2010, the Company issued
a press release announcing the signing of a definitive agreement relating to,
and the closing of, the Private Placement. A copy of this press release is
attached hereto as Exhibit 99.1 and is incorporated herein by
reference.
Item 9.01 Financial Statements
and Exhibits.
(c) Exhibits.
Exhibit Number
|
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Description of Exhibit
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|
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3.1
|
|
Certificate
of Designation with respect to shares of Series B Preferred
Stock
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4.1
|
|
Securities
Purchase Agreement, dated September 30, 2010, by and among Health Benefits
Direct Corporation and the investors signatory thereto
|
4.2
|
|
Registration
Rights Agreement, dated September 30, 2010, by and among Health Benefits
Direct Corporation and the investors signatory thereto
|
4.3
|
|
Form
of Warrant
|
10.1
|
|
Letter
Agreement, dated September 30, 2010, by and between Health Benefits Direct
Corporation and Independence Blue Cross
|
10.2
|
|
Form
of 2009 Warrant Amendment
|
10.3
|
|
Form
of 2010 Warrant Amendment
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99.1
|
|
Press
Release, dated October 1,
2010
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
|
|
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HEALTH
BENEFITS DIRECT CORPORATION
|
|
|
|
|
|
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October
1, 2010
|
|
|
|
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|
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Name:
|
Anthony
R. Verdi
|
|
|
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Title:
|
Acting
Chief Executive Officer, Chief
Financial
Officer and Chief Operating
Officer
|
Exhibit
Index
Exhibit Number
|
|
Description of Exhibit
|
|
|
|
3.1
|
|
Certificate
of Designation with respect to shares of Series B Preferred
Stock
|
4.1
|
|
Securities
Purchase Agreement, dated September 30, 2010, by and among Health Benefits
Direct Corporation and the investors signatory thereto
|
4.2
|
|
Registration
Rights Agreement, dated September 30, 2010, by and among Health Benefits
Direct Corporation and the investors signatory thereto
|
4.3
|
|
Warrant
|
10.1
|
|
Letter
Agreement, dated September 30, 2010, by and between Health Benefits Direct
Corporation and Independence Blue Cross
|
10.2
|
|
Form
of 2009 Warrant Amendment
|
10.3
|
|
Form
of 2010 Warrant Amendment
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99.1
|
|
Press
Release, dated October 1,
2010
|
CERTIFICATE
OF DESIGNATION
OF
SERIES
B CONVERTIBLE PREFERRED STOCK
OF
HEALTH
BENEFITS DIRECT CORPORATION
pursuant
to Section 151 of the
General
Corporation Law of the State of Delaware
Health Benefits Direct
Corporation
, a Delaware corporation (the “
Company
”), hereby
certifies that:
1. The
Certificate of Incorporation of the Company (the “
Certificate of
Incorporation
”) fixes the total number of shares of all classes of
capital stock that the Company shall have the authority to issue at two hundred
million (200,000,000) shares of common stock, par value $.001 per share, and ten
million (10,000,000) shares of preferred stock, par value $.001 per
share.
2. The
Certificate of Incorporation expressly grants to the Board of Directors of the
Company (the “
Board of
Directors
”) authority to provide for the issuance of the shares of
preferred stock in series, and to establish from time to time the number of
shares to be included in each such series and to fix the designation, powers,
preferences and rights of the shares of each such series and the qualifications,
limitations or restrictions thereof.
3. Pursuant
to the authority conferred upon the Board of Directors by the Certificate of
Incorporation, the Board of Directors, by action duly taken on September 9,
2010, adopted resolutions (i) authorizing the issuance and sale of up to
Two Million Two Hundred Fifty Thousand (2,250,000) shares of the Company’s
preferred stock and (ii) approving the form of the Certificate of
Designation of Series B Convertible Preferred Stock establishing the number of
shares to be included in such series of preferred stock and fixing the
designation, powers, preferences and rights of the shares of the Series B
Convertible Preferred Stock and the qualifications, limitations or restrictions
thereof as follows:
Section 1.
Designation.
The
designation of the series of preferred stock shall be “Series B Convertible
Preferred Stock” (the “
Convertible Preferred
Stock
”). Each share of Convertible Preferred Stock shall be identical in
all respects to every other share of Convertible Preferred Stock.
Section 2.
Number of
Shares.
The
number of authorized shares of Convertible Preferred Stock shall be Two Million
Two Hundred Fifty Thousand (2,250,000). That number from time to time may be
increased (but not in excess of the total number of authorized shares of
preferred stock) or decreased (but not below the number of shares of Convertible
Preferred Stock then outstanding) by further resolution duly adopted by the
Board of Directors or any duly authorized committee thereof and by the filing of
a certificate pursuant to the provisions of the General Corporation Law of the
State of Delaware stating that such increase or reduction, as the case may be,
has been so authorized. The Company shall have the authority to issue fractional
shares of Convertible Preferred Stock.
Section 3.
Definitions.
As
used herein with respect to Convertible Preferred Stock:
“
Board of Directors
”
has the meaning set forth in the recitals above.
“
Business Day
” means
any weekday that is not a legal holiday in New York, New York and is not a day
on which banking institutions in New York, New York are authorized or required
by law or regulation to be closed.
“
Closing Price
” of the
Common Stock on any date of determination means the closing sale price as
reported in the composite transactions for the principal U.S. national or
regional securities exchange on which the Common Stock is so listed or quoted,
or, if no closing sale price is reported, the last reported sale price on the
principal U.S. national or regional securities exchange on which the Common
Stock is so listed or quoted, or if the Common Stock is not so listed or quoted
on a U.S. national or regional securities exchange, the last quoted bid price
for the Common Stock in the over-the-counter market as reported by Pink Sheets
LLC or similar organization, or, if that bid price is not available, the market
price of the Common Stock on that date as determined by a nationally recognized
investment banking firm (unaffiliated with the Company) retained by the Company
for this purpose.
“
Common Stock
” means
the common stock of the Company, par value $0.001 per share, or any other shares
of the capital stock of the Company into which such shares of common stock shall
be reclassified or changed.
“
Conversion Date
” has
the meaning set forth in Section 6(b).
“
Conversion Time
” has
the meaning set forth in Section 6(b).
“
Convertible Preferred
Stock
” has the meaning set forth in Section 1.
“
Convertible Preferred Stock
Liquidation Amount
” has the meaning set forth in Section
5(a)(ii).
“
Convertible Preferred Stock
Original Issue Price
” means Three Dollars ($3.00) per share, subject to
appropriate adjustment in the event of any stock dividend, stock split,
combination, or other similar recapitalization with respect to the Convertible
Preferred Stock.
“
Deemed Liquidation
Event
” has the meaning set forth in Section 5(c)(ii).
“
Fundamental
Transaction
” means (1) any merger or consolidation of the Company with or
into another Person, (2) any sale of all or substantially all of the Company's
assets in one or a series of related transactions, (3) any tender offer or
exchange offer (whether by the Company or another Person) pursuant to which
holders of Common Stock are permitted to tender or exchange their shares for
other securities, cash or property, or (4) 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.
“
Holder
” means the
Person in whose name the shares of the Convertible Preferred Stock
are registered, which may be treated by the Company as the absolute owner of the
shares of Convertible Preferred Stock for the purpose of making payment and
settling the related conversions and for all other purposes.
“
Initial
Consideration
” has the meaning set forth in Section
5(c)(iv).
“
Junior Stock
” means
the Common Stock, Series A Convertible Preferred Stock and any class or series
of stock of the Company now existing or hereafter authorized over which the
Convertible Preferred Stock has preference or priority in the payment of
dividends or in the distribution of assets on any voluntary or involuntary
liquidation, dissolution or winding up of the Company.
“
Multiple Amount
”
shall initially be 20, subject to adjustment pursuant to the provisions
hereof.
“
Officer
” means the
Chief Executive Officer, the Chairman, the Chief Administrative Officer, any
Vice Chairman, the Chief Financial Officer, the Controller, the Chief Accounting
Officer, the Treasurer and Head of Corporate Finance, any Assistant Treasurer,
the General Counsel and Corporate Secretary and any Assistant Secretary of the
Company.
“
Officers’
Certificate
” means a certificate signed (i) by the Chief Executive
Officer, the Chairman, the Chief Administrative Officer, any Vice Chairman, the
Chief Financial Officer, the Controller or the Chief Accounting Officer, and
(ii) by the Treasurer and Head of Corporate Finance, any Assistant
Treasurer, the General Counsel and Corporate Secretary or any Assistant
Secretary of the Company, and delivered to the Holders.
“
Parity Stock
” means
any class or series of stock of the Company hereafter authorized that ranks
equally with the Convertible Preferred Stock in the payment of dividends and in
the distribution of assets on any liquidation, dissolution or winding up of the
Company.
“
Payment Date
” shall
have the meaning set forth in Section 4(a).
“
Person
” means a legal
person, including any individual, corporation, estate, partnership, joint
venture, association, joint-stock company, limited liability company or
trust.
“
Record Date
” means,
with respect to any dividend, distribution or other transaction or event in
which the holders of the Common Stock have the right to receive any cash,
securities or other property or in which the Common Stock (or other applicable
security) is exchanged for or converted into any combination of cash, securities
or other property, the date fixed for determination of holders of the Common
Stock entitled to receive such cash, securities or other property (whether such
date is fixed by the Board of Directors or by statute, contract or
otherwise).
“
Senior Stock
” means
any class or series of stock of the Company hereafter authorized which has
preference or priority over the Convertible Preferred Stock as to the payment of
dividends or in the distribution of assets on any voluntary or involuntary
liquidation, dissolution or winding up of the Company.
“
Series A Convertible
Preferred Stock
” means the Series A Convertible Preferred Stock of the
Company, par value $0.001 per share.
“
Trading Day
” means a
day on which the New York Stock Exchange is open for trading.
Section 4.
Dividends and
Distributions.
(a)
Rate.
At such time,
if any, as the Board of Directors or any duly authorized committee thereof
declares a dividend or distribution on any shares of Common Stock, the Holders
of the Convertible Preferred Stock shall be entitled to receive, for each share
of Convertible Preferred Stock held by them, a dividend or distribution, as the
case may be, in an amount equal to the product of (1) the dividend or
distribution declared with respect to one share of Common Stock
times
(2) the Multiple
Amount. Such dividend or distribution on the shares of Convertible
Preferred Stock shall be made on the dividend or distribution payment date for
the corresponding shares of Common Stock (a "
Payment
Date
").
(b)
Priority.
So
long as any share of Convertible Preferred Stock remains outstanding, unless as
to a Payment Date full dividends or distributions on all outstanding shares of
the Convertible Preferred Stock have been declared and made or declared and a
sufficient sum or amount of other property for paying those dividends or making
those distributions has been set aside for payment on the Payment Date, the
Company will not, and will cause its subsidiaries not to, declare or pay any
dividend on, make any distributions relating to, or redeem, purchase, acquire or
make a liquidation payment relating to, any Junior Stock, or make any guarantee
payment with respect thereto.
(c)
Conversion
Following A Record Date.
If the Conversion Time for the Convertible
Preferred Stock is prior to the close of business on a record date for any
declared dividend or distribution, the Holder of such shares will not be
entitled to any such dividend or distribution. If the Conversion Time for the
Convertible Preferred Stock is after the close of business on a record date for
any declared dividend or distribution, but prior to the corresponding Payment
Date, the Holder of such shares shall be entitled to receive such dividend or
distribution, notwithstanding the conversion of such shares prior to the Payment
Date.
(d)
Certain
Distributions Excluded.
The provisions of this Section 4 shall not apply
to any distribution of Common Stock resulting in an adjustment to the Multiple
Amount pursuant to Section 7 hereof.
Section 5.
Liquidation, Dissolution or Winding
Up; Certain Mergers, Consolidations and Asset Sales.
(a)
Preferential
Payments to Holders of Convertible Preferred Stock.
(i)
In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company,
each Holder of Convertible Preferred Stock shall be entitled, in accordance with
Sections 5(a)(ii) and 5(b) below, at such Holder's election, to (A) receive for
each share of Convertible Preferred Stock the Convertible Preferred Stock
Liquidation Amount (as defined below) or (B) participate in the payments to the
Holders of Junior Stock under Section 5(b) on an as converted to Common Stock
basis.
(ii) After
the payment or setting aside for payment of any amounts payable to the holders
of Senior Stock having a priority as to distributions upon the voluntary or
involuntary liquidation, dissolution or winding up of the Company, the Holders
of Convertible Preferred Stock shall be entitled to be paid out of the assets of
the Company available for distribution to its stockholders, before any payment
shall be made to the holders of Junior Stock by reason of their ownership
thereof, an amount per share equal to the greater of (i) the Convertible
Preferred Stock Original Issue Price, plus any dividends declared, but unpaid
thereon (the "
Convertible Preferred Stock
Liquidation Amount
") and (ii) the product of (A) the distribution that
would be made with respect to one share of Junior Stock in any liquidation event
under Section 5(b) (without, for purposes of this calculation, taking into
account the payment of any Convertible Preferred Stock Liquidation Amount) times
(B) the Multiple Amount. If upon any such liquidation, dissolution,
or winding up of the Company, the assets of the Company available for
distribution to its stockholders shall be insufficient to pay the Holders of the
shares of Convertible Preferred Stock the full amount to which they shall be
entitled under this Section 5(a), the Holders of shares of Convertible Preferred
Stock shall share ratably in the distribution of the assets available for
distribution in proportion to the respective amounts which would otherwise be
payable in respect of the shares held by them upon such distribution if all
amounts payable on or with respect to such shares were paid in
full.
(b)
Distribution to Holders of Junior
Stock.
In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company, after the payment of the
Convertible Preferred Stock Liquidation Payment under Section 5(a) (if any), the
remaining assets of the Company available for distribution to its stockholders
shall be distributed among the holders of the Junior Stock first to among the
holders of the
Series A
Convertible Preferred Stock such payments as set forth in Section 5(a) of the
Certificate of Designation of the Series A Convertible Preferred Stock and then
to among the holders of Common Stock pro rata based on the number of shares held
by each such holder.
(c)
Deemed Liquidation Events.
(i)
Definition.
Each of the
following events shall be considered a "
Deemed Liquidation
Event
" unless the holders of at least a majority of the outstanding
shares of Convertible Preferred Stock elect otherwise by written notice sent to
the Company at least three (3) days prior to the effective date of any such
event:
(A) a
merger, consolidation, or share exchange in which
(1) the
Company is a constituent corporation; or
(2) a
subsidiary of the Company is a constituent corporation and the Company issues
shares of its capital stock pursuant to such merger, consolidation, or share
exchange,
except
any such merger, consolidation, or share exchange involving the Company or a
subsidiary in which the shares of capital stock outstanding immediately prior to
such merger, consolidation, or share exchange continue to represent, or are
converted into or exchanged for shares of capital stock that represent,
immediately following such merger, consolidation or share exchange, at least a
majority, by voting power, of the capital stock of (a) the surviving or
resulting corporation or (b) if the surviving or resulting corporation is a
wholly owned subsidiary of another corporation immediately following such
merger, consolidation, or share exchange, the parent corporation of such
surviving or resulting corporation.
(B) the
sale, lease, transfer, exclusive license or other disposition, in a single
transaction or series of related transactions, by the Company or any subsidiary
of the Company of all or substantially all of the assets of the Company and its
subsidiaries taken as a whole or the sale or disposition of one or more
subsidiaries of the Company if substantially all of the assets of the Company
and its subsidiaries taken as a whole are held by such subsidiary or
subsidiaries, except where such sale, lease, transfer, exclusive license or
other disposition is to a wholly owned subsidiary of the Company.
(C) any
tender offer or exchange offer (whether by the Company or another Person)
pursuant to which holders of Common Stock are permitted to tender or exchange
their shares for other securities, cash or property in which the holders of a
majority of the shares of Common Stock elect to tender or exchange their shares
of Common Stock.
(D) any
reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted or exchanged for other
securities, cash or property.
(ii) Effecting
a Deemed Liquidation Event.
(A) The
Company shall not have the power to effect a Deemed Liquidation Event referred
to in Section 5(c)(i)(A) unless the agreement or plan of merger, consolidation,
or share exchange provides that the consideration payable to the stockholders of
the Company shall be allocated among the holders of capital stock of the Company
in accordance with Sections 5(a) and 5(b).
(B) In
the event of a Deemed Liquidation Event referred to in Section 5(c)(i)(B), (C),
or (D), if the Company does not effect a dissolution of the Company under the
Delaware General Corporation Law within ninety (90) days after such Deemed
Liquidation Event, then (1) the Company shall send a written notice to each
Holder of Convertible Preferred Stock no later than the ninetieth (90th) day
after such Deemed Liquidation Event advising such Holders of their right (and
the requirements to be met to secure such right) pursuant to the terms of the
following clause (2) to require the redemption of the Convertible Preferred
Stock and (2) if the Holders of a majority of the then outstanding shares of
Convertible Preferred Stock so request in a written instrument delivered to the
Company within one hundred twenty (120) days after the Deemed Liquidation Event,
the Company shall use the consideration received by the Company for such Deemed
Liquidation Event, if any, together with any other assets of the Company
available for distribution to its stockholders (the "
Available Proceeds
"),
to the extent legally available therefor, on the one hundred fiftieth (150th)
day after such Deemed Liquidation Event, to redeem all outstanding shares of
Convertible Preferred Stock at a price per share equal to the Convertible
Preferred Stock Liquidation Amount. Notwithstanding the foregoing, in the event
of a redemption pursuant to the preceding sentence, if the Available Proceeds
are not sufficient to redeem all of the outstanding shares of Convertible
Preferred Stock, the Company shall redeem a pro rata portion of each Holder's
shares of Convertible Preferred Stock to the fullest extent of such Available
Proceeds, based on the respective amounts which would otherwise be payable in
respect of the shares to be redeemed if the Available Proceeds were sufficient
to redeem all such shares, and shall redeem the remaining shares to have been
redeemed as soon as practicable after the Company has funds legally available
therefor. Prior to the distribution or redemption provided for in
this Section 5.2(c)(ii), the Company shall not expend or dissipate the
consideration received for such Deemed Liquidation Event, except to discharge
expenses incurred in such Deemed Liquidation Event.
(iii)
Amount Deemed Paid or
Distributed
The amount deemed paid or distributed to the
holders of capital stock upon any such merger, consolidation, sale, transfer,
exclusive license, other disposition or redemption, or reclassification or
compulsory share exchange, shall be the cash or the value of the property,
rights or securities paid or distributed to such holders by the Company or the
acquiring Person. The value of such property, rights or securities shall be
determined in good faith by the Board of Directors.
(iv)
Allocation of
Escrow.
In the event of a Deemed Liquidation Event, if any of
the consideration payable to the stockholders is placed into escrow and/or is
payable to the stockholders of the Company subject to contingencies, the
relevant agreement to which the Company is a party shall provide that (a) the
portion of such consideration that is not placed in escrow and is not subject to
any contingencies (the "
Initial
Consideration
") shall be allocated among the holders of capital stock of
the Company in accordance with Sections 5(a) and (b) as if the Initial
Consideration were the only consideration payable in connection with such Deemed
Liquidation Event and (b) any additional consideration which becomes payable to
the stockholders of the Company upon release from escrow or satisfaction of
contingencies shall be allocated among the holders of capital stock of the
Company in accordance with Sections 5(a) and (b) after taking into account the
previous payment of the Initial Consideration as part of the same
transaction.
Section 6.
Conversion.
The Holders of the Convertible
Preferred Stock shall have the following conversion rights:
(a)
Right to
Convert.
Each share of Convertible Preferred Stock shall be
convertible, at the option of the Holder thereof, at any time and without the
payment of additional consideration by the Holder thereof, into such number of
fully paid and nonassessable shares of Common Stock equal to the product of (A)
one share of Common Stock
times
(B) the Multiple
Amount, plus cash in lieu of any fractional shares.
(
b)
Mechanics of
Conversion.
To convert shares of Convertible Preferred
Stock into shares of Common Stock, a Holder shall surrender such Holder's
certificate of such shares of Convertible Preferred Stock (or if such
certificate has been lost, stolen or destroyed, a lost certificate affidavit and
agreement reasonably acceptable to the Company to indemnify the Company against
any claim that may be made against the Company on account of such loss, theft or
destruction), together with written notice that such Holder elects to convert
all or any number of the shares of Convertible Preferred Stock represented by
such certificate or certificates for shares of Common Stock to be issued. If
required by the Company, certificates surrendered for conversion shall be
endorsed or accompanied by a written instrument or instruments of transfer, in
form satisfactory to the Company, duly executed by the registered Holder or such
Holder's attorney duly authorized in writing. The date of receipt by the Company
of such certificates (or lost certificate affidavit and agreement) and notice
shall be the date of conversion (the "
Conversion Date
") and
the close of business on the Conversion Date shall be the time of conversion
(the "
Conversion
Time
"), and the shares of Common Stock issuable upon conversion of the
shares represented by such certificate shall be deemed to be outstanding of
record as of the Conversion Date. The Company shall, within three (3) Trading
Days after the Conversion Date, (A) issue and deliver to the Holder or such
Holder's nominee a certificate or certificates for the full number of shares of
Common Stock issuable upon such conversion in accordance with the provisions
hereof and a certificate for the number of shares, if any, of Convertible
Preferred Stock represented by the surrendered certificate (or lost certificate
affidavit and agreement) that were not converted into Common Stock, (B) pay cash
in lieu of any fraction of a share of Common Stock otherwise issuable upon such
conversion, and (C) pay all declared but unpaid dividends on the shares of
Convertible Preferred Stock converted.
(c)
Status of Convertible Preferred Stock
after Conversion Time.
Effective immediately after the Conversion Time,
dividends shall no longer be declared on any converted shares of Convertible
Preferred Stock and such shares of Convertible Preferred Stock shall cease to be
outstanding, in each case, subject to the right of Holders to receive any
declared and unpaid dividends on such shares and any other payments to which
they are otherwise entitled pursuant to the terms hereof.
(
d)
Rights Prior to Conversion.
No
allowance or adjustment, except pursuant to Section 7, shall be made in
respect of dividends or distributions payable to holders of the Common Stock of
record as of any date prior to the Conversion Date. Prior to the Conversion
Date, shares of Common Stock or other securities issuable upon conversion of any
shares of Convertible Preferred Stock shall not be deemed outstanding for any
purpose, and Holders shall have no rights with respect to the Common Stock or
other securities issuable upon conversion (including voting rights, rights to
respond to tender offers for the Common Stock or other securities issuable upon
conversion and rights to receive any dividends or other distributions on the
Common Stock or other securities issuable upon conversion) by virtue of holding
shares of Convertible Preferred Stock.
(e)
Reacquired Shares.
Shares of
Convertible Preferred Stock duly converted in accordance with this Certificate
of Designation, or otherwise reacquired by the Company, will resume the status
of authorized and unissued preferred stock, undesignated as to series and
available for future issuance. The Company may from time-to-time take such
appropriate action as may be necessary to reduce the authorized number of shares
of Convertible Preferred Stock, but not to an amount less than the number of
shares of Convertible Preferred Stock outstanding.
(f)
Record Holder as of Conversion Date.
The Person or Persons entitled to receive the Common Stock and/or cash,
securities or other property issuable upon conversion of Convertible Preferred
Stock shall be treated for all purposes as the record holder(s) of such shares
of Common Stock and/or securities as of the Conversion Date. In the event that a
Holder shall not by written notice designate the name in which shares of Common
Stock and/or cash, securities or other property (including payments of cash in
lieu of fractional shares) to be issued or paid upon conversion of shares of
Convertible Preferred Stock should be registered or paid or the manner in which
such shares should be delivered, the Company shall be entitled to register and
deliver such shares, and make such payment, in the name of the Holder and in the
manner shown on the records of the Company.
(g)
Fractional Shares.
No
fractional shares of Common Stock will be issued to holders of the Convertible
Preferred Stock upon conversion. In lieu of fractional shares otherwise
issuable, Holders will be entitled to receive an amount in cash equal to the
fraction of a share of Common Stock, calculated on an aggregate basis in respect
of the shares of Convertible Preferred Stock being converted, multiplied by the
Closing Price of the Common Stock on the Trading Day immediately preceding the
Conversion Date.
Section 7.
Adjustments to the Multiple
Amount.
(a)
Adjustments.
If the
Company, at any time prior to the conversion of the shares of Convertible
Preferred Stock into Common Stock, (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 Multiple
Amount shall be multiplied by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding immediately after such event and of
which the denominator shall be the number of shares of Common Stock outstanding
immediately before such event. Any adjustment made pursuant to clause
(i) of this Section 7(a) 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
Section 7(a) occurs during the period that the Multiple Amount is calculated
hereunder, then the calculation of the Multiple Amount shall be adjusted
appropriately to reflect such event.
(b)
Successive Adjustments.
After
an adjustment to the Multiple Amount under this Section 7, any subsequent
event requiring an adjustment under this Section 7 shall cause an
adjustment to such Multiple Amount as so adjusted.
(c)
Multiple Adjustments.
For the
avoidance of doubt, if an event occurs that would trigger an adjustment to the
Multiple Amount pursuant to this Section 7(a) under more than one clause
thereof, such event, to the extent fully taken into account in a single
adjustment, shall not result in multiple adjustments hereunder.
(d)
Other Adjustments.
The Company
may, but shall not be required to, make such increases in the Multiple Amount,
in addition to those required by this Section, as the Board of Directors
considers to be advisable in order to avoid or diminish any income tax to any
holders of shares of Common Stock resulting from any dividend or distribution of
stock or issuance of rights or warrants to purchase or subscribe for stock or
from any event treated as such for income tax purposes or for any other
reason.
(e)
Notice of Adjustments.
Whenever the Multiple Amount is adjusted as provided under this Section
7, the Company shall within 10 Business Days following the occurrence of an
event that requires such adjustment (or if the Company is not aware of such
occurrence, as soon as reasonably practicable after becoming so aware) or the
date the Company makes an adjustment pursuant to this Section 7, compute
the adjusted applicable Multiple Amount in accordance with this Section 7
and prepare and transmit to the Holders an Officers’ Certificate setting forth
the applicable Multiple Amount, as the case may be, the method of calculation
thereof in reasonable detail, and the facts requiring such adjustment and upon
which such adjustment is based.
Section
8. Rights
in Connection with Certain Events.
Subject
to the provisions of Section 5(c), if there shall occur any reorganization,
recapitalization, reclassification, consolidation or merger involving the
Company in which the Common Stock (but not the Convertible Preferred Stock) is
converted into or exchanged for securities, cash or other property (other than a
transaction covered by Section 7(a)), then following any such reorganization,
recapitalization, reclassification, consolidation or merger, each share of
Convertible Preferred Stock shall thereafter be convertible in lieu of the
Common Stock into which it was convertible prior to such event into the kind and
amount of securities, cash or other property which a holder of the number of
shares of Common Stock of the Company issuable upon conversion of one share of
Convertible Preferred Stock immediately prior to such reorganization,
recapitalization, reclassification, consolidation or merger would
have been entitled to receive pursuant to such transaction; and, in
such case, appropriate adjustment (as determined in good faith by the Board of
Directors) shall be made in the application of the provisions
of Sections 6 and 7 with respect to the rights and interests
thereafter of the Holders of the Convertible Preferred Stock, to the end that
the provisions set forth in Sections 6 and 7 (including provisions with respect
to changes in and other adjustments of the Multiple Amount) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any securities or
other property thereafter deliverable upon conversion of the Convertible
Preferred Stock. The terms of any agreement or plan pursuant to which any
reorganization, recapitalization, reclassification, consolidation or merger is
effected shall include terms requiring compliance with the provisions of
Sections 6 and 7 and this Section 8.
Section
9. Notice
of Record Date.
In the event:
(a) the
Company shall take a record of the holders of its Common Stock (or other capital
stock or securities at the time issuable upon conversion of the Convertible
Preferred Stock) for the purpose of entitling or enabling them to receive any
dividend or capital stock of any class or any other securities, or to receive
any other security; or
(b) of
any capital reorganization of the Company, any reclassification of the Common
Stock of the Company, or any Deemed Liquidation Event; or
(c) of
the voluntary or involuntary dissolution, liquidation or winding-up of the
Company,
then, and
in each such case, the Company will send or cause to be sent to the Holders of
the Convertible Preferred Stock a notice specifying, as the case may be, (i) the
Record Date for such dividend, distribution or right, and the amount and
character of such dividend, distribution, or right, or (ii) the effective date
on which such reorganization, reclassification, consolidation, merger, transfer,
dissolution, liquidation or winding-up is proposed to take place, and
the time, if any is to be fixed, as of which holders of Common Stock (or such
other capital stock or securities at the time issuable upon conversion of the
Convertible Preferred Stock) shall be entitled to exchange their Common Stock
(or such other capital stock or securities) for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
transfer, dissolution, liquidation or winding-up, and the amount per share and
character of such exchange applicable to the Convertible Preferred Stock and the
Common Stock. Such notice shall be sent at least twenty (20) days
prior to the Record Date or effective date for the event specified in such
notice.
Section 10.
Voting Rights.
(a)
General
. The Holders of
Convertible Preferred Stock shall be entitled to vote together with the holders
of Common Stock as one class, with each share of Convertible Preferred Stock
being entitled to an amount of votes equal to the product of (i) the number of
votes to which one share of Common Stock is entitled
times
(ii) the Multiple
Amount.
(b)
Separate Class
Vote.
So long as any shares of Convertible Preferred Stock are
outstanding, the vote or consent of the Holders of at least two-thirds of the
shares of Convertible Preferred Stock at the time outstanding, voting as a class
with all other series of preferred stock ranking equally with the Convertible
Preferred Stock and entitled to vote thereon, given in person or by proxy,
either in writing without a meeting or by vote at any meeting called for the
purpose, will be necessary for effecting or validating any of the following
actions, whether or not such approval is required by Delaware law:
(i) any
amendment, alteration or repeal of any provision of the Company’s certificate of
incorporation (including the certificate of designation creating the Convertible
Preferred Stock) or the Company’s by-laws that would alter or change the voting
powers, preferences or special rights of the Convertible Preferred Stock so as
to affect them adversely;
provided
that
, the Company
may, without the vote or consent of the Holders of at least two-thirds of the
shares of Convertible Preferred Stock, reduce the number of authorized shares of
Convertible Preferred Stock to a number equal to the shares of Convertible
Preferred Stock then outstanding;
(ii) any
amendment or alteration of the Company’s certificate of incorporation to
authorize or create, or increase the authorized amount of, any shares of, or any
securities convertible into shares of, any class or series of the Company’s
capital stock unless such capital stock ranks junior to the Convertible
Preferred Stock with respect to the payment of dividends or in the distribution
of assets on any liquidation, dissolution or winding-up of the Company
(including a Deemed Liquidation Event); or
(c)
Approval of Fundamental
Transactions.
Regardless of whether or not any such approval
is required by Delaware law, for so long as 1,000,000 shares of Convertible
Preferred Stock are outstanding, the vote or consent of the Holders of at least
two-thirds of the shares of Convertible Preferred Stock at the time outstanding,
voting as a class with all other series of preferred stock ranking equally with
the Convertible Preferred Stock and entitled to vote thereon, given in person or
by proxy, either in writing without a meeting or by vote at any meeting called
for the purpose, will be necessary for effecting or validating a Fundamental
Transaction, unless such transaction, when consummated, will provide the Holders
an amount per share equal to the Convertible Preferred Stock Original Issue
Price, plus any dividends declared, but unpaid thereon.
Section 11. Preemption.
The Holders shall not have any rights
of preemption, except as the Company may otherwise agree in
writing.
Section 12.
Repurchase.
Subject to the limitations imposed
herein, the Company may purchase and sell Convertible Preferred Stock from time
to time to such extent, in such manner, and upon such terms as the Board of
Directors or any authorized committee thereof may determine; provided, however,
that the Company shall not use any of its funds for any such purchase when there
are reasonable grounds to believe that the Company is, or by such purchase would
be, rendered insolvent; provided, further, however, that in the event that the
Company beneficially owns any Convertible Preferred Stock, the Company will
procure that voting rights in respect of such Convertible Preferred Stock are
not exercised.
Section 13.
Unissued or Reacquired
Shares.
Shares of Convertible Preferred Stock
not issued or which have been issued and converted, redeemed or otherwise
purchased or acquired by the Company shall be restored to the status of
authorized but unissued shares of preferred stock without designation as to
series.
Section 14. No
Sinking Fund.
Shares of Convertible Preferred Stock
are not subject to the operation of a sinking fund.
Section
16.
Delivery of Common
Stock.
(a)
Use of Acquired Shares.
Notwithstanding the foregoing, the Company shall be entitled to deliver
upon conversion of shares of Convertible Preferred Stock, as herein provided,
shares of Common Stock acquired by the Company (in lieu of the issuance of
authorized and unissued shares of Common Stock), so long as any such acquired
shares are free and clear of all liens, charges, security interests or
encumbrances (other than liens, charges, security interests and other
encumbrances created by the Holders).
(b)
Free and Clear Delivery.
All
shares of Common Stock delivered upon conversion of the Convertible Preferred
Stock shall be duly authorized, validly issued, fully paid and non-assessable,
free and clear of all liens, claims, security interests and other encumbrances
(other than liens, charges, security interests and other encumbrances created by
the Holders).
(c)
Compliance with Law.
Prior to
the delivery of any securities that the Company shall be obligated to deliver
upon conversion of the Convertible Preferred Stock, the Company shall comply
with all federal and state laws and regulations thereunder requiring the
registration of such securities with, or any approval of or consent to the
delivery thereof by, any governmental authority.
(d)
Listing.
The Company hereby
covenants and agrees that, if on the Conversion Date the Common Stock shall be
listed on any national securities exchange or automated quotation system, the
Company will, if permitted by the rules of such exchange or automated quotation
system, list and keep listed, so long as the Common Stock shall be so listed the
shares of Common Stock issued upon conversion of the Convertible Preferred Stock
in accordance with the requirements of such exchange or automated quotation
system at such time.
Section 16.
Replacement
Certificates.
If physical certificates are issued,
the Company shall replace any mutilated certificate at the Holder’s expense upon
surrender of that certificate to the Company or its transfer agent, if any, for
the Convertible Preferred Stock. The Company shall replace certificates that
become destroyed, stolen or lost at the Holder’s expense upon delivery to the
Company or its transfer agent, if any, for the Convertible Preferred Stock of
satisfactory evidence that the certificate has been destroyed, stolen or lost,
together with any reasonable indemnity that may be required by such transfer
agent and the Company.
Section 17.
Transfer Taxes.
The Company shall pay any and all stock
transfer, documentary, stamp and similar taxes that may be payable in respect of
any issuance or delivery of shares of Convertible Preferred Stock or shares of
Common Stock or other securities issued on account of Convertible Preferred
Stock pursuant hereto or certificates representing such shares or securities.
The Company shall not, however, be required to pay any such tax that may be
payable in respect of any transfer involved in the issuance or delivery of
shares of Convertible Preferred Stock, shares of Common Stock or other
securities in a name other than that in which the shares of Convertible
Preferred Stock with respect to which such shares or other securities are issued
or delivered were registered, or in respect of any payment to any Person other
than a payment to the registered holder thereof, and shall not be required to
make any such issuance, delivery or payment unless and until the Person
otherwise entitled to such issuance, delivery or payment has paid to the Company
the amount of any such tax or has established, to the satisfaction of the
Company, that such tax has been paid or is not payable.
Section 18. Notices.
All notices referred to herein shall be
in writing, and, unless otherwise specified herein, all notices hereunder shall
be deemed to have been given upon the earlier of receipt thereof or three
Business Days after the mailing thereof if sent by registered or certified mail
(unless first class mail shall be specifically permitted for such notice under
the terms of this Certificate of Designation) with postage prepaid, addressed:
(i) if to the Company, to its office at 150 North Radnor-Chester
Road, Radnor Financial Center, Suite B101, Radnor, Pennsylvania 19087
(Attention: Corporate Secretary) or (ii) if to any Holder, to such Holder
at the address of such Holder as listed in the stock record books of the Company
(which may include the records of the Transfer Agent) or (iii) to such
other address as the Company or any such Holder, as the case may be, shall have
designated by notice similarly given.
Section
19. No
Impairment.
The
Company will not, by amendment of its Certificate of Incorporation, as amended,
or through any reorganization, recapitalization, transfer of assets,
consolidation, merger, 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 to be observed or performed hereunder by the Company, but will at all
times in good faith assist in the carrying out of all the provisions of this
Certificate of Designation and in the taking of all such action as may be
necessary or appropriate in order to protect the conversion rights of the
holders of the Convertible Preferred Stock against impairment.
IN
WITNESS WHEREOF, this Certificate of Designation has been executed on behalf of
the Company by its Acting Chief Executive Officer, Chief Financial Officer and
Chief Operating Officer this 30th day of September, 2010.
HEALTH
BENEFITS DIRECT
CORPORATION
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By:
|
/s/ Anthony R.
Verdi
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Name:
Anthony R. Verdi
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Title:
Acting Chief Executive Officer, Chief
Financial
Officer and Chief Operating Officer
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[Signature
Page to Certificate of Designation of Series B Preferred
Stock]
EXECUTION
VERSION
SECURITIES
PURCHASE AGREEMENT
This
Securities Purchase Agreement (this “
Agreement
”) is dated as of
September 30, 2010, 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, pursuant to one or more similar Agreements, (the “
Other Securities Purchase
Agreements
”), 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
2,250,000 shares of the Company’s Series B Preferred Stock, $0.001 par value per
share (the “
Preferred
Stock
”) and five-year warrants (all such warrants being the “
Warrants
”) to purchase shares
of Common Stock, in the form attached hereto at
Exhibit A
, for a
period up to and including December 31, 2010;
WHEREAS,
each Unit will be offered at a purchase price of $3.00 per Unit (the “
Per Unit Purchase Price
”) and
will consist of (i) one share of Preferred Stock and (ii) a Warrant to purchase
ten (10) shares of common stock, $0.001 par value per share (the “
Common Stock
”)). The Preferred
Stock shall have the other rights set forth in the Certificate of Designation
attached hereto as
Exhibit B
(the “
Certificate of
Designation
”);
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.
“
Board of Directors
” or “
Board
” means the Board of
Directors of the Company.
“
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 each of the
Initial Closing and the Subsequent Closing.
“Closing Date”
means each of
the Initial Closing Date and the Subsequent Closing Date.
“
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 Preferred Stock issued to the Investors by the Company pursuant to
this Agreement, including any securities into which such shares of Preferred
Stock may hereafter be reclassified or changed.
“
Company’s IP
”
has the meaning set
forth in Section 3.1(r).
“
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).
“
Conversion Shares
” means the
shares of Common Stock issuable upon conversion of the Preferred
Stock.
“
Delaware Courts
” means the
state and federal courts sitting in the City of Wilmington, State of
Delaware.
“
Designated Investor
” has the
meaning set forth in Section 4.15.
“
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
“
Fundamental Transaction
” means
(1) any merger or consolidation of the Company with or into another Person
(whether or not the Company is the surviving corporation), (2) any sale,
assignment, transfer, or other disposition of all or substantially all of the
Company’s assets in one or a series of related transactions, (3) the completion
of any purchase, tender offer or exchange offer (whether by the Company or
another Person) pursuant to which holders of Common Stock are permitted to
tender or exchange their shares for other securities, cash or property that is
accepted by more than 50% of the outstanding shares of Common Stock, or (3) any
stock purchase agreement or other business combination (including, without
limitation, a reorganization, recapitalization, spin-off or scheme or
arrangement ) with another Person whereby such other Person acquires more than
50% of the outstanding shares of Common Stock (4) any reorganization,
recapitalization, or 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.
“
GAAP
” means U.S. generally
accepted accounting principles.
“
Infringe
”
has the meaning set
forth in Section 3.1(r).
“Initial Closing”
means the
closing of the purchase and sale of the Units pursuant to
Section 2.1(a).
“Initial Closing Date”
means,
with respect to the Initial Closing, 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.
“
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(r).
“
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.
“
Registrable Securities
” has
the meaning set forth in the Registration Rights Agreement.
“
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 C
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 Conversion Shares, the Warrants, 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.
“Subsequent Closing”
means the
closing of the purchase and sale of the Units pursuant to
Section 2.1(b).
“Subsequent Closing Date”
means, with respect to the Subsequent Closing, 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.
"Subsequent Closing Deadline
"
means November 30, 2010.
“
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 to the Form 10-K.
“
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 am., 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.
“
Warrant
” has the meaning set
forth in the Preamble to this Agreement.
“
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
s
.
(a)
Initial
Closing
. Subject to the terms and conditions set forth in this
Agreement, at the Initial Closing, the Company shall issue and sell to the
Investors, and the Investors shall, severally and not jointly, purchase from the
Company an aggregate of 1,800,001 Units, representing the initial portion of the
Investors’ Investment Amount (the initial portion of each Investor’s Investment
Amount to be purchased at the Initial Closing is set forth on such Investor’s
signature page hereto). The Initial Closing shall take place at the
offices of Morgan, Lewis & Bockius LLP, 1701 Market Street, Philadelphia, PA
19103 on the Initial Closing Date, or at such other location or time as the
parties may agree.
(b)
Subsequent
Closing
. Subject to the approval of the Company’s shareholders
of an amendment to the Certificate of Incorporation of the Company to increase
the authorized common stock of the Company, the Company shall issue and sell to
the Investors, and the Investors shall, severally and not jointly, purchase from
the Company an aggregate of 200,000 Units, representing the remaining portion of
the Investors’ Investment Amount (the remaining portion of each
Investor’s Investment Amount, if any, to be purchased at the Subsequent Closing
is set forth on such Investor’s signature page hereto) (a “
Subsequent
Sale
”). The Subsequent Closing shall take place at the offices
of Morgan, Lewis & Bockius LLP, 1701 Market Street, Philadelphia, PA 19103
on the Subsequent Closing Date, or at such other location or time as the parties
may agree. In the event that the Subsequent Sale has not occurred by
the Subsequent Closing Deadline, all rights and obligations of the Company and
the Investors with respect to the Subsequent Sale shall terminate and be of no
further force or effect.
2.2
Closing
Deliveries
.
(a) At
each Closing, the Company shall deliver or cause to be delivered to each
Investor the following (the “
Company
Deliverables
”):
(i) a
stock certificate representing a number of Company Shares equal to the portion
of such Investor’s Investment Amount invested at such Closing 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) evidence
of the filing of the Certificate of Designation with the Secretary of State of
the State of Delaware;
(v) 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 3.1(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;
(vi) 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
the number of Company Shares issuable to such Investor pursuant to Section
2.2(a)(i) multiplied by ten (10);
(vii) the
legal opinion of Company Counsel, in substantially the form previously provided
to the Investors, addressed to the Investors;
(viii)
the Registration Rights Agreement and any other Transaction Documents which the
Company is required to execute hereunder, duly executed by the Company;
and
(ix)
such other documents relating to the transactions contemplated by this Agreement
as such Investor or its counsel may reasonably request.
(b)
At each Closing, each Investor shall deliver
or cause to be delivered to the Company the following (the “
Investor
Deliverables
”):
(i) the portion
of its Investment Amount invested at such Closing, 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 D
;
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 except
those Liens disclosed in the SEC Reports, 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
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 statements filed on either Form S-1 or 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).
(f)
Issuance of the
Securities
. The Company Shares, the Warrants, the Conversion
Shares and the Warrant Shares 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 Securities issuable
pursuant to this Agreement, including the Company Shares, the Conversion Shares
and the Warrant Shares. When issued pursuant to the terms of the
Company Shares and the Warrants, the Conversion Shares and the Warrant Shares
will be validly issued, fully paid and non-assessable and free from all Liens,
with the holders being entitled to all rights accorded to a holder of Preferred
Stock or Common Stock, as the case may be. Upon exercise in accordance with the
Warrants, the Warrant Shares will be validly issued, fully paid and
nonassessable and free from all Liens. 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
. As
of the date hereof, the authorized capital stock of the Company consists of
10,000,000 shares of preferred stock, $0.001 par value per share, of which
3,437,500 shares are designated as Series A Convertible Preferred Stock, and of
which as of the date hereof, 1,276,750 shares are issued and outstanding, and
200,000,000 shares of Common Stock, of which as of the date hereof, 41,354,645
shares are issued and outstanding, 25,535,000 shares are reserved for issuance
pursuant to the conversion of Series A convertible preferred stock into Common
Stock, 8,200,000 shares are reserved for issuance pursuant to the Company’s
stock option and purchase plans, 56,751,887 shares are reserved for issuance
pursuant to warrants exercisable for shares of Common Stock and 3,000,000 shares
are reserved for issuance pursuant to warrants exercisable for shares of 150,000
shares of Series A Convertible Preferred Stock (subject to increase to cover the
anti-dilution provisions associated therewith). 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 capital stock, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of capital stock, or securities or rights convertible or
exchangeable into shares of capital stock. Except as specified in
Section 3.1(g) of the
Disclosure Letter
, the issue and sale of the Securities will not,
immediately or with the passage of time, obligate the Company to issue shares of
capital 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 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;
Undisclosed Events, Liabilities or Developments
. Since the date of the
latest audited financial statements included in the Company’s Annual Report on
Form 10-K for the Year ended December 31, 2009 (“
2009 10-K
”) and unaudited
financial statements included in the Company’s most recent Quarterly Report on
Form 10-Q (“
2010 10-Q
”),
except as specifically disclosed in a subsequent SEC Report filed prior to the
date hereof or in
Section 3.1(j) of the
Disclosure Letter
, (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. No event, liability, fact, circumstance, occurrence or
development has occurred or exists, or is reasonably expected to occur or exist,
with respect to the Company or its Subsidiaries or their respective business,
properties, operations, assets or condition (financial or otherwise) which has
had or could reasonably be expected to result in a Material Adverse Effect that
has not been publicly disclosed at least one Trading Day prior to the date that
this representation is made.
(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 2009 10-K and 2010
10-Q, 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 2009 10-K and 2010 10-Q. 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. Except as specified in
Section 3.1(k) of the
Disclosure Letter
, (i) neither the Company nor any Subsidiary is or,
within the last three years, has been the subject of an investigation by any
federal, state or local governmental agency and (ii) there are no claims,
actions, suits or proceedings pending or threatened against or involving the
Company or its Subsidiaries, or any assets of the Company or its Subsidiaries,
that are reasonably likely to result in a claim for damages in excess of
$150,000.
(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. The Company and its Subsidiaries are and have been in
compliance with all U.S. federal, state and local laws and regulations relating
to employment and employment practices, terms and conditions of employment and
wages and hours, except where the failure to be in compliance could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(m)
Employee
Benefits
.
Section 3.1(m) of the
Disclosure Letter
sets forth a complete
list of all
employee benefit plans,
pension plans, stock option, bonus or incentive plans, severance pay plans or
agreements, deferred compensation agreements, or any similar plan, agreement or
arrangement that are sponsored or maintained by the Company or any member of a
Controlled Group or with respect to which the Company or any member of the
Controlled Group has made or is required to make payments, transfers or
contributions (an “
Employee
Benefit Plan
”). No other corporation, trade, or business
exists which would be treated together with the Company as a single “employer”
under the provisions of Section 414(b), (c), (m) or (o) of the Internal
Revenue Code of 1986, as amended (the “
Code
”). Each
Employee Benefit Plan has been and is currently administered in compliance with
its constituent documents and all reporting, disclosure and other requirements
of the Employee Retirement Income Security Act of 1974, as amended (“
ERISA
”), and the Code and any
other law applicable to such Employee Benefit Plan. There are no unfunded
obligations of the Company under any retirement, pension, profit-sharing,
deferred compensation plan or similar program, and any employee contributions
withheld from payroll have been timely and fully contributed to the appropriate
Employee Benefit Plan as required under ERISA, the Code and applicable
law. The Company is not required to make any payments or
contributions to any Employee Benefit Plan pursuant to any collective bargaining
agreement or any applicable labor relations law. The Company has
never maintained or contributed to any Employee Benefit Plan providing or
promising any health or other nonpension benefits to terminated employees (other
than continuation coverage, at the maximum applicable premium permitted to be
charged by the Company, required under Section 4980B of the Code, or
Section 601 of the ERISA). For purposes of this Section 3.1(m),
the term “
Controlled
Group
” used herein means, collectively, any trade or business (whether or
not incorporated) (i) under common control within the meaning of
Section 4001(b)(1) of ERISA with the Company or (ii) that, together
with the Company, is treated as a single employer under Section 414(t) of
the Code.
(n)
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.
(o)
Environmental
Compliance
. The Company and its Subsidiaries (i) has at
all times had and now has all environmental approvals, consents,
licenses, permits and orders required to conduct the businesses in which it has
been or is now engaged and (ii) has at all times been and is now in compliance
in all material respects with all applicable environmental laws.
There are no claims, actions, suits or proceedings pending or threatened against
or involving the Company or its Subsidiaries, or any assets of the Company or
its Subsidiaries, under any of the environmental laws (whether by reason of any
failure to comply with any of the environmental laws or
otherwise). No decree, judgment or order of any kind under any of the
environmental laws has been entered against the Company or its Subsidiaries.
There are no facts, conditions or situations, whether now or heretofore
existing, that could form the basis for any claim against, or result in any
liability of, the Company or its Subsidiaries under any of the environmental
laws.
(p)
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.
(q)
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 disclosed
in the 2009 10-K or 2010 10-Q or 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.
(r)
Patents and
Trademarks
.
(i)
Section 3.1(r) 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 except as disclosed in the 2009 10-K or 2010
10-Q. 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 the 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 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 has been or is now involved in any 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.
(s)
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.
(t)
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.
(u)
Sarbanes-Oxley;
Internal Accounting
Controls
. The Company is in compliance with all provisions of
the Sarbanes-Oxley Act of 2002, as amended, which are applicable to it as of the
Closing Date. 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-15(e)
and 15d-15(e)) 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-K or 10-Q, as the case may be, is being
prepared. The Company’s certifying officers have evaluated the effectiveness of
the Company’s controls and procedures as of the end of the period covered by the
Company’s most recently filed periodic report under the Exchange Act (such date,
the “
Evaluation
Date
”). The Company presented in its most recently filed
periodic report under the Exchange Act the conclusions of the certifying
officers about the effectiveness of the disclosure controls and procedures based
on their evaluations as of the Evaluation Date. Since the Evaluation Date, there
have been no changes in the Company’s internal control over financial reporting
(as such term is defined in the Exchange Act) that has significantly affected,
or is reasonably likely to significantly affect, the Company’s internal control
over financial reporting. Since the Evaluation Date, 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.
Additionally, 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.
(v)
Solvency
. Based
on the financial condition of the Company as of the date hereof 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
liabilities 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). The Company has no knowledge
of any facts or circumstances which lead it to believe that it will file for
reorganization or liquidation under the bankruptcy or reorganization laws of any
jurisdiction within one year from the Closing Date.
(w)
Certain
Fees
. No brokerage or finder’s fees or commissions are or will
be payable by the Company to any broker, financial advisor or consultant,
finder, placement agent, investment banker, bank or other Person with respect to
the transactions contemplated by 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(w) that may be due in connection with
the transactions contemplated by this Agreement.
(x)
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. Except as specified
in the Registration Rights Agreement and in
Section 3.1(x) of the
Disclosure Letter
, no Person has any rights (including “piggy-back”
registration rights) to cause the Company to effect the registration under the
Securities Act or any state securities laws of any securities of the Company
that have not been satisfied.
(y)
Listing and Maintenance
Requirements
. The Common Stock is registered pursuant to
Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action
designed to, or which to its knowledge is likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act nor has
the Company received any notification that the Commission is contemplating
terminating such registration. The Company has not, in the 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.
(z)
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.
(aa)
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.
(bb)
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.
(cc)
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 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.
(dd)
Off Balance Sheet
Arrangements
. Except as set forth in
Section 3.1(dd) of the
Disclosure Letter
, 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.
(ee)
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 Code and the
Company shall so certify upon the request of any Investor.
(ff)
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.
(gg)
No General
Solicitation
. Neither the Company nor any Person acting on
behalf of the Company has offered or sold any of the Units by any form of
general solicitation or general advertising. The Company has offered
the Units for sale only to the Investors and certain other “accredited
investors” within the meaning of Rule 501 under the Securities Act.
(hh)
Accountants
. The
Company’s accounting firm is set forth in the SEC Reports. To the
knowledge and belief of the Company, such accounting firm: (i) is a registered
public accounting firm as required by the Exchange Act and (ii) shall express
its opinion with respect to the financial statements to be included in the
Company’s Annual Report for the year ending December 31, 2010.
(ii)
Regulation
M Compliance
. The Company has not, and to its knowledge no one
acting on its behalf has (i) taken, directly or indirectly, any action designed
to cause or to result in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of any of the
Securities or (ii) paid or agreed to pay to any Person any compensation for
soliciting another to purchase any other securities of the Company.
3.2
Representations and
Warranties of the
Investor
s
. 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.
(b)
Investment
Intent
. Such Investor understands that the Securities are
“restricted securities” and have not been registered under the Securities Act or
any applicable state securities laws and 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 as of the date hereof it is, and on each date on which it exercises
any Warrants, it will be either: (i) an “accredited investor” as defined in Rule
501(a) under the Securities Act or (ii) a “qualified institutional buyer” as
defined in Rule 144A(a) under the Securities Act. Such Investor has
completed and executed the Investor Questionnaire (attached to this Agreement as
Exhibit E
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.
(f)
Certain Trading Activities
and Confidentiality
. Other than consummating the transactions
contemplated hereunder, such Investor has not engaged, nor has such Investor
directed any Person to act on its behalf to engage, in any transactions in the
securities of the Company (including, without limitations, any Short Sales
involving the Company’s securities or “locking-up” borrowing 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. Other than to other Persons
party to this Agreement (and their respective representatives and advisors),
such Investor has maintained the confidentiality of all disclosures made to it
in connection with this transaction (including the existence and terms of this
transaction).
(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 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 and such Securities qualify for
deposit with DTC in accordance with its rules), registered in the name of each
Investor or its respective nominee(s), for the Securities in such amounts as
specified from time to time by each Investor to the Company upon conversion of
the Company Shares or 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 and such Securities qualify for deposit with DTC in
accordance with its rules) 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, 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(b)(i),
(iv) in connection with a sale, assignment or other transfer (other than under
Rule 144) provided that, upon request of the Company, 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 and such
Securities qualify for deposit with DTC in accordance with its rules) with a
number of shares of Preferred Stock or Common Stock equal to the number of
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
. Until the earliest of the time that (i) no
Investor owns Securities, (ii) the Warrants have expired or (iii) 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
”) has
occurred, the Company covenants to maintain the registration of the Common Stock
under Section 12(b) or 12(g) of the Exchange Act and
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 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 prepare and furnish to the Investors and
make 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 that it will take such further action
as any holder of Securities may reasonably request, to the extent required from
time to time to enable such Person to sell the Securities without registration
under the Securities Act, including without limitation, within the requirements
of the exemption provided by 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
Investor
s
. 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 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
. Except with respect to material terms and conditions of
the transactions contemplated by the Transaction Documents, the Company
covenants and agrees that neither it nor any of its Subsidiaries, or other
Person acting on its or their behalf will provide an Investor or its agents or
counsel with any material, non-public information regarding the Company or its
Subsidiaries without the prior express consent of the Investor; provided, that
no such consent shall be required prior to disclosing any such material,
non-public information to (a) a director designated pursuant to the letter
agreement between the Company and Independence Blue Cross, dated as of the date
hereof (but only when made to such director in his or her capacity as a
director) or (b) the Investor when such disclosure is required by the express
terms of this Agreement or the Registration Rights Agreement. The Company
understands that the 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, the Conversion
Shares and the Warrant Shares, and will take such other action as is necessary
or desirable to cause the Company Shares, the Conversion 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;
provided
that no such action
need be taken with respect to the Company’s Preferred Stock if Stockholder
Approval has been obtained by the Stockholder Approval Deadline. 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 (and if required to be listed by this Section 4.9, the Preferred
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
.
(a) The
Company agrees that, except for Other Securities Purchase Agreements, if any,
and the Company’s issuance of its equity securities to the Co-Investment Fund
II, L.P. as a result of their demand to convert all or any portion of their loan
into equity securities pursuant to First Amendment to Loan Documents dated June
15, 2010, 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 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
”).
(b) Notwithstanding
the foregoing, this Section 4.11 shall not apply in respect of the issuance of
(A) Company stock or options to purchase Company 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, (E) the
Conversion Shares, or (F) the Warrant Shares (each of the foregoing in clauses
(A) through (F), 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 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 date that is fifteen (15) months following the Closing Date. 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,
Conversion Shares, Warrants or Warrant Shares acquired hereunder or
pursuant to the transactions contemplated hereby or any of the Transaction
Documents, (II) any shares of Common Stock or warrants to purchase shares of
Common Stock held on the date hereof, (III) any shares of Common Stock acquired
after the date hereof pursuant to the exercise of warrants to purchase Common
Stock held on the date hereof, or (IV) 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.
4.15
Participation Right
.
From the date hereof until 24 months after the Closing, except for Other
Securities Purchase Agreements, if any, and the Company’s issuance of its equity
securities to the Co-Investment Fund II, L.P. as a result of their demand to
convert all or any portion of their loan into equity securities pursuant to
First Amendment to Loan Documents dated June 15, 2010, 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 Investor, 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 an
irrevocable 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 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).
4.16
Prohibited Actions
.
The Company shall not without the prior consent of the Investor knowingly enter
into any transaction or take any other action which would create any liability
under Section 16(b) of the Exchange Act, or the rules promulgated thereunder by
the Commission, on the part the Investor as a consequence of having purchased
the Securities under this Agreement.
4.17
Other Securities Purchase
Agreements
. In the event that any term or condition under any
of the Other Securities Purchase Agreements is more favorable to the investor
thereunder than the relevant term or condition under this Agreement or in the
event that any Other Securities Purchase Agreement contains a term or condition
benefiting the investor thereunder which is not contained in this Agreement,
then at the election of the Investor, such more favorable or additional term or
condition shall be available for the benefit of the Investor and the Company
shall enter into an amendment to this Agreement to incorporate such more
favorable or additional term or condition.
ARTICLE
V.
CONDITIONS
PRECEDENT TO CLOSINGS
5.1
Conditions Precedent to the
Obligations of the Investors to Purchase Securities
. The
obligation of each Investor to acquire the Securities at each Closing are
subject to the satisfaction, or waiver by such Investor, at or before each such
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;
(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;
(h)
Certificate of
Designation
. The Certificate of Designation shall have been filed with
the Secretary of State of the State of Delaware and shall have become
effective.
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; and
(d)
Investor
Deliverables
. Each Investor shall have delivered its Investor
Deliverables in accordance with Section 2.2(b).
ARTICLE
VI.
MISCELLANEOUS
6.1
Fees and Expenses
.
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 Subsequent Closing shall not have occurred on or before the
Subsequent Closing Date Deadline due to the Company’s or the Investors’ 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 the Subsequent Closing 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 at the Subsequent Closing 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 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:
If
to the Company:
|
Health
Benefits Direct Corporation
|
|
150
N. Radnor-Chester Road, Radnor, PA 19087
|
|
Facsimile:
(484) 654-2212
|
|
Attn:
Chief Financial Officer
|
|
|
With
copies to:
|
Health
Benefits Direct Corporation
|
|
150
N. Radnor-Chester Road, Radnor, PA 19087
|
|
Facsimile:
(484) 654-2209
|
|
Attn:
Vice President and Controller
|
|
|
|
Morgan,
Lewis & Bockius LLP
|
|
1701
Market Street, Philadelphia, PA 19103
|
|
Facsimile:
(215) 963-5001
|
|
Attn:
James W. McKenzie, Jr., Esq.
|
|
|
If
to an Investor:
|
To
the address set forth under such Investor’s name on the signature pages
hereof;
|
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. 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 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. 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
Investor
s
’
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 or counsel or advisor for such 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.
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]
IN
WITNESS WHEREOF, the parties have executed this Securities Purchase Agreement as
of the date first written above.
Health
Benefits Direct Corporation
|
|
/s/ Anthony R. Verdi
|
Name:
|
Anthony
R. Verdi
|
Title:
|
Acting
Chief Executive Officer, Chief
|
|
Operating
Officer and Chief Financial
|
|
Officer
|
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE
PAGES FOR INVESTORS FOLLOW]
[Signature
Page to Securities Purchase Agreement]
IN
WITNESS WHEREOF, the parties have executed this Securities Purchase Agreement as
of the date first written above.
Independence
Blue Cross
|
|
By:
|
/s/
Joseph A. Frick
|
Name:
Joseph
A. Frick
|
Title:
President
& Chief Executive Officer
|
|
Investment
Amount and Units Purchased at Initial Closing:
|
$4,400,001
Investment Amount - 1,466,667 Units Purchased
|
|
Investment
Amount and Units Purchased at Subsequent Closing:
|
$600,000
Investment Amount – 200,000 Units Purchased
|
|
Tax
ID No.: 23-0370270
|
|
ADDRESS
FOR NOTICE
|
|
Independence
Blue Cross
|
1901
Market Street
|
Philadelphia,
PA 19103
|
Attention:
Alan Krigstein
|
Chief Financial Officer
|
Facsimile
No.: 215-241-2624
|
*E-mail:
Alan.Krigstein@ibx.com
|
|
With
a copy to:
|
|
Independence
Blue Cross
|
1901
Market Street
|
Philadelphia,
PA 19103
|
Attn.:
Thomas O’Connell
|
Senior
Counsel
|
Facsimile
No.: 215-241-3824
|
*E-mail:
Thomas.Oconnell@ibx.com
|
EXECUTION
VERSION
REGISTRATION
RIGHTS AGREEMENT
This
Registration Rights Agreement (this
“Agreement”
) is made and
entered into as of September 30, 2010, 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.
“Conversion Shares”
means the
shares of Common Stock issuable upon conversion of the Preferred
Stock.
“Demand Notice”
has the
meaning set forth in Section 2(a) of this Agreement.
“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
under Section 2(a) to cover the resale by the Holders of the Registrable
Securities the 60th calendar day after the Filing Date (or the 120th calendar
day after the Filing 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.
“Excluded Registration”
means
(i) a registration relating solely to the sale of securities to employees of the
Company or a subsidiary of the Company pursuant to a stock option, stock
purchase, or similar plan or (ii) a registration relating to a Rule 145
transaction.
“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, 30 days following the
receipt of a Demand Notice.
“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).
"Preferred Stock
" means shares
of Series B Convertible Preferred Stock, $0.001 par value per share, of the
Company.
“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 Conversion Shares (iii) the Warrant Shares and (iv) any
securities issued or issuable with respect to the securities referenced in (i),
(ii), or (iii) 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.
“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
Preferred Stock issued or issuable to the Investors by the Company pursuant to
the Purchase Agreement.
“Warrants”
means the 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.
Demand
Registration
.
(a) If
at any time after the date of this Agreement the Company receives a request from
a Holder of Registrable Securities that the Company file a Registration
Statement on Form S-1 covering the resale of the Registrable Securities held by
such Holder (a "
Demand
Notice
"), then the Company shall (i) within five (5) days after the date
it receives the Demand Notice, give notice thereof to all other Holders and (ii)
as soon as reasonably practicable, but in no event later than the Filing Date,
file with the Commission a Registration Statement on Form S-1 covering the
resale of all Registrable Securities of the Holder that provided the Demand
Notice and any additional Registrable Securities requested by the other Holders
to be included therein, as specified by each such other Holder within twenty
(20) days after such Holder has received notice from the Company pursuant to
clause (i);
provided
that such Registration Statement need not include Registrable Securities
already covered by an existing and effective Registration Statement The
Registration Statement shall be 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 when all Registrable
Securities covered by the Registration Statement have been sold or may be sold
without volume restrictions pursuant to Rule 144(b)(i) promulgated under the
Securities Act (the
“Effectiveness
Period”
).
(b) If
for any reason the Commission does not permit all of the Registrable Securities
requested by a Holder to be included in the Registration Statement filed
pursuant to Section 2(a), or for any other reason any such 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 such filing may be made, an additional
Registration Statement covering the resale of all of the Registrable Securities
requested by Holder 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 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:
(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 covering all of the Registrable
Securities 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(f) 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 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.
(d) Notwithstanding
anything to the contrary contained in this Agreement, in the event the staff of
the Commission (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
144(b)(i) 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).
(e) In
the event that Form S-1 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 S-1 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 S-1 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.
(f) 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.
Company
Registration.
(a)
If the Company proposes to register
(including for this purpose, a registration effected by the Company for
stockholders other than the Holders), any of its securities under the Securities
Act in connection with the offering of such securities for cash (other than an
Excluded Registration), the Company shall, at such time, promptly give each
Holder notice of the proposed registration. Upon the request of each Holder
given within twenty (20) days after such notice is given by the Company, the
Company shall, subject to the provisions of Section 3(b), cause to be registered
all of the Registrable Securities that each such holder has requested be
included in such registration. The Company shall have the right to terminate or
withdraw any registration initiated by it under this Section 3 before the
effective date of such registration, whether or not any Holder has elected to
include Registrable Securities in such registration. The expenses of
such withdrawn registration shall be borne by the Company.
(b)
If a registration under Section 3(a) involves an underwritten offering by the
Company, the Company shall not be required to include any Holder's Registrable
Securities in such underwriting unless the Holders accept the terms of the
underwriting as agreed upon between the Company and its underwriters, and then
only in such quantity as the underwriters determine will not jeopardize the
success of the offering by the Company. If the total number of securities,
including Registrable Securities, requested by stockholders to be included in
such offering exceeds the number of securities to be sold (other than by the
Company) that the underwriters determine is compatible with the success of the
offering, then the Company shall be required to include in the offering only
that number of such securities, including Registrable Securities, which the
underwriters and the Company determine will not jeopardize the success of the
offering. If the underwriters determine that less than all of the Registrable
Securities requested to be registered can be included in such offering, then the
Registrable Securities that are included in such offering shall be allocated
among the selling Holders in proportion (as nearly as practicable) to the number
of Registrable Securities owned by each selling Holder or in such other
proportions as shall mutually be agreed to by all such selling
Holders.
4.
Registration
Procedures
In
connection with the Company’s registration obligations hereunder, the Company
shall:
(a) Not
less than ten (10) Trading Days prior to the filing of a Registration Statement
and not less than five (5) Trading Days prior to the filing of 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,
Quarterly Reports on Form 10-Q, 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, Quarterly Reports on Form 10-Q, 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.
(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 4(b)) by reason of the Company filing a
report on Form 10-Q or Form 10-K 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 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) 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 4(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.
(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 4(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 4(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.
(q) At
the reasonable request of any Holder, the Company shall use its reasonable best
efforts to furnish to such Holder, on the date of the effectiveness of the
Registration Statement or any additional registration statement required by the
terms of this Agreement and thereafter from time to time on such dates as a
Holder may reasonably request (i) a letter, dated such date, from the Company's
independent certified public accountants in form and substance as is customarily
given by independent certified public accountants to underwriters in an
underwritten public offering, addressed to the Holders, and (ii) an opinion,
dated as of such date, of counsel representing the Company for purposes of such
Registration Statement or such additional registration statement, in form, scope
and substance as is customarily given in an underwritten public offering,
addressed to the Holders.
(r)
The Company shall make available for inspection by (i) any
Holder, (ii) legal counsel to any Holder and (iii) one firm of accountants or
other agents retained by the Holders (collectively, the "
Inspectors
"), all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "
Records
"), as shall be
reasonably deemed necessary by each Inspector, and cause the Company's officers,
directors and employees, and shall use its reasonable best efforts to cause its
counsel and the Company's independent certified public accountants to, supply
all information which may be necessary and any Inspector may reasonably request;
provided, however, that prior to inspection, each Inspector shall agree to hold
in strict confidence and shall not make any disclosure (except to an Investor)
or use of any Record or other information which the Company determines in good
faith to be confidential, pursuant to the terms of a Confidentiality Agreement
in form and substance reasonably satisfactory to the Company. Nothing herein
shall be deemed to limit the Holders' ability to sell Registrable Securities in
a manner which is otherwise consistent with applicable laws and
regulations.
(s)
If requested by a Holder, the Company shall,
within five days of receipt of notice from such Holder, (i) incorporate in a
prospectus supplement or post-effective amendment such information as an
Investor 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 an Investor holding any
Registrable Securities.
(t)
The Company shall make generally available to its
security holders as soon as practical, but not later than 90 days after the
close of the period covered thereby, an earnings statement (in form complying
with, and in the manner provided by, the provisions of Rule 158 under the 1933
Act) covering a twelve-month period beginning not later than the first day of
the Company's fiscal quarter next following the Effective Date of the
Registration Statement or any additional registration statement required by the
terms of this Agreement.
5.
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 (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 audit and the fees
and expenses incurred in connection with the listing of the Registrable
Securities on any securities exchange as required hereunder.
6.
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 4(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
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 Indemnified 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 4(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 6(b) and the agreement with respect to contribution contained in Section
6(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 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.
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 6(a) or 6(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 6(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 6(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 6(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 6(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 6
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.
7.
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:
(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.
8.
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 8(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 8(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 4(c), such Holder will forthwith discontinue disposition of such
Registrable Securities under the Registration Statement until such 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 4(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:
If
to the Company:
|
Health
Benefits Direct Corporation
|
|
150
N. Radnor-Chester Road, Radnor, PA 19087
|
|
Facsimile:
(484) 654-2209
|
|
Attn:
Vice President and Controller
|
|
|
With
a copy to:
|
Morgan,
Lewis & Bockius LLP
|
|
1701
Market Street, Philadelphia, PA 19103
|
|
Facsimile:
(215) 963-5001
|
|
Attn:
James W. McKenzie, Jr., Esq.
|
|
|
If
to an Investor:
|
To
the address, e-mail address or facsimile number set forth
under
such Investor’s name
|
|
on
the signature pages hereof;
|
If to any
other Person who is then the registered Holder:
|
To
the address, e-mail address or facsimile number of such Holder as it
appears in the stock transfer books of the
Company
|
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 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 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
]
IN
WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as
of the date first written above.
HEALTH
BENEFITS DIRECT CORPORATION
|
|
|
By:
|
/s/ Anthony R. Verdi
|
Name:
|
Anthony
R. Verdi
|
Title:
|
Acting
Chief Executive Officer, Chief Operating
|
|
Officer
and Chief Financial Officer
|
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE
PAGES OF INVESTORS TO FOLLOW]
IN
WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as
of the date first written above.
|
INDEPENDENCE
BLUE CROSS
|
|
|
|
|
By:
|
/s/ Joseph A. Frick
|
|
Name:
|
Joseph
A. Frick
|
|
Title:
|
President
& Chief Executive Officer
|
|
|
|
Address
for Notice:
|
|
Independence
Blue Cross
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1901
Market Street
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Philadelphia,
PA 19103
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Attention:
Alan Krigstein
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Chief
Financial Officer
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Facsimile
No.: 215-241-2624
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*E-mail:
Alan.Krigstein@ibx.com
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With
a copy to:
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Independence
Blue Cross
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1901
Market Street
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Philadelphia,
PA 19103
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Attn.:
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Thomas
O’Connell
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Senior
Counsel
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Facsimile
No.: 215-241-3824
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*E-mail:
Thomas.Oconnell@ibx.com
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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.
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
Warrant
No. HBDC-[___]
|
Date
of Original Issuance: September 30,
2010
|
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 $0.15 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) September 30, 2015 (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 September 30, 2010 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
)
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 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; 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.
(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 (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 a price equal to the New Issuance Price. 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 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 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 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
”):
Net Number =
(A x B) - (A x
C)
B
For purposes of the foregoing
formula:
A= the
total number of shares with respect to which this Warrant is then being
exercised.
B= the
VWAP of the shares of Common Stock for the 5 Trading Day period immediately
preceding the date of the Exercise Notice.
C= the
Exercise Price then in effect for the applicable Warrant Shares at the time of
such exercise.
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 eight times (8x) 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 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 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,
(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, and (v) the Holder is able to sell all shares
issuable upon exercise of the Warrants held by the Holder at all times through
the Call Event Expiration Date without any liability under Section 16(b) of the
Exchange Act. 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 eight times (8x) 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: Vice President and Controller, 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
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.
(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 immediately
before the date on which a record is taken for such Distribution, 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 participation in such
Distribution.
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 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.
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, 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]
IN
WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its
authorized officer as of the date first indicated above.
HEALTH
BENEFITS DIRECT CORPORATION
|
|
|
By:
|
|
Name:
|
Anthony
R. Verdi
|
Title:
Acting
Chief Executive Officer, Chief
Operating
Officer and Chief Financial
Office
|
September
30, 2010
Independence
Blue Cross
1901
Market Street
Philadelphia,
PA 19103
Re:
Health Benefits Direct Board
Representative and Related Matters
Dear
Sirs:
This
Letter Agreement is being executed and delivered in connection with the Initial
Closing under the Securities Purchase Agreement, dated as of the date hereof, by
and among the Health Benefits Direct Corporation (the “
Company
”),
Independence Blue Cross (“
IBC
”) and
the other investors signatory thereto (the “
Purchase
Agreement
”), and to induce IBC to purchase the Units thereunder.
Capitalized terms used in this Letter Agreement and not otherwise defined
herein shall have the respective meanings ascribed to such terms in the Purchase
Agreement.
The
Company hereby agrees, intending to be legally bound, that during the Term, it
will take all actions, do all things, and execute and deliver all documents and
instruments within in its power as may be necessary to accomplish the following
results:
1. One
director designated by IBC (the “
IBC
Director
”) shall be nominated by the Company for election to the
Company’s Board of Directors (the “
Board
”) at
each meeting of shareholders or solicitation of consents for the election of
directors, except for the Company’s 2010 annual meeting of shareholders, and, in
the event of an increase in the number of members of the Company’s Board, such
greater number of directors designated by IBC shall be so nominated for election
to the Board as is necessary to have no less than the same percentage of the
members of the Board so nominated as is currently represented by one
director;
2. In
the event of a vacancy in the Board seat previously held by an IBC Director, a
successor director designated by IBC shall be appointed to fill such
vacancy;
3. Each
director designated by IBC to be an IBC Director under Paragraphs 1 and 2 must
meet the qualifications to serve as a member of the Board as reasonably
determined in good faith by either the Board or the Nominating and Governance
Committee of the Board.
4. Without
limiting the general nature of the foregoing, (a) on or prior to the earlier of
the Subsequent Closing Date or the Subsequent Closing Deadline, the number of
members of the Company’s Board shall be increased to eleven (11), and (b) as
soon as reasonably practicable but in any event within five (5) days following
the designation by IBC of the IBC Director and the qualification of such
individual pursuant to Paragraph 3, the IBC Director shall be appointed as a
member of the Board to fill the vacancy created by the increase in the
number of members of the Company’s Board, and to serve as a director until the
expiration of the term ending at the Company’s 2010 annual meeting of
shareholders and until his or her successor has been duly elected and qualified
or his or her earlier death, resignation or removal.
Independence
Blue Cross
September
30, 2010
5. The
Company shall include the IBC Director in the Board’s slate of nominees for
election as directors of the Company and use its best efforts to cause the
election of the IBC Director at each annual meeting of shareholders (and in any
consent for the election of directors solicited by the Company), except for the
Company’s 2010 annual meeting of shareholders, including, without limitation,
recommending that the Company’s shareholders vote in favor of the election of
the IBC Director at such annual meeting (or in such consent) and voting the
shares of Company Common Stock represented by all proxies granted by
shareholders in connection with the solicitation of proxies by the Board in
connection with such meeting in favor of the IBC Director, except for such
proxies that specifically indicate a vote to withhold authority with respect to
the IBC Director. Neither the Board nor the Company shall take any
position, make any statements or take any action inconsistent with such
recommendations;
6. The
Company shall cause The Co-Investment Fund II, L.P. to enter into a voting
agreement with IBC, substantially in the form attached hereto as
Exhibit A
within five
(5) days of the date hereof; and
7. Non-employee
directors shall only be compensated under the terms of the Directors
Compensation Plan currently in effect and shall not receive any additional fees
for their services to the Company.
The
Company further agrees, intending to be legally bound, that it would be
impossible to measure in money the damages which will accrue to IBC or to its
successors or assigns by reason of the failure of the Company to perform its
obligations under this Letter Agreement and the parties agree that the terms of
this Letter Agreement shall be specifically enforceable. If IBC or any of its
successors or assigns institutes any action or proceeding to specifically
enforce the provisions hereof, any person against whom such action or proceeding
is brought hereby waives the claim or defense therein that such instituting
party has an adequate remedy at law, and such person shall not offer in any such
action or proceeding the claim or defense that such remedy at law exists.
Nothing contained in this paragraph shall limit the remedies herein, legal or
equitable, otherwise available and all such remedies herein are in addition to
any remedies available at law or otherwise.
The
provisions of this Letter Agreement shall remain in effect for so long as IBC or
its affiliates continue to hold either (i) shares of the Preferred Stock in an
amount equal to fifty percent (50%) or more of the number of shares of the
Preferred Stock purchased under the Purchase Agreement or (ii) shares of
the Company’s Common Stock in an amount equal to fifty percent (50%) or more of
the number of shares of the Company’s Common Stock that IBC is entitled to
receive upon conversion of the Preferred Stock acquired under the Purchase
Agreement (the “
Term
”).
Independence
Blue Cross
September
30, 2010
The
Company hereby represents and warrants to IBC that (a) the Board has approved
the actions to be taken by the Company under this Letter Agreement and (b) this
Letter Agreement is a valid and binding obligation of the Company.
If the
foregoing correctly sets forth our agreement, please so confirm by executing the
enclosed copy of this Letter Agreement in the space provided below and returning
it to me.
[Signature
Page Follows]
Independence
Blue Cross
September
30, 2010
Very
truly yours,
HEALTH
BENEFITS DIRECT CORPORATION
By:
|
/s/ Anthony R. Verdi
|
|
Name:
|
Anthony
R. Verdi
|
|
Title:
|
Acting
Chief Executive Officer, Chief
|
|
|
Operating
Officer and Chief Financial
|
|
|
Officer
|
Confirmed
and Agreed to:
INDEPENDENCE
BLUE CROSS
By:
|
/s/ Joseph A. Frick
|
|
Name:
|
Joseph
A. Frick
|
|
Title:
|
President
& Chief Executive
Officer
|
Exhibit
A
VOTING
AGREEMENT
See
attached.
ADDENDUM AND
CERTIFICATE OF
ADJUSTMENT
TO
WARRANT
This ADDENDUM AND CERTIFICATE OF
ADJUSTMENT TO WARRANT is hereby issued by Health Benefits Direct Corporation, a
Delaware corporation (the “Company”), as of September 30,
2010. Capitalized terms used herein and not defined herein shall have
the meanings ascribed to such terms in the Warrant (as defined
below).
WHEREAS, the Company issued that
certain Warrant to purchase shares of the Company’s common stock, par value
$0.001 per share (the “Common Stock”), dated January 19, 2009, to The
Co-Investment II, L.P. (the “Warrant”); and
WHEREAS, on September 30, 2010, the
Company issued to certain investors new warrants to purchase shares of the
Company’s Common Stock at an exercise price of $0.15 per share (the “New
Warrants”); and
WHEREAS, Board of Directors of the
Company approved the amendment of the expiration date of certain anti-dilution
provisions of the Warrant, as set forth in Section 9(c) of the Warrants as “two
years after the Common Stock Authorization Date”, such that said anti-dilution
provisions would expire consistent with the expiration of similar anti-dilution
provisions of the New Warrants; and
WHEREAS, in accordance with Section
9(f) of the Warrant, the Company is required to provide a certificate of
adjustment in favor of the Warrant holder (the “Holder”).
NOW, THEREFORE, the Company hereby
certifies:
1. On
September 30, 2010, the New Warrants became exercisable for shares of the
Company’s Common Stock at an exercise price of $0.15 per share.
2. In
accordance with the terms and conditions of the Warrant, the Exercise Price of
the 20,000,000 shares of common stock the Holder is entitled to subscribe for
under the terms and conditions of the Warrant is hereby reduced to $0.15
per share.
3. The
total number of shares of Common Stock issuable to the Holder upon the exercise
of the Warrants, following the adjustment set forth in Section 2 above, is
26,666,666.667.
4. The
phrase “prior to the date that is two years after the Common Stock Authorization
Date” in Section 9(c) of the Warrant is replaced with the phrase “prior to
September 30, 2012”.
IN WITNESS WHEREOF, the undersigned has
caused this certificate to be executed as of the date hereof.
HEALTH
BENEFITS DIRECT CORPORATION
|
|
|
By:
|
|
Name:
|
Anthony
R. Verdi
|
Title:
|
Chief
Financial Officer
|
|
and
Chief Operating
Officer
|
ADDENDUM AND
CERTIFICATE OF
ADJUSTMENT
TO
WARRANT
This ADDENDUM AND CERTIFICATE OF
ADJUSTMENT TO WARRANT is hereby issued by Health Benefits Direct Corporation, a
Delaware corporation (the “Company”), as of September 30,
2010. Capitalized terms used herein and not defined herein shall have
the meanings ascribed to such terms in the Warrant (as defined
below).
WHEREAS, the Company issued that
certain Warrant to purchase shares of the Company’s common stock, par value
$0.001 per share (the “Common Stock”), dated March 26, 2010, to [name of Warrant
holder] (the “Warrant”); and
WHEREAS, on September 30, 2010, the
Company issued to certain investors new warrants to purchase shares of the
Company’s Common Stock at an exercise price of $0.15 per share (the “New
Warrants”); and
WHEREAS, the Board of Directors of the
Company approved the amendment of the expiration date of certain anti-dilution
provisions of the Warrant, as set forth in Section 8(c) of the Warrants as “two
years after the Original Issue Date”, such that said anti-dilution provisions
would expire consistent with the expiration of similar anti-dilution provisions
of the New Warrants; and
WHEREAS, in accordance with Section
8(f) of the Warrant, the Company is required to provide a certificate of
adjustment in favor of the Warrant holder (the “Holder”).
NOW, THEREFORE, the Company hereby
certifies:
1. On
September 30, 2010, the New Warrants became exercisable for shares of the
Company’s Common Stock at an exercise price of $0.15 per share.
2. In
accordance with the terms and conditions of the Warrant, the Exercise Price of
the [number of shares] shares of common stock the Holder is entitled to
subscribe for under the terms and conditions of the Warrant is hereby reduced to
$0.15
per
share.
3. The
total number of shares of Common Stock issuable to the Holder upon the exercise
of the Warrants, following the adjustment set forth in Section 2 above, is
[number of shares].
4. The
phrase “prior to the date that is two years after the Original Issue Date” in
Section 8(c) of the Warrant is replaced with the phrase “prior to September
30, 2012”.
IN WITNESS WHEREOF, the undersigned has
caused this certificate to be executed as of the date hereof.
HEALTH
BENEFITS DIRECT CORPORATION
|
|
|
By:
|
|
Name:
|
Anthony
R. Verdi
|
Title:
|
Chief
Financial Officer
|
|
and
Chief Operating Officer
|
Health
Benefits Direct Announces Agreement to Raise $5.4 Million in Private
Placement
Radnor, PA — October 1, 2010 — Health
Benefits Direct Corporation (OTC Bulletin Board: HBDT)
, a leading
technology innovator in the marketing, sales and administration of a wide range
of insurance products, today announced it has closed on a $5.4 million private
placement of preferred stock and warrants to Independence Blue Cross and certain
other unaffiliated accredited investors. The Company plans to use the
net proceeds from the private placement for working capital
purposes.
Anthony
R. Verdi, current Acting Principal Executive Officer, said, “We are very pleased
to have completed this private placement, especially with a strategically
significant investor such as Independence Blue Cross. This is another important
positive step for the Company as we complete the restructuring of our operations
to focus on, and leverage, InsPro Technologies’ innovative and proprietary
insurance policy management technology solutions. InsPro Enterprise,
our comprehensive web-based software solution designed for complete individual
and group life & health policy management
,
is gaining greater market recognition from industry analysts, insurance carriers
and third party administrators.”
Mr. Verdi
also said, “Now that our business has been refocused on InsPro Technologies we
plan to further change our Health Benefits Direct corporate identity, subject to
shareholder approval, by changing our name to InsPro Technologies
Corporation.”
In
connection with this private placement, Health Benefits Direct has issued
1,800,001 investment units (“Units”) at a per Unit purchase price of
$3.00. Each Unit consisted of one share of Series B convertible
preferred stock as well as a five-year warrant to purchase 10 shares of common
stock at an initial exercise price of $0.15 per share. Each share of preferred
stock may be converted into twenty (20) shares of common stock, at the option of
the holder. The preferred stock is entitled to vote as a single class with the
holders of the Company’s common stock, with each preferred share having the
right to 20 votes. The preferred stock is also entitled to a liquidation
preference upon the merger or sale of substantially all of the assets of the
Company equal to the greater of the initial issue price of such shares or the
amount the holder of such preferred stock would receive if it participated with
the holders of common stock on an as converted basis.
Under the
terms of this private placement, subject to the approval of the Company’s
shareholders of an amendment to the Certificate of Incorporation of the Company
to increase the number of shares of authorized common stock of the Company, the
Company has agreed to sell an additional 200,000 Units to
Independence Blue Cross and up to 33,334 Units to another unaffiliated
accredited investor.
The
shares of preferred stock, warrants to purchase common stock and the common
stock underlying the warrants have not been registered under the Securities Act
of 1933, as amended, or the securities law of any jurisdiction, and may not be
subsequently offered or sold by the investors in the United States absent
registration or an applicable exemption from the registration
requirements.
Health
Benefits Direct Corporation / Page 2 of 2
This
release does not, and shall not, constitute an offer to sell or the solicitation
of an offer to buy nor shall there be any sale of these securities in any state
or jurisdiction in which such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of such state
or jurisdiction. Interested parties are directed to review the Company’s 8-K
filing in regards to this private placement for a complete description of the
terms and conditions of this private placement.
About
Health Benefits Direct Corporation
Through
its subsidiary, InsPro Technologies, LLC, (www.inspro.com) Health Benefits
Direct Corporation offers InsPro Enterprise software, a web-based insurance
policy marketing and administration system used by insurance carriers and third
party administrators. www.healthbenefitsdirect.com
Safe
Harbor Statement
In
addition to historical facts or statements of current condition, this press
release contains forward-looking statements within the meaning of the “Safe
Harbor” provisions of The Private Securities Litigation Reform Act of 1995,
including statements regarding the company’s business strategy and its plans to
submit a proposal to its stockholders to increase Health Benefits Direct’s
authorized shares of common stock. Moreover, Health Benefits Direct cautions
readers that forward-looking statements are subject to certain risks and
uncertainties, which could cause actual results to differ materially and which
are identified from time to time in Health Benefits Direct’s reports filed with
the U.S. Securities and Exchange Commission. Given these risks and
uncertainties, any or all of these forward-looking statements may prove to be
incorrect. Therefore, you should not rely on any such factors or forward-looking
statements. Health Benefits Direct undertakes no obligation to update publicly
any forward-looking statement.
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Contact:
Anthony
R. Verdi
Health
Benefits Direct Corporation
(484)
654-2200
finance@hbdc.com