SECURITIESPURCHASE AGREEMENT

Exhibit 4.1

 

SECURITIES PURCHASE AGREEMENT

 

SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of September 26, 2003, by and among 24/7 Real Media, Inc., a Delaware corporation, with headquarters located at 1250 Broadway, 27^th Floor, New York, New York 10001 (the “Company”), and the investors listed on the Schedule of Buyers attached hereto (individually, a “Buyer” and collectively, the “Buyers”).

 

WHEREAS:

 

A.            The Company and each Buyer are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Section 4(2) of the Securities Act of 1933, as amended (the “1933 Act”), and Rule 506 of Regulation D (“Regulation D”) as promulgated by the United States Securities and Exchange Commission (the “SEC”) under the 1933 Act;

 

B.            The Company has authorized a new series of subordinated convertible debentures of the Company in the form attached hereto as Exhibit A (together with any subordinated convertible debentures issued in replacement thereof in accordance with the terms thereof, the “Debentures”), which Debentures shall be convertible into shares of the Company’s Common Stock, par value $0.01 per share (the “Common Stock”) (as converted, the “Conversion Shares”), in accordance with the terms of the Debentures;

 

C.            Each Buyer wishes to purchase, and the Company wishes to sell, upon the terms and conditions stated in this Agreement, (i) that aggregate principal amount of Debentures set forth opposite such Buyer’s name in column (3) on the Schedule of Buyers (which aggregate principal amount for all Buyers shall be $15,000,000) and (ii) warrants, in substantially the form attached hereto as Exhibit B (the “ Warrants”), to acquire that number of shares of Common Stock for each $1,000 of principal amount of Debentures purchased (as exercised, collectively, the “Warrant Shares”) equal to the quotient of (i) $200 divided by (ii) $1.6641 (the “Valuation Price”) as set forth opposite such Buyer’s name in column (4) on the Schedule of Buyers;

 

D.            Contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Registration Rights Agreement, substantially in the form attached hereto as Exhibit C (the “Registration Rights Agreement”), pursuant to which the Company has agreed to provide certain registration rights with respect to the Conversion Shares, the Repayment Shares (as defined in the Debentures), the Interest Shares (as defined in the Debentures) and the Warrant Shares under the 1933 Act and the rules and regulations promulgated thereunder, and applicable state securities laws; and

 

E.             The Debentures, the Conversion Shares, the Repayment Shares, the Interest Shares, the Warrants and the Warrant Shares collectively are referred to herein as the “Securities”.

 

 

NOW, THEREFORE, the Company and each Buyer hereby agree as follows:

 

1.             PURCHASE AND SALE OF DEBENTURES AND WARRANTS.

 

(a)           Purchase of Debentures and Warrants.

 

(i)            Debentures and Warrants.  Subject to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below, the Company shall issue and sell to each Buyer, and each Buyer severally, but not jointly, agrees to purchase from the Company on the Closing Date (as defined below), a principal amount of Debentures, as is set forth opposite such Buyer’s name in column (3) on the Schedule of Buyers, along with Warrants to acquire that number of Warrant Shares for each $1,000 principal amount of Debentures purchased equal to the quotient of (A) $200 divided by (B) the Valuation Price (the “Closing”).

 

(ii)           Closing.  The Closing shall occur on the Closing Date at the offices of Schulte Roth & Zabel LLP, 919 Third Avenue, New York, New York 10022.

 

(iii)          Purchase Price.  The purchase price for each Buyer (the “Purchase Price”) of the Debentures and related Warrants to be purchased by each such Buyer at the Closing shall be equal to $1,000.00 for each $1,000.00 of principal amount of Debentures being purchased by such Buyer at the Closing.

 

(b)           Closing Date.  The date and time of the Closing (the “Closing Date”) shall be 4:00 p.m., New York Time, on the date hereof, subject to notification of satisfaction (or waiver) of the conditions to the Closing set forth in Sections 6 and 7 below (or such later date as is mutually agreed to by the Company and each Buyer).

 

(c)           Form of Payment.  On the Closing Date, (i) each Buyer shall pay its Purchase Price for the Debentures and Warrants to be issued and sold to such Buyer at the Closing (x) 80% to the escrow agent pursuant to the form of Escrow Agreement attached hereto as Exhibit H, by wire transfer of immediately available funds in accordance with the escrow agent’s written wire instructions, and (y) 20% to the Company, by wire transfer of immediately available funds in accordance with the Company’s written wire instructions, and (ii) the Company shall deliver to each Buyer the Debentures (in the principal amounts as such Buyer shall reasonably request in writing at least one Business Day prior to the Closing Date) which such Buyer is then purchasing along with the Warrants (in the amounts as such Buyer shall reasonably request in writing at least one Business Day prior to the Closing Date) such Buyer is purchasing, duly executed on behalf of the Company and registered in the name of such Buyer or its designee.

 

2.             BUYER’S REPRESENTATIONS AND WARRANTIES.

 

Each Buyer represents and warrants with respect to only itself that:

 

(a)           No Public Sale or Distribution.  Such Buyer is (i) acquiring the Debentures and Warrants and (ii) upon conversion of the Debentures and exercise of the

 

2

 

Warrants will acquire the Conversion Shares issuable upon conversion of the Debentures and the Warrant Shares issuable upon exercise of the Warrants, in the ordinary course of business for its own account and not with a view towards, or for resale in connection with, the public sale or distribution thereof, except pursuant to sales registered or exempted under the 1933 Act.  Buyer has no present arrangement (whether or not legally binding) at any time to sell any of the Debentures, the Warrants, the Conversion Shares or the Warrant Shares to or through any person or entity; provided, however, that by making the representations herein, such Buyer does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act.  Such Buyer is acquiring the Securities hereunder in the ordinary course of its business.

 

(b)           Accredited Investor Status.  Such Buyer is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D.

 

(c)           General Solicitation.  At no time was Buyer presented with or solicited by or through any leaflet, public promotional meeting, television advertisement or any other form of general solicitation or advertising.

 

(d)           Reliance on Exemptions.  Such Buyer understands that the Securities are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying in part upon the truth and accuracy of, and such Buyer’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of such Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of such Buyer to acquire the Securities.

 

(e)           Information.  No prospectus or “offering memorandum” has been delivered to the undersigned in connection with the purchase of the Securities.  Such Buyer and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by such Buyer.  Such Buyer and its advisors, if any, have been afforded the opportunity to ask questions of the Company.  Neither such inquiries nor any other due diligence investigations conducted by such Buyer or its advisors, if any, or its representatives shall modify, amend or affect such Buyer’s right to rely on the Company’s representations and warranties contained herein.  Such Buyer understands that its investment in the Securities involves a high degree of risk.  Such Buyer is able to bear such risk and is able to afford a complete loss of such investment.  Such Buyer has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision with respect to its acquisition of the Securities.  Buyer acknowledges and agrees that the Company does not make and has not made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in the Transaction Documents (as defined below).

 

(f)            No Governmental Review.  Such Buyer understands that no United States federal or state agency or any other government or governmental agency has passed on or made

 

3

 

any recommendation or endorsement of the Securities or the fairness or suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities.

 

(g)           Transfer or Resale.  Such Buyer understands that except as provided in the Registration Rights Agreement: (i) the Securities have not been and are not being registered under the 1933 Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless (A) subsequently registered thereunder, (B) such Buyer shall have delivered to the Company an opinion of counsel, in a form reasonably acceptable to the Company, to the effect that such Securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from such registration, or (C) such Buyer provides the Company with an opinion of counsel, in a form reasonably acceptable to the Company, to the effect that such Securities can be sold, assigned or transferred pursuant to Rule 144 promulgated under the 1933 Act, as amended, (or a successor rule thereto) (collectively, “Rule 144”); (ii) any sale of the Securities made in reliance on Rule 144 may be made only in accordance with the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of the Securities under circumstances in which the seller (or the Person (as defined in Section 3(q) hereof) through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other Person is under any obligation to register the Securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder.  The Securities may be pledged in connection with a bona fide margin account or other loan secured by the Securities and such pledge of Securities shall not be deemed to be a transfer, sale or assignment of the Securities hereunder, and no Buyer effecting a pledge of Securities shall be required to provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant to this Agreement or any other Transaction Document, including, without limitation, this Section 2(g); provided, that in order to make any sale, transfer or assignment of Securities, such Buyer and its pledgee makes such disposition in accordance with or pursuant to a registration statement or an exemption under the 1933 Act.

 

(h)           Legends.  Such Buyer understands that the certificates or other instruments representing the Debentures and the Warrants and, the stock certificates representing the Conversion Shares, the Repayment Shares, the Interest Shares and the Warrant Shares, shall bear any legend as required by the “blue sky” laws of any state and a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of such stock certificates):

 

[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE][EXERCISABLE] HAVE BEEN][THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY ONLY BE OFFERED FOR SALE, SOLD,

 

4

 

TRANSFERRED OR ASSIGNED PURSUANT TO (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, (B) AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (C) RULE 144(K) UNDER SAID ACT AND, IN EACH CASE, IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of the Securities upon which it is stamped, if, unless otherwise required by state securities laws, (i) such securities are sold, assigned or transferred pursuant to an effective registration statement covering the resale of such securities under the 1933 Act, (ii) such securities are sold, assigned or transferred pursuant to Rule 144 and in connection with sale, assignment or other transfer, such holder provides the Company with an opinion of counsel, in a form reasonably acceptable to the Company, to the effect that such sale, assignment or transfer of the Securities may be made without registration under the applicable requirements of the 1933 Act, or (iii) such holder provides the Company with reasonable assurance that the Securities can be sold, assigned or transferred pursuant to Rule 144(k).

 

(i)            Organization, Authority.  Each Buyer is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with the requisite power and authority to enter into and consummate the transactions contemplated by the Transaction Documents and to otherwise carry out its obligations hereunder and thereunder.

 

(j)            Validity; Enforcement.  This Agreement and the Registration Rights Agreement have been duly and validly authorized, executed and delivered on behalf of such Buyer and shall constitute the legal, valid and binding obligations of such Buyer enforceable against such Buyer in accordance with their respective terms, except as such enforceability may be limited by general principles of equity or to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies.

 

(k)           No Conflicts.  The execution, delivery and performance by such Buyer of this Agreement and the Registration Rights Agreement and the consummation by such Buyer of the transactions contemplated hereby and thereby will not (i) result in a violation of the organizational documents of such Buyer or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which such Buyer is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws) applicable to such Buyer, except in the case of clauses (ii) and (iii) above, for such conflicts, defaults, rights or

 

5

 

violations which would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the ability of such Buyer to perform its obligations hereunder.

 

(l)            Brokers, Finders.  Such Buyer has not engaged any placement agent or other agent in connection with the sale of the Debentures and the Warrants.   Such Buyer shall be responsible for the payment of any placement agent’s fees, financial advisory fees, or brokers’ commissions payable to any persons engaged by any Buyer or its investment advisor relating to or arising out of the transactions contemplated hereby.  Such Buyer shall pay, and hold the Company harmless against, any liability, loss or expense (including, without limitation, attorney’s fees and out-of-pocket expenses) arising in connection with any such claim.

 

(m)          Residency.  Such Buyer is a resident of that jurisdiction specified below its address on the Schedule of Buyers.

 

(n)           Beneficial Ownership, Recent Trading Activity.  Based solely on the most recent SEC Documents filed by the Company disclosing the number of the Company’s outstanding shares, Buyer is not a “beneficial owner” of more than 10% of the outstanding shares of Common Stock of the Company (as defined for purposes of Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the “1934 Act”).

 

3.             REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

 

The Company represents and warrants to each of the Buyers that the statements contained in this Section 3 are true and correct as of the date hereof (unless the particular statement is, by its language, as of another date, in which case, it is true and correct as of that other date), except as disclosed in the disclosure schedule delivered by the Company to the Buyers on or before the date of this Agreement and attached hereto as Exhibit I hereto (the “Disclosure Schedule”) which Disclosure Schedule shall be arranged in sections corresponding to the lettered sections contained in this Section 3, and the disclosure in any such lettered section of the Disclosure Schedule shall qualify the corresponding section in this Section 3 and any other section in this Section 3 identified therein.

 

(a)           Organization and Qualification.  The Company and its “Subsidiaries” (which for purposes of this Agreement means any “significant subsidiary” of the Company, as defined in Rule 1-02(w) of Regulation S-X) are corporations duly organized and validly existing in good standing under the laws of the jurisdiction in which they are incorporated, and have the requisite corporate power and authorization to own their properties and to carry on their business as now being conducted in all material respects.  Each of the Company and its Subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect.  As used in this Agreement, “Material Adverse Effect” means any material adverse effect on the business, properties, assets, operations, results of operations or financial condition of the Company and its Subsidiaries, taken as a whole, or on the transactions contemplated hereby and the other Transaction

 

6

 

Documents or by the agreements and instruments to be entered into in connection herewith or therewith, or on the authority or ability of the Company to perform its obligations under the Transaction Documents (as defined below).  The Company has no Subsidiaries except as set forth on Schedule 3(a) of the Disclosure Schedule.

 

(b)           Authorization; Enforcement; Validity.  The Company has the requisite corporate power and authority to enter into and perform its obligations under this Agreement, the Debentures, the Registration Rights Agreement, the Irrevocable Transfer Agent Instructions (as defined in Section 5(b)), the Warrants and each of the other agreements entered into by the parties hereto in connection with the transactions expressly contemplated by this Agreement (collectively, the “Transaction Documents”) and to issue the Securities in accordance with the terms hereof and thereof.  The execution and delivery of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby, including, without limitation, the issuance of the Debentures and the Warrants and the reservation for issuance and the issuance of the Conversion Shares, the Repayment Shares, the Interest Shares and the Warrant Shares issuable upon conversion, issuance or exercise thereof, as the case may be, in each case as contemplated by, in accordance with the terms of and subject to the limitations contained in the Transaction Documents, have been duly authorized by the Company’s Board of Directors and no further consent or authorization is required by the Company, its Board of Directors or its stockholders.  This Agreement and the other Transaction Documents of even date herewith have been duly executed and delivered by the Company, and constitute the legal, valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies.

 

(c)           Issuance of Securities.  The Debentures and the Warrants are duly authorized and, upon issuance in accordance with the terms hereof, shall be free from all taxes, liens and charges with respect to the issue thereof.  As of the Closing, a number of shares of Common Stock shall have been duly authorized and reserved for issuance which equals the sum of 130% of the number of shares of Common Stock issuable upon conversion of the Debentures to be issued at such Closing and 130% of the number of shares of Common Stock issuable upon exercise of the Warrants to be issued at such Closing.  Upon conversion, exercise or issuance in accordance with the Debentures or the Warrants, as the case may be, the Conversion Shares, the Repayment Shares, the Interest Shares and the Warrant Shares, respectively, will be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof, with the holders being entitled to all rights accorded to a holder of Common Stock.  Assuming the accuracy of each of the representations and warranties of the Buyers contained in Section 2, the issuance by the Company of the Securities is exempt from registration under the 1933 Act.

 

(d)           No Conflicts.  Except as set forth in Schedule 3(d) of the Disclosure Schedule, the execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and

 

7

 

thereby (including, without limitation, the issuance of the Debentures and the Warrants and reservation for issuance and issuance of the Conversion Shares, the Interest Shares, the Repayment Shares and the Warrant Shares) will not (i) result in a violation of the certificate of incorporation, any certificate of designations, preferences and rights of any outstanding series of preferred stock or bylaws of the Company or any of its Subsidiaries or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any material rights of termination, amendment, acceleration or cancellation of, any material agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and the rules and regulations of the Principal Market) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected, other than any such violation which would not have a Material Adverse Effect.

 

(e)           Consents.  Except as contemplated by the Transaction Documents or as disclosed in Schedule 3(e) of the Disclosure Schedule, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court, governmental agency or any regulatory or self-regulatory agency or any other Person in order for it to execute, deliver or perform any of its obligations under or contemplated by the Transaction Documents, in each case in accordance with the terms hereof or thereof.  All consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the Closing Date, and 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 the preceding sentence.  The Company is not in violation of the listing requirements of the Principal Market and has no knowledge of any facts which would reasonably lead to delisting or suspension of the Common Stock in the foreseeable future.

 

(f)            Acknowledgment Regarding Buyer’s Purchase of Securities.  The Company acknowledges and agrees that each Buyer is acting solely in the capacity of arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated hereby and thereby and that no Buyer is an officer or director of the Company.  The Company further acknowledges that no Buyer is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated hereby and thereby, and any advice given by a Buyer or any of its representatives or agents in connection with the Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to such Buyer’s purchase of the Securities.  The Company further represents to each Buyer that the Company’s decision to enter into the Transaction Documents has been based solely on the independent evaluation by the Company and its representatives.

 

(g)           No General Solicitation; Placement Agent’s Fees.  Neither the Company, nor any of its affiliates, nor any Person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with the offer or sale of the Securities.  The Company acknowledges that it has engaged

 

8

 

Wedbush Morgan Securities as placement agent (the “Agent”) in connection with the sale of the Debentures and the Warrants.  Other than the Agent, the Company has not engaged any placement agent or other agent in connection with the sale of the Debentures and the Warrants.  The Company shall be responsible for the payment of any placement agent’s fees, financial advisory fees, or brokers’ commissions payable to the Agent relating to or arising out of the transactions contemplated hereby; provided, the Company shall not be responsible for any such fees or commission for persons engaged by any Buyer or its investment advisor.  The Company shall pay, and hold each Buyer harmless against, any liability, loss or expense (including, without limitation, reasonable attorney’s fees and out-of-pocket expenses) arising in connection with any such claim.

 

(h)           No Integrated Offering.  None of the Company, its Subsidiaries, any of their affiliates, and any Person acting on their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would require registration of any of the Securities under the 1933 Act or cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of the 1933 Act in a manner that would require registration of any of the Securities under the 1933 Act or any applicable stockholder approval provisions, including, without limitation, under the rules and regulations of any exchange or automated quotation system on which any of the securities of the Company are listed or designated.  None of the Company, its Subsidiaries, their affiliates and any Person acting on their behalf will take any action or steps referred to in the preceding sentence that would require registration of any of the Securities under the 1933 Act or cause the offering of the Securities to be integrated with other offerings.

 

(i)            Dilutive Effect.  The Company understands and acknowledges that the number of Conversion Shares issuable upon conversion of the Debentures and the Warrant Shares issuable upon exercise of the Warrants will increase in certain circumstances.  The Company further acknowledges that its obligation to issue Conversion Shares upon conversion of the Debentures, the Company’s option to issue the Repayment Shares and Interest Shares in accordance with this Agreement and the Debentures and its obligation to issue the Warrant Shares upon exercise of the Warrants in accordance with this Agreement and the Warrants is, in each case, absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company.

 

(j)            Application of Takeover Protections; Rights Agreement.  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, as amended and as in effect on the date hereof (the “Certificate of Incorporation”) (as defined in Section 3(p)) or the laws of the state of its incorporation which is or could become applicable to any Buyer as a result of the transactions contemplated by this Agreement, including, without limitation, the Company’s issuance of the Securities and any Buyer’s ownership of the Securities.  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.

 

9

 

(k)           SEC Documents; Financial Statements.  Since December 31, 2002, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the 1934 Act (all of the foregoing filed prior to the date hereof, and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein being hereinafter referred to as the “SEC Documents”).  Except as modified by subsequent filings, as of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, 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 the light of the circumstances under which they were made, not misleading.  Except as modified by subsequent filings, as of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto.  Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments).

 

(l)            Absence of Certain Changes.  Except as disclosed in Schedule 3(l) of the Disclosure Schedule, since June 30, 2003, there has been no Material Adverse Effect with respect to the Company or its Subsidiaries.  Since June 30, 2003, the Company has not (i) declared or paid any dividends, (ii) sold any assets, individually or in the aggregate, in excess of $100,000 outside of the ordinary course of business or (iii) had capital expenditures, individually or in the aggregate, in excess of $500,000.  The Company has not 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.  The Company is not as of the date hereof, and after giving effect to the transactions contemplated hereby to occur at the Closing, will not be Insolvent (as defined below).  For purposes of this Section 3(l), “Insolvent” means (i) the present fair saleable value of the Company’s assets is less than the amount required to pay the Company’s total Indebtedness ( as defined in Section 3(q)), (ii) the Company is unable to pay its debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured, (iii) the Company intends to incur or believes that it will incur debts that would be beyond its ability to pay as such debts mature or (iv) the Company has unreasonably small capital with which to conduct the business in which it is engaged as such business is now conducted and is proposed to be conducted.

 

(m)          No Undisclosed Events, Liabilities, Developments or Circumstances.  No event, liability, development or circumstance has occurred or exists with respect to the Company or its Subsidiaries or their respective business, properties, prospects, operations or financial

 

10

 

condition, that would be required to be disclosed by the Company under applicable securities laws on a registration statement on Form S-1 filed with the SEC relating to an issuance and sale by the Company of its Common Stock and which has not been publicly announced.

 

(n)           Conduct of Business; Regulatory Permits.  Neither the Company nor its Subsidiaries is in violation of any term of or in default under its Certificate of Incorporation, any Certificate of Designations, Preferences and Rights of any outstanding series of preferred stock of the Company or the Company’s Bylaws, as amended and as in effect on the date hereof (the “Bylaws”) or their organizational charter or bylaws, respectively, except for such violations or defaults that would not have, individually or in the aggregate, a Material Adverse Effect. Except as disclosed in Schedule 3(n) of the Disclosure Schedule, neither the Company nor any of its Subsidiaries is in violation of any judgment, decree or order or any statute, ordinance, rule or regulation applicable to the Company or its Subsidiaries, and neither the Company nor any of its Subsidiaries will conduct its business in violation of any of the foregoing, except for possible violations which would not, individually or in the aggregate, have a Material Adverse Effect.  Without limiting the generality of the foregoing, the Company is not in violation of any of the rules, regulations or requirements of The Nasdaq SmallCap Market (the “Principal Market”) which would reasonably lead to delisting or suspension of the Common Stock by the Principal Market in the foreseeable future.  Except as disclosed in Schedule 3(n) of the Disclosure Schedule, since June 30, 2003, (i) the Common Stock has been designated for quotation on the Principal Market, (ii) trading in the Common Stock has not been suspended by the SEC or the Principal Market and (iii) the Company has received no communication, written or oral, from the SEC or the Principal Market regarding the suspension or delisting of the Common Stock from the Principal Market.  The Company and its Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses, except where the failure to possess such certificates, authorizations or permits would not have, individually or in the aggregate, a Material Adverse Effect, and neither the Company nor any such Subsidiary has received any written notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit.

 

(o)           Transactions With Affiliates.  Except as set forth on the SEC Documents filed at least two Business Days prior to the date hereof and other than the grant of stock options, restricted stock or other stock incentives pursuant to stock incentive plans adopted by the Board of Directors, none of the officers, directors or employees of the Company is presently a party to any material transaction with the Company or any of its Subsidiaries (other than for ordinary course services as employees, officers or 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 such officer, director or employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any such officer, director, or employee has a substantial interest or is an officer, director, trustee or partner.

 

(p)           Equity Capitalization.  As of the date hereof, the authorized capital stock of the Company consists of (x) 350,000,000 shares of Common Stock, of which as of September

 

11

 

23, 2003, 84,999,056 are issued and outstanding, 17,760,009 shares are reserved for issuance pursuant to the Company’s stock option and purchase plans and 70,419,064 shares are reserved for issuance pursuant to securities (other than the Debentures and the Warrants) exercisable or exchangeable for, or convertible into, shares of Common Stock, and (y) 10,000,000 shares of preferred stock, of which as of the date hereof, 1,468,250 are issued and outstanding.  All of such outstanding shares have been, or upon issuance will be, validly issued and are fully paid and nonassessable.  Except as disclosed in Schedule 3(p) of the Disclosure Schedule: (i) no shares of the Company’s capital stock are subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company; (ii) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any shares of capital stock of the Company or any of its Subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any shares of capital stock of the Company or any of its Subsidiaries; (iii) there are no outstanding debt securities, notes, credit agreements, credit facilities or other agreements, documents or instruments evidencing Indebtedness of the Company or any of its Subsidiaries or by which the Company or any of its Subsidiaries is or may become bound; (iv) there are no financing statements securing obligations in any material amounts, either singly or in the aggregate, filed in connection with the Company; (v) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of their securities under the 1933 Act (except the Registration Rights Agreement); (vi) there are no outstanding securities or instruments of the Company or any of its Subsidiaries which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to redeem a security of the Company or any of its Subsidiaries; (vii) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities; (viii) the Company does not have any stock appreciation rights or “phantom stock” plans or agreements or any similar plan or agreement; and (ix) the Company and its Subsidiaries have no liabilities or obligations required to be disclosed in the SEC Documents but not so disclosed in the SEC Documents, other than those incurred in the ordinary course of the Company’s or its Subsidiaries’ respective businesses and which, individually or in the aggregate, do not or would not have a Material Adverse Effect.

 

(q)           Indebtedness and Other Contracts.  Except as disclosed in Schedule 3(s) of the Disclosure Schedule and the SEC Documents, neither the Company nor any of its Subsidiaries has (i) incurred any Indebtedness that is outstanding on the date hereof and in excess of $250,000 in the aggregate, (ii) entered into any contract, agreement or instrument, the violation of which, or default under which, by the other party(ies) to such contract, agreement or instrument would reasonably be expected to result in a Material Adverse Effect, (iii) violated any term of or defaulted under any contract, agreement or instrument relating to any Indebtedness, except such violations and defaults which did not or would not result, individually or in the

 

12

 

aggregate, in a Material Adverse Effect, or (iv) entered into any contract, agreement or instrument relating to any Indebtedness, the performance of which, in the judgment of the Company’s officers, has or is expected to have a Material Adverse Effect.  Schedule 3(q) of the Disclosure Schedule provides a detailed description of the material terms of any such outstanding Indebtedness.  For purposes of this Agreement:  (x) “Indebtedness” of any Person means, without duplication (A) all indebtedness for borrowed money, (B) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (other than trade payables entered into in the ordinary course of business), (C) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (D) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses, (E) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (F) all monetary obligations under any leasing or similar arrangement which, in connection with generally accepted accounting principles, consistently applied for the periods covered thereby, is classified as a capital lease, and (G) all indebtedness referred to in clauses (A) through (F) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness, and (H) all Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (A) through (G) above; (y) “Contingent Obligation” means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto; and (z) “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof.

 

(r)            Absence of Litigation.  There is no action, suit, proceeding, inquiry or investigation before or by the Principal Market, any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company, threatened against or affecting the Company, the Common Stock or any of the Company’s Subsidiaries or any of the Company’s or the Company’s Subsidiaries’ officers or directors in their capacities as such which would reasonably be expected to have a Material Adverse Effect, except as set forth in Schedule 3(r) of the Disclosure Schedule.

 

(s)           Insurance.  The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which

 

13

 

the Company and its Subsidiaries are engaged.  Neither the Company nor any such Subsidiary has been refused any insurance coverage sought or applied for and neither the Company nor any such Subsidiary has any reason to believe that it will not be able to renew its 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 at a cost that would not have a Material Adverse Effect.

 

(t)            Employee Relations.  (i)  Neither the Company nor any of its Subsidiaries is a party to any collective bargaining agreement or employs any member of a union.  No executive officer of the Company (as defined in Rule 501(f) of the 1933 Act) has notified the Company that such officer intends to leave the Company or otherwise terminate such officer’s employment with the Company.  No executive officer of the Company, to the knowledge of the Company, 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, to the Company’s knowledge, the continued employment of each such executive officer as of the date hereof does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters.

 

(ii)           The Company and its Subsidiaries are in compliance with all federal, state, local and foreign laws and regulations respecting employment and employment practices, terms and conditions of employment and wages and hours, except where failure to be in compliance would not, either individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.

 

(u)           Title.  The Company and its Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its Subsidiaries, in each case free and clear of all material liens, encumbrances and defects except such as are described in Schedule 3(w) or such as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and any of its Subsidiaries.   Any real property and facilities held under lease by the Company and any of its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its Subsidiaries.

 

(v)           Intellectual Property Rights.  The Company and its Subsidiaries own or possess adequate rights or licenses to use all material trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and other intellectual property rights used to conduct their respective businesses as now conducted (“Intellectual Property Rights”).  Except as set forth in Schedule 3(v), none of the Company’s Intellectual Property Rights have expired or terminated, or are expected to expire or terminate, within three years from the date of this Agreement and the Company does not have any knowledge of any infringement by the Company or its Subsidiaries of intellectual property rights of others.  Except as set forth in

 

14

 

Schedule 3(v) of the Disclosure Schedule, there is no claim, action or proceeding being made or brought, or to the knowledge of the Company, being threatened, against the Company or its Subsidiaries regarding its Intellectual Property Rights.  Except as set forth on Schedule 3(v) of the Disclosure Schedule, the Company is unaware of any facts or circumstances which might give rise to any of the foregoing infringements or claims, actions or proceedings.  The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties.

 

(w)          Subsidiary 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 material Subsidiaries as owned by the Company or such Subsidiary.

 

(x)            Tax Status.  The Company and each of its Subsidiaries (i) has made or filed all federal and state income tax returns, (ii) has made or filed all other tax returns, reports and declarations required by any jurisdiction to which it is subject except where the failure to make or file such other tax returns, reports and declarations would not cause a Material Adverse Effect, (iii) has 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 (iv) 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.  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.

 

(w)          Internal Accounting Controls.  The Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with 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 difference.

 

(x)            Disclosure.  The Company confirms that neither it nor, to its knowledge, any officer, director or agent of the Company has provided any of the Buyers or their respective agents or counsel with any information that constitutes material, nonpublic information.  The Company understands and confirms that each of the Buyers will rely on the foregoing representations in effecting transactions in securities of the Company.  All disclosure provided to the Buyers regarding the Company, its business and the transactions contemplated hereby, including the Schedules to this Agreement, furnished by or on behalf of the Company are true and correct in all material respects and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading.  The Company acknowledges

 

15

 

and agrees that no Buyer makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in the Transaction Documents.

 

(y)           Form S-3 Eligibility.  The Company is eligible to register shares of Common Stock for resale by the Buyers under Form S-3 promulgated under the 1933 Act.

 

4.             COVENANTS.

 

(a)           Best Efforts.  Each party shall use its best efforts timely to satisfy each of the conditions to be satisfied by it as provided in Sections 6 and 7 of this Agreement.

 

(b)           [Intentionally Omitted.]

 

(c)           Reporting Status.  Until the later of (i) the date on which the Investors (as defined in the Registration Rights Agreement) shall have sold all the Conversion Shares, the Repayment Shares, the Interest Shares and Warrant Shares and none of the Debentures or the Warrants is outstanding, or (ii) the second anniversary of the date hereof (the “Reporting Period”), the Company shall file all reports required to be filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would otherwise permit such termination.

 

(d)           Financial Information.  The Company agrees to send the following to each Investor during the Reporting Period (i) unless the following are filed with the SEC through EDGAR, within three (3) Business Days after the filing thereof with the SEC, a copy of its Annual Reports on Form 10-K, its Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and any registration statements (other than on Form S-8) or amendments filed pursuant to the 1933 Act and (ii) copies of any notices and other information made available or given to the stockholders of the Company generally, contemporaneously with the making available or giving thereof to the stockholders.

 

(e)           Listing.  The Company shall, in accordance with the Transaction Documents, secure the listing of all of the Registrable Securities (as defined in the Registration Rights Agreement) upon each national securities exchange and automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance) and shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all Registrable Securities from time to time issuable under the terms of the Transaction Documents.  The Company shall maintain the Common Stock’s authorization for quotation on the Principal Market or the Nasdaq National Market.  Neither the Company nor any of its Subsidiaries shall take any action which would be reasonably expected to result in the delisting or suspension of the Common Stock on the Principal Market, except for any temporary suspension of trading as may be required to undertake a “phase-up” to the Nasdaq National Market.  The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section 4(f).

 

16

 

(f)            Fees.  The Company shall reimburse the Buyers in the aggregate amount of $40,000 for the Buyers’ reasonable expenses incurred in connection with the preparation, execution and performance of this Agreement and the transactions contemplated hereunder, which amount will be net funded from the Purchase Price of Riverview Group LLC at the Closing.  The Company shall be responsible for the payment of any placement agent’s fees, financial advisory fees, or broker’s commissions (with respect to any Person retained by the Company, but not for such fees or commission for any Person engaged by any Buyer), relating to or arising out of the transactions contemplated hereby, including, without limitation, any fees or commissions payable to the Agent.  The Company shall pay, and hold each Buyer harmless against, any liability, loss or expense (including, without limitation, reasonable attorney’s fees and out-of-pocket expenses) arising in connection with any claim relating to any such payment.  Except as otherwise set forth in this Agreement or in the Transaction Documents, each party to this Agreement shall bear its own expenses in connection with the sale of the Securities to the Buyers.

 

(g)           Pledge of Securities.  The Company acknowledges and agrees that the Securities may be pledged by an Investor (as defined in the Registration Rights Agreement) in connection with a bona fide margin agreement or other loan or financing arrangement that is secured by the Securities.  The pledge of Securities shall not be deemed to be a transfer, sale or assignment of the Securities hereunder, and no Investor effecting a pledge of Securities shall be required to provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant to this Agreement or any other Transaction Document, including, without limitation, Section 2(f) hereof; provided that an Investor and its pledgee shall be required to comply with the provisions of Section 2(f) hereof in order to effect a sale, transfer or assignment of Securities to such pledgee.  The Company hereby agrees to execute and deliver such documentation as a pledgee of the Securities may reasonably request in connection with a pledge of the Securities to such pledgee by an Investor.

 

(h)           Disclosure of Transactions and Other Material Information.  On or before 8:30 a.m., New York Time, on the first Business Day following the Closing Date, the Company shall file a Current Report on Form 8-K describing the terms of the transactions contemplated by the Transaction Documents in the form required by the 1934 Act, and attaching the material Transaction Documents (including, without limitation, this Agreement (and all schedules to this Agreement), the form of Debenture, the form of Warrant and the Registration Rights Agreement) as exhibits to such filing (including all attachments, the “8-K Filing”).  As of the filing of the 8-K Filing with the SEC, unless required pursuant to Section 3(i) of the Registration Rights Agreement, no Buyer shall be in possession of any material, nonpublic information received from the Company, any of its Subsidiaries or any of its respective officers, directors, employees or agents, that is not disclosed in the 8-K Filing.  Unless required pursuant to Section 3(i) of the Registration Rights Agreement, the Company shall not, and shall use its reasonable best efforts to cause each of its Subsidiaries and its and each of their respective officers, directors, employees and agents, not to, provide any Buyer with any material, nonpublic information regarding the Company or any of its Subsidiaries from and after the filing of the 8-K Filing with the SEC without the express written consent of such Buyer.  Buyer shall not, and shall use its reasonable best efforts to cause each of its respective officers, directors, employees and agents not to, solicit

 

17

 

from the Company, or from its officers, directors, employees and agents any material non-public information regarding the Company or any of its Subsidiaries.  Subject to the foregoing, neither the Company nor any Buyer shall issue any press releases or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of any Buyer, to make any press release or other public disclosure with respect to such transactions (i) in substantial conformity with the 8-K Filing and (ii) as is required by applicable law and regulations (provided that in the case of clause (i) each Buyer shall be consulted by the Company in connection with any such press release or other public disclosure prior to its release).

 

(i)            Additional Debentures; Variable Securities; Additional Registration Statement.  For so long as any Buyer beneficially owns any Debentures, the Company will not issue any Debentures other than to investors (the “Prior Investors”) who exercise their right to purchase up to 19.6% of the Debentures (and the related Warrants) pursuant to the terms currently in effect in Section 3 of the Investors’ Rights Agreement dated as of May 30, 2003 (the “Prior Agreement”) or the Buyers as contemplated hereby and the Company shall not issue any other securities that would cause a breach or default under the Debentures.  Each Prior Investor who purchases Debentures hereunder shall be considered a “Buyer” for all purposes of this Agreement.  For long as any Debentures remain outstanding, the Company shall not, in any manner, issue or sell any rights, warrants or options to subscribe for or purchase Common Stock or directly or indirectly convertible into or exchangeable or exercisable for Common Stock at a price which varies or may vary with the market price of the Common Stock, including by way of one or more reset(s) to any fixed price unless the conversion, exchange or exercise price of any such security cannot be less than the then applicable Conversion Price (as defined in the Debentures) with respect to the Common Stock under any into which any Debenture is convertible.  Until such time as the Registration Statement (as defined in the Registration Rights Agreement) is declared effective by the SEC, the Company will not file a registration statement under the 1933 Act relating to securities that are not the Securities (including any Debentures and Warrants sold to Prior Investors), other than warrants to purchase an aggregate of 428,571 shares of Common Stock issued to the Company’s placement agent and other than a registration statement on Form S-8, in order to register increases in the shares underlying equity incentive plans in existence as of the date of this Agreement.

 

(j)            Corporate Existence.  So long as any Buyer beneficially owns greater than ten percent of the Debentures issued hereunder, the Company shall maintain its corporate existence and shall not sell all or substantially all of the Company’s assets, except in the event of a merger or consolidation or sale of all or substantially all of the Company’s assets in compliance with the terms of the Debentures.

 

(k)           Waivers.  The Company shall use its reasonable best efforts (without cost or expense), to obtain in an expeditious manner, waivers from the Prior Investors with respect to the exercise of their right to purchase up to 19.6% of the Debentures (and the related Warrants) pursuant to the Prior Agreement.

 

(l)            Conduct of Business.  The business of the Company and its Subsidiaries

 

18

 

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.

 

(m)          Right of Participation.

 

(i)            For a period of 12 months following the Closing Date, the Company shall not issue, sell or exchange, agree or obligate itself to issue, sell or exchange or reserve or set aside for issuance, sale or exchange (a “Future Issuance”), (A) any shares of Common Stock, (B) any other equity security of the Company, including without limitation shares of preferred stock, (C) any debt security of the Company (other than debt with no equity feature), including without limitation any debt security which by its terms is convertible into or exchangeable for any equity security of the Company, (D) any security of the Company that is a combination of debt and equity, or (E) any option, warrant or other right to subscribe for, purchase or otherwise acquire any such equity security or any such debt security of the Company, unless in each case the Company shall have first offered to sell (in the case of public offerings, to the extent permitted by the SEC and other applicable laws, as reasonably determined by the Company upon consultation with counsel) the Offered Securities (as defined) to the Buyers (in all respects upon identical terms and conditions, including, without limitations, unit price and interest rates) as follows:  The Company shall offer to sell to each Buyer (1) that portion of the Offered Securities as the principal amount of Debentures acquired by such Buyer at the Closing bears to the total principal amount of Debentures acquired by all Buyers at the Closing (the “Basic Amount”), and (2) such additional portion of the Offered Securities as such Buyer shall indicate it will purchase should the other Buyers subscribe for less than their Basic Amounts (the “Undersubscription Amount”), at a price and on such other terms as shall have been specified by the Company in writing delivered to such Buyer (the “Offer”), which Offer by its terms shall remain open and irrevocable for a period of 10 days from receipt of the Offer. “Offered Securities” means the aggregate amount of the securities being issued or sold in the Future Issuance less any Securities offered to other stockholders of the Company pursuant to agreements existing as of the date hereof and set forth on Schedule 3(p) of the Disclosure Schedule; provided, however, that with respect to Future Issuances that are underwritten public offerings, “Offered Securities” means the Buyers’ pro rata share of the aggregate amount of securities being issued or sold in such Future Issuance, calculated on a fully diluted basis assuming the full conversion of the Debentures and exercise of the Warrants and all other Options and Convertible Securities then outstanding.

 

(ii)           Notice of each Buyer’s intention to accept, in whole or in part, any Offer made pursuant to Section 4(m)(i) shall be evidenced by a writing signed by such Buyer and delivered to the Company prior to the end of the 10-day period of such Offer, setting forth such of the Buyer’s Basic Amount as such Buyer elects to purchase (the “Notice of Acceptance”).

 

(iii)          Permitted Sales of Refused Securities.  If Notices of Acceptance are not given in a timely fashion by the Buyers in respect of all the Offered Securities, the Company shall have 120 days from the expiration of the period set forth in Section 4(m)(i) to close the sale of all or any part of such Offered Securities as to which a Notice of Acceptance has

 

19

 

not been given by the Buyers (the “Refused Securities”) (as well as the other securities proposed to be issued in a Future Issuance) to any other Person or Persons, but only for cash and otherwise in all respects upon terms and conditions, including, without limitation, unit price and interest rates, which are no more favorable, in the aggregate, to such other Person or Persons or less favorable to the Company than those set forth in the Offer.

 

(iv)          Reduction in Amount of Offered Securities.  If the Company shall propose to sell less than all the Refused Securities (any such sale to be in the manner and on the terms specified in Section 4(m)(iii) above), then each Buyer may, at its sole option and in its sole discretion, reduce the number or other units of the Offered Securities specified in its Notice of Acceptance to an amount which shall be not less than the amount of the Offered Securities which such Buyer elected to purchase pursuant to Section 4(m)(ii) multiplied by a fraction, (A) the numerator of which shall be the amount of Offered Securities which the Company actually proposes to sell, and (B) the denominator of which shall be the amount of all Offered Securities.  In the event that any Buyer so elects to reduce the number or amount of Offered Securities specified in its Notice of Acceptance, the Company may not sell or otherwise dispose of more than the reduced amount of the Offered Securities until such securities have been offered to the Buyers in accordance with Section 4(m).

 

(v)           Closing.  Upon each closing under this Section 4(m), which shall include full payment to the Company, the Buyer shall purchase from the Company, and the Company shall sell to the Buyer the number of Offered Securities specified in the Notices of Acceptance, as reduced pursuant to Section 4(m)(iv) if the Buyers have so elected, upon the terms and conditions specified in the Offer.  The purchase by the Buyers of any Offered Securities is subject in all cases to the preparation, execution and delivery by the Company and the Buyers of a purchase agreement relating to such Offered Securities reasonably satisfactory in form and substance to the Company and the Buyers and their respective counsel, provided that such purchase agreement shall not contain terms more favorable than any terms originally stipulated in connection with the Offered Securities.

 

(vi)          Further Sale.  In each case, any securities proposed to be issued in a Future Issuance that are not purchased by the Buyers or other Person or Persons in accordance with Section 4 may not be sold or otherwise disposed of until they are again offered to the Buyers to the same extent, and under the procedures specified in, Section 4(m).

 

(vii)         Exception.  The rights of the Buyers under this Section 4(m) shall not apply to: (A) Common Stock issued as a stock dividend to all holders of Common Stock or upon any subdivision or combination of shares of Common Stock, (B) Securities issued to a Buyer pursuant to terms of the Debentures or upon exercise of the Warrants or issued upon conversion or exercise of any other currently outstanding securities of the Company pursuant to the terms of such securities, (C) pursuant to a bona fide firm commitment underwritten public offering with a nationally recognized underwriter which generates gross proceeds to the Company in excess of $20,000,000 (other than an “at the market offering” as defined in Rule 415(a)(4) under the 1933 Act and “equity lines”), (D) in connection with any employee benefit plan which has been approved by the Board of Directors of the Company, pursuant to which the

 

20

 

Company’s securities may be issued to any employee, officer or director of, or consultant or other service provider to, the Company for services provided to the Company, (E) securities issued not primarily for capital raising purposes and in connection with bona fide, arm’s length strategic partnerships, acquisitions or joint ventures (including, without limitation, licenses, licensors, customer and vendors) in which there is a significant commercial relationship with the Company, (F) with the prior written approval of a majority in interest of the Buyers, which will not be unreasonably withheld, conditioned or delayed and (G) securities issued pursuant to the terms currently in effect in the Prior Agreement or pursuant to that certain Investor Rights Agreement dated as of July 2, 2003, by and among the Company and the investors listed on the signature page thereto (collectively, “Excluded Securities”).

 

(n)           Limitations on Short Sales.  Each Buyer agrees that it will not enter into any Short Sales (as defined below) from the period commencing on the Closing Date and ending on the date which all of the Debentures it owns have been converted and all of the Warrants it owns have been exercised provided that from and after the Registration Deadline such Conversion Shares and Warrant Shares are registered for resale pursuant to the Registration Statement.  For purposes of this Section 3(n), a “Short Sale” by a Buyer shall mean a sale of Common Stock by the Buyer that is marked as a short sale and that is made at a time when there is no equivalent offsetting long position in Common Stock held by the Buyer.  For purposes of determining whether there is an equivalent offsetting long position in Common Stock held by the Buyer, the amount of shares of Common Stock held in a long position shall include the number of Warrant Shares issuable pursuant to the Warrants the Buyer owns and the number of Conversion Shares issuable pursuant to the Debentures the Buyer owns.  To the extent that the foregoing sentence permits short sales, then such transactions may only be effected in accordance with Rule 10a-1 under the 1934 Act.

 

(o)           Directed Selling.  Each Buyer covenants and agrees that, in the event that it wishes to arrange a sale of a block of Conversion Shares or Warrant Shares which represents 2.5% or more of the issued and outstanding Common Stock of the Company (the “Block Sale Shares”), the Buyer shall first make an offer in writing to the Company to sell the Block Sale Shares to the Company or its designee(s) (the “Designated Purchasers”) at a price and on the same terms and conditions as it wishes to arrange the sale of the Block Sale Shares.  The Designated Purchasers may accept such offer within 24 hours of the receipt of the offer made to the Company failing which the offer shall be deemed to be refused.  Following such 24-hour notice, the Buyer shall sell the Block Sale Shares on a basis which is not more advantageous to a buyer than the terms provided to the Company.

 

5.             REGISTER; TRANSFER AGENT INSTRUCTIONS.

 

(a)           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 Debentures or Warrants), a register for the Debentures and the Warrants, in which the Company shall record the name and address of the Person in whose name the Debentures and the Warrants have been issued (including the name and address of each transferee), the principal amount of Debentures held by such Person 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 normal business hours for inspection of any Buyer or its legal representatives.

 

21

 

(b)           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”), registered in the name of each Buyer or its respective nominee(s), for the Conversion Shares, the Repayment Shares, the Interest Shares and the Warrant Shares in such amounts as specified from time to time by each Buyer to the Company upon issuance of the Repayment Shares or Interest Shares or conversion of the Debentures or exercise of the Warrants in the form of Exhibit D attached hereto (the “Irrevocable Transfer Agent Instructions”).  The Company warrants that no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5(b), and stop transfer instructions to give effect to Section 2(g) hereof, will be given by the Company to its transfer agent, and that the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the other Transaction Documents, subject to applicable securities laws.  If a Buyer effects a sale, assignment or transfer of the Securities in accordance with Section 2(f), 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 in such name and in such denominations as specified by such Buyer to effect such sale, transfer or assignment.  In the event that such sale, assignment or transfer involves Conversion Shares, Repayment Shares, Interest Shares or Warrant Shares sold, assigned or transferred pursuant to an effective registration statement or pursuant to Rule 144, the transfer agent shall issue such Securities to the Buyer, assignee or transferee, as the case may be, without any restrictive legend.  The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to a Buyer.  Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 5(b) will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section 5(b), that a Buyer 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.

 

6.             CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.

 

The obligation of the Company hereunder to issue and sell the Debentures and the related Warrants to each Buyer at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion by providing each Buyer with prior written notice thereof:

 

(a)           Such Buyer shall have executed each of the Transaction Documents to which it is a party and delivered the same to the Company.

 

(b)           Such Buyer and each other Buyer shall have delivered to the Company the Purchase Price (less, in the case of The Riverview Group, LLC, the amounts withheld pursuant to Section 4(f)) for the Debentures and the related Warrants being purchased by such Buyer and each other Buyer at the Closing by wire transfer of immediately available funds pursuant to the wire instructions provided by the Company.

 

22

 

(c)           The representations and warranties of such Buyer shall be true and correct in all material respects (except for representations and warranties that are qualified by materiality, which shall be true and correct in all respects) as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date), and such Buyer shall have performed, satisfied and complied in all material respects (except for covenants, agreements and conditions that are qualified by materiality, which shall be complied with in all respects) with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by such Buyer at or prior to the Closing Date.  The Company shall have received a certificate, executed by an authorized officer of such Buyer, dated as of the Closing Date, to the foregoing effect in the form attached hereto as Exhibit G-1.

 

7.             CONDITIONS TO EACH BUYER’S OBLIGATION TO PURCHASE.

 

The obligation of each Buyer hereunder to purchase the Debentures and the related Warrants at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for each Buyer’s sole benefit and may be waived by such Buyer at any time in its sole discretion by providing the Company with prior written notice thereof:

 

(a)           The Company shall have executed and delivered to such Buyer (i) each of the Transaction Documents and (ii) the Debentures (in such principal amounts as such Buyer shall request) and the related Warrants (in such amounts as such Buyer shall request) being purchased by such Buyer at the Closing pursuant to this Agreement.

 

(b)           Such Buyer shall have received the opinion of Proskauer Rose LLP, the Company’s counsel, dated as of the Closing Date, in substantially the form of Exhibit E attached hereto.

 

(c)           The Company shall have delivered to such Buyer a copy of the Irrevocable Transfer Agent Instructions, in the form of Exhibit D attached hereto, which instructions shall have been delivered to and acknowledged in writing by the Company’s transfer agent.

 

(d)           The Company shall have delivered to such Buyer a certificate evidencing the incorporation and good standing of the Company and each of its Subsidiaries in such corporation’s state of incorporation issued by the Secretary of State of such state of incorporation, as of a date within 10 days of the Closing Date.

 

(e)           The Company shall have delivered to such Buyer a certificate evidencing the Company’s qualification as a foreign corporation and good standing issued by the Secretary of State of the States of California and New York as of a date within 10 days of the Closing Date.

 

(f)            The Company shall have delivered to such Buyer a certified copy of the Certificate of Incorporation as certified by the Secretary of State of Delaware within 10 days of

 

23

 

the Closing Date.

 

(g)           The Company shall have delivered to such Buyer a certificate, executed by the Secretary of the Company and dated as of the Closing Date, as to (i) the resolutions consistent with Section 3(b) as adopted by the Company’s Board of Directors in a form reasonably acceptable to such Buyer (the “Resolutions”), (ii) the Certificate of Incorporation and (iii) the Bylaws, each as in effect at the Closing, in the form attached hereto as Exhibit F.

 

(h)           The representations and warranties of the Company shall be true and correct in all material respects (except for representations and warranties that are qualified by materiality, which shall be true and correct in all respects) as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all material respects (except for covenants, agreements and conditions that are qualified by materiality, which shall be complied with in all respects) with the covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by the Company at or prior to the Closing Date.  Such Buyer shall have received a certificate, executed by the Chief Executive Officer of the Company, dated as of the Closing Date, to the foregoing effect in the form attached hereto as Exhibit G-2.

 

(i)            The Company shall have delivered to such Buyer a letter from the Company’s transfer agent certifying the number of shares of Common Stock outstanding as of a date within five days of the Closing Date.

 

(j)            The Common Stock (i) shall be designated for quotation or listed on the Principal Market and (ii) shall not have been suspended, as of the Closing Date, by the SEC or the Principal Market from trading on the Principal Market nor shall suspension by the SEC or the Principal Market have been threatened, as of the Closing Date, either (A) in writing by the SEC or the Principal Market or (B) by falling below the minimum listing maintenance requirements of the Principal Market.

 

(k)           The Company shall have obtained all governmental, regulatory or third party consents and approvals, if any, necessary for the sale of the Debentures and the Warrants.

 

8.             TERMINATION.  In the event that the Closing shall not have occurred with respect to a Buyer on or before five (5) Business Days from the date hereof due to the Company’s or such Buyer’s failure to satisfy the conditions set forth in Sections 6 and 7 above (and the nonbreaching party’s failure to waive such unsatisfied condition(s)), the nonbreaching party shall have the option to terminate this Agreement with respect to such breaching party at the close of business on such date without liability of any party to any other party; provided, however, this if this Agreement is terminated pursuant to this Section 8, the Company shall remain obligated to reimburse the non-breaching Buyers for the expenses described in Section 4(f) above.

 

24

 

9.             MISCELLANEOUS.

 

(a)           Governing Law; Jurisdiction; Jury Trial.  All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York.  Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan, 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 suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper.  Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such 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 HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

(b)           Counterparts.  This Agreement may be executed in two or more identical counterparts, all of which 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; provided that a facsimile signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile signature.

 

(c)           Headings.  The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement.

 

(d)           Severability.  If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction.

 

(e)           Entire Agreement; Amendments.  This Agreement supersedes all other prior oral or written agreements between the Buyers, the Company, their affiliates and Persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor any Buyer makes any representation, warranty, covenant or undertaking with respect to such matters.  No provision of this Agreement may be amended other than by an instrument in writing signed by the Company and the holders of Debentures representing at least

 

25

 

two-thirds of the aggregate principal amount of the Debentures, or, if prior to the Closing Date, the Company and the Buyers listed on the Schedule of Buyers as being obligated to purchase at least a majority of the aggregate principal amount of the Debentures, and any amendment to this Agreement made in conformity with the provisions of this Section 9(e) shall be binding on all Buyers and holders of Debentures, as applicable.  No provision hereof may be waived other than by an instrument in writing signed by the party against whom enforcement is sought.  No such amendment shall be effective to the extent that it applies to less than all of the holders of the Debentures then outstanding.  No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration also is offered to all of the parties to the Transaction Documents, holders of Debentures or holders of the Warrants, as the case may be.

 

(f)            Notices.  Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered:  (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one Business Day after deposit with an overnight courier service, in each case properly addressed to the party to receive the same.  The addresses and facsimile numbers for such communications shall be:

 

If to the Company:
	24/7 Real Media, Inc.
	1250 Broadway, 27th Floor
	New York, New York 10001
	Telephone:		(212) 231-7100
	Facsimile:		(212) 760-2811 and
			(212) 760-1081
	Attention:		David J. Moore, Chief Executive Officer and
			Mark E. Moran, Esq., Executive Vice President and General Counsel
	with a copy (which shall not constitute notice) to:
	Proskauer Rose LLP
	1585 Broadway
	New York, New York 10036
	Telephone: (212) 969-3000
	Facsimile: (212) 969-2900
	Attention:  Ronald R. Papa, Esq.
If to the Transfer Agent:

 

26

 

	The Bank of New York
	101 Barclay Street
	New York, New York 10007-2702
	Telephone:		(212) 815-4197
	Facsimile:		(212) 815-6477
	Attention:		Margaret Villani

 

If to a Buyer, to its address and facsimile number set forth on the Schedule of Buyers, with copies to such Buyer’s representatives as set forth on the Schedule of Buyers, or to such other address and/or facsimile number and/or to the attention of such other Person as the recipient party has specified by written notice given to each other party five (5) days prior to the effectiveness of such change.  Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender’s facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by an overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from an overnight courier service in accordance with clause (i), (ii) or (iii) above, respectively.

 

(g)           Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, including any purchasers of the Debentures or the Warrants.  The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the holders of Debentures representing at least a majority of the aggregate principal amount of the Debentures then outstanding, including by merger or consolidation, except pursuant to a Change of Control (as defined in Section 5 of the Debentures) with respect to which the Company is in compliance with Section 5 of the Debentures and Section 4(b) of the Warrants.  A Buyer may assign some or all of its rights hereunder without the consent of the Company, in which event such assignee shall be deemed to be a Buyer hereunder with respect to such assigned rights.

 

(h)           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.

 

(i)            Survival.  Unless this Agreement is terminated under Section 8, the representations and warranties of the Company and the Buyers contained in Sections 2 and 3 and the agreements and covenants set forth in Sections 4, 5 and 9 shall survive the Closing.  Each Buyer shall be responsible only for its own representations, warranties, agreements and covenants hereunder.

 

(j)            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.

 

27

 

(k)           Indemnification.  In consideration of each Buyer’s execution and delivery of the Transaction Documents and acquiring the Securities thereunder and in addition to all of the Company’s other obligations under the Transaction Documents, the Company shall, assuming Buyer and its Indemnitees have complied with all of the terms and conditions of the Transaction Documents, defend, protect, indemnify and hold harmless each Buyer and each other holder of the Securities and all of their stockholders, partners, members, officers, directors, employees 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) (collectively, the “Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in the Transaction Documents, (b) any material breach of any covenant, agreement or obligation of the Company contained in the Transaction Documents or (c) any cause of action, suit or claim brought or made against such Indemnitee 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 or any other certificate, instrument or document contemplated hereby or thereby, (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, (iii) the status of the Buyer or holder of the Securities as an investor in the Company other than in connection with affirmative actions taken by the Buyer which are not pursuant to or contemplated by the Transaction Documents, or (iv) any indemnification obligations under the Escrow Agreement.  To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law.  The foregoing indemnification obligations set forth in this Section 9(k) shall not apply to any Indemnified Liability that is judicially determined on the merits to have been caused primarily by the gross negligence, bad faith, willful misfeasance, or reckless disregard of obligations or duties on the part of the Buyer or its Indemnitees. Except as otherwise set forth herein, the mechanics and procedures with respect to the rights and obligations under this Section 9(k) shall be the same as those set forth in Section 6 of the Registration Rights Agreement.

 

(l)            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.

 

(m)          Remedies.  Each Buyer and each holder of the Securities shall have all rights and remedies set forth in the Transaction Documents and all rights and remedies which such holders have been granted at any time under any other agreement or contract and all of the rights which such holders have under any law.  Any Person having any rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any breach of any provision of this

 

28

 

Agreement and to exercise all other rights granted by law.  Furthermore, the Company recognizes that in the event that it fails to perform, observe, or discharge any or all of its obligations under the Transaction Documents, any remedy at law may prove to be inadequate relief to the Buyers.  The Company therefore agrees that the Buyers shall be entitled to seek temporary and permanent injunctive relief in any such case without the necessity of proving actual damages and without posting a bond or other security.

 

(n)           Payment Set Aside.  To the extent that the Company makes a payment or payments to the Buyers hereunder or pursuant to any of the other Transaction Documents or the Buyers enforce or exercise their rights hereunder or 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.

 

(o)           Independent Nature of Buyers’ Obligations and Rights.  The obligations of each Buyer under any Transaction Document are several and not joint with the obligations of any other Buyer, and no Buyer shall be responsible in any way for the performance of the obligations of any other Buyer under any Transaction Document.  Nothing contained herein or in any other Transaction Document, and no action taken by any Buyer pursuant hereto or thereto, shall be deemed to constitute the Buyers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Buyers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents.  Each Buyer confirms that it has independently participated in the negotiation of the transaction contemplated hereby with the advice of its own counsel and advisors.  Each Buyer shall be entitled to independently protect and enforce its rights, including, without limitations, the rights arising out of this Agreement or out of any other Transaction Documents, and it shall not be necessary for any other Buyer to be joined as an additional party in any proceeding for such purpose.

 

[Signature Page Follows]

 

29

 

IN WITNESS WHEREOF, each Buyer and the Company have caused this Securities Purchase Agreement to be duly executed as of the date first written above.

 

COMPANY:				BUYER:
24/7 REAL MEDIA, INC.				THE RIVERVIEW GROUP, LLC
By:	/s/ David J. Moore			By:	/s/ Terry Feeney
	Name:	David J. Moore			Name:	Terry Feeney
	Title:	Chief Executive Officer			Title:	Chief Operating Officer

 

 

SCHEDULE OF BUYERS

 

(1)		(2)		(3)			(4)		(5)
Buyer		Address and Facsimile Number		Aggregate Principal Amount of Debentures			Number of Warrants		Legal Representative’s Address and Facsimile Number
The Riverview Group, LLC		666 Fifth Avenue, 8th Floor New York, New York  10103 Attention:  Daniel Cardella Facsimile:  (212) 977-1667 Telephone: (212) 841-4100 Residence:  Delaware		$	15,000,000		1,802,820		Schulte Roth & Zabel LLP 919 Third Avenue New York, New York  10022 Attention:  Eleazer Klein, Esq. Facsimile:  (212) 593-5955 Telephone:  (212) 756-2000

 

 

EXHIBITS

 

 

Exhibit A		Form of Debentures
Exhibit B		Form of Warrants
Exhibit C		Form of Registration Rights Agreement
Exhibit D		Form of Irrevocable Transfer Agent Instructions
Exhibit E		Form of Company Counsel Opinion
Exhibit F		Form of Secretary’s Certificate
Exhibit G-1		Form of Buyer Officer’s Certificate
Exhibit G-2		Form of Company Officer’s Certificate
Exhibit H		Form of Escrow Agreement
Exhibit I		Disclosure Schedules