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, 27th
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


 


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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


 


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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,


 


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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


 


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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


 


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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


 


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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


 


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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.


 


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(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