Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
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THIS SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of February
18, 2005, by and among Pathogenics, Inc., a Delaware corporation, with
headquarters located at 00 Xxx Xxxxx Xxxx, Xxxxxxxx, Xxxxxxxxxxxxx 00000 (the
"Company"), and the purchasers named on the signature page hereto (each a
"Purchaser" and collectively "Purchasers").
WHEREAS, the Company and the Purchasers are executing and delivering this
Agreement in reliance upon an exemption from securities registration afforded by
the rules and regulations promulgated by the United States Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "1933 Act").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Purchasers will purchase and the Company
desires to issue and sell, upon the terms and conditions set forth in this
Agreement 8% convertible preferred stock of the Company, in the aggregate
principal amount of Two Hundred Seventy Five Thousand Dollars ($275,000)
(together with any share(s) issued in replacement thereof or as a dividend
thereon or otherwise with respect thereto in accordance with the terms thereof,
the "PREFERRED STOCK"), convertible into shares of Common Stock, par value $.001
per share, of the Company (the "COMMON STOCK") at a per share conversion price
of $0.029 ("Conversion Price"), upon the terms and subject to the limitations
and conditions set forth in the Certificate of Designations of Preferred Stock
attached hereto as EXHIBIT A. The Preferred Stock and Common Stock are
collectively referred to herein as "SECURITIES"; and
WHEREAS, the aggregate proceeds of the sale of the Preferred Stock
contemplated hereby shall be held in escrow pursuant to the terms of a Funds
Escrow Agreement to be executed by the parties substantially in the form
attached hereto as EXHIBIT B (the "ESCROW AGREEMENT").
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Purchasers hereby
agree as follows:
1. Initial Closing. Subject to the satisfaction or waiver of the terms
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and conditions of this Agreement, on the INITIAL CLOSING DATE, each Purchaser
shall purchase and the Company shall sell to each Purchaser, Preferred Stock in
the amount designated on the signature page hereto ("INITIAL CLOSING PREFERRED
STOCK"). The aggregate amount of the Preferred Stock to be purchased by the
Purchasers on the Initial Closing Date shall, in the aggregate, be equal to the
Initial Closing Purchase Price. The Initial Closing Date shall be the date that
funds representing the net amount due the Company from the Initial Closing
Purchase Price of the Offering is transmitted by wire transfer or otherwise to
or for the benefit of the Company.
2. Second Closing.
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(a) Second Closing. The closing date in relation to the Second Closing
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Purchase Price shall be the fifth (5th) business day after the filing of
the Registration Statement as defined in Section 12.1(iv) of this Agreement
(the "SECOND CLOSING DATE"). Subject to the satisfaction or waiver of the
terms and conditions of this Agreement on the Second Closing Date, each
Purchaser shall purchase and the Company shall sell to each Purchaser,
Preferred Stock in the principal amount designated on the signature page
hereto ("SECOND CLOSING PREFERRED STOCK"). The aggregate Purchase Price of
the Second Closing Preferred Stock for all Purchasers shall be equal to the
Second Closing Purchase Price. The Second Closing Preferred Stock shall be
identical to the Preferred Stock issuable on the Initial Closing Date
except that the Conversion Price (defined in the Preferred Stock
Certificate of Designations) shall be equitably adjusted to offset the
effect of stock splits, stock dividends, pro rata distributions of property
or equity interests to the Company's shareholders after the Initial Closing
Date.
(b) Conditions to Second Closing. The occurrence of the Second Closing
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is expressly contingent on (i) the truth and accuracy, on the Second
Closing Date of the representations and warranties of the Company and
Purchaser contained in this Agreement, (ii) continued compliance with the
covenants of the Company set forth in this Agreement, (iii) the
non-occurrence of any Redemption Event (as defined in the Preferred Stock)
or other default by the Company of its obligations and undertakings
contained in this Agreement, and (iv) the delivery on the Second Closing
Date of Second Closing Preferred Stock for which the Common Stock issuable
upon conversion has been included in the Registration Statement.
(c) Second Closing Deliveries. On the Second Closing Date, the Company
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will deliver the Second Closing Preferred Stock to the Escrow Agent and
each Purchaser will deliver his portion of the respective Purchase Price to
the Escrow Agent. On the Second Closing Date, the Company will deliver a
certificate ("SECOND CLOSING CERTIFICATE") signed by its chief executive
officer or chief financial officer (i) representing the truth and accuracy
of all the representations and warranties made by the Company contained in
this Agreement, as of the Initial Closing Date, and the Second Closing
Date, as if such representations and warranties were made and given on all
such dates, (ii) adopting the covenants and conditions set forth in
Sections 10, 11, 12, and 13 of this Agreement in relation to the Second
Closing Preferred Stock, (iii) representing the timely compliance by the
Company with the Company's registration requirements set forth in Section
12 of this Agreement, and (iv) certifying that a Redemption Event has not
occurred. A legal opinion nearly identical to the legal opinion referred to
in Section 7 of this Agreement shall be delivered to each Purchaser at the
Second Closing in relation to the Company and Second Closing Preferred
Stock ("SECOND CLOSING LEGAL OPINION"). The Second Closing Legal Opinion
must also state that all of the Registrable Securities have been included
for registration in a registration statement filed with the Commission as
of the Second Closing Date.
3. Third Closing.
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(a) Third Closing. The closing date in relation to the Third Closing
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Purchase Price shall be the fifth (5th) business day after the actual
effectiveness ("Actual Effective Date") of the Registration Statement as
defined in Section 12.1(iv) of this Agreement (the "THIRD CLOSING DATE").
Subject to the satisfaction or waiver of the terms and conditions of this
Agreement on the Third Closing Date, each Purchaser shall purchase and the
Company shall sell to each Purchaser Preferred Stock in the principal
amount designated on the signature page hereto ("THIRD CLOSING PREFERRED
STOCK"). The aggregate Purchase Price of the Third Closing Preferred Stock
for all Purchasers shall be equal to the Third Closing Purchase Price. The
Third Closing Preferred Stock shall be identical to the Preferred Stock
issuable on the Initial Closing Date except that the Conversion Price
(defined in the Preferred Stock Certificate of Designations) shall be
equitably adjusted to offset the effect of stock splits, stock dividends,
pro rata distributions of property or equity interests to the Company's
shareholders after the Initial Closing Date.
(b) Conditions to Third Closing. The occurrence of the Third Closing
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is expressly contingent on (i) the truth and accuracy, on the Effective
Date, Actual Effective Date and the Third Closing Date of the
representations and warranties of the Company and Purchaser contained in
this Agreement, (ii) continued compliance with the covenants of the Company
set forth in this Agreement, (iii) the non-occurrence of any Redemption
Event (as defined in the Preferred Stock) or other default by the Company
of its obligations and undertakings contained in this Agreement, and (iv)
the delivery on the Third Closing Date of Third Closing Preferred Stock for
which the Common Stock issuable upon conversion has been included in the
Registration Statement, which must be effective as of the Third Closing
Date.
(c) Third Closing Deliveries. On the Third Closing Date, the Company
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will deliver the Third Closing Preferred Stock to the Escrow Agent and each
Purchaser will deliver his portion of the respective Purchase Price to the
Escrow Agent. On the Third Closing Date, the Company will deliver a
certificate ("THIRD CLOSING CERTIFICATE") signed by its chief executive
officer or chief financial officer (i) representing the truth and accuracy
of all the representations and warranties made by the Company contained in
this Agreement, as of the Initial Closing Date, the Second Closing Date,
the Actual Effective Date, and the Third Closing Date, as if such
representations and warranties were made and given on all such dates, (ii)
adopting the covenants and conditions set forth in Sections 10, 11, 12, and
13 of this Agreement in relation to the Third Closing Preferred Stock,
(iii) representing the timely compliance by the Company with the Company's
registration requirements set forth in Section 12 of this Agreement, and
(iv) certifying that a Redemption Event has not occurred. A legal opinion
nearly identical to the legal opinion referred to in Section 7 of this
Agreement shall be delivered to each Purchaser at the Third Closing in
relation to the Company and Third Closing Preferred Stock ("THIRD CLOSING
LEGAL OPINION"). The Third Closing Legal Opinion must also state that all
of the Registrable Securities have been included for registration in an
effective registration statement effective as of the Actual Effective Date
and Third Closing Date.
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4. Fourth Closing.
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(a) Fourth Closing. The closing date in relation to the Fourth Closing
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Purchase Price shall be the thirtieth (30th) business day after the Actual
Effective Date (the "FOURTH CLOSING DATE"). Subject to the satisfaction or
waiver of the terms and conditions of this Agreement on the Fourth Closing
Date, each Purchaser shall purchase and the Company shall sell to each
Purchaser, Preferred Stock in the principal amount designated on the
signature page hereto ("FOURTH CLOSING PREFERRED STOCK"). The aggregate
Purchase Price of the Fourth Closing Preferred Stock for all Purchasers
shall be equal to the Fourth Closing Purchase Price. The Fourth Closing
Preferred Stock shall be identical to the Preferred Stock issuable on the
Initial Closing Date except that the Conversion Price (defined in the
Preferred Stock Certificate of Designations) shall be equitably adjusted to
offset the effect of stock splits, stock dividends, pro rata distributions
of property or equity interests to the Company's shareholders after the
Initial Closing Date.
(b) Conditions to Fourth Closing. The occurrence of the Fourth Closing
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is expressly contingent on (i) the truth and accuracy, on the Effective
Date, Actual Effective Date and the Fourth Closing Date of the
representations and warranties of the Company and Purchaser contained in
this Agreement, (ii) continued compliance with the covenants of the Company
set forth in this Agreement, (iii) the non-occurrence of any Redemption
Event (as defined in the Preferred Stock) or other default by the Company
of its obligations and undertakings contained in this Agreement, and (iv)
the delivery on the Fourth Closing Date of Fourth Closing Preferred Stock
for which the Common Stock issuable upon conversion has been included in
the Registration Statement, which must be effective as of the Fourth
Closing Date.
(c) Fourth Closing Deliveries. On the Fourth Closing Date, the Company
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will deliver the Fourth Closing Preferred Stock to the Escrow Agent and
each Purchaser will deliver his portion of the respective Purchase Price to
the Escrow Agent. On the Fourth Closing Date, the Company will deliver a
certificate ("FOURTH CLOSING CERTIFICATE") signed by its chief executive
officer or chief financial officer (i) representing the truth and accuracy
of all the representations and warranties made by the Company contained in
this Agreement, as of the Initial Closing Date, the Second Closing Date,
the Actual Effective Date, and the Fourth Closing Date, as if such
representations and warranties were made and given on all such dates, (ii)
adopting the covenants and conditions set forth in Sections 10, 11, 12, and
13 of this Agreement in relation to the Fourth Closing Preferred Stock,
(iii) representing the timely compliance by the Company with the Company's
registration requirements set forth in Section 12 of this Agreement, and
(iv) certifying that a Redemption Event has not occurred. A legal opinion
nearly identical to the legal opinion referred to in Section 7 of this
Agreement shall be delivered to each Purchaser at the Fourth Closing in
relation to the Company and Fourth Closing Preferred Stock ("FOURTH CLOSING
LEGAL OPINION"). The Fourth Closing Legal Opinion must also state that all
of the Registrable Securities have been included for registration in an
effective registration statement effective as of the Actual Effective Date
and Fourth Closing Date.
5. Purchaser's Representations and Warranties. Each Purchaser hereby
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represents and warrants to and agrees with the Company only as to such Purchaser
that:
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(a) Information. The Purchaser and its advisors, if any, have been,
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and for so long as the Preferred Stock remain outstanding will continue to
be, 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 the Purchaser or its advisors.
The Purchaser and its advisors, if any, have been, and for so long as the
Preferred Stock remains outstanding will continue to be, afforded the
opportunity to ask questions of the Company. Notwithstanding the foregoing,
the Company has not disclosed to the Purchaser any material nonpublic
information and will not disclose such information unless such information
is disclosed to the public prior to or promptly following such disclosure
to the Purchaser. Neither such inquiries nor any other due diligence
investigation conducted by Purchaser or any of its advisors or
representatives shall modify, amend or affect Purchaser's right to rely on
the Company's representations and warranties contained in Section 6 below.
The Purchaser understands that its investment in the Securities involves a
significant degree of risk.
(b) Accredited Investor Status. The Purchaser is, and will be at the
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time of the conversion of the Preferred Stock, an "accredited investor", as
such term is defined in Rule 501(a)(3) of Regulation D promulgated by the
Commission under the 1933 Act, is experienced in investments and business
matters, has made investments of a speculative nature and has purchased
securities of United States publicly-owned companies in private placements
in the past and, with its representatives, has such knowledge and
experience in financial, tax and other business matters as to enable the
Purchaser to utilize the information made available by the Company to
evaluate the merits and risks of and to make an informed investment
decision with respect to the proposed purchase, which represents a
speculative investment. The Purchaser has the authority and is duly and
legally qualified to purchase and own the Securities. The Purchaser is able
to bear the risk of such investment for an indefinite period and to afford
a complete loss thereof. The information set forth on the signature page
hereto regarding the Purchaser is accurate.
(c) Investment Intent. On each Closing Date, the Purchaser will
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purchase the Preferred Stock as principal for its own account for
investment only and not with a view toward, or for resale in connection
with, the public sale or any distribution thereof.
(d) U.S. Persons. The Purchaser is not a U.S. Person as defined in
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Commission Rule 902(k).
(e) Category 3 Securities. The Purchaser has complied with all of the
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conditions required of it by Commission Rule 903(b)(3) to be complied with
by it in connection with the transactions contemplated by this Agreement.
(f) Compliance with Securities Act. The Purchaser understands and
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agrees that the Securities have not been registered under the 1933 Act or
any applicable state securities laws, by reason of their issuance in a
transaction that does not require registration under the 1933 Act (based in
part on the accuracy of the representations and warranties of Purchaser
contained herein), and that such Securities must be held indefinitely
unless a subsequent disposition is registered under the 1933 Act or any
applicable state securities laws or is exempt from such registration.
(g) Preferred Stock Legend. The Preferred Stock shall bear the
following legend:
"THIS PREFERRED STOCK AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
THIS PREFERRED STOCK HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THIS PREFERRED STOCK AND THE COMMON SHARES ISSUABLE UPON
CONVERSION OF THIS PREFERRED STOCK MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS PREFERRED STOCK UNDER SAID ACT OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO PATHOGENICS, INC. THAT SUCH REGISTRATION
IS NOT REQUIRED."
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(h) Communication of Offer. The offer to sell the Securities was
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directly communicated to the Purchaser by the Company. At no time was the
Purchaser presented with or solicited by any leaflet, newspaper or magazine
article, radio or television advertisement, or any other form of general
advertising or solicited or invited to attend a promotional meeting
otherwise than in connection and concurrently with such communicated offer.
(i) Authority; Enforceability. This Agreement and other agreements
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delivered together with this Agreement or in connection herewith have been
duly authorized, executed and delivered by the Purchaser and are valid and
binding agreements enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors'
rights generally and to general principles of equity; and Purchaser has
full corporate power and authority necessary to enter into this Agreement
and such other agreements and to perform its obligations hereunder and
under all other agreements entered into by the Purchaser relating hereto.
(j) Restricted Securities. Purchaser understands that the Securities
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have not been registered under the 1933 Act and such Purchaser will not
sell, offer to sell, assign, pledge, hypothecate or otherwise transfer any
of the Securities unless (i) pursuant to an effective registration
statement under the 1933 Act, (ii) such Purchaser provides the Company with
an opinion of counsel, in a form reasonably acceptable to the Company, to
the effect that a sale, assignment or transfer of the Securities may be
made without registration under the 1933 Act, or (iii) Purchaser provides
the Company with reasonable assurances (in the form of seller and broker
representation letters) that the Common Stock can be sold pursuant to (A)
Rule 144(b) promulgated under the 1933 Act, or (B) Rule 144(k) promulgated
under the 1933 Act, in each case following the applicable holding period
set forth therein. Notwithstanding anything to the contrary contained in
this Agreement, such Purchaser may transfer (without restriction and
without the need for an opinion of counsel) the Securities to its
Affiliates (as defined below) provided that each such Affiliate is an
"accredited investor" under Regulation D and such Affiliate agrees to be
bound by the terms and conditions of this Agreement.
For the purposes of this Agreement, an "Affiliate" of any person or
entity means any other person or entity directly or indirectly controlling,
controlled by or under direct or indirect common control with such person
or entity. For purposes of this definition, "control" means the power to
direct the management and policies of such person or firm, directly or
indirectly, whether through the ownership of voting securities, by contract
or otherwise.
(k) No Governmental Review. Each Purchaser understands that no United
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States federal or state agency or any other governmental or state agency
has passed on or made recommendations or endorsement of the Securities or
the suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
(l) No Prior Short Selling. Each Purchaser represents and warrants to
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the Company that as of the date the Purchaser became aware of the offering
of the Securities, such Purchaser and such Purchaser's Affiliates have not,
directly or indirectly had any (i) "short" position (as such term is
employed in Rule 3b-3 of the Securities and Exchange Act of 1934) in the
Common Stock, or (ii) a hedged position which would establish a net short
position with respect to the Common Stock.
(m) Correctness of Representations. Each Purchaser represents as to
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such Purchaser that the foregoing representations and warranties are true
and correct as of the date hereof and, unless a Purchaser otherwise
notifies the Company prior to each Closing Date shall be true and correct
as of each Closing Date.
(n) Survival. The foregoing representations and warranties shall
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survive the Fourth Closing Date for a period of two years.
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6. Company Representations and Warranties. The Company represents and
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warrants to and agrees with each Purchaser that:
(a) Due Incorporation. The Company and each of its subsidiaries is a
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corporation duly organized, validly existing and in good standing under the
laws of the respective jurisdictions of their incorporation and have the
requisite corporate power to own their properties and to carry on their
business as now being conducted. The Company and each of its subsidiaries
is duly qualified as a foreign corporation to do business and is in good
standing in each jurisdiction where the nature of the business conducted or
property owned by it makes such qualification necessary, other than those
jurisdictions in which the failure to so qualify would not have a Material
Adverse Effect. For purpose of this Agreement, a "material adverse effect"
shall mean a material adverse effect on the financial condition, results of
operations, properties or business of the Company taken as a whole.
(b) Outstanding Stock. All issued and outstanding shares of capital
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stock of the Company and each of its subsidiaries have been duly authorized
and validly issued and are fully paid and non-assessable.
(c) Authority; Enforceability. This Agreement, the Preferred Stock,
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the Escrow Agreement and any other agreements delivered together with this
Agreement or in connection herewith (collectively "Transaction Documents")
have been duly authorized, executed and delivered by the Company and are
valid and binding agreements enforceable in accordance with their terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights generally and to general principles of equity.
The Company has full corporate power and authority necessary to enter into
and deliver the Transaction Documents and to perform its obligations
thereunder.
(d) Additional Issuances. There are no outstanding agreements or
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preemptive or similar rights affecting the Company's common stock or equity
and no outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, or agreements or understandings with
respect to the sale or issuance of any shares of common stock or equity of
the Company or other equity interest in any of the subsidiaries of the
Company except as described on SCHEDULE 6(D).
(e) Consents. No consent, approval, authorization or order of any
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court, governmental agency or body, arbitrator or stock exchange having
jurisdiction over the Company, or any of its Affiliates, the OTC Bulletin
Board(R) nor the Company's shareholders is required for the execution by
the Company of the Transaction Documents and compliance and performance by
the Company of its obligations under the Transaction Documents, including,
without limitation, the issuance and sale of the Securities.
(f) No Violation or Conflict. Assuming the representations and
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warranties of the Purchasers in Section 5 are true and correct, neither the
issuance and sale of the Securities nor the performance of the Company's
obligations under this Agreement and all other agreements entered into by
the Company relating thereto by the Company will:
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(i) violate, conflict with, result in a breach of, or constitute
a default (or an event which with the giving of notice or the lapse of
time or both would be reasonably likely to constitute a default) under
(A) the articles or certificate of incorporation, charter or bylaws of
the Company, (B) to the Company's knowledge, any decree, judgment,
order, law, treaty, rule, regulation or determination applicable to
the Company of any court, governmental agency or body, or arbitrator
having jurisdiction over the Company or any of its subsidiaries or
over the properties or assets of the Company or any of its Affiliates,
(C) the terms of any bond, debenture, note or any other evidence of
indebtedness, or any agreement, stock option or other similar plan,
indenture, lease, mortgage, deed of trust or other instrument to which
the Company or any of its Affiliates or subsidiaries is a party, by
which the Company or any of its Affiliates or subsidiaries is bound,
or to which any of the properties of the Company or any of its
Affiliates or subsidiaries is subject, or (D) the terms of any
"lock-up" or similar provision of any underwriting or similar
agreement to which the Company, or any of its Affiliates or
subsidiaries is a party except the violation, conflict, breach, or
default of which would not have a Material Adverse Effect on the
Company; or
(ii) result in the creation or imposition of any lien, charge or
encumbrance upon the Securities or any of the assets of the Company,
its subsidiaries or any of its Affiliates; or
(iii) result in the activation of any anti-dilution rights or a
reset or repricing of any debt or security instrument of any other
creditor or equity holder of the Company, nor result in the
acceleration of the due date of any obligation of the Company; or
(iv) result in the activation of any piggy-back registration
rights of any person or entity holding securities of the Company or
having the right to receive securities of the Company.
(g) The Securities. The Securities upon issuance:
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(i) are, or will be, free and clear of any security interests,
liens, claims or other encumbrances, subject to restrictions upon
transfer under the 1933 Act and any applicable state securities laws;
(ii) have been, or will be, duly and validly authorized and on
the date of conversion of the Preferred Stock and the Common Stock
will be duly and validly issued, fully paid and non-assessable (and if
registered pursuant to the 1933 Act, and resold pursuant to an
effective registration statement will be unrestricted and freely
salable by persons who are not Affiliates of the Company, provided
that each selling person complies with the prospectus delivery
requirements of the 1933 Act);
(iii) will not have been issued or sold in violation of any
preemptive or other similar rights of the holders of any securities of
the Company; and (iv) will not subject the holders thereof to personal
liability by reason of being such holders.
(h) Litigation. There is no pending or, to the best knowledge of the
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Company, threatened action, suit, proceeding or investigation before any
court, governmental agency or body, or arbitrator having jurisdiction over
the Company, or any of its Affiliates that would affect the execution by
the Company or the performance by the Company of its obligations under the
Transaction Documents. Except as disclosed in the Registration Statement,
there is no pending or, to the best knowledge of the Company, basis for or
threatened action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over the
Company, or any of its Affiliates which litigation if adversely determined
would have a Material Adverse Effect on the Company.
(i) Reporting Company. The Company is a publicly-held company and, on
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the Actual Effective Date will be subject to reporting obligations pursuant
to Section 13 of the Securities Exchange Act of 1934, as amended (the "1934
Act") and have a class of common shares registered pursuant to Section
12(g) of the 1934 Act.
(j) No Market Manipulation. The Company has not taken, and will not
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take, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or manipulation
of the price of the Common Stock of the Company to facilitate the sale or
resale of the Securities or affect the price at which the Securities may be
issued or resold.
(k) Information Concerning Company. The Registration Statement
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contains all material information relating to the Company and its
operations and financial condition as of their respective dates which
information is required to be disclosed therein. Since the date of the
financial statements included in the Registration Statement, and except as
modified in writing furnished to Purchaser (the "Other Written
Information") or in the Schedules hereto, there has been no material
adverse change in the Company's business, financial condition or affairs
not disclosed in the Registration Statement. The Registration Statement
does not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances when made.
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(l) Stop Transfer. The Preferred Stock will be restricted securities.
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The Company will not issue any stop transfer order or other order impeding
the sale, resale or delivery of any of the Securities, except as may be
required by any applicable federal or state securities laws and unless
contemporaneous notice of such instruction is given to the Purchaser.
(m) Defaults. Except as described on SCHEDULE 6(M), the Company is not
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in violation of its articles of incorporation or bylaws. The Company is (i)
not in default under or in violation of any other material agreement or
instrument to which it is a party or by which it or any of its properties
are bound or affected, which default or violation would have a Material
Adverse Effect on the Company, (ii) not in default with respect to any
order of any court, arbitrator or governmental body or subject to or party
to any order of any court or governmental authority arising out of any
action, suit or proceeding under any statute or other law respecting
antitrust, monopoly, restraint of trade, unfair competition or similar
matters, or (iii) to its knowledge not in violation of any statute, rule or
regulation of any governmental authority which violation would have a
Material Adverse Effect on the Company.
(n) No Integrated Offering. Neither the Company, nor any of its
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Affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers
to buy any security under circumstances that would cause the offer of the
Securities pursuant to this Agreement to be integrated with prior offerings
by the Company for purposes of the 1933 Act or any applicable stockholder
approval provisions, including, without limitation, under the rules and
regulations of the OTC Bulletin Board(R). Nor will the Company or any of
its Affiliates or subsidiaries take any action or steps that would cause
the offer of the Securities to be integrated with other offerings. The
Company will not conduct any offering other than the transactions
contemplated hereby that will be integrated with the offer or issuance of
the Securities.
(o) No General Solicitation. Neither the Company, nor any of its
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Affiliates, nor to its knowledge, any person acting on its or their behalf,
has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the 0000 Xxx) in connection with
the offer or sale of the Preferred Stock.
(p) Listing. The Company intends to qualify its common stock for
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quotation on the OTC Bulletin Board(R). The Company has not received any
oral or written notice that its common stock is not eligible nor will
become ineligible for quotation on the OTC Bulletin Board(R) nor that its
common stock does not meet all requirements for the continuation of such
quotation and the Company satisfies all the requirements for the continued
quotation of its common stock on the OTC Bulletin Board(R).
(q) No Undisclosed Liabilities. The Company has no liabilities or
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obligations which are material, individually or in the aggregate, which are
not disclosed in the Registration Statement and Other Written Information,
other than those incurred in the ordinary course of the Company's
businesses since December 31, 2004 and which, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect
other than as set forth in SCHEDULE 6(Q).
(r) No Undisclosed Events or Circumstances. Since December 31, 2004,
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no event or circumstance has occurred or exists with respect to the Company
or its businesses, properties, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been
so publicly announced or disclosed in the Registration Statement.
8
(s) Capitalization. The authorized and outstanding capital stock of
--------------
the Company as of the date of this Agreement and the Closing Date are set
forth on SCHEDULE 6(S). Except as set forth in the Registration Statement
and Other Written Information and SCHEDULE 6(D), there are no options,
warrants, or rights to subscribe to, securities, rights or obligations
convertible into or exchangeable for or giving any right to subscribe for
any shares of capital stock of the Company. All of the outstanding shares
of Common Stock of the Company have been duly and validly authorized and
issued and are fully paid and non-assessable.
(t) Dilution. The Company's executive officers and directors
--------
understand the nature of the Securities being sold hereby and recognize
that the issuance of the Securities will have a potential dilutive effect
on the equity holdings of other holders of the Company's equity or rights
to receive equity of the Company. The board of directors of the Company has
concluded, in its good faith business judgment, that the issuance of the
Securities is in the best interests of the Company. The Company
specifically acknowledges that its obligation to issue the Common Stock
upon conversion of the Preferred Stock is binding upon the Company and
enforceable regardless of the dilution such issuance may have on the
ownership interests of other shareholders of the Company or parties
entitled to receive equity of the Company.
(u) No Disagreements with Accountants and Lawyers. There are no
---------------------------------------------
disagreements of any kind presently existing, or reasonably anticipated by
the Company to arise, between the Company and the accountants and lawyers
formerly or presently employed by the Company, including but not limited to
disputes or conflicts over payment owed to such accountants and lawyers.
(v) Investment Company. The Company is not an Affiliate of an
------------------
"investment company" within the meaning of the Investment Company Act of
1940, as amended.
(w) Correctness of Representations. The Company represents that the
------------------------------
foregoing representations and warranties are true and correct as of the
date hereof in all material respects, and, unless the Company otherwise
notifies the Purchasers prior to each Closing Date, shall be true and
correct in all material respects as of each Closing Date.
(x) Survival. The foregoing representations and warranties shall
--------
survive the Fourth Closing Date for a period of two years.
7. Exempt Offering. The offer and issuance of the Securities to the
---------------
Purchasers is being made pursuant to the exemption from the registration
provisions of the 1933 Act afforded by Section 4(2), or Section 4(6) and
Regulation S of the 1933 Act and Rule 506 of Regulation D promulgated
thereunder. On the Closing Date, the Company will provide an opinion reasonably
acceptable to Purchaser from the Company's legal counsel opining on the
availability of an exemption from registration under the 1933 Act as it relates
to the offer and issuance of the Securities and other matters reasonably
requested by Purchasers. A form of the legal opinion is annexed hereto as
EXHIBIT C. The Company will provide, at the Company's expense, such other legal
opinions in the future as are reasonably necessary for the issuance and resale
of the Common Stock issuable upon conversion of the Preferred Stock.
8.1. Conversion of Preferred Stock.
-----------------------------
(a) Upon the conversion of Preferred Stock or part thereof, the
Company shall, at its own cost and expense, take all necessary action,
including obtaining and delivering, an opinion of counsel to assure that
the Company's transfer agent shall issue stock certificates in the name of
Purchaser (or its nominee) or such other persons as designated by Purchaser
and in such denominations to be specified at conversion representing the
number of shares of common stock issuable upon such conversion. The Company
warrants that no instructions other than these instructions have been or
will be given to the transfer agent of the Company's Common Stock and that,
unless waived by the Purchaser, the Common Stock will be freely tradable,
and freely transferable, and will not contain a legend restricting the
resale or transferability of the Common Stock provided the Common Stock is
being sold by a person who is not an Affiliate of the Company pursuant to
an effective registration statement covering the Common Stock or are
otherwise exempt from registration.
9
(b) Purchaser will give notice of its decision to exercise its right
to convert the Preferred Stock or part thereof by telecopying an executed
and completed Notice of Conversion (a form of which is annexed as EXHIBIT A
to the Preferred Stock) to the Company via confirmed telecopier
transmission or otherwise pursuant to Section 14(a) of this Agreement. The
Purchaser will not be required to surrender the Preferred Stock until the
Preferred Stock has been fully converted or satisfied. Each date on which a
Notice of Conversion is telecopied to the Company in accordance with the
provisions hereof, shall be deemed a CONVERSION DATE. The Company will
itself or cause the Company's transfer agent to transmit the Company's
Common Stock certificates representing the Common Stock issuable upon
conversion of the Preferred Stock to the Purchaser via express courier for
receipt by such Purchaser within five (5) business days after receipt by
the Company of the Notice of Conversion (such fifth day being the "Delivery
Date"). In the event the Common Stock is electronically transferable, then
delivery of the Common Stock must be made by electronic transfer provided
request for such electronic transfer has been made by the Purchaser. A
certificate representing the balance of the Preferred Stock not so
converted will be provided by the Company to the Purchaser if requested by
Purchaser, provided the Purchaser delivers an original Preferred Stock to
the Company. To the extent that a Purchaser elects not to surrender a
Preferred Stock certificate for reissuance upon partial redemption or
conversion, the Purchaser hereby indemnifies the Company against any and
all loss or damage attributable to a third-party claim in an amount in
excess of the actual amount then due under the Preferred Stock.
(c) The Company understands that a delay in the delivery of the Common
Stock in the form required pursuant to Section 8 hereof, or the Mandatory
Redemption Amount described in Section 8.2 hereof, later than two business
days after the Delivery Date or later than the Mandatory Redemption Payment
Date (as hereinafter defined) could result in economic loss to the
Purchaser. As compensation to the Purchaser for such loss, the Company
agrees to pay (as liquidated damages and not as a penalty) to the Purchaser
for late issuance of Common Stock in the form required pursuant to Section
8 hereof upon Conversion of the Preferred Stock in the amount of $100 per
business day after the Delivery Date for each $10,000 of Preferred Stock
principal amount being converted, of the corresponding Common Stock which
are not timely delivered. The Company shall pay any payments incurred under
this Section in immediately available funds upon demand. Furthermore, in
addition to any other remedies which may be available to the Purchaser, in
the event that the Company fails for any reason to effect delivery of the
Common Stock by the Delivery Date or make payment by the Mandatory
Redemption Payment Date, the Purchaser will be entitled to revoke all or
part of the relevant Notice of Conversion or rescind all or part of the
notice of Mandatory Redemption by delivery of a notice to such effect to
the Company whereupon the Company and the Purchaser shall each be restored
to their respective positions immediately prior to the delivery of such
notice, except that the liquidated damages described above shall be payable
through the date notice of revocation or rescission is given to the
Company.
(d) Nothing contained herein or in any document referred to herein or
delivered in connection herewith shall be deemed to establish or require
the payment of a rate of interest or other charges in excess of the maximum
permitted by applicable law. In the event that the rate of interest or
dividends required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be
credited against amounts owed by the Company to the Purchaser and thus
refunded to the Company.
8.2. Mandatory Redemption at Purchaser's Election. In the event the
--------------------------------------------
Company is prohibited from issuing Common Stock, or fails to timely deliver
Common Stock on a Delivery Date, or upon the occurrence of any other Redemption
Event (as defined in the Preferred Stock or in this Agreement) or for any reason
other than pursuant to the limitations set forth in Section 8.3 hereof, then at
the Purchaser's election, the Company must pay to the Purchaser ten (10)
business days after request by the Purchaser, at the Purchaser's election, a sum
of money determined by (i) multiplying up to the outstanding principal amount of
the Preferred Stock designated by the Purchaser by 130%, or (ii) multiplying the
number of shares of Common Stock otherwise deliverable upon conversion of an
amount of Preferred Stock principal and/or interest designated by the Purchaser
(with the date of giving of such designation being a DEEMED CONVERSION DATE) at
the then Conversion Price that would be in effect on the Deemed Conversion Date
by the highest closing price of the Common Stock on the principal market for the
period commencing on the Deemed Conversion Date until the day prior to the
receipt of the Mandatory Redemption Payment, whichever is greater, together with
accrued but unpaid interest thereon ("MANDATORY REDEMPTION PAYMENT"). The
Mandatory Redemption Payment must be received by the Purchaser on the same date
as the Common Stock otherwise deliverable or within ten (10) business days after
request, whichever is sooner ("MANDATORY REDEMPTION PAYMENT DATE"). Upon receipt
of the Mandatory Redemption Payment, the corresponding Preferred Stock will be
deemed paid and no longer outstanding. Liquidated damages calculated pursuant
to Section 8.1(c) hereof, that have been paid or accrued for the thirty day
period prior to the actual receipt of the Mandatory Redemption Payment by the
Purchaser shall be credited against the Mandatory Redemption Payment.
10
8.3. Maximum Conversion. The Purchaser shall not be entitled to
------------------
convert on a Conversion Date that amount of the Preferred Stock in connection
with that number of shares of Common Stock which would be in excess of the sum
of (i) the number of shares of common stock beneficially owned by the Purchaser
and its Affiliates on a Conversion Date, and (ii) the number of shares of Common
Stock issuable upon the conversion of the Preferred Stock with respect to which
the determination of this provision is being made on a Conversion Date, which
would result in beneficial ownership by the Purchaser and its Affiliates of more
than 9.99% of the outstanding shares of common stock of the Company on such
Conversion Date. For the purposes of the provision to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3
thereunder. Subject to the foregoing, the Purchaser shall not be limited to
aggregate conversions of only 9.99% and aggregate conversions by the Purchaser
may exceed 9.99%. The Purchaser may void the conversion limitation described in
this Section 8.3 upon and effective after 61 days prior written notice to the
Company. The Purchaser may allocate which of the equity of the Company deemed
beneficially owned by the Purchaser shall be included in the 9.99% amount
described above and which shall be allocated to the excess above 9.99%.
8.4. Injunction - Posting of Bond. In the event a Purchaser shall
----------------------------
elect to convert Preferred Stock or part thereof, the Company may not refuse
conversion or exercise based on any claim that such Purchaser or any one
associated or affiliated with such Purchaser has been engaged in any violation
of law, or for any other reason, unless, an injunction from a court, on notice,
restraining and or enjoining conversion of all or part of said Preferred Stock
shall have been sought and obtained by the Company and the Company has posted a
surety bond for the benefit of such Purchaser in the amount of 130% of the
amount of the Preferred Stock, which is subject to the injunction, which bond
shall remain in effect until the completion of arbitration or litigation of the
dispute and the proceeds of which shall be payable to such Purchaser to the
extent Purchaser obtains judgment.
8.5. Buy-In. In addition to any other rights available to the Purchaser, if
------
the Company fails to deliver to the Purchaser such shares issuable upon
conversion of Preferred Stock by the Delivery Date and if seven (7) business
days after the Delivery Date the Purchaser purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of a
sale by such Purchaser of the Common Stock which the Purchaser was entitled to
receive upon such conversion (a "Buy-In"), then the Company shall pay in cash to
the Purchaser (in addition to any remedies available to or elected by the
Purchaser) the amount by which (A) the Purchaser's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (B) the aggregate principal amount of the Preferred Stock for
which such conversion was not timely honored, together with interest thereon at
a rate of 15% per annum, accruing until such amount and any accrued interest
thereon is paid in full (which amount shall be paid as liquidated damages and
not as a penalty). For example, if the Purchaser purchases shares of Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted conversion of $10,000 of preferred stock principal, the Company
shall be required to pay the Purchaser $1,000, plus interest. The Purchaser
shall provide the Company written notice indicating the amounts payable to the
Purchaser in respect of the Buy-In.
11
8.6 Adjustments. The Conversion Price and amount of Common Stock
-----------
issuable upon conversion of the Preferred Stock shall be equitably adjusted to
offset the effect of stock splits, stock dividends, pro rata distributions of
property or equity interests to the Company's shareholders.
8.7. Redemption. The Company may not redeem or call the Preferred
----------
Stock without the consent of the holder of the Preferred Stock.
9. Finder/Legal Fees.
------------------
(a) Finder's Fee. The Company on the one hand, and each Purchaser (for
------------
himself only) on the other hand, agree to indemnify the other against and
hold the other harmless from any and all liabilities to any persons
claiming brokerage commissions or finder's fees on account of services
purported to have been rendered on behalf of the indemnifying party in
connection with this Agreement or the transactions contemplated hereby and
arising out of such party's actions.
(b) Legal Fees. The Company shall pay to Xxxxx X. Xxxx, Esq., a fee of
----------
$25,000 ("Legal Fees"), for services rendered and to be rendered to the
Company in connection with the Registration Statement defined in Section
12.1(iv) of this Agreement and the purchase and sale of the Preferred Stock
(the "Offering") and acting as Escrow Agent for the Offering. Ten Thousand
Dollars ($10,000) will be payable on the Initial Closing Date and $5,000
shall be payable respectively on the Second, Third and Fourth Closing
Dates. Such portions of the Legal Fees will be payable out of funds held
pursuant to the Escrow Agreement.
10. Covenants of the Company. The Company covenants and agrees with
------------------------
the Purchasers as follows:
(a) Stop Orders. The Company will advise the Purchasers, promptly
-----------
after it receives notice of issuance by the Commission, any state
securities commission or any other regulatory authority of any stop order
or of any order preventing or suspending any offering of any securities of
the Company, or of the suspension of the qualification of the Common Stock
of the Company for offering or sale in any jurisdiction, or the initiation
of any proceeding for any such purpose.
(b) Listing. The Company shall promptly secure the listing of the
-------
shares of Common Stock upon each national securities exchange, or automated
quotation system upon which they are or become eligible for listing
(subject to official notice of issuance) and shall maintain such listing so
long as any Preferred Stock is outstanding. The Company will maintain the
listing of its Common Stock on the American Stock Exchange, Nasdaq
SmallCap(R) Market, Nasdaq National Market System(R), OTC Bulletin
Board(R), or New York Stock Exchange (whichever of the foregoing is at the
time the principal trading exchange or market for the Common Stock (the
"Principal Market")), and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
Principal Market, as applicable. The Company will provide the Purchasers
copies of all notices it receives notifying the Company of the threatened
and actual delisting of the Common Stock from any Principal Market. As of
the date of this Agreement and the Closing Date, the OTC Bulletin Board(R)
is and will be the Principal Market.
(c) Market Regulations. The Company shall notify the Commission, the
------------------
Principal Market and applicable state authorities, in accordance with their
requirements, of the transactions contemplated by this Agreement, and shall
take all other necessary action and proceedings as may be required and
permitted by applicable law, rule and regulation, for the legal and valid
issuance of the Securities to the Purchasers and promptly provide copies
thereof to Purchaser.
12
(d) Reporting Requirements. From the date of this Agreement and until
the sooner of (i) two (2) years after the Fourth Closing Date, or (ii)
until all the Common Stock has been resold or transferred by all the
Purchasers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitation, the Company will (w) cause its Common
Stock to continue to be registered under Section 12(b) or 12(g) of the 1934
Act, (x) comply in all respects with its reporting and filing obligations
under the 1934 Act, (y) comply with all reporting requirements that are
applicable to an issuer with a class of shares registered pursuant to
Section 12(b) or 12(g) of the 1934 Act, as applicable, and (z) comply with
all requirements related to any registration statement filed pursuant to
this Agreement. The Company will use its best efforts not to take any
action or file any document (whether or not permitted by the 1933 Act or
the 1934 Act or the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing
obligations under said acts until two (2) years after the Fourth Closing
Date. Until the earlier of the resale of the Common Stock by each Purchaser
or two (2) years after the Preferred Stock has been converted, the Company
will use its best efforts to continue the listing or quotation of the
Common Stock on the Principal Market or other market with the reasonable
consent of Purchasers holding a majority of the Common Stock, and will
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Principal Market. The Company
agrees to timely file a Form D with respect to the Securities if required
under Regulation D and to provide a copy thereof to each Purchaser promptly
after such filing.
(e) Use of Proceeds. The Company undertakes to use the proceeds of the
---------------
Purchasers' funds for the purposes set forth on SCHEDULE 10(E) hereto.
Except as set forth on SCHEDULE 10(E), the Purchase Price may not and will
not be used for accrued and unpaid officer and director salaries, payment
of financing related debt, redemption of outstanding redeemable notes or
equity instruments of the Company nor non-trade obligations outstanding on
the Closing Date.
(f) Reservation. Prior to the Closing Date, the Company undertakes to
-----------
reserve, pro rata, on behalf of each holder of Preferred Stock, from its
authorized but unissued common stock, a number of common shares equal to
150% of the amount of Common Stock necessary to allow each holder of
Preferred Stock to be able to convert all such outstanding Preferred Stock.
Failure to have sufficient shares reserved pursuant to this Section 9(f)
for three (3) consecutive business days or ten (10) days in the aggregate
shall be a material default of the Company's obligations under this
Agreement.
(g) Taxes. From the date of this Agreement and until the sooner of (i)
-----
two (2) years after the Fourth Closing Date, or (ii) until all the Common
Stock has been resold or transferred by all the Purchasers pursuant to the
Registration Statement or pursuant to Rule 144, without regard to volume
limitations, the Company will promptly pay and discharge, or cause to be
paid and discharged, when due and payable, all lawful taxes, assessments
and governmental charges or levies imposed upon the income, profits,
property or business of the Company; provided, however, that any such tax,
assessment, charge or levy need not be paid if the validity thereof shall
currently be contested in good faith by appropriate proceedings and if the
Company shall have set aside on its books adequate reserves with respect
thereto, and provided, further, that the Company will pay all such taxes,
assessments, charges or levies forthwith upon the commencement of
proceedings to foreclose any lien which may have attached as security
therefore.
(h) Insurance. From the date of this Agreement and until the sooner of
---------
(i) two (2) years after the Fourth Closing Date, or (ii) until all the
Common Stock has been resold or transferred by all the Purchasers pursuant
to the Registration Statement or pursuant to Rule 144, without regard to
volume limitations, the Company will keep its assets which are of an
insurable character insured by financially sound and reputable insurers
against loss or damage by fire, explosion and other risks customarily
insured against by companies in the Company's line of business, in amounts
sufficient to prevent the Company from becoming a co-insurer and not in any
event less than one hundred percent (100%) of the insurable value of the
property insured; and the Company will maintain, with financially sound and
reputable insurers, insurance against other hazards and risks and liability
to persons and property to the extent and in the manner customary for
companies in similar businesses similarly situated and to the extent
available on commercially reasonable terms.
(i) Books and Records. From the date of this Agreement and until the
-----------------
sooner of (i) two (2) years after the Fourth Closing Date, or (ii) until
all the Common Stock has been resold or transferred by all the Purchasers
pursuant to the Registration Statement or pursuant to Rule 144, without
regard to volume limitations, the Company will keep true records and books
of account in which full, true and correct entries will be made of all
dealings or transactions in relation to its business and affairs in
accordance with generally accepted accounting principles applied on a
consistent basis.
13
(j) Governmental Authorities. From the date of this Agreement and
------------------------
until the sooner of (i) two (2) years after the Fourth Closing Date, or
(ii) until all the Common Stock has been resold or transferred by all the
Purchasers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company shall duly observe and
conform in all material respects to all valid requirements of governmental
authorities relating to the conduct of its business or to its properties or
assets.
(k) Intellectual Property. From the date of this Agreement and until
---------------------
the sooner of (i) two (2) years after the Fourth Closing Date, or (ii)
until all the Common Stock has been resold or transferred by all the
Purchasers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company shall maintain in full
force and effect its corporate existence, rights and franchises and all
licenses and other rights to use intellectual property owned or possessed
by it and reasonably deemed to be necessary to the conduct of its business.
(l) Properties. From the date of this Agreement and until the sooner
----------
of (i) two (2) years after the Fourth Closing Date, or (ii) until all the
Common Stock has been resold or transferred by all the Purchasers pursuant
to the Registration Statement or pursuant to Rule 144, without regard to
volume limitation, the Company will keep its properties in good repair,
working order and condition, reasonable wear and tear excepted, and from
time to time make all necessary and proper repairs, renewals, replacements,
additions and improvements thereto; and the Company will at all times
comply with each provision of all leases to which it is a party or under
which it occupies property if the breach of such provision could reasonably
be expected to have a Material Adverse Effect.
(m) Confidentiality/Public Announcement. From the date of this
-----------------------------------
Agreement and until the sooner of (i) two (2) years after the Fourth
Closing Date, or (ii) until all the Common Stock has been resold or
transferred by all the Purchasers pursuant to the Registration Statement or
pursuant to Rule 144, without regard to volume limitations, the Company
agrees that except in connection with a Form 8-K or the Registration
Statement, it will not disclose publicly or privately the identity of the
Purchasers unless expressly agreed to in writing by a Purchaser or only to
the extent required by law and then only upon five days prior notice to
Purchaser. In any event and subject to the foregoing, the Company
undertakes to file a Form 8-K or make a public announcement describing the
Offering not later than the first business day after each Closing Date. In
the Form 8-K or public announcement, the Company will specifically disclose
the amount of common stock outstanding immediately after each Closing.
(n) Further Registration Statements. Except for a registration
-------------------------------
statement filed on behalf of the Purchasers pursuant to Section 12 of this
Agreement or in connection with the securities identified on SCHEDULE 12.1
hereto, the Company will not file any registration statements, including
but not limited to Form S-8, with the Commission or with state regulatory
authorities without the consent of the Purchaser until one hundred and
eighty (180) days after the Actual Effective Date during which such
Registration Statement shall have been current and available for use in
connection with the public resale of the Common Stock ("Exclusion Period").
(o) Blackout. The Company undertakes and covenants that until the
--------
first to occur of (i) the end of the Exclusion Period, or (ii) until all
the Common Stock has been resold pursuant to a registration statement or
Rule 144, the Company will not enter into any acquisition, merger, exchange
or sale or other transaction that could have the effect of delaying the
effectiveness of any pending registration statement or causing an already
effective registration statement to no longer be effective or current for a
period of fifteen (15) or more days.
(p) Non-Public Information. The Company covenants and agrees that
----------------------
neither it nor any other Person acting on its behalf will provide any
Purchaser or its agents or counsel with any information that the Company
believes constitutes material non-public information, unless prior thereto
such Purchaser shall have agreed in writing to receive such information.
The Company understands and confirms that each Purchaser shall be relying
on the foregoing representations in effecting transactions in securities of
the Company.
14
(q) Lockup. The Company will deliver to the Purchasers on or before
------
the Closing Date and enforce the provisions of irrevocable Lockup
Agreements to be entered into by the parties identified on SCHEDULE 10(Q)
hereto in the forms annexed hereto as EXHIBIT E.
11. Covenants of the Company and Purchaser Regarding Indemnification.
----------------------------------------------------------------
(a) The Company agrees to indemnify, hold harmless, reimburse and
defend the Purchasers, the Purchasers' officers, directors, agents,
Affiliates, control persons, and principal shareholders, against any claim,
cost, expense, liability, obligation, loss or damage (including reasonable
legal fees) of any nature, incurred by or imposed upon the Purchaser or any
such person which results, arises out of or is based upon (i) any material
misrepresentation by Company or breach of any warranty by Company in this
Agreement or in any Exhibits or Schedules attached hereto, or other
agreement delivered pursuant hereto; or (ii) after any applicable notice
and/or cure periods, any breach or default in performance by the Company of
any covenant or undertaking to be performed by the Company hereunder, or
any other agreement entered into by the Company and Purchaser relating
hereto.
(b) Each Purchaser agrees to indemnify, hold harmless, reimburse and
defend the Company and each of the Company's officers, directors, agents,
Affiliates, control persons against any claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon the Company or any such person which results,
arises out of or is based upon (i) any material misrepresentation by such
Purchaser in this Agreement or in any Exhibits or Schedules attached
hereto, or other agreement delivered pursuant hereto; or (ii) after any
applicable notice and/or cure periods, any breach or default in performance
by such Purchaser of any covenant or undertaking to be performed by such
Purchaser hereunder, or any other agreement entered into by the Company and
Purchasers, relating hereto.
(c) In no event shall the liability of any Purchaser or permitted
successor hereunder or under any other agreement delivered in connection
herewith be greater in amount than the dollar amount of the net proceeds
actually received by such Purchaser upon the sale of Registrable Securities
(as defined herein).
(d) The procedures set forth in Section 12.6 shall apply to the
indemnification set forth in Sections 11(a) and 11(b) above.
12.1. Registration Rights. The Company hereby grants the following
-------------------
registration rights to holders of the Securities.
15
(i) On one occasion, for a period commencing one hundred and fifty-one
(151) days after the Closing Date, but not later than two (2) years after
the Closing Date ("Request Date"), upon a written request therefor from any
record holder or holders of more than 50% of the Common Stock issued and
issuable upon conversion of the Preferred Stock, the Company shall prepare
and file with the Commission a registration statement under the 1933 Act
registering the Common Stock ("Registrable Securities") which are the
subject of such request for unrestricted public resale by the holder
thereof. For purposes of Sections 12.1(i) and 12.1(ii), Registrable
Securities shall not include Securities which are registered for resale in
an effective registration statement or included for registration in a
pending registration statement, or which have been issued without further
transfer restrictions after a sale or transfer pursuant to Rule 144 under
the 1933 Act. Upon the receipt of such request, the Company shall promptly
give written notice to all other record holders of the Registrable
Securities that such registration statement is to be filed and shall
include in such registration statement Registrable Securities for which it
has received written requests within ten (10) days after the Company gives
such written notice. Such other requesting record holders shall be deemed
to have exercised their demand registration right under this Section
12.1(i).
(ii) If the Company at any time proposes to register any of its
securities under the 1933 Act for sale to the public, whether for its own
account or for the account of other security holders or both, except with
respect to registration statements on Forms S-4 or another form, not
including Form S-8 not available for registering the Registrable Securities
for sale to the public, provided the Registrable Securities are not
otherwise registered for resale by the Purchasers or Holder pursuant to an
effective registration statement, each such time it will give at least
fifteen (15) days' prior written notice to the record holder of the
Registrable Securities of its intention so to do. Upon the written request
of the holder, received by the Company within ten (10) days after the
giving of any such notice by the Company, to register any of the
Registrable Securities not previously registered, the Company will cause
such Registrable Securities as to which registration shall have been so
requested to be included with the securities to be covered by the
registration statement proposed to be filed by the Company, all to the
extent required to permit the sale or other disposition of the Registrable
Securities so registered by the holder of such Registrable Securities (the
"Seller" or "Sellers"). In the event that any registration pursuant to this
Section 12.1(ii) shall be, in whole or in part, an underwritten public
offering of common stock of the Company, the number of shares of
Registrable Securities to be included in such an underwriting may be
reduced by the managing underwriter if and to the extent that the Company
and the underwriter shall reasonably be of the opinion that such inclusion
would adversely affect the marketing of the securities to be sold by the
Company therein; provided, however, that the Company shall notify the
Seller in writing of any such reduction. Notwithstanding the foregoing
provisions, or Section 12.4 hereof, the Company may withdraw or delay or
suffer a delay of any registration statement referred to in this Section
12.1(ii) without thereby incurring any liability to the Seller.
(iii) If, at the time any written request for registration is received
by the Company pursuant to Section 12.1(i), the Company has determined to
proceed with the actual preparation and filing of a registration statement
under the 1933 Act in connection with the proposed offer and sale for cash
of any of its securities for the Company's own account and the Company
actually does file such other registration statement, such written request
shall be deemed to have been given pursuant to Section 12.1(ii) rather than
Section 12.1(i), and the rights of the holders of Registrable Securities
covered by such written request shall be governed by Section 12.1(ii).
(iv) The Company shall file with the Commission not later than thirty
(30) days after the Closing Date (the "Filing Date"), and cause to be
declared effective within one hundred and twenty (120) days after the
Closing Date (the "Effective Date"), a Form SB-2 registration statement
(the "Registration Statement") (or such other form that it is eligible to
use) in order to register the Registrable Securities for resale and
distribution under the 1933 Act. The Company will register not less than a
number of shares of common stock in the aforedescribed registration
statement that is equal to 150% of the Common Stock issuable upon
conversion of the Preferred Stock. The Registrable Securities shall be
reserved and set aside exclusively for the benefit of each Purchaser, pro
rata, and not issued, employed or reserved for anyone other than each such
Purchaser. The Registration Statement will immediately be amended or
additional registration statements will be immediately filed by the Company
as necessary to register additional shares of Common Stock to allow the
public resale of all Common Stock included in and issuable by virtue of the
Registrable Securities. Without the written consent of the Purchaser, no
securities of the Company other than the Registrable Securities will be
included in the Registration Statement except as disclosed on 12.1. It
shall be deemed a Non-Registration Event if at any time after the Actual
Effective Date the Company has registered for unrestricted resale on behalf
of the Purchaser fewer than 125% of the amount of Common Shares issuable
upon full conversion of all sums due under the Preferred Stock.
12.2. Registration Procedures. If and whenever the Company is required
-----------------------
by the provisions of Section 12.1(i), 12.1(ii), or 12.1(iv) to effect the
registration of any Registrable Securities under the 1933 Act, the Company will,
as expeditiously as possible:
(a) subject to the timelines provided in this Agreement, prepare and
file with the Commission a registration statement required by Section 12,
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as herein provided), and
promptly provide to the holders of the Registrable Securities copies of all
filings and Commission letters of comment and notify Purchasers and
Xxxxxxxx & Co, 00 Xxxxxxxx Xxxxxx, Xxxxxx X0X 0XX (by telecopier 011 44 207
355 4975 and by email to XXxxxxxxx@xxxxxxxxxxxxx.xxx) within two (2) hours
of (i) notice that the Commission has no comments or no further comments on
the Registration Statement, and (ii) the declaration of effectiveness of
the registration statement, (failure to timely provide notice as required
by this Section 12.2(a) shall be a material breach of the Company's
obligation and a Redemption Event as defined in the Preferred Stock);
16
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective until such registration statement has been effective
for a period of two (2) years, and comply with the provisions of the 1933
Act with respect to the disposition of all of the Registrable Securities
covered by such registration statement in accordance with the Sellers'
intended method of disposition set forth in such registration statement for
such period;
(c) furnish to the Sellers, at the Company's expense, such number of
copies of the registration statement and the prospectus included therein
(including each preliminary prospectus) as such persons reasonably may
request in order to facilitate the public sale or their disposition of the
securities covered by such registration statement;
(d) use its best efforts to register or qualify the Sellers'
Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Sellers shall
request in writing, provided, however, that the Company shall not for any
such purpose be required to qualify generally to transact business as a
foreign corporation in any jurisdiction where it is not so qualified or to
consent to general service of process in any such jurisdiction;
(e) if applicable, list the Registrable Securities covered by such
registration statement with any securities exchange on which the Common
Stock of the Company is then listed;
(f) immediately notify the Sellers when a prospectus relating thereto
is required to be delivered under the 1933 Act, of the happening of any
event of which the Company has knowledge as a result of which the
prospectus contained in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing; and
(g) provided same would not be in violation of the provision of
Regulation FD under the 1934 Act, make available for inspection by the
Sellers, and any attorney, accountant or other agent retained by the Seller
or underwriter, all publicly available, non-confidential financial and
other records, pertinent corporate documents and properties of the Company,
and cause the Company's officers, directors and employees to supply all
publicly available, non-confidential information reasonably requested by
the seller, attorney, accountant or agent in connection with such
registration statement.
12.3. Provision of Documents. In connection with each registration
----------------------
described in this Section 12, each Seller will furnish to the Company in writing
such information and representation letters with respect to itself and the
proposed distribution by it as reasonably shall be necessary in order to assure
compliance with federal and applicable state securities laws.
17
12.4. Non-Registration Events. The Company and the Purchasers agree
-----------------------
that the Sellers will suffer damages if the Registration Statement is not filed
by the Filing Date and not declared effective by the Commission by the Effective
Date, and any registration statement required under Section 12.1(i) or 12.1(ii)
is not filed within 60 days after written request and declared effective by the
Commission within 120 days after such request, and maintained in the manner and
within the time periods contemplated by Section 12 hereof, and it would not be
feasible to ascertain the extent of such damages with precision. Accordingly, if
(i) the Registration Statement is not filed on or before the Filing Date, (ii)
is not declared effective on or before the sooner of the Effective Date, or
within three (3) business days of receipt by the Company of a written or oral
communication from the Commission that the Registration Statement will not be
reviewed or that the Commission has no further comments, (iii) if the
registration statement described in Sections 12.1(i) or 12.1(ii) is not filed
within 60 days after such written request, or is not declared effective within
120 days after such written request, or (iv) any registration statement
described in Sections 12.1(i), 12.1(ii) or 12.1(iv) is filed and declared
effective but shall thereafter cease to be effective (without being succeeded
within fifteen (15) business days by an effective replacement or amended
registration statement) for a period of time which shall exceed 30 days in the
aggregate per year (defined as a period of 365 days commencing on the date the
Registration Statement is declared effective) or more than 20 consecutive days
(each such event referred to in clauses (i), (ii), (iii) and (iv) of this
Section 12.4 is referred to herein as a "Non-Registration Event"), then the
Company shall deliver to the holder of Registrable Securities, as Liquidated
Damages, an amount equal to one and one-half percent (1.5%) for each thirty days
or part thereof during the initial sixty (60) days of the pendency of such
Non-Registration Event and two percent (2%) for each thirty (30) days or part
thereof, thereafter of the Purchase Price of the Preferred Stock remaining
unconverted and purchase price of Common Stock issued upon conversion of the
Preferred Stock owned of record by such holder which are subject to such
Non-Registration Event. Liquidated Damages accruing pursuant to a
Non-Registration Event described in Section 12.4(ii) which is cured within
thirty (30) days shall be waived, and such Non-Registration Event shall be
deemed not to have occurred. The Company must pay the Liquidated Damages in the
form of shares of Common Stock at the Conversion Price within ten (10) days
after the end of each thirty (30) day period or shorter part thereof for which
Liquidated Damages are payable. In the event a Registration Statement is filed
by the Filing Date but is withdrawn prior to being declared effective by the
Commission, then such Registration Statement will be deemed to have not been
filed.
12.5. Expenses. All expenses incurred by the Company in complying with
--------
Section 12, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including reasonable counsel
fees) incurred in connection with complying with state securities or "blue sky"
laws, fees of the National Association of Securities Dealers, Inc., transfer
taxes, fees of transfer agents and registrars, costs of insurance and fee of one
counsel for all Sellers (in an amount not to exceed $5,000) are called
"Registration Expenses." All underwriting discounts and selling commissions
applicable to the sale of Registrable Securities, including any fees and
disbursements of any additional counsel to the Seller, are called "Selling
Expenses." The Company will pay all Registration Expenses in connection with
the registration statement under Section 12. Selling Expenses in connection
with each registration statement under Section 12 shall be borne by the Seller
and may be apportioned among the Sellers in proportion to the number of shares
sold by the Seller relative to the number of shares sold under such registration
statement or as all Sellers thereunder may agree.
12.6. Indemnification and Contribution.
---------------------------------
(a) In the event of a registration of any Registrable Securities under
the 1933 Act pursuant to Section 12, the Company will, to the extent
permitted by law, indemnify and hold harmless the Seller, each officer of
the Seller, each director of the Seller, each underwriter of such
Registrable Securities thereunder and each other person, if any, who
controls such Seller or underwriter within the meaning of the 1933 Act,
against any losses, claims, damages or liabilities, joint or several, to
which the Seller, or such underwriter or controlling person may become
subject under the 1933 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained in any registration statement under which such Registrable
Securities was registered under the 1933 Act pursuant to Section 12, any
preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading in light of the circumstances when made, and will subject to the
provisions of Section 12.6(c) reimburse the Seller, each such underwriter
and each such controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that the
Company shall not be liable to the Seller to the extent that any such
damages arise out of or are based upon an untrue statement or omission made
in any preliminary prospectus if (i) the Seller failed to send or deliver a
copy of the final prospectus delivered by the Company to the Seller with or
prior to the delivery of written confirmation of the sale by the Seller to
the person asserting the claim from which such damages arise, (ii) the
final prospectus would have corrected such untrue statement or alleged
untrue statement or such omission or alleged omission, or (iii) to the
extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished by any
such Seller, or any such controlling person in writing specifically for use
in such registration statement or prospectus.
18
(b) In the event of a registration of any of the Registrable
Securities under the 1933 Act pursuant to Section 12, each Seller severally
but not jointly will, to the extent permitted by law, indemnify and hold
harmless the Company, and each person, if any, who controls the Company
within the meaning of the 1933 Act, each officer of the Company who signs
the registration statement, each director of the Company, each underwriter
and each person who controls any underwriter within the meaning of the 1933
Act, against all losses, claims, damages or liabilities, joint or several,
to which the Company or such officer, director, underwriter or controlling
person may become subject under the 1933 Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement
under which such Registrable Securities were registered under the 1933 Act
pursuant to Section 12, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of
or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and each
such officer, director, underwriter and controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability or action, provided,
however, that the Seller will be liable hereunder in any such case if and
only to the extent that any such loss, claim, damage or liability arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon and in conformity with
information pertaining to such Seller, as such, furnished in writing to the
Company by such Seller specifically for use in such registration statement
or prospectus, and provided, further, however, that the liability of the
Seller hereunder shall be limited to the net proceeds actually received by
the Seller from the sale of Registrable Securities covered by such
registration statement.
(c) Promptly after receipt by an indemnified party hereunder of notice
of the commencement of any action, such indemnified party shall, if a claim
in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to
notify the indemnifying party shall not relieve it from any liability which
it may have to such indemnified party other than under this Section 12.6(c)
and shall only relieve it from any liability which it may have to such
indemnified party under this Section 12.6(c), except and only if and to the
extent the indemnifying party is prejudiced by such omission. In case any
such action shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate in and, to the extent it shall wish,
to assume and undertake the defense thereof with counsel satisfactory to
such indemnified party, and, after notice from the indemnifying party to
such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such
indemnified party under this Section 12.6(c) for any legal expenses
subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation and of liaison
with counsel so selected, provided, however, that, if the defendants in any
such action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that there may be
reasonable defenses available to it which are different from or additional
to those available to the indemnifying party or if the interests of the
indemnified party reasonably may be deemed to conflict with the interests
of the indemnifying party, the indemnified parties, as a group, shall have
the right to select one separate counsel and to assume such legal defenses
and otherwise to participate in the defense of such action, with the
reasonable expenses and fees of such separate counsel and other expenses
related to such participation to be reimbursed by the indemnifying party as
incurred.
(d) In order to provide for just and equitable contribution in the
event of joint liability under the 1933 Act in any case in which either (i)
a Seller, or any controlling person of a Seller, makes a claim for
indemnification pursuant to this Section 12.6 but it is judicially
determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial
of the last right of appeal) that such indemnification may not be enforced
in such case notwithstanding the fact that this Section 12.6 provides for
indemnification in such case, or (ii) contribution under the 1933 Act may
be required on the part of the Seller or controlling person of the Seller
in circumstances for which indemnification is not provided under this
Section 12.6; then, and in each such case, the Company and the Seller will
contribute to the aggregate losses, claims, damages or liabilities to which
they may be subject (after contribution from others) in such proportion so
that the Seller is responsible only for the portion represented by the
percentage that the public offering price of its securities offered by the
registration statement bears to the public offering price of all securities
offered by such registration statement, provided, however, that, in any
such case, (y) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities sold by it
pursuant to such registration statement; and (z) no person or entity guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
0000 Xxx) will be entitled to contribution from any person or entity who
was not guilty of such fraudulent misrepresentation.
19
12.7. Delivery of Unlegended Common Stock.
------------------------------------
(a) Within five (5) business days (such fifth (5th) business day being
the "Unlegended Common Stock Delivery Date") after the business day on
which the Company has received (i) a notice that Registrable Securities
have been sold either pursuant to the Registration Statement or Rule 144
under the 1933 Act, (ii) a representation that the prospectus delivery
requirements, or the requirements of Rule 144, as applicable, have been
satisfied, and (iii) the original share certificates representing the
shares of Common Stock that have been sold, and (iv) in the case of sales
under Rule 144, customary representation letters of the Purchaser and/or
Purchaser's broker regarding compliance with the requirements of Rule 144,
the Company at its expense, (y) shall deliver, and shall cause legal
counsel selected by the Company to deliver, to its transfer agent (with
copies to Purchaser) an appropriate instruction and opinion of such
counsel, directing the delivery of shares of Common Stock without any
legends including the legend set forth in Section 5(g) above, issuable
pursuant to any effective and current Registration Statement described in
Section 12 of this Agreement or pursuant to Rule 144 under the 1933 Act
(the "Unlegended Common Stock"); and (z) cause the transmission of the
certificates representing the Unlegended Common Stock together with a
legended certificate representing the balance of the unsold shares of
Common Stock, if any, to the Purchaser at the address specified in the
notice of sale, via express courier, by electronic transfer or otherwise on
or before the Unlegended Common Stock Delivery Date. Transfer fees shall be
the responsibility of the Seller.
(b) In lieu of delivering physical certificates representing the
Unlegended Common Stock, if the Company's transfer agent is participating
in the Depository Trust Company ("DTC") Fast Automated Securities Transfer
program, upon request of a Purchaser, so long as the certificates therefor
do not bear a legend and the Purchaser is not obligated to return such
certificate for the placement of a legend thereon, the Company shall cause
its transfer agent to electronically transmit the Unlegended Common Stock
by crediting the account of Purchaser's prime broker with DTC through its
Deposit Withdrawal Agent Commission system. Such delivery must be made on
or before the Unlegended Common Stock Delivery Date.
(c) The Company understands that a delay in the delivery of the
Unlegended Common Stock pursuant to Section 12 hereof later than two
business days after the Unlegended Common Stock Delivery Date could result
in economic loss to a Purchaser. As compensation to a Purchaser for such
loss, the Company agrees to pay late payment fees (as liquidated damages
and not as a penalty) to the Purchaser for late delivery of Unlegended
Common Stock in the amount of $100 per business day after the Delivery Date
for each $10,000 of purchase price of the Unlegended Common Stock subject
to the delivery default. If during any 360 day period, the Company fails to
deliver Unlegended Common Stock as required by this Section 12.7 for an
aggregate of thirty (30) days, then each Purchaser or assignee holding
Securities subject to such default may, at its option, require the Company
to redeem all or any portion of the Preferred Stock subject to such default
at a price per share equal to 130% of the Purchase Price of such Preferred
Stock. The Company shall pay any payments incurred under this Section in
immediately available funds upon demand.
20
(d) In addition to any other rights available to a Purchaser, if the
Company fails to deliver to a Purchaser Unlegended Common Stock as required
pursuant to this Agreement, within seven (7) business days after the
Unlegended Common Stock Delivery Date and the Purchaser purchases (in an
open market transaction or otherwise) shares of common stock to deliver in
satisfaction of a sale by such Purchaser of the shares of Common Stock
which the Purchaser was entitled to receive from the Company (a "Buy-In"),
then the Company shall pay in cash to the Purchaser (in addition to any
remedies available to or elected by the Purchaser) the amount by which (A)
the Purchaser's total purchase price (including brokerage commissions, if
any) for the shares of common stock so purchased exceeds (B) the aggregate
purchase price of the shares of Common Stock delivered to the Company for
reissuance as Unlegended Common Stock, together with interest thereon at a
rate of 15% per annum, accruing until such amount and any accrued interest
thereon is paid in full (which amount shall be paid as liquidated damages
and not as a penalty). For example, if a Purchaser purchases shares of
Common Stock having a total purchase price of $11,000 to cover a Buy-In
with respect to $10,000 of purchase price of shares of Common Stock
delivered to the Company for reissuance as Unlegended Common Stock, the
Company shall be required to pay the Purchaser $1,000, plus interest. The
Purchaser shall provide the Company written notice indicating the amounts
payable to the Purchaser in respect of the Buy-In.
(e) In the event a Purchaser shall request delivery of Unlegended
Common Stock as described in Section 12.7(a) and the Company is required to
deliver such Unlegended Common Stock pursuant to Section 12.7(a), the
Company may not refuse to deliver Unlegended Common Stock based on any
claim that such Purchaser or any one associated or affiliated with such
Purchaser has been engaged in any violation of law, or for any other
reason, unless, an injunction or temporary restraining order from a court,
on notice, restraining and or enjoining delivery of such Unlegended Common
Stock shall have been sought and obtained and the Company has posted a
surety bond for the benefit of such Purchaser in the amount of 130% of the
amount of the aggregate purchase price of the Common Stock which is subject
to the injunction or temporary restraining order, which bond shall remain
in effect until the completion of arbitration/litigation of the dispute and
the proceeds of which shall be payable to such Purchaser to the extent
Purchaser obtains judgment in Purchaser's favor.
13. (a) Prohibited Offerings. Until the Registration Statement has
--------------------
been effective for the public resale of the Common Stock for one hundred and
twenty (120) days, the Company shall not publicly offer or sell its common stock
or other securities or debt obligations without the written consent of the
Purchasers, except (i) as full or partial consideration in connection with any
merger, consolidation or purchase of substantially all of the securities or
assets of any corporation or other entity, or (ii) as has been described in the
Registration Statement or Other Written Information filed with the Commission or
delivered to the Purchasers prior to the Closing Date (collectively "Excepted
Issuances").
(b) Offering Restrictions. From the date of this Agreement and until
---------------------
the end of the Exclusion Period, except in connection with the Excepted
Issuances, or the unsold portion of the Offering, the Company will not enter
into any agreement to, nor issue any equity, convertible debt or other
securities convertible into common stock without the prior written consent of
the Purchasers, which consent may be withheld for any reason.
(c) Favored Nations Provision. Other than the Excepted Issuances, if at any
-------------------------
time Preferred Stock is outstanding, if the Company shall offer, issue or agree
to issue any common stock or securities convertible into or exercisable for
shares of common stock (or modify any of the foregoing which may be outstanding
at any time prior to a Closing Date) to any person or entity at a price per
share or conversion or exercise price per share which shall be less than the
Conversion Price, without the consent of each Purchaser holding Preferred Stock
and/or Common Stock, then the Company shall issue, for each such occasion,
additional shares of Common Stock to each Purchaser so that the average per
share purchase price of the shares of Common Stock issued to the Purchaser (of
only the Common Stock still owned by the Purchaser) is equal to such other lower
price per share and the Conversion Price shall automatically be reduced to such
other lower price per share. The delivery to the Purchaser of the additional
shares of Common Stock shall be not later than the closing date of the
transaction giving rise to the requirement to issue additional shares of Common
Stock. The Purchaser is granted the registration rights described in Section 13
hereof in relation to such additional shares of Common Stock except that the
Filing Date and Effective Date vis- -vis such additional common shares shall be,
respectively, the sixtieth (60th) and one hundred and twentieth (120th) date
after the closing date giving rise to the requirement to issue the additional
shares of Common Stock. For purposes of the issuance and adjustment described
in this paragraph, the issuance of any security of the Company carrying the
right to convert such security into shares of Common Stock or of any warrant,
right or option to purchase Common Stock shall result in the issuance of the
additional shares of Common Stock upon the issuance of such convertible
security, warrant, right or option and again upon any subsequent issuances of
shares of Common Stock upon exercise of such conversion or purchase rights if
such issuance is at a price lower than the then Conversion Price. The rights of
the Purchaser set forth in this Section 13 are in addition to any other rights
the Purchaser has pursuant to this Agreement and any other agreement referred to
or entered into in connection herewith.
21
(d) Maximum Exercise of Rights. In the event the exercise of the rights
--------------------------
described in Section 13(c) would result in the issuance of an amount of common
stock of the Company that would exceed the maximum amount that may be issued to
a Purchaser calculated in the manner described in Section 8.3 of this Agreement,
then the issuance of such additional shares of common stock of the Company to
such Purchaser will be deferred in whole or in part until such time as such
Purchaser is able to beneficially own such common stock without exceeding the
maximum amount set forth calculated in the manner described in Section 8.3 of
this Agreement. The determination of when such common stock may be issued shall
be made by each Purchaser as to only such Purchaser.
14. Miscellaneous.
--------------
(a) Notices. All notices, demands, requests, consents, approvals, and
-------
other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt
requested, postage prepaid, (iii) delivered by reputable air courier
service with charges prepaid, or (iv) transmitted by hand delivery,
telegram, or facsimile, addressed as set forth below or to such other
address as such party shall have specified most recently by written notice.
Any notice or other communication required or permitted to be given
hereunder shall be deemed effective (a) upon hand delivery or delivery by
facsimile, with accurate confirmation generated by the transmitting
facsimile machine, at the address or number designated below (if delivered
on a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice
is to be received) or (b) on the second business day following the date of
mailing by express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first
occur. The addresses for such communications shall be: (i) if to the
Company, to: Pathogenics, Inc., 00 Xxx Xxxxx Xxxx, Xxxxxxxx, Xxxxxxxxxxxxx
00000, Attn: Xxxxxxxx X. Xxxxx, President Chief Executive Officer,
telecopier: (000) 000-0000, with a copy by telecopier only to: Xxxxx X.
Xxxx, Attorney at Law, 0000 Xxxxx Xxxxxxx, Xxxxx XX-00 Xxxxxxx, Xxxxx
00000, telecopier: (000) 000-0000, (ii) if to the Purchasers, to: the one
or more addresses and telecopier numbers indicated on the signature pages
hereto, with an additional copy by telecopier only to: Xxxxxx Xxxxxxxx,
Esq., Xxxxxxxx & Co, 00 Xxxxxxxx Xxxxxx, Xxxxxx X0X 0XX (by telecopier 011
44 207 355 4975 and by email to XXxxxxxxx@xxxxxxxxxxxxx.xxx).
(b) Closing. The consummation of the transactions contemplated herein
-------
shall take place at the offices of Sonfield & Sonfield, 000 Xxxxx Xxxx Xxx
Xxxx, Xxxxxxx, Xxxxx 00000, upon the satisfaction of all conditions to
Closing set forth in this Agreement. Each of the Initial Closing Date,
Second Closing Date, Third Closing Date and Fourth Closing Date is referred
to as a "CLOSING DATE".
(c) Entire Agreement; Assignment. This Agreement and other documents
----------------------------
delivered in connection herewith represent the entire agreement between the
parties hereto with respect to the subject matter hereof and may be amended
only by a writing executed by both parties. Neither the Company nor the
Purchasers have relied on any representations not contained or referred to
in this Agreement and the documents delivered herewith. No right or
obligation of either party shall be assigned by that party without prior
notice to and the written consent of the other party.
(d) Counterparts/Execution. This Agreement may be executed in any
----------------------
number of counterparts and by the different signatories hereto on separate
counterparts, each of which, when so executed, shall be deemed an original,
but all such counterparts shall constitute but one and the same instrument.
This Agreement may be executed by facsimile signature and delivered by
facsimile transmission.
22
(e) Law Governing this Agreement. This Agreement shall be governed by
----------------------------
and construed in accordance with the laws of the State of Delaware without
regard to principles of conflicts of laws. Any action brought by either
party against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of Delaware or in the
federal courts located in the state of Delaware. THE PARTIES AND THE
INDIVIDUALS EXECUTING THIS AGREEMENT AND OTHER AGREEMENTS REFERRED TO
HEREIN OR DELIVERED IN CONNECTION HEREWITH ON BEHALF OF THE COMPANY AGREE
TO SUBMIT TO THE JURISDICTION OF SUCH COURTS AND WAIVE TRIAL BY JURY. The
prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees and costs. In the event that any provision of
this Agreement or any other agreement delivered in connection herewith is
invalid or unenforceable under any applicable statute or rule of law, then
such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability
of any other provision of any agreement.
(f) Specific Enforcement, Consent to Jurisdiction. The Company and
---------------------------------------------
Purchaser acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement
and to enforce specifically the terms and provisions hereof, this being in
addition to any other remedy to which any of them may be entitled by law or
equity. Subject to Section 14(e) hereof, each of the Company, Purchaser and
any signator hereto in his personal capacity hereby waives, and agrees not
to assert in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction in Delaware of such court, that the
suit, action or proceeding is brought in an inconvenient forum or that the
venue of the suit, action or proceeding is improper. Nothing in this
Section shall affect or limit any right to serve process in any other
manner permitted by law.
(g) Independent Nature of Purchasers. The Company acknowledges that
--------------------------------
the obligations of each Purchaser under the Transaction Documents are
several and not joint with the obligations of any other Purchaser, and no
Purchaser shall be responsible in any way for the performance of the
obligations of any other Purchaser under the Transaction Documents. The
Company acknowledges that the decision of each Purchaser to purchase
Securities has been made by such Purchaser independently of any other
Purchaser and independently of any information, materials, statements or
opinions as to the business, affairs, operations, assets, properties,
liabilities, results of operations, condition (financial or otherwise) or
prospects of the Company which may have been made or given by any other
Purchaser or by any agent or employee of any other Purchaser, and no
Purchaser or any of its agents or employees shall have any liability to any
Purchaser (or any other person) relating to or arising from any such
information, materials, statements or opinions. The Company acknowledges
that nothing contained in any Transaction Document, and no action taken by
any Purchaser pursuant hereto or thereto (including, but not limited to,
the (i) inclusion of a Purchaser in the SB-2 Registration Statement and
(ii) review by, and consent to, such Registration Statement by a Purchaser)
shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a
group with respect to such obligations or the transactions contemplated by
the Transaction Documents. The Company acknowledges that each Purchaser
shall be entitled to independently protect and enforce its rights,
including without limitation, the rights arising out of the Transaction
Documents, and it shall not be necessary for any other Purchaser to be
joined as an additional party in any proceeding for such purpose. The
Company acknowledges that it has elected to provide all Purchasers with the
same terms and Transaction Documents for the convenience of the Company and
not because Company was required or requested to do so by the Purchasers.
The Company acknowledges that such procedure with respect to the
Transaction Documents in no way creates a presumption that the Purchasers
are in any way acting in concert or as a group with respect to the
Transaction Documents or the transactions contemplated thereby.
23
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27
SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT
-----------------------------------------------
Please acknowledge your acceptance of the foregoing Securities Purchase
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
PATHOGENICS, INC.
By: /s/ Xxxxxxxx X. Xxxxx
--------------------------------
Xxxxxxxx X. Xxxxx, President Chief Executive Officer
MANILLO INVESTORS, LTD.
By:
--------------------------------------
Xxxxxx Xxxxxx, Authorized Signatory.
ADDRESS: Xxxxxxx Xxxxxxxxxx Xxxxx
X.X. Xxx 000
Xxxx Xxxxxx, Xxxxxxxx Xxxxxx
Nevis, West Indies
AGGREGATE PURCHASE AMOUNT:
First Closing Preferred Stock: $ 9,000 USD
Second Closing Preferred Stock: $ 10,000 USD
Third Closing Preferred Stock: $ 12,000 USD
Fourth Closing Preferred Stock: $ 24,000 USD
============
Aggregate Purchase Price: $ 55,000 USD
BAYSIDE ASSOCIATES, LTD.
By: /s/ X. Xxxxxxxx
--------------------------------------
Xxxxxxxxx Xxxxxxxx, Authorized Signatory
ADDRESS: Xxxxxxx Waterfront Plaza
P.O. Box 556
Main Street, Memorial Square
Nevis, West Indies
AGGREGATE PURCHASE AMOUNT:
First Closing Preferred Stock: $ 9,000 USD
Second Closing Preferred Stock: $ 10,000 USD
Third Closing Preferred Stock: $ 12,000 USD
Fourth Closing Preferred Stock: $ 24,000 USD
============
Aggregate Purchase Price: $ 55,000 USD
Exhibit A - Page 25
CASTLEGATE GROUP, LTD.
By: /s/ Xxxxxx Xxxxxxxx
--------------------------------------
Xxxxxx Xxxxxxxx, Authorized Signatory
ADDRESS: Xxxxx 0000x, Xxxxxxx Xxxxx
00 Xxxxxxx Xxxx
Xxxxxxx, Xxxx Xxxx
AGGREGATE PURCHASE AMOUNT:
First Closing Preferred Stock: $ 9,000 USD
Second Closing Preferred Stock: $ 10,000 USD
Third Closing Preferred Stock: $ 12,000 USD
Fourth Closing Preferred Stock: $ 24,000 USD
============
Aggregate Purchase Price: $ 55,000 USD
KENSINGTON GROUP, LTD.
By: /s/ X. Xxxxxxxx
--------------------------------------
Xxxxx Xxxxxxxx, Authorized Signatory
ADDRESS: Xxxxx 0000x, Xxxxxxx Xxxxx
00 Xxxxxxx Xxxx
Xxxxxxx, Xxxx Xxxx
AGGREGATE PURCHASE AMOUNT:
First Closing Preferred Stock: $ 9,000 USD
Second Closing Preferred Stock: $ 10,000 USD
Third Closing Preferred Stock: $ 12,000 USD
Fourth Closing Preferred Stock: $ 24,000 USD
============
Aggregate Purchase Price: $ 55,000 USD
26
TRUFELLO ASSOCIATES, LTD.
By: /s/ Xxxxxx Xxxxxxxx
--------------------------------------
Xxxxxx Xxxxxxxx, Authorized Signatory
ADDRESS: Xxxxxxx Waterfront Plaza
P.O. Box 556
Main Street, Memorial Square
Nevis, West Indies
AGGREGATE PURCHASE AMOUNT:
First Closing Preferred Stock: $ 9,000 USD
Second Closing Preferred Stock: $ 10,000 USD
Third Closing Preferred Stock: $ 12,000 USD
Fourth Closing Preferred Stock: $ 24,000 USD
============
Aggregate Purchase Price: $ 55,000 USD
27
